Banking - Alexander Dy

BANKING LAW 1 | ATTY.
ALEXANDER DY | SY 2010-2011
NOTES
BANKING LAW I
I. GENERAL CONCEPTS
A. CONCEPT OF BANKING
a. Definition: Banks shall refer to entities engaged in the lending of
funds obtained in the form of deposits (Sec. 3.1, GBL)
b. Elements:
i. Engaged in lending of funds
ii. Obtained in the form of deposits
iii. From the public, which shall mean 20 or more persons
(Sec. 8.2, GBL)
REPUBLIC v SECURITY CREDIT AND ACCEPTANCE CORPORATION, 19
SCRA 58 (1967)
DOCTRINE: A bank is a moneyed institute founded to facilitate the
borrowing, lending and safekeeping of money and to deal in notes, bills of
exchange and credits. An investment company, which lends out the money
of its customers, collects the interest and charges a commission to both
lender and borrower, is a bank.
FACTS
This is a quo warranto proceeding, initiated by the Solicitor General, to
dissolve the Security and Acceptance Corporation for allegedly engaging in
banking operations without the authority required therefor by the General
Banking Act (Republic Act No. 337).
campaign undertaken by the corporation, the same had managed to induce

the public to open 59,463 savings deposit accounts.
ISSUE
Whether the corporation is engaged in banking
RULING
YES. It is clear that these transactions partake of the nature of banking, as
the term is used in Section 2 of the General Banking Act. Indeed, a bank
has been defined as:
... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347,
348] founded to facilitate the borrowing, lending and safe-keeping
of money (Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243,
255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of
exchange, and credits (State vs. Cornings Sav. Bank, 115 N.W. 937,
139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46).
Moreover, it has been held that:
An investment company which loans out the money of its customers,
collects the interest and charges a commission to both lender and borrower,
is a bank. (Western Investment Banking Co. vs. Murray, 56 P. 728, 730,
731; 6 Ariz 215.)
... any person engaged in the business carried on by banks of
deposit, of discount, or of circulation is doing a banking business,
although but one of these functions is exercised. (MacLaren vs.
State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas.
826; 9 C.J.S. 30.)
Security Credit and Acceptance Corporation is a duly registered corporation

with the SEC. Its articles of incorporation authorize it to o engage primarily
in financing agricultural, commercial and industrial projects, and
secondarily, in buying and selling stocks and bonds of any corporation.
Accordingly, defendant-corporation has violated the law by engaging in

banking without securing the administrative authority required in Republic
Act No. 337.
The Superintend of Banks of the Central Bank of the Philippines thru its legal
counsel rendered an opinion that Security Credit and Acceptance
Corporation is a banking institution within the purview of Republic Act No.
337. Central Bank advised the corporation to comply with the requirements
of the General Banking Act.
That the illegal transactions thus undertaken by defendant corporation

warrant its dissolution is apparent from the fact that the foregoing misuser
of the corporate funds and franchise affects the essence of its business, that
it is willful and has been repeated 59,463 times, and that its continuance
inflicts injury upon the public, owing to the number of persons affected
thereby.
Notwithstanding, the corporation, as well as the members of its Board of

Directors and the officers of the corporation, continued performing the
functions and activities which had been declared to constitute illegal banking
operations; the corporation established 74 branches in principal cities and
towns throughout the Philippines; that through a systematic and vigorous
CENTRAL BANK v MORFE, 20 SCRA 507 (1967)

DOCTRINE: 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.
ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

FACTS
First Mutual Savings and Loan Organization (Organization) is a registered
non-stock corporation, whose main purpose is to encourage x x x and
implement savings and thrift among its members, and to extend financial
assistance in the form of loans to them.
In 1962, the Central Bank Legal Department rendered an opinion finding the
Organization as a banking institution, falling within the purview of the
Central Bank Act. Hence, it applied for a search warrant with the Municipal
Court of Manila against the Organization, alleging that it was engaged in
illegal banking activities, by receiving deposits of money for deposit,
disbursement, safekeeping or otherwise or transacts the business of a
savings and mortgage bank and/or building and loan association x x x
without having first complied with the provisions of RA 337.
Judge Cancino issued the warrant applied for there being good and
sufficient reasons to believe that the Organization has under its control the
articles/items subject of the offense complained of. On the same day, the
Organization commenced an action with the CFI of Manila against the
Municipal Court, the sheriff, the Manila Police Department and the Central
Bank to annul the search warrant on the ground that it was issued with
GADLEJ. After due hearing, Judge Morfe (CFI Manila) issued an order in
favor of the Organization.
Accordingly, the Bank moved for reconsideration but was denied and
commenced the present action.
ISSUE
Whether the Organization is a banking institution within the purview of the
Central Bank Act
RULING
YES. The records suggested clearly that the transactions objected to by the
Central Bank constitute the general pattern of the business of the
Organization. Indeed, the main purpose thereof, according to its By-Laws, is
to extend financial assistance, in the form of loans, to its members, with
funds deposited by them.
It is true that such funds are referred to as their savings and that the
depositors thereof are designated as members, but, even a cursory
examination of said documents will readily show that anybody can be a
depositor and thus be participating member. In other words, the
Organization is open to the public for deposit accounts, and the funds so
raised may be lent by the Organization.
Moreover, the power to dispose of said funds is placed under the exclusive
authority of the founding members, and participating members are
NOTES
expressly denied the right to vote or be voted for, their privileges and
benefits being limited to those, which the BoT may in its discretion,
determine from time to time. Thus, the membership of the participating
members is purely nominal in nature. This situation is fraught, precisely,
with the very dangers or evils, which RA 337 seeks to forestall, by exacting
compliance with the requirements of said Act, before the transactions in
question could be undertaken.
BANAS v ASIA PACIFIC FINANCE CORPORATION, 343 SCRA 527
(2000)
DOCTRINE: An investment company refers to any issuer, which is or holds
itself out as being engaged or proposes to engage primarily in the business
of investing, reinvesting or trading in securities. What is prohibited by law is
for investment companies to lend funds obtained from the public through
receipts of deposit, which is a function of banking institutions.
FACTS
Teodoro Banas issued a Promissory Note (P.N.), amounting to 390k payable
in installments, in favor of C. G. Dizon Construction. Later, Dizon
Construction endorsed the P.N to Asia Pacific Finance Corporation, an
investment house. As security for the endorsement, Dizon Construction
made a Chattel Mortgage over 3 heavy equipment units. As additional
security, Cenen Dizon, president of Dizon Construction, executed a
Continuing Undertaking, bounding himself to pay the obligation jointly and
severally.
At first, Dizon Construction complied with the installments. However, it
defaulted in its payment of the remaining installments. Asia Pacific sued
Banas and Dizon Construction for payment of the P.N.. Banas and Dizon
Construction argue that the transaction was never intended to be legal but a
subterfuge to conceal the loan of 390k with usurious interest. They both
claim that Asia Pacific proposed the scheme with them involved because
Asia Pacific could not engage in banking business.
RTC ruled in favor of Asia Pacific. CA affirmed the decision.
ISSUE
Whether the transaction violated banking laws, hence null and void
RULING
NO, it did not violate banking laws.
An investment company refers to any issuer which is or holds itself out as
being engaged or proposes to engage primarily in the business of investing,
reinvesting or trading in securities. securities include commercial papers
evidencing indebtedness of any person, financial or non-financial entity,

irrespective of maturity, issued, endorsed, sold, transferred or in any
manner conveyed to another with or without recourse, such as promissory
notes. The transaction between the two was a purchase of receivables at a
discount and not a loan. Such act is within the purview of the functions of an
investment company.
Moreover, Sec 2 of the General Banking Act provides,
Sec. 2. Only entities duly authorized by the Monetary Board of the
Central Bank may engage in the lending of funds obtained from the
public through the receipt of deposits of any kind, and all entities
regularly conducting such operations shall be considered as banking
institutions and shall be subject to the provisions of this Act, of the
Central Bank Act, and of other pertinent laws
What is prohibited by law is for investment companies to lend funds
obtained from public through receipts of deposit. However, the funds
obtained by Asia Pacific have not been shown to have been obtained from
the public through deposits. Thus, no banking laws were violated.
Upon further inspection of the 3 documents (Promissory Note / Chattel
Mortgage / Continuing Undertaking) , the documents failed to prove the
theory that the transaction was a loan. Petitioners are still liable for the
unpaid balance of the P.N.
B. BANKING DISTINGUISHED FROM QUASI-BANKING

a. Elements of Quasi-Banking: "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
(Sec. 4, Par. 3, GBL)
i. Borrowing of funds for borrowers own account
ii. From 20 or more lenders at any one time
iii. Through issuance, endorsement or assignment with recourse
of acceptance of deposit substitutes (Sec. 95, NCBA)
iv. For purposes of relending or purchasing of receivables and
other obligations
b. Requirement of Separate License: 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.
NOTES
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 quasibanking 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
(Sec. 6, Par. 1-2, GBL)
C. BANKS DISTINGUISHED
INSTITUTIONS
FROM
OTHER
FINANCIAL
a. Investment Houses: Sec. 2-3, PD 129

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).
b. Financing Companies: "Financing companies," hereinafter
called companies, are corporations, or partnerships, except those
regulated by the Central Bank of the Philippines, the Insurance
Commissioner and the Cooperatives Administration Office, which
are primarily organized for the purpose of extending credit
facilities to consumers and to industrial, commercial, or
agricultural enterprises, either by discounting or factoring
NOTES
commercial papers on accounts receivable, or by buying and

selling contracts, leases, chattel mortgages, or other evidences of
indebtedness, or by leasing of motor vehicles, heavy equipment
and industrial machinery, business and office machine and
equipment, appliances and other movable property (Sec. 3(a),
RA 5980, as amended by RA 8556)
g. Pawnshops: "Pawnshop" shall refer to a person or entity

engaged in the business of lending money on personal property
delivered as security for loans and shall be synonymous, and may
be used interchangeably, with pawnbroker or pawnbrokerage
(Sec. 3, PD 114)
FIRST PLANTERS PAWNSHOP, INC. v CIR, 560 SCRA 606 (2008)
c.
d.
Investment Companies: "Investment Company" means any

issuer which is or holds itself out as being engaged primarily, or
proposes to engage primarily, in the business of investing,
reinvesting, or trading in securities(Sec. 4, RA 2629)
Non-Stock Savings and Loans Associations: Non-stock
savings and loan association shall mean a non-stock, non-profit
corporation engaged in the business of accumulating the savings
of its members and using such accumulations for loans to
members to service the needs of households by providing long
term financing for home building and development and for
personal finance (Sec. 3, RA 8367)
e. Cooperatives: A cooperative is a duly registered association of

persons, with a common bond of interest, who have voluntarily
joined together to achieve a lawful common social or economic
end, making equitable contributions to the capital required and
accepting a fair share of the risks and benefits of the undertaking
in accordance with universally accepted cooperative principles
(Art. 3, RA 6938)
A cooperative bank is one organized by the majority shares of
which is owned and controlled by cooperatives primarily to
provide financial and credit services to cooperatives. The term
"cooperative bank" shall include cooperative rural banks (Art.
100, RA 6983)
f.
Insurance Companies: The term "doing an insurance business"

or "transacting an insurance business", within the meaning of this
Code, shall include (a) making or proposing to make, as insurer,
any insurance contract; (b) making or proposing to make, as
surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of
the surety; (c) doing any kind of business, including a
reinsurance business, specifically recognized as constituting the
doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed to evade
the provisions of this Code (Sec. 2, PD 612)
DOCTRINE: A pawnshop's business and operations are governed by

Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation Act and
Central Bank Circular No. 374 (Rules and Regulations for Pawnshops).
Section 3 of P.D. No. 114 defines pawnshop as a person or entity engaged
in the business of lending money on personal property delivered as security
for loans and shall be synonymous, and may be used interchangeably, with
pawnbroker or pawn brokerage.
That pawnshops are to be treated as non-bank financial intermediaries is
further bolstered by the fact that pawnshops are under the regulatory
supervision of the Bangko Sentral ng Pilipinas and covered by its Manual of
Regulations for Non-Bank Financial Institutions.
FACTS
In
a Pre-Assessment Notice, petitioner was informed by the BIR that it has

an existing tax deficiency on its VAT and DST liabilities for the year
2000. The
deficiency
assessment
was
at P541,102.79 for
VAT
and P23,646.33 for DST. Petitioner protested the assessment for lack of
legal and factual bases. Petitioner subsequently received a Formal
Assessment Notice, directing payment of VAT deficiency in the amount
of P541,102.79 and DST deficiency in the amount of P24,747.13, inclusive
of surcharge and interest. Petitioner filed another protest but was denied.
Petitioner then filed a petition for review with the Court of Tax Appeals
(CTA) but it was denied. Petitioner later sought reconsideration from the
CTA En Banc but was still denied thus this case.
First Planters Pawnshop, Inc. (petitioner) contests the deficiency valueadded and documentary stamp taxes imposed upon it by the Bureau of
Internal Revenue (BIR) for the year 2000. The core of petitioner's argument
is that it is not a lending investor within the purview of Section 108(A) of
the National Internal Revenue Code (NIRC), as amended, and therefore not
subject to value-added tax (VAT). Petitioner also contends that a pawn
ticket is not subject to documentary stamp tax (DST) because it is not proof
of the pledge transaction, and even assuming that it is so, still, it is not
subject to tax since a documentary stamp tax is levied on the document
issued and not on the transaction.

ISSUE
Whether Petitioner is liable for the assessed VAT and DST deficiency
RULING
The tax liability shall be based on the tax treatment of pawnshops. The
Court has ruled that they shall be treated as non-bank financial
intermediaries and reasons as follows:
R.A. No. 337, as amended, or the General Banking Act characterizes the
terms banking institution and bank as synonymous and interchangeable and
specifically include commercial banks, savings bank, mortgage banks,
development banks, rural banks, stock savings and loan associations, and
branches and agencies in the Philippines of foreign banks. R.A. No. 8791 or
the General Banking Law of 2000, meanwhile, provided that banks shall
refer to entities engaged in the lending of funds obtained in the form of
deposits. R.A. No. 8791 also included cooperative banks, Islamic banks and
other
banks
as
determined
by
the
Monetary
Board
of
the Bangko Sentral ng Pilipinas in the classification of banks.
Financial intermediaries, on the other hand, are defined as persons or
entities whose principal functions include the lending, investing or
placement of funds or 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.
It need not be elaborated that pawnshops are non-banks/banking
institutions. Moreover, the nature of their business activities partakes that
of a financial intermediary in that its principal function is lending.
A pawnshop's business and operations are governed by Presidential Decree
(P.D.) No. 114 or the Pawnshop Regulation Act and Central Bank Circular
No. 374 (Rules and Regulations for Pawnshops). Section 3 of P.D. No. 114
defines pawnshop as a person or entity engaged in the business of lending
money on personal property delivered as security for loans and shall be
synonymous, and may be used interchangeably, with pawnbroker or pawn
brokerage.
That pawnshops are to be treated as non-bank financial intermediaries is
further bolstered by the fact that pawnshops are under the regulatory
supervision of theBangko Sentral ng Pilipinas and covered by its Manual of
Regulations for Non-Bank Financial Institutions. The Manual includes
pawnshops in the list of non-bank financial intermediaries,
Coming now to the issue at hand - Since petitioner is a non-bank financial
intermediary, it is subject to 10% VAT for the tax years 1996 to
2002; however, with the levy, assessment and collection of VAT from nonbank financial intermediaries being specifically deferred by law,[34] then
NOTES
petitioner is not liable for VAT during these tax years. But with the full
implementation of the VAT system on non-bank financial intermediaries
starting January 1, 2003, petitioner is liable for 10% VAT for said tax
year. And beginning 2004 up to the present, by virtue of R.A. No. 9238,
petitioner is no longer liable for VAT but it is subject to percentage tax on
gross receipts from 0% to 5 %, as the case may be.
Regarding the liability on DST, the court ruled that petitioner is liable for
said tax. The Court has settled this issue in Michel J. Lhuillier Pawnshop,
Inc. v. Commissioner of Internal Revenue, in which it was ruled that the
subject of DST is not limited to the document alone. Pledge, which is an
exercise of a privilege to transfer obligations, rights or properties incident
thereto, is also subject to DST.
In the instant case, there is no law specifically and expressly exempting
pledges entered into by pawnshops from the payment of DST. Section 199
of the NIRC enumerated certain documents, which are not subject to stamp
tax; but a pawnshop ticket is not one of them. Hence, petitioners nebulous
claim that it is not subject to DST is without merit.
D. NATURE OF BANKING BUSINESS

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 (Sec. 2, GBL)
a. Vital Role in Economy
SIMEX INTERNATIONAL (MANILA) INC. v CA, 183 SCRA 360 (1992)
DOCTRINE: 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.
FACTS
Simex was a food exporter that drew stock in the Philippines then sold it
abroad. It deposited 100k in Traders Royal Bank , raising the balance to
P190,380.74, then later issued checks that were suddenly dishonored
California Manufacturing and others issued demand letters for the
dishonored check. Simexs credit line was canceled because of the
dishonored check Traders bank said the deposit of 100k was not credited,
the error was rectified but Simex filed a case against the bank and
demanded reparation for gross and wanton negligence: not met complaint

for 1m moral and 500k exemplary damages + 25% atty. fees and costs
CFI: moral and exemplary damages not called for, but nominal damages
20k plus 5k atty. fees affirmed by CA
ISSUE
Was there Gross negligence in not crediting the deposit?
RULING
YES. Banking system: indispensable institution in modern world; plays vital
role in economic life of every civilized nation. Trusted and active associate
depositor expects bank to treat account with utmost fidelity, must record
each transaction accurately Fiduciary nature of relationship Traders was
remiss in duty 20k moral damages, 50k exemplary (by way of example or
correction for the public good)
Subject to Reasonable Regulation by the State
CENTRAL BANK OF THE PHILIPPINES v CA, 208 SCRA 652 (1992)
DOCTRINE: It is the Governments responsibility to see to it that the
financial interests of those who deal with banks and banking institutions, as
depositors or otherwise, are protectedthis task is delegated to the Central
Bank, which is authorized to administer monetary, banking and credit
system in the Philippines.
FACTS
During the regular examination of the Producers Bank of the Philippines,
Central Bank examiners stumbled upon some highly questionable loans
which had been extended by the PBP management to several entities. Upon
further examination, it was discovered that these loans, totalling
approximately P300 million, were "fictitious" as they were extended, without
collateral, to certain interests related to PBP owners themselves. Said loans
were deemed to be anomalous particularly because the total paid-in capital
of PBP at that time was only P 140.544 million. This means that the entire
paid-in capital of the bank, together with some P160 million of depositors'
money, was utilized by PBP management to fund these unsecured loans.
Several blind items about a family-owned bank in Binondo which granted
fictitious loans to its stockholders appeared in major newspapers. These
news items triggered a bank-run in PBP which resulted in continuous overdrawings on the bank's demand deposit account with the Central Bank.
The Monetary Board (MB), pursuant to its authority under Section 28-A of
R.A. No. 265 and by virtue of MB Board Resolution No. 164, placed PBP
under conservatorship.
The Monetary Board gave PBP several opportunities to submit a viable
rehabilitation plan in order to salvage the bank and lift the conservatorship.
PBP failed to respond to the notices of the Monetary Board, hence the
NOTES
conservatorship was maintained.

Later on, PBP filed an action for damages against CB and MB. The suit
prayed for the lifting of the conservatorship and payment of damages
allegedly suffered by PBP due to the malicious and untimely declaration of
conservatorship. It also prayed for a preliminary injunction /TRO against the
conservatorship. RTC granted the injunction.
ISSUE
Whether the conservatorship was proper
HELD
YES. It must be stressed in this connection that the banking business is
properly subject to reasonable regulation under the police power of the state
because of its nature and relation to the fiscal affairs of the people and the
revenues of the state. 55 Banks are affected with public interest because
they receive funds from the general public in the form of deposits. Due to
the nature of their transactions and functions, a fiduciary relationship is
created between the banking institutions and their depositors. Therefore,
banks are under the obligation to treat with meticulous care and utmost
fidelity the accounts of those who have reposed their trust and confidence in
them.
It is then Government's responsibility to see to it that the financial interests
of those who deal with banks and banking institutions, as depositors or
otherwise, are protected. In this country, that task is delegated to the
Central Bank which, pursuant to its Charter, 57 is authorized to administer
the monetary, banking and credit system of the Philippines. Under both the
1973 and 1987 Constitutions, the Central Bank is tasked with providing
policy direction in the areas of money, banking and credit; corollarily, it shall
have supervision over the operations of banks. 58 Under its charter, the CB
is further authorized to take the necessary steps against any banking
institution if its continued operation would cause prejudice to its depositors,
creditors and the general public as well. This power has been expressly
recognized by this Court. In Philippine Veterans Bank Employees UnionNUBE vs. Philippine Veterans Bank, 59 this Court held that:
. . . 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. The government cannot simply
cross its arms while the assets of a bank are being depleted through
mismanagement or irregularities. It is the duty of the Central Bank
in such an event to step in and salvage the remaining resources of
the bank so that they may not continue to be dissipated or
plundered by those entrusted with their management.

Strikes and Lockouts
The banking industry is hereby declared as indispensable to the national
interest and, not withstanding 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
(Sec. 22, GBL)
When, in his opinion, there exists a labor dispute causing or likely to cause a
strike or lockout in an industry indispensable to the national interest, the
Secretary of Labor and Employment may assume jurisdiction over the
dispute and decide it or certify the same to the Commission for compulsory
arbitration. Such assumption or certification shall have the effect of
automatically enjoining the intended or impending strike or lockout as
specified in the assumption or certification order. If one has already taken
place at the time of assumption or certification, all striking or locked out
employees shall immediately return-to-work and the employer shall
immediately resume operations and readmit all workers under the same
terms and conditions prevailing before the strike or lockout. The Secretary
of Labor and Employment or the Commission may seek the assistance of
law enforcement agencies to ensure compliance with this provision as well
as with such orders as he may issue to enforce the same.
In line with the national concern for and the highest respect accorded to the
right of patients to life and health, strikes and lockouts in hospitals, clinics
and similar medical institutions shall, to every extent possible, be avoided,
and all serious efforts, not only by labor and management but government
as well, be exhausted to substantially minimize, if not prevent, their adverse
effects on such life and health, through the exercise, however legitimate, by
labor of its right to strike and by management to lockout. In labor disputes
adversely affecting the continued operation of such hospitals, clinics or
medical institutions, it shall be the duty of the striking union or locking-out
employer to provide and maintain an effective skeletal workforce of medical
and other health personnel, whose movement and services shall be
unhampered and unrestricted, as are necessary to insure the proper and
adequate protection of the life and health of its patients, most especially
emergency cases, for the duration of the strike or lockout. In such cases,
therefore, the Secretary of Labor and Employment may immediately
assume, within twenty four (24) hours from knowledge of the occurrence of
such a strike or lockout, jurisdiction over the same or certify it to the
Commission for compulsory arbitration. For this purpose, the contending
parties are strictly enjoined to comply with such orders, prohibitions and/or
injunctions as are issued by the Secretary of Labor and Employment or the
Commission, under pain of immediate disciplinary action, including dismissal
NOTES
or loss of employment status or payment by the locking-out employer of

backwages, damages and other affirmative relief, even criminal prosecution
against either or both of them.
The foregoing notwithstanding, the President of the Philippines shall not be
precluded from determining the industries that, in his opinion, are
indispensable to the national interest, and from intervening at any time and
assuming jurisdiction over any such labor dispute in order to settle or
terminate the same (Art. 263 (g), Labor Code)
b. Fiduciary Nature of Banking Business
i. Degree of Diligence Required
SIMEX INTERNATIONAL (MANILA) INC. v CA, 183 SCRA 360 (1992)
DOCTRINE: 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
FACTS
Simex was a food exporter that drew stock in the Philippines then sold it
abroad. It deposited 100k in Traders Royal Bank , raising the balance to
P190,380.74, then later issued checks that were suddenly dishonored
California Manufacturing and others issued demand letters for the
dishonored check. Simexs credit line was canceled because of the
dishonored check Traders bank said the deposit of 100k was not credited,
the error was rectified but Simex filed a case against the bank and
demanded reparation for gross and wanton negligence: not met complaint
for 1m moral and 500k exemplary damages + 25% atty. fees and costs
CFI: moral and exemplary damages not called for, but nominal damages
20k plus 5k atty. fees affirmed by CA
ISSUE
Was there Gross negligence in not crediting the deposit?
RULING
YES. Banking system: indispensable institution in modern world; plays vital
role in economic life of every civilized nation. Trusted and active associate
depositor expects bank to treat account with utmost fidelity, must record
each transaction accurately Fiduciary nature of relationship Traders was
remiss in duty 20k moral damages, 50k exemplary (by way of example or
correction for the public good)

BANK OF THE PHILIPPINE ISLANDS v IAC, 206 SCRA 408 (1992)
DOCTRINE: The is no merit in the argument that a bank should not be
considered negligent, much less held liable for damages on account of the
inadvertence of its bank employees for Article 1173 of the Civil Code only
requires it to exercise the diligence of a good father of the family.
While the banks negligence may not have been attended with malice and
bad faith, nevertheless, it caused serious anxiety, embarrassment and
humiliation to the depositors for which they are entitled to reasonable moral
damages.
FACTS
The spouses Arthur and Vivienne Canlas opened a joint account in CBTC
Q.C. with an initial deposit of P2,250. Before that, Arthur Canlas had an
existing separate personal checking account there.
When they opened this account, the "new accounts" teller of the bank pulled
out from the bank's files the old signature card of Arthur Canlas for use as I
D and reference. By mistake, she placed the old personal account number of
Arthur Canlas on the deposit slip for the new joint checking account of the
spouses so that the initial deposit of P2,250 for the joint checking account
was miscredited to Arthur's personal account. The spouses subsequently
deposited other amounts in their joint account.
When Vivienne Canlas issued a check for Pl,639.89 in April 1977 and
another check for P1,160.00 on June 1, 1977, one of the checks was
dishonored by the bank for insufficient funds and a penalty of P20 was
deducted from the account in both instances. Thereafter, the spouses filed a
case for damages agaisnt the bank for serious anxiety, embarrassment and
humiliation by reason of the dishonor of the checks. The RTC and the IAC
found that the bank had been seriously negligent and awarded damages to
the spouses Canlas.
ISSUE
Whether the mistake of the teller can be considered as serious negligence
entitling the spouses Canlas to an award of damages.
RULING
YES. There is no merit in CBTC's argument that it was only required to
exercise the diligence of a good father of family. The fiduciary nature of the
relationship between a bank and its depositors and the extent of diligence
expected of it in handling the accounts entrusted to its care is a great
responsibility.
"In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos
NOTES
or of millions. The bank must record every single transaction accurately,

down to the last centavo, and as promptly as possible. This has to be done if
the account is to reflect at any given time the amount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver it
as and to whomever he directs. A blunder on the part of the bank, such as
the dishonor of a check without good reason, can cause the depositor not a
little embarrassment if not also financial loss and perhaps even civil and
criminal litigation."
The bank is not expected to be infallible but it must bear the blame for not
discovering the mistake of its teller despite the established procedure
requiring the papers and bank books to pass through a battery of bank
personnel whose duty it is to check and countercheck them for possible
errors. Apparently, the officials and employees tasked to do that did not
perform their duties with due care, as may be gathered from the testimony
of the bank's lone witness, Antonio Enciso, who casually declared that "the
approving officer does not have to see the account numbers and all those
things. Those are very petty things for the approving manager to look into."
Unfortunately, it was a "petty thing," like the incorrect account number that
the bank teller wrote on the initial deposit slip for the newly-opened joint
current account of the Canlas spouses, that sparked this half-a-million-peso
damage suit against the bank.
While the bank's negligence may not have been attended with malice and
bad faith, nevertheless, it caused serious anxiety, embarrassment and
humiliation to the private respondents for which they are entitled to recover
reasonable moral damages.
ii.
When Utmost Diligence Required

1. In dealing with Accounts of Depositors
PHILIPPINE BANKING CORPORATION v CA, 419 SCRA 487 (2004)

DOCTRINE: Sec. 2 of RA 8791 (GBL) expressly imposes a fiduciary duty on
the banks when it declares that the State recognizes the fiduciary nature of
banking that requires high standards of integrity and performance.
The fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor.
FACTS
Florencio Pagsaligan, a close friend and officer of the bank, persuaded
Leonilo Marcos to deposit money with Philippine Banking Corporation
(BANK). Marcos yielded and made a time deposit with the Bank on two
occasions.

Later, Marcos wanted to withdraw from the Bank to buy material for his
construction business. However, the bank convinced him to keep his time
deposit and instead, open several domestic letters of credit. Trusting the
bank and Pagsaligan, he again yielded. Marcos executed 3 Trust Receipt
Agreements totaling 851k. He deposited 30% of the amount of Trust
Agreement as marginal deposit. He believed that the remaining 70% would
be credited from his time deposit and accumulated interest.
However, the bank did not offset his time deposit due to an alleged
promissory note amount to 500k. The Bank demanded for the balance of the
Trust Agreement from him.
Due to failure to pay, several penalties and
interest accumulated against Marcos. Marcos now files a complaint against
the Bank.
In their defense, the bank argues that the complaint was only an attempt to
avoid liability under several trust receipt agreements that were subject of a
criminal complaint.
The RTC ruled in favor of Marcos. The CA modified the decision only by
reducing the damages.
ISSUE
Whether the Bank is liable for damages
RULING
YES, the bank is liable.
The bank is liable on the ground of offsetting Marcoss time deposit with a
fictitious promissory note. The Bank failed to present the original copy of the
note. They only presented machine copies of the duplicate. But these copies
have no evidentiary value, contradicting the Best Evidence Rule.
Sec 2 of the General Banking law of 2000 expressly imposes the fiduciary
duty of on banks. The fiduciary nature of banking requires high standards of
integrity and performance. Although the GBL only took effect in 2000,
jurisprudence has already imposed the same high standard of diligence from
banks at the time the Bank transacted with Marcos. This fiduciary
relationship means that the banks obligation to observe high standards of
integrity is deemed written into every deposit agreement between a bank
and its depositor.
The business of banking is imbued with public interest. The stability of
banks largely depends on the confidence of the people in the honesty and
efficiency of banks. As its depositor, Marcos had the right to expect the bank
was accurately recording his transactions. He also had a right to withdraw
the amount in his time deposit upon maturity. Due to the banks failure to
NOTES
produce the original copies of the promissory note and ledges, it failed to
treat Marcoss account with meticulous care.
Whether it was Pagsaligan who caused such fictitious loan agreement, it will
not excuse the bank from its obligation to return the correct amount to
Marcos. As stated before, 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.
BANK OF THE PHILIPPINE ISLANDS v CASA MONTESSORI
INTERNATIONALE, 430 SCRA 261 (2004)
DOCTRINE: Since the banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence of the public in
general, the highest degree of diligence is expected and high standards of
integrity and performance are even required of it.
FACTS
CASA Montessori International (CASA for brevity) opened a current account
with defendant BPI, with CASAs President Ms. Ma. Carina C. Lebron as one
of its authorized signatories.
In 1991, after conducting an investigation, plaintiff discovered that nine (9)
of its checks had been encashed by a certain Sonny D. Santos since 1990 in
the total amount of P782,000.00
It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch
[was] a fictitious name used by third party defendant Leonardo T. Yabut
who worked as external auditor of CASA. Third party defendant voluntarily
admitted that he forged the signature of Ms. Lebron and encashed the
checks. "The PNP Crime Laboratory conducted an examination of the nine
(9) checks and concluded that the handwritings thereon compared to the
standard signature of Ms. Lebron were not written by the latter
On March 4, 1991, respondent filed the herein Complaint for Collection with
Damages against defendant bank praying that the latter be ordered to
reinstate the amount of P782,500.007 in the current and savings accounts of
the plaintiff with interest at 6% per annum.
CA apportioned the loss between BPI and CASA. The appellate court took
into account CASAs contributory negligence that resulted in the undetected
forgery. It then ordered Leonardo T. Yabut to reimburse BPI half the total
amount claimed; and CASA, the other half. It also disallowed attorneys fees
and moral and exemplary damages.
ISSUE
Were any of the parties negligent and therefore precluded from setting up
forgery as a defense? Whether BPI is liable?

RULING
BPI is solely liable. (skipped the Negotiable Instruments part- it was
established that there was indeed a forgery) xxx Having established the
forgery of the drawers signature, BPI -- the drawee -- erred in making
payments by virtue thereof. The forged signatures are wholly inoperative,
and CASA -- the drawer whose authorized signatures do not appear on the
negotiable instruments -- cannot be held liable thereon. Neither is the latter
precluded from setting up forgery as a real defense.
We have repeatedly emphasized that, since the banking business is
impressed with public interest, of paramount importance thereto is
the trust and confidence of the public in general. Consequently, the
highest degree of diligence is expected, and high standards of
integrity and performance are even required, of it. By the nature of
its functions, a bank is "under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary
BPI contends that it has a signature verification procedure, in which checks
are honored only when the signatures therein are verified to be the same
with or similar to the specimen signatures on the signature cards.
Nonetheless, it still failed to detect the eight instances of forgery. Its
negligence consisted in the omission of that degree of diligence required78 of
a bank. It cannot now feign ignorance, for very early on we have already
ruled that 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."79 In fact, BPI was the same bank involved when we issued this
ruling seventy years ago.
NOTES
10
with IBAA (later merged with PCI) and cleared by CB proceeds

never reached CIR Ford forced to make 2nd payment to CIR which
was received check was a crossed check for payees account only
Ford wrote separate demand letters to the banks - both banks
refused to pay NBI discovered that Godofredo Rivera, General
Ledger Accountant of Ford recalled the check, supposedly because
there was a computation error Rivera instructed PCI Bank to
replace the check with 2 managers checks syndicate members
deposited MCs with Pacific Banking Corp. Rivera could not be
found, fugitive from justice
TC: Both banks liable, IBAA (PCI) should reimburse Citi CA:
only IBAA (PCI) liable
Action #2: Ford drew Citibank checks in 1978 (P5.851m) and
1979 (P6.311m) payable to CIR for percentage taxes both crossed
checks - never reached CIR though receipts were issued,
considered by BIR as fake and spurious Ford paid BIR again
Godofredo Rivera (the legend returns) as Ledger Accountant
prepared the check - delivered it to Remberto Castro, pro-manager
of PCIB San Andres Castro and Dulay, an assistant manager of the
Meralco Branch of PCI, opened a account in the name of a fictitious
Reynaldo Reyes deposited a worthless Bank of America check in
the same amount as the Ford check replaced the worthless check
with the Ford check for clearing Reynaldo Reyes account was
credited with amount same procedure with 2nd check Castro
then distributed checks drawn from Reynaldo Reyes account to
other conspirators RTC held Citibank liable, absolved PCI CA:
affirmed
ISSUE
Were the banks negligent?
2. In Selection and Supervision of Employees

PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK v CA, 350
SCRA 446 (2001)
DOCTRINE: Banks are expected to exercise the highest degree of diligence
in the selection and supervision of their employees. By the very nature of
their work, the degree of responsibility, care and trustworthiness expected
of their employees and officials is far greater than those of ordinary clerks
and employees.
FACTS
Ford Philippines instituted actions against Citibank (drawee bank) and PCI
Bank (collecting bank)
Action #1: Ford drew and issued a Citibank check for P4.7m in
1977 in favor of the CIR for manufacturers sales tax deposited
RULING
YES. The direct perpetrators are fugitives present parties must bear the
burden of loss although employees of Ford initiated the transactions, their
actions are not the proximate cause of encashing the checks BoD of ford
did not confirm Riveras recall of the check PCI neglected to verify
authority of Rivera crossed check is a warning that it should be deposited
only in CIRs account PCI liable for 4.7m check although no conscious
participation, PCI is responsible frauds perpetrated by its officers Citibank
should have scrutinized the checks: no clearing stamps, no initials both
banks negligent in selection and supervision of their employees for 2nd and
3rd check equally liable for the loss by very nature of banking business,
degree of responsibility, care and trustworthiness of bank employees is far
greater than those of ordinary clerks and employees banks are expected
to exercise the highest degree of diligence in the selection and supervision
of employees.
NOTES
11
3. To be Mortgagees in Good Faith

CRUZ v BANCOM FINANCE CORPORATION, 379 SCRA 490 (2002)
DOCTRINE: Mortgagee-banks, unlike private individuals, are expected to
exercise greater care and prudence in their dealings, including those
involving registered lands. A banking institution is expected to exercise due
diligence before entering into a mortgage contract. The ascertainment of the
status or condition of a property offered to it as security for a loan must be
a standard and indispensable part of its operations.
FACTS
Edilberto Cruz and Simplicio Cruz offered to sell their parcel of land to
Norma Sulit. In order to facilitate the sale, the Cruzs executed a deed of
sale in favor of Candelaria Sanchez, but no consideration was paid. On the
same day Candelaria Sanchez conveyed the land to Norma Sulit. Unknown
to the plaintiffs, Norma managed to obtain a loan from Bancom secured by
a mortgage over the land now titled in her name.
Norma defaulted on her obligations to the plaintiffs and later on also
defaulted on her payments with Bancom. The land was foreclosed and
auctioned, Bancom was the highest bidder.
Cruz then filed for reconveyance of the land. While Bancom claimed priority
right over Cruz, alleging it was a mortgagee in good faith.
ISSUE
Whether Bancom is a mortgagee in good faith
HELD
NO. As a general rule, every person dealing with registered land may safely
rely on the correctness of the certificate of title and is no longer required to
look behind the certificate in order to determine the actual owner.
Respondent, however, is not an ordinary mortgagee; it is a mortgageebank. As such, unlike private individuals, it is expected to exercise greater
care and prudence in its dealings, including those involving registered lands.
A banking institution is expected to exercise due diligence before entering
into a mortgage contract. The ascertainment of the status or condition of a
property offered to it as security for a loan must be a standard and
indispensable part of its operations.
In Rural Bank of Compostela v. CA, we held that a bank that failed to
observe due diligence was not a mortgagee in good faith. In the words of
the ponencia:
x x x [T]he rule that persons dealing with registered lands can rely
solely on the certificate of title does not apply to banks.
Banks, indeed, should exercise more care and prudence in dealing

even with registered lands, than private individuals, for their
business is one affected with public interest, keeping in trust money
belonging to their depositors, which they should guard against loss
by not committing any act of negligence which amounts to lack of
good faith by which they would be denied the protective mantle of
the land registration statute, Act [No.] 496, extended only to
purchasers for value and in good faith, as well as to mortgagees of
the same character and description. (Citations omitted)
Recently, in Adriano v. Pangilinan, we said that the due diligence required of
banks extended even to persons regularly engaged in the business of
lending money secured by real estate mortgages.
The evidence before us indicates that respondent bank was not a mortgagee
in good faith. First, at the time the property was mortgaged to it, it failed to
conduct an ocular inspection. Judicial notice is taken of the standard practice
for banks before they approve a loan: to send representatives to the
premises of the land offered as collateral and to investigate the ownership
thereof. As correctly observed by the RTC, respondent, before constituting
the mortgage over the subject property, should have taken into
consideration the following questions:
1) Was the price of P150,000.00 for a 33.9 hectare agricultural
parcel of land not too cheap even in 1978?
2) Why did Candelaria Sanchez sell the property at the same price
of P150,000.00 to Norma Sulit on the same date, June 21, 1978
when she supposedly acquired it from the plaintiffs?
3) Being agricultural land, didnt it occur to the intervenors that
there would be tenants to be compensated or who might pose as
obstacles to the mortgagees exercise of acts of dominion?
4) In an area as big as that property, [why] did they not verify if
there were squatters?
5) What benefits or prospects thereof could the ultimate owner
expect out of the property?
Verily, the foregoing circumstances should have been looked into,
for if either or both companies did, they could have discovered that
possession of the land was neither with Candelaria nor with
Norma.[43]
Respondent was clearly wanting in the observance of the necessary
precautions to ascertain the flaws in the title of Sulit and to examine the

condition of the property she sought to mortgage.[44] It should not have
simply relied on the face of the Certificate of Title to the property, as its
ancillary function of investing funds required a greater degree of
diligence.[45] Considering the substantial loan involved at the time, it
should have exercised more caution.
OMENGAN v PHILIPPINE NATIONAL BANK, 512 SCRA 305 (2007)
DOCTRINE: A mortgagee can rely on what appears on the certificate of title
presented by the mortgagor and an innocent mortgagee is not expected to
conduct an exhaustive investigation on the history of the mortgagors title.
This rule is strictly applied to banking institutions.
Banks should exercise more care and prudence in dealing even with
registered lands, than private individuals, as their business is one affected
with public interest. Thus, the rule that persons dealing with registered
lands can rely solely on the certificate of title does NOT apply to banks.
FACTS
The PNB approved the Omengan's application for a revolving credit line of
P3 million. The loan was secured by two residential lots in the name of
Edgar Omengan. The first P2.5 million was released on three separate
dates. The release of the final half million was, however, withheld by
Montalvo because of a letter allegedly sent by Edgars sisters, praying that
the last half million not be realeased since:
"the property mortgaged, while in the name of Edgar Omengan, is
owned in co-ownership by all the children of the late Roberto and
Elnora Omengan. The lawyer who drafted the document registering
the subject property under Edgars name can attest to this fact. We
had a prior understanding with Edgar in allowing him to make use of
the property as collateral, but he refuses to comply with such
arrangement. Hence, this letter."
Nevertheless, the half million was released.
Subsequently, the Omengans applied for an increase in credit line from 3 to
5 mil. This was approved subject to the condition that Edgars sisters gave
their conformity. But petitioners failed to secure the consent of Edgars
sisters; hence, PNB put on hold the release of the additional P2 million. Still,
Edgar Omengan demanded the release of the P2 million. He claimed that
the condition for its release was not part of his credit line agreement with
PNB because it was added without his consent. PNB denied his request.
Thus the present complaint for breach of contract and damages.
NOTES
12
ISSUE
Whether there was Breach of contract in this case
RULING
NO. In this case, the parties agreed on a P3 million credit line. This sum
was completely released to petitioners who subsequently applied10 for an
increase in their credit line. This was conditionally approved by PNBs credit
committee. For all intents and purposes, petitioners sought an additional
loan.
The condition attached to the increase in credit line requiring petitioners to
acquire the conformity of Edgars sisters was never acknowledged and
accepted by petitioners. Thus, as to the additional loan, no meeting of the
minds actually occurred and no breach of contract could be attributed to
PNB. There was no perfected contract over the increase in credit line.
The business of a bank is one affected with public interest, for which reason
the bank should guard against loss due to negligence or bad faith. In
approving the loan of an applicant, the bank concerns itself with proper
information regarding its debtors. Any investigation previously conducted on
the property offered by petitioners as collateral did not preclude PNB from
considering new information on the same property as security for a
subsequent loan. The credit and property investigation for the original loan
of P3 million did not oblige PNB to grant and release any additional loan. At
the time the original P3 million credit line was approved, the title to the
property appeared to pertain exclusively to petitioners. By the time the
application for an increase was considered, however, PNB already had
reason to suspect petitioners claim of exclusive ownership.
Banks, indeed, should exercise more care and prudence in dealing even with
registered lands, than private individuals, as their business is one affected
with public interest. Thus, this Court clarified that the rule that persons
dealing with registered lands can rely solely on the certificate of title does
not apply to banks.
4. In the custody of documents; Integrity of Records, Security
of Premises
HEIRS OF EDUARDO MANLAPAT v CA, 459 SCRA412 (2005)
DOCTRINE: A mortgagee-bank has no right to deliver to any stranger any
property entrusted to it other than those contractually and legally entitled to
its possession. The act of a bank of allowing complete strangers to take
possession of the owners duplicate certificate even if the purpose is merely
for photocopying constitutes manifest negligence which would hold it liable
for damages under Article 1170 and other relevant provisions of the Civil
Code.

FACTS
Lot 2204 was originally in possession of Jose Alvarez (Eduardos
grandfather). Eduardo Manalapat, Alvarezs successor-in-interest, sold a
portion of it to Ricardo Cruz executing a Kasulatan and Sinumpaang
Salaysay to document it. In 1976, the lot became registered only under the
name of Eduardo Manalapat pursuant to a free patent. The sale of
Manalapat and Cruz was forgotten, as Cruz did not even know an OCT was
already issued to Manalapat.
Leon Banaag, as atty-in-fact of Eduardo, executed a mortgage with Rural
Bank of San Pascual for 100k with Lot 2204 as collateral. Banaag deposited
the owners duplicate OCT with the bank.
However, when the Cruzs heirs learned of such sale, they wanted to secure
the OCT for presentation to the Register of Deeds and for issuance of a
separate OCT. They urged to obtain the OCT from Manalapats heirs but
were denied. Then, they went to the Rural Bank to photocopy the owners
duplicate OCT deposited with the bank. The Rural banks Manager, Jose
Salazar, allowed them to borrow the OCT for photocopying. Ultimately, the
heirs secured a TCT for a portion of the Lot.
When Banaag went to the Rural bank to tender payment of the mortgage,
he learned of the actions of the Cruzs heirs that led to the subdivision of the
lot and the issuance of two separate titles.
3 cases were filed with the trial court, all involving the issuance of the TCT.
RTC ruled in favor of Manalapat. CA reversed and ruled in favor of Cruz and
Rural Bank.
ISSUE
1. Whether the cancellation of the OCT and the splitting into two
separate titles may be accorded legal recognition.
2. Whether the bank is liable for letting the mortgaged document be
borrowed by 3rd persons.
RULING
YES, the two separate titles are valid.
The heirs of Cruz have sufficiently proven their claim of ownership over a
portion of Lot 2204. The fact that the Oct was not registered with their
name is immaterial. Registration is not a requirement for validity of contract
between parties. The principal purpose of registration is merely to notify
other persons that a transaction involving the property has been entered
into. The issuance of the OCT in favor of Manalapat does not disregard the
fact that the Cruz owned a portion of the land. The principle of
indefeasibility of a Torrens title does not apply where fraud attended the
issuance of the title.
NOTES
13
The issuance of the two TCT was valid. The Cruzs heirs presented to the RD
the original owners duplicate of the OCT. aside from that, they presented
the Kasulatan and Sinumpaang Salaysay where Manalapat acknowledge the
sale in favor of Cruz. The manner of obtaining the OCT did not invalidate the
TCT.
The bank is liable for damages. 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. Though they rightfully acknowledged
the ownership of Cruzs heirs, the bank lent the original OCT w/o prior
investigation and did not even notified Manalapats heirs of the transaction.
The bank should not have lent the certificate even only for the purpose of
photocopying it. Such act constitutes manifest negligence on the part of the
bank, which would necessarily hold it liable for damages under Art 1170 and
other relevant provisions of the Civil Code. Thus, the bank is liable for 50k
as nominal damages to Manalapats heirs.
iii.
Applicability to Commercial Transactions Outside of Core

Banking Functions
REYES v CA, 363 SCRA 51 (2001)

DOCTRINE: The same higher degree of diligence is NOT expected to be
exerted by banks in commercial transactions that do not involve their
fiduciary relationship with their depositors.
FACTS
In view of the 20th Asian Racing Conference then scheduled to be held in
September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc.
(PRCI, for brevity) sent four (4) delegates to the said conference. Petitioner
Gregorio H. Reyes, as vice-president for finance, racing manager, treasurer,
and director of PRCI, sent Godofredo Reyes, the club's chief cashier, to the
respondent bank to apply for a foreign exchange demand draft in Australian
dollars.
Godofredo went to respondent bank's Buendia Branch in Makati City to
apply for a demand draft in the amount One Thousand Six Hundred Ten
Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian
Racing Conference Secretariat of Sydney, Australia.
Godofredo asked if there could be a way for respondent bank to
accommodate PRCI's urgent need to remit Australian dollars to Sydney.
Yasis of respondent bank then informed Godofredo of a roundabout way of
effecting the requested remittance to Sydney thus: the respondent bank
would draw a demand draft against Westpac Bank in Sydney, Australia

(Westpac-Sydney for brevity) and have the latter reimburse itself from the
U.S. dollar account of the respondent in Westpac Bank in New York, U.S.A.
(Westpac-New York for brevity). This arrangement has been customarily
resorted to since the 1960's and the procedure has proven to be problemfree. PRCI and the petitioner Gregorio H. Reyes, acting through Godofredo,
agreed to this arrangement or approach in order to effect the urgent
transfer of Australian dollars payable to the Secretariat of the 20th Asian
Racing Conference.
Petitioners later went to Austraila to attend the said racing conference.
Geofredo, together with other delegates, went to the Hotel Regent Sydney
to register only to find out that their demand draft was dishonored. Shortly
after, his wife followed and met the same fate. They were greatly
inconvenienced and embarassed of the incident. Although things eventually
went well, damage was already done.
As soon as the demand draft was dishonored, the respondent bank, thinking
that the problem was with the reimbursement and without any idea that it
was due to miscommunication, re-confirmed the authority of Westpac-New
York to debit its dollar account for the purpose of reimbursing WestpacSydney.Respondent bank also sent two (2) more cable messages to
Westpac-New York inquiring why the demand draft was not honored.
It was later found out that the source of the problem was Westpac-Sydneys
decoding error. (7 was encoded as 1 in the SWIFT message)
They sued the respondent bank for damages for the said incident.
ISSUE
Whether the respondent bank is liable for damages
RULING
NO. There is no basis to hold the respondent bank liable for damages for
the reason that it exerted every effort for the subject foreign exchange
demand draft to be honored. It was in fact due to erroneous decoding on
the part of Westpac-Sydney of the Bank's SWIFT message which led to the
problem.
Also, The peitioners were briefed by a representative of the respondent bank
regarding the porcedure thus they are estopped from the denying the said
procedure.
The petitioners contend that due to the fiduciary nature of the relationship
between the respondent bank and its clients, the respondent should have
exercised a higher degree of diligence than that expected of an ordinary
prudent person in the handling of its affairs as in the case at bar.
NOTES
14
In Philippine Bank of Commerce v. Court of Appeals15 upholding a

long standing doctrine, we ruled that the degree of diligence
required of banks, is more than that of a good father of a
family where the fiduciary nature of their relationship with their
depositors is concerned. In other words banks are duty bound to
treat the deposit accounts of their depositors with the highest
degree of care. But the said ruling applies only to cases where banks
act under their fiduciary capacity, that is, as depositary of the
deposits of their depositors. But the same higher degree of diligence
is not expected to be exerted by banks in commercial transactions
that do not involve their fiduciary relationship with their depositors.
iv.
Applicability to Government Financial Institutions
GSIS v SANTIAGO, 414 SCRA 563 (2003)

Due diligence required of banks extend even to persons, or institutions
regularly engaged in the business of lending money secured by real estate
mortgages, such as government financial institutions. These are likewise
expected to exercise greater care and prudence in its dealings, including
those involving registered land.
v.
Applicability to those Engaged in Lending Money Secured

by Real Estate Mortgages
ADRIANO v PANGILINAN, 373 SCRA 544 (2002)

While it is true that a person dealing with registered lands need not go
beyond the certificate of title, it is likewise a well-settled rule that a
purchaser or mortgagee cannot close his eyes to facts which should put a
reasonable man on his guard, and then claim that he acted in good faith
under the belief that there was no defect in the title of the vendor or
mortgagor.
vi.
Liability for Negligence

1. Applicable Rules on Determination of Negligence
PHILIPPINE BANK OF COMMERCE v CA, 269 SCRA 695 (1997)

DOCTRINE: Negligence is the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the conduct
of human affairs, would do, or the doing of something which a prudent and
reasonable man would do. The seventy-eight (78)-year-old, yet still
relevant, case of Picart v. Smith, provides the test by which to determine
the existence of negligence in a particular case which may be stated as
follows: Did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard supposed to be
NOTES
15
supplied by the imaginary conduct of the discreet paterfamilias of the

Roman law. The existence of negligence in a given case is not determined
by reference to the personal judgment of the actor in the situation before
him. The law considers what would be reckless, blameworthy, or negligent
in the man of ordinary intelligence and prudence and determines liability by
that.
the Solidbank passbook.
FACTS
RMC had account in P; RMC gave funds to secretary to deposit in P!instead
of doing so, secretary deposited funds in name of her husband!modus
operandi: wrote the name of husband and his account number on original
deposit slip, then, on duplicate slip, left name blank but filled in husbands
account number!when teller asked why, she said it was because the 2nd slip
would only be for personal records! when teller approved slip, shed fill in
RMC under the name then change the account number!R filed action for
recovery against P.
Later on, it was discovered that an unauthorized withdrawal of P300,000.00

was made using the lost passbook. LC Diaz demanded from Solidbank the
return of the money. Solidbank solidly refused prompting LC Diaz to file a
recovery suit. RTC absolved Solidbank based on the rules on savings
account which gives presumption that the holder of the passbook is the
owner. CA held Solidbank liable based on negligence and culpa aquiliana.
ISSUE
HELD
YES. The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan.[17] Article 1980 of the Civil
Code expressly provides that x x x savings x x x deposits of money in
banks and similar institutions shall be governed by the provisions
concerning simple loan. There is a debtor-creditor relationship between
the bank and its depositor. The bank is the debtor and the depositor is the
creditor. The depositor lends the bank money and the bank agrees to pay
the depositor on demand. The savings deposit agreement between the
bank and the depositor is the contract that determines the rights and
obligations of the parties.
RULING
1. Negligence = omission to do something that a reasonable man would do!
here, teller negligent in stamping slips w/o asking for name to be put on the
duplicate!bank also negligent in not exercising proper supervision over the
teller (since they didnt know until they conducted an investigation that the
teller was doing that)
2. The negligence of the bank was the proximate cause!since even if the
secretary filled out the slip wrong, she would never have gotten away with it
had the slips not been approved by the teller
3. Bank also liable under last clear chance
4. But, since RMC contributorily negligent, damages reduced
CONSOLIDATED BANK AND TRUST CORPORATION v CA, 410 SCRA
562 (2003)
DOCTRINE: In culpa contractual (negligence), once the plaintiff proves a
breach of contract, there is a presumption that the defendant was at fault or
negligent. The Doctrine of Last Clear Chance is inapplicable in culpa
contractual because neither the contributory negligence of one party (bank)
nor its last chance to avoid the loss would exonerate the other party
(depositor) from liability. Such contributory negligence or last chance
merely serves to reduce the recovery of damages by the plaintiff but does
NOT exculpate the depositor from his breach of contract.
FACTS
LC Diaz, an accounting firm, through its cashier Macaraya, filled up a
deposit slip and a savings deposit slip. Macaraya instructed the messenger,
Calapre to deposit the money with Solidbank. Macaraya also gave Calapre
At the bank, Calapre gave the passbook to the teller and went out to do
another errand. When Calapre returned and asked for the passbook, the
teller told (redundant teller-told) him that somebody got the passbook.
Calapre reported the incident to Macaraya.
ISSUE
Whether Solidbank is liable for the loss
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (RA 8791),[18] which took
effect on 13 June 2000, declares that the State recognizes the fiduciary
nature of banking that requires high standards of integrity and
performance.[19] This new provision in the general banking law,
introduced in 2000, is a statutory affirmation of Supreme Court decisions,
starting with the 1990 case of Simex International v. Court of Appeals,[20]
holding that 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.[21]
This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every
deposit agreement between a bank and its depositor. The fiduciary nature of
banking requires banks to assume a degree of diligence higher than that of
a good father of a family. Article 1172 of the Civil Code states that the
degree of diligence required of an obligor is that prescribed by law or
contract, and absent such stipulation then the diligence of a good father of a
NOTES
16
family.[22] Section 2 of RA 8791 prescribes the statutory diligence required

from banks that banks must observe high standards of integrity and
performance in servicing their depositors. Although RA 8791 took effect
almost nine years after the unauthorized withdrawal of the P300,000 from
L.C. Diazs savings account, jurisprudence[23] at the time of the withdrawal
already imposed on banks the same high standard of diligence required
under RA No. 8791.
Upon inquiry, the Bank of America acknowledged that it was due to an error
and that for some reason, the check had been encoded with the wrong
account number.
However, the fiduciary nature of a bank-depositor relationship does not

convert the contract between the bank and its depositors from a simple loan
to a trust agreement, whether express or implied. Failure by the bank to
pay the depositor is failure to pay a simple loan, and not a breach of
trust.[24] The law simply imposes on the bank a higher standard of integrity
and performance in complying with its obligations under the contract of
simple loan, beyond those required of non-bank debtors under a similar
contract of simple loan.
The check of $500 was actually paid by the Bank of America to First National
City Bank. However, Bank of America claimed that such had been
inadvertently made and returned the check to First National City Bank, with
the request that the amount be credited to Bank of America. In turn, First
National City Bank informed the depositor (Saldana) about the checks
return. However, before Saldana even replied, Bank of America recalled the
check and honored it.
The fiduciary nature of banking does not convert a simple loan into a trust
agreement because banks do not accept deposits to enrich depositors but to
earn money for themselves. The law allows banks to offer the lowest
possible interest rate to depositors while charging the highest possible
interest rate on their own borrowers. The interest spread or differential
belongs to the bank and not to the depositors who are not cestui que trust
of banks. If depositors are cestui que trust of banks, then the interest
spread or income belongs to the depositors, a situation that Congress
certainly did not intend in enacting Section 2 of RA 8791.
2. Award of Actual, Moral, Compensatory
Damages
or Temperate
Months after, Araneta issued 2 checks for $500 and $150 payable to cash
and drawn against Bank of America. When these checks were presented for
payment, they were again dishonored due to a closed account.
Because of these incidents, Araneta, through counsel, sent a letter to the

Bank of America demanding damages in the sum of $20,000. Although it
admitted its responsibility for the inconvenience, the bank claimed that the
damages sought were excessive and instead offered to ay $2,000.
Thus, in 1962, Araneta filed a complaint against the Bank of America for the
recovery of (1) actual damages, (2) moral damages, (3) temperate
damages, (4) exemplary damages, and (5) attorneys fees for an aggregate
total of $120,000.
The trial court awarded all the damages prayed for, but the Court of Appeals
eliminated the award of compensatory and temperate damages, and
reduced the amount of moral damages, exemplary damages, and attorneys
fees.
ARANETA v BANK OF AMERICA, 40 SCRA 144 (1970)

DOCTRINE: The financial credit of a businessman is a prized and valuable
asset, it being a significant part of the foundation of his business. Any
adverse reflection thereon constitutes some material loss to him. In the US,
temperate damages are allowed. There were cases where from the nature of
the case, definite proof of pecuniary loss cannot be offered, although the
court is convinced that there has been such loss.
FACTS
Leopoldo Araneta, a local merchant, issued a check for $500 payable to cash
and drawn against Bank of America (San Francisco branch). At that time, he
had a credit balance of $523.81 in his account. Unfortunately, when it was
received by the bank a day after, it was dishonored due to a closed account.
ISSUE
Whether temperate and moral damages should be awarded to Araneta
RULING
TEMPERATE DAMAGES: YES. The financial credit of a businessman is a
prized and valuable asset, it being a significant part of the foundation of his
business. Any adverse reflection thereon constitutes some material loss to
him. The incidents obviously affected the credit of Araneta with Saldana and
with any other person who would come to know about the refusal of the
defendant to honor said checks.
It cannot hardly be possible that a customers check can be wrongfully
refused payment without some impeachment of his credit, which must in
fact be an actual injury x x x.

In the US, temperate damages are allowed. There were cases where from
the nature of the case, definite proof of pecuniary loss cannot be offered,
although the court is convinced that there has been such loss. For instance,
injury to ones commercial credit or to the goodwill of the business firm is
often hard to show with certainty in terms of money.
MORAL DAMAGES: YES. Under Art. 2217 of the Civil Code, besmirched
reputation is a ground upon which moral damages can be claimed, but the
Court of Appeals did take this element into consideration. Quoting from its
decision, x x x the damages to his reputation as an established and wellknown international trader entitled him to recover moral damages x x x his
wounded feelings and the mental anguish suffered by him cause his blood
pressure to rise beyond normal limits, x x x
NOTES
17
RTC dismissed the complaint. However, CA reversed the decision, making

Prudential Bank liable for damages.
ISSUE
Whether Prudential bank is liable for damages
RULING
YES, the bank is liable.
It is the banks fault for misposting the initial check to another account and
delayed the posting of the same to the Leticias account. Although the
mistake was not attended with malice and bad faith, there is still clear proof
of lack of supervision or due care and caution expected of a bank.
PRUDENTIAL BANK v CA, 328 SCRA 264 (2000)

DOCTRINE: The banks negligence was the result of a lack of due care and
caution required of managers and employees of a firm engaged in so
sensitive and demanding business as banking. While the banks negligence
may not have been attended with malice and bad faith, nevertheless, it
caused serious anxiety, embarrassment, and humiliation. Hence, the
offended party is entitled to recover reasonable moral damages.
The law allows the grant of exemplary damages by way of example for the
public good. The public relies on the banks sworn profession of diligence
and meticulousness in giving irreproachable service. This meticulousness
must be maintained at all times by the banking sector.
FACTS
Leticia Tupasi-Valenzula opened a Savings Account and Current Account
with Prudential Bank. Initially, she deposited a check amounting to 35k on
June 1, 1988.
As payment for purchasing jewelry, Leticia issued a check amounting to
11.5k in favor of Belen Legaspi. Belen then endorsed the check to Philip
Lhuillier. When Philip deposited the check in his account, the check was
dishonored due to insufficient funds. Leticia was surprised to learn of the
dishonor of the check. She inquired with Prudential Bank, showing her
passbook indicating she had sufficient funds. However, Albert Angeles Reyes
(OIC of her account) ignored the passbook, stating that the bank ledger was
the best proof that she did not have enough funds.
However, it was found out that the 35k check initially deposited by Leticia
was credited only on June 24, 1988, or after 23 days. The 11k check was
redeposited and properly cleared only on June 27, 1988. Leticia filed a
complaint against Prudential Bank due to the incident for causing
embarrassment and humiliation.
The relationship between a bank and depositor is fiduciary in nature. The

extent of diligence expected from the bank is with utmost fidelity. As a
business affected with public interest and due to its nature, a bank is under
obligation to treat the account of its depositors with meticulous care. It does
not matter whether the account consists of only a few hundred pesos or of
millions of pesos.
In this case, even if there was no malice, the fact still remain that Leticia
experienced serious anxiety, embarrassment and humiliation. Thus, she is
entitled to recover damages; 100k for moral, 20k for exemplary 30k for
attys fees.
CITYTRUST BANKING CORPORATION v VILLANUEVA, 361 SCRA 446
(2001)
DOCTRINE: Moral damages include physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury. Although incapable of pecuniary
computation, moral damages may be recovered if they are the proximate
result of the defendants wrongful act or omission.
Requisites for the award of moral damages:
1. There must be an injury, whether physical, mental, or psychological,
clearly sustained by the claimant
2. There must be a culpable act or omission factually established
3. The wrongful act or omission of the defendant is the proximate
cause of the injury sustained by the claimant
4. The award of damages is predicated on any of the cases stated in
Art. 2219 of the Civil Code
Art. 2219: Moral damages may be recovered in the following and
NOTES
18
analogous cases:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
A criminal offense resulting in physical injuries;

Quasi-delicts causing physical injuries;
Seduction, abduction, rape, or other lascivious acts;
Adultery or concubinage;
Illegal or arbitrary detention or arrest;
Illegal search;
Libel, slander or any other form of defamation;
Malicious prosecution;
Acts mentioned in Article 309;
Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32,
34, and 35.
The parents of the female seduced, abducted, raped, or abused, referred to

in No. 3 of this article, may also recover moral damages.
The spouse, descendants, ascendants, and brothers and sisters may bring
the action mentioned in No. 9 of this article, in the order named.
FACTS
Sometime in February, 1984, the respondent opened a savings and a
current account with the petitioner bank. On May 21, 1986, respondent ran
out of checks so he requested a new checkbook from one of the respondent
banks customer service representative. He then filled up a checkbook
requisition slip with the obligatory particulars, except for his current account
number which he could not remember. Respondent expressed his
predicament and the representative assured that the bank shall look into
the banks account records. Villanueva was thus later on issued a new
checkbook.
On June 17, 1986, Respondent Villanueva issued a P50,000 check payable
to the order of Kingly Commodities Traders and Multi Resources, Inc.
(hereafter Kingly) Respondent had sufficient funds in his account by the
time the Kingly representative deposited his check. Despite this, the check
was dishonoured for insufficient funds. Respondent notified the bank
regarding the matter and the bank representative told him that they will
look into the matter and instructed the former to advise Kingly to redeposit
the check. The representative assured Villanueva that the check would be
honoured after the sufficiency of the funds was ascertained. The check was
then re-deposited but was again dishonoured. Due to this, Villanueva prayed
to Kingly Commodities to give him until 5:30pm that same day to make
good his check. Respondent went to the bank to personally inquire on the
matter. It was found out that respondent was issued a check under another
Isagani Villanueva with a different middle initial. Upon knowing this fact,
the bank branch manager issued a managers check which the respondent
was able to give before the above-said deadline.
After the incident, Respondent demanded that he be paid indemnity for the
alleged losses and damage suffered by him as a result of the repeated
dishonour of his well-funded check. The bank apologized but refused to pay
such indemnity, so respondent filed a complaint against the bank claiming
P240,000 actual damages, P2M as moral damages and P500,000 for
exemplary damages, attorneys fees, litigation expenses and costs of the
suit.
RTC did not grant any damages. CA partly reversed and granted a smaller
amount as damages thus this case.
ISSUE
Whether Villanueva is entitled to damages
RULING
NO. The issue whether respondent suffered actual or compensatory
damages in the form of loss of profits is factual. Bothe CA and the RTC have
ascertained that Villanueva was unable to prove his demand for
compensatory damages arising from loss. His evidence thereon was found
inadequate, uncorroborated, speculative, hearsay and not the best
evidence. Basic is the jurisprudential rule principle that in determining actual
damages, the court cannot rely on mere assertions, speculations,
conjectures or guesswork but must depend on competent proof and on the
best obtainable evidence of the actual amount of the loss. Actual damages
cannot be presumed but must be duly proved with reasonable certainty.
It may be true that Villanueva may have suffered some form of
inconvenience and discomfort as a result of the dishonour of his check.
However, the same could not have been so grave or intolerable as he
attempts to portray or impress upon the Court. Furthermore, the alleged
embarrassment or inconvenience caused to Villanueva as a result of the
incident was timely and adequately contained, corrected, mitigated, if not
entirely eradicated. Villanueva, thus, failed to support his claim for
damages. Also, respondent is not entitled to Attorneys fees because there
was no presence of bad faith.
The SC did not see it fit to discuss whose negligence was the proximate
cause of the respondents injury because, in the first place, he did not
sustain any compensable injury.
(RTC, however, touched on this matter. RTC pointed out that Villanueva was
the proximate cause, amongst others, for failure to state his account
number. The bank may have been negligent but its negligence was only
contributory.)

3. Reliance on Judgment of Other Banks
METROBANK v CABLIZO, 510 SCRA 259 (2006)
It owes the highest degree of fidelity to its client and should not therefore
lightly rely on the judgment of other banks on occasions where its clients
money were involved, no matter how small or substantial the amount at
stake.
4. Recovery Against Erring Employee
PACIFIC BANKING CORPORATION v CA, 173 SCRA 102 (1989)
Article 2181 of the Civil Code merely gives the employer the right to
reimbursement from the employee for what is paid to the offended party. It
does NOT make recovery from the employee a mandatory requirement. A
right to relief shall be recognized only when the party concerned asserts it
through a proper pleading filed in court.
E. AUTHORITY TO OPERATE
a. Incorporation
Section 17. Grounds when articles of incorporation or
amendment may be rejected or disapproved. - The Securities and
Exchange Commission may reject the articles of incorporation or
disapprove any amendment thereto if the same is not in
compliance with the requirements of this Code: Provided, That
the Commission shall give the incorporators a reasonable time
within which to correct or modify the objectionable portions of
the articles or amendment. The following are grounds for such
rejection or disapproval:
1. That the articles of incorporation or any amendment
thereto is not substantially in accordance with the form
prescribed herein;
2. That the purpose or purposes of the corporation are
patently unconstitutional, illegal, immoral, or contrary to
government rules and regulations;
3. That the Treasurer's Affidavit concerning the amount of
capital stock subscribed and/or paid is false;
4. That the percentage of ownership of the capital stock to
be owned by citizens of the Philippines has not been
complied with as required by existing laws or the
Constitution.
No articles of incorporation or amendment to articles of
incorporation of banks, banking and quasi-banking
institutions,
building
and
loan
associations,
trust
companies and other financial intermediaries, insurance
companies, public utilities, educational institutions, and
other corporations governed by special laws shall be
NOTES
19
accepted or approved by the Commission unless

accompanied by a favorable recommendation of the
appropriate government agency to the effect that such
articles or amendment is in accordance with law.
(Corporation Code, BP 68)
Section 46. Adoption of by-laws. - Every corporation formed
under this Code must, within one (1) month after receipt of
official notice of the issuance of its certificate of incorporation by
the Securities and Exchange Commission, adopt a code of bylaws for its government not inconsistent with this Code. For the
adoption of by-laws by the corporation the affirmative vote of the
stockholders representing at least a majority of the outstanding
capital stock, or of at least a majority of the members in case of
non-stock corporations, shall be necessary. The by-laws shall be
signed by the stockholders or members voting for them and shall
be kept in the principal office of the corporation, subject to the
inspection of the stockholders or members during office hours. A
copy thereof, duly certified to by a majority of the directors or
trustees countersigned by the secretary of the corporation, shall
be filed with the Securities and Exchange Commission which shall
be attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, bylaws may be adopted and filed prior to incorporation; in such
case, such by-laws shall be approved and signed by all the
incorporators and submitted to the Securities and Exchange
Commission, together with the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by
the Securities and Exchange Commission of a certification that
the by-laws are not inconsistent with this Code.
The Securities and Exchange Commission shall not accept
for filing the by-laws or any amendment thereto of any
bank, banking institution, building and loan association,
trust company, insurance company, public utility,
educational institution or other special corporations
governed by special laws, unless accompanied by a
certificate of the appropriate government agency to the
effect that such by-laws or amendments are in accordance
with law. (Corporation Code, BP 68)
Section 14. 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.
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 (GBL).
b. Operation:
i. Authority Required: 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 (Sec. 6, Par. 1, GBL)
ii.
iii.
MB Determination: 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 (Sec. 6, Par. 2,
GBL)
Unauthorized Advertisement/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
NOTES
20
word or words "bank", "banking", "banker", "quasi-bank",

"quasibanking",
"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 (Sec. 64, GBL).
iv.
v.
Change in Name
Sanctions for Operating Without Authority: 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 (Sec. 6, Par. 5, GBL).
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 (Sec. 66, GBL).
REPUBLIC v SECURITY CREDIT AND ACCEPTANCE CORPORATION, 19

SCRA 58 (1967)
DOCTRINE: A corporation, which misused its corporate funds and franchise
by engaging in illegal banking, may be dissolved. Its acts were willful, were
repeated 59,643 times and the continuance of its illegal operations causes
public injury owing to the number of persons affected thereby. A writ of quo
warranto for its dissolution is proper.
FACTS
This is a quo warranto proceeding, initiated by the Solicitor General, to
dissolve the Security and Acceptance Corporation for allegedly engaging in
banking operations without the authority required therefor by the General
Banking Act (Republic Act No. 337).
Security Credit and Acceptance Corporation is a duly registered corporation
with the SEC. Its articles of incorporation authorize it to o engage primarily
in financing agricultural, commercial and industrial projects, and
secondarily, in buying and selling stocks and bonds of any corporation.
The Superintend of Banks of the Central Bank of the Philippines thru its legal
counsel rendered an opinion that Security Credit and Acceptance
Corporation is a banking institution within the purview of Republic Act No.
337. Central Bank advised the corporation to comply with the requirements

of the General Banking Act.
Notwithstanding, the corporation, as well as the members of its Board of
Directors and the officers of the corporation, continued performing the
functions and activities which had been declared to constitute illegal banking
operations; the corporation established 74 branches in principal cities and
towns throughout the Philippines; that through a systematic and vigorous
campaign undertaken by the corporation, the same had managed to induce
the public to open 59,463 savings deposit accounts.
ISSUE
Whether the corporation is engaged in banking
RULING
YES. It is clear that these transactions partake of the nature of banking, as
the term is used in Section 2 of the General Banking Act. Indeed, a bank
has been defined as:
... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347,
banking without securing the administrative authority required in Republic
Act No. 337.
That the illegal transactions thus undertaken by defendant corporation
warrant its dissolution is apparent from the fact that the foregoing
misuser of the corporate funds and franchise affects the essence of its
business, that it is willful and has been repeated 59,463 times, and that
its continuance inflicts injury upon the public, owing to the number of
persons affected thereby.
CENTRAL BANK v MORFE, 20 SCRA 507 (1967)
DOCTRINE: 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.
FACTS
First Mutual Savings and Loan Organization (Organization) is a registered
non-stock corporation, whose main purpose is to encourage x x x and
implement savings and thrift among its members, and to extend financial
assistance in the form of loans to them.
In 1962, the Central Bank Legal Department rendered an opinion finding the
Organization as a banking institution, falling within the purview of the
Central Bank Act. Hence, it applied for a search warrant with the Municipal
Court of Manila against the Organization, alleging that it was engaged in
illegal banking activities, by receiving deposits of money for deposit,
disbursement, safekeeping or otherwise or transacts the business of a
NOTES
21
348] founded to facilitate the borrowing, lending and safe-keeping

of money (Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243,
255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of
exchange, and credits (State vs. Cornings Sav. Bank, 115 N.W. 937,
139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46).
Moreover, it has been held that:
An investment company which loans out the money of its customers,
collects the interest and charges a commission to both lender and borrower,
is a bank. (Western Investment Banking Co. vs. Murray, 56 P. 728, 730,
731; 6 Ariz 215.)
... any person engaged in the business carried on by banks of
deposit, of discount, or of circulation is doing a banking business,
although but one of these functions is exercised. (MacLaren vs.
State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas.
826; 9 C.J.S. 30.)
Accordingly, defendant-corporation has violated the law by engaging in
savings and mortgage bank and/or building and loan association x x x
without having first complied with the provisions of RA 337.
Judge Cancino issued the warrant applied for there being good and
sufficient reasons to believe that the Organization has under its control the
articles/items subject of the offense complained of. On the same day, the
Organization commenced an action with the CFI of Manila against the
Municipal Court, the sheriff, the Manila Police Department and the Central
Bank to annul the search warrant on the ground that it was issued with
GADLEJ. After due hearing, Judge Morfe (CFI Manila) issued an order in
favor of the Organization.
Accordingly, the Bank moved for reconsideration but was denied and
commenced the present action.
ISSUE
Whether the Organization is a banking institution within the purview of the
Central Bank Act
RULING
YES. The records suggested clearly that the transactions objected to by the
Central Bank constitute the general pattern of the business of the
Organization. Indeed, the main purpose thereof, according to its By-Laws, is
to extend financial assistance, in the form of loans, to its members, with
funds deposited by them.
It is true that such funds are referred to as their savings and that the
depositors thereof are designated as members, but, even a cursory
examination of said documents will readily show that anybody can be a

depositor and thus be participating member. In other words, the
Organization is open to the public for deposit accounts, and the funds so
raised may be lent by the Organization.
Moreover, the power to dispose of said funds is placed under the exclusive
authority of the founding members, and participating members are
expressly denied the right to vote or be voted for, their privileges and
benefits being limited to those, which the BoT may in its discretion,
determine from time to time. Thus, the membership of the participating
members is purely nominal in nature. This situation is fraught, precisely,
with the very dangers or evils, which RA 337 seeks to forestall, by exacting
compliance with the requirements of said Act, before the transactions in
question could be undertaken.
II. CLASSIFICATION OF BANKS

A. Universal Banks (UB): Sec. 3.2 (a), GBL
(a) Governing Law: General Banking Law
(b) Powers
Sec. 23, GBL: 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.
Sec. X101 (b)(1), MRB and BSP Circular No. 271, Series of
2001
A UB shall have the authority to exercise, in addition to the
powers and services authorized for a KB as enumerated in Item
b(2) and those provided by other laws, the following:
(a) The powers of an investment house (IH) as provided
under existing laws;
(b) The power to invest in non-allied enterprises;
(c) The power to own up to one hundred percent (100%) of
the equity in a TB, an RB, a financial allied enterprise, or
a non- financial allied enterprise; and
(d) In case of publicly-listed UBs, the power to own up to
one hundred percent (100%) of the voting stock of only
one (1) other UB or KB.
A UB may perform the functions of an IH either directly or
indirectly through a subsidiary IH; in either case, the underwriting
of equity securities and securities dealing shall be subject to
NOTES
22
pertinent laws and regulations of the Securities and Exchange

Commission (SEC): Provided, That if the IH functions are
performed directly by the UB, such functions shall be undertaken
by a separate and distinct department or other similar unit in the
UB: Provided, further, That a UB cannot perform such functions
both directly and indirectly through a subsidiary.
i.
Commercial Banks (KB) Powers

Sec. 29, GBL: 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.
Sec. X101 (b)(2), MRB
In addition to the general powers incident to corporations and
those provided in other laws, a KB shall have the authority to
exercise 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.
It may also exercise or perform any or all of the following:
(a) Invest in the equities of allied enterprises as provided
in Sections 31 and 32 of R.A. No. 8791;
(b) Purchase, hold and convey real estate as specified
under Sections 51 and 52 of R.A. No. 8791;
(c) Receive in custody funds, documents and valuable
objects;
(d) Act as financial agent and buy and sell, by order of and
(e)
(f)
(g)
(h)
ii.
for the account of their customers, shares, evidences of

indebtedness and all types of securities;
Make collections and payments for the account of
others and perform such other services for their
customers as are not incompatible with banking
business;
Upon prior approval of the Monetary Board, act as
managing agent, adviser, consultant or administrator of
investment
management/
advisory/
consultancy
accounts;
Rent out safety deposit boxes; and
Engage in quasi-banking functions.
Investment House powers

Sec. 7, Investment Houses Law
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;
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 or
securities; deal in options, rights or warrants relating to
securities and such other powers which a dealer may
exercise under the Securities Act (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 porfolio manager, and/or financial agent, but not
as trustee of a trust fund or trust property as provided
for in Chapter VII of Republic Act No. 337, as
amended;
8. Encourage companies to go public, and initiate and/or
promote, whenever warranted, the formation, merger,
consolidation, reorganization, or recapitalization of
productive enterprises, by providing assistance or
NOTES
23
participation 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;
10. Design pension, profit-sharing and other employee
benefits plans; and
11. 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.
Nothing in this section shall preclude other enterprises not
covered by this Decree from engaging in the activities listed
under subsections (3) to (11) of this section, except as may
otherwise be governed by special laws.
SEC Omnibus Rules and Regulations for Investment
Houses and Universal Banks Registered as Underwriter
of Securities
Investment House is any enterprise, which primarily
engages, whether regularly or on an isolated basis, in the
underwriting of securities of another person or enterprise,
including securities of the Government or its instrumentalities.
Underwriting of Securities is the act or process of
guaranteeing by an Investment House duly licensed under PD
129 or a Universal Bank registered as an Underwriter of
Securities with the Commission, the distribution and sale of
securities issued by another person or enterprise, including
securities of the Government or its instrumentalities. The
distribution and sale may be on a public or private placement
basis: Provided, that nothing shall prevent an Investment
House or Universal Bank registered as Underwriter of
Securities from entering into a contract with another entity to
further distribute securities that it has underwritten.
1. Definition/Function of Investment House
Sec. 3, Investment Houses Law
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).
Sec. 2 (a), IRR of Investment Houses Law
Investment House is any enterprise, which primarily
engages, whether regularly or on an isolated basis, in
the underwriting of securities of another person or
enterprise, including securities of the Government or its
instrumentalities.
2. Limitations on UBs exercise of investment house
powers
Sec. X101 (b)(1), MRB
in either case, the underwriting of equity securities and
securities dealing shall be subject to pertinent laws and
regulations of the Securities and Exchange Commission
(SEC): Provided, That if the IH functions are performed
directly by the UB, such functions shall be undertaken
by a separate and distinct department or other similar
unit in the UB: Provided, further, That a UB cannot
perform such functions both directly and indirectly
through a subsidiary.
iii.
To invest in equity of non-allied enterprises

Sec. 27, GBL: The equity investment of a universal bank, or
of its wholly or majority-owned subsidiaries, in a single nonallied 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.
Sec. 1381, MRB: Only UBs may invest in the equity of an
enterprise engaged in non-allied or non-related activities.
NOTES
24
B. Commercial Banks (KB): Sec. 3.2 (b), GBL

(a) Governing Law: General Banking Law
(b) Powers
Sec. 101 (b)(2), MRB and BSP Circular No. 271, Series of
2001
those provided in other laws, a KB shall have the authority to
exercise 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.
It may also exercise or perform any or all of the following:
(a) Invest in the equities of allied enterprises as provided in
Sections 31 and 32 of R.A. No. 8791;
(b) Purchase, hold and convey real estate as specified under
Sections 51 and 52 of R.A. No. 8791;
(c) Receive in custody funds, documents and valuable
objects;
(d) Act as financial agent and buy and sell, by order of and for
the account of their customers, shares, evidences of
(e) Make collections and payments for the account of others
and perform such other services for their customers as are
not incompatible with banking business;
(f) Upon prior approval of the Monetary Board, act as
investment management/ advisory/ consultancy accounts;
(g) Rent out safety deposit boxes; and
(h) Engage in quasi-banking functions.
i.
KB Powers
Sec. 29, GBL: 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
NOTES
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.
1.
2.
3.
4.
5.
6.
7.
8.
ii.
iii.
To invest in equity of allied enterprises

Sec. 31, GBL: 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.
Sec. 32, GBL: A commercial bank may own up to one
hundred percent (100%) of the equity in a non-financial allied
enterprise.
iv.
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.
Sec. 52, GBL: 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.
Accepting drafts
Issuing letters of credit (L/Cs)
Discounting and negotiating promissory notes (PNs),
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
Extending credit
Engage in quasi-banking functions

Sec. 6, par. 1, GBL: 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.
To purchase, hold and convey real estate

Sec. 51, GBL: 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
25
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.
v.
Other services
Sec. 53, GBL: 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
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
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-bark 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.
1.
2.
3.
4.
5.
vi.
Receive in custody funds, documents and valuable

objects
Act as financial agent and buy and sell, by order of and
for the account of customers, shares, evidences of
indebtedness and all types of securities
Make collections and payments for the account of others
and perform such other services for their customers as
are not incompatible with banking business
Upon prior MB approval, act as managing agent,
adviser, consultant or administrator of investment and
management/advisory/consultancy accounts
Rent out safety deposit boxes
To issue guarantees
Sec. 74, General Banking Act: No bank or banking
institution shall enter, directly or indirectly, into any contract
of guaranty or suretyship, or shall guarantee the interest or
principal of any obligation of any person, co-partnership,
association, corporation or other entity. The provisions of this
section shall, however, not be held to apply to the borrowing
of money by any such bank or institution through the
rediscounting of its receivables, or otherwise, as may be
permitted by law, nor to the granting or guaranteeing of
acceptance credits in the ordinary course of its business. Nor
shall the provisions of this section apply to the certification of
checks or to transactions involving the release of documents
attached to items received for collection, nor to any other
transaction, which may properly be regarded as common
usage and accepted banking practice.
C. Thrift Banks (TB): Sec. 3.2 (c), GBL

(a) Governing Law
Sec. 71, par. 1 and 3, GBL: The organization, the ownership and
capital requirements, powers, supervision and general conduct of
business of thrift banks, rural banks and cooperative banks shall
be governed by the provisions of the Thrift Banks Act, the Rural
Banks Act, and the Cooperative Code, respectively. The
NOTES
26
organization, ownership and capital requirements, powers,

supervision and general conduct of business of Islamic banks shall
be governed by special laws. The provisions of this Act, however,
insofar as they are not in conflict with the provisions of the Thrift
Banks Act, the Rural Banks Act, and the Cooperative Code shall
likewise apply to thrift banks, rural banks, and cooperative banks,
respectively. However, for purposes of prescribing the minimum
ratio which the net worth of a thrift bank must bear to its total risk
assets, the provisions of Section 33 of this Act shall govern.
i.
ii.
Organization, ownership, capital requirements, powers,

supervision, and general conduct of business
Net worth to risk assets ratio
Sec. 71, par. 3: However, for purposes of prescribing the
minimum ratio which the net worth of a thrift bank must bear
to its total risk assets, the provisions of Section 33 of this Act
shall govern.
Sec. 33, GBL: 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 and rules as
may be prescribed by the Monetary Board.
iii.
Other mattersGBL suppletory application
(b) Declaration of Policy

Sec. 2, Thrift Banks Act
It is hereby declared the policy of the State to:
a. Recognize the indispensable role of the private sector, to
encourage private enterprise, and to provide incentives to
needed investments;
(b) Promote economic development pursuant to the
socioeconomic program of the government, to expand
industrial and agricultural growth, to encourage the
establishment of more private thrift banks in order to
meet the needs for capital, personal and investment credit
or
mediumand
long-term
loans
for
Filipino
entrepreneurs;
(c) Encourage and assist the establishment of thrift bank
system which will promote agriculture and industry and at
the same time place within easy reach of the people the
medium-and long-term credit facilities at reasonable cost;
(d) Encourage industry, frugality and the accumulation of
savings among the public, and the members and
stockholders of thrift banks; and
(e) Regulate and supervise the activities of thrift banks in
order to place their operations on a sound, stable and

efficient basis and to curtail or prevent acts or practices,
which are prejudicial to the public interest.
(c) Definition/Purpose: Sec. 3.2 (c), GBL
Sec. 3 (a), Thrift Banks Act
"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 longterm 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.
(d) Powers
Sec. 10, Thrift Banks Act
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
NOTES
27
guidelines as may be established by the Monetary Board;

(f) Rediscount paper with the Philippine National Bank, the Land
Bank of the Philippines, the Development Bank of the
Philippines, and other government-owned or -controlled
corporations. Said institutions shall specify the nature of
paper deemed acceptable for rediscount, as well as
rediscounting rate to be charged by any of these
institutions; and
(g) Issue mortgage and chattel mortgage certificates, buy and
sell them for its own account or for the account of others, or
accept and receive them in payment or as amortization of its
loan.
Such mortgage and chattel mortgage certificates shall be
issued exclusively in national currency and exclusively for
the financing of equipment loans, mortgage loans for the
acquisition of machinery and other fixed installations,
conservation, enlargement or improvement of productive
properties and real estate mortgage loans for: (1) the
construction, acquisition, expansion or improvement of rural
and urban properties; (2) the refinancing of similar loans
and mortgages; and (3) such other purposes as may be
authorized by the Monetary Board.
A thrift bank shall coordinate the amounts and maturities of
its certificates with those of its loans, so as to ensure
adequate cash receipts for the payment of principal and
interest at the time they become due. The bank shall accept
its own certificates at least at the actual price of issue, in
any prepayment of loans which mortgage or chattel
mortgage debtors may wish to make: Provided, That the
date of maturity of the certificates is not later than the date
on which the payment would otherwise become due, in the
absence of the aforesaid prepayment;
(h) Purchase, hold and convey real estate under the same
conditions as those governing commercial banks as specified
under Section 25 of Republic Act No. 337;
(i) Engage in quasi-banking and money market operations;
(j) Open domestic letters of credit;
(k) Extend credit facilities to private and government
employees: Provided, That in the case of a borrower who is
a permanent employee or wage earner, the treasurer,
cashier or paymaster of the office employing him is
authorized, notwithstanding the provisions of any existing
law, rules and regulations to the contrary, to make
deductions from his salary, wage or income pursuant to the
NOTES
terms of his loan, to remit deductions to the thrift bank

concerned, and collect such reasonable fee for his services;
(l) Extend credit against the security of jewelry, precious stones
and articles of similar nature, subject to such rules and
regulations as the Monetary Board may prescribe; and
(m) Offer other banking services as provided in Section 72 of
Republic Act No. 337 and Republic Act No. 6426, as
amended.
With prior approval of the Monetary Board, and subject to

such guidelines as may be established by it, TBs may also
perform the following services:
(l) Open current or checking accounts;
(m) Engage in trust, quasi-banking functions and money market
operations;
(n) Act as collection agent for government entities, including but
not limited to, the Bureau of Internal Revenue (BIR), Social
Security System (SSS) and the Bureau of Customs (BOC);
(o) Act as official depository of national agencies and of
municipal, city or provincial funds in the municipality, city or
province where the TB is located;
(p) Issue mortgage and chattel mortgage certificates, buy and
sell them for its own account or for the account of others, or
accept and receive them in payment or as amortization of its
loan; and
(q) Invest in the equity of allied undertakings.
Thrift banks may perform the services under subsections

(b), (d), (e), (g) and (i) only upon prior approval of the
Monetary Board.
Nothing in this Section shall be construed as precluding a
thrift bank from performing, with prior approval of the
Monetary Board, commercial banking services, or from
operating under an expanded banking authority, nor from
exercising, whenever applicable and not inconsistent with
the provisions of this Act and Bangko Sentral regulations,
and such other powers incident to a corporation.
2001
In addition to the powers provided in other laws, a TB may
perform any or all of the following services:
(a) Grant loans, whether secured or unsecured;
(b) Invest in readily marketable bonds and other debt
securities, commercial papers and accounts receivable,
drafts, bills of exchange, acceptances or notes arising out of
commercial transactions;
(c) Issue domestic letters of credit;
(d) Extend credit facilities to private and government
employees;
(e) Extend credit against the security of jewelry, precious stones
and articles of similar nature, subject to such rules and
regulations as the Monetary Board may prescribe;
(f) Accept savings and time deposits;
(g) Rediscount paper with the Land Bank of the Philippines
(LBP), Development Bank of the Philippines (DBP), and
other government-owned or-controlled corporations;
(h) Accept foreign currency deposits as provided under R.A. No.
6426, as amended;
(i) Act as correspondent for other financial institutions;
(j) Purchase, hold and convey real estate as specified under
Sections 51 and 52 of R.A. No. 8791; and
(k) Offer other banking services as provided in Section 53 of
R.A. No. 8791.
28
D. Rural Banks (RB): Sec. 3.2 (d), GBL

(a) Governing Law
i.
ii.
Organization, ownership, capital requirements,

Other mattersGBL of suppletory application
powers,

Sec. 2, Rural Banks Act: 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 system designed to make
needed credit available and readily accessible in the rural areas on
reasonable terms
(c) Powers
Sec. 12, Rural Banks Act: In addition to the operations
especially authorized in this Act, any rural bank may:
Accept saving and time deposit;
Open current or checking accounts, provided the rural

bank has net assets of at least Five million
(P5,000,000) subject to such guidelines as may be
established by the Monetary Board:
Act as correspondent for other financial institutions;
Act as a collection agent;
Act as official depositary of municipal, city or provincial

funds in the municipality, city or province where it is
located, subject to such guidelines as may be
established by the Monetary Board;
Rediscount paper with the Philippine National Bank, the

Land Bank of the Philippines, the Development Bank of
the Philippines, or any other banking institution,
including its branches and agencies. Said institution
shall specify the nature of paper deemed acceptable for
rediscount, as well as the rediscount rate to be charged
by any of these institutions;
Offer other banking service as provided in Section 72 of

Republic Act No. 337, as amended, and
Extend financial assistance to public and private

employees in accordance with the provisions of Section
5 of Republic Act No. 3779, as amended.
With written permission of the Monetary Board of the Central
bank, any rural bank may act as trustee over estates or properties
of farmer and merchants.
Nothing in this section shall be construed as precluding a rural
bank from performing, with prior approval of the Monetary Board,
all the services authorized and mortgage banks, of for commercial
banks, under an expanded banking authority as provided in
Section 21-B of the same Act
2001
In addition to the powers provided in other laws, an RB may
NOTES
29
(a) Extend loans and advances primarily for the purpose of

meeting the normal credit needs of farmers, fishermen
or farm families as well as cooperatives, merchants,
private and public employees;
(b) Accept savings and time deposits;
(c) Act as correspondent of other financial institutions;
(d) Rediscount paper with the LBP, DBP or any other bank,
including its branches and agencies. Said banks shall
specify the nature of paper deemed acceptable for
rediscount, as well as the rediscount rate to be charged
by any of these banks;
(e) Act as collection agent;
(f) Offer other banking services as provided in Section 53
of R.A. No. 8791.
With prior approval of the Monetary Board, an RB may
(g) Accept current or checking accounts: Provided, That
such RB has net assets of at least P5 million;
(h) Accept NOW accounts;
(i) Act as trustee over estates or properties of farmers and
merchants;
(j) Act as official depository of municipal, city or provincial
funds in the municipality, city or province where it is
located;
(k) Sell domestic drafts; and
(l) Invest in allied undertakings.
E. Cooperative Banks (Coop Banks): Sec. 3.2 (e), GBL

(a) Governing Law
Art. 99, Cooperative Code: (1) The provisions of this Chapter
shall primarily govern cooperative banks registered under this
Code and the other provisions of this Code shall apply to them
NOTES
only insofar as they are not inconsistent with the provisions

contained in this Chapter.
(2) Cooperatives duly established and registered under the
provisions of this Code may organize among themselves a
cooperative bank, which shall likewise be considered a cooperative
registerable under the provision of this Code subject to the
requirements of and requisite authorization from the Central Bank.
i.
ii.

Other mattersGBL of suppletory application
powers,

Art. 2, Cooperative Code:
(c) Definitions/Functions
Art. 100, Cooperative Code
A cooperative bank is one organized by the majority shares of
which is owned and controlled by cooperatives primarily to provide
financial and credit services to cooperatives. The term
"cooperative bank" shall include cooperative rural banks.
A cooperative bank may perform the following functions:
(1) To carry on banking and credit services for the
cooperatives;
(2) To receive financial aid or loans from the Government and
the Central Bank of the Philippines for and in behalf of the
cooperative banks and primary cooperatives and their
federations engaged in business and to supervise the
lending and collection of loans;
(3) To mobilize savings of its members for the benefit of the
cooperative movement;
(4) To act as a balancing medium for the surplus funds of
cooperatives and their federations;
(5) To discount bills and promissory notes issued and drawn by
cooperatives;
(6) To issue negotiable instruments to facilitate the activities of
cooperatives;
(7) To issue debentures subject to the approval of and under
conditions and guarantees to be prescribed by the
Government;
(8) To borrow money from banks and other financial
institutions within the limit to be prescribed by the Central
Bank; and
(9) To carry out all other functions as may be prescribed by the
30
Authority: Provided, That the performance of any banking

function shall be subject to prior approval by the Central
Bank of the Philippines.
(d) Powers: same as RB
2001
A Coop Bank shall be organized primarily to provide financial and
credit services to cooperatives and may perform any or all of the
services offered by RBs.
F. Islamic Banks (IB): Sec. 3.2 (f), GBL

(a) Governing Law
Sec. 71, par. 2, GBL: The organization, ownership and capital
requirements, powers, supervision and general conduct of
business of Islamic banks shall be governed by special laws.
i.

supervision and general conduct of business
powers,
(b) Purpose
Sec. 3, Islamic Bank Charter: The primary purpose of the
Islamic Bank shall be to promote and accelerate the socioeconomic 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.
(c) Powers
Sec. 6, Islamic Bank Charter: 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
NOTES
31
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 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.
2001
those provided in other laws, as well as in Circular No. 105
(Appendix 44), insofar as they are not inconsistent or incompatible
with the provisions of R.A. No. 6848, an IB may perform any or all
of the following services:
(a) 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;

(b) Accept investment account placements and invest the same
for a term with the IBs funds in Islamically permissible
transactions on participation basis;
(c) Accept foreign currency deposits from banks, companies,
organizations
and
individuals,
including
foreign
governments;
(d) Buy and sell foreign exchange;
(e) Act as correspondent of banks and institutions to handle
remittances or any fund transfers;
(f) 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;
(g) Act as collection agent in so far as the payment orders, bills
of exchange or other commercial documents are exclusive
of riba or interest prohibitions;
(h) Provide financing with or without collateral by way of
leasing, sale and leaseback, or cost plus profit sales
arrangement;
(i) Handle storage operations for goods or commodity
financing secured by warehouse receipts presented to the
bank;
(j) 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;
(k) Undertake various investments in all transactions allowed
by the Islamic Sharia in such a way that shall not permit
the haram (forbidden), nor forbid the halal (permissible);
(l) Act as an official government depository, or its branches,
subdivisions and instrumentalities and of governmentowned or -controlled corporations, particularly those doing
business in the autonomous region;
(m) Issue investment participation certificates, muquaradah
(non-interest- bearing bonds), debentures, collaterals and/
or the renewal and refinancing of the same, with the
approval of the Monetary Board to be used by the IB in its
financing operations for projects that will promote the
economic development primarily of the Autonomous
Region;
(n) Carry out financing and joint investment operations by way
of mudarabh purchasing for others on a cost-plus financing
arrangement, and invest funds directly in various projects
or through the use of funds whose owners desire to invest
jointly with other resources available to the IB on a joint
mudarabh basis; and
(o) Invest in equities of the following allied undertakings:
NOTES
i.
ii.
iii.
iv.
v.
32
Warehousing companies;
Leasing companies;
Storage companies;
Companies engaged in the management of mutual
funds but not in the mutual funds themselves; and
Such other similar activities as the Monetary Board
has declared or may declare as appropriate from
time to time, subject to existing limitations imposed
by law.
G. Other Classification of Banks: Sec. 3.2 (g), GBL

(a) Land Bank of the Philippines
Code of Agrarian Reform of the Philippines
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.
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.
Section 76. Issuance of Bonds - The Land Bank shall, upon
recommendation by the Board of Trustees and approval of the Monetary
Board of the Central Bank, issue bonds, debentures and other evidences of
indebtedness at such terms, rates and conditions as the Bank may
determine up to an aggregate amount not exceeding, at any one time, five
times its unimpaired capital and surplus. Such bonds and other obligations
shall be secured by the assets of the Bank and shall be fully tax exempt
both as to principal and income. Said income shall be paid to the bondholder
every six (6) months from the date of issue. These bonds and other
obligations shall be fully negotiable and unconditionally guaranteed by the
Government of the Republic of the Philippines and shall be redeemable at
the option of the Bank at or prior to maturity, which in no case shall exceed
twenty-five years. These negotiable instruments of indebtedness shall be
mortgageable in accordance with established banking procedures and
practices to government institutions not to exceed sixty per centum of their
face value to enable the holders of such bonds to make use of them in
investments in productive enterprises. They shall also be accepted as
payments for reparation equipment and materials.
The Board of Trustees shall have the power to prescribe rules and
regulations for the registration of the bonds issued by the Bank at the
request of the holders thereof.
Section 77. Issuance of Preferred Shares of Stock to Finance Acquisition of
Landed Estates - The Land Bank shall issue, from time to time, preferred
shares of stock in such quantities not exceeding six hundred million pesos
worth of preferred shares as may be necessary to pay the owners of landed
estates in accordance with Sections eighty and eighty-one of this Code. The
amount of shares that the Bank may issue shall not exceed the aggregate
amount need to pay for acquired estates in the proportions prescribed in
said Section eighty of this Code. The Board of Trustees shall include as a
necessary part of the by-laws that it shall issue under Section seventy-five
of this Code, such formula as it deems adequate for determining the net
asset value of its holdings as a guide and basis for the issuance of preferred
shares. The shares of stock issued under the authority of this provision shall
be guaranteed a rate of return of six per centum per annum. In the event
that the earnings of the Bank for any single fiscal year are not sufficient to
enable the Bank, after making reasonable allowance for administration,
contingencies and growth, to declare dividends at the guaranteed rate, the
NOTES
33
amount equivalent to the difference between the Bank's earnings available

for dividends and that necessary to pay the guaranteed rate shall be paid by
the Bank out of its own assets but the Government shall, on the same day
that the Bank makes such payment, reimburse the latter in full, for which
purpose such amounts as may be necessary to enable the Government to
make such reimbursements are hereby appropriated out of any moneys in
the National Treasury not otherwise appropriated. The Bank shall give
sufficient notice to the Budget Commissioner and the President of the
Philippines in the event that it is not able to pay the guaranteed rate of
return on any fiscal period. The guaranteed rate of return on these shares
shall not preclude the holders thereof from participating at a percentage
higher than six per centum should the earnings of the Bank for the
corresponding fiscal period exceed the guaranteed rate of return. The Board
of Trustees shall declare and distribute dividends within three months after
the close of each fiscal year at the guaranteed rate unless a higher rate of
return in justified by the Bank's earnings after making reasonable allowance
for administration, contingencies and growth, in which case dividends shall
be declared and distributed at a higher rate. The capital gains derived from
the sale or transfer of such shares and all income derived therefrom in the
form of dividends shall be fully exempt from taxes.
Section 78. Special Guaranty Fund - In the event that the Bank shall be
unable to pay the bonds, debentures, and other obligations issued by it, a
fixed amount thereof shall be paid from a special guaranty fund to be set up
by the Government, to guarantee the obligation of the Land Bank, and
established in accordance with this Section, and thereupon, to the extent of
the amounts so paid, the Government of the Republic of the Philippines shall
succeed to all the rights of the holders of such bonds, debentures or other
obligations: Provided, however, That for the next four years after the
establishment of the Bank, the payment to the special guaranty fund should
not exceed one million pesos per year, after which period, the Government
shall pay into the guaranty fund the sum of five hundred thousand pesos
each year until the cumulative total of such guaranty fund is no less than
twenty percent of the outstanding net obligation of the Land Bank at the
end of any single calendar year.
The guaranty fund shall be administered by the Central Bank of the
Philippines in the manner most consistent with its charter. For the purpose
of such fund, there shall be appropriated annually the sum of one million
pesos out of any moneys in the National Treasury not otherwise
appropriated, until the total amount of twenty million pesos shall have been
attained.
Section 79. Receiving Payments and Time Deposits - The Bank, under the
supervision of the Monetary Board and subject to the provisions of the
General Banking Act, shall receive savings and time deposits from the small
landholders in whose favor public lands or landed estates acquired by the

Land Authority have been sold and, for this purpose, establish, and maintain
branches and offices in such areas as may be necessary to service such
deposits. The Monetary Board shall supervise and authorize the Bank to
receive savings and time deposits from the public in areas where facilities
for such a service do not exist or cannot be adequately provided by other
deposit institutions.
Section 80. Making Payment to Owners of Landed Estates - The Land bank
shall make payments in the form herein prescribed to the owners of land
acquired by the Land Authority for division and resale under this Code. Such
payment shall be made in the following manner: ten per centum in cash and
the remaining balance in six percent, tax-free, redeemable bonds issued by
the Bank in accordance with Section seventy-six, unless the landowner
desires to be paid in shares of stock issued by the Land Bank in accordance
with Section seventy-seven in an amount not exceeding thirty per centum of
the purchase price.
In the event there is an existing lien on encumbrance on the land in favor of
any Government institution at the time of acquisition by the Land Bank, the
bonds and/or shares, in that order, shall be accepted as substitute
collaterals to secure the indebtedness.
The profits accruing from payment shall be exempt from the tax on capital
gains.
Section 81. Capital - The authorized capital stock of the Bank shall be one
billion five hundred million pesos divided into ninety million shares with a
par value of ten pesos each, which shall be fully subscribed by the
Government and sixty million preferred shares with a par value of ten pesos
each which shall be issued in accordance with the provisions of Sections
seventy-seven and eighty-three of this Code. Of the total capital subscribed
by the Government, two hundred million pesos shall be paid by the
Government within one year from the approval of this Code, and one
hundred million pesos every year thereafter for two years for which purpose
the amount of two hundred million pesos is hereby appropriated upon the
effectivity of this Code, and one hundred million pesos every year for the
next two years thereafter, out of the funds in the National Treasury not
otherwise appropriated for the purpose: Provided, That if there are not
enough funds in the National Treasury for the appropriation herein made,
the Secretary of Finance, with the approval of the President of the
Philippines, shall issue bonds or other evidence of indebtedness to be
negotiated either locally or abroad in such amount as may be necessary to
cover any deficiency in the amount above-appropriated but not exceeding
four hundred million pesos, the proceeds of which are hereby appropriated:
Provided, further, That the bonds to be issued locally shall not be supported
by the Central Bank: Provided, finally, That there is automatically
appropriated out of the unappropriated funds in the National Treasury such
NOTES
34
amounts as is necessary to cover the losses which shall include among other
things loss of earnings occasioned by the limitation of the resale cost herein
provided such that said amount together with the administrative expenses
mentioned in Section ninety hereof shall not exceed in the aggregate the
equivalent of two and one-half per centum of its assets limited therein.
Section 82. Government Shares - All shares of stock in the Bank
subscribed or owned by the Government shall not be entitled to participate
in the income earned by the Bank from its investments and other
operations, whether in the form of cash or stock dividends or otherwise.
Amounts expended for the administration of the Bank shall not be deemed
as a participation of the Government in income.
Section 83. Preferred Shares - All preferred shares of stock issued under
Section seventy-seven of this Code shall be entitled to the income earned by
the Bank on its investments and other operations and shall have a limited
right to elect annually one member of the Board of Trustees and one
member of the Committee on Investments: Provided, That the holders of
such preferred shares of stock shall not bring derivative suits against the
Bank. Such preferred shares shall be fully transferable: Provided, further,
That upon the liquidation of the Bank, the redemption of such preferred
shares shall be given priority and shall be guaranteed at par value.
Section 84. Voting of Shares - The voting power of all the shares of stock
of the Land Bank owned or controlled by the Government shall be vested in
the President of the Philippines or in such person or persons as he may from
time to time designate.
Section 85. Use of Bonds - The bonds issued by the Land Bank may be
used by the holder thereof and shall be accepted in the amount of their face
value as any of the following:
(1) Payment for agricultural lands or other real properties purchased
from the Government;
(2) Payment for the purchase of shares of stock of all or substantially all
of the assets of the following Government owned or controlled
corporations: The National Development Company; Cebu Portland
Cement Company; National Shipyards and Steel Corporation; Manila
Gas Corporation; and the Manila Hotel Company.
Upon offer by the bondholder, the corporation owned or controlled by
the Government shall, through its Board of Directors, negotiate with
such bondholder with respect to the price and other terms and
conditions of the sale. In case there are various bondholders making
the offer, the one willing to purchase under terms and conditions
most favorable to the corporation shall be preferred. If no price is
acceptable to the corporation, the same shall be determined by a
Committee of Appraisers composed of three members, one to be

appointed by the corporation, another by the bondholder making the
highest or only offer, and the third by the two members so chosen.
The expenses of appraisal shall be borne equally by the corporation
and the successful purchaser.
Should the Government offer for sale to the public any or all of the
shares of stock or the assets of any of the Government owned or
controlled corporations enumerated herein, the bidder who offers to
pay in bonds of the Land Bank shall be preferred provided that the
various bids be equal in every respect except in the medium of
payment.
(3) Surety or performance bonds in all cases where the Government may
require or accept real property as bonds; and
(4) Payment for, reparations goods.
Section 86. Board of Trustees - The affairs and business of the Bank shall
be directed, its powers exercised and its property managed and preserved
by a Board of Trustees. Such Board shall be composed of one Chairman and
four members, one of whom shall be the head of the Land Authority who
shall be an ex-officio member of such Board and another to be elected by
the holders of preferred shares. The Chairman and two members of the
Board of Trustees shall serve on full-time basis with the Bank. With the
exception of the head of the Land Authority and the member elected by the
holders of preferred shares, the Chairman and all members of the Board
shall be appointed by the President with the consent of the Commission on
Appointments for a term of seven years, except that the first Chairman and
members to be appointed under this Code shall serve for a period of three,
five and seven years, such terms to be specified in their respective
appointments. Thereafter the Chairman and members, with the exception of
the ex-officio member, appointed after such initial appointment shall serve
for a term of seven years including any Chairman or member who is
appointed in place of one who resigns or is removed or otherwise vacates
his position before the expiration of his seven-year term. The Chairman and
the two full-time members of the Board shall act as the heads of such
operating departments as may be set up by the Board under the authority
granted by Section eighty-seven of this Code. The Chairman shall have
authority, exerciseable at his discretion, to determine from time to time the
organizational divisions to be headed by each member serving full time and
to make the corresponding shifts in designations pursuant thereto. The
compensation of the Chairman and the members of the Board of Trustees
serving full time shall be twenty-four thousand and eighteen thousand
pesos, respectively. The other members of the Board shall receive a per
diem of one hundred pesos for each session of the Board that they attend.
Section 87. The Chairman and Vice-Chairman - The Chairman of the Board
shall be the chief executive officer of the Bank. He shall have direct control
NOTES
35
and supervision of the business of the Bank in all matters which are not by
this Code or by the by-laws of the Bank specifically reserved to be done by
the Board of Trustees. He shall be assisted by an Executive Vice-Chairman
and one or more vice-chairman who shall be chosen and may be removed
by the Board of Trustees. The salaries of the Vice-Chairmen shall be fixed by
the Board of Trustees with the approval of the President of the Philippines.
Section 88. Qualifications of Members - No person shall be appointed
Chairman or member of the Board unless he is a man of accepted integrity,
probity, training and experience in the field of banking and finance, at least
thirty-five years of age and possessed of demonstrated administrative skill
and ability.
Section 89. Committee on Investments - There shall be a Committee on
Investments composed of three members; the member of the Board of
Trustees elected by the holders of preferred shares as Chairman, one
member to be appointed by the President of the Philippines from among the
government members of the Board of Trustees, and another member to be
selected by the holders of preferred shares under Section eighty-three of
this Code. The Committee on Investments shall recommend to the Board of
Trustees the corporations or entities from which the Land Bank shall
purchase shares of stock.
The Land Bank shall not invest in any corporation, partnership or company
wherein any member of the Board of Trustees or of the Committee on
Investments or his spouse, direct descendant or ascendant has substantial
pecuniary interest or has participation in the management or control of the
enterprise except with the unanimous vote of the members of the Board of
Trustees and of the Committee on Investments, excluding the member
interested, in a joint meeting held for that purpose where full and fair
information of the extent of such interest or participation has been
adequately disclosed in writing and recorded in the minutes of the meeting:
Provided, That such interested member shall not in any manner participate
in the deliberations and shall refrain from exerting any pressure or influence
whatever on any official or member of the Bank whose functions bear on or
relate to the investment of the funds of the Bank in the enterprise:
Provided, further, That the total investment in any single corporation,
partnership, company, or association shall not exceed five per centum of the
total investible funds.
Section 90. Personnel; Cost of Administration - The Administrative
expenses of the Bank during any single fiscal year shall not in any case
exceed two and one-half per centum of its total assets. The Board of
Trustees shall provide for an organization and staff of officers and
employees necessary to carry out the functions of the Bank, fix their
compensation, and appoint and remove such officers and employees for
cause. The Bank officers and employees shall be subject to the rules and

regulations issued by the Civil Service Commission but shall not fall under
the Wage and Position Classification Office. The Board of Trustees shall
recommend to the Civil Service Commission rules and regulations for the
recruitment,
appointment,
compensation,
administration,
conduct,
promotion and removal of all Bank officers and employees under a strict
merit system and prepare and conduct examinations under the supervision
of said Commission.
Section 91. Legal counsel - The Secretary of Justice shall be ex-officio legal
adviser of the Bank. Any provision of law to the contrary notwithstanding,
the Land Bank shall have its own Legal Department, the chief and members
of which shall be appointed by the Board of Trustees. The composition,
budget and operating expenses of the Office of the Legal Counsel and the
salaries and traveling expenses of its officers and employees shall be fixed
by the Board of Trustees and paid by the Bank.
Section 92. Auditor - The Auditor General shall be the ex-officio auditor of
the Bank and shall appoint a representative, who shall be the auditor in
charge of the auditing office of the Bank. The Auditor General shall, upon
the recommendation of the auditor of the Bank, appoint or remove the
personnel of the auditing office. The compensation, budget and operating
expenses of the auditing office and the salaries and traveling expenses of
the officers and employees thereof shall be fixed by the Board of Trustees
and paid by the Bank notwithstanding any provision of law to the contrary.
Section 93. Report on Condition of Bank - The representative of the Auditor
General shall make a quarterly report on the condition of the Bank to the
President of the Philippines, to the Senate through its President, to the
House of Representatives through its Speaker, to the Secretary of Finance,
to the Auditor General and to the Board of Trustees of the Bank. The report
shall contain, among other things, a statement of the resources and
liabilities including earnings and expenses, the amount of capital stock,
surplus, reserve and profits, as well as losses, bad debts, and suspended
and overdue paper carried in the books as assets of the Bank, and a
plantilla of the Bank.
Section 94. Auditing Rules and Regulations - The Auditor General shall,
with respect to the Bank, formulate improved and progressive auditing rules
and regulations designed to expedite the operations of the Bank and
prevent the occurrence of delays and bottlenecks in its work.
Section 95. Removal of Members - The President of the Philippines may, at
any time, remove the Chairman or any member of the Board appointed by
him if the interest of the Bank so requires, for any of the following causes:
(1) Mismanagement, grave abuse of discretion, infidelity in the conduct
of fiduciary relations, or gross neglect in the performance of duties;
(2) Dishonesty, corruption, or any act involving moral turpitude; and
NOTES
36
(3) Any act or performance tending to prejudice or impair the

substantial rights of the stockholders.
Conviction of the Chairman or a member for a crime carrying with it a
penalty greater than arresto mayor shall cause the removal of such
Chairman or member without the necessity of Presidential action.
The Chairman or member may, in any of the above cases, be civilly liable
for any damage that may have been suffered by the stockholders.
Section 96. Transfer of Claims and Liabilities - The assets of the former
Land Tenure Administration and the National Resettlement and
Rehabilitation Administration in the form of claims and receivables arising
from the sale or transfer of private and public lands, agricultural equipment,
machinery, tools and work animals, but excluding advances made for
subsistence, to small landholders shall, after an exhaustive evaluation to
determine their true asset value, be irrevocably transferred to the Bank
under such arrangements as the Land Authority and the Bank shall agree
upon. Thereafter, the Bank shall have authority and jurisdiction to
administer the claims, to collect and make adjustments on the same and,
generally, to do all other acts properly pertaining to the administration of
claims held by a financial institution. The Land Authority, upon request of
the Bank, shall assist the latter in the collection of such claims. The Land
Authority shall be entitled to collect from the Bank no more than the actual
cost of such collection services as it may extend. The claims transferred
under this Section shall not be considered as part of the Government's
subscription to the capital of the Bank.
Section 97. Regulation - The Bank shall not be subject to the laws, rules
and regulations governing banks and other financial institutions of whatever
type except with respect to the receipt of savings and time deposits in
accordance with Section seventy-nine of this Code, in which case the legal
reserve and other requirements prescribed by the Central Bank for such
deposits shall apply. The Bank shall be operated as an autonomous body
and shall be under the supervision of the Central Bank.
Section 98. Tax Exemption - The operations, as well as holdings,
equipment, property, income and earnings of the Bank from whatever
sources shall be fully exempt from taxation.
Section 99. Organization of Bank - The Bank shall be organized within one
year from the date that this Code takes effect.
Section 100. Penalty for Violation of the Provisions of this Chapter - Any
trustee, officer, employee or agent of the Bank who violates or permits the
violation of any of the provisions of this Chapter, or any person aiding or
abetting the violations of any of the provisions of this Chapter, shall be

punished by a fine not to exceed ten thousand pesos or by imprisonment of
not more than five years, or both such fine and imprisonment at the
discretion of the Court.
(b) Development Bank of the Philippines
Revised Charter of DBP
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
NOTES
37
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 abovementioned powers on banking shall be subject to applicable law, as well as
regulations promulgated by the Central Bank of the Philippines.
Sec. 4. Loans and other Investments. Loans and other investments of the
Bank shall be subject to the same limits and ceilings applicable to thrift
banks under existing provisions of law and regulations promulgated by the
Monetary Board, including but not limited to prescribed limits and ceilings;
Provided, that loans and investments existing as of the date of the
effectivity of this Charter and which loans and investments would exceed
the prescribed limits as a result of the implementation of its rehabilitation
program, as well as those investment authorized under Section 6 hereof
which are in excess of the prescribed limits shall be reduced within five
years in accordance with such program of reduction as may be approved by
the Monetary Board. The period of reduction may be extended up to another
five years by the President of the Philippines upon recommendation by the
Monetary Board.
Sec. 5. Issuance of Bonds. The Bank may issue all kinds of bonds,
debentures, and securities, and/or the renewal or refunding thereof
(hereinafter called "Bonds"), within and/or outside the Philippines, at such
terms, rates, and conditions as the Board of Directors of the Bank may
determine, subject to compliance with the provisions of applicable law, and
rules and regulations promulgated by the Monetary Board.
The Bank shall provide for appropriate reserves for the redemption or
retirement of the bonds. These bonds and other obligations shall be
redeemable at the option of the Bank at or before maturity and in such
manner as may be stipulated therein and shall bear such rate of interest as
may be fixed by the Bank.
Such obligations shall be secured by the assets of the Bank, including the
stocks, bonds, debentures, and other securities purchased or held by it
under the provisions of this Charter. These bonds and debentures may be
long-term, medium, or short-term, with fixed interest rate or floating
interest rate.
Sec. 6. Private Development Banks, Other Thrift Banks and Rural Banks.
The Bank may assist private development banks and other privately owned

banks in the thrift bank category, as well as rural banks, through general
credit accommodations including but not limited to conduit lending and
rediscounting operations, and extension of technical and managerial
assistance; Provided, That the Bank may likewise make equity investments
in private development banks and other private owned banks in the thrift
bank category, as well as rural banks, if such investment is in connection
with the privatization of certain branches of the Bank; Provided, further,
That the extent of such equity investment may, with the prior approval of
the Monetary Board, exceed the ceilings prescribed in Section 4 hereof; and,
Provided, finally, That after five years from effectivity of this Charter, any
equity investment shall not exceed thirty (30%) per cent of the equity in
any such bank nor shall its total equity investments exceed the prescribed
aggregate ceiling on such investments.
Sec. 7. Authorized Capital Stock Par value. The capital stock of the Bank
shall be Five Billion Pesos to be divided into Fifty Million common shares
with par value of P100 per share. These are available for subscription by the
National Government. Upon the effectivity of this Charter, the National
Government shall subscribe to Twenty-Five Million common shares of stock
worth Two Billion Five Hundred Million which shall be deemed paid for by the
Government with the net asset values of the Bank remaining after the
transfer of assets and liabilities as provided in Section 30 hereof.
Sec. 8. Board of Directors Composition Tenure Per Diems. The affairs and
business of the Bank shall be directed and its properties managed and
preserved and its corporate powers exercised, unless otherwise provided in
this Charter, by a Board of Directors consisting of nine members, to be
appointed by the President of the Philippines. The term of office of the
Chairman, Vice-Chairman, and the members of the Board of Directors shall
be for a period of one year or until such time as their successors are
appointed.
The Chairman and the Vice Chairman of the Board shall be appointed by the
President of the Philippines. The Vice Chairman of the Board shall assist the
Chairman and act in his stead in case of absence or incapacity. In case of
incapacity or absence of both the chairman and vice-chairman, the Board of
Directors shall designate a temporary chairman from among its members.
No person shall be elected director of the Bank unless he is a natural-born
citizen of the Philippines, not less than thirty-five years of age, of good
moral character and has attained proficiency, expertise and recognized
competence in one or more of the following: banking, finance, economics,
law, agriculture, business management, public utility or government
administration.
At least four of the members of the Board shall come from the private
sector.
NOTES
38
Except for the Chairman and the Vice Chairman of the Board, no officer or
employee of the Bank may be appointed as a member of the Board of
Directors of the Bank; nor shall any director, officer, or employee of any
other bank be eligible as a member of the Board of Directors of the Bank.
Unless otherwise set by the Board and approved by the President of the
Philippines, members of the Board shall be paid a per diem of one thousand
pesos for each meeting of the Board of Directors actually attended:
Provided, that the total amount of per diems for every single months shall
not exceed the sum of Five Thousand Pesos.
Sec. 9. Powers and Duties of the Board of Directors. The Board of Directors
shall have, among others, the following duties, powers and authority:
(a) To formulate policies necessary to carry out effectively the
provisions of this Charter and to prescribe, amend, and repeal bylaws, rules and regulations for the effective operation of the Bank,
and the manner in which the general business of the Bank may be
conducted and the powers granted by law to the Bank exercised;
(b) To approve loans, to fix rates of interest on loans and to prescribe
such terms and conditions for loans and credits as may be deemed
necessary, consistent with the provisions of this Charter; Provided,
that the Board may delegate the authority to approve loans to such
officers as may be deemed necessary;
(c) To adopt an annual budget for the effective operation and
administration of the Bank;
(d) To create and establish a "Provident Fund" which shall consist of
contributions, made both by the Bank and its officers or employees,
to a common fund for the payment of benefits to such officers or
employees, or their heirs, under such terms and conditions as the
Board of Directors may fix;
(e) To compromise or release, in whole or in part, any claim or settled
liability to the Bank regardless of the amount involved, under such
terms and conditions it may impose to protect the interests of the
Bank. This authority to compromise shall extend to claims against
the Bank; and
(f) To appoint, promote or remove officers from the rank of Vice
President or its equivalent, and other more senior officer positions,
excluding the Chairman and the Vice Chairman.
Sec. 10. Chairman and Chief Executive Officer. The Chairman shall be the
Chief Executive Officer of the Bank and, as such, shall, on behalf of the
Board, have the direction and control of the business affairs and properties
of the Bank in all matters which are not by this Charter or by the By-Laws of
the Bank specifically reserved to be done by the Board or other officers of
the Bank. For this purpose, he shall, among other powers and duties,
execute, carry out, and administer the policies, measures, orders, and
NOTES
39
resolutions approved by the Board; direct and supervise the operation and
administration of the Bank; and exercise such other powers and perform
such other functions or duties as may be directed or assigned to him by law
or by the Board from time to time.
enforcement of court writs and processes in cases involving the Bank. The
special sheriff of the Bank shall make a report to the proper court after any
action taken by him, which shall treat such action as if it were an act of its
own sheriffs in all respects.
Particularly, he shall have the power and duty:

(a) To sign and execute all contracts concluded by the Bank and enter
into all necessary obligations required or permitted by this Charter,
upon proper authorization by the Board; and sign all notes,
securities certificates, and other major documents of the Bank;
(b) To exercise, as Chief Executive Officer of the Bank, the powers of
control and supervision over decisions and actions of subordinate
officers and all other powers that may be granted by the Board;
(c) To report to the Board the main facts concerning the operations of
the Bank and to recommend changes in policies which he may deem
advisable;
(d) To submit an annual report to the President of the Philippines on the
result of the operations of the Bank;
(e) To recommend to the Board the appointment, promotion, or
removal of all officers of the Bank, with the rank of at least vicepresident or its equivalent;
(f) To appoint, promote or remove employees and officers below the
rank of vice-president or its equivalent; Provided, that promotions,
transfers, assignments or reassignments of officers and personnel of
the Bank are personnel actions deemed made in the interest of the
service and not disciplinary, any provision of the Civil Service Law to
contrary notwithstanding; and
(g) As required by circumstances, to delegate any of his powers, duties
or functions to any officer or director of the Bank, with the approval
of the Board.
Sec. 13. Other Officers and Employments. The Board of Directors shall
provided for an organization and staff of officers and employees of the Bank
and upon recommendation of the Chairman of the Board, fix their
remunerations and other emoluments.
No Officer or employee of the Bank subject to Civil Service Law shall be
dismissed except as provided by law.
Sec. 11. Vice Chairman and Chief Operating Officer. The Vice Chairman
shall be the Chief Operating Officer of the Bank and shall assume and
exercise such specific duties and responsibilities as may be delegated to him
by the Chairman.
Sec. 12. Legal Matters and Cases. The Bank shall have its own Legal
Department, the head of which shall be appointed by the Board of Directors
of the Bank upon recommendation of the Chairman.
In appropriate cases, the Bank may avail also of the legal services of any
government legal office authorized to render such services to governmentowned or controlled corporations.
The Bank may, upon the recommendation of its Chief Legal Counsel,
deputize any member of its legal staff to act as special sheriff in foreclosure
cases, in the sale or attachment of the debtor's properties and in the
Sec. 14. Exemption from Attachment. The provisions of any law to the
contrary notwithstanding, securities on loans and/or other accommodation
granted by the Bank or its predecessors-in-interest shall not be subject to
attachment, execution or any other court process, nor shall they be included
in the property of insolvent persons or institutions, unless all debts and
obligations of the debtor to the Bank and its predecessors-in-interest have
been previously paid, including accrued interest, penalties, collection
expenses, and other charges, subject to the provisions of paragraph (e) of
Section 9 of this Charter.
Sec. 15. Officer to Conduct Sale. In case of sale of mortgaged properties
under the provisions of existing laws or of this Charter, such sale shall be
conducted under the direction of the sheriff of the Province or any special
sheriff of the Bank, or of a municipal judge or notary public of the City or
Municipality where the sale is to be made, who shall be entitled to collect
the fees provided for in the Rules of the Court with respect to sale of
properties under execution.
Sec. 16. Right of Redemption. Any mortgagor of the Bank whose real
property has been extrajudicially sold at public auction shall, within one (1)
year counted from the date of registration of the certificate of sale, have the
right to redeem the real property by paying to the Bank all of the latter's
claims against him, as determined by the Bank.
The Bank may take possession of the foreclosed property during the
redemption period. When the Bank takes possession during such 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. Neither shall the Bank be obliged to
post a bond for the purpose of such possession.
Sec. 17. Inhibition from Board Meeting of Member with Personal Interest.
Whenever any member attending a meeting of the Board of Directors has a
direct personal interest in the discussion or resolution of any given matter,
or any of his relatives within the second civil degree or consanguinity or

second civil degree of affinity has such an interest, said member shall not
participate in the discussion or resolution of the matter and must retire from
the meeting during the deliberation thereon. The minutes of the meeting,
which shall note the subject matter, when resolve, the fact that a member
had a personal interest in it, and the withdrawal of the member concerned,
may be made available to the public.
For this purpose, the member of the Board shall, at the beginning of their
respective terms, disclose to the board any and all interests they may have
in any corporation, partnership. or association and shall, thereafter,
disclosed to the Board, any charges thereto.
Sec. 18. Prohibition on Persons with Personal Interest. No member of the
Board, officer, attorney, agent, or employee of the Bank shall in any
manner, directly participate in the deliberation upon or the determination of
any question affecting his direct personal interest or the personal interests
of his relatives within the second civil degree of consanguinity or second civil
degree of affinity, or of any corporation, partnership, or association in which
he has a direct interest. Any person violating the provisions of this section
shall be summarily removed from office and shall upon conviction be
punished with a not less than one thousand pesos nor more than ten
thousand pesos or with imprisonment of not less than one year nor more
than five years, or by both fine and imprisonment at the discretion of the
court.
Sec. 19. Borrowing by Directors, Officer and Employees Restriction and
Limitation. No director or officer or employees of the Bank or any
corporation, partnership, or company wherein any member of the Board of
Directors, officer or employee, and/or their respective immediate family is a
controlling shareholder, or wherein he is a director or officer shall, either
directly or indirectly, for himself or as representative or agent of others,
borrow any of the deposits of funds from the bank, nor shall he become a
guarantor, or in any manner be an obligator for money borrowed from the
bank or loaned by it: Provided, That this prohibition on loans to directors,
officers and employees shall not include loans allowed in the form of fringe
benefits granted in accordance with rules and regulations as may be
prescribed by the Monetary Board of the Central Bank.
Sec. 20. Rules and Regulations on Conflict of Interest. The foregoing
provisions notwithstanding and in addition thereto, the Board of Directors is
hereby authorized to issue rules and regulations for the purposes of
determining and resolving conflict of interest questions, which rules shall, in
particular, include the requirement on all officers and employees of the Bank
to disclose any shareholdings they, or their relatives within the second civil
degree of consanguinity or second civil degree of affinity, may have in any
corporation, partnership, or company in excess of 2% of the equity of said
corporation, partnership, or company.
NOTES
40
Sec. 21. Examination of the Bank. The Bank shall be subject to supervision
and examination by the appropriate department of the Central Bank of the
Philippines.
Sec. 22. Prohibition on Officers and Employees of the Bank. Except as
required by law, or upon order of a court of competent jurisdiction, or the
express order of the President of the Philippines or written permission of the
client, no officer or employee of the Bank shall reveal to, nor allow to be
examined, inquired or looked into, by any third person, government official,
bureau or office any information relative to details of individual accounts or
specific banking transactions: Provided, that in respect to deposits or
whatever nature, the provisions of existing law shall apply.
This prohibition shall not apply to the exchange of confidential credit
information among government financial institutions or among banks, in
accordance with established banking practices or as may be allowed by law.
Sec. 23. Exaction of Fee, Commission, Gift or Charge. No authorized fee,
commission, gift, or charge of any kind shall be exacted, demanded, or paid,
for obtaining loans from the Bank, and any officer, employee, or agent of
the Bank found guilty of exacting, demanding, or receiving any fee services
in obtaining a loan, shall be punished by a fine of not less than one
thousand nor more than twenty thousand pesos, imprisonment for not less
than one year nor more than ten years, and perpetual disqualification from
public office.
Sec. 24. Penal Provisions of General Banking Act. The penal provisions of
Section 87-A of the General Banking Act shall be applicable to officers,
employees and borrowers of the Bank.
Sec. 25. General Penal Provisions. Any officer or employee of the Bank who
violates, or permits any of the officers, employees or agents of said Banks
or any other person to violate, any of the provision of this Chapter not
specifically punished in the preceding section and any person violating any
provision of this Charter or aiding and abetting the violation thereof, shall be
punished with a fine not less than one thousand nor more than ten thousand
pesos and with imprisonment not less than one year nor more than five
years.
Sec. 26. Other Liability of Guilty Officer or Employee. Any member of the
Board of Directors or officer or employee of the Bank who willfully violates
any of the provisions of this Charter shall in, addition to the criminal and
administrative liability resulting from such act, be held liable for any loss or
injury suffered by the Bank as a result of such violation.
Sec. 27. Liability of Directors, Officers or Partners of Offending Corporation
or Partnership. If the violation of the provisions of this Charter is committed

by a corporation or partnership, the directors, officers or partners hereof
who participated in the violation shall be criminally liable for such violation.
Sec. 28. Applicability of Banking Laws. The provisions of Republic Act No.
265, as amended, and Republic Act No. 337, as amended, insofar as
applicable and not in conflict with any provision of this Charter, shall apply
to the Bank.
TRANSITORY PROVISIONS
Sec. 29. Preparatory Work. Upon the effectivity of this Charter, the Board of
Directors and management of the Bank shall undertake the appropriate
steps to establish its current financial condition for the purpose of
determining its net asset values and the book value of shares thereof. The
shares of stock held by the Government of the Philippines in the Bank are
deemed cancelled and exchange for common voting shares of the Bank.
Sec. 30. Transfer of Assets and Liabilities of the Development Bank of the
Philippines. The Bank shall transfer to the National Government such of its
assets and liabilities as may be necessary to rehabilitate the bank and to
start its operations under the Revised Charter on a viable basis, as
determined by the appropriate authorities, such assets to include but need
not be limited to its acquired assets and non-performing accounts and such
liabilities to include real as well as contingent liabilities. The National
Government is hereby authorized to accept the same under terms and
conditions as may be mutually acceptable to the Bank and the National
Government.
Sec. 31. Maintenance, Care and Preservation of Assets Transferred to the
National Government. The Bank is hereby authorized to enter into an
agreement with the National Government as transferee of assets from the
Bank as hereinabove provided, either as an interim arrangement or
otherwise and under such terms and conditions as may be necessary to
preserve and/or to maintain and/or to dispose of such assets transferred to
the National Government.
Sec. 32. Authority to Reorganize. In view of the new scope of operations of
the Bank, a reorganization of the Bank and a reduction in force are hereby
authorized to achieve simplicity and economy in operations, including
adopting a new staffing pattern to suit the reduced operations envisioned.
The formulation of the program of reorganization shall be completed within
six months after the approval of this Charter, and the full implementation of
the reorganization program within thirty months thereafter.
Sec. 33. Implementing Details; Organization and Staffing of the Bank. Upon
the effectivity of this Charter, the Board of Directors of the Bank shall be
constituted and its Chairman appointed. The Chairman is hereby authorized,
subject to the approval of the Board of Directors as appropriate, to issue
NOTES
41
such orders, rules and regulations as may be necessary to implement the

provisions of this Charter including those relative to the financial aspects, if
any, and to the reorganization of the Bank as hereinabove authorized which
will involve the determination and adoption of (1) the new internal structure
of the Bank as reorganized down to the divisional section or lowest
organizational levels, including such appropriate units as may be needed to
handle caretaking activities such as the disposition of certain assets and the
collection of certain accounts; (2) a new staffing pattern including
appropriate salary rates, and (3) the initial operating budget.
In the implementation of the reorganization of the Bank, as authorized
under the preceding section, qualified personnel of the Bank may be
appointed to appropriate positions in the new staffing pattern thereof and
those not so appointed are deemed separated from the service. No
preferential or priority rights shall be given to or enjoyed by any officer or
personnel of the Bank for appointment to any position in the new staffing
pattern nor shall any officer or personnel be considered as having prior or
vested rights with respect to retention in the Bank or in any position as may
have been created in its new staffing pattern, even if he should be the
incumbent of a similar position thereon.
Pending the completion of the personnel actions above provided and the
issuance of the appropriate implementing orders, all present remaining
incumbents of position in the Bank shall continue to exercise their usual
functions, duties and responsibilities.
Sec. 34. Separation Benefits. All those who shall retire from the service or
are separated therefrom on account of the reorganization of the Bank under
the provisions of this Charter shall be entitled to all gratuities and benefits
provided for under existing laws and/or supplementary retirement plans
adopted by and effective in the Bank: Provided, that any separation benefits
and incentives which may be granted by the Bank subsequent to June 1,
1986, which may be in addition to those provided under existing laws and
previous retirement programs of the Bank prior to the said date, for those
personnel referred to in this section shall be funded by the National
Government; Provided, further, that, any supplementary retirement plan
adopted by the Bank after the effectivity of this Chapter shall require the
prior approval of the Minister of Finance.
Sec. 35. Banking Operations under 1986 Revised Charter, Government
Laws. The banking operations of the Bank shall be governed by the
provisions of the 1986 Revised Charter beginning on January 2, 1987 on
such subsequent date as may be determined by the President of the
Philippines upon the recommendation of the Minister of Finance.

(c) Philippine Veterans Bank
Philippine Veterans Bank Act
Section 1. Name Domicile and place of business. There is hereby created a
bank to be known as the Philippine Veterans Bank, which shall be commonly
called the Veterans Bank. Its principal domicile and place of business shall
be in the City of Manila but branches or agencies may be established in the
provinces and cities as the Board of Directors may decide.
CORPORATE POWERS
Section 2. Corporate powers and duties. The said Veterans Bank shall be a
body corporate and shall have the power:
(a) To prescribe is by-laws;
(b) To adopt and use a seal;
(c) To sue and be sued;
(d) To carry on a trust business is accordance with the provisions of laws
governing trust corporations;
(e) To grant long-term loans and advances preferably to veterans, their
widows, orphans or compulsory heirs against security and real estate and/or
other acceptable assets including backpay certificates issued by the National
Treasurer pursuant to Republic Act No. 304 and Republic Act No. 897 at the
discretion of the Board of Directors for the establishment, rehabilitation or
expansion of agriculture, industrial, and other productive enterprises:
Provided, That the aggregate of such loans shall not exceed the sum total of
the paid-up capital and unimpaired surplus, long-term indebtedness and
thirty per cent of the total deposits: Provided, further, That notarial services
in connection with loan applications of not more than one thousand pesos
(P1,000.00) shall be furnished by the Bank free of charge and in case where
the Veterans Bank has no lawyers, notarial services shall be performed by
the justice of the peace and other government notaries public, free of
charge;
(f) To invest in stocks other than shares of stock in mining companies,
government guaranteed bonds, and secured collaterals having maturities of
not more than thirty (30) years: Provided, That the priorities in the grant of
loans for secured collaterals having maturities of not more than thirty years
shall be in accordance with the rules and regulations established by the
Central Bank;
(g) With the approval of the President of the Philippines, to issue bonds and
other certificates of indebtedness against its credits secured by real estate
but not in excess of ninety per cent of the value thereof. The proceeds from
NOTES
42
the sale of such bonds and/or certificates of indebtedness are to be used in

its lending operations for the industrial and agricultural development of the
country.
The Board of Directors shall determine the interest rates, maturities, and
other requirements of said obligations;
(h) To contract any obligation, or enter into any agreement essential to the
proper management of its corporate powers and to carry out its aims and
purposes;
(i) To appoint and dismiss its officers and employees;
(j) To grant loans to cooperative associations to facilitate production, the
marketing of crops, and the acquisition of essential commodities: Provided,
That preference should be given to such cooperative associations which are
owned or controlled by the veterans, their widows, orphans or compulsory
heirs;
(k) To grant loans to government employees and employees of governmentowned or controlled corporations, and to employees of private corporations
or entities for the purpose of enabling said employee to buy shares of stocks
in corporations or industries engaged in the development and/or expansion
of agriculture and industries: Provided, That the yearly amortization of such
loans shall not exceed ten per cent (10%) of the total annual salaries and
wages of the employees: Provided, further, That such loan shall be payable
in full within a period of not exceeding five years and that preference be
given to employees who are veterans;
(l) To exercise the powers granted in this Act and such incidental owners as
may be necessary to carry on and engage in the business of general
banking;
(m) To exercise 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 Act.
Section 3. Authorized capital stock Par value.
(a) The capital stock of the Veterans shall be one hundred million pesos
(P100,000,000.00) divided into five hundred ten thousand (510,000)
common shares and four hundred ninety thousand (490,000) preferred
shares with a par value of one hundred (P100.00) pesos each.
(b) At least fifty-one per cent (51%) of the capital stock of the Veterans
Bank shall be divided into common shares which shall be fully subscribed by
the government of the Republic of the Philippines for and in behalf of the
veterans, their widows, orphans or compulsory heirs as defined and

determined under Section 4, subsection (e) of this Act, and shall be initially
paid from the Veterans Trust Fund provided for in Section 2, subsection (d)
of Republic Act Numbered Seventeen hundred and eighty-nine as amended,
and from or out of earnings, dividends, or profits from the operations of the
Veterans Bank; and for the payment of said subscription, all the available
cash deposits with the Philippine National Bank and/or any other banks to
the credit of the Veterans Trust Fund shall be transferred immediately to the
Veterans Bank: Provided, That after the approval of this Act and
notwithstanding the provisions of any existing law and/or executive orders,
rules and regulations to the contrary, every and all additional cash
payments on account of the said Veterans' Trust Fund shall be remitted and
paid directly and exclusively to the said Veterans' Bank to be applied as
additional paid-up payments of the aforesaid common shares subscription:
Provided, further, That nothing shall be transferred to, or received by, the
said Veterans' Bank representing any portion of the proceeds of the
aforesaid Veterans' Trust Fund except cash payments only of the peso
equivalent thereof at the prevailing rate of exchange: And provided, finally,
That within five years from the organization of the Bank all shares of stock
equivalent to fifty-one per cent subscription of the capital stock held by the
government of the Republic of the Philippines for and in behalf of the
veterans, their widows, orphans or compulsory heirs shall be transferred to
and in the name of the veterans who shall thereafter vote said common
shares. The shares shall be divided equally among the veterans at the rate
of one share of one hundred pesos for each veteran or fraction thereof. The
balance of about forty-nine (49%) per cent shall be divided into preferred
shares which shall be opened for subscription by any recognized veteran,
widow, orphans or compulsory heirs of said veteran at the rate of one (1)
preferred share per veteran: Provided, That in case of failure of any
particular veteran to subscribe for any preferred share of stock so offered to
him as herein provided, within thirty (30) days from the date of receipt of
notice, said share of stock shall be available for subscription to other
veterans in accordance with such rules or regulations as may be
promulgated by the Board of Directors. Any share of stock corresponding to
the capital stock subscribed and paid by the Republic of the Philippines in
the manner aforementioned, shall be issued in the name of the Republic of
the Philippines, in trust for the benefit of veterans, their widows, orphans or
compulsory heirs as determined in this Act, and any share of stock
subscribed and paid by individual veteran shall be issued in the name of the
individual veteran, his widow, orphan or compulsory heir. The sale or
transfer of a share or stock of a veteran, widow, orphan or compulsory heir
of a veteran to a party not a veteran, widow, orphan or compulsory heir of a
veteran shall not be allowed under any circumstances. Any share may be
sold or transferred to the Bank which shall issue the same to the
stockholders who are veterans, their widows, orphans or compulsory heirs:
Provided, That no veterans, widow, orphan or compulsory heir shall be
issued a total of more than twenty shares.
NOTES
43
Section 4. Determination of veterans entitled to benefit from this Act.

(a) The term "veteran or veterans" shall include any person or persons who
served in the regularly constituted air, land, or naval services or arms, or in
such non-regularly organized military units in the Philippines during World
War II, and whose services with such units are duly recognized by the
Republic of the Philippines or by the Government of the United States:
Provided, That for the purposes of this Act, the term "veteran or veterans"
also include the widow, orphan or a compulsory heir of a deceased veteran,
as determined by existing laws;
(b) The term "organized or acknowledged veterans organizations" as used in
this Act shall mean a veterans organization duly recognized or
acknowledged as such by the Philippine Veterans Administration which shall
keep an official roster of such veterans organizations;
(c) On the basis of the acknowledged or duly established official records and
data from the Treasury of the Philippines and any other record or evidence
admissible under the rules of evidence, such as the records of the Philippine
Veterans Administration and of the Armed Forces of the Philippines, the
Philippine Veterans Administration shall determine immediately after the
approval of this Act, who and how many are the veterans of the Philippines
of World War II and their widows, orphans or compulsory heirs as
determined by existing laws who are entitled to the benefits of this Act. The
decision of the Philippine Veterans Administration on the matter shall be
final, unless appeal for review, within fifteen days from notice thereof, is
made to the President of the Philippines or to the Supreme Court whose
decision shall be final. The appeal shall be perfected in the same manner as
in other proceedings and it may be prosecuted by the interested party or by
the head of any acknowledged veterans organization;
(d) The reckoning day for determining the status and number of such
veterans, their widows, orphans or compulsory heirs shall be the date of
approval of this Act;
(e) The share of each beneficiary, war veteran or widow, orphan or
compulsory heir of a deceased veteran, in the distribution of the benefits
accruing to the Republic of the Philippines, will be equal regardless of rank
and services rendered: Provided, That in the case of orphan or orphans of a
deceased veteran, they shall be counted as one unit only and the share of
all of them regardless of their number will be the same or equal to that of a
surviving war veteran or surviving widow;
(f) Notice of the decision of the Philippine Veterans Administration on the
question of who are entitled to participate in the benefits accruing to the
Veterans Trust Fund shall immediately be served on the interested parties,
either directly on thru the organization to which they belong in writing and

by registered mail. In addition, the Philippine Veterans Administration shall
publish for three consecutive weeks a notice in two newspapers of general
circulation in the Philippines to the effect that the Philippine Veterans
Administration has already completed its work of determining the number
and the identity of those entitled to participate in the trust fund and advising
any party interested who has not received yet the notice of the decision
served upon him that he may verify his inclusion or exclusion from the
official register in the Philippine Veterans Administration. This Office shall
keep a complete list and official register of those included and excluded from
the enjoyment of the benefit, which list shall be available for inspection
during office hours. The official registry book shall constitute an irrevocable
public record, certified true copies of which may be released by the
custodian of records for official purpose only.
BANKING OPERATION IN GENERAL
Section 5. Loans, investigation and liabilities. The Veterans Bank is hereby
authorized:
(a) To grant loans for the establishment, rehabilitation, expansion or
development of any agricultural, commercial or industrial enterprise, or
personal service including public utilities, under such rules and regulations
as may be prescribed by the Board of Directors and that preference be given
to applicants who are veterans;
(b) To make loans on, or to discount notes and/or receipts secured by,
harvested and stored crops: Provided, That no loans on the security of such
harvested and stored crops shall exceed eighty per cent of the market value
thereof on the date of the loans: Provided, further, That the crops so
mortgaged shall be insured by the mortgagor for the benefit of the Veterans
Bank for their entire market value at the discretion of the Board of
Directors: Provided, furthermore, That if owing to any circumstances the
value of the crops given as security shall diminish, the mortgagor shall
furnish the Veterans Bank with additional security or refund such part of the
loan as the Bank may deem necessary: Provided, finally, That such loans
shall be granted for a period of not to exceed one year, subject to
extension, in the discretion of the Board of Directors;
(c) To make loans to agriculturists in installments, on standing crops of the
natural products of the Philippines such as palay, copra, sugar, tobacco,
corn, abaca and maguey, of not exceeding seventy per centum of the
estimated value of such crops: Provided, however, That before granting
such loans, the Veterans Bank may require additional security in the nature
of mortgage on landed estate duly registered in the name of the debtor, or
chattel mortgage including those upon livestock, machineries and
agricultural implements or personal bonds with sufficient surety or sureties
satisfactory to the bank;
NOTES
44
(d) Generally, to make advances or discount paper for agricultural,

manufacturing, industrial or commercial purposes: Provided, That loans,
discounts, or advances made under this section shall have maturities of not
exceeding one year, renewable from year to year, in the discretion of the
Board of Directors:
(e) The aggregate amount of loans for any single industry shall at no time
exceed twenty per cent of the Banks lending capacity;
The total liabilities to the bank of any person, or of any company,
corporation, or firm for money borrowed, including in the liabilities of the
company or firm, the liabilities of the several members thereof, shall at no
time exceed fifteen per centum of the unimpaired capital and surplus of the
Bank. But the discount of bills of exchange drawn in good faith against
actually existing values owned by the person negotiating the same shall not
be considered as money borrowed, and in addition to the fifteen per centum
of the unimpaired capital and surplus of the Bank, hereinbefore provided
for, the total liabilities of any borrower, may amount to a further fifteen per
centum of the unimpaired capital and surplus of the Bank provided such
additional liabilities are secured by shipping documents, warehouse receipts
or other similar documents transferring or securing title covering readily
marketable, nonperishable stocks, when such staples are fully covered by
insurance and when such staples have a market value equal to at least one
hundred twenty-five per centum of such additional liabilities.
The Bank shall not make any loan upon the security of the stock of any
other corporation if the aggregate market value of all such stocks as
collateral exceeds an amount equal to ten per centum of the unimpaired
capital stock and surplus of the Bank. The term "loan" whenever used in this
Act shall include overdrafts and the limitations contained in this section shall
apply to any loan of any kind whenever secured wholly or party by real
estate mortgage.
BOARD OF DIRECTORS COMPOSITION AND ORGANIZATION
Section 6. Qualifications and per diems of the Board of Directors.
(a) Within the first five years from the organization of the Veterans Bank or
until the transfer of the common shares of its capital stock to the veterans
as provided in Section three of this Act, the affairs and business of the
Veterans Bank shall be directed and its property managed, controlled and
preserved, unless otherwise provided in this Act, by a Board of Directors
consisting of eleven (11) members to be composed of three ex-officio
members to wit: the Philippine Veterans Administrator, the President of the
Veterans Federation of the Philippines, and the Secretary of National
Defense, and the remaining members who shall be veterans of good
standing with formal business training and/or experience in banking and

finance, shall, upon the recommendation of the Supreme Council of the
Veterans Federation of the Philippines, be appointed by the President of the
Philippines with the consent of the Commission on Appointments. The
Supreme Council of the Veterans Federation of the Philippines shall submit
to the President of the Philippines a list of sixteen veterans from which list
the President shall choose eight who shall hold office for one year and until
their successors are duly appointed and qualified. After the transfer of the
common shares of the capital stock of the Veterans Bank to the veterans as
provided for in Section three of this Act, the members of the Board of
Directors shall be elected annually by the stockholders in the manner
prescribed by the Corporation Law: Provided, That no director, officer, or
employee of any bank shall be eligible as member of the Board of Directors
of the Veterans Bank: Provided, further, That no member of the Supreme
Council of the Veterans Federation of the Philippines who participated in the
election of a member of the Board of Directors other than the Federation
President who is an ex officio member can be appointed to the Board unless
he first resigns as a member of the Supreme Council. The members of the
Board shall receive a per diem allowance of fifty pesos (P50.00) for every
meeting of the Board actually attended by them.
(b) The Board of Directors, shall upon a majority vote of all its members,
elect its Chairman, Vice-Chairman, and Secretary which Secretary may or
may not be a member of the Board, at such a time and place as shall be
provided for in its By-Laws. Pending the election of its Chairman, the
President of the Veterans Bank shall preside over the Board of Directors.
POWER AND AUTHORITY OF THE BOARD OF DIRECTORS
Section 7. The Board of Directors shall
(a) Formulate policies necessary to carry out effectively the provisions of
this Act and adopt such By-Laws rules and regulations for the effective
operation of the Bank in conformity with this Act and other existing laws;
(b) Determine the organization of the Bank by creating the necessary
departments or offices as are essential for the efficient operation of the
Bank;
(c) Subject to prior approval of the Monetary Board, establish branches or
agencies in other countries; and,
(d) That during the first five years of transition; mentioned in Section three
(a) of this Act, with the authorization of the proper Department Secretary
first had, the Board of Directors may appoint as agents of the Bank the
provincial or municipal treasurers, who shall receive such additional
compensation as the Board may determine.
NOTES
45
THE EXECUTIVE OFFICERS

Section 8. President and Vice-Presidents Appointment and removal
Salaries. The chief executive of the Bank shall be the President who shall be
chosen by the Board of Directors and, during the first five years of
Transition already mentioned, with the advice and consent of the President
of the Philippines. He shall be assisted by an Executive Vice-President and
such number of Vice-Presidents who shall be elected and may be removed
by the Board of Directors. The President and the Executive Vice-President
shall possess practical experience in banking or finance as executives for at
least five years. The salaries of the President and the Executive VicePresident shall be fixed by the Board of Directors but, in no case, shall it be
more than thirty thousand (P30,000.00) pesos and twenty-five thousand
(P25,000.00) pesos yearly, respectively.
THE PRESIDENT POWERS AND DUTIES
Section 9. Duties and powers of the President. The President of the Bank
shall among others, execute and administer the policies, measures, orders,
and resolutions approved by the Board of Directors, and direct and
supervise the operation and administration of the Bank.
Particularly, he shall have the power and duty:
(a) To make loans on commercial paper for such period of time not to
exceed four months, in sums not exceeding ten thousand pesos
(P10,000.00) to anyone person, company, corporations, or firm, but he is
required to submit a report on such loans to the Board of Directors at its
succeeding session: Provided, That the total amount of such loans shall not
exceed five (5%) per cent of the paid-up capital and surplus;
(b) To make, with the advice and consent of the Board of Directors, all
contracts on behalf of the said Bank and to enter into all necessary
obligations that this Act requires or permits:
(c) To report weekly to the Board of Directors the main facts concerning the
operations of the Bank during the preceding week and to suggest changes in
rates of discount of interest, exchange, or policy which to him may seem
best;
(d) To exercise such other powers and perform such other duties as may be
directed by the Board of Directors from time to time.
LEGAL DEPARTMENT
Section 10. Legal Counsel. The Veterans Bank shall have its own legal
department, the chief and members of which shall be appointed by the
Board of Directors.

AUDITING DEPARTMENT
Section 11. Bank Auditor Reports. The Veterans Bank shall have its own
auditing department, the chief of which shall be appointed by the Board of
Directors from among recognized veterans of good standing who are
certified public accountants and with actual experience in the work of a
comptroller. The auditor may not be removed except for cause and neither
may his salary be reduced during his term of office. All other employees of
the auditing department shall be appointed by the auditor with the advice
and consent of the Board of Directors. Unless otherwise prescribed by the
Board of Directors, the auditor of the Veterans Bank shall have the rank and
pay of a Vice-President and shall receive a salary of eighteen thousand
pesos (P18,000.00) per annum. The auditor, with the approval of the Board
of Directors, shall fix the salaries of the employees of the auditing
department.
The auditor shall make an annual report of the condition of the Bank to the
Board of Directors, to the President of the Veterans Federation of the
Philippines, and to the Administrator of the Philippine Veterans
Administration. The report shall contain among other things a statement of
the resources and liabilities, including earnings and expenses, the amount of
capital stock, dividends paid, surplus reserved, and undivided profits, as well
as the losses, bad debts and suspend and overdue papers carried in the
Bank's assets as of the day in which the statements are compiled.
APPOINTMENTS, REMOVAL AND SALARIES OF THE OTHER OFFICERS
AND EMPLOYEES OF THE VETERANS
NOTES
46
Section 14. Inspection by Department of Supervision and Examination of

the Central Bank. The Veterans Bank shall be subject to inspection by the
Department of Supervision and Examination of the Central Bank in
accordance with Republic Act Numbered Two hundred sixty-five and
Republic Act Numbered Three hundred thirty-seven.
Section 15. Prohibition against owing stock in or incurring indebtedness to
the Bank. The Secretary of Finance. the Governor of the Central Bank, all
other members of the Monetary Board, and the Chief of the Auditing
Department of the Veterans Bank are hereby prohibited from owing stock in
the Veterans Bank, or from becoming indebted to said Bank, directly or
indirectly.
PROHIBITED LOANS
Section 16. Loans to officers, directors, and employees; restriction and
limitation. The Veterans Bank shall not directly or indirectly, grant loans to
any director, officer, employee, or agent of the Bank, and no loans shall be
granted to a corporation, partnership, or company wherein any member of
the Board of Directors is a shareholder, agent or employee in any matter,
except by the unanimous vote of the members of the Board present,
excluding the member interested: Provided, That the total liabilities to the
Bank of any corporation wherein any member of the Board of Directors of
the Veterans Bank is a shareholder, agent or employee in any manner, shall
at no time exceed five (5%) per centum of the surplus and paid-up capital
of the Bank.
ACQUISITION AND DISPOSAL OF REAL ESTATE
Section 12. Appointments, removal and salaries of other officers and

employees. All other officers and employees of the Bank shall be appointed
and removed by the Board of Directors upon recommendation of the
President of the Bank: Provided, however, That all other circumstances
being equal, preference shall be given to veterans, or their widows, orphans
or compulsory heirs in the appointment of said personnel. Said officers and
employees shall have duties and compensation which shall be fixed by the
President with the approval of the Board of Directors.
Section 17. The Veterans Bank is hereby authorized to purchase and own
such real estate as may be necessary for the purpose of carrying on its
business. It is also authorized to hold such real estate as it may find
necessary to acquire in the collection of debts due to the said Bank or to its
branches, but real estate acquired in the collection of debts shall be sold by
the Bank within five (5) years after the date of its acquisition.
Section 13. Fidelity bond of officers and employees. The Board of Directors
may require any officer and employees of the Bank and its branches, before
entering upon the performance of their duties, to furnish a fidelity bond for
the benefit of the Bank, in the form and amount prescribed by the Board of
Directors. For this purpose, and for this purpose only, all officers and
employees of whom a bond, is required shall be deemed public officers and
employees, respectively, and the provisions of the Public Bonding Law,
Chapter Fifteen of the Administrative Code and related legislations are
hereby made applicable to them.
Section 18. Right of redemption of property foreclosed. The mortgagor

shall have the right, within one year after the sale of the real estate as a
result of the foreclosure of a mortgage, to redeem the property by paying
the amount fixed by the court in the order of execution, with interest
thereon at the rate specified in the mortgaged, and all the costs and other
judicial expenses incurred by the Bank by reason of the execution and sale,
and for the custody of said property.
REDEMPTION OF MORTGAGED PROPERTY
Section 19. Right to demand additional securities; disposal of same

Advanced maturity of credits Right to collect deficiency. If, from any cause

whatsoever, any of the securities specified for the loans provided for in this
Act or accepted by said Bank as security for loans or discounts should
decline or depreciate in market value in part or as a whole, or upon nonperformance of any promise made to secure the loan or discount, or bill of
exchange, notes, and checks, the said Bank may demand additional
securities or may forthwith declare any such obligation due and payable and
upon three days' notice, demand, sell, assign, transfer, and deliver the
whole of said securities or any part thereof, or any substitute therefor, or
any addition thereto, or any other securities given unto or left in the
possession of, or hereafter given unto or left in the possession of the said
Bank for safekeeping or otherwise, at any broker's board or at public or
private sale, at the option of said Bank, and at such sale, if public, the said
Bank may itself purchase the whole or any part of the property sold, free
from any right of redemption on the part of the mortgagor or pledgor. In
case of sale for any cause, after deducting all costs, or expenses of any kind
for collection, sale or delivery, the said Bank may apply the residue of the
proceeds of the sale so made, to pay the said Bank, as its President shall
deem proper whether then due or not due, making proper rebate for
interest or liabilities not then due, returning the overplus, if any, to the
mortgagor or pledgor, who shall remain liable to and pay to said Bank any
deficiency arising upon such sale or sales.
Section 20. Action to collect balance of indebtedness. If the proceeds of the
sale of securities held as collateral for loans by said Bank do not cover the
full amount of the loan, together with the interest and other charges
thereon, the Bank may proceed against the debtor for the difference, but
any amount exceeding the full indebtedness to the Bank shall be paid to the
debtor.
PROHIBITED REMUNERATION
Section 21. Prohibition against charging fees in securing loans Penalties for
violation. No fee, charge or commission in any form shall be exacted,
demanded, or paid, for obtaining loans, directly or indirectly, by any
director, officer, employee, or agent of the Veterans Bank. Any director,
officer, employee or agent so exacting, demanding or receiving any fee for
his service or for the use of his influence in obtaining a loan shall be
punished as hereinafter provided for, for the violation of this Act.
NET PROFIT
Section 22. Allocation of net Profits. At the close of each calendar year, the
Bank shall determine the net result of its operations, in the calculation of
which, adequate allowances shall be made for probable losses, and the net
profit arrived thereat shall be distributed as follows:
NOTES
47
(a) Twenty (20%) per cent of such net profit shall accrue to the reserve
account: Provided, That should the accumulated reserves equal to or in
excess of the authorized capital of the Bank, the twenty per cent herein
authorized to be accumulated shall be distributed under the subsection
immediately following:
(b) From the remaining eighty (80%) per cent of the net profit shall be
deducted the guaranteed earning of the preferred shares of stock owned by
individual veterans, their widows, orphans or compulsory heirs: Provided,
That the share in the net profits corresponding to the Republic of the
Philippines shall first be applied in payment of its capital stock subscription,
until said shares shall have been fully paid. Thereafter, twenty per centum
of the net profits after deducting the guaranteed earnings of the preferred
shares shall be paid in cash to the Board of Trustees as hereinafter provided
in Section 23 hereof for disposition and shall be available for 'grants-in-aid'
to veterans, their widows, orphans, or compulsory heirs, for educational,
social, charitable, and rehabilitation purposes, to organization doing service
for the cause of the veterans, and for such other purposes beneficial to the
veterans.
The remaining profits shall be paid as dividends on common shares held by
the individual veterans as provided in Section three of this Act.
Section 23. Board of Trustees of World War II. There is hereby created a
Board of Trustees for the veterans of World War II to be known as "The
Board of Trustees of the Veterans of World War II", consisting of eleven (11)
members to be selected from among the veterans of World War II by the
Supreme Council of the Veterans Federation of the Philippines organized
pursuant to Republic Act Numbered Twenty-six hundred and forty.
The Board of Trustees shall be organized within ninety (90) days after the
approval of this Act. Immediately after its organization the members of the
Board of Trustees shall elect from among themselves a Chairman and a
Vice-Chairman. The members of the Board of Trustees shall serve without
compensation other than actual and necessary expenses incurred either in
attendance upon meetings of the Board or upon other official business
authorized by resolution thereof, but a vote of the majority of all the
members shall be necessary to authorize the disposal of the funds held by
the Board.
The Board shall appoint a secretary and such necessary other officials and
employees and fix their compensations.

LEGAL EXISTENCE
Section 24. Term of legal existence. The legal existence of the Bank under
this Act shall be for a period of fifty (50) years, from and after the date of
the approval of this Act.
Section 25. Prohibition against the use of the word "Veterans" Penalty for
violation. All banks other than the Veterans Bank, and such other banks now
licensed to do business in the Philippines whose names already include the
word "veterans" are prohibited from using the word "veterans" as a portion
of their names or titles. Any party violating this provision shall be subject to
a fine of not less than one hundred (P100.00) pesos for each day during
which said violation is committed or repeated.
PENALTIES
Section 26. Penalties for violation of the provisions of this Act. Any
director, officer, employee, or agent of the Bank who violates or permits the
violation of any of the provisions of this Act, or any person aiding or
abetting the violation of any provision of this Act, shall be punished by a fine
not exceeding ten thousand (P10,000.00) pesos or imprisonment of not
more than five (5) years, or both, in the discretion of the court.
VETERANS BANK A GOVERNMENT DEPOSITORY
Section 27. Veterans Bank authorized to receive deposit of government
funds as a Government Depository. The Secretary of Finance, the National
Treasurer and his authorized representatives, city and municipal treasurers
as well as official custodians of public funds or those belonging to
government-owned or controlled corporations are hereby authorized if they
so desire to make and actually maintain deposits of any government or
corporate funds with the Veterans Bank, which is hereby declared to be a
government depository.
GENERAL PROVISIONS
Section 28. Articles of incorporation. This Act, upon its approval, shall be
deemed and accepted to all legal intents and purposes as the statutory
articles of incorporation or Charter of the Philippine Veterans' Bank; and
that, notwithstanding the provisions of any existing law to the contrary, said
Bank shall be deemed registered and duly authorized to do business and
operate as a commercial bank as of the date of approval of this Act.
Section 29. By-laws. Within one month after the approval of this Act, the
by-laws of the Philippine Veterans' Bank for its organizational, functional
and operational government and procedures shall be adopted by the
affirmative vote of the stockholders representing a majority of all the
subscribed capital stock entitled to vote, whether paid or unpaid, subject to
NOTES
48
certification by the Monetary Board pursuant to Section ten of Republic Act

Numbered Three hundred thirty-seven.
The by-laws, duly certified by the Monetary Board as aforesaid, shall be
signed by the stockholders voting for them and shall be kept in the principal
office of the Bank, subject to the inspection of the stockholders during office
hours, and a copy thereof, duly certified by a majority of the directors and
countersigned by the Bank secretary, shall be filed and registered with the
Securities and Exchange Commissioner.
An Act of Rehabilitate the PVB
Section 1. Declaration of Policy. In order to give meaning and realization
to the constitutional mandate to provide immediate and adequate care,
benefits and other forms of assistance to war veterans and veterans of
military campaigns, their surviving spouses and orphans, it is hereby
declared the policy of the Government to provide the necessary mechanisms
to rehabilitate the Philippine Veterans Bank, hereinafter known as the
Veterans Bank, a bank owned by the Filipino veterans of World War II and
deeply imbued and impressed with public interest.
Section 2. Settlement of Liabilities. The National Government deposit of
One billion four hundred eighty-nine million pesos (P1,489,000,000.00) with
the Veterans Bank is hereby restructured into a seven-year promissory note
of the said bank, carrying an interest rate of four percent (4%) per annum
effective on the date of actual operation: Provided, That only the interest
shall be paid in the first three (3) years: Provided, further, That repayment
of the principal shall be divided into four (4) equal amortizations: Provided,
finally, that the said promissory note shall be exempted from the reserve
equipment rule of commercial banks.1awphi1
The accrued interests due to the National Government deposits up to and
during the time of the Veterans Bank's closure in 1985 and the tax liabilities
incurred by the Veterans Bank also up to and during the time of the
Veterans Bank's closure are hereby condoned and extinguished.
The obligations of the Veterans Bank with the Central Bank of the
Philippines and the Philippine Deposit Insurance Corporation are hereby
restructured in the same manner governing National Government deposits
provided in the first paragraph of this section.
With respect to deposits of local government units and other private
deposits with the Veterans Bank, the terms and conditions for the retention
or withdrawal thereof shall be negotiated individually but may carry more
favorable terms in favor of the Veterans Bank.
Section 3. Operations and Changes in the Capital Structure of the Veterans
Bank and other Amendments. The operations and changes in the capital

structure of the Veterans Bank, as well as other amendments to its articles
of incorporation and bylaws as prescribed under Republic Act No. 3518, shall
be in accordance with the Corporation Code, the General Banking Act, and
other related laws.1awphi1
Section 4. Repeal of Amendatory Presidential Decrees. Presidential
Decree Nos. 236, 1637, 919 and 1906 which are inconsistent with this Act
are hereby repealed, thus restoring the full force and legal effect of Republic
Act No. 3518.
Section 5. Reopening of the Veterans Bank and Its Branches. Pursuant to
and within ninety (90) days from the effectivity of this Act, the Central Bank
is hereby authorized to reopen within the period of three (3) years from the
date of the reopening of the head office with no branch licensing cost to the
said bank.
Section 6. Veterans Bank as a Government Depository. The Secretary of
Finance, the National Treasurer and his authorized representatives, city and
municipal treasurers, as well as custodians of public funds or those
belonging to government-owned or controlled corporations, are hereby
authorized if they so desire to make and actually maintain deposits, of any
government of corporate funds with the Veterans Bank, which is hereby
declared to be a government depository.
Section 7. Rehabilitation Committee. To facilitate the implementation of
the provisions of this Act, there is hereby created a rehabilitation committee
which shall have a term of three (3) months from the date of the approval
of this Act composed of the following: the Executive Secretary, as Chairman,
and the Administrator of the Philippine Veterans Affairs Office, the President
of the Veterans Foundation of the Philippines, a representative from the
executive board of the Veterans Federation of the Philippines and a
representative from the Board of Trustees of the Veterans of World War II
or their respective representatives, as members.
Specifically, the committee shall:
(a) Prepare, finance and submit a viable rehabilitation plan to the Monetary
Board of the Central Bank;
(b) Select and organize an initial manning force headed by a management
team to be composed of competent, experienced and professional managers
who must possess all qualifications and none of the disqualifications
provided under Central Bank rules and regulations. The management team
shall be staffed by a trained work force: Provided, That preference shall be
given to the veterans and their dependents, other qualifications being equal;
NOTES
49
(c) Exercise management oversight and liaison with Central Bank officers for
a period which shall not exceed three (3) months reckoned from the date of
approval by the Monetary Board to reopen the Veterans Bank; and
(d) Submit to the Monetary Board of the Central Bank other
recommendations for the successful reopening and operations of the
Veterans Bank.
Section 8. Transitory Provisions. Without requiring new capital infusion
either from the Government or from outside investigators, the Filipino
veterans of World War II who are real owners-stockholders of the Veterans
Bank shall cause the said bank to have at least Seven hundred fifty million
pesos (P750,000,000.00) in total unimpaired capital accounts prior to
reopening pursuant to this Act as a commercial bank.
It is hereby provided that the Board of Trustees of the Veterans of World
War II (BTVWW II) created under Republic Act No. 3518 is hereby
designated as trustee of all issued but undelivered shares of stock.
(d) Philippine National Bank
Revised Charter of PNB
SEC.2. Name; Place of Business; Branches; Agencies and Other Offices- The
Philippine National Bank (hereinafter referred to as the "Bank"), a bank
created under Act No. 2612, as amended, and operating under the
provisions of Presidential Decree No. 694, as amended, shall henceforth
operate under the provisions of this 1986 Revised Charter.
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 other
branches, agencies or other offices at such places in the Philippines or
abroad 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 and Purposes- The Bank shall be a body
corporate and shall have the following powers and purposes:
(a) To perform commercial banking, as well as expanded
commercial banking functions; and, within the context of a
financially viable and stable baking institution, to provide banking
services for the development of agriculture and small and medium
scale commercial and industrial enterprises particularly in the in the
countryside, as provided in Section 4; to provide banking services to
the National Government, other government entities and local
governments; and to engage in international banking activities,
particularly in the promotion of exports;
b) To accept foreign deposits and operate a foreign currency deposit
unit as established under Republic Act No. 6426, as amended;

(c) To accept and administer trusts and to carry on a general trust
business;
(d) To act as official government depository with authority to
maintain deposits of the government, its branches, subdivisions and
instrumentalities, and of government owned or controlled
corporations, subject to the provisions of Section 6 hereof and such
rules and regulations as the Monetary Board may prescribe; and
(e) To adopt, amend or change 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 as provided in the Corporation Code
of the Philippines and the powers of a bank of its category under the
General Banking Act.
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.
SEC. 4. Granting of Loans; Exposure Ceilings and Limits on Equity
Investments. -- In the exercise of its lending authority, the Bank shall give
preference to loans for agricultural and small-and medium-scale commercial
and industrial enterprises, particularly in the countryside.
Unless otherwise provided in this Charter, loans and other credit
accommodations granted by the Bank shall be subject to the appropriate
applicable loan limits to any single borrower as provided for under Republic
Act No. 337, as amended.
The aggregate amount of loans, guarantees and contingent accounts, to
Government agencies and entities including government owned and
controlled corporations shall at no time exceed the deposits and book value
of the shareholdings of the Government, including government agencies and
entities, government owned or controlled corporations plus twenty percent
(20%) of such total.
The authority of the Bank to invest in equities of allied undertakings,
financial or non-financial, as well as in non-allied undertakings, shall be
governed by the provisions of Republic Act No. 337, as amended.
SEC. 5. Authorized Capital Stock; Par Value; Sale of Shares. -- The
authorized capital stock of the Bank shall be Ten Billion Pesos to be divided
into One Hundred Million common shares with par value of P100 per share
which are available for subscription by the National Government. The
common shares may be offered for sale to or subscription by private;
investors; Provided, That, the investment of private investors shall be
subject to the applicable provisions of the General Banking Act.
NOTES
50
The Board of Directors shall have authority to convert such number of

unissued common voting shares into preferred non-voting shares to be
issued for sale or subscription, with such features, terms, and restrictions as
it may determine.
The issue and offering for sale of additional shares to private investors
which will result in more than one-third of the common voting shares being
eligible for acquisition by such investors shall require prior approval of the
President of the Philippines; provided, that, where the sale of shares will
result in a majority ownership by the private sector, the prior approval of
the President shall also be required.
SEC. 6. Change in Ownership of the Majority of the Voting Equity of the
Bank. -- When the ownership of the majority of the issued common voting
shares passes to private investors, the stockholders shall cause the adoption
and registration with the Securities and Exchange Commission of the
appropriate Articles of Incorporation and revised by-laws within three (3)
months from such transfer of ownership. Upon the issuance of the certificate
of incorporation under the provisions of the Corporation Code, this Charter
shall cease to have force and effect, and shall be deemed repealed. Any
special privileges granted to the Bank such as the authority to act as official
government depository, or restrictions imposed upon the Bank, shall be
withdrawn, and the Bank shall thereafter be considered a privately
organized bank subject to the laws and regulations generally applicable to
private banks. The Bank shall likewise cease to be a government owned or
controlled corporation subject to the coverage of service-wide agencies such
as the Commission on Audit and the Civil Service Commission.
The fact of the change of the nature of the Bank from a government-owned
and controlled financial institution to a privately-owned entity shall be given
publicity.
SEC. 7. National Government Subscription. -- Upon the effectivity of this
Charter, the National Government shall subscribe to Twenty-Five Million
common shares of stock worth Two Billion Five Hundred Million Pesos which
shall be deemed paid for by the Government with the net asset values of
the Bank remaining after the transfer of assets and liabilities as provided in
Section 29 hereof.
SEC. 8. Who may Vote Government-Owned Stock. -- The voting rights of all
the stock of the Bank owned and controlled by the National Government
shall be vested in the President of the Philippines, or in such person or
persons as the President may from time to time designate.
SEC. 9. Board of Directors; Composition; Tenure; Per Diems. -- The affairs
and business of the Bank shall be directed and its properties managed and
preserved and its corporate powers exercised, unless otherwise provided in

this Charter, by a Board of Directors consisting of nine members, duly
elected as herein provided for a term of one year or until their successors
are duly elected and qualified.
The Chairman of the Board shall be appointed by the President of the
Philippines from among members of the Board: Provided, That the position
of Chairman of the Board and President of the Bank shall not be held by the
same person.
The Chairman shall preside at meetings of the Board and of the
stockholders.
The President of the Bank shall be vice-chairman of the Board and, as such
shall assist the chairman and act in his stead in case of absence or
incapacity. In case of incapacity or absence of both the chairman and vicechairman, the Board of Directors shall designate a temporary chairman from
among its members.
Unless otherwise set by the Board and approved by the President of the
Philippines, members of the Board shall be paid a per diem of one thousand
pesos for each meeting of the Board of Directors actually attended:
Provided, That the total amount of per diems for every single month shall
not exceed the sum of Five Thousand Pesos.
SEC. 10. Election and Qualification of Members of the Board of Directors. -Annually on the first Tuesday after the first Monday in March, the
stockholders shall meet to elect the members of the Board of Directors for
the current year. Each stockholder or proxy will be entitled to as many votes
as he may have shares of stock registered in his name on the thirty-first of
January last preceding and held by him at the time of the election multiplied
by the number of directors to be elected. In the election of the members of
the Board, stockholders shall have the right of cumulative voting as
recognized by law.
No person shall be elected director of the Bank unless he is a natural-born
citizen of the Philippines, not less than thirty-five years of age, of good
moral character and has attained proficiency, expertise and recognized
competence in one or more of the following: banking, finance, economics,
law, agriculture, business management, public utility or government
administration.
At least four of the elective members of the Board shall not concurrently
hold appointive or elective positions in the National Government, any
government-owned or controlled corporation, or in any local government.
No director, officer on employee of any other bank shall be eligible as a
member of the Board of Directors of the Bank.
NOTES
51
SEC. 11. Powers of the Board of Directors. -- The Board of Directors shall
have, among others, the following duties, powers and authority:
(a) To formulate policies necessary to carry out effectively the
provisions of this Charter;
(b) To adopt, amend or change the by-laws as well as such rules
and regulations as may be necessary for the effective operation of
the Bank, in conformity with this Charter and existing laws;
(c) To prescribe such terms and conditions to govern the granting of
loans and credits, consistent with the provisions of this Charter;
(d) To adopt an annual budget for the effective operation and
administration of the Bank;
(e) To create, establish and operate a "Self-Insurance System" in
order to effect possible damage or loss of cash-in-transit that the
Bank may suffer on account of cash and check remittances to its
branches and agencies and vice-versa, as well as those that may
arise from irregular encashment or negotiation of checks, drafts,
telegraphic transfers and similar instruments, or losses arising from
other forms of fraud;
(f) To create and establish a Provident Fund which shall consist of
contributions made both by the Bank and its officers or employees
to a common fund for the payment of benefits to such officer or
employee or his heirs under such terms and conditions as the Board
of Directors may fix;
(g) To compromise or release, in whole or in part, any claim,
liability, or demand for or against the Bank, regardless of the
amount involved, under such terms and conditions as it may impose
to protect the interests of the Bank
(h) To determine the procedure and requirements for the acquisition
of properties necessary for the business of the Bank and
(i) To dispose of properties of the Bank, whether used in the
conduct of its business or acquired as a result of its banking
operations, by public bidding or private negotiations as provided in
Sec. 21 of this Charter.
The Board shall meet as frequently as necessary and the presence of five
members shall constitute a quorum.
SEC. 12. President of the Bank. - The Chief Executive Officer of the Bank
shall be the President who shall be elected by the Board of Directors from

among themselves with the advise and consent of the President of the
Philippines. No person shall be appointed President of the Bank unless he is
at least forty years of age, of good moral character and reputation, with at
least ten years previous experience in banking, and has a reputed
proficiency, expertise and recognized competence in banking or financial
management.
The President of the Bank shall, among other powers and duties, execute
and administer the policies, measures, order and resolutions approved by
the Board of Directors, and direct and supervise the operations and
administration of the Bank. Particularly, he shall have the power and duty:
(a) To execute all contracts and to enter into all authorized
transactions in behalf of the Bank;
(b) To exercise, as Chief Executive Officer, the power of supervision
and control over decisions or actions of subordinate officers and all
other powers that may be granted by the Board.
(c) To recommend to the Board the appointment, promotion, or
removal of all officers of the Bank with the rank of at least Vice
President or its equivalent;
(d) To appoint, promote or remove employees and officers below
the rank of Vice President;
(e) To transfer, assign or reassign officers and personnel of the
Bank in the interest of the service;
(f) To report periodically to the Board of Directors on the operations
of the Bank;
(g) To submit annually a report on the result of the operations of
the Bank to the President of the Philippines and to private
shareholders in the Bank, if any; and
(h) To delegate any of his powers, duties or functions to unto any
official of the Bank, with the approval of the Board of Directors.
SEC. 13. Legal Matters and Cases. -- The Bank shall have its own Legal
Department, the head of which shall be appointed by the Board of Directors
of the Bank upon recommendation of the President of the Bank.
The Bank may, subject to court approval, deputize any member of its legal
staff to act as Special Sheriff in the enforcement of court writs and
processes in cases involving the Bank.
NOTES
52
SEC. 14. Bank Auditor. -- The Commission on Audit shall be ex-officio

auditor of the Bank and shall designate a representative to the Bank.
SEC. 15. Other Officers and Employees. - The Board of Directors shall
provide for an organization and staff of officers and employees of the Bank
and upon recommendation of the President of the Bank, fix their
remunerations and other emoluments.
No officer or employee of the Bank subject to the Civil Service Law shall be
dismissed or suspended except as provided by law.
SEC. 16. Examination of the Bank. -- The Bank shall be subject to
supervision and examination by the appropriate department of the Central
Bank of the Philippines.
SEC. 17. Inhibition from Board Meeting of Member with Personal Interest. -Whenever any member attending a meeting of the Board of Directors has a
persona interest directly or indirectly, in the discussion or resolution of any
given matter, said member shall not participate in the discussion or
resolution of the matter and must retire from the meeting during the
deliberation thereon. The minutes of the meeting which shall not the subject
matter, when resolved, the fact that a member had a personal interest in it,
and the withdrawal of the members concerned, may be made available to
the public.
SEC. 18. Prohibition on Officers and Employees of the Bank. -- Excepts as
required by law, or upon order of a court of competent jurisdiction, or
express order of the President of the Philippines or writ of permission of the
client, no officer or employee of the Bank shall reveal to, nor allow, to be
examined, inquired or looked into by any relative to details of individual
accounts or specific banking transactions: Provided, that in respect to
deposits of whatever nature, the provisions of existing laws shall apply.
This prohibition shall not apply to the exchange of confidential credit
information among government financial institutions or among banks, in
accordance with established banking practices or as may be allowed by law.
SEC. 19. Borrowings by Directors, Officers and Employees - Restrictions and
Limitations. -- No director of officer or employee of the Bank or any
corporation, partnership, or company wherein any member of the Board of
Directors, officer or employee, and/or their respective relatives within the
second degree of consanguinity or affinity, is a director, officer, or
controlling shareholder, shall either directly or indirectly, for himself or as
representative or agent of others, borrow any of the deposits of funds from
the Bank, nor shall he become a guarantor, indorser, or surety for loans
from the Bank to others, or in any manner be an obligor for money
borrowed from the Bank or loaned by it: Provided, That this provision on
NOTES
53
loans to directors, officers and employees shall not include loans allowed in
the form of fringe benefits granted in accordance with rules and regulations
as may be prescribed by the Monetary Board of the Central Bank.
used for the declaration of Dividends corresponding to the shares of the

Government and the private stockholders. Dividends may either be in the
form of cash or stock as the Board of Directors shall determine.
The Bank shall not grant, directly or indirectly, any loans or credit
accommodations to the head or to any officer or personnel directly
exercising supervisory or regulatory authority over the activities of the Bank
such as those of the Central Bank of the Philippines or of the Commission on
Audit.
SEC. 24. Payment of Cash Dividends Corresponding to Government-Owned

Shares. -- Cash Dividends corresponding to the shares of the National
Government shall first be set aside and used for the purpose of retiring the
government securities which may have been issued by the Minister of
Finance for additional Government subscriptions to the unissued shares of
the capital stock of the Bank prior to the effectivity of this Charter.
Thereafter, cash dividends corresponding to the Government-owned shares
shall be paid unto the Treasury of the Philippines to become part of the
general funds.
SEC. 20. Prohibited Interest or Fees with Reference to Obtaining Loans. -No Director, officer or employee of the Bank shall, except as provided in the
preceding Section, directly or indirectly, have any pecuniary interest in any
loan from the Bank. Neither shall he charge, exact, demand or receive any
fee, charge or commission in any form for his service or the use of his
influence in obtaining a loan. Any violation of this Section shall be punished
as hereinafter provided in Section 27 of this Charter.
SEC. 21. Disposal of Real Estate and Other Properties in the Collection of
Debts. -- Real and other properties acquired by the Bank in the collection of
debts, receivables or investments by way of foreclosure or other means
shall be sold or otherwise disposed of in accordance with the policies and
guidelines adopted by the Board of Directors within five years after date of
their acquisition.
SEC. 22. Rights of Redemption of Foreclosed Property - Right of Possession
During Redemption Period. - Within one year from the registration of the
foreclosure sale of real property, the mortgagor shall have the right to
redeem the property by paying the principal, interests, charges,
commissions and all claims of whatever nature of the Bank outstanding and
due as of the date of the sale including all the costs and other expenses
incurred by reason of the foreclosure sale and custody of the property, as
well as charges and accrued interest.
The Bank may take possession of the foreclosed property during the
redemption period. When the Bank takes possession during such 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. Neither shall the Bank be obliged to
post a bond for the purpose of such possession.
SEC. 23. Allocation of Current Net Profits. -- At the close of the calendar
year, the Bank shall determine the net results of its operations in the
calculation of which adequate allowances shall be made for probable losses.
Of the net profits arrived at, at least fifty percent (50%) shall be set aside
and accumulated in the earned surplus account. The remaining current net
profits may after an examination of the financial condition of the Bank be
SEC. 25. Term of Legal Existence. -- The legal existence of the Bank shall
be for a period of fifty years, counted from the date the Bank operates
under the provisions of this Charter.
SEC. 26. Applicability of Banking Laws. - The provisions of Republic Acts No.
265, as amended, and No. 337, as amended, insofar as applicable and not
in conflict with any provisions of this Charter shall apply to the Bank.
SEC. 27. Penalties for Violation of the Provisions of this Charter. -- Any
director, officer or employee of the Bank who violates or knowingly permits
the violation and any person aiding or abetting any violations of any of the
provisions of this Charter, shall be punished by a fine not to exceed ten
thousand pesos or by imprisonment or not more than five years or both
such fine and imprisonment.
TRANSITORY PROVISIONS
SEC. 28. Preparatory Work. -- Upon the effectivity of this Executive Order,
the Board of Directors and management of the Bank shall undertake the
appropriate steps to establish its current financial condition for the purpose
of determining its net asset values and the book value of shares thereof.
All shares of stock held by the Government of the Philippines in the Bank
are deemed cancelled and exchanged for Twenty Five Million common
shares of stock subscribed and paid-in by the Government, pursuant to
Section 7 hereof.
The ratio of the shareholdings of the Government of the Philippines to the
shareholdings of the private shareholders before the effectivity of this
Charter shall be maintained.
Private shareholders of the Bank, including holders of Common "A" shares,
shall exchange their shares for such number of shares of stock of the Bank
computed on the basis of the ratio of the common shares held by the

Government immediately prior to the effectivity of this Charter to the new
shares of stock subscribed and paid-in by the Government pursuant to
Section 7 hereof.
SEC. 29. Transfer of Assets and Liabilities of the Philippine National Bank. -The Bank shall transfer to the National Government such of its assets and
liabilities as may be necessary to rehabilitate the Bank and to start its
operations under the Revised Charter on a viable basis, as determined by
the appropriate authorities, such assets to include but not necessarily be
limited to its acquired assets and non-performing accounts, and such
liabilities to include real as well as contingent liabilities. The National
Government is hereby authorized to accept the same under terms and
conditions as may be mutually acceptable to the Bank and the National
Government.
SEC. 31. Banking Operations under the 1986 Revised Charters; Governing
Laws. -- The Banking operations of the Bank shall be governed by the
provisions of this Charter beginning on January 1, 1987, or on such
subsequent date as may be determine by the President of the Philippines
upon the recommendation of the Minister of Finance.
SEC. 32. Loans and Other Investments, and Liabilities is Excess of
Prescribed Limits. -- Loans and other investments as well as liabilities
existing as of the date of the effectivity of this Revised Charter which as a
result of the assets and liabilities transfer under Section 29 hereof will
exceed the limits prescribed under the provisions of this Act, the General
Banking Act or Central Bank regulations shall not be subject to such
prescribed limits but shall be reduced within a period of two years unless a
longer period is prescribed by the Monetary Board, and once reduced, shall
not be increased beyond the prescribed limits.
NOTES
54
implement the provisions of this Charter, including those relative to the

financial aspects, if any, and to the reorganization of the Bank as
hereinabove authorized under Section 33 which will involve the
determination and adoption of (1) the new internal structure of the Bank as
reorganized down to the divisional, section or lowest organizational levels,
including such appropriate units as may be needed to handle caretaking
activities such the disposition of certain assets and the collection of certain
accounts; (2) a new staffing pattern including appropriate salary rates; and
(3) the initial operating budget.
In the implementation of the reorganization of the Bank as authorized under
Section 33, and in appointments to appropriate positions in the new staffing
pattern of the Bank, no personnel of the Bank shall have vested rights to
any position in the new staffing pattern or to be otherwise retained in the
Bank even if he should be the incumbent of the same or similar position in
the new staffing pattern.
SEC. 35. Recall of External Personnel in the Bank. -- Effective on the date
the Bank commences to operate in accordance with this Charter, all
representatives and/or personnel of other government offices, Commission
and government corporations assigned to or on detail with the bank are
considered recalled to their respective offices and/or units. New
designations to the Bank shall be made by the respective government
offices or Commissions conformably with the mandate of law and the
requirements of the Bank.
SEC. 36. Separation Benefits. -- All those who are separated from the Bank
as a result of its reorganization in pursuance of Section 33 hereof shall be
entitled to all gratuities and benefits provided for under existing laws and/or
supplementary retirement plans adopted by and effective in the Bank.
SEC. 33. Authority to Reorganize. -- In view of reduced operations

contemplated under this Charter in pursuance of the national policy
expressed in the "whereas" clauses hereof, a reorganization of the Bank and
a reduction in force are hereby authorized to achieve greater efficiency and
economy in operations, including the adoption. The program or
reorganization shall begin immediately after the approval of this Order, and
shall be completed within six months and shall be fully implemented within
eighteen months thereafter.
SEC. 37. No legal action or suit brought by or on behalf of any aggrieved

officer or personnel of the Bank in connection with any matter treated in
these Transitory Provisions shall be received in any court unless the verified
complaint shows on its face that the cause has first been submitted to, and
adversely resolved by, the Civil Service Commission.
SEC. 34. Implementing Details; Organization and Staffing of the Bank. -Upon the effectivity of this Charter, the incumbent Board of Directors and
President of the Bank shall continue in office unless or until replaced by the
President of the Philippines, provided that the provisions of Section 10 of
this Charter shall be observed. The President of the Bank is hereby
authorized, subject to the approval of the Board of Directors as appropriate,
to issue such orders, rules and regulations as may be necessary to
(a) Entry of Foreign Banks

i. Modes of Entry
1. By acquiring, purchasing or owning up to 60% of the
voting stock of an existing domestic bank
2. By investing in up to 60% of a new banking subsidiary
incorporated under the laws of the Philippines
3. By establishing branches with full banking authority
PNB v. Velasco, 564 SCRA 512 (2008)
H. Foreign Banks
NOTES
Sec. 2, Foreign Banks Liberalization Act

The Monetary Board may authorize foreign banks to operate in
the Philippine banking system through any of the following
modes of entry: (i) by acquiring, purchasing or owning up to
sixty percent (60%) of the voting stock of an existing bank;
(ii) by investing in up to sixty percent (60%) 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: Provided, That a foreign bank may avail
itself of only one (1) mode of entry: Provided, further, That a
foreign bank or a Philippine corporation may own up to a sixty
percent (60%) of the voting stock of only one (1) domestic
bank or new banking subsidiary.
ii.
Subject to MB Approval, Guidelines

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. chan robles virtual law library
Only those among the top one hundred fifty (150) foreign
banks in the world or the top five (5) banks in their country of
origin as of the date of application shall be allowed entry in
accordance with Section 2 (ii) and (iii) hereof.
55
In the exercise of this authority, the Monetary Board shall

adopt such measures as may be necessary to: (i) ensure that
at all times the control of seventy percent (70%) of the
resources or assets of the entire banking system is held by
domestic banks which are at least majority-owned by
Filipinos; (ii) prevent a dominant market position by one bank
or the concentration of economic power in one or more
financial institutions, or in corporations, participations,
partnerships, groups or individuals with related interests; and
(iii) secure the listing in the Philippine Stock Exchange of the
shares of stocks of banking corporations established under
Section 2(i) and (ii) of this Act: Provided, That said banking
corporations shall establish stock option plans for their officers
and employees as the resources or assets of these
corporations may allow in the best business judgment of their
respective boards of directors, pursuant to the Corporation
Code of the Philippines.
To qualify to establish a branch or a subsidiary, the foreign
bank applicant must be widely-owned and publicly-listed in its
country of origin, unless the foreign bank applicant is owned
by the government of its country of origin.
iii.
Limitation on Availment of Mode of Entry

Subsec. X121.10, MRB
a. As a general rule, a foreign bank which has been authorized
to operate in the Philippines through any one of the allowable
modes of entry may change to another mode by giving up the
first mode it availed of.
b. A foreign bank which pursuant to Items a and b of
Subsec. X121.1, has established or acquired a banking
subsidiary may sell its stockholdings therein and may apply for

authority to establish a branch subject to the provisions of
Subsec. X121.9c and to the following conditions:
(i)
That the disposition/sale of its stockholdings in the

subsidiary is done within five (5) years from June 5,
1994;
(ii) That the foreign bank qualifies under the provisions
of Subsec. X121.2b; and
(iii) That the limit of ten (10) foreign banks establishing
branches as a mode of entry has not yet been
reached.
c. Foreign banks with existing branches in the Philippines, as
well as those that may be allowed to establish branches under
R.A. No. 7721, may incorporate under Philippine laws, in
which case said foreign banks may own up to sixty percent
(60%) of the voting stock of the new bank.
iv.
Limitation of Foreign Penetration

Sec. 73, par. 3, GBL: In the exercise of the authority, the
Monetary Board shall adopt measures as may be necessary to
ensure that at all times the control of seventy percent (70%)
of the resources or assets of the entire banking system is held
by banks which are at least majority-owned by Filipinos.
Sec. 3, par. 3, Foreign Banks Liberalization Act
NOTES
v.
56
Equal Treatment
Sec. 73, par. 4, GBL: Any right, privilege or incentive
granted to a foreign bank under this Section shall be equally
enjoyed by and extended under the same conditions to banks
organized under the laws of the Republic of the Philippines.
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. These limits
include, among others, the single borrower's limit and capital
to risk asset ratio as well as the capitalization required for
expanded commercial banking activities under the General
Banking Act and other related laws of the Philippines.
The basis for computing the ratio shall be the capital of the
foreign bank branch in the Philippines.
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. Philippine corporations whose shares of
stocks are listed in the Philippine Stock Exchange or are of
long standing for at least ten (10) years shall have the right to
acquire, purchase or own up to sixty percent (60%) of the
voting stock of a domestic bank.
(b) Rules on Acquisition of Voting Stock in Existing Domestic

Bank
i. Extent of Acquisition

ii.
Further acquisition of voting stock

Sec. 73, par. 1, GBL: Within seven (7) years from the
effectivity of this act and subject to guidelines issued pursuant
to the Foreign Banks Liberalization Act, the Monetary Board
may authorize a foreign bank to acquire up to one hundred
percent (100%) of the voting stock of only one (1) bank
organized under the laws of the Republic of the Philippines.
Sec. 73, par. 2, GBL: Within the same period, the Monetary
Board may authorize any foreign bank, which prior to the
effectivity of this Act availed itself of the privilege to acquire
up to sixty percent (60%) of the voting stock of a bank under
the Foreign Banks Liberalization Act and the Thrift Banks Act,
to further acquire voting shares such bank to the extent
necessary for it to own one hundred percent (100%) of the
voting stock thereof.
iii.
iv.
NOTES
Listing in PSE
License to Do Business
Sec. 3(d), Foreign Investments Act of 1991
The praise "doing business" shall include soliciting orders,
service contracts, opening offices, whether called "liaison"
offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay
in the country for a period or periods totalling one hundred
eighty (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that
57
imply a continuity of commercial dealings or arrangements,

and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain
or of the purpose and object of the business organization:
Provided, however, That the phrase "doing business: shall not
be deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor; nor
having a nominee director or officer to represent its interests
in such corporation; nor appointing a representative or
distributor domiciled in the Philippines which transacts
business in its own name and for its own account;
(c) Rules on Acquisition of Voting Stock in New Domestic Bank
i. Extent of Acquisition
ii.
Qualifications
Sec. 4(i), Foreign Banks Liberalization Act
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.
iii.
iv.
Listing in PSE
Sec. 3(d), Foreign Investments Act of 1991
The praise "doing business" shall include soliciting orders,
service contracts, opening offices, whether called "liaison"
offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay
in the country for a period or periods totalling one hundred
eighty (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that
imply a continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain
or of the purpose and object of the business organization:
Provided, however, That the phrase "doing business: shall not
be deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor; nor
having a nominee director or officer to represent its interests
in such corporation; nor appointing a representative or
distributor domiciled in the Philippines which transacts
business in its own name and for its own account;
NOTES
58
(d) Rules on Establishing Branches

i. Governing Laws
1. Creation, formation, organization or dissolution of
corporations;
fixing
of
relations,
liabilities,
responsibilities, or duties of stockholders, members,
directors or officers of corporations to each other and
the corporation
Sec. 77, GBL: In all matters not specifically covered by
special provisions applicable only to a foreign bank or its
branches and other offices in the Philippines any foreign
bank licensed to do business in the Philippines shall be
bound by the provisions of this Act, all other laws, rules
and regulations applicable to banks organized under the
laws of the Philippines of the same class, except those
that provide for the creation, formation, organization or
dissolution of corporations or for the fixing of the
relations, liabilities, responsibilities, or duties of
stockholders, members, directors or officers of
corporations to each other or to the corporation.
2.
Entry into the Philippines through establishment of

branches
Sec. 72, par. 1, GBL: The entry of foreign banks in the
Philippines through the establishment of branches shall
be governed by the provisions of the Foreign Banks
Liberalization Act.
3.
Conduct of offshore banking business

Sec. 72, par. 2, GBL: The conduct of offshore banking
business in the Philippines shall be governed by the
provisions of the Presidential Decree No. 1034,
otherwise known as the "Offshore Banking System
Decree."
4.
All other matters

Sec. 77, GBL: In all matters not specifically covered by
special provisions applicable only to a foreign bank or its
branches and other offices in the Philippines any foreign
bank licensed to do business in the Philippines shall be
bound by the provisions of this Act, all other laws, rules
and regulations applicable to banks organized under the
laws of the Philippines of the same class, except those
that provide for the creation, formation, organization or
dissolution of corporations or for the fixing of the
relations, liabilities, responsibilities, or duties of

stockholders, members, directors or officers
corporations to each other or to the corporation.
ii.
NOTES
of
Qualifications
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.
iii.
Time limitation on entry

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.
iv.
Treatment of Multiple Branches

Sec. 74, GBL: In the case of a foreign bank which has more
than one (1) branch in the Philippines, all such branches shall
be treated as one (1) unit for the purpose of this Act, and all
references to the Philippine branches of foreign banks shall be
held to refer to such units.

Sec. 4(ii), Foreign Banks Liberalization Act
Foreign banks seeking entry pursuant to Section 2 (iii) of this
Act shall permanently assign capital of not less than the U.S.
dollar equivalent of Two hundred ten million pesos
(P210,000,000.00) at the exchange rate on the date of the
effectivity of this Act, as ascertained by the Monetary Board.
The permanently assigned capital shall be inwardly remitted
and converted into Philippine currency. The foreign bank shall
be entitled to three (3) branches. chan robles virtual law
library.
The foreign bank may open three (3) additional branches in
locations designated by the Monetary Board by inwardly
remitting and converting into Philippine currency as
permanently assigned capital, the U.S. dollar equivalent of
Thirty-five million pesos (P35,000,000.00) per additional
branch at the exchange rate on the date of the effectivity of
this Act, as ascertained by the Monetary Board. The total
number of branches for each new foreign bank entrant shall
not exceed six (6).
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
59
Citibank, N.A. v. Sabeniano, 514 SCRA 441 (2007)

FACTS
Sabeniano was a client of Citibank, where she had several deposits and
market placements, as well as outstanding loans with an aggregate amount
of P1.92M. However, when she failed to repay these, Citibank used her
deposits and money market placements to off-set and liquidate her
outstanding loans, a large amount coming from Citibank-Geneva.
Sabeniano denied having any outstanding loans with Citibank and
demanded that she recover her deposits and money market placements.
She instituted a complaint for "Accounting, Sum of Money and Damages"
against Citibank with RTC of Makati, which declared the setoff illegal, null
and void and that Sabeniano is still indebted to Citibank (P1.07M).
ISSUE
Whether it was proper for Citibank to offset Sabeniano's outstanding loan
balance with her dollar deposits in Citibank-Geneva
RULING
NO. Without the Declaration of Pledge, petitioner Citibank had no authority
to demand the remittance of respondents dollar accounts with CitibankGeneva and to apply them to her outstanding loans. It cannot effect legal

compensation under Article 1278 of the Civil Code since, petitioner Citibank
itself admitted that Citibank-Geneva is a distinct and separate entity. As for
the dollar accounts, respondent was the creditor and Citibank-Geneva is the
debtor; and as for the outstanding loans, petitioner Citibank was the
creditor and respondent was the debtor. The parties in these transactions
were evidently not the principal creditor of each other.
It is true that the afore-quoted Section 20 of the General Banking Law of
2000 expressly states that the bank and its branches shall be treated as one
unit. It should be pointed out, however, that the said provision applies to a
universal9 or commercial bank, duly established and organized as a
Philippine corporation in accordance with Section 8 of the same statute,11
and authorized to establish branches within or outside the Philippines.
The General Banking Law of 2000, however, does not make the same
categorical statement as regards to foreign banks and their branches in the
Philippines. What Section 74 of the said law provides is that in case of a
foreign bank with several branches in the country, all such branches shall be
treated as one unit. As to the relations between the local branches of a
foreign bank and its head office, Section 75 of the General Banking Law of
2000 and Section 5 of the Foreign Banks Liberalization Law provide for a
"Home Office Guarantee," in which the head office of the foreign bank shall
guarantee prompt payment of all liabilities of its Philippine branches. While
the Home Office Guarantee is in accord with the principle that these local
branches, together with its head office, constitute but one legal entity, it
does not necessarily support the view that said principle is true and
applicable in all circumstances.
The Home Office Guarantee is included in Philippine statutes clearly for the
protection of the interests of the depositors and other creditors of the local
branches of a foreign bank. Since the head office of the bank is located in
another country or state, such a guarantee is necessary so as to bring the
head office within Philippine jurisdiction, and to hold the same answerable
for the liabilities of its Philippine branches. Hence, the principle of the
singular identity of that the local branches and the head office of a foreign
bank are more often invoked by the clients in order to establish the
accountability of the head office for the liabilities of its local branches. It is
under such attendant circumstances in which the American authorities and
jurisprudence presented by petitioners in their Motion for Partial
Reconsideration were rendered.
Now the question that remains to be answered is whether the foreign bank
can use the principle for a reverse purpose, in order to extend the liability of
a client to the foreign banks Philippine branch to its head office, as well as
to its branches in other countries. Thus, if a client obtains a loan from the
foreign banks Philippine branch, does it absolutely and automatically make
the client a debtor, not just of the Philippine branch, but also of the head
office and all other branches of the foreign bank around the world? This
Court rules in the negative.
NOTES
60
Section 25 of the United States Federal Reserve Act states that

Every national banking association operating foreign branches shall
conduct the accounts of each foreign branch independently of the
accounts of other foreign branches established by it and of its home
office, and shall at the end of each fiscal period transfer to its
general ledger the profit or loss accrued at each branch as a
separate item.
v.
Head Office Guarantee

Sec. 75, GBL: In order to provide effective protection of the
interests of the depositors and other creditors of Philippine
branches of a foreign bank, the head office of such branches
shall fully guarantee the prompt payment of all liabilities of its
Philippine branch. (69) Residents and citizens of the
Philippines who are creditors of a branch in the Philippines of a
foreign bank shall have preferential rights to the assets of
such branch in accordance with the existing laws.
The head office of foreign bank branches shall guarantee
prompt payment of all liabilities of its Philippine branches.
vi.
Sec. 133, Corporation Code
No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.
Hang Lung Bank, Ltd. v. Saulog, 201 SCRA 137 (1991)

FACTS
Hang Lung Bank, Ltd., which was not doing business in the Philippines,
entered into a guarantee agreement with Cordova Chin San in Hongkong
whereby the latter agreed to pay on demand all sums of money which may
be due the bank from Worlder Enterprises to the extent of HK $250,000.
Worlder Defaulted, HLB sued for collection, and the HK Supreme Court
rendered judgment against Cordova and Worlder.
HLB then filed a case for enforcement and recognition of the HK judgment,
since Cordova was a Philippine resident. Cordova Chin San filed a motion to
dismiss on the basis of lack of capacity to sue, grounded on Section 14 of
the General Banking Act: "No foreign bank or banking corporation formed,
NOTES
organized or existing under any laws other than those of the Republic of the
Philippines, shall be permitted to transact business in the Philippines, or
maintain by itself any suit for the recovery of any debt, claims or demands
whatsoever until after it shall have obtained, upon order of the Monetary
Board, a license for that purpose."
61
Thusly, like any corporation, a bank not doing business in the Philippines
need not possess a SEC license to sue before our courts.
proceedings against the bank and of notices affecting the bank

may be made, and to file with the Securities and Exchange
Commission a duly authenticated nomination of such agent. In
the absence of the agent or head or should there be no person
authorized by the bank upon whom service of summons,
processes and all legal notices may be made, service of
summons, processes and legal notices may be made upon the
Bangko Sentral Deputy Governor In-Charge of the supervising
and examining departments and such service shall be as
effective as if made upon the bank or its duly authorized agent
or head. In case of service for the bank upon the Bangko
Sentral Deputy Governor In-charge of the supervising and
examining departments, the said deputy Governor shill
register and transmit by mail to the president or the secretary
of the bank at its head or principal office a copy, duly certified
by him, of the summons, process, or notice. The sending of
such copy of the summons, process, or notice shall be a
necessary part of the services and shall complete the service.
The registry receipt of mailing shall be prima facie evidence of
the transmission of the summons, process or notice. All costs
necessarily incurred by the said Deputy Governor for the
making and mailing and sending of a copy of the summons,
process, or notice to the president or the secretary of the bank
at its head or principal office shall be paid in advance by the
party at whose instance the service is made.
Since petitioner foreign banking corporation was not doing business in the
Philippines, it may not be denied the privilege of pursuing its claims against
private respondent for a contract which was entered into and consummated
outside the Philippines. Otherwise we will be hampering the growth and
development of business relations between Filipino citizens and foreign
nationals. Worse, we will be allowing the law to serve as a protective shield
for unscrupulous Filipino citizens who have business relationships abroad.
Sec. 12, Rule 14, Rules of CivPro: When the defendant is a

foreign private juridical entity which has transacted business
in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if
there be no such agent, on the government official designated
by law to that effect, or on any of its officers or agents within
the Philippines.
The motion to dismiss was granted. Hence, this petition for certiorari.
ISSUE
Can HLB, a foreign bank not doing business in the Philippines, sue in the
Philippines without a license?
RULING
YES, they can. The court looked at both Section 69 of the Old Corporation
Law and Section 133 of the Corp Code which says "No foreign corporation
transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines." The
provision in the General Banking Act and the corporation Code mean the
same thing: it is not the lack of the prescribed license (to do business in the
Philippines) but doing business without license, which bars a foreign
corporation from access to our courts.
vii.
Summons and Legal Processes

Sec. 76, GBL: Summons and legal process served upon the
Philippine agent or head of any foreign bank designated to
accept service thereof shall give jurisdiction to the courts over
such bank, and service of notices on such agent or head shall
be as binding upon the bank which he represents as if made
upon the bank itself. Should the authority of such agent or
head to accept service of summons and legal processes for the
bank or notice to it be revoked, or should such agent or head
become mentally incompetent or otherwise unable to accept
service while exercising such authority, it shall be the duty of
the bank to name and designate promptly another agent or
head upon whom service of summons and processes in legal
viii.
Revocation of License
Sec. 78, GBL: The Monetary Board may revoke the license to
transact business in the Philippines of, any foreign bank, if it
finds that the foreign bank is insolvent or in imminent danger
thereof or that its continuance in business will involve
probable loss to those transacting business with it. After the
revocation of its license, it shall be unlawful for any such
foreign banks to transact business in the Philippines unless its
license is renewed or reissued. After the revocation of such
license, the Bangko Sentral shall take the necessary action to
protect the creditors of such foreign bank and the public. The
provisions of the New Central Bank Act on sanctions and
penalties shall likewise be applicable.

(e) Offshore Banking Units (OBUs)
Sec. 1(a), Offshore Banking System Decree
"Offshore Banking" shall refer to the conduct of banking
transactions in foreign currencies involving the receipt of funds
from external sources and the utilization of such funds as provided
in this Decree.
Sec. 1(b), Offshore Banking System Decree
"Offshore Banking Unit" shall mean a branch, subsidiary or affiliate
of a foreign banking corporation which is duly authorized by the
Central Bank of the Philippines to transact offshore banking
business in the Philippines.
Chapter 1, Part 3, BSP Circular No. 1389
SECTION 45. Definition of Terms. As used in this Chapter, the
following terms shall have the meaning indicated unless the context clearly
indicates otherwise:
1. "Offshore Banking" shall refer to the conduct of banking transactions in
foreign currencies involving the receipt of funds principally from external
sources and, as allowed in this Circular, from internal sources and utilization
of such funds, as provided herein.
2. "Offshore Banking Unit" or "OBU" shall refer to a branch, subsidiary or
affiliate of a foreign banking corporation which is duly authorized by the
Central Bank of the Philippines to transact offshore banking business in the
Philippines.
3. "Net office funds" shall refer to the net credit balance of the "Due to Head
Office (HO)/Branches/Parent Company Account" after deducting the "Due
from HO/Branches/Parent Company Account", as shown in the following
computation:
Due
to
HO/Branches/Parent
Remittances/Advances/Deposits to
HO/Branches/Parent Company
Company
OBU by
xxxxx
Unremitted earnings of OBU
xxxxx
Total
$xxxxx
Less: Due from HO/Branches/Parent Company

Remittances/Advances/ Deposits of OBU with its
HO/Branches/Parent Company
xxxxx
Net Office Funds
$xxxxx
4. "Deposits" shall refer to funds in foreign currencies which are accepted

and held by an OBU in the regular course of business, with the obligation to
return an equivalent amount to the owner thereof, with or without interest.
NOTES
62
5. "Resident" shall mean

a. an individual citizen of the Philippines residing therein; or
b. an individual who is not a citizen of the Philippines but is permanently
residing therein; or
c. a corporation or other juridical person organized under the laws of the
Philippines; or
d. a branch, subsidiary, affiliate, extension office or any other unit of
corporations or juridical persons which are organized under the laws of any
country and operating in the Philippines.
6. "Non-resident" shall mean an individual, corporation or other juridical
person not included in the above definition of "resident".
7. "Foreign currency deposit unit" or "FCDU" shall refer to that unit of a local
bank or of a local branch of a foreign bank authorized by the Central Bank
to engage in foreign currency-denominated transactions, pursuant to the
provisions of R.A. 6426, as amended. "Local bank" shall refer to a thrift
bank or a commercial bank organized under the laws of the Republic of the
Philippines. "Local branch of a foreign bank" shall refer to a branch of a
foreign bank doing business in the Philippines, pursuant to the provisions of
R.A. No. 337, as amended.
8. "Acceptable foreign exchange" comprise those foreign currencies which
are acceptable to and exchangeable at the Central Bank and which form
part of the international reserves of the country.
SECTION 46. Approvals Required. A foreign bank may operate an
offshore banking unit (OBU) in the Philippines, after issuance to it of a
Certificate of Authority to operate by the Monetary Board and registration
with the Securities and Exchange Commission.
SECTION 47. Criteria for Selection. The following factors shall serve
as basis for the issuance of certificate of authority to operate an offshore
banking unit: (1) liquidity and solvency positions; (2) networth and
resources base; (3) managerial and international banking expertise of
applicant bank (4) contribution to the Philippine economy; and (5) other
relevant factors, such as participation in the equity of local commercial
banks and appropriate geographic representations.
SECTION 48. Pre-Operation Requirements. Upon advice from the
Central Bank, a qualified bank shall submit a sworn undertaking of its head
office, or parent company, through any of its duly authorized officers,
supported by an appropriate resolution of its board of directors, to the effect
that it shall:
1. on demand, provide the necessary currencies to cover liquidity needs that
may arise or other shortfall that its OBU may incur.
NOTES
63
2. manage the operations of its OBU soundly and with prudence.
Bank approval.
3. train continually a specific number of Filipinos in international banking

and foreign exchange trading with a view to reducing the number of
expatriates;
SECTION 52. Transactions with Residents which are not Banks. An

OBU may engage in the following transactions with residents which are not
banks:
4. provide and maintain in its offshore banking unit at all times net office
funds in the minimum amount of US$1 million.
1. Deal in foreign currency instruments.
5. start operations of its OBU within one hundred eighty (180) days from
receipt of its certificate of authority to operate such unit.
6. comply with applicable local laws relating to labor and employment.
7. submit before start of operations, other documents as may be required
by the Central Bank such as certification or similar documents showing that
it is duly authorized by the proper Government entity of its country to
engage in offshore banking business in the Philippines.
SECTION 49. Annual Fee. Upon issuance of a certificate of authority to
operate an OBU in the Philippines, and yearly thereafter, the authorized
bank shall pay the Central Bank a fee of not less than US$20,000.00.
SECTION 50. Transactions with Non-Residents and/or with OBUs.
An OBU may freely engage in all normal banking transactions with nonresidents and/or with other OBUs, involving any currency other than the
Philippine peso.
SECTION 51. Transactions with Foreign Currency Deposit Units
(FCDUs). Subject to Central Bank regulations, an OBU may engage in
the following transactions with local banks incorporated or registered in the
Philippines as FCDU(s) in any currency other than the Philippine peso:
1. Accept time, demand and call deposits or issue negotiable certificates of
time deposits.
2. Borrow with maturities not exceeding 360 days.
3. Deposit.
4. Extend loans and advances.
5. Deal in foreign currency instruments.
6. Discount bills, acceptances, and negotiable certificates of deposits.
7. Engage in foreign exchange trading.
8. Engage in such other transactions as are authorized under this section
between OBUs and resident banks authorized to accept foreign currency
deposits under the provisions of R.A. No. 6426, as amended. Interbank
short-term transactions of not exceeding 360 days such as credit lines of
Philippine banks with correspondent banks, interbank call loans and
interbank loans for general liquidity purposes shall not require prior Central
2. Extend foreign currency loans

regulations on foreign borrowings.
and
advances,
subject
to
existing
3. Open letters of credit (L/Cs) for importations of resident-borrowers

provided such importations shall be funded by a Central Bank-approved OBU
foreign currency loan to the resident borrower involved.
4. Negotiate inward (export) Letters of Credit (L/Cs) and handle other
export transactions (including documents against acceptance [D/A] and
documents against payments ([D/P] and open account arrangements [O/A])
coursed thru their worldwide network of branches and correspondents
subject to the following conditions:
a. OBUs shall bring in foreign exchange sourced outside of the Trade Facility
which shall be sold to the domestic banking system; and
b. OBUs' share in the total export L/C negotiation business shall be limited
to of the growth (incremental) element in the country's total annual
export. This limit shall be observed yearly until this equals 10 percent of
total exports. Exports not covered by L/Cs, i.e., done thru documents
against acceptance/open account arrangements shall be considered subject
to this overall limit;
5. Provide full foreign exchange service for all foreign currency non-trade
remittances and trade remittances resulting from or related to their own
negotiations of export L/Cs.
6. Render financial, advisory and related services.
7. Refinance trust receipts without prior Central Bank approval arising from
import transactions of Philippine residents in U.S. dollars or in other
acceptable foreign currencies. The refinancing shall be evidenced by bankers
acceptances.
SECTION 53. Peso Deposits. OBUs may open and maintain peso
deposit accounts with domestic agent banks exclusively for the following
purposes:
1. To meet administrative and other operating expenses, such as salaries,
rentals and the like.
2. To pay the peso equivalent of foreign exchange sold by beneficiaries of
inward remittances of Filipino overseas workers or of Filipino or
multinational companies, coursed through the OBUs' correspondent banks
abroad.

3. To pay to the designated beneficiaries in the Philippines the peso
equivalent of foreign exchange inward remittances other than remittances
related to trade.
NOTES
i.
Qualification
Sec. 2, Offshore Banking System Decree
Subject to such regulatory guidelines as the Monetary Board
may prescribe, only banks which are organized under any law
other than those of the Republic of the Philippines their
branches, subsidiaries or affiliates, shall be qualified to
operate offshore banking units in the Philippines. However,
local branches of foreign banks already authorized to accept
foreign currency deposits under the provisions of R.A. No.
6426 may opt to apply for authority to operate an offshore
banking unit under the provisions of this Decree: Provided,
that, upon their receipt of a corresponding certificate of
authority to operate as an offshore banking unit, the license to
transact business under the provisions of R.A. No. 6426 shall
be deemed automatically withdrawn.
ii.
Certificate of Authority to Operate

The Monetary Board of the Central Bank of the Philippines is
hereby authorized to issue certificates of authority to operate
offshore banking units: Provided, however, that, in issuing
such certificates, the Monetary Board shall take into
consideration the applicant's liquidity and solvency position,
networth and resources, management, international banking
expertise, contribution to the Philippine economy, and other
relevant factors such as participation in equity of local
commercial banks and appropriate geographic representation.
4. To pay the peso equivalent of foreign exchange sold by beneficiaries of

export L/Cs negotiated with the OBUs.
The peso deposit accounts shall be funded exclusively by inward remittances
of foreign exchange eligible to form part of the Philippine international
reserves.
OBUs may also sell inward remittances of foreign exchange for pesos to the
Central Bank through the Treasury Department, for credit to the demand
deposit account of the designated commercial bank for account of the OBU.
SECTION 54. Financial Assistance to Officers/Employees. OBUs
may extend financial assistance (real estate, car, personal loans, etc.) in
local or foreign currency to their Filipino officers and employees as part of
their fringe benefit program.
They may likewise grant foreign currency loans to their expatriate officers
without need of Central Bank approval.
SECTION 55. Secrecy of Deposits. The provisions of R.A. No. 6426
(Foreign Currency Deposit Act), as amended, shall apply to deposits in
OBUs; Provided, however, that numbered deposit accounts shall not be
used.
SECTION 56. Exemption from Certain Laws. The provisions of Act No.
2655 (Usury Law) as amended, R.A. No. 529 (Uniform Currency Law) as
amended, and R.A. No. 3591 (Deposit Insurance Law) as amended, shall
not apply to transactions and/or deposits in OBUs in the Philippines.
SECTION 57. Accounting and Reporting. OBUs shall maintain an
accounting system in accordance with guidelines prescribed by the Central
Bank. Periodically or as required, existing reports shall continue to be
submitted in the prescribed forms to the Central Bank.
SECTION 58. Supervision. The operations and activities of offshore
banking units shall be conducted under the supervision of the Central Bank
of the Philippines.
SECTION 59. Taxes, Customs Duties. Transactions of OBUs in the
Philippines shall be subject to such taxes as are prescribed in Presidential
Decree No. 1034, as implemented by regulations of the Bureau of Internal
Revenue.
SECTION 60. Revocation/Suspension. The Monetary Board, by the
recommendation of the Governor, may revoke or suspend the authority of
an Offshore Banking Unit to operate in the Philippines for violation of P. D.
No. 1034 or these regulations.
64
The Central Bank of the Philippines is hereby authorized to

collect a fee of not less than US$ 20,000.00 upon issuing any
certificate of authority to operate and annually thereafter on
the anniversary date of such certificate.
iii.
Head Office Guarantee

No application to operate as an offshore banking unit under
the provisions of this Decree shall be considered unless the
applicant shall have first submitted to the Central Bank of the
Philippines a sworn undertaking of its head office or parent or
holding company, duly supported by an appropriate resolution
of its board of directors, that, among other things: (a) it will,
on demand, provide the necessary specified currencies to
cover liquidity needs that may arise or other shortfall that is
offshore banking unit may incur; (b) the operations of its
offshore banking unit shall be managed soundly and with
prudence; (c) it will train and continually educate a specific
number of Filipinos in international banking and foreign
exchange trading with a view to reducing the number of

expatriates; (d) it will provide and maintain in its offshore
banking unit net office funds in the minimum amount of US$
1,000,000.00 and (e) it will start operations of its offshore
banking unit within 180 days from receipt of its certificate of
authority to operate such unit.
iv.
Effects of Certain Laws

The provisions of Act No. 2566 (Usury Law), Republic Act No.
529, as amended (Uniform Currency Law), and Republic Act
No. 3591, as amended (Deposit Insurance Law), shall not
apply to transactions and/or deposits in offshore banking units
in the Philippines: Provided, however, that the provisions of
R.A. No. 1405 (Secrecy of Bank Deposits Law) shall apply to
deposits in offshore banking units.
III. DEPOSIT FUNCTION

A. Nature of Deposit
NOTES
65
When Serrano presented the TD certificates for encashment to Overseas

Bank of Manila, none was honored by said bank.
Serrano alleged that the Central Bank failed to strictly supervise the acts of
Overseas Bank of Manila and protect the interests of its depositors by virtue
of the constructive trust created when Central Bank required the bank to
increase its collaterals for its overdrafts and emergency loans, said
collaterals allegedly acquired through the use of depositors money.
Hence, Serrano prayed for Central Banks solidary liability with Overseas
Bank of Manila to him for the P350,000 TDs made, among others.
ISSUE
Whether Central Bank should be held solidarily liable
RULING
NO. Serranos claims of mandamus and prohibition are not proper as there
is no shown clear abuse of discretion by the Central Bank in its exercise of
supervision over the bank. If there was, the proper party to invoke in this
case was Overseas Bank of Manila, not the Central Bank.
a. Deposits as Simple Loans

ART. 1953, NCC: 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.
ART. 1980, NCC: Fixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the provisions
concerning simple loan.
SERRANO v. CENTRAL BANK, 96 SCRA 96 (1980)
DOCTRINE: Bank deposits are in the nature of irregular deposits. They are
really loans because they earn interest. All kinds of bank deposits, whether
fixed, savings, or current are to be treated as loans and are to be covered
by the law on loans. Current and savings deposits are loans to a bank
because it can use the same.
FACTS
Manuel Serrano made a time deposit (TD) for 1 year with 6% interest of
P150,000 with the Overseas Bank of Manila, while Concepcion Maneja made
a similar deposit for 1 year with 6.5% interest of P200,000 with the same
bank.
When Concepcion Maneja married Felixberto Serrano (presumably the
brother of Manuel Serrano), she assigned and conveyed to Manuel her TD of
P200,000.
Furthermore, both parties overlooked one fundamental principle in the

nature of bank deposits when Serrano claimed that there should be created
a constructive trust in his favor when Overseas Bank of Manila increased its
collaterals in favor of Central Bank for its overdrafts and emergency loans,
since these collaterals were acquired by the use of depositors money.
Bank deposits are in the nature of irregular deposits. They are really loans
because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to be covered by the
law on loans. Current and savings deposits are loans to a bank because it
can use the same. Serrano, in making TDs that earn interests with the bank,
was in reality its creditor. Failure of the bank to honor the TD is failure to
pay its obligation as debtor and not a breach of trust arising from a
depositarys failure to return the subject matter of the deposit.
b. Bank as Debtor
i. Deposit is voluntary
standards
agreement;
Know
Your
Customer
SEC. X262.1, MRB: All banking institutions are required to set

a minimum of three (3) specimen signatures to be
simultaneously required from each of their depositors and to
update the specimen signatures of their depositors every five
(5) years or sooner, at the discretion of the bank. Banks may,

at their option, require their depositors to submit ID photos
together with the specimen signatures.
ii.
Ownership of money deposited
GUINGONA, JR. v. CITY FISCAL OF MANILA, 128 SCRA 577 (1984)

DOCTRINE: The relationship between the depositor and the bank is that of
creditor and debtor. Consequently, the ownership of the amount deposited
was transmitted to the Bank upon the perfection of the contract and it can
make use of the amount deposited for its banking operations, such as to
pay interests on deposits and to pay withdrawals.
FACTS
From March 20, 1979 to March, 1981, David invested with the Nation
Savings and Loan Association, (hereinafter called NSLA) the sum of
P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits
(jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit,
US$15,000.00 under a receipt and guarantee of payment and US$50,000.00
under a receipt dated June 8, 1980 (au jointly with Denise Kuhne), that
David was induced into making the aforestated investments by Robert
Marshall an Australian national who was allegedly a close associate of
petitioner Guingona Jr., then NSLA President, petitioner Martin, then NSLA
Executive Vice-President of NSLA and petitioner Santos, then NSLA General
Manager; that on March 21, 1981 N LA was placed under receivership by
the Central Bank, so that David filed claims therewith for his investments
and those of his sister; that on July 22, 1981 David received a report from
the Central Bank that only P305,821.92 of those investments were entered
in the records of NSLA; that, therefore, the respondents in I.S. No. 8131938 misappropriated the balance of the investments, at the same time
violating Central Bank Circular No. 364 and related Central Bank regulations
on foreign exchange transactions; that after demands, petitioner Guingona
Jr. paid only P200,000.00, thereby reducing the amounts misappropriated to
P959,078.14 and US$75,000.00.
Guingona, Martin and Santos were charged with estafa before the City Fiscal
of Manila. The herein petitioners (Guingona et al) contend that the Fiscal
has no authority to conduct a preliminary investigation and to prosecute
them because the acts alleged by David was only civil in nature and not
criminal.
ISSUE
Whether the charges against Guingona (estafa and violation of CB Circular
No. 364 and related regulations regarding foreign exchange transactions) is
within the jurisdiction of the City Fiscal?
RULING
Fiscal has no jurisdiction over the subject matter. It must be pointed
NOTES
66
out that when private respondent David invested his money on nine. and
savings deposits with the aforesaid bank, the contract that was perfected
was a contract of simple loan or mutuum and not a contract of deposit.
Thus, Article 1980 of the New Civil Code provides that:
Article 1980. Fixed, savings, and current deposits of-money in banks
and similar institutions shall be governed by the provisions
concerning simple loan.
Hence, the relationship between the private respondent and the Nation
Savings and Loan Association is that of creditor and debtor; consequently,
the ownership of the amount deposited was transmitted to the Bank upon
the perfection of the contract and it can make use of the amount deposited
for its banking operations, such as to pay interests on deposits and to pay
withdrawals. While the Bank has the obligation to return the amount
deposited, it has, however, no obligation to return or deliver the same
money that was deposited. And, the failure of the Bank to return the
amount deposited will not constitute estafa through misappropriation
punishable under Article 315, par. l(b) of the Revised Penal Code, but it will
only give rise to civil liability over which the public respondents have nojurisdiction.
BPI FAMILY BANK v. FRANCO, 538 SCRA 184 (2007)
DOCTRINE: Money bears no earmarks of peculiar ownership. Its primary
function is to pass from hand to hand as a medium of exchange, without
other evidence of its title. Money, which passed through various transactions
in the general course of banking business, even if of traceable origin, bears
no earmarks of peculiar ownership.
FACTS
In 1989, Tevesteco Arrastre-Stevedoring Co. (Tevesteco) opened a savings
and current account with BPI-FB. Soon thereafter, First Metro Investment
Corporation (FMIC) opened a time deposit account with the same branch of
BPI-FB with a deposit of P100M to mature 1 year after. Subsequently,
Franco opened savings (P500K), current (P500K) and time deposit (P1M)
accounts with BPI-FB. The funding of Francos checks was part of the P80M
debited by BPI-FB from FMICs TD account and credited to Tevestecos
current account pursuant to an Authority to Debit signed by FMICs officers.
This, however, was found to be forged, as declared by Antonio Ong, one of
the alleged signatories.
Although Tevesteco already made some withdrawals from the P80M credited
to its account, BPI-FB debited Francos savings and current accounts for the
amounts remaining therein. His accounts were also garnished pursuant to
an Order of Attachment issued by the RTC Makati. Due to this, his checks
drawn against the current account were dishonored (stamped with Account
under garnishment). However, when Franco issued the checks, neither was
he furnished a Notice of Garnishment nor impleaded in the case instituted

by BPI-FB to recover the amount. It was only about a year after that he was
impleaded in the case. Thus, he filed a Motion to Discharge Attachment,
which was granted. But this cannot be complied since the amount had
already been debited due to the forgery.
As to his savings account, it appears that he agreed to an arrangement
where P400K from his savings account was temporarily transferred to
Quiaoits savings account, subject to immediate return upon issuance of a
certificate of deposit which Quiaoit needed for his Taiwan visa application.
FMIC filed a complaint against BPI-FB to recover the P80M debited from its
account, infra, where BPI-FB was found liable to FMIC due to its failure to
exercise the degree of diligence required of banks in treating the accounts of
its depositors with meticulous care.
Franco filed a suit against BPI-FB to cease freezing his accounts and to
release the deposits therein. The lower court ruled in favor of Franco, which
the CA affirmed with modification.
ISSUE
Who has a better right to the deposits in Francos accountFranco or BPIFB?
HELD
BPI-FB. The deposit in Francos accounts consists of money, which is
generic and fungible. The quality of being fungible depends upon the
possibility of the property, because of its nature or the will of the parties,
being substituted by others of the same kind, not having a distinct
individuality.
It bears emphasizing that money bears no earmarks of peculiar ownership,
and this characteristic is manifest in the case which involves money in a
banking transaction gone awry. It primary function is to pass from hand to
hand as a medium of exchange, without other evidence of its title. Money,
which passed through various transactions in the general course of banking
business,, even if traceable origin, is no exception.
There is no doubt that BPI-FB owns the deposited money in the accounts of
Franco, but not as a legal consequence of its unauthorized transfer of FMICs
deposits to Tevestecos account. BPI-FB conveniently forgets that the
deposit of money in banks is governed by the NCC provision on simple loan
or mutuum. As there is a creditor-debtor relationship between a depositor
and a bank, BPI-FB ultimately acquired ownership of Francos deposits, but
such ownership is coupled with a corresponding obligation to pay him an
equal amount on demand.
BPI-FB does not have the right to unilaterally freeze the accounts of Franco
based on its mere suspicion that the funds therein were proceeds of the
NOTES
67
multi-million peso scam Franco was allegedly involved in. To grant that right
would open floodgates of public distrust in the banking industry.
iii.
Payment to proper party-depositor
FULTON IRON WORKS CO. v. CHINA BANKING CORP., 55 PHIL. 208

(1930)
DOCTRINE: A depositor is presumed to be the owner of funds standing in
his name in a bank deposit, and where a bank is not chargeable with notice
that the money deposited therein is the property of another person, it is
justified in paying out the money to the depositor, or upon his order, and in
so doing cannot be held liable to any other person as the true owner.
FACTS
Fulton Iron Works Co. (Fulton) sold to Binalbagan Estate Inc.(Binalbagan)
machinery for a sugar mill. As payment, Binalbagan executed 3 notes
amounting to 80,000 dollars.
The notes were never paid at maturity because Binalbagan suspended
payments in favor of its other creditor. As a result, Fulton employed the
services of a law firm, which S. C. Schwarzkopf was a member then, for the
collection of the payment. The firm was subsequently dissolved and
Schwarzkopf was alone in handling the case. He opened a personal account
(ACCOUNT 1) in China Banking Corp and deposited a modest amount.
Later on, Binalbagan Estates financial condition began to improve. It
executed a check amounting to 10,000 to Schwarzkopf as part payment of
the original transaction. Schwarzkopf deposited the check in a new account
(ACCOUNT 2) in China Bank. But was subsequently withdrawn and used for
individual purposes. Binalbagan again executed a check amounting to
61,000 and delivered it to Schwarzkopf in favor of Fultan. He deposited it in
a new account again in China Bank entitled Schwarzkopf, Atty-in-fact,
Fulton Iron Works (ACCOUNT 3).
When Schwarzkopfs ACCOUNT 2 was overdrawn, he transferred the money
from ACCOUNT 2 to settle the discrepancy. Ultimately, he remitted only
30,000 to Fulton.
Fulton now argues that the both Schwarzkopf and China bank is liable for
the amount misappropriated. (Schwarzkopf was already convicted of estafa
in a criminal case and made civilly liable, so this case is simply against
China Bank.)
ISSUE
Whether the bank is liable for the amount misappropriated by Schwarzkopf.

RULING
Party. The Bank is only liable for compensating the overdraft of ACCOUNT 2
with ACCOUNT 3. But the Bank is not liable for the whole amount of
misappropriation by Schwarzkopf specifically for withdrawals in ACCOUNT 2.
Bank accounts and commercial papers can have earmarks. And earmarks
give notice that the money/credit rightfully belongs to some other person
then the one having control of the account. ACCOUNT 3 clearly indicates
that the account was for his client Fulton, as indicated in the name. Thus,
the bank cannot offset the overdraft of the personal account of Schwarzkopf
from the Account in favor of Fulton. For this transaction, the Bank is liable.
However, the bank cannot be held liable for the money drawn by
Schwarzkopf from Account 2 for individual purposes. There was no proof
that the bank had any knowledge of the misappropriation of the money, as
there was no indication the account was also for Fulton. Thus, there was no
duty for the bank to intervene especially from the first few deposits.
The specialized function of bank is to serve as a place of deposit for money,
to keep it safely while on deposit, and to pay it out, upon demand to the
person who effected the deposit or upon his order. A bank is not a guardian
of trust funds deposited with it in the sense that it must see to their proper
application nor is it its business to pry into the uses to which moneys on
deposit in its vault are being put; and so long as it serves its function and
pays the money out in good faith to the person who deposited it, or upon
his order, without knowledge or notice that it is in fact assisting in the
misappropriation of the fund, the bank will be protected.
Thus, the mere act of a bank in entering a trust fund to the personal
account of the fiduciary, knowing it to be a trust fund, will not make the
bank liable in case of the subsequent misappropriation of the money by the
fiduciary
BPI v. CA, 232 SCRA 302 (1994)
DOCTRINE: A bank is under no duty or obligation to make the application.
To apply the deposit to the payment of the loan is a privilege, a right to setoff which the bank has the option to exercise.
FACTS
Benigno Lim had 2 accounts at CBTC (BPI's predecessor): One jointly with
Eastern Plywood Corporation, of which he was an officer, and another joint
checking account with Mariano Velasco. Subsequently, Velasco died in April
1977.
In August 1977, Eastply and Lim obtained a loan from CBTC for P73,000
evidenced by a promissory note and secured by a Holdout Agreement giving
CBTC the power to take funds from the joint account with Velasco (approx
P331,000) and apply the same as payment for the loan.
NOTES
68
In the meantime, a case for the settlement of Velasco's estate was filed
wherein the whole balance in the joint account of Velasco and Lim was
claimed as part of Velasco's estate. The intestate court granted the urgent
motion of the heirs of Velasco to withdraw the deposit under the joint
account.
In 1980, CBTC merged with BPI.
In 1987, BPI filed a complaint against Lim and Eastern demanding payment
of the promissory note for P73,000.00. Lim and Eastern, in turn, filed a
counterclaim against BPI for the return of the balance in the disputed
account subject of the Holdout Agreement. The Court of Appeals rendered a
decision stating:
1) On the claim: It was the duty of BPI to debit the account of the
defendants under the promissory note to set off the loan even though the
same has no fixed maturity.
2) On the counterclaim: The settlement of Velasco's estate had nothing to
do with the claim of the defendants for the return of the balance of their
account with BPI as they were not privy to that case, and that the
defendants, as depositors of CBTC/BPI, are the latter's creditors; hence, BPI
should have protected the defendants' interest in the case when the said
account was claimed by Velasco's estate. It then ordered BPI to pay
defendants the amount of representing the outstanding balance in the bank
account of defendants.
ISSUES
1) Whether BPI was duty-bound to debit the account of the defendants to
set off the loan because of the Holdout Agreement, and
2) Whether the counterclaim for the amount in the joint account can be
awarded despite the same being given to the heirs of Velasco already.
RULING
1) NO. It is clear from the Holdout Agreement that BPI had every right to
demand that Eastern and Lim settle their liability under the promissory note.
It cannot be compelled to retain and apply the deposit in Lim and Velasco's
joint account to the payment of the note. What the agreement conferred on
CBTC was a power, not a duty. Generally, a bank is under no duty or
obligation to make the application. To apply the deposit to the payment of a
loan is a privilege, a right of set-off which the bank has the option to
exercise.
2) YES. In Serrano vs. Central Bank of the Philippines it was held that bank
deposits are in the nature of irregular deposits; they are really loans
because they earn interest. The relationship then between a depositor and a
NOTES
69
bank is one of creditor and debtor. The deposit under the questioned
account was an ordinary bank deposit; hence, it was payable on demand of
the depositor.
time deposits. In the judgment rendered in that case on December 13, 1972
the Fidelity Savings Bank was ordered to pay the Elizes spouses the sum of
P50,584 plus accumulated interest.
BPI cannot be relieved of its duty to pay Eastern simply because it already
allowed the heirs of Velasco to withdraw the whole balance of the account.
The petitioner should not have allowed such withdrawal because it had
admitted in the Holdout Agreement the unceertain ownership of the money
deposited in the account.
In another case, assigned to Branch XXX of the Court of First Instance of

Manila, the spouses Augusta A. Padilla and Adelaida Padilla secured on April
14, 1972 a judgment against the Fidelity Savings Bank for the sums of
P80,000 as the balance of their time deposits, plus interests, P70,000 as
moral and exemplary damages and P9,600 as attorney's fees (Civil Case No.
84200 where the action was filed on September 6, 1971).
Moreover, the order of the court in the intestate case merely authorized the
heirs of Velasco to withdraw the account. BPI was not specifically ordered to
release the account to the said heirs; hence, it was under no judicial
compulsion to do so. The authorization given to the heirs of Velasco cannot
be construed as a final determination or adjudication that the account
belonged to Velasco. We have ruled that when the ownership of a particular
property is disputed, the determination by a probate court of whether that
property is included in the estate of a deceased is merely provisional in
character and cannot be the subject of execution.
Because the ownership of the deposit remained undetermined, BPI, as the
debtor with respect thereto, had no right to pay to persons other than those
in whose favor the obligation was constituted or whose right or authority to
receive payment is indisputable. The payment of the money deposited with
BPI that will extinguish its obligation to the creditor-depositor is payment to
the person of the creditor or to one authorized by him or by the law to
receive it. Payment made by the debtor to the wrong party does not
extinguish the obligation as to the creditor who is without fault or
negligence, even if the debtor acted in utmost good faith and by mistake as
to the person of the creditor, or through error induced by fraud of a third
person. The payment then by BPI to the heirs of Velasco, even if done in
good faith, did not extinguish its obligation to the true depositor, Eastern.
iv.
The Central Bank appealed to SC by certiorari. It contends that the final

judgments secured by the Elizes and Padilla spouses do not enjoy any
preference because (a) they were rendered after the Fidelity Savings Bank
was declared insolvent and (b) under the charter of the Central Bank and
the General Banking Law, no final judgment can be validly obtained against
an insolvent bank.
The lower court, in justifying the award for damages to the spouses,
reasoned out that, because such actions are not suspended, judgments
against insolvent banks could be considered as preferred credits under
article 2244(14)(b) of the Civil Code. It further noted that, in contrast with
the Central Act, section 18 of the Insolvency Law provides that upon the
issuance by the court of an order declaring a person insolvent "all civil
proceedings against the said insolvent shall be stayed."
On the other hand, the Central Bank argues that after the Monetary Board
has declared that a bank is insolvent and has ordered it to cease operations,
the Board becomes the trustee of its assets "for the equal benefit of all the
creditors, including the depositors". The Central Bank cites the ruling that
"the assets of an insolvent banking institution are held in trust for the equal
benefit of all creditors, and after its insolvency, one cannot obtain an
advantage or a preference over another by an attachment, execution or
otherwise"
Whether or not preferred credits
CENTRAL BANK v. MORFE, 63 SCRA 114 (1975)

FACTS
Monetary Board found the Fidelity Savings Bank to be insolvent. The Board
directed the Superintendent of Banks to take charge of its assets, forbade it
to do business and instructed the Central Bank Legal Counsel to take legal
actions.
Prior to the institution of the liquidation proceeding but after the declaration
of insolvency, or, specifically, the spouses Job Elizes and Marcela P. Elizes
filed a complaint in the Court of First Instance of Manila against the Fidelity
Savings Bank for the recovery of the sum of P50, 584 as the balance of their
ISSUE
1) Whether deposits are deemed as preferred credits and if not, 2) may
they be elevated to the level of preferred credits by acquiring a court
judgment?
RULING
NO to both. It should be noted that fixed, savings, and current deposits of
money in banks and similar institutions are not true deposits. They are
considered simple loans and, as such, are not preferred credits.
Evidently, one purpose in prohibiting the insolvent bank from doing business
is to prevent some depositors from having an undue or fraudulent

preference over other creditors and depositors.
That purpose would be nullified if, as in this case, after the bank is declared
insolvent, suits by some depositors could be maintained and judgments
would be rendered for the payment of their deposits and then such
judgments would be considered preferred credits under article 2244 (14) (b)
of the Civil Code.
A contrary rule or practice would be productive of injustice, mischief and
confusion. To recognize such judgments as entitled to priority would mean
that depositors in insolvent banks, after learning that the bank is insolvent
as shown by the fact that it can no longer pay withdrawals or that it has
closed its doors or has been enjoined by the Monetary Board from doing
business, would rush to the courts to secure judgments for the payment of
their deposits.
In such an eventuality, the courts would be swamped with suits of that
character. Some of the judgments would be default judgments. Depositors
armed with such judgments would pester the liquidation court with claims
for preference on the basis of article 2244(14)(b). Less alert depositors
would be prejudiced. That inequitable situation could not have been
contemplated by the framers of section 29.
The general principle of equity that the assets of an insolvent are to be
distributed ratably among general creditors applies with full force to the
distribution of the assets of a bank. A general depositor of a bank is merely
a general creditor, and, as such, is not entitled to any preference or priority
over other general creditors
Considering that the deposits in question, in their inception, were
not preferred credits, it does not seem logical and just that they
should be raised to the category of preferred credits simply because
the depositors, taking advantage of the long interval between the
declaration of insolvency and the filing of the petition for judicial
assistance and supervision, were able to secure judgments for the
payment of their time deposits.
The circumstance that the Fidelity Savings Bank, having stopped operations
since February 19, 1969, was forbidden to do business (and that ban would
include the payment of time deposits) implies that suits for the payment of
such deposits were prohibited. What was directly prohibited should not be
encompassed indirectly.
NOTES
v.
70
Banks right to compensation
GULLAS v. PNB, 62 PHIL. 519 (1935)

DOCTRINE: A bank has the right of set off of the deposit in its hands for
the payment of any indebtedness to it on the part of the depositor.
FACTS (Version 1)
The treasurer of the US for the US Veterans Bureau issued a treasurer
warrant in the amount of $361, which was indorsed by Paulino Gullas and
Pedro Lopez, payable to Francisco Bacos. PNB encashed the warrant, but
was dishonored by the Insular Treasurer. Gullas had $509 in his bank
account, which was sequestered by the bank. At the time the notice of
dishonor was sent, he was still in Manila and did not receive the notice. Due
to such event, he was not able to pay the fees for his insurance for
insufficient balance, and he was greatly humiliated by such event.
ISSUE
Whether PNB has the right to apply Gullass deposit against his debt to the
bank
RULING
NO. According to the NCC, compensation shall take place upon the
existence of two persons being a creditor and debtor to each other. Gullas,
being a depositor of the bank, is considered a creditor of the bank and the
bank being the debtor. Under the Negotiable Instruments Law, when a
check has been dishonored, a general indorser becomes liable to the
amount of the check upon the knowledge of the dishonor. Gullas, being a
general indorser, became a debtor to the bank for the dishonor of the check,
upon knowledge of the dishonor, and the bank becomes the creditor.
Compensation should have taken place, except that Gullas DID NOT have
knowledge of the dishonor. Such action became prejudicial to Gullas, and he
may therefore claim from the bank any damages sustained by him from
such event. However, since no actual damages was proved, nominal
damages in the amount of $250 is awarded to him.
FACTS (Version 2)
Attorney Paulino Gullas has a current account with PNB.
On August 2, 1933, the Treasurer of the United States for the United
States Veterans Bureau issued a Warrant in the amount of $361,
payable to the order of Francisco Sabectoria Bacos. Paulino Gullas and
Pedro Lopez signed as endorsers of this check.
The warrant was cashed by PNB but the Insular Treasurer dishonored
the warrant. At that time the outstanding balance of Gullas on the
books of the bank was P509. Against this balance Gullas had issued
certain cheeks which could not be paid when the money was
sequestered.
On August 20, 1933, Gullas left his Cebu residence for Manila.

When PNB learned of the dishonor of the warrant, it sent notices by
mail to Atty. Gullas. However, the notices could not be delivered to
Gullas because he was in Manila. In its letter dated Aug. 21, 1933,
PNB informed Gullas and Lopez that the United States Treasury
warrant No. 20175 in the name of Francisco Sabectoria Bacos for
$361 or P722, the payment for which had been received has been
returned by its Manila office with the notation that the payment of his
check has been stopped by the Insular Treasurer. PNB stated that
because of this, it applied the outstanding balances in their current
accounts (Gullas - P509).
When Gullas returned to Cebu on August 31, 1933, he received the
notice of dishonor and he immediately paid the unpaid balance of the
United States Treasury warrant.
Because of this incident, (1) checks that Gullas issued, including one
for his insurance, were not paid because of lack of funds standing to
his credit in the bank; (2) periodicals in the vicinity gave prominence
to the news to the great mortification of Gullas.
CFI: PNB should return the sum of P5098 to Gullas, with legal interest
and costs. Gullas is entitled to damages in the amount of P10K more
or less.
ISSUES
(1) WON PNB has the right to apply a deposit to the debt of depositor to the
bank
(2) What amount of damages, if any, should be awarded to Gullas
RULING
1. PNB has the right to apply the deposit.
Art. 1195 Civil Code provides that compensation shall take place when
two persons are reciprocally creditor and debtor of each other. It has
been held that the relation existing between a depositor and a bank is
that of creditor and debtor.
Sec. 66 Negotiable Instruments Law provides that the general
indorser of negotiable instrument engages that if he be dishonored
and the necessary proceedings of dishonor be duly taken, he will pay
the amount thereof to the holder. It has been held that notice of
dishonor is in order to charge all indorser and that the right of action
against him does not accrue until the notice is given.
As a general rule, a bank has a right of set off of the deposits in its
hands for the payment of any indebtedness to it on the part of a
depositor.
[In Louisiana, a bank has no right, without an order from or special
assent of the depositor to retain out of his deposit an amount
sufficient to meet his indebtedness. This rule is based on the theory of
confidential contracts arising from irregular deposits, e. g., the deposit
of money with a banker.]
NOTES
71
2. Gullas is entitled to nominal damages.

PNB did not enforce the remedy properly.
o PNB made use of the money in Gullas account to make
good for the treasury warrant even prior to the mailing of
the notice of dishonor and without waiting for any action by
Gullas.
o It has been held that a depositor who has funds sufficient to
meet payment of a check drawn by him in favor of a third
party, has a right of action against the bank for its refusal to
pay such a check in the absence of notice to him that the
bank has applied the funds so deposited in extinguishment
of past due claims held against him.
o As to an indorser, notice should actually have been given
him in order that he might protect his interests.
PNBs action was prejudicial to Gullas.
o PNB is not primarily liable for the alleged libelous articles
against Gullas. The same same remark could be made
relative to the loss of business which Gullas claims but which
could not be traced definitely to this occurrence. Also Gullas
had been reimbursed.
o On the other hand, it was not agreeable for one to draw
checks in all good faith, then, leave for Manila, and on
return find that those checks had not been cashed because
of the action taken by the bank.
o Gullas should be awarded nominal damages worth P250
because of the premature action of the bank against which
Gullas had no means of protection.
REPUBLIC v. CA, 65 SCRA 186 (1975)
DOCTRINE: Since the relation between a depositor and a bank is that of a
creditor and debtor, the depositor has the right to apply his deposits/credit
with the bank against the loans he had obtained from his deposits.
FACTS
Shortly after the liberation of the Philippines in 1945, all the assets
belonging to the enemy government, were confiscated by the Government
of the United States. The assets located in the Philippines were
subsequently turned over to the Philippines by agreement between the two
Governments. Among these assets are 20 promissory notes secured by a
chattel mortgage executed by Cuaycong in favor of the Bank of Taiwan.
Based on the Ballyntine schedule, the money value of these promissory
notes adds up to P4,986, and, including the stipulated interest accumulated
up to September 30, 1961, the total indebtedness amounts to P14,654.17.

The Republic then filed suit against Cuaycong to recover the value of the 20
promissory notes executed by Cuaycong in favour of the Bank of Taiwan.
Based on the findings of the trial court which were adopted by the Court of
Appeals, it would appear that during the Japanese occupation of Negros
Occidental, the military administration commandeered all available stocks of
sugar in that province, including those belonging to Cuaycong; that no
record of the precise amount of sugar taken from Cuaycong has survived
the war but Cuaycong claimed that the same was valued at P10,242.60; and
that Cuaycong's stocks of sugar were mortgaged at the time with the
Philippine National Bank (the PNB, at the beginning of the Japanese
occupation, was taken over by the Bank of Taiwan) to guarantee payment of
a likewise undetermined amount of crop loan(s) granted prior to the
outbreak of the war.
the stocks of sugar belonging to Cuaycong were sold by the Victories
Planters' Association, acting as agent for the Bank of Taiwan, to the Mitsui
Bussan Kaisha of Japan. The proceeds of this sale were, in effect, retained
by the Bank of Taiwan to constitute a deposit of Cuaycong and made part of
the so-called "Farmers Rehabilitation Fund" mentioned in the military
directive. The Fund allowed the planters to borrow money therefrom,
against their respective deposits, in order to finance new plantings of sugar
cane and cotton in their haciendas. The twenty promissory notes subject of
the present action by the Government were executed by Cuaycong between
April 16, 1943 and March 25, 1944 under the above-mentioned financing
scheme.
Upon the foregoing facts, the Court of Appeals held, among others, that (a)
the right of action of the Government against Cuaycong has already
prescribed, and (b) Cuaycong's indebtedness to the Bank of Taiwan may be
considered set off against the proceeds of the sale of his sugar retained by
the same bank. The Government disputes these rulings.
ISSUE
Whether the government may still collect on the promissory notes against
Cuaycong
RULING: NO.
1. On the matter of prescription, the SC held that the statute of limitations
does not operate against the Government as to bar it from collecting the
sums owing to the Bank of Taiwan during the last war for, in recovering
these loans, the Government is merely acting "in the exercise of its
sovereign functions to protect the interests of the State over a public
property."
2. The Court of Appeals is correct in allowing a set-off of Cuaycong's
indebtedness to the Bank of Taiwan against his money-deposit with the
same bank. No record of Cuaycong's deposit is available but the inference
NOTES
72
drawn by the Court of Appeals as to the existence and extent of such

deposit cannot be flawed. The fact is clear that all the proceeds derived from
the sale or confiscation of the sugar stocks belonging to the planters in
Negros Occidental were retained as deposits by the Bank of Taiwan and
made part of the "Farmers Rehabilitation Fund." Planters like Cuaycong were
allowed to borrow money from the Fund but only to the extent of their
deposits with the Bank of Taiwan or, as the military directive adverted to
states, "Within the limit of the proceeds of sugar sale of each planter." The
conclusion is logical and inevitable that the sums covered by the promissory
notes drawn by Cuaycong were well within the size of his then existing
deposit.
And since the relation between a depositor in a bank and the bank is
that of creditor and debtor, 3 Cuaycong has every right to apply his
credit with the Bank of Taiwan against the loans he had obtained
from his deposit. All the elements necessary for a set-off are present, and
under the law then obtaining, 4 compensation takes place ipso jure from the
day all the necessary requisites concur, without need of any conscious intent
on the part of the parties.
Moreover, the Court is satisfied with the explanation proffered by
Cuaycong that, under the abnormal conditions then prevailing, the
only way by which he could utilize the proceeds from the sale of the
stocks of sugar seized from him was for him to make use of the loans
made available by the very agency that arbitrarily retained the said
proceeds. In ultimate effect, it was as though Cuaycong had merely
withdrawn his deposits with the Bank of Taiwan.
BPI v. CA, 512 SCRA 620 (2007)
DOCTRINE: A bank generally has the right of set-off over the deposits
therein for the payment of any withdrawals on the part of a depositorthe
right of a collecting bank to debit a clients account for the value of a
dishonored check that has previously been credited has fairly been
established by jurisprudence.
FACTS
Julio Templonuevo demanded from BPI payment of P267,000 (approx.)
representing the aggregate amount of 3 checks, payable to him, but
deposited with Annabelle Salazars BPI account without his knowledge and
corresponding indorsement.
Accepting Templonuevos claim as a valid one, BPI froze the account of AA
Salazar Construction and Engineering Services (ASCES), instead of
Annabelle Salazars, where the checks were deposited, as this was already
closed due to insufficiency of funds.
Salazar was advised to settle this with Templonuevo, but no settlement was
arrived at. Hence, BPI decided to debit the amount of P267,000 (approx.)

from her account and paid this, in turn, to Templonuevo by means of a
cashiers check.
Hence, Salazar instituted an action against BPI for the recovery of the sum
of P267,000. The RTC rendered a decision in favor of Salazar, which the CA
affirmed on the ground that Salazar and Templonuevo had previously
agreed that the checks payable to JRT Construction and Trading actually
belonged to Salazar and would be deposited to her account, with
Templonuevo acquiescing to the arrangement.
ISSUE
Whether it was proper for BPI to withdraw unilaterally from the depositors
account the amount it had previously paid upon certain unendorsed order
instruments deposited by the depositor to another account that she closed
HELD
NO. Although as the collecting bank, BPI had the right to debit Salazars
account for the value of the checks it previously credited in her favor, it was
improper for it to do so. It is of no moment that the account debited by BPI
was different from the original account to which the proceeds of the check
were credited because both admittedly belonged to Salazar, the former
being the account of the sole proprietorship which had no separate and
distinct personality form her, and that the latter being her personal account.
As business affected with public interest, and because of the nature of their
functions, banks are under obligation to treat the accounts of their
depositors with meticulous care, always having in mind the fiduciary nature
of their relationship. In this regard, BPI was clearly remiss in its duty to
Salazar as its depositor.
Despite the obvious lack of indorsement on the checks, BPI permitted the
encashment of these checks three times on 3 separate occasions. This
negates BPIs contention that it merely made a mistake in crediting the
value of the checks to Salazars account and instead bolsters the conclusion
of the CA that BPI recognized Salazars claim of ownership of checks and
acted deliberately in paying the same, contrary to ordinary banking policy
and practice.
Although the Court ordered the return of the amount of the checks to
Templonuevo, it affirmed CAs award of damages to Salazar. This would
have been avoided had BPI adhered to the standard of diligence expected of
one engaged in the banking business. A depositor has the right to recover
reasonable moral damages even if the banks negligence may not have been
attended with malice or bad faith, if the former suffered mental anguish,
serious anxiety, embarrassment, and humiliation.
NOTES
vi.
73
No breach of trust; Mandamus not a remedy
LUCMAN v. MALAWI, 511 SCRA 268 (2006)

Bank deposits are in the nature of irregular depositsthey are really loans
because they earn interest. All kinds of bank deposits are to be treated as
loans and are to be covered by the law on loans. Mandamus does NOT lie to
enforce the performance of contractual obligations.
c.
Banks Duty of Utmost Care

SEC. 2, GBL: 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.
CONSOLIDATED BANK AND TRUST COMPANY v. CA, 410 SCRA 562

(2003)
DOCTRINE: The fiduciary relationship means that the banks obligation to
observe high standards of integrity and performance is deemed written
into every deposit agreement between a bank and its depositors. It requires
banks to assume a degree of diligence higher than that of a good father of a
family.
FACTS
(Similar with the earlier case where the messenger left the passbook in the
bank)
ISSUE
Who should bear the loss, Consolidated Bank or L.C. Diaz?
RULING
Both will share in the losses- 60% to Consolidated Bank, 40% to L.C. Diaz.
The Bank was made liable because of its duty to its depositors.
This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every
deposit agreement between a bank and its depositor. The fiduciary nature of
banking requires banks to assume a degree of diligence higher than that of
a good father of a family.
The fiduciary nature of banking does not convert a simple loan into a trust
agreement because banks do not accept deposits to enrich depositors but to
earn money for themselves. The law allows banks to offer the lowest
possible interest rate to depositors while charging the highest possible

interest rate on their own borrowers. The interest spread or differential
belongs to the bank and not to the depositors who are not cestui que trust
of banks. If depositors are cestui que trust of banks, then the interest
spread or income belongs to the depositors, a situation that Congress
certainly did not intend in enacting Section 2 of RA 8791.
Solidbanks tellers must exercise a high degree of diligence in insuring that
they return the passbook only to the depositor or his authorized
representative. The tellers know, or should know, that the rules on savings
account provide that any person in possession of the passbook is
presumptively its owner. If the tellers give the passbook to the wrong
person, they would be clothing that person presumptive ownership of the
passbook, facilitating unauthorized withdrawals by that person. For failing
to return the passbook to Calapre, the authorized representative of L.C.
Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high
degree of diligence in safeguarding the passbook, and in insuring its return
to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is
a presumption that the defendant was at fault or negligent. The burden is
on the defendant to prove that he was not at fault or negligent. In contrast,
in culpa aquiliana the plaintiff has the burden of proving that the defendant
was negligent. In the present case, L.C. Diaz has established that Solidbank
breached its contractual obligation to return the passbook only to the
authorized representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the
passbook to Calapre. The burden was on Solidbank to prove that there was
no negligence on its part or its employees.
B. Kinds of Deposit
a. Demand Deposits
SEC. 58, NCBA: For purposes of this Act, the term "demand
deposits" means all those liabilities of the Bangko Sentral and of
other banks, which are denominated in Philippine currency and are
subject to payment in legal tender upon demand by the presentation
of checks.
SEC. 59, NCBA: 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 respect thereto under this Act.
SEC. 60, NCBA: Checks representing demand deposits do not have
legal tender power and their acceptance in the payment of debts,
both public and private, is at the option of the creditor: Provided,
NOTES
74
however, That a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the
creditor of cash in an amount equal to the amount credited to his
account.
SEC. X201, MRB: Banks may accept or create demand deposits
subject to withdrawal by check.
A UB/KB may accept or create demand deposits subject to
withdrawal by check, without prior authority from the BSP.
A TB/RB/Coop Bank may accept or create demand deposits upon
prior authority of the BSP.
SEC. X202, MRB: The following regulations shall govern temporary
over-drawings and drawings against uncollected deposits (DAUDs).
a.
Temporary over-drawings. Temporary over-drawings against

current account shall not be allowed, unless caused by normal
bank charges and other fees incidental to handling such
accounts. Banks which violate these regulations shall be subject
to a fine of one-tenth of one percent (1/10 of 1%) per day of
violation, computed on the basis of the amount of overdrawing
or fines in amounts as may be determined by the Monetary
Board, but not to exceed P30,000 a day for each violation,
whichever is lower.
Technical over-drawings arising from force posting in-clearing
checks shall be debited by banks under Returned Checks and
Other Cash Items Not in Process of Collection which is part of
Other Assets in the Statement of Condition. Items to be
lodged under this account shall consist only of in-clearing checks
which may result in technical overdrawn accounts and shall be
immediately reversed the following day.
The checks lodged under Returned Checks, etc. shall either be
returned or honored the following day before clearing. The items
to be used as cover for the honored checks should only consist
of any of the following:
(1) Cash
(2) Cashiers, Managers or Certified Checks
(3) Bank Drafts
(4) Postal Money Orders
(5) Treasury Warrants
(6) Duly funded On us Checks
(7) Fund transfers/credit memos within the same bank
representing proceeds of loans granted under existing
regulations.

Peso demand deposit accounts maintained by foreign
correspondent banks with commercial banks shall not be
subject to the above-mentioned regulations: Provided, That:
(a) The maintenance of non-resident correspondent banks peso
checking accounts and overdrawings therefrom are covered by
reciprocal arrangement;
(b) Temporary overdrawings are covered within fifteen (15)
days from the date overdrawings are incurred; and
(c) Such accounts are credited only through foreign exchange
inward remittance.
b. Drawings against uncollected deposits. DAUDs shall be
prohibited except when
the drawings are made against
uncollected
deposits
representing
managers/cashiers/treasurers checks, treasury warrants,
postal money orders and duly funded on us checks, which
may be permitted at the discretion of each bank.
SEC. X203, MRB: To complement the provisions of Batas Pambansa
Blg. 22, (An Act Penalizing the Making or Drawing and Issuance of a Check
Without Sufficient Funds or Credit), the following regulations shall govern:
a. The drawee bank shall stamp, write or print on a dishonored check
or on a paper attached thereto the date the check is presented for
payment and the reason for the refusal to pay the same to the holder
thereof.
b. Where the reason for the dishonor of a check is stamped, written or
printed on a paper attached to the checks, the drawee bank shall
indicate the pertinent details, such as the names of the drawer, the
payee and the drawee bank, the date and amount of the check, the
check number and the date of dishonor.
c. The drawee bank shall use only the remark or notation Drawn
Against Insufficient Funds, No Funds, or Insufficient Funds
stamped, written, or printed on, or attached to the check dishonored
or returned byreason of insufficiency of funds or credit.
d. Notwithstanding receipt of an order to stop payment, the drawee
bank shall likewise stamp, write, or print on, or attach to the check
any of the remarks or notations mentioned in Item c hereof
indicating that there were no sufficient funds in or credit with such
bank for the payment in full of such check, if such be the fact. The
bank shall also indicate receipt of a stop payment order.
e. A check and other clearing item (COCI) dishonored by reason of
insufficiency of funds or credit shall be returned by the drawee bank
to the negotiating bank not later than the next clearing for returned
COCI.
(1) For Local Exchanges
There shall be two (2) separate clearing windows for COCIs returned
due to insufficient funds or credit in the local exchanges in the
NOTES
75
integrated Metro Manila area served by the PCHC and the BSP
Regional Clearing Centers (RCCs). (The settlement of interbank
transactions vis--vis covering reserve requirement/deficiency of
banks DDA is shown in Appendix 39.)
(a) AM Returned COCI Clearing - The AM returned COCI clearing in
the integrated Metro Manila local exchange shall be conducted from
7:30 AM to 10:00 AM on the banking day immediately following the
original date of presentation of the COCI to PCHC.
The AM returned COCI clearing window for local exchanges in the
BSP RCCs shall be conducted from 8:00 AM to 9:30 AM on the
banking day immediately following the original date of presentation
of the COCI to the RCC.
Returned COCI in the AM clearing windows shall be given value on
the same date as the date of original presentation of the COCI to
PCHC and RCC. The amount of debits and credits on the date of
original presentation shall be reversed to the extent of the amount
of credits and debits arising from the returned COCI. The process
restores the balances of the demand deposits of banks with the BSP
to their position prior to the settlement of the clearing results
affected by the COCI later returned due to insufficient funds or
credit.
(b) PM Returned COCI Clearing - The PM returned COCI clearing
window shall coincide with the afternoon regular clearing. Other
dishonored COCI not returned in the morning clearing session shall
be presented by the drawee bank to the negotiating bank in the
afternoon regular clearing. Such returned COCI shall be given value
on the date the returned COCI was presented to PCHC for the
integrated Metro Manila area and to BSP RCCs.
Return of Dishonored COCI - A COCI dishonored by reason of
insufficiency of funds or credit shall be returned by the drawee bank
to the negotiating bank not later than the next clearing for returned
COCI.
(2) For Out-of-town Exchanges
For out-of-town exchanges, a COCI so dishonored shall be returned
by the drawee bank to the negotiating bank within the period
specified in the clearing Circular Letters issued by BSP.
(3) COCI not coursed through the Clearing System
A COCI dishonored by reason of insufficiency of funds or credit
which was not coursed through the clearing system shall be
returned by the drawee bank to the holder or the negotiating bank,
as the case may be, not later than the business day following the

date the COCI is presented for payment with the drawee bank.
The negotiating bank shall, in turn, return a COCI dishonored by
reason of insufficiency of funds or credit to the holder not later than
the business day following its receipt of the dishonored COCI from
the drawee bank.
SEC. X204, MRB: The following officers and employees of banks are
prohibited from maintaining demand deposits or current accounts with
the banking office in which they are assigned:
a. All officers;
b. Employees of the banks cash department/cash units; and
c. Other employees who have direct and immediate
responsibility in the handling of transactions and/or records
pertaining to demand deposits or current accounts.
The above-mentioned prohibition shall include the spouses and
relatives within the second degree of consanguinity and affinity of the
officers and employees covered by the prohibition, and the business
interests of such officers and employees, their spouses and relatives
within the second degree of consanguinity and affinity, in single
proprietorships, or partnerships or corporations in which such officers
and employees, individually or as a group, own or control at least a
majority of the capital of the partnership or the outstanding
subscribed capital stock (voting and non-voting) of the corporation.
BPI FAMILY SAVINGS BANK v. FIRST METRO INVESTMENT CORP,
429 SCRA 30 (2004)
DOCTRINE: Demand Deposits are all those liabilities of the Bangko Sentral
and of other banks which are denominated in the Philippine currecncy and
are subject to payment in legal tender upon demand by the presentation of
depositors checks. Under CB Circular No. 22 (Series of 1994), demand
deposits shall not be subject to any interest rate ceiling. This, in effect, is
an open authority to pay interest on demand deposits, such interest not
being subject to any rate ceiling.
FACTS
FMIC, through its Executive Vice President Antonio Ong, opened a current
account and deposited a METROBANK check P100 million with BPI Family
Bank* (BPI FB). BPI FB, guaranteed the payment of P14,667,687.01
representing 17% per annum interest of P100 million deposited by FMIC.
The latter, in turn, assured BPI FB that it will maintain its deposit of P100
million for a period of one year on condition that the interest of 17% per
annum is paid in advance. Subsequently, BPI FB paid FMIC 17% interest or
P14,667,687.01 upon clearance of the latters check deposit.
NOTES
76
by Ong and Ma. Theresa David, Senior Manager of FMIC, BPI FB transferred
P80 million from FMICs current account to the savings account of Tevesteco
Arrastre Stevedoring, Inc.
FMIC denied having authorized the transfer of its funds to Tevesteco,
claiming that the signatures of Ong and David were falsified. To recover
immediately its deposit, FMIC, on September 12, 1989, issued BPI FB check
no. 129077 for P86,057,646.72 payable to itself and drawn on its deposit
with BPI FB SFDM branch. But upon presentation for payment on September
13, 1989, BPI FB dishonored the check as it was "drawn against insufficient
funds" (DAIF).
FMIC filed with the RTC a civil case against BPI FB. RTC ruled in favor of
FMIC, ordering BPI to pay P80M + interest at legal rate. CA modified
amount to P65M + interest at 17%
ISSUE
Is it a Time Deposit or interest-bearing current account?
HELD
Time Deposit. The parties did not intend the deposit to be treated as a
demand deposit but rather as an interest-earning time deposit not
withdrawable any time. Both agreed that the deposit of P100 million was
non-withdrawable for one year upon payment in advance of the
17% per annum interest.
Ordinarily, a time deposit is defined as "one the payment of which cannot
legally be required within such a specified number of days." In contrast,
demand deposits are "all those liabilities of the Bangko Sentral and of
other banks which are denominated in Philippine currency and are subject
to payment in legal tender upon demand by the presentation of
(depositors) checks."4 While it may be true that barely one month and
seven days from the date of deposit, respondent FMIC demanded the
withdrawal of P86,057,646.72 through the issuance of a check payable to
itself, the same was made as a result of the fraudulent and unauthorized
transfer by petitioner BPI FB of its P80 million deposit to Tevestecos savings
account. Certainly, such was a normal reaction of respondent as a depositor
to petitioners failure in its fiduciary duty to treat its account with the
highest degree of care. Under this circumstance, the withdrawal of deposit
by respondent FMIC before the one-year maturity date did not change the
nature of its time deposit to one of demand deposit.
i.
For UB and KB
SEC. 33, GBL: A bank other than a universal or commercial
bank cannot accept or create demand deposits except upon
However, on August 29, 1989, on the basis of an Authority to Debit signed


prior approval of, and subject to such conditions and rules as
may be prescribed by the Monetary Board.
ii.
For TB
SEC. 10 (B), THRIFT BANKS ACT: 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;
iii.
For RB/Coop Bank

SEC. 12 (B), RURAL BANKS ACT: In addition to the operations
especially authorized in this Act, any rural bank may:
xxx
Open current or checking accounts, provided the rural bank has
net assets of at least Five million (P5,000,000) subject to such
guidelines as may be established by the Monetary Board;
iv.
For Islamic Banks

SEC. 6, PAR. 7 (A), ISLAMIC BANK CHARTER: To perform
the following banks services:
xxx
Open current or checking accounts;
b. Savings Deposits
SEC. X213, MRB: Banks may be authorized by the BSP to solicit
and accept deposits outside their bank premises, subject to the
following conditions:
a. The financial condition of the bank applying for authority to solicit
and collect savings deposits outside its bank premises is sound and
the operations and the quality of the management thereof could
reasonably assure the safety of the funds which may be entrusted to
its deposit collectors and/or solicitors;
b. The proposed area where applicant bank intends to solicit shall be
clearly defined;
c. Solicitation of deposits shall only be confined within a locality
where there are no other banks in operation, or where it can be
clearly established that the deposit potentials of the said locality are
still untapped; and
NOTES
77
d. Applicant bank shall institute and maintain the following minimum

safeguards:
(1) All deposit solicitors shall be initially bonded for at least
P1,000 subject to the increase thereof to approximate their
daily collections;
(2) Deposit solicitors shall be provided with proper identification
cards with photograph and signature of each respective
solicitor, certified to by the appropriate officer of the bank. Said
identification cards shall be worn by each solicitor at all times at
the upper breast of his outer garment when soliciting deposits;
(3) Adequate insurance coverage for funds in transit
(representing deposits collected outside banking premises) shall
be secured by applicant bank from insurance companies not
included in the list of companies blacklisted by the Insurance
Commissioner;
(4) Deposit slips shall be in booklet form, pre-numbered,
intriplicate copies and in three (3) colors - the original to be
issued to the depositor, the second copy to be used for posting
reference, and the third copy to be retained in the booklet;
(5) All collections shall be turned over to the cashier at the end
of each day accompanied by a Collection Summary Report to be
accomplished in duplicate which shall contain the following
minimum information:
(a) Date of the report
(b) Names and addresses of the depositors
(c) Deposit slip numbers
(d) Amounts of deposit
(e) Savings account and passbook numbers
(f) Name and signature of solicitor rendering the report
(6) Depositors shall always be required to accomplish a
Signature Card when opening an account, which card shall be
used
always
as
reference
in
checking
the
genuineness/authenticity of signatures affixed on withdrawal
slips or authorizations for withdrawal;
(7) Deposits/withdrawals shall be recorded by the bookkeeper
or any ledger clerk, except any bank solicitor, in the depositors
ledger cards and passbooks on the same day that such
deposits/withdrawals are accepted. Passbooks shall be returned
to the depositors not later than the following business day;
(8) At the end of each month, depositors shall be advised in
writing of the balances of their deposits with the bank, the
advise slips of which shall never be handcarried by the solicitors
themselves; and
(9) Places of assignments of bank solicitors shall be rotated at
least quarterly.

SEC. X214, MRB: Banks are prohibited from issuing/accepting
withdrawal slips or any other similar instruments designed to effect
withdrawals of savings deposits without requiring the depositors
concerned to present their passbooks and accomplishing the
necessary withdrawal slips, except for banks authorized by the BSP
to adopt the no passbook withdrawal system: Provided, That banks
which are already adopting the no passbook withdrawal system shall
be given six (6) months from effectivity of this Manual of
Regulations (MOR) to seek approval from the BSP.
The provisions of Sec. X202b shall also apply to withdrawals from
savings deposits.
INTERNATIONAL EXCHANGE BANK v. CIR, 520 SCRA 688 (2007)
DOCTRINE: A Fixed Savings Deposit (FSD), like a time deposit, provides for
a higher interest rate when the deposit is not withdrawn within the required
fixed period, otherwise, it earns interest pertaining to a regular savings
deposit.
FACTS
International Exchange Bank served a Letter of Authority by the
Commissioner of Internal Revenue, directing the examination of the banks
book of accounts and other account records. The CIR found that it was liable
for tax deficiencies, mostly Documentary Stamp Tax (DST). The Bank
protested the assessment, arguing that there is no law imposing DST on
Savings Account-Fixed Savings Deposit.
CTA Division decided that the bank was not liable for the whole assessment
but still liable for the DST. CTA En Banc affirmed.
ISSUE
Whether a Savings Account-Fixed Savings Deposit evidenced by a passbook
is subject to Documentary Stamp Tax
RULING
YES, it is subject to DST.
Section 180 of the Tax Code provides DST shall be imposed on
certificates of deposits drawing interest, or orders for the payment
of any sum of money otherwise than at sight or on demand a passbook
representing an interest earning deposit account issued by a bank qualifies
as a certificate of deposit drawing interest.
A document to be deemed a certificate of deposit requires no specific form
as long as there is some written memorandum that the bank accepted a
deposit of a sum of money from a depositor. What is important and
controlling is the nature or meaning conveyed by the passbook and not the
particular label or nomenclature attached to it, inasmuch as substance, not
form, is paramount.
NOTES
78
A depositor of a savings deposit-FSD is required to keep the money with the

bank for at least thirty (30) days in order to yield a higher interest rate.
Otherwise, the deposit earns interest pertaining only to a regular savings
deposit. The same feature is present in a time deposit. A depositor is
allowed to withdraw his time deposit even before its maturity subject to
bank charges on its pre-termination and the depositor loses his entitlement
to earn the interest rate corresponding to the time deposit. Instead, he
earns interest pertaining only to a regular savings deposit. (Question) Sino
superhero mahilig mag promise?) In both cases, the deposit may be
withdrawn anytime but the depositor gets to earn a lower rate of interest.
The only difference lies on the evidence of deposit, a savings deposit-FSD is
evidenced by a passbook, while a time deposit is evidenced by a certificate
of time deposit." In order for a depositor to earn the agreed higher interest
rate in a SA-FSD, the amount of deposit must be maintained for a fixed
period. Thus, SA-FSD is a deposit account with a fixed term. Withdrawal
before the expiration of said fixed term results in the reduction of the
interest rate. Having a fixed term and reduction of interest rate in case of
pre-termination are essentially the features of a time deposit. Ultimately,
the Banks SA-FSD and time deposit are substantially the same
It bears emphasis that DST is levied on the exercise by persons of certain
privileges conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific instruments. It
is an excise upon the privilege, opportunity or facility offered at exchanges
for the transaction of the business.
While tax avoidance schemes and arrangements are not prohibited, tax laws
cannot be circumvented in order to evade payment of just taxes. (Answer:
eh di si Peksman!)To claim that time deposits evidenced by passbooks
should not be subject to DST is a clear evasion of the rule on equality and
uniformity in taxation that requires the imposition of DST on documents
evidencing transactions of the same kind, in this particular case, on all
certificates of deposits drawing interest.
In addition, further amendments to Section 180 includes provisions with the
purpose to eliminate precisely the scheme used by banks of issuing
passbooks to "cloak" its time deposits as regular savings deposits.
CHINA BANKING CORP. v. CIR, 602 SCRA 316 (2009)
A certificate of deposit is a written acknowledgment by a bank or banker of
the receipt of a sum of money on deposit which the bank or banker
promises to pay to the depositor, to the order of the depositor, or to some
other person or his order, whereby the relation of debtor and creditor
between the bank and the depositor is created.

c.
Negotiable Order of Withdrawal (NOW) Accounts

SEC. X223, MRB: Negotiable Order of Withdrawal (NOW) accounts
are interest-bearing deposit accounts that combine the payable on
demand feature of checks and investment feature of savings
accounts.
A UB/KB may offer NOW accounts without prior authority of the
Monetary Board.
A TB/RB/Coop Bank may accept NOW accounts upon prior approval
of the Monetary Board.
SEC. X224, MRB: The following rules shall be observed in servicing
NOW accounts:
a. Prior to or simultaneous with the opening of a NOW account,
the bank shall inform the depositor of its terms and conditions.
b. The bank shall be responsible for the proper identification of
its depositors; it shall require, among other things, two (2)
specimen signatures and such other pertinent information.
c. Deposits shall be covered by deposit slips in duplicate duly
validated and initialed by the teller receiving the deposit. A copy
of the deposit slip shall be furnished the depositor.
d. NOW accounts shall be kept and maintained separately from
the regular savings deposits.
e. Blank NOW forms shall be pre-numbered and shall be
controlled as in the case of unissued blank checks.
f. A bank statement shall be sent to each depositor at the end
of each month for confirmation of balances.
g. Banks must use the form prescribed by present rules for
NOW accounts.
Nothing herein shall be construed as precluding a TB, RB or Coop
Bank from applying for authority to accept both demand deposits
and NOW accounts.
SEC. X225, MRB: The order of withdrawal form shall have a size of
three (3) inches by seven (7) inches, and shall be printed on
security/check paper. It shall contain as a minimum the features of
the proforma order of withdrawal shown in Appendix 11.
SEC. X226, MRB: Any NOW which may be deposited with a bank
other than the drawee bank may be cleared through the PCHC in
Manila and the Regional Clearing Units in regional clearing centers
designated by the BSP in accordance with the clearing procedures.
Nothing in this Section shall prevent direct settlement between the
parties concerned.
NOTES
79
The provision of Sec. X202 shall also apply for withdrawals on NOW
accounts.
PEOPLE v. REYES, 454 SCRA 635 (2005)
DOCTRINE: NOW Accounts are defined as interest-bearing deposit accounts
that combine the payable on demand feature of checks and the investment
feature of savings accounts.
FACTS
Aloma Reyes and her daughter Tricha (at large) were convicted for ESTAFA.
Private complainant Jules Alabastro bases his complaint on one subject
check (for P280,000); each time a check issued by the Reyes's (a total of 5
or 6) bounced, he would return it, and it would be replaced by them with
cash, except this last one, which they refused to replace with cash.
Complainant claims that the transactions between himself and the Reyes's
involved the rediscounting of checks. Defendant claims that she issued the
instruments as payment for loans she obtained from Alabastro with respect
to her and her daughter's softdrinks business, which eventually went under.
She allegedly issued 16 instruments, one for P6k and the rest for P13k, to
pay for the (232k) obligation. These would come from a NOW (Negotiable
Order of Withdrawal) Account, described as "a savings account where the
drawer may issue instrument payable only to a specific payee. A NOW check
cannot be issued payable to BEARER. Hence, it cannot be further
negotiated.
On appeal to the SC, she raises the following issues: 1) whether the nature
of a NOW instrument is a "check" within the meaning of Art. 315 of the
Revised Penal Code, since the NOW check is drawn against the savings, not
the current account, of appellant, and it is payable only to a specific person
or the payee and is not valid when made payable to bearer or to
cash.and 2) whether her and her daughter's liability should be merely civil,
since the check was issued in payment of a pre-existing obligation.
ISSUE
1) Whether the nature of a NOW instrument is a "check" within the meaning
of Art. 315 of the Revised Penal Code, and
2) Whether the Reyes's liability should be merely civil, since the check was
issued in payment of a pre-existing obligation.
RULING
1) NO. Section X223 of the Manual of Regulations for Banks defines
Negotiable Order of Withdrawal (NOW) Accounts as "interest-bearing
deposit accounts that combine the payable on demand feature of checks and
the investment feature of savings accounts."

The fact that a NOW check shall be payable only to a specific person, and
not valid when made payable to BEARER or to CASH or when indorsed
by the payee to another person, is inconsequential. The same restriction is
produced when a check is crossed: only the payee named in the check may
deposit it in his bank account. If a third person accepts a cross check and
pays cash for its value despite the warning of the crossing, he cannot be
considered in good faith and thus not a holder in due course. The purpose of
the crossing is to ensure that the check will be encashed by the rightful
payee only. Yet, despite the restriction on the negotiability of cross checks,
we held that they are negotiable instruments.
2) YES. Conviction Reversed. A careful examination of the records
establishes that appellant issued him the subject check in payment of a preexisting obligation. It puzzles the Court that after the NOW check dated
August 31, 1997 bounced on September 3, 1997 for the reason ACCOUNT
CLOSED, private complainant would still discount appellants checks in
succession. It baffles us more that private complainant would discount a
P280,000.00-check in February 1998 despite knowledge of the closure of
appellants NOW Account.
In the case at bar, private complainant knew that appellant did not only
have insufficient funds; he knew her NOW Account was closed at the time
he allegedly discounted the subject check. There is no estafa through
bouncing checks when it is shown that private complainant knew that the
drawer did not have sufficient funds in the bank at the time the check was
issued to him. Such knowledge negates the element of deceit and
constitutes a defense in estafa through bouncing checks.
d. Time Deposits
SEC. X231, MRB: Time deposits shall be issued for a specific period
of term.
BPI FAMILY SAVINGS BANK v. FIRST METRO INVESTMENT CORP.,
429 SCRA 30 (2004)
DOCTRINE: A Time Deposit is defined as one the payment of which cannot
legally be required within such a specified number of days.
FACTS
FMIC, through its Executive Vice President Antonio Ong, opened a current
account and deposited a METROBANK check P100 million with BPI Family
Bank* (BPI FB). BPI FB, guaranteed the payment of P14,667,687.01
representing 17% per annum interest of P100 million deposited by FMIC.
The latter, in turn, assured BPI FB that it will maintain its deposit of P100
million for a period of one year on condition that the interest of 17% per
annum is paid in advance. Subsequently, BPI FB paid FMIC 17% interest or
P14,667,687.01 upon clearance of the latters check deposit.
NOTES
80
However, on August 29, 1989, on the basis of an Authority to Debit signed

by Ong and Ma. Theresa David, Senior Manager of FMIC, BPI FB transferred
P80 million from FMICs current account to the savings account of Tevesteco
Arrastre Stevedoring, Inc.
claiming that the signatures of Ong and David were falsified. To recover
immediately its deposit, FMIC, on September 12, 1989, issued BPI FB check
no. 129077 for P86,057,646.72 payable to itself and drawn on its deposit
with BPI FB SFDM branch. But upon presentation for payment on September
13, 1989, BPI FB dishonored the check as it was "drawn against insufficient
funds" (DAIF).
FMIC filed with the RTC a civil case against BPI FB. RTC ruled in favor of
FMIC, ordering BPI to pay P80M + interest at legal rate. CA modified
amount to P65M + interest at 17%
ISSUE
Is it a Time Deposit or interest-bearing current account?
HELD
Time Deposit. The parties did not intend the deposit to be treated as a
demand deposit but rather as an interest-earning time deposit not
withdrawable any time. Both agreed that the deposit of P100 million was
non-withdrawable for one year upon payment in advance of the
17% per annum interest.
Ordinarily, a time deposit is defined as "one the payment of which cannot
legally be required within such a specified number of days." In contrast,
demand deposits are "all those liabilities of the Bangko Sentral and of
other banks which are denominated in Philippine currency and are subject
to payment in legal tender upon demand by the presentation of
(depositors) checks."4 While it may be true that barely one month and
seven days from the date of deposit, respondent FMIC demanded the
withdrawal of P86,057,646.72 through the issuance of a check payable to
itself, the same was made as a result of the fraudulent and unauthorized
transfer by petitioner BPI FB of its P80 million deposit to Tevestecos savings
account. Certainly, such was a normal reaction of respondent as a depositor
to petitioners failure in its fiduciary duty to treat its account with the
highest degree of care. Under this circumstance, the withdrawal of deposit
by respondent FMIC before the one-year maturity date did not change the
nature of its time deposit to one of demand deposit.

INTERNATIONAL EXCHANGE BANK v. CIR, 520 SCRA 688 (2007)
DOCTRINE: Having a fixed term and the reduction of interest rate in case
of pre-termination are essential features of a time deposit.
FACTS
International Exchange Bank served a Letter of Authority by the
Commissioner of Internal Revenue, directing the examination of the banks
book of accounts and other account records. The CIR found that it was liable
for tax deficiencies, mostly Documentary Stamp Tax (DST). The Bank
protested the assessment, arguing that there is no law imposing DST on
Savings Account-Fixed Savings Deposit.
CTA Division decided that the bank was not liable for the whole assessment
but still liable for the DST. CTA En Banc affirmed.
ISSUE
Whether a Savings Account-Fixed Savings Deposit evidenced by a passbook
is subject to Documentary Stamp Tax
RULING
YES, it is subject to DST.
Section 180 of the Tax Code provides DST shall be imposed on
certificates of deposits drawing interest, or orders for the payment
of any sum of money otherwise than at sight or on demand a passbook
representing an interest earning deposit account issued by a bank qualifies
as a certificate of deposit drawing interest.
A document to be deemed a certificate of deposit requires no specific form
as long as there is some written memorandum that the bank accepted a
deposit of a sum of money from a depositor. What is important and
controlling is the nature or meaning conveyed by the passbook and not the
particular label or nomenclature attached to it, inasmuch as substance, not
form, is paramount.
A depositor of a savings deposit-FSD is required to keep the money with the
bank for at least thirty (30) days in order to yield a higher interest rate.
Otherwise, the deposit earns interest pertaining only to a regular savings
deposit. The same feature is present in a time deposit. A depositor is
allowed to withdraw his time deposit even before its maturity subject to
bank charges on its pre-termination and the depositor loses his entitlement
to earn the interest rate corresponding to the time deposit. Instead, he
earns interest pertaining only to a regular savings deposit. (Question) Sino
superhero mahilig mag promise?) In both cases, the deposit may be
withdrawn anytime but the depositor gets to earn a lower rate of interest.
The only difference lies on the evidence of deposit, a savings deposit-FSD is
evidenced by a passbook, while a time deposit is evidenced by a certificate
of time deposit." In order for a depositor to earn the agreed higher interest
NOTES
81
rate in a SA-FSD, the amount of deposit must be maintained for a fixed

period. Thus, SA-FSD is a deposit account with a fixed term. Withdrawal
before the expiration of said fixed term results in the reduction of the
interest rate. Having a fixed term and reduction of interest rate in case of
pre-termination are essentially the features of a time deposit. Ultimately,
the Banks SA-FSD and time deposit are substantially the same
It bears emphasis that DST is levied on the exercise by persons of certain
privileges conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific instruments. It
is an excise upon the privilege, opportunity or facility offered at exchanges
for the transaction of the business.
While tax avoidance schemes and arrangements are not prohibited, tax laws
cannot be circumvented in order to evade payment of just taxes. (Answer:
eh di si Peksman!)To claim that time deposits evidenced by passbooks
should not be subject to DST is a clear evasion of the rule on equality and
uniformity in taxation that requires the imposition of DST on documents
evidencing transactions of the same kind, in this particular case, on all
certificates of deposits drawing interest.
In addition, further amendments to Section 180 includes provisions with the
purpose to eliminate precisely the scheme used by banks of issuing
passbooks to "cloak" its time deposits as regular savings deposits.
e. Foreign Currency Deposits
SEC. 2, FCDA: 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
(Now Rep. Act No. 7653).
SEC. 3, FCDA: The banks designated by the 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.

f.
Money Market Placements
ALLIED BANKING CORP. v. LIM SIO WAN, 549 SCRA 504 (2008)
DOCTRINE: A Money Market is a market dealing in standardized short-term
credit instruments (involving large amounts) where lenders and borrowers
do not deal directly with each other by through a middle man or dealer in
open marketin a money market transaction, the investor is a lender who
loans his money to a borrower through a middleman or dealer.
FACTS
Respondent Lim Sio Wan deposited with petitioner Allied Banking
Corporation (Allied) at its Quintin Paredes Branch in Manila a money market
placement of PhP 1,152,597.35 for a term of 31 days to mature on
December 15, 1983,
On December 5, 1983, a person claiming to be Lim Sio Wan called up
Cristina So, an officer of Allied, and instructed the latter to pre-terminate
Lim Sio Wan's money market placement, to issue a manager's check
representing the proceeds of the placement, and to give the check to one
Deborah Dee Santos who would pick up the check. Lim Sio Wan described
the appearance of Santos so that So could easily identify her.
Later, Santos arrived at the bank and signed the application form for a
manager's check to be issued. The bank issued a Manager's Check for PhP
1,158,648.49, representing the proceeds of Lim Sio Wan's money market
placement in the name of Lim Sio Wan, as payee. The check was crosschecked "For Payee's Account Only" and given to Santos.
Thereafter, the manager's check was deposited in the account of Filipinas
Cement Corporation (FCC) at respondent Metropolitan Bank and Trust Co.
(Metrobank), with the forged signature of Lim Sio Wan as indorser.
the Allied check was deposited with Metrobank in the account of FCC as
Producers Bank's payment of its obligation to FCC.
Metrobank stamped a guaranty on the check, which reads: "All prior
endorsements and/or lack of endorsement guaranteed."
The check was sent to Allied through the PCHC. Upon the presentment of
the check, Allied funded the check even without checking the authenticity of
Lim Sio Wan's purported indorsement. Thus, the amount on the face of the
check was credited to the account of FCC and as a result Producers Banks
obligation to the former was extinguished.
On December 14, 1983, upon the maturity date of the first money market
placement, Lim Sio Wan went to Allied to withdraw it. She was then
informed that the placement had been pre-terminated upon her instructions.
Allied refused to pay Lim Sio Wan, claiming that the latter had authorized
the pre-termination of the placement and its subsequent release to Santos
Consequently, Lim Sio Wan filed with the RTC a Complaint against Allied to
NOTES
82
recover the proceeds of her first money market placement. Allied filed a
third party complaint against Metrobank and Santos. In turn, Metrobank
filed a fourth party complaint against FCC. FCC for its part filed a fifth party
complaint against Producers Bank. Lim Sio Wan thereafter filed an amended
complaint to include Metrobank as a party-defendant, along with Allied.
MTC made Allied solely liable
RTC modified the decision as follows:
Allied Banking Corporation to pay sixty (60%) percent and defendantappellee Metropolitan Bank and Trust Company forty (40%) of the amount
of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until
fully paid. The moral damages, attorney's fees and costs of suit shall
likewise be paid in 60-40 ratio.
ISSUES
1) Kind of deposit present in the case (relevant to the banking)
2) Who are liable? (Main issue of the case- not relevant to banking)
RULING
(Relevant)
1) Money Market Placement. The Court discusses is as follows:
Thus, we have ruled in a line of cases that a bank deposit is in the nature of
a simple loan or mutuum. More succinctly, in Citibank, N.A. (Formerly First
National City Bank) v. Sabeniano, this Court ruled that a money market
placement is a simple loan or mutuum.[43] Further, we defined a money
market in Cebu International Finance Corporation v. Court of Appeals, as
follows:
[A] money market is 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. In a money market transaction, the investor is a lender who loans
his money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between the petitioner
and the private respondent is in the nature of a loan.
Lim Sio Wan, as creditor of the bank for her money market placement, is
entitled to payment upon her request, or upon maturity of the placement, or
until the bank is released from its obligation as debtor. Until any such event,
the obligation of Allied to Lim Sio Wan remains unextinguished.
Since there was no effective payment of Lim Sio Wan's money market
placement, the bank still has an obligation to pay her at six percent (6%)
interest from March 16, 1984 until the payment thereof.
NOTES
2) (Not important but will mention the summary of it anyway) Allied and
Metrobank liable in 60-40 ratio. Producers Bank shall reimburse the amount
paid by both Allied and Metrobank. Allied Bank is liable as negligent drawee
bank who issued the managers check to Santos. MetroBank is liable as the
negligent collecting bank who certified the authenticity of the signatures.
Producers bank liable because it was unjustly enriched the amount was paid
to FCC, which extinguished the obligation of the former to the latter.
(3) Women shall have equal rights to act as incorporators

and enter into insurance contracts; and
(4) Married women shall have rights equal to those of
married men in applying for passport, secure visas and
other travel documents, without need to secure the consent
of their spouses.
In all other similar contractual relations, women shall enjoy equal
rights and shall have the capacity to act, which shall in every
respect be equal to those of men under similar circumstances.
C. Capacity of Depositors
a. Minors
SEC. 1, PD 734: Minors who are at least seven years of age, are
able to read and write, have sufficient discretion, and are not
otherwise disqualified by any other incapacity, are hereby vested
with special capacity and power, in their own right and in their own
names, to make savings or time deposits with and withdraw the
same as well as receive interests thereon from banking institutions,
without the assistance of their parents or guardians, the provisions
of existing laws and regulations to the contrary notwithstanding.
Parents may nevertheless deposit for their minor children and
guardians for their wards.
SEC. 22, THRIFT BANKS ACT: Minors in their own rights and in
their own names may make deposits and withdraw the same, and
may receive dividends and interest: Provided, however, That, if any
guardian shall give notice in writing to any thrift bank not to make
payments of deposits, dividends, or interest to the minor of whom
he is the guardian, then such payment shall be made only to the
guardian.
83
c.
Corporations
SEC. 23, CORPORATION CODE: Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this
Code shall be exercised, all business conducted and all property of
such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where
there is no stock, from among the members of the corporation, who
shall hold office for one (1) year until their successors are elected
and qualified.
Every director must own at least one (1) share of the capital stock
of the corporation of which he is a director, which share shall stand
in his name on the books of the corporation. Any director who
ceases to be the owner of at least one (1) share of the capital stock
of the corporation of which he is a director shall thereby cease to be
a director. Trustees of non-stock corporations must be members
thereof. a majority of the directors or trustees of all corporations
organized under this Code must be residents of the Philippines.
b. Married Women
SEC. 5, RA 7192: Women of legal age, regardless of civil status,
shall have the capacity to act and enter into contracts which shall in
every respect be equal to that of men under similar circumstances.
In all contractual situations where married men have the capacity to
act, married women shall have equal rights.
To this end:
(1) Women shall have the capacity to borrow and obtain
loans and execute security and credit arrangement under
the same conditions as men;
(2) Women shall have equal access to all government and
private sector programs granting agricultural credit, loans
and non-material resources and shall enjoy equal treatment
in agrarian reform and land resettlement programs;
d. Bank Officers and Employees

SEC. X204, MRB: : The following officers and employees of banks
are prohibited from maintaining demand deposits or current
accounts with the banking office in which they are assigned:
a. All officers;
b. Employees of the banks cash department/cash units; and
c. Other employees who have direct and immediate
responsibility in the handling of transactions and/or records
pertaining to demand deposits or current accounts.
The above-mentioned prohibition shall include the spouses and
relatives within the second degree of consanguinity and affinity of
the officers and employees covered by the prohibition, and the
business interests of such officers and employees, their spouses and
relatives within the second degree of consanguinity and affinity, in
NOTES
single proprietorships, or partnerships or corporations in which such

officers and employees, individually or as a group, own or control at
least a majority of the capital of the partnership or the outstanding
subscribed capital stock (voting and non-voting) of the corporation.
ART. 379, NCC: The employment of pen names or stage names

is permitted, provided it is done in good faith and there is no
injury to third persons. Pen names and stage names cannot be
usurped.
ART. 380, NCC: Except as provided in the preceding article, no
person shall use different names and surnames.
D. OPENING OF DEPOSIT ACCOUNTS

1. Know Your Customer Standards
SUBSEC. X262.1, MRB: Specimen signatures, ID photos. All
banking institutions are required to set a minimum of three (3)
specimen signatures to be simultaneously required from each of
their depositors and to update the specimen signatures of their
depositors every five (5) years or sooner, at the discretion of the
bank. Banks may, at their option, require their depositors to submit
ID photos together with the specimen signatures.
2. Prohibitions
a. Anonymous Accounts/Fictitious Names
SEC. 9 (A), AMLA: Prevention of Money Laundering; Customer
Identification Requirements and Record Keeping.
(a) Customer Identification, - Covered institutions shall establish
and record the true identity of its clients based on official
documents. They shall maintain a system of verifying the true
identity of their clients and, in case of corporate clients, require
a system of verifying their legal existence and organizational
structure, as well as the authority and identification of all
persons purporting to act on their behalf.
The provisions of existing laws to the contrary notwithstanding,
anonymous accounts, accounts under fictitious names, and all
other similar accounts shall be absolutely prohibited. Peso and
foreign currency non-checking numbered accounts shall be
allowed. The BSP may conduct annual testing solely limited to
the determination of the existence and true identity of the
owners of such accounts.
b.
Pseudonyms
ART. 178, RPC: Using fictitious name and concealing true
name. The penalty of arresto mayor and a fine not to exceed
500 pesos shall be imposed upon any person who shall publicly
use a fictitious name for the purpose of concealing a crime,
evading the execution of a judgment or causing damage.
Any person who conceals his true name and other personal
circumstances shall be punished by arresto menor or a fine not
to exceed 200 pesos.
84
c.
Exception: NUMBERED ACCOUNTS

SEC. 9 (A), AMLA: Prevention of Money Laundering; Customer
Identification Requirements and Record Keeping.
(a) Customer Identification, - Covered institutions shall establish
and record the true identity of its clients based on official
documents. They shall maintain a system of verifying the true
identity of their clients and, in case of corporate clients, require
a system of verifying their legal existence and organizational
structure, as well as the authority and identification of all
persons purporting to act on their behalf.
anonymous accounts, accounts under fictitious names, and all
other similar accounts shall be absolutely prohibited. Peso and
foreign currency non-checking numbered accounts shall be
allowed. The BSP may conduct annual testing solely limited to
the determination of the existence and true identity of the
owners of such accounts.
SEC. 3 (1), FDCA: Authority of banks to accept foreign
currency deposits. The banks designated by the 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.
3. Joint Accounts
ART. 485, NCC: The share of the co-owners, in the benefits as well
as in the charges, shall be proportional to their respective interests.
Any stipulation in a contract to the contrary shall be void.
The portions belonging to the co-owners in the co-ownership shall
be presumed equal, unless the contrary is proved.
ART. 1207, NCC: 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.
ART. 1208, NCC: 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.
E. ADMINISTRATION OF DEPOSIT ACCOUNTS

1. Deposit of Funds
a. Delivery Required
ART. 1934, NCC: An accepted promise to deliver something by
way of commodatum or simple loan is binding upon parties, but
the commodatum or simple loan itself shall not be perfected
until the delivery of the object of the contract.
b.
Acceptability of Withdrawal Slips as Deposits
Cases
Firestone Tire & Rubber Co. of the Phil. v CA
DOCTRINE: A bank is under the obligation to treat the accounts of its
depositors with meticulous care, whether such account consists only of a
few hundred pesos or millions of pesos. The fact that the other withdrawal
slips were honored and paid by the other bank was no license for the bank
to presume that subsequent slips would be honored and paid immediately.
By doing so, it failed in its fiduciary duty to treat the accounts of its clients
with the highest degree of care.
FACTS
Fojas-Arca is one of the client depositors of Luzon Development Bank (LDB).
Fojas-Arca has an arrangement with LDB, where the latter authorized and
allowed withdrawal of its funds through special deposit slips, which are
supplied by LDB to Fojas-Arca.
In January to May 1978, Fojas-Arca purchased on credit from Firestone
amounting to P4M. In payment, Fojas-Arca delivered to Firestone six (6)
special withdrawal slips drawn upon defendant. These were deposited by
Firestone with its current account with Citibank. All of them were honored
and paid by LDB. Relying on the same arrangement, Firestone extended
other purchases on credit to Fojas-Arca.
In December 1978, Firestone was informed by Citibank that several special
withdrawal slips were dishonored for NO ARRANGEMENT. Citibank debited
the amount from Firestones account. Firestone then filed an action for
damages against LDB alleging that it suffered pecuniary losses.
NOTES
85
RTC dismissed the case. CA affirmed.

ISSUE
Whether LDB is liable for damages suffered by Firestone, due to its allegedly
belated notice of non-payment of the subject withdrawal slip?
RULING
NO. At the outset, we note that petitioner admits that the withdrawal 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. Petitioner itself concedes this point. Thus, respondent bank was under
no obligation to give immediate notice that it would not make payment on
the subject withdrawal slips. Citibank should have known that withdrawal
slips were not negotiable instruments. It could not expect these slips to be
treated as checks by other entities. Payment or notice of dishonor from
respondent bank could not be expected immediately, in contrast to the
situation involving checks.
A bank is under obligation to treat the accounts of its depositors with
meticulous care, whether such account consists only of a few hundred pesos
or of millions of pesos. The fact that the other withdrawal slips were
honored and paid by respondent bank was no license for Citibank to
presume that subsequent slips would be honored and paid immediately. By
doing so, it failed in its fiduciary duty to treat the accounts of its clients with
the highest degree of care.
In the ordinary and usual course of banking operations, current account
deposits are accepted by the bank on the basis of deposit slips prepared and
signed by the depositor, or the latter's agent or representative, who
indicates therein the current account number to 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.
The withdrawal slips deposited with petitioner's current account with
Citibank were not checks, as petitioner admits. Citibank was not bound to
accept the withdrawal slips as a valid mode of deposit. But having
erroneously accepted them as such, Citibank and petitioner as accountholder must bear the risks attendant to the acceptance of these
instruments. Petitioner and Citibank could not now shift the risk and hold
private respondent liable for their admitted mistake.
c. Acceptability of Checks Without Indorsement of Payee
Cases
PNB v Rodriguez
DOCTRINE: A bank that regularly processes checks that are neither
payable to the customer nor duly indorsed by the payee is apparently
grossly negligent in its operations.

In a checking transaction, the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the check strictly in
accordance with the drawers instructions, i.e., to the named payee in the
check.
FACTS
Respondent spouses erlando and norma Rodriguez were clients of petitioner
PNB, Cebu City. They maintained savings and demand/checking accounts.
The spouses were engaged in the informal lending business. They had a
discounting arrangement with Philnabank Employees Savings and Loan
Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA
was likewise a client of PNB.
PEMSLA regularly granted loans to its members, spouses Rodriguez would
rediscount the postdated checks issued to members whenever the
association was short of funds. As was customary, the spouses would
replace the postdated checks with their own checks issued in the name of
the members.
NOTES
86
duty to them as depositors.

PNB argued that the spouses did not intend to give the checks to the
invidual payees, only to PEMSLA, hence, the payees were fictitious, thus the
checks became bearer instruments based on the Negotiable Instruments
law. The checks could be negotiated with just delivery.
RTC rendered in favour of the spouses, CA reversed stating that the spouses
really intended the checks to go PEMSLA, not the payees, hence, the payees
were fictitious, thus converting the check into a bearer intrument, thus they
did not require indorsement for negotiation. Spouses filed and Motion for
Reconsideration, and the CA reversed itself due to the argument of the
spouses that the checks, on their face, were payable to order, hence, PNB
breached their contract of deposit.
ISSUE
Are the checks payable to order or to bearer?
HELD: Payable to order.
It was PEMSLAs policy not to approve applications for loans of members

with outstanding debts. To subvert this policy, some PEMSLA officers
devised a scheme to obtain additional loans despite their outstanding loan
accounts. They took out loans in the names of unknowing members, without
the knowledge or consent of the latter. The PEMSLA checks issued for these
loans were then given to the Rodriguez spoues for rediscounting. The
officers carried this out by forging the indorsement of the named payees in
the checks. In return, the spouses issued their personal checks (Rodriguez
checks) in the name of the members and delivered the checks to an officer
of PEMSLA. The PEMSLA checks, on the other hand, were despited by the
spouses to their account.
Meanwhile, the Rodriguez checks were despotied directly by PEMSLA to its
savings account without any indorsement from the named payees. This was
an irregular procedure made possible through the treasurer of PEMSLA who
was also a bank teller in the PNB branch of Cebu. This because the usual
practice for the two.
For the period of November 1998 and February 1999, sixty-nine (69)
checks, in the amount of 2.345 million pesos were issued payable to 47
individual payees. PNB got wind of the scheme and closed the current
account of PEMSLA which led the checks deposited by the Rodriguez from
PEMSLA into their account to bounce.
The checks from the Rodriguezes to PEMSLA though were still debited from
the account of the spouses, hence, they went to court to have PNB return
the money debited from their account stating that PNB credited the checks
to PEMSLA even if they were without indorsements, thus breaching their
As a rule, when the payee is fictitious or not intended to be the true

recipient of the proceeds, the check is considered as a bearer instrument
based on Sections 8 and 9 of the NIL. The drawee bank is then absolved
from liability and the drawer bears the loss. However, there is a commercial
bad faith exception to the fictitious-payee rule. A showing of commercial bad
faith on the part of the drawee bank, or any trasnferee of the check for that
matter, will work to strip it of this defense.
For the fictitious-payee rule to be available as a defense, PNB must show
that the makers did not intend for the named payees to be part of the
transaction involving the checks. At most, the banks thesis shows that the
payees did not have knowledge of the existence of the checks. This lack of
knowledge on the part of the payees, however, was not tantamount to a
lack of intention on the part of respondents-spouses that the payees would
not receive the checks proceeds. Considering that the respondents were
transacting with PEMSLA and not the individual payees, it is understandable
that they relied on the finformation given by the officers of PEMSLA that the
payees would be receiving the checks.
Verily, the subject checks are presumed order instruments. PNB failed to
present sufficient evidence to defeat the claim of respondent spouses that
the named payees were the intended recipients of the check proceeds. Thus
PNB was remiss as the drawee bank
2. Withdrawal of Funds
a. From Current Accounts
i. When funds insufficient

Cases
Moran v CA
DOCTRINE: A bank is under no obligation to make part payment on a
check, up to only the amount of the drawer's funds, where the check is
drawn for an amount larger than what the drawer has on deposit. Such a
practice of paying checks in part has never existed. Upon partial payment,
the check holder could not be called upon to surrender the check, and the
bank would be without a voucher affording a certain means of showing the
payment. The rule is based on commercial convenience, and any rule that
would work such manifest inconvenience should not be recognized. A check
is intended not only to transfer a right to the amount named in it, but to
serve the further purpose of affording evidence for the bank of the payment
of such amount when the check is taken up.
FACTS
Spouses Moran are the owners of the Wack-Wack Petron Gasoline. They buy
fuel and other related products from Petrophil on a cash on delivery basis.
They maintain three accounts with Citytrust, one current account allowed to
have zero balance, and two savings account. One of the savings account
was allowed to have automatic transfer of funds whenever the current
account was insufficient to pay withdrawals, and the other needs
authorization to transfer funds. On December 12, 1983, Librada Moran
issued a check for P50,576 payable to Petrophil. On the next day, she issued
another check for 56,090, payable to the same corporation. On December
14, 1983, the checks were deposited to PNB, which presented both for
clearing. On this day, the current account had zero balance, while the
savings account covered by the automatic transfer only had P26,104.30,
both accounts being insufficient to pay the issued checks. (The other
savings account, where authorization is needed only had P43,268.39.) On
December 15, 1983, George Moran deposited some funds which were
supposed to be used to pay the earlier transaction. However, Librada
informed George that Petrophil refused to deliver their orders, and that the
checks issued were dishonored due to insufficiency of funds. The branch
manager tried to fix the problem by bringing a manager's check to be
signed by the spouses to pay off the balance with Petrophil. The bank also
tried to apologize to Petrophil, stating in the the letter that it committed
"operational error". 6 months later, the spouses demanded that the bank
pay them P1M for moral damages, which the bank refused to pay. They filed
a case, which the RTC dismissed, and affirmed by the CA.
ISSUE
Whether the spouses had sufficient funds when the bank dishonored the
check
RULING
NO. When PNB presented the check for collection, the current account had
zero balance, while the savings account had P26,104.30, which is
NOTES
87
insufficient to pay off the checks. This would lead to dishonoring of the
checks. There is a presumption in law that the ordinary course of business
(clearing and withdrawing) has ben followed. Where the spouses failed to
show that the checks underwent a different process of clearing, it is
presumed that the acts of clearing underwent the same process. Also, there
is no obligation with the bank to release amount in the savings account,
when the balance being collected is higher. They cannot partially honor a
check, being insufficient to pay the whole amount. Neither can they transfer
from the other savings account the balance to pay off the check, since
authority is needed to be able to transfer such amount. The bank had no
obligation to settle the spouses account with Petrophil, but they still tried to
in order that they would not have stained relations with the spouses.
Villanueva v Nite
DOCTRINE: If a bank refuses to pay a check (notwithstanding the
sufficiency of funds), the payee-holder cannot sue the bankthe payee
should instead sue the drawer who might in turn sue the bank. Sec. 189 is
sound law based on logic and established legal principlesno privity of
contract exists between the drawee-bank and the payee.
FACTS
Nite borrowed P409k from Villanueva secured by an Asian Bank check for
P325k dated February 8, 1994.The date was later changed to June 8, 1994
with the consent and concurrence of Villanueva. The check was, however,
dishonored due to a material alteration when Villanueva deposited the check
on due date. On August 24, 1994, Nite remitted P235k to petitioner as
partial payment of the loan, through a representative, since she was out of
the country. The balance of P174k was now due on or before December 8,
1994.
On August 30, 1994, however, petitioner filed an action for a sum of money
and damages against Asian Bank for the full amount of the dishonored
check. The RTC ruled in his favor. Pursuant thereto, Asian Bank issued a
P325k check to Villanueva. When respondent later on went to Asian Bank to
withdraw money from her account, she was unable to do so because the
trial court had ordered Asian Bank to pay petitioner the value of
respondents ABC check.
She went to the CA and filed a petition for annulment of judgment (Rule
47), which was granted on the ground of extrinsic fraud. The CA found that
6 days after receipt of the partial payment of P235k and agreeing that the
balance of P174k shall be paid on or before December 8, 1994, Villanueva
filed his complaint against Asian Bank for the full amount of the dishonored
check without impleading Nite. The apparent haste by which he filed his
complaint and his failure to implead Nite showed his intent to prevent her
from opposing his action.

Thus this petition for certiorari.
ISSUE
1) Whether the CA was correct to annul judgment despite the fact that
Nite was not a party to the original collection case;
2) Whether Villanueva could properly sue the bank for non payment of
the check in the first place.
RULING
1) YES. A petition for annulment of judgment can be properly filed by a
person not a party to the case. In this case, there was no speedy or
adequate remedy available to Marlyn Nite because she was not a party to
the collection proceedings. Extrinsic fraud existed in this case since such
refers to acts committed by a party to keep the other away from the courts,
as where there is a false promise of a compromise.
In fact, the RTC had no jurisdiction in this case. The contract of loan was
between Villanueva and Nite; as debtor, Nite was an indispensible party to
the case, and any judgment rendered without impleading such a party is
void.
2) NO. Sec 185 of the Negotiable Instruments Law provides: "A check is a
bill of exchange drawn on a bank payable on demand. Except as herein
otherwise provided, the provisions of this Act applicable to a bill of exchange
payable on demand apply to a check." Furthermore, Sec. 189. provides: "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."
If a bank refuses to pay a check (notwithstanding the sufficiency of funds),
the payee-holder cannot sue the bank. The payee should instead sue the
drawer who might in turn sue the bank. No privity of contract exists
between the drawee-bank and the payee. There was no such privity of
contract between Asian Bank and Villanueva.
ii. Prior to clearing
Cases
Associated Bank v Tan
DOCTRINE: Although a collecting bank has the right to debit a clients
account for the value of a dishonored check that has previously been
credited, it should nevertheless exercise such right with the highest degree
of diligence, as it is a business impressed with public interest.
FACTS
Vicente Tan is a businessman and regular depositor-creditor of the
Associated Bank. In 1990, he deposited a postdated UCPB check (P101,000)
NOTES
88
with the bank. This check was issued to him by Willy Cheng from Tarlac and
was duly entered into his bank record.
Upon advice and instructions by the bank that the check was already
cleared, Tan withdrew P240,000 on the same day, and on the next day, he
deposited P50,000 (account thereafter has approx. P108,000) because he
issued several checks amounting to approx. P75,000.
Unfortunately, his suppliers and business partners went back to him alleging
that the checks he issued bounced for insufficiency of funds. Thereafter, he,
through his lawyer, informed the bank to take steps regarding the matter
for he has adequate funds to pay the amount of the checks issued. But the
bank did not bother or offer any apology regarding the incident. Thus, Tan
instituted a complaint for damages against the bank.
The RTC ruled in favor of Tan on the ground that he was not informed about
the debiting of the P101,000 from his existing balance and that the bank
merely allowed him to use the fund prior to clearing merely for
accommodation because it considered him as one of its valued clients.
Hence, it held that the bank manager was negligent in handling the
particular check account of Tan. On appeal, the CA affirmed the RTCs
decision.
ISSUE
1) Whether the bank, as collecting bank, has the right to debit the
account of Tan for a check deposit, which was dishonored by the
drawee bank
2) Whether the bank properly exercised its right to debit/setoff
RULING
1. YES. A bank generally has the right to setoff over the deposits therein
for the payment of any withdrawals on the part of the depositor. The
right of a collecting bank to debit a clients account for the value of a
dishonored check that has previously been credited has fairly been
established by jurisprudence.
2.
NO. The degree of diligence required of banks is more than that of a

good father of a family where the fiduciary nature of their relationship
with their depositors is concerned. By the nature of its functions, a bank
is under obligation to treat the accounts of its depositors with
meticulous care.
It is undisputed that purportedly as an act of accommodation to a
valued client, the bank allowed the withdrawal of the face value of the
deposited check prior to its clearing. That act certainly disregarded the
clearance requirement of the banking system. Such a practice is
unusual, because a check is not legal tender or money, and its value can

properly be transferred to a depositors account only after the check has
been cleared by the drawee bank.
Reasonable business practice and prudence dictates that the bank
should NOT have advised and authorized Tans withdrawal of P240,000
as this amount was over and above his outstanding cleared balance of
around P197,000.
When the bank came to know of the checks dishonor, it should have
immediately and duly informed Tan of the debiting of his account. Notice
was proper and ought to be expected. As a valued client, Tan deserved
nothing less than an official notice of the precarious condition of his
account.
iii. When check crossed
Cases
Traders Royal Bank v Radio Philippine Network Inc.
DOCTRINE: The crossing of a check should put a bank on guard. It was
duty bound to ascertain the indorsers title to the check or the nature of his
possession. Its effects are that (a) the check may not be encashed but only
deposited in the bank; (b) the check may be negotiated only once to one
who has an account with a bank; and (c) the act of crossing the check
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.
NOTES
89
RULING
YES. The crossing of one of the subject checks should have put TRB on
guard; it was duty bound to ascertain the indorsers title to the check. TRB
should have known the effects of a crossed check: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated
only once to one who has an account with the bank; (c) the act of crossing
the check serves as a warning to the holder that the heck has been issued
for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose.
By encashing in favor of unknown persons checks which were on their face
payable to the BIR. A government agency which can only act through its
agents, TRB did so in at its peril and must suffer the consequences of the
unauthorized endorsement. TRB cannot exculpate itself from liability by
claiming that RPN was itself negligent.
iv. In contrast with managers check
Cases
Equitable PCI Bank v Ong
DOCTRINE: A managers check is an order of the bank to pay, drawn upon
itself, committing in effect its total resources, integrity and honor behind its
issuance, and by its peculiar character and general use in commerce, a
managers check is regarded substantially to be as good as the money it
represents.
FACTS
On April 1985, the BIR assessed Radio Philippines Network (RPN) for their
tax obligations for the taxable years 1978 to 1983.
FACTS
Warliza Sarande deposited a check of 225k in her account at Philippine
Commercial International Bank (Davao City). She inquired about the status
of the check and the bank said it has been cleared.
Mrs. Vera, RPNs comptroller, purchased from Traders Royal Bank (TRB)
three managers checks to be used as payment for their tax liabilities. The
checks issued were made payable to the order of BIR and one of the checks
was also crossed. Mrs. Vera personally received the checks and was
supposed to deliver the same to BIR in payment of RPNs tax liabilities.
Relying on the assurance of the clearance, she issued two checks. One of
those check was issued to Rowena Ong, amounting to 180k due to a
business transaction. On the same day, Ong claimed the check the amount
of the check from PCI Bank. Instead of encashing it, Ong requested to
convert the proceeds into a managers check.
Shortly thereafter, RPN was assessed again by BIR for their tax liabilities for
the years 1972-1978. As RPN learned the three managers checks never
reached BIR and was supposedly deposited and withdrawn by three
unknown individuals in Security Bank (SB).
The next day, Ong deposited the check in her account in Equitable PCI Bank
(Davao City). a few days later, she received a notice that PCI Bank has
stopped the payment of her check on the ground of irregular issuance.
Despite several demands to PCI Bank for the payment of the check, there
was no positive result. Thus, Ong filed a case against PCI Bank.
RPN sent letters to TRB and SB demanding that the amounts covered by the
checks be reimbursed or credited to their account. The two banks refused.
ISSUE
Whether TRB is liable for the wrongful payment of a check made payable to
BIR.
PCI Bank argues that it did nothing wrong because the account against
which the check was drawn (Sarande) was already closed. The bank also
said that it gave notice to Sarande and Ong about the return of the check.
The Trial Court ruled in favor of Ong. The Court of Appeals affirmed the

decision.
ISSUE
1. Whether Ong was not a holder in due course and whether there was
a lack of consideration in issuing the managers check, ultimately
absolving PCI from liability.
2. Whether PCI Bank exercised the requisite degree of diligence
required of it.
RULING
(1) The argument of PCI Bank is out of synch because, by operation of law,
it assumed the liabilities of an acceptor under the Negotiable Instruments
Law (NIL)
A manager's check is an order of the bank to pay, drawn upon itself,
committing in effect its total resources, integrity and honor behind its
issuance. By its peculiar character and general use in commerce, a
manager's check is regarded substantially to be as good as the money it
represents. Said check stands on the same footing as a certified check. As
stated in Sec 187 of the NIL, when the managers check is certified by the
bank on which it was drawn, the certification is equivalent to an
acceptance.
Jurisprudence adds that a manager's check is one drawn by the bank's
manager upon the bank itself. It is similar to a cashier's check both as to
effect and use. A cashier's check is 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 is really the bank's own check and 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. The mere issuance of it is considered an acceptance
thereof.
By accepting the check issued by Sarande to Ong and issuing in turn a
managers check in exchange thereof, PCI Bank assumed the liabilities of an
acceptor under the Negotiable Instruments Law. By operation of law under
Section 62 of the NIL, the Bank admits the existence of the drawer,
genuineness of his signature, capacity to draw the instrument and the
existence of the payee and his capacity to indorse. Thus, the argument that
Ong is not a holder in due course and failure of consideration for the
issuance of the Managers check is untenable.
(2) NO, it did not exercise the standard of diligence required from it.
In Section 2 of the General Banking Law states that
SEC. 2. Declaration of Policy. The State recognizes the vital role of
banks in providing an environment conducive to the sustained
NOTES
90
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.
In this case, PCI bank distinctly admitted that the check deposited by
Sarande was inadvertently send by the PCI bank through the local
clearing when it should have been sent through inter-regional clearing
check since the check was drawn in General Santos City. It also admitted
the mistake in assuring Sarande that the check has been cleared upon her
inquiry, because they were not aware that it was inadvertently sent in the
local clearing. Both uncontested admissions prove that PCI failed to
exercise the highest degree of care required of it under the law.
*Non-banking issue: Summary Judgment
the summary judgment of the trial court is proper because the facts as
pleaded appear uncontested, all that is required is a judgment of the court.
This is evident when PCI bank admitted it committed an error in clearing the
check of Sarande.
*Non-banking issue: Award of Moral and Exemplary Damages.
The bank is liable for moral damages because Ong suffered embarrassment
and humiliation arising from the dishonor of the check. The bank is also
liable for exemplary damages because of failure to guard against injury
attributable to negligence or bad faith, considering the banking system plays
a vital role in the economic life.
b. From Savings Accounts
Cases
BPI v CA (2000)
DOCTRINE: The requirement of presentation of the passbook when
withdrawing an amount cannot be given mere lip service even though the
person making the withdrawal is authorized by the depositor to do so.
FACTS
Private respondent deposited in Foreign Currency Deposit Unit (FCDU)
Savings Account which he maintained in petitioner bank's Buendia Avenue
Extension Branch, Continental Bank Manager's Check payable to "cash" in
the amount of $2,500.00 and duly endorsed by private respondent. It
appears that the check belonged to a certain Henry who went to the office
of private respondent and requested him to deposit the check in his dollar
account by way of accommodation and for the purpose of clearing the same.
Private respondent acceded, and agreed to deliver 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 private respondent's presentation to the bank of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, one
Ruben Gayon, Jr, petitioners employee was able to withdraw the amount of
$2,541.67 from FCDU Savings Account. Notably, the withdrawal slip shows
that the amount was payable to Ramon A. de Guzman and Agnes C. de
Guzman and was duly initialed by the branch assistant manager. The
withdrawal was made even before the amount of the check was credited in
the account of the private respondent and without the presentation of the
passbook of the respondent.
Thereafter, petitioner bank received communication from the Wells Fargo
Bank International of New York that the said check deposited by private
respondent was a counterfeit check because it was "not of the type or style
of checks issued by Continental Bank International."
Now the petitioner is asking the private respondent, through his son (who is
employed by the petitioner bank), to return the amount of 2,500. The
private respondent, in his letter to the petitioner, refused to do so stating
that he is not primarily liable. Because of this, petitioner was constrained to
file a suit to collect the said balance.
ISSUE
Whether petitioner was grossly negligent in allowing the withdrawal
RULING
YES. Petitioner anchors its argument on the fact that the respondent as an
indorser guaranteed the validity of the check and the signatures therein and
that the private respondent signed a blank withdrawal slip bearing only 2 of
his signatures and payee de Guzmans therein.
To hold private respondent liable for the amount of the check he deposited
by the strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of
the public trust in the banking system
Under the rules issued by the petitioner in the private respondents
passbook, to be able to withdraw from the savings account deposit under
the Philippine foreign currency deposit system, two requisites must be
presented to petitioner bank by the person withdrawing an amount: (a) a
duly filled-up withdrawal slip, and (b) the depositor's passbook. Moreover,
the withdrawal slip contains a boxed warning that states: "This receipt must
be signed and presented with the corresponding foreign currency savings
passbook by the depositor in person. Despite the fact that private
respondents passbook was not presented at the time of the withdrawal, the
petitioner still allowed the said withdrawal in violation of their rules.
NOTES
91
Considering petitioner's clear admission that the withdrawal slip was a blank
one except for private respondent's signature, the unavoidable conclusion is
that the typewritten name of "Ruben C. Gayon, Jr." was intercalated and
thereafter it was signed by Gayon or whoever was allowed by petitioner to
withdraw the amount.
In allowing the withdrawal, petitioner likewise overlooked another rule that
is printed in the passbook. Thus:
2. All deposits will be received as current funds and will be repaid in the
same manner; provided, however, that deposits of drafts, checks, money
orders, etc. will be accented as subject to collection only and credited to the
account only upon receipt of the notice of final payment. xxx
In depositing the check in his name, private respondent did not
become the outright owner of the amount stated therein. Under the
above rule, by depositing the check with petitioner, private
respondent was, in a way, merely designating petitioner as the
collecting bank. This is in consonance with the rule that a negotiable
instrument, such as a check, whether a manager's check or ordinary
check, is not legal tender. As such, after receiving the deposit, under
its own rules, petitioner shall credit the amount in private
respondent's account or infuse value thereon only after the drawee
bank shall have paid the amount of the check or the check has been
cleared for deposit.
A bank is under obligation to treat the accounts of its depositors "with
meticulous care, always having in mind the fiduciary nature of their
relationship."27 As such, 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. Petitioner herein failed
to do this, and in fact, violated its own rules by allowing the withdrawal of
an amount that is definitely over and above the aggregate amount of
private respondent's dollar deposits that had yet to be cleared. In so doing,
petitioner assumed the risk of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer the resulting damage.
c. From Time Deposits
Cases
Far East Bank and Trust Company v Querimit
DOCTRINE: A bank acts at its peril when it pays deposits evidenced by a
certificate of deposit, without its production and surrender after proper
indorsement.
FACTS
In 1986, Estrella Querimit opened a dollar saving account with FEBTC
Harrison Plaza Branch. She was issued for certificates of deposit, each

representing $15,000.00 or a total of $60,000.00. The certificates were to
mature in 60 days, payable to bearer at 4.5% interest per annum. The
certificates bore the word accrued which meant that if they were not
presented for encashment or pre-terminated, the money deposited with
accrued interest would be rolled-over by the bank and annual interest would
accumulate automatically.
In 1993, after her husband died, Querimit went to FEBTC to withdraw her
deposit but she was told that her husband had withdrawn the money in
deposit. FEBTC produced documents showing that the deposits have been
paid to Querimits husband. However Querimit insisted that she was or her
husband have not been paid as evidenced by the Cerificates of Deposit
which are still in her possession. She sent a demand letter but FEBTC
refused to pay. So she filed a collection suit.
RTC and CA both ruled for Querimit.
ISSUE
Whether the subject certificates of deposit have already been paid?
RULING
NO. Petitioner bank failed to prove that it had already paid Estrella
Querimit, the bearer and lawful holder of the subject certificates of deposit.
The finding of the trial court on this point, as affirmed by the Court of
Appeals, is that petitioner did not pay either respondent Estrella or her
husband the amounts evidenced by the subject certificates of deposit.
A certificate of deposit is defined as a written acknowledgment by a bank or
banker of the receipt of a sum of money on deposit which the bank or
banker promises to pay to the depositor, to the order of the depositor, or to
some other person or his order, whereby the relation of debtor and creditor
between the bank and the depositor is created. The principles governing
other types of bank deposits are applicable to certificates of deposit, as are
the rules governing promissory notes when they contain an unconditional
promise to pay a sum certain of money absolutely. The principle that
payment, in order to discharge a debt, must be made to someone
authorized to receive it is applicable to the payment of certificates of
deposit. Thus, a bank will be protected in making payment to the holder of a
certificate indorsed by the payee, unless it has notice of the invalidity of the
indorsement or the holder's want of title. A bank acts at its peril when it
pays deposits evidenced by a certificate of deposit, without its production
and surrender after proper indorsement. As a rule, one who pleads payment
has the burden of proving it. Even where the plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to
prove payment, rather than on the plaintiff to prove payment. The debtor
has the burden of showing with legal certainty that the obligation has been
discharged by payment.
NOTES
92
In this case, the certificates of deposit were clearly marked payable to

"bearer," which means, to "[t]he person in possession of an instrument,
document of title or security payable to bearer or indorsed in
blank."Petitioner should not have paid respondent's husband or any third
party without requiring the surrender of the certificates of deposit.
Petitioner claims that it did not demand the surrender of the subject
certificates of deposit since respondent's husband, Dominador Querimit, was
one of the bank's senior managers. But even long after respondent's
husband had allegedly been paid respondent's deposit and before his
retirement from service, the FEBTC never required him to deliver the
certificates of deposit in question. Moreover, the accommodation given to
respondent's husband was made in violation of the bank's policies and
procedures.
Petitioner FEBTC thus failed to exercise that degree of diligence required by
the nature of its business. Because the business of banks is impressed with
public interest, the degree of diligence required of banks is more than that
of a good father of the family or of an ordinary business firm. The fiduciary
nature of their relationship with their depositors requires them to treat the
accounts of their clients with the highest degree of care. A bank is under
obligation to treat the accounts of its depositors with meticulous care
whether such accounts consist only of a few hundred pesos or of millions of
pesos. Responsibility arising from negligence in the performance of every
kind of obligation is demandable. Petitioner failed to prove payment of the
subject certificates of deposit issued to the respondent and, therefore,
remains liable for the value of the dollar deposits indicated thereon with
accrued interest.
d.
From Foreign Currency Deposits

SEC. 5, FCDA: 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.
e.
If Deceased Depositor
i. Tax Clearance Required
SEC. 97, NIRC: Payment of Tax Antecedent to the Transfer
of Shares, Bonds or Rights. - There shall not be transferred
to any new owner in the books of any corporation, sociedad
anonima, partnership, business, or industry organized or
established in the Philippines any share, obligation, bond or
right by way of gift inter vivos or mortis causa, legacy or
inheritance, unless a certification from the Commissioner that
the taxes fixed in this Title and due thereon have been paid is
shown.

If a bank has knowledge of the death of a person, who
maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified that
the taxes imposed thereon by this Title have been paid:
Provided, however, That the administrator of the estate or
any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not
exceeding Twenty thousand pesos (P20,000) without the said
certification. For this purpose, all withdrawal slips shall
contain a statement to the effect that all of the joint
depositors are still living at the time of withdrawal by any one
of the joint depositors and such statement shall be under
oath by the said depositors.
ii.
Survivorship Agreements
Cases
Vitug v CA
DOCTRINE: Survivorship agreements are permitted by the Civil Code. The
validity of the contract seems debatable by reason of its survivor-take-all
feature. But in reality, the contract imposed a mere obligation with a term
being death. However, if it be shown that such an agreement is a mere
cloak to hide an inofficious donation, it may be assailed and annulled on
such ground.
FACTS
On January 13, 1985, Romarico G. Vitug filed a motion asking for

authority from the probate court to sell certain shares of stock and
real properties belonging to the estate to cover allegedly his
advances to the estate in the sum of P667,731.66, plus interests
which he claimed were personal funds.
He claimed that the advances were spent for the payment of estate
tax and other increments thereto. He withdrew the sums of
P518,834.27 and P90,749.99 from savings account No. 35342-038
of the Bank of America, Makati, Metro Manila.
Rowena Corona opposed the motion, on the ground that the funds
withdrawn from savings account No. 35342-038 were conjugal
partnership properties and part of the estate. She also sought his
ouster for failure to include the sums in question for inventory and
for concealment of funds belonging to the estate.
Vitug insists that the said funds are his exclusive property having
acquired the same through a survivorship agreement executed with
his late wife and the bank on June 19, 1970. The agreement
provides at the instance of the death of himself or his wife, the
amount in the account shall be the sole property of the survivor or
survivors and shall be payable to and collectible or withdrawable by
such survivor or survivors.
NOTES
93
RTC: upheld the validity of this agreement and granted the motion of Vitug
CA: held that the survivorship agreement constitutes a conveyance mortis
causa which did not comply with the formalities of a valid will as prescribed
by Article 805 of the CC, and evne assuming that it was a mere donation
inter vivos, it is a prohibited donation under the provisions of Article 133 of
the Civil Code
ISSUE
Whether the survivorship agreement is void (No)
HELD
The agreement didnt modify the conjugal funds of the spouse.
Spouses are not prohibited by law to invest conjugal property, say by way of
a joint and several bank account, or an and/or account.
When the spouses Vitug opened the savings account, they merely put what
rightfully belonged to them in a money-making venture. They did not
dispose of it in favor of the other, which would have arguably been
sanctionable as a prohibited donation. And since the funds were conjugal, it
cannot be said that one spouse could have pressured the other in placing his
or her deposits in the money pool.
The agreement was in the nature of an aleatory contract. In reality what is
involved here is a contract with a term the fulfillment of which depends on
either the happening of an event which is (1) uncertain, (2) which is to
occur at an indeterminate time.
A survivorship agreement, the sale of a sweepstake ticket, a transaction
stipulating on the value of currency, and insurance have been held to fall
under the first category, while a contract for life annuity or pension under
Article 2021, et sequential, has been categorized under the second. In
either case, the element of risk is present, In the case at bar, the risk was
the death of one party and survivorship of the other.
Warning of the Court But although the survivorship agreement is per se not
contrary to law its operation or effect may be violative of the law. For
instance, if it be shown in a given case that such agreement is a mere cloak
to hide and inofficious donation, to transfer property in fraud of creditors, or
to defeat the legitime of a forced heir, it may be assailed and annulled upon
such grounds. No such vice has been imputed and established against the
agreement involved in this case
NOTES
94
3. Booking of Deposits
SEC. X261, MRB: Booking of Deposits and Withdrawals. The
following regulations shall govern the booking of deposits and
withdrawals of banks.
X261.5 Booking of deposits after regular banking hours. Deposits,

whether cash or non-cash, received after the close of the regular
banking hours shall be treated as contingent accounts on the day of
receipt and shall be booked as deposits the following banking day.
X261.1 Clearing cut-off time. As a general rule, all deposits and

withdrawals during regular banking hours shall be credited or
debited to deposit liability accounts on the date of receipt or
payment thereof: Provided, however, That a bank may set a
clearing cut-off time for its head office not earlier than two (2) hours
before the start of clearing at the BSP, and not earlier than three
and one-half (3-1/2) hours before the start of clearing for all its
branches, agencies and extension offices doing business in the
Philippines, after which time, deposits received shall be booked as
hereinafter provided: Provided, further, That banks which are
located in areas where there are no BSP regional/clearing
arrangements may set a clearing cut-off time not earlier than two
(2) hours before the start of their local clearing after which time,
deposits received shall be booked likewise as hereinafter provided.
X261.6 Other records required. For record and control purposes,

banks shall prepare a daily abstract of deposit transactions treated
as contingent accounts.
X261.2 Definitions. As used in this Section, the following terms

shall have the following meanings:
a. Regular banking hours shall refer to the banking hours
reported to the BSP pursuant to Sec. X156, including the
extended banking hours reported for servicing deposits and
withdrawals; and
b. Clearing cut-off time shall mean the banks closing time for
the acceptance of deposits in the form of checks, bills and
other demand items for clearing on the day of their receipt.
X261.3 Booking of cash deposits. Cash deposits received after the
selected clearing cut-off time until the close of the regular banking
hours shall be booked as deposits on the day of receipt.
X261.4 Booking of non-cash deposits. Deposits of checks including
on us checks, managers/cashiers/ treasurers checks and demand
drafts, which are drawn against the depository bank and all its
offices, as well as treasury warrants and postal money orders,
received after the selected clearing cut-off time until the close of the
regular banking hours, may, at the option of the bank, be booked as
deposits on the day of receipt.
Other non-cash deposits received after the selected clearing cut-off
time shall be treated as contingent accounts on the day of receipt
and shall be booked as deposits the following banking day.
X261.7 Notice required. Banks shall post at a conspicuous place

near each tellers window a notice to depositors indicating their
selected clearing cut-off time and a statement to the effect that
non-cash items deposited after said cut-off time shall be treated as
transactions for the next banking day.
4. Interest on Deposits
SEC. X242, MRB: Interest on Deposits/Deposit Substitutes.
Demand, savings, NOW accounts, time deposits and deposit
substitutes shall not be subject to interest ceilings.
X242.1 Time of payment of interest on time deposits/deposit
substitutes. Interest or yield on time deposit/deposit substitute may
be paid at maturity or upon withdrawal or in advance: Provided,
however, That interest or yield paid in advance shall not exceed the
interest for one (1) year.
X242.2 Treatment of matured time deposits/deposit substitutes
a. A time deposit not withdrawn or renewed on its due date shall be
treated as a savings deposit and shall earn interest from maturity to
the date of actual withdrawal or renewal at a rate applicable to
savings deposits.
b. A deposit substitute instrument not withdrawn or renewed on its
maturity date shall from said date become payable on demand and
shall earn an interest or yield from maturity to actual withdrawal or
renewal at a rate applicable to a deposit substitute with a maturity
of fifteen (15) days.
Banks performing quasi-banking functions shall continue to consider
matured and unwithdrawn deposit substitutes as such and subject
to reserves.
Cases
Citibank, NA v Cabamongan
DOCTRINE: In a loan or forbearance of money, the interest due should be
that stipulated in writing and in the absence thereof, the rate shall be 12%
per annum counted from the time of demand.

FACTS
On August 16, 1993, spouses Cabamongan opened a joint foreign currency
time deposit for their sons Lito and Luis Jr. in the amount of $55,216.69 for
a term of 182 days at 2.5625% (from August 16, 1993 to February
14,1994). On November 10, 1993, a person claiming to be Carmelita
Cabamongan (the wife) pre-terminated the foreign currency account, for
which she presented a Bank of America card, passport, an ATM, and
Mabuhay card. Yeye San Pedro processed the pre-termination. The person
executed a notarize release and waiver document for failure to surrender
the original Certificate of Deposit. The release and waiver document was not
notarized, but the money was released. The person left an ID card, for
which San Pedro called the spouses residence. Upon calling, she was told
that the spouses was in the US, and that she couldn't have pre-terminated
the account. On September 16, 1994, the spouses demanded that the
amount withdrawn be returned, plus interest, which the bank refused. The
spouses filed a complaint, where the RTC ruled in favor of them. The CA
affirmed but ruled that the interest of 12% should run only at the time of
demand.
ISSUE
Whether interest should be 2.5625%, 6%, or 12%
RULING
12%. The bank argues that the interest should be 2.5625%, or the interest
which was agreed upon. In arguendo that they were negligent, it should be
6% since the funds did not constitute a loan. The facts show that the bank
employees were negligent when they released the funds upon showing that
(1) failure to produce the original certificate of deposit, and in lieu of it, a
notarized release and waiver document; (2) there was discrepancy with the
signature; (3) the picture of the depositors did not match the person
withdrawing the funds. However, the Court ruled that under Article 1980 of
the Civil Code, bank deposits are considered as simple loan. The relationship
between a bank and a depositor are really a debtor-creditor relationship,
where deposits are treated as loan by the bank from its depositors. As ruled
in Eastern Shipping Lines v CA, a loan should have an interest that is
stipulated, and in absence, should be 12% per annum from the time of
demand.
***Therefore, the interest would be 2.5625% per annum from August 16,
1993 to February 14, 1994, the same rate from February 14, 1994 to
September 16, 1994, and 12% per annum from September 16, 1994 up to
the present date of the case.
NOTES
95
5. Closing of Account
Cases
Far East Bank and Trust Company v Pacilan, Jr.
DOCTRINE: No malice or bad faith could be imputed on a bank for closing
the account of a depositor for frequently drawing checks against insufficient
funds. Neither is there malice or bad faith, but only negligence, when the
bank accepted a deposit made by the depositor the day following the closure
of his account.
FACTS: Pacilan had a current account with FEBTC. He was in the practice of
issuing several postdated checks against the account. One day in March
1988, he issued a postdated check for P680. It was dishonored (on April 4)
for insufficiency of funds. The next day, he deposited P800. Subsequently,
he called FEBTC to inquire about the dishonor and was informed that his
account was closed on the ground that it was "IMPROPERLY HANDLED". The
reason given by the bank was that on the evening of April 4, as a result of
his practice of issuing postdated checks, Pacilan's account had an overdraft
of P428. Thus his account was closed.
He sued the bank for moral and exemplary damages. He claimed that the
bank closure was unjustified. His account was closed on the evening of April
4; but if FEBTC had followed normal banking procedure, it had until the
close of April 5 to honor the check or return it. He claimed that the closure
of his account was done with undue haste. Further, the closure of his
account has exposed him to criminal prosecution for BP22. He claimed that
he was a cashier of Prudential Bank just across the street, that the closure
of the account was patently malicious, and that it had caused him
humiliation, wounded feelings, insurmountable worries and sleepless nights.
In response, the bank claimed that Pacilan had overdrawn his account close
to 200 times in the past 2 years. The bank's Rules and Regulations
Governing the Establishment and Operation of Regular Demand Deposits
provide that the Bank reserves the right to close an account if the depositor
frequently draws checks against insufficient funds and/or uncollected
deposits and that the Bank reserves the right at any time to return checks
of the depositor which are drawn against insufficient funds or for any
reason. They also alleged that Pacilan had used a signature different from
the specimen on several occasions.
RTC and CA found for Pacilan. They found that according to the bank's rules,
any uncleared check could actually have been subjected to a P10 charge per
check, and could actually have been sent back for clearing one more time.
Further, in previous instances, FEBTC notified the respondent when he
incurred an overdraft and he would then deposit sufficient funds the
following day to cover the overdraft. Petitioner bank thus acted unjustifiably
when it immediately closed the respondents account on April 4 and
NOTES
96
deprived him of the opportunity to reclear his check or deposit sufficient

funds therefor the following day. It also caused him humiliation and tainted
his credit standing. They found the bank liable for damages for violation of
Art. 19 of the Civil Code.
otherwise, as prescribed by law.
ISSUE
Whether the bank properly exercised their right to close Pacilan's account.
ART. III, SEC. 7 (CONSTITUTION): 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.
RULING
YES. REVERSED. Petitioner bank has the right to close the account. The
Bank Rules also state that: "...the depositor is NOT ENTITLED, AS A MATTER
OF RIGHT, TO OVERDRAW on this deposit and the bank reserves the right at
any time to return checks of the depositor which are drawn against
insufficient funds or for any other reason."
There was no right of the petitioner that was violated. The fact that
petitioner constantly overdrew his account and used signatures not on file
was sufficient ground to close the account; therefore, there was no bad
faith. He had improperly handled his account hundreds of time. The
depositor is bound by the terms and conditions of the agreement with the
bank.
Neither the fact that petitioner bank accepted the deposit made by the
respondent the day following the closure of his account constitutes bad faith
or malice on the part of petitioner bank. The same could be characterized
as simple negligence by its personnel. Said act, by itself, is not constitutive
of bad faith. No legal right was established nor bad faith proved by Pacilan.
Damnum Absque Injuria.
F. SECRECY OF BANK DEPOSITS

1. General Rules
a. Rationale
ART. III, SEC. 2 (CONSTITUTION): 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.
ART. III, SEC. 3 (CONSTITUTION): (1) The privacy of
communication and correspondence shall be inviolable except upon
lawful order of the court, or when public safety or order requires
(2) Any evidence obtained in violation of this or the preceding section

shall be inadmissible for any purpose in any proceeding.
ART. II, SEC. 28 (CONSTITUTION): 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.
Cases
REPUBLIC v. EUGENIO, 545 SCRA 384 (2008)
DOCTRINE: There is a right to privacy governing bank accounts in the
Philippines, as expressed in Sec. 2, RA 1405 (Bank Secrecy Act of 1995).
Exceptions provided for in Sec. 2 (may be examined by any person,
government official, bureau or office), are as follows:
Upon written permission of the depositor
In cases of impeachment
Examination of bank accounts is upon order of a competent court in

cases of bribery or dereliction of duty of public officials
Money deposited or invested is the subject matter of litigation

FACTS
(This case stemmed from the case of Agan v PIATCO)
After the promulgation of the Agan case, a series of investigation was
conducted by the Ombudsman, the Compliance and Investigation Staff, and
Anti-Money Laundering Council (AMLC). AMLC issued a resolution
authorizing the Executive Director of AMLC to examine the bank accounts of
Pantaleon Alvarez, Cheng Yong,Wilfredo Trinidad, Alfredo Liongson and their
related web accounts. Under the authority of such resolution, AMLC filed an
application to inquire into or examine the deposits or investments of
Alvarez, Cheng Yong, Trinidad and Liongson with the Makati RTC, which the
court granted. Months later, Special Prosecutor Dennis Villa-Ignacio
requested AMLC to investigate the accounts of Alvarez, PIATCO and all
accounts related to the annulled contract. AMLC issued another resolution,
authorizing the executive director to inquire into the bank accounts named
in the letter. AMLC filed the same application, this time to the Manila RTC,
which was raffled to Judge Antonio Eugenio Jr. The court likewise granted
such ex parte application. Alvarez filed an Urgent Motion to Stay of
Enforcement of Order, which the Manila RTC granted. The Republic filed a

motion for reconsideration which was granted. Alvarez then filed an Urgent
Motion and Manifestation, stating that AMLC was about to implement the
Manila RTC bank inquiry even though he intends to appeal such order. The
Manila RTC refrained AMLC from implementing such order against Alvarez.
Alvarez then filed an Urgent Ex Parte Motion for Clarification, alleging that
AMLC likewise cannot implement such order against the others stated in the
order. Manila RTC issued an order, stating that the ex parte application
cannot be implemented in its totality (first of four rulings contested in this
case).
Lilia Cheng, wife of Cheng Yong filed a Petition for Certiorari, TRO and
preliminary injunction against the orders of Makati and Manila RTC stating
grave abuse of discretion that AMLA can only inquire to bank accounts after
the creation of the Anti-Money Laundering Act (AMLA), and not prior to its
promulgation. The CA issued a TRO, granting such petition (second of four
rulings contested in this case).
With relation to the Urgent Motion for Clarification, the Manila RTC issued an
order reiterated that bank inquiry order it issued cannot be implemented by
the AMLC until the appeal (of Alvarez of the order granting the ex parte
application) is finally resolved (third of four rulings contested in this case).
The CA issued a writ of preliminary injunction with regard to the petition
filed by Lilia Cheng (last ruling contested in this case)
ISSUE
Whether a bank inquiry order issued in accordance with section 10 AMLA
may be stayed with injunction
RULING
YES. There is a right to privacy governing bank accounts in the Philippines,
expressed in RA 1405 known as Bank Secrecy Act of 1955. Section 2 of such
law states that 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 herby considered as of an absolutely confidential
nature and may not be examined, inquired, or looked into by any person.
Although there may have been subsequent laws that would add to the
exceptions, the Bank Secrecy Act remains as the general rule.
However, there are exceptions, such as (1) written permission of he
depositors; (2) in cases of impeachment; (3) upon order of competent
courts in cases of bribery or dereliction of duty of public officials; (4) money
deposited is the subject matter of litigation. Subsequent laws adding to the
exception are the Anti-Graft and Corrupt Practices Act, the Ombudsman Act,
and the Anti-Money Laundering Act**.
NOTES
97
b. Applicable Law
Cases
INTENGAN v. CA, 377 SCRA 63 (2002)
DOCTRINE: Where the accounts in question are US dollar deposits, the
applicable law is RA 6426 (FCDA), not RA 1405 (Bank Secrecy Law). Under
the applicable law, the only exception to the secrecy of foreign currency
deposits is upon the written permission of the depositor.
FACTS
In 1993, Citibank filed a complaint for violation of Sec. 31, in relation to
Sec. 144 of the Corporation Code against its 2 officers, Santos and Genuino.
It was alleged in the affidavit executed by its VP Vic Lim that Santos and
Genuino managed or caused existing bank clients/depositors to divert their
money from Citibank NA to products offered by other companies (Torrance
Development Corporation and Global Pacific Corporation) that were yielding
higher interest rates. In return, Santos and Genuino derived substantial
financial gains. It was also determined that the bank clients accommodated
by Santos and Genuino include Intengan, Neri and Brawner, who have long
standing accounts with Citibank NA in savings/dollar deposits and/or in trust
accounts and/or money placements.
As evidence, Lim annexed bank records, including dollar deposits of
Intengan, Neri and Brawner, to establish the deception practiced by Santos
and Genuino.
In turn, Global Consumer Banking Group of Citibanks VP/Business Manager
Reyes admitted to having authorized Lim to state the names of the clients
involved and to attach said bank records.
Intengan, Neri and Brawner filed their respective motions for the exclusion
and physical withdrawal of their bank records, which was initially dismissed
by 2nd Asst. Provincial Prosecutor Ubana, Sr. However, Provincial Prosecutor
Castro directed the filing of informations against Rajkotwala, Ferguson,
Reyes and Lim for alleged violation of the Bank Secrecy Law. On appeal
before the DOJ, this was reversed.
ISSUE
Whether the Bank Secrecy Law, RA 1405 applies in this case
HELD
NO. The accounts in question are US dollar deposits. Consequently, the
applicable law is RA 6426 known as the Foreign Currency Deposit Act of the
Philippines, and not RA 1405 (Bank Secrecy Law).
Under Sec. 8 of RA 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. Incidentally, the acts of the Citibank officials

complained of happened before the enactment of RA 9160, Anti-Money
Laundering Act of 2001.
A case for violation of RA 6426 should have been the proper case brought
against the banks officials. Lim and Reyes admitted that they had disclosed
details of petitioners dollar deposits without the latters written permission.
It does not matter if that such disclosure was necessary to establish the
banks case against Santos and Genuino. Lims act of disclosing details of
petitioners bank records regarding their foreign currency deposits, with the
authority of Reyes, would appear to belong to the species of criminal acts
punishable under special lawsmalum prohibitum.
a.
Applicability of Exclusionary Rule

ART. III, SEC. 2 (CONSTITUTION): 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.
ART. III, SEC. 3 (CONSTITUTION): (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.
Cases
EJERCITO v. SANDIGANBAYAN, 509 SCRA 190 (2006)
DOCTRINE: RA 1405 nowhere provides that an unlawful examination of
bank accounts shall render the evidence obtained therefrom inadmissible in
evidence. Sec. 5 only states that any violation of this law will subject the
offender upon conviction, to an imprisonment of not more than 5 years or
fine of not more than P20,000 or both, in the discretion of the court.
FACTS
This case arose from the plunder charges against former president Joseph
Ejercito Estrada. The Special Prosecution Panel filed before the
Sandiganbayan a request for issuance of subpoenas directing the President
of Export and Industry Bank (EIB) or his/her authorized representative to
produce a number of documents allegedly part of the Jose Velarde account.
The Sandiganbayan granted the requests and subpoenas were issued.
NOTES
98
Estrada filed a Motion to Quash alleging that the documents were by R.A.
No. 1405 (The Secrecy of Bank Deposits Law). He further claimed that the
specific identification of documents in the questioned subpoenas, including
details on dates and amounts, could only have been made possible by an
earlier illegal disclosure thereof by the EIB and the Philippine Deposit
Insurance Corporation (PDIC). The disclosure being illegal, petitioner
concluded, the prosecution in the case may not be allowed to make use of
the information.
ISSUE
Whether the extremely-detailed information contained in the Special
Prosecution Panels requests for subpoena was obtained through a prior
illegal disclosure of petitioners bank accounts, in violation of the fruit of
the poisonous tree doctrine
HELD
NO. The court first held that the bank documents were not covered by RA
1405, hence not fruits of illegal disclosure.
Petitioners attempt to make the exclusionary rule applicable to the instant
case fails. R.A. 1405, it bears noting, nowhere provides that an unlawful
examination of bank accounts shall render the evidence obtained therefrom
inadmissible in evidence. Section 5 of R.A. 1405 only states that [a]ny
violation of this law will subject the 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.
Even assuming arguendo, however, that the exclusionary rule applies in
principle to cases involving R.A. 1405, the Court finds no reason to apply
the same in this particular case.
Clearly, the fruit of the poisonous tree doctrine1[13] presupposes a violation
of law. If there was no violation of R.A. 1405 in the instant case, then there
would be no poisonous tree to begin with, and, thus, no reason to apply
the doctrine.
The investigation conducted by the Ombudsman were legal as credited by
the Sandiganbayan. The documents were released pursuant to a letter
request sent to the officers of EIB and were not obtained through illegal
means.
In fine, the subpoenas issued by the Ombudsman in this case were legal,
hence, invocation of the fruit of the poisonous tree doctrine is misplaced.

2. Rules for Peso Deposits
a. Coverage
SEC. 2, LAW ON SECRECY OF BANK DEPOSITS: 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.
Cases
EJERCITO v. SANDIGANBAYAN, 509 SCRA 190 (2006)
DOCTRINE: The term deposits used therein is to be understood broadly
and not limited only to accounts, which give rise to a creditor-debtor
relationship between the depositor and the bank. If the money deposited
under an account may be used by banks for authorized loans to third
persons, then such accounts, regardless of whether it creates a creditordebtor relationship between the depositor and the bank, falls under the
category of accounts which the law precisely seeks to protect for the
purpose of boosting the economic development of the country.
FACTS
In the ombudsman case PP v. Estrada, the Sandiganbayan issued a
subpoena duces tecum for Trust Account no 858, a savings account, certain
specified documents, as well as all accounts pertaining to one "Jose
Velarde". ERAP filed motions to quash alleging that the trust account which
was allegedly his was a "deposit" within the meaning of sec. 2 of RA 1405,
and therefore protected; and that since he was charged with plunder, not
bribery or dereliction of duty, his case does not fall under any of the
exceptions under sec.2. These motions to quash were denied. were denied.
Thus this petition for certiorari.
"Section 2. 1 All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by the
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."
Note: Trust Account: a savings account deposited in the name of a trustee
NOTES
99
who controls it during his lifetime, after which the balance is payable to a
prenominated beneficiary. It may be invested by the bank.
ISSUES:
1) Whether a trust account is a deposit, and
2) Whether a plunder charge falls under the exceptions under Section 2
RULING
1) YES, it is a deposit. The contention of the Sandiganbayan that trust
accounts are not covered by the term deposits, as used in R.A. 1405, by
the mere fact that they do not entail a creditor-debtor relationship between
the trustor and the bank, does not lie. If the money deposited under an
account may be used by banks for authorized loans to third persons, then
such account, regardless of whether it creates a creditor-debtor relationship
between the depositor and the bank, falls under the category of accounts
which the law precisely seeks to protect for the purpose of boosting the
economic development of the country.
2) YES, it falls under the exceptions. The protection afforded by the law is
not absolute, there being recognized exceptions thereto, as above-quoted
Section 2 provides. Two exceptions apply here: (1) the examination of
bank accounts is upon order of a competent court in cases of bribery or
dereliction of duty of public officials, and (2) the money deposited or
invested is the subject matter of the litigation.
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 crime of
bribery and the overt acts constitutive of plunder are crimes committed by
public officers, and in either case the noble idea 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 applies with equal force.
Plunder being thus analogous to bribery, the exception to R.A. 1405
applicable in cases of bribery must also apply to cases of plunder.
b.
Prohibitions
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
NOTES
cases where the money deposited or invested is the subject matter of

the litigation.
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.
SEC. 3, LAW ON SECRECY OF BANK DEPOSITS: 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.
SEC. 55.1 (B), GBL: No director, officer, employee, or agent of any
bank shall, 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;
SEC. X337, MRB: Waiver of Secrecy of Deposit

Any director, officer or stockholder who, together with
his related interest, contracts a loan or any form of
financial accommodation from:
a. his bank; or
b. from a bank
(1) which is a subsidiary of a bank holding company of
which both his bank and the lending bank are
subsidiaries; or
SEC. 55.4, GBL: 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.
c.
Exceptions
i. Under the Law on Secrecy of Bank Deposits
whatever nature with banks or banking institutions in the
Philippines including investments in bonds issued by the
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.
(2) 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 BSP in an appropriate legal
action it has initiated involving the deposit account.
b.
1.
Upon written permission of the depositor or inventor:

a. DOSRI loans
SEC. 26, NCBA: 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
100
2.
3.
For loans secured by hold-out or assignment of CTDs

SEC. X315 (F), MRB: Loans Secured by Certificates of
Time Deposit. The following rules shall govern the grant
of loans secured by holdout on and/or assignment of
CTDs issued by the lending bank, as well as its branches
or subsidiaries abroad:
The loan documents shall include a waiver on the part of
the depositor of his rights under existing law to the
confidentiality of his deposits.
In cases of impeachment
Upon the order of a competent court in cases of bribery or
dereliction of duty of public officials

4.
ii.
NOTES
101
In cases where the money deposited or invested is the subject

of litigation
2 of the Bank Secrecy Law by providing an additional exception to the rule

against the disclosure of bank deposits.
Under the Anti-Graft and Corrupt Practices Act

SEC. 8, RA 3019: 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 unmarried
children of such public official may be taken into consideration,
when their acquisition through legitimate means cannot be
satisfactorily shown. Bank deposits shall be taken into
consideration in the enforcement of this section, notwithstanding
any provision of law to the contrary.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK v. PURISIMA, 161

SCRA 576 (1988)
DOCTRINE: By enacting Sec. 8 of RA 3019, Congress 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.
Cases
PNB v. GANCAYAO, 15 SCRA 91 (1965)
DOCTRINE: Sec. 8 of RA 3019 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.
FACTS
Prosecutor Gancayao required PNB to produce the records of the bank
deposits of Jimenez, the former administrator of the Agricultural Credit and
Cooperative Administration. Jimenez was under investigation for
unexplained wealth. PNB refused to produce the records of the bank
deposits for fear of prosecution under RA 1405 (Bank Secrecy Law).
Gancayao on the other hand relied on the provisions of RA 3019 (Anti Graft
and Corrupt Practices Act), stating
Sec. 8. Dismissal due to unexplained wealth. xx xx xx Bank
deposits shall be taken into consideration in the enforcement of this
section, notwithstanding any provision of law to the contrary.
ISSUE
Whether RA 3019 prevails over RA 1405?
RULING
YES. Anti Graft and Corrupt Practices Act prevails over the Bank Secrecy
Law. 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
FACTS
The Tanodbayan issued a subpoenaduces tecum to the Banco Filipino
Savings & Mortgage Bank, commanding its representative to appear at a
specified time at the Office of the Tanodbayan and furnish the latter with
duly certified copies of the records in all its branches and extension offices,
of the loans, savings and time deposits and other banking transactions,
dating back to 1969, appearing in the names of Caturla, his wife, Purita
Caturla, their children Manuel, Jr., Marilyn and Michael and/or Pedro
Escuyos.
Caturla moved to quash the subpoena duces tecum arguing that compliance
therewith would result in a violation of Sections 2 and 3 of the Law on
Secrecy of Bank Deposits. Then Tanodbayan Vicente Ericta not only denied
the motion for lack of merit, and directed compliance with
the subpoena, but also expanded its scope through a second subpoena
duces tecum, this time requiring production by Banco Filipino of the bank
records in all its branches and extension offices, of Siargao Agro-Industrial
Corporation, Pedro Escuyos or his wife, Emeterio Escuyos, Purita Caturla,
Lucia Escuyos or her husband, Romeo Escuyos, Emerson Escuyos, Fraterno
Caturla, Amparo Montilla, Cesar Caturla, Manuel Caturla or his children,
Manuel Jr., Marilyn and Michael, LTD Pub/Restaurant, and Jose Buo or his
wife, Evelyn. Two other subpoena of substantially the same tenor as the
second were released by the Tanodbayan's Office. The last required
obedience under sanction of contempt.
The Banco Filipino Savings & Mortgage Bank, hereafter referred to simply as
BF Bank, took over from Caturla in the effort to nullify the subpoenae. It
filed a complaint for declaratory relief with the Court of First Instance of
Manila, which was assigned by raffle to the sala of respondent Judge Fidel
Purisima. BF Bank prayed for a judicial declaration as to whether its
compliance with the subpoenae duces tecum would constitute an
infringement of the provisions of Sections 2 and 3 of R.A. No. 1405 in
relation to Section 8 of R.A. No. 3019. It also asked that pending final
resolution of the question, the Tanodbayan be provisionally restrained from
exacting compliance with the subpoenae.

Respondent Judge Purisima issued an Order denying for lack of merit the
application by BF Bank for a preliminary injunction and/or restraining order.
It further argues that subpoenae in question are in the nature of "fishing
expeditions" or "general warrants" since they authorize indiscriminate
inquiry into bank records; that, assuming that such an inquiry is allowed as
regards public officials under investigation for a violation of the Anti-Graft &
Corrupt Practices Act, it is constitutionally impermissible with respect to
private individuals or public officials not under investigation on a charge of
violating said Act; and that while prosecution of offenses should not, as a
rule, be enjoined, there are recognized exceptions to the principle one of
which is here present, i.e. to avoid multiplicity of suits, similar subpoenae
having been directed to other banks as well.
ISSUE
Whether the "Law on Secrecy of Bank Deposits" precludes production by
subpoena duces tecum of bank records of transactions by or in the names of
the wife, children and friends of a special agent of the Bureau of Customs,
accused before the Tanodbayan of having allegedly acquired property
manifestly out of proportion to his salary and other lawful income, in
violation of the "Anti-Graft and Corrupt Practices Act.
RULING
The provisions of R.A. No. 1405 subject of BF's declaratory action, read as
follows:
Sec. 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
bribery or dereliction of duty of public officials, or in cases where the
money deposited or invested is the subject matter of litigation.
Sec. 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
The other provision involved in the declaratory action is Section 8 of R.A.
No. 3019. It reads:
Sec. 8. 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 this salary and to his other lawful income, that
NOTES
102
fact shall be a ground for dismissal or removal. 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. Bank deposits shall
be taken into consideration in the enforcement of this section,
notwithstanding any prohibition 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.
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. This proposition is made clear by R.A. No. 3019 which quite
categorically states that the term, "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
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.
iii.
Under the Ombudsman Act

SEC. 15 (8), RA 6770: Powers, Functions and Duties. The
Office of the Ombudsman shall have the following powers,
functions and duties:
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;
Cases
MARQUEZ v. DESIERTO, 359 SCRA 772 (1991)
DOCTRINE: Before an in camera inspection by the Ombudsman 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
NOTES
notified to be present during the inspection, and such inspection may cover
only the account identified in the pending case.
FACTS
Petitioner is being held in indirect contempt for not allowing in camera
inspection of the accounts related to an investigation being done by the
Ombudsman relating to pay-offs for the PEA-AMARRI scandal. Petitioner
hopes to nullify order for the in camera investigation and to hold her in
contempt.
Petitioner is the branch manager of Union Bank, Julio Vargas Branch. She
received an Order from the Respondent to produce several bank documents
for inspection in camera relative to a pending investigation before
Respondent (Ombudsman Desierto).
Respondents case is the Fact Finding and Intelligence Bureau (FFIB) vs.
Amado Lagdameo relative to the JVA between PEA and AMARI. The Order
emphasized Respondents power to issue subpoena and subpoena duces
tecum and contempt power under RA 6770 aka the Ombudsman Act of
1989. The Act is a later legislation to RA 1405 aka Secrecy of Bank Deposits
law; hence amending some provisions of the latter.
Orders objective: to trail the managers checks purchased by Trivinio
respondent in the pending case)
Trivinio purchased 51 managers checks worth P272.1M from Traders Royal
Bank, UN Ave. 11 of these checks, P70.6M, were deposited to an account
handled by Petitioners branch
Though Union Banks lawyer told Petitioner to comply with the Order, she
had some difficulty making her ask for some time extensions. She said the
accounts cannot be easily identified and despite diligent efforts and from the
account numbers presented, she cannot identify these accounts since the
checks were issued in cash or bearer o Surmised that the account has been
dormant since it is not covered by the new account number generated by
the Union Bank system o Hence, she has to verify from the Interbank
records archives for the whereabouts of the account
After two extensions, Respondent issued the controversial order
threatening to hold Petitioner in indirect contempt for causing
delays in the investigation.
Petitioner and Union Bank filed for declaratory relief in the RTC of
Makati to clarify their rights and duties, seeing complying with the
Order may conflict or violate the Secrecy of Bank Deposits law.
Lower
Court
Denied
the
Petition,
but
Petitioner
sought
103
reconsideration.
Grounds used by the lower court: No great or irreparable injury to restrain
respondent The Ombudsman would have to file to the RTC for the indirect
contempt charge Petitioner failed to show prima facie evidence that the
subject matter of the investigation is outside the jurisdiction of Respondent.
Reconsideration was likewise denied.
A motion to cite Petitioner in contempt was filed with the Office of the
Ombudsman. Petitioner asserted that such was premature since there was a
pending case in the lower court, but eventually she was held in contempt
ISSUE
(Ombudsman act) whether petitioner may be cited for indirect contempt for
her failure to produce the documents requested by the Ombudsman. And
whether the order of the Ombudsman to have an in camera inspection of
the questioned account is allowed as an exception to the law on secrecy of
bank deposits (R. A. No. 1405).
RULING
NO, she may not be held in contempt or may the Ombudsman have an in
camera inspection.
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 the
subject accounts with the Union Bank of the Philippines, Julia Vargas
Branch, is based on a pending investigation at the Office of the Ombudsman
against Amado Lagdameo, et. al. for violation of R. A. No. 3019, Sec. 3 (e)
and (g) relative to the Joint Venture Agreement between the Public Estates
Authority and AMARI.
We rule that 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.
In Union Bank of the Philippines v. Court of Appeals, we held that 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 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 the case at bar, 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 Amado
Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending
case in court, which would warrant the opening of the bank account for
inspection.
iv.
Under the Plunder Law

SEC. 1 (D), RA 7080: 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;
2) By receiving, directly or indirectly, any commission, gift, share,
NOTES
104
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.
SEC. 4, RA 7080: 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 illgotten wealth, it being sufficient to establish beyond reasonable
doubt a pattern of overt or criminal acts indicative of the overall
unlawful scheme or conspiracy.
Cases
EJERCITO v SANDIGANBAYAN, 509 SCRA 190 (2006)
DOCTRINE: The plunder case under the Sandiganbayan necessarily
involves an inquiry into the whereabouts of the amount purportedly
acquired illegally by Erap, and the subject matter of the litigation cannot be
limited to bank accounts under his name alone, but must include those
accounts to which the money purportedly acquired illegally or a portion
thereof was alleged to have been transferred. A public office is a public
trust.
FACTS
In the criminal case of People v. Estrada for plunder, the Special Prosecution
Panel filed a request for issuance of Subpeona Duces Tecum for directing
the President of Export and Industry Bank (EIB) to produce the following
documents from the following: (1) Trust Account 858 (2) Savings Account

0116-17345-9 (3) Urban Bank Managers Check. (4) Account of Jose
Velarde. The Sandiganbayan granted the requests and the subpoena were
issued.
Ejercito contested the issuance of the subpoenas. He opposed such motion
on the ground of Bank Secrecy Laws (RA 1405). He filed a motion to quash
and urgent motion to quash to such request for subpoena. Sandiganbayan,
however, denied all his motion to quash.
ISSUE
(1) W/N Ejercitos Trust Account is covered by the term deposit as
used in RA 1405.
(2) W/N Ejercitos Trust Account is excepted from the protection of RA
1405.
(3) the request for subpoena was obtained through a prior illegal
disclosure of bank accounts, in violation of fruit of the poisonous
tree doctrine.
RULING
(1) Ejercitos Account is within the coverage of the term deposit.
RA 1405 Bank Secrecy Law
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. (Underscoring supplied)
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
bribery or dereliction of duty of public officials, or in cases where the
money deposited or invested is the subject matter of the litigation.
NOTES
105
"deposits." Moreover, it is clear from the immediately quoted provision that

the law applies not only to money which is deposited but also to those which
are invested. This further shows that the law was not intended to apply only
to "deposits" in the strict sense of the word. Otherwise, there would have
been no need to add the phrase "or invested."
(2) Ejercitos Account is excepted from the protection of RA 1405.
The protection given by RA 1405 not absolute. Two exceptions apply (1) the
examination of bank accounts is upon order of a competent court in cases of
bribery or dereliction of duty of public officials, and (2) the money deposited
or invested is the subject matter of the litigation.
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. Thus, cases for
plunder involve unexplained wealth.
Cases for plunder involve unexplained wealth, as provided in Section 2 of
the Plunder Law.
Section 2 of R.A. No. 7080 - Definition of the Crime of Plunder; Penalties.
Any public officer who, by himself or in connivance with members
of his family, relatives by affinity or consanguinity, business
associates, subordinates or other persons, amasses, accumulates or
acquires ill-gotten wealth through a combination or series of overt
or criminal acts
If the money deposited under an account may be used by banks for

authorized loans to third persons, then such account, regardless of whether
it creates a creditor-debtor relationship between the depositor and the bank,
falls under the category of accounts which the law precisely seeks to
protect. Trust Account No. 858 is, without doubt, one such account. The
Trust Agreement between Ejercito and Urban Bank provides that the trust
account covers "deposit, placement or investment of funds" by Urban Bank
for and in behalf of petitioner.
In addition, the crime of plunder is similar with bribery since it is one of the
acts for committing plunder.
Section 1(d) of RA 7080
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;
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
The phrase "of whatever nature" proscribes any restrictive interpretation of
The crime of bribery and the overt acts constitutive of plunder are crimes

committed by public officers, and in either case the noble idea 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" applies with equal force.
Plunder being thus analogous to bribery, the exception to R.A. 1405
applicable in cases of bribery must also apply to cases of plunder.
In addition, the money deposited in Ejercitos Account is said to form part of
the subject matter of the plunder case. Making it again excluded from the
protection of the Bank Secrecy Law.
(3) The fruit of the poisonous tree doctrine is misplaced.
He relies on Marquez v. Desierto, where the court held for an inspection of
the bank account is allowed, there must be a pending case because of
competent jurisdiction against Ejercito. Having no case filed during the
investigation of the Ombudsman, the information were illegally acquired.
However, R.A. 1405, it bears noting, nowhere provides that an unlawful
examination of bank accounts shall render the evidence obtained therefrom
inadmissible in evidence. Section 5 of R.A. 1405 only states that "any
violation of this law will subject the 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."
Even if the exclusionary rule applies to RA 1405, it is inapplicable to this
case.
The "fruit of the poisonous tree" doctrine presupposes a violation of law. If
there was no violation of R.A. 1405 in the instant case, then there would be
no "poisonous tree" to begin with, and, thus, no reason to apply the
doctrine.
Despite the Marquez v. Desierto, the examination of accounts by the
Ombudsman, conducted before a case was filed with a court of competent
jurisdiction, was lawful. For the Ombudsman issued the subpoenas bearing
on the bank accounts of petitioner about four months before Marquez was
promulgated on June 27, 2001. The doctrine in Marquez would have no
retroactive effect. In addition, the recent filing case for plunder empowers
the Ombudsman to investigate such accounts. Thus, the subpoenas were
legal and the invocation of the exclusionary doctrine is misplaced.
v.
Under the AMLA

SEC. 11, AMLA: 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
NOTES
106
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 involved
are in any way related to a money laundering offense: Provided,
That this provision shall not apply to deposits and investments
made prior to the effectivity of this Act.
Cases
REPUBLIC v. EUGENIO, 545 SCRA 384 (2008)
DOCTRINE: Even if bank inquiry order may be availed of without need of a
pre-exisitng case under the AMLA, it does not follow that such order may be
availed of ex parte.
FACTS
case).

ISSUE
RULING
YES. Under this section, the AMLC is authorized to inquire into a bank
account upon establishing probable cause where the deposits are related to
kidnapping for ransom, violation of the Dangerous Drugs Act, hijacking,
destructive arson and murder. The exception does not dispense the Bank
Secrecy Act to all deposits, except for cases related to the enumerations
above. (Take note that the application done by AMLC has no connection with
any of the following enumerations above)
Since the application of AMLC has nothing to do with any of the provided
enumerations under Section 11, it must prove that there is probable cause
with the case, in order to inquire into the bank accounts. Probable cause
may only be decided by the courts (Art III, Sec 2 of Constitution). Section
10 contains the application for ex parte, but it is connected to freezing of
accounts. This must be done ex parte, since notifying the accused my cause
him to disburse the account before the order freezing the account is issued.
Section 11 does not contain the application for ex parte, for the fact that
there is nothing wrong with the accused knowing that his accounts are being
checked. It is immaterial for the accused to know that his accounts are
being checked, since he cannot hide the bank records to prove that the
accounts are linked to the crime imputed against him. Hence, using the ex
parte application found in section 10 in inquiring into bank accounts (section
11) may be stayed with injunction.
1.
2.
vi.
Upon order of competent court

BSP inquiry or examination
Independent Auditor
DOJ OPINION NO. 243, SERIES OF 1957
Cases
MARQUEZ v. DESIERTO, 359 SCRA 772 (2001)
DOCTRINE: Sec. 2 of Bank Secrecy Law provides for exceptions to the
confidentiality rule of bank deposits, one of which is in an examination made
NOTES
107
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.
FACTS
Petitioner is being held in indirect contempt for not allowing in camera
inspection of the accounts related to an investigation being done by the
Ombudsman relating to pay-offs for the PEA-AMARRI scandal. Petitioner
hopes to nullify order for the in camera investigation and to hold her in
contempt.
Petitioner is the branch manager of Union Bank, Julio Vargas Branch. She
received an Order from the Respondent to produce several bank documents
for inspection in camera relative to a pending investigation before
Respondent (Ombudsman Desierto).
Respondents case is the Fact Finding and Intelligence Bureau (FFIB) vs.
Amado Lagdameo relative to the JVA between PEA and AMARI. The Order
emphasized Respondents power to issue subpoena and subpoena duces
tecum and contempt power under RA 6770 aka the Ombudsman Act of
1989. The Act is a later legislation to RA 1405 aka Secrecy of Bank Deposits
law; hence amending some provisions of the latter.
Orders objective: to trail the managers checks purchased by Trivinio
respondent in the pending case)
Trivinio purchased 51 managers checks worth P272.1M from Traders Royal
Bank, UN Ave. 11 of these checks, P70.6M, were deposited to an account
handled by Petitioners branch
Though Union Banks lawyer told Petitioner to comply with the Order, she
had some difficulty making her ask for some time extensions. She said the
accounts cannot be easily identified and despite diligent efforts and from the
account numbers presented, she cannot identify these accounts since the
checks were issued in cash or bearer o Surmised that the account has been
dormant since it is not covered by the new account number generated by
the Union Bank system o Hence, she has to verify from the Interbank
records archives for the whereabouts of the account
After two extensions, Respondent issued the controversial order
threatening to hold Petitioner in indirect contempt for causing
delays in the investigation.
Petitioner and Union Bank filed for declaratory relief in the RTC of
Makati to clarify their rights and duties, seeing complying with the
Order may conflict or violate the Secrecy of Bank Deposits law.

Lower
Court
Denied
reconsideration.
the
Petition,
but
Petitioner
NOTES
sought
Grounds used by the lower court: No great or irreparable injury to restrain

respondent The Ombudsman would have to file to the RTC for the indirect
contempt charge Petitioner failed to show prima facie evidence that the
subject matter of the investigation is outside the jurisdiction of Respondent.
Reconsideration was likewise denied.
A motion to cite Petitioner in contempt was filed with the Office of the
Ombudsman. Petitioner asserted that such was premature since there was a
pending case in the lower court, but eventually she was held in contempt
ISSUE
Whether the order of the Ombudsman to have an in camera inspection of
the questioned account is allowed as an exception to the law on secrecy of
bank deposits (R. A. No. 1405).
(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 the case at bar, 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 Amado
Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending
case in court, which would warrant the opening of the bank account for
inspection.
vii.
Under the PDIC Charter

SEC. 8, PAR. 8, PDIC CHARTER: The Corporation as a corporate
body shall have the power To conduct examination of banks with
prior approval of the Monetary Board: Provided, That no
examination can be conducted within twelve (12) months from the
last examination date: Provided, however, That the Corporation
may, in coordination with the Bangko Sentral, conduct a special
examination as the Board of Directors, by an affirmative vote of a
majority of all of its members, if there is a threatened or impending
closure of a bank; Provided, further, That, notwithstanding the
provisions of Republic Act No. 1405, as amended, Republic Act No.
6426, as amended, Republic Act No. 8791, and other laws, the
Corporation and/or the Bangko Sentral, may inquire into or
examine deposit accounts and all information related thereto in
case there is a finding of unsafe or unsound banking practice;
Provided, finally, That to avoid overlapping of efforts, the
examination shall maximize the efficient use of the relevant
reports, information, and findings of the Bangko Sentral, which it
shall make available to the Corporation; (As amended by R.A.
9302, 12 August 2004, R.A. 9576,29 April 2009)
viii.
Under the Human Security Act

SEC. 27. Judicial Authorization Required to Examine Bank
Deposits, Accounts, and Records. The provisions of Republic
Act No. 1405 as amended, to the contrary notwithstanding, the
justices of the Court of Appeals designated as a special court to
handle anti-terrorism cases after satisfying themselves of the
existence of probable cause in a hearing called for that purpose
that (1) a person charged with or suspected of the crime of
terrorism or conspiracy to commit terrorism, (2) of a judicially
declared and outlawed terrorist organization, association, or group
RULING
NO, she may not be held in contempt or may the Ombudsman have an in
camera inspection.
We rule that 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.
In Union Bank of the Philippines v. Court of Appeals, we held that 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 thereof shall be for the
exclusive use of the bank,
(3) Upon written permission of the depositor,
108

of persons, and (3) of a member of such judicially declared and
outlawed organization, association, or group of persons, may
authorize in writing any police or law enforcement officer and the
members of his/her team duly authorized in writing by the antiterrorism council to: (a) examine, or cause the examination of, the
deposits, placements, trust accounts, assets and records in a bank
or financial institution; and (b) gather or cause the gathering of
any relevant information about such deposits, placements, trust
accounts, assets, and records from a bank or financial institution.
the bank or financial institution concerned shall not refuse to allow
such examination or to provide the desired information, when so
ordered by and served with the written order of the Court of
Appeals.
SEC. 28. Application to Examine Bank Deposits, Accounts, and
Records. The written order of the Court of Appeals authorizing
the examination of bank deposits, placements, trust accounts,
assets, and records: (1) of a person charged with or suspected of
the crime of terrorism or conspiracy to commit terrorism, (2) of
any judicially declared and outlawed terrorist organization,
association, or group of persons, or (3) of any member of such
organization, association, or group of persons in a bank or financial
institution, and the gathering of any relevant information about the
same from said bank or financial institution, shall only be granted
by the authorizing division of the Court of Appeals upon an ex parte
application to that effect of a police or of a law enforcement official
who has been duly authorized in writing to file such ex parte
application by the Anti-Terrorism Council created in Section 53 of
this Act to file such ex parte application, and upon examination
under oath or affirmation of the applicant and the witnesses he
may produce to establish the facts that will justify the need and
urgency of examining and freezing the bank deposits, placements,
trust accounts, assets, and records: (1) of the person charged with
or suspected of the crime of terrorism or conspiracy to commit
terrorism, (2) of a judicially declared and outlawed terrorist
organization, association or group of persons, or (3) of any
member of such organization, association, or group of persons.
SEC. 29. Classification and Contents of the Court Order Authorizing
the Examination of Bank Deposits, Accounts, and Records. The
written order granted by the authorizing division of the Court of
Appeals as well as its order, if any, to extend or renew the same,
the original ex parte application of the applicant, including his ex
parte application to extend or renew, if any, and the written
authorizations of the Anti Terrorism Council, shall be deemed and
are hereby declared as classified information: Provided, That the
person whose bank deposits, placements, trust accounts, assets,
NOTES
109
and records have been examined, frozen, sequestered and seized

by law enforcement authorities has the right to be informed of the
acts done by the law enforcement authorities in the premises or to
challenge, if he or she intends to do so, the legality of the
interference. The written order of the authorizing division of the
Court of Appeals designated to handle cases involving terrorism
shall specify: (a) the identity of the said: (1) person charged with
or suspected of the crime of terrorism or conspiracy to commit
terrorism, (2) judicially declared and outlawed terrorist
organization, association, or group of persons, and (3) member of
such judicially declared and outlawed organization, association, or
group of persons, as the case may be, whose deposits, placements,
trust accounts, assets, and records are to be examined or the
information to be gathered; (b) the identity of the bank or financial
institution where such deposits, placements, trust accounts, assets,
and records are held and maintained; (c) the identity of the
persons who will conduct the said examination and the gathering of
the desired information; and, (d) the length of time the
authorization shall be carried out.
SEC. 30. Effective Period of Court Authorization to Examine and
Obtain Information on Bank Deposits, Accounts, and Records.
The authorization issued or granted by the authorizing division of
the Court of Appeals to examine or cause the examination of and to
freeze bank deposits, placements, trust accounts, assets, and
records, or to gather information about the same, shall be effective
for the length of time specified in the written order of the
authorizing division of the Court of Appeals, which shall not exceed
a period of thirty (30) days from the date of receipt of the written
order of the authorizing division of the Court of Appeals by the
applicant police or law enforcement official.
The authorizing division of the Court of Appeals may extend or
renew the said authorization for another period, which shall not
exceed thirty (30) days renewable to another thirty (30) days from
the expiration of the original period, provided that the authorizing
division of the Court of Appeals is satisfied that such extension or
renewal is in the public interest, and provided further that the
application for extension or renewal, which must be filed by the
original applicant, has been duly authorized in writing by the AntiTerrorism Council.
In case of death of the original applicant or in case he is physically
disabled to file the application for extension or renewal, the one
next in rank to the original applicant among the members of the
team named in the original written order of the authorizing division
of the Court of Appeals shall file the application for extension or
renewal: Provided, That, without prejudice to the liability of the

police or law enforcement personnel under Section 19 hereof, the
applicant police or law enforcement official shall have thirty (30)
days after the termination of the period granted by the Court of
Appeals as provided in the preceding paragraphs within which to
file the appropriate case before the Public Prosecutors Office
for any violation of this Act.
If no case is filed within the thirty (30)-day period, the applicant
police or law enforcement official shall immediately notify in writing
the person subject of the bank examination and freezing of bank
deposits, placements, trust accounts, assets and records. The
penalty of ten (10) years and one day to twelve (12) years of
imprisonment shall be imposed upon the applicant police or law
enforcement official who fails to notify in writing the person subject
of the bank examination and freezing of bank deposits, placements,
trust accounts, assets and records.
Any person, law enforcement official or judicial authority who
violates his duty to notify in writing as defined above shall suffer
the penalty of six (6) years and one day to eight (8) years of
imprisonment.
SEC. 31. Custody of Bank Data and Information Obtained after
Examination of Deposits, Placements, Trust Accounts, Assets and
Records. All information, data, excerpts, summaries, notes,
memoranda, working sheets, reports, and other documents
obtained from the examination of the bank deposits, placements,
trust accounts, assets and records of: (1) a person charged with or
suspected of the crime of terrorism or the crime of conspiracy to
commit terrorism, (2) a judicially declared and outlawed terrorist
organization, association, or group of persons, or (3) a member of
any such organization, association, or group of persons shall,
within forty-eight (48) hours after the expiration of the period fixed
in the written order of the authorizing division of the Court of
Appeals or within forty-eight (48) hours after the expiration of the
extension or renewal granted by the authorizing division of the
Court of Appeals, be deposited with the authorizing division of the
Court of Appeals in a sealed envelope or sealed package, as the
case may be, and shall be accompanied by a joint affidavit of the
applicant police or law enforcement official and the persons who
actually conducted the examination of said bank deposits,
placements, trust accounts, assets and records.
SEC. 32. Contents of Joint Affidavit. The joint affidavit shall
state: (a) the identifying marks, numbers, or symbols of the
deposits, placements, trust accounts, assets, and records
examined; (b) the identity and address of the bank or financial
NOTES
110
institution where such deposits, placements, trust accounts, assets,

and records are held and maintained; (c) the number of bank
deposits, placements, trust accounts, assets, and records
discovered, examined, and frozen; (d) the outstanding balances of
each of such deposits, placements, trust accounts, assets; (e) all
information, data, excerpts, summaries, notes, memoranda,
working sheets, reports, documents, records examined and placed
in the sealed envelope or sealed package deposited with the
authorizing division of the Court of Appeals; (f) the date of the
original written authorization granted by the Anti-Terrorism Council
to the applicant to file the ex parte application to conduct the
examination of the said bank deposits, placements, trust accounts,
assets and records, as well as the date of any extension or renewal
of the original written authorization granted by the authorizing
division of the Court of Appeals; and (g) that the items enumerated
were all that were found in the bank or financial institution
examined at the time of the completion of the examination.
The joint affidavit shall also certify under oath that no duplicates or
copies of the information, data, excerpts, summaries, notes,
memoranda, working sheets, reports, and documents acquired
from the examination of the bank deposits, placements, trust
accounts, assets and records have been made, or, if made, that all
such duplicates and copies are placed in the sealed envelope or
sealed package deposited with the authorizing division of the Court
of Appeals.
It shall be unlawful for any person, police officer or custodian of the
bank data and information obtained after examination of deposits,
placements, trust accounts, assets and records to copy, to remove,
delete, expunge, incinerate, shred or destroy in any manner the
items enumerated above in whole or in part under any pretext
whatsoever.
Any person who copies, removes, deletes, expunges incinerates,
shreds or destroys the items enumerated above shall suffer a
penalty of not less than six (6) years and one day to twelve (12)
years of imprisonment.
SEC. 33. Disposition of Bank Materials. The sealed envelope or
sealed package and the contents thereof, which are deposited with
the authorizing division of the Court of Appeals, shall be deemed
and are hereby declared classified information, and the sealed
envelope or sealed package shall not be opened and its contents
shall not be divulged, revealed, read, or used as evidence unless
authorized in a written order of the authorizing division of the Court
of Appeals, which written order shall be granted only upon a

written application of the Department of Justice filed before the
authorizing division of the Court of Appeals and only upon a
showing that the Department of Justice has been duly authorized in
writing by the Anti-Terrorism Council to file the application, with
notice in writing to the party concerned not later than three (3)
days before the scheduled opening, to open, reveal, divulge, and
use the contents of the sealed envelope or sealed package as
evidence.
Any person, law enforcement official or judicial authority who
violates his duty to notify in writing as defined above shall suffer
the penalty of six (6) years and one day to eight (8) years of
imprisonment.
SEC. 34. Application to Open Deposited Bank Materials. The
written application, with notice in writing to the party concerned
not later than three (3) days of the scheduled opening, to open the
sealed envelope or sealed package shall clearly state the purpose
and reason: (a) for opening the sealed envelope or sealed package;
(b) for revealing and disclosing its classified contents; and, (c) for
using the classified information, data, excerpts, summaries, notes,
memoranda, working sheets, reports, and documents as evidence.
SEC. 35. Evidentiary Value of Deposited Bank Materials. Any
information, data, excerpts, summaries, notes, memoranda, work
sheets, reports, or documents acquired from the examination of
the bank deposits, placements, trust accounts, assets and records
of: (1) a person charged or suspected of the crime of terrorism or
the crime of conspiracy to commit terrorism, (2) a judicially
declared and outlawed terrorist organization, association, or group
of persons, or (3) a member of such organization, association, or
group of persons, which have been secured in violation of the
provisions of this Act, shall absolutely not be admissible and usable
as evidence against anybody in any judicial, quasi-judicial,
legislative, or administrative investigation, inquiry, proceeding, or
hearing.
SEC. 36. Penalty for Unauthorized or Malicious Examination of a
Bank or a Financial Institution. Any person, police or law
enforcement personnel who examines the deposits, placements,
trust accounts, assets, or records in a bank or financial institution
of: (1) a person charged with or suspected of the crime of
terrorism or the crime of conspiracy to commit terrorism, (2) a
judicially declared and outlawed terrorist organization, association,
or group of persons, or (3) a member of such organization,
association, or group of persons, without being authorized to do so
by the Court of Appeals, shall be guilty of an offense and shall
NOTES
111
suffer the penalty of ten (10) years and one day to twelve (12)
In addition to the liability attaching to the offender for the
commission of any other offense, the penalty of ten (10) years and
one day to twelve (12) years of imprisonment shall be imposed
upon any police or law enforcement personnel, who maliciously
obtained an authority from the Court of Appeals to examine the
deposits, placements, trust accounts, assets, or records in a bank
or financial institution of: (1) a person charged with or suspected of
the crime of terrorism or conspiracy to commit terrorism, (2) a
judicially declared and outlawed terrorist organization, association,
or group of persons, or (3) a member of such organization,
association, or group of persons: Provided, That notwithstanding
Section 33 of this Act, the party aggrieved by such authorization
shall upon motion duly filed be allowed access to the sealed
envelope or sealed package and the contents thereof as evidence
for the prosecution of any police or law enforcement personnel who
maliciously procured said authorization.
SEC. 37. Penalty of Bank Officials and Employees Defying a Court
Authorization. An employee, official, or a member of the board
of directors of a bank or financial institution, who refuses to allow
the examination of the deposits, placements, trust accounts,
assets, and records of: (1) a person charged with or suspected of
the crime of terrorism or the crime of conspiracy to commit
terrorism, (2) a judicially declared and outlawed terrorist
organization, association, or group of persons, or (3) a member of
such judicially declared and outlawed organization, association, or
group of persons in said bank or financial institution, when duly
served with the written order of the authorizing division of the
Court of Appeals, shall be guilty of an offense and shall suffer the
penalty of ten (10) years and one day to twelve (12) years of
imprisonment.
SEC. 38. Penalty for False or Untruthful Statement or
Misrepresentation of Material Fact in Joint Affidavits. Any false
or untruthful statement or misrepresentation of material fact in the
joint affidavits required respectively in Section 12 and Section 32 of
this Act shall constitute a criminal offense and the affiants shall
suffer individually the penalty of ten (10) years and one day to
twelve (12) years of imprisonment.
SEC. 39. Seizure and Sequestration. The deposits and their
outstanding balances, placements, trust accounts, assets, and
records in any bank or financial institution, moneys, businesses,
transportation and communication equipment, supplies and other

implements, and property of whatever kind and nature belonging:
(1) to any person suspected of or charged before a competent
Regional Trial Court for the crime of terrorism or the crime of
conspiracy to commit terrorism; (2) to a judicially declared and
outlawed organization, association, or group of persons; or (3) to a
member of such organization, association, or group of persons shall
be seized, sequestered, and frozen in order to prevent their use,
transfer, or conveyance for purposes that are inimical to the safety
and security of the people or injurious to the interest of the State.
The accused or a person suspected of may withdraw such sums as
may be reasonably needed by the monthly needs of his family
including the services of his or her counsel and his or her
familys medical needs upon approval of the court. He or she
may also use any of his property that is under seizure or
sequestration or frozen because of his or her indictment as a
terrorist upon permission of the court for any legitimate reason.
Any person who unjustifiably refuses to follow the order of the
proper division of the Court of Appeals to allow the person accused
of the crime of terrorism or of the crime of conspiracy to commit
terrorism to withdraw such sums from sequestered or frozen
deposits, placements, trust accounts, assets and records as may be
necessary for the regular sustenance of his or her family or to use
any of his or her property that has been seized, sequestered or
frozen for legitimate purposes while his or her case is pending shall
suffer the penalty of ten (10) years and one day to twelve (12)
SEC. 40. Nature of Seized, Sequestered and Frozen Bank Deposits,
Placements, Trust Accounts, Assets and Records. The seized,
sequestered and frozen bank deposits, placements, trust accounts,
assets and records belonging to a person suspected of or charged
with the crime of terrorism or conspiracy to commit terrorism shall
be deemed as property held in trust by the bank or financial
institution for such person and the government during the
pendency of the investigation of the person suspected of or during
the pendency of the trial of the person charged with any of the said
crimes, as the case may be and their use or disposition while the
case is pending shall be subject to the approval of the court before
which the case or cases are pending.
SEC. 41. Disposition of the Seized, Sequestered and Frozen Bank
Deposits, Placements, Trust Accounts, Assets and Record. If
the person suspected of or charged with the crime of terrorism or
conspiracy to commit terrorism is found, after his investigation, to
be innocent by the investigating body, or is acquitted, after his
NOTES
112
arraignment or his case is dismissed before his arraignment by a

competent court, the seizure, sequestration and freezing of his
bank deposits, placements, trust accounts, assets and records shall
forthwith be deemed lifted by the investigating body or by the
competent court, as the case may be, and his bank deposits,
placements, trust accounts, assets and records shall be deemed
released from such seizure, sequestration and freezing, and shall
be restored to him without any delay by the bank or financial
institution concerned without any further action on his part. The
filing of any appeal on motion for reconsideration shall not state
the release of said funds from seizure, sequestration and freezing.
If the person charged with the crime of terrorism or conspiracy to
commit terrorism is convicted by a final judgment of a competent
trial court, his seized, sequestered and frozen bank deposits,
placements, trust accounts, assets and records shall be
automatically forfeited in favor of the government.
Upon his or her acquittal or the dismissal of the charges against
him or her, the amount of Five Hundred Thousand Pesos
(P500,000.00) a day for the period in which his properties, assets
or funds were seized shall be paid to him on the concept of
liquidated damages. The amount shall be taken from the
appropriations of the police or law enforcement agency that caused
the filing of the enumerated charges against him or her.
SEC. 42. Penalty for Unjustified Refusal to Restore or Delay in
Restoring Seized, Sequestered and Frozen Bank Deposits,
Placements, Trust Accounts, Assets and Records. Any person
who unjustifiably refuses to restore or delays the restoration of
seized, sequestered and frozen bank deposits, placements, trust
accounts, assets and records of a person suspected of or charged
with the crime of terrorism or conspiracy to commit terrorism after
such suspected person has been found innocent by the
investigating body or after the case against such charged person
has been dismissed or after he is acquitted by a competent court
shall suffer the penalty of ten (10) years and one day to twelve
(12) years of imprisonment.
SEC. 43. Penalty for the Loss, Misuse, Diversion or Dissipation of
Seized, Sequestered and Frozen Bank Deposits, Placements, Trust
Accounts, Assets and Records. Any person who is responsible
for the loss, misuse, diversion, or dissipation of the whole or any
part of the seized, sequestered and frozen bank deposits,
placements, trust accounts, assets and records of a person
suspected of or charged with the crime of terrorism or conspiracy
NOTES
to commit terrorism shall suffer the penalty of ten (10) years and
one day to twelve (12) years of imprisonment.
ix.
113
"(b) The amount and the date of the outstanding unclaimed

balance and whether the same is in money or in security, and if the
latter, the nature of the same;
Under the NIRC

SEC. 6 (F), NIRC: Authority of the Commissioner to inquire into
Bank Deposit Accounts. - Notwithstanding any contrary provision of
Republic Act No. 1405 and other general or special laws, the
Commissioner is hereby authorized to inquire into the bank
deposits of:
"(c) The date when the person in whose favor the unclaimed
balance stands died, if known, or the date when he made his last
deposit or withdrawal; and
"(d) The interest due on such unclaimed balance, if any, and the
amount thereof.
(1) a decedent to determine his gross estate; and

"A copy of the above sworn statement shall be posted in a
conspicuous place in the premises of the bank, building and loan
association, or trust corporation concerned for at least sixty days
from the date of filing thereof: Provided, That immediately before
filing the above sworn statement, the bank, building and loan
association, and trust corporation shall communicate with the
person in whose favor the unclaimed balance stands at his last
known place of residence or post office address.
(2) any taxpayer who has filed an application for compromise of his
tax liability under Sec. 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 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.
1.
2.
x.
Upon inquiry by the CIR for the purpose of determining the

net estate of a deceased depositor
In case a taxpayer files an application to compromise his tax
liabilities on the ground of financial incapacity (waiver
required)
Under the Unclaimed Balances Law

SEC. 2, ACT NO. 3936: Immediately after the taking effect of this
Act and within the month of January of every odd year, all banks,
building and loan associations, and trust corporations shall forward
to the Treasurer of the Philippines 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
creditors and depositors, and showing:
"(a) The names and last known place of residence or post office
addresses of the persons in whose favor such unclaimed balances
stand;
"It shall be the duty of the Treasurer of the Philippines to inform

the Solicitor General from time to time the existence of unclaimed
balances held by banks, building and loan associations, and trust
corporations.
DOJ OPINION NO. 104, SERIES OF 1975
xi.
Under the Rules of Court

1. Garnishment
SEC. 9 (C), RULE 39: 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 posssession 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 garnishing 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.
NOTES
issued by it, so that the bank would hold the same intact and not allow any
withdrawal until further order.
It is clear from the discussion of the conference committee report of the 2
houses of Congress that the prohibition against examination of or inquiry
into a bank deposit under RA 1405 does NOT preclude its being garnished to
insure satisfaction of a judgment. There is no real inquiry in this case, and if
the existence of the bank account is disclosed, the disclosure is purely
incidental to the execution process.
2.
Cases
CHINA BANKING CORPORATION v. ORTEGA, 49 SCRA 356 (1973)
DOCTRINE: Garnishment of bank deposit judgment debtor is not violative
of RA 1405. The Court merely required the cashier of the bank to inform the
court whether or not the defendant had a deposit in said bank only for
purposes of the garnishment issued by it, so that the bank would hold the
same intact and not allow any withdrawal until further order.
To satisfy the judgment, Acaban sought the garnishment of the bank

deposit of B & B Forest Development Corporation with China Banking
Corporation. Accordingly, a notice of garnishment was issued and served on
the banks cashier, Tan Kim Liong.
ISSUE
Whether there was a violation of the provisions of the Bank Secrecy Law
prohibiting the disclosure of any information relative to bank deposits
HELD
NO. The lower court did not order an examination of or inquiry into the
deposit of B&B Forest Development Corporation. It merely required Tan Kim
Liong to inform the court of the existence of B&B Forest Development
Corporations deposit in said bank only for the purpose of the garnishment
Preliminary Attachment
SEC. 10, RULE 57: Examination of party whose property is
attached and persons indebted to him or controlling his
property; delivery of property to sheriff.
Any person owing debts to the party whose property is
attached or having in his possession or under his control any
credit or other personal property belonging to such party, may
be required to attend before the court in which the action is
pending, or before a commissioner appointed by the court,
and be examine on oath respecting the same. The party
whose property is attached may also be required to attend for
the purpose of giving information respecting his property, and
may be examined on oath. The court may, after such
examination, order personal property capable of manual
delivery belonging to him, in the possession of the person so
required to attend before the court, to be delivered to the
clerk of the court or sheriff on such terms as may be just,
having reference to any lien thereon or claim against the
same, to await the judgment in the action.
FACTS
In 1968, Acaban filed a complaint against Bautista Logging Co., Inc., B & B
Forest Development Corporation and Marino Bautista for the collection of
sum of money. RTC declared the defendants in default for failure to file their
responsive pleadings within the reglementary period.
In reply, Tan Kim Liong invoked the provisions of the Bank Secrecy Law
prohibiting the disclosure of any information relative to bank deposits.
RTC, in denying Acabans motion to cite Tan Kim Liong in contempt,
nevertheless ordered the latter to inform the court whether or not there is a
deposit with China Banking Corporation of B & B Forest Development
Corporation, and if any, to hold the same intact and not to allow any
withdrawal until further orders.
114
d.
Penalty for Violation

SEC. 5, LAW ON SECRECY OF BANK DEPOSITS: 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.
3. Rules for Foreign Currency Deposits

a. Coverage
SEC. 8, FCDA: Secrecy of foreign currency deposits. All foreign
currency deposits authorized under this Act, as amended by PD No.
1035, as well as foreign currency deposits authorized under PD No.
1034, are hereby declared as and considered of an absolutely
confidential nature and, except upon the written permission of the
depositor, in no instance shall foreign currency deposits be examined,
inquired or looked into by any person, government official, bureau or
office whether judicial or administrative or legislative, or any other

entity whether public or private; Provided, however, That said foreign
currency deposits shall be exempt from attachment, garnishment, or
any other order or process of any court, legislative body, government
agency or any administrative body whatsoever. (As amended by PD
No. 1035, and further amended by PD No. 1246, prom. Nov. 21,
1977.)
Cases
SALVACION v. CENTRAL BANK, 278 SCRA 27 (1997)
DOCTRINE: Sec. 113 of CB Circular No. 960, which exempts from
garnishment, attachment or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever
foreign currency deposits, is NOT applicable to a foreign transient, but only
to foreign lenders and investors to the development of the Foreign Currency
Deposit System and Offshore Banking System in the Philippines.
FACTS
On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed
and lured petitioner Karen Salvacion, then 12 years old to go with him to his
apartment. Therein, Greg Bartelli detained Karen Salvacion for four days, or
up to February 7, 1989 and was able to rape the child. Greg was eventually
apprehended but he escaped from detention.
The Deputy Sheriff of Makati served a Notice of Garnishment on China
Banking Corporation. In a letter dated March 13, 1989 to the Deputy Sheriff
of Makati, China Banking Corporation invoked Republic Act No. 1405 as its
answer to the notice of garnishment served on it. On March 15, 1989,
Deputy Sheriff of Makati Armando de Guzman sent his reply to China
Banking Corporation saying that the garnishment did not violate the secrecy
of bank deposits since the disclosure is merely incidental to a garnishment
properly and legally made by virtue of a court order which has placed the
subject deposits in custodia legis. In answer to this letter of the Deputy
Sheriff of Makati, China Banking Corporation, in a letter dated March 20,
1989, invoked Section 113 of Central Bank Circular No. 960 to the effect
that the dollar deposits of defendant Greg Bartelli are exempt from
attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body,
whatsoever.
After hearing the case ex-parte, the court rendered judgment in favor of
petitioners on March 29, 1990.
But China Bank still refuses to garnish the foreign denominated deposits of
Greg.
ISSUE
Should Section 113 of Central Bank Circular No. 960 and Section 8 of R.A.
6426, as amended by P.D. 1246, otherwise known as the Foreign Currency
NOTES
115
Deposit Act be made applicable to a foreign transient?

RULING
NO. If Karen's sad fate had happened to anybody's own kin, it would be
difficult for him to fathom how the incentive for foreign currency deposit
could be more important than his child's rights to said award of damages; in
this case, the victim's claim for damages from this alien who had the gall to
wrong a child of tender years of a country where he is a mere visitor. This
further illustrates the flaw in the questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time
when the country's economy was in a shambles; when foreign investments
were minimal and presumably, this was the reason why said statute was
enacted. But the realities of the present times show that the country has
recovered economically; and even if not, the questioned law still denies
those entitled to due process of law for being unreasonable and oppressive.
The intention of the questioned law may be good when enacted. The law
failed to anticipate the iniquitous effects producing outright injustice and
inequality such as the case before us.
b.
Prohibition
1977.)
c.
Exceptions
i. Upon written consent of the depositor
depositor, in no instance shall foreign currency deposits be
examined, inquired or looked into by any person, government
official, bureau or office whether judicial or administrative or
legislative, or any other entity whether public or private; Provided,

however, That said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative
body whatsoever. (As amended by PD No. 1035, and further
amended by PD No. 1246, prom. Nov. 21, 1977.)
Cases
CHINA BANKING CORP. v. CA, 511 SCRA 110 (2006)
DOCTRINE: The only exception to the secrecy of foreign currency deposits
is in the case of a written permission of the depositor.
FACTS
A Complaint for recovery of sums of money and annulment of sales of real
properties and shares of stocks was filed by Jose "Joseph" Gotianuy against
his son-in-law, George Dee, and his daughter, Mary Margaret Dee, before
the RTC.
Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among
his other properties, US dollar deposits with Citibank N.A. amounting to not
less than P35,000,000.00 and US$864,000.00. Mary Margaret Dee received
these amounts from Citibank N.A. through checks which she allegedly
deposited at China Banking Corporation (China Bank). He likewise accused
his son-in-law, George Dee, husband of his daughter, Mary Margaret, of
transferring his real properties and shares of stock in George Dee's name
without any consideration. Jose Gotianuy, died during the pendency of the
case before the trial court.1 He was substituted by his daughter, Elizabeth
Gotianuy Lo. The latter presented the US Dollar checks withdrawn by Mary
Margaret Dee from his US dollar placement with Citibank
The lower court issued a subpoena ad testificandum requiring MS. ISABEL
YAP and CRISTOTA LABIOS of China Banking Corporation, Cebu Main
Branch, corner Magallanes and D. Jakosalem Sts., Cebu City, to appear in
person and to testify with regards to Citibank Checks and other matters
material and relevant to the issues of this case
The petitioner moved for reconsideration and contends (amongst others)
that the absolute confidentiality under the law covers even the name of the
depositor and is beyond the compulsive process of the courts.
The CA ruled against the petitioner for the reason amongst others that.
The contention of petitioner that the [prescription] on absolute
confidentiality under the law in question covers even the name of the
depositor and is beyond the compulsive process of the courts is palpably
untenable as the law protects only the deposits itself but not the name of
the depositor. To uphold the theory of petitioner CBC is reading into the
statute "something that is not within the manifest intention of the legislature
as gathered from the statute itself, for to depart from the meaning
NOTES
116
expressed by the words, is to alter the statute, to legislate and not to

interpret, and judicial legislation should be avoided.
ISSUE
Whether petitioner China Bank is correct in its submission that the Citibank
dollar checks with both Jose Gotianuy and/or Mary Margaret Dee as payees,
deposited with China Bank, may not be looked into under the law on secrecy
of foreign currency deposits. As a corollary issue, sought to be resolved is
whether Jose Gotianuy may be considered a depositor who is entitled to
seek an inquiry over the said deposits.
RULING
As amended by Presidential Decree No. 1246, the law reads:
SEC. 8. Secrecy of Foreign Currency Deposits. All foreign currency
deposits authorized under this Act, as amended by Presidential Decree No.
1035, as well as foreign currency deposits authorized under Presidential
Decree No. 1034, are hereby declared as and considered of an absolutely
depositor, in no instance shall such foreign currency deposits be examined,
inquired or looked into by any person, government official, bureau or office
whether judicial or administrative or legislative or any other entity whether
public or private: Provided, however, that said foreign currency deposits
shall be exempt from attachment, garnishment, or any other order or
process of any court, legislative body, government agency or any
administrative body whatsoever. (As amended by PD No. 1035, and further
amended by PD No. 1246, prom. Nov. 21, 1977) (Emphasis supplied.)
Under the above provision, the law provides that all foreign currency
deposits authorized under Republic Act No. 6426, as amended by Sec. 8,
Presidential Decree No. 1246, Presidential Decree No. 1035, as well as
foreign currency deposits authorized under Presidential Decree No. 1034 are
considered absolutely confidential in nature and may not be inquired into.
There is only one exception to the secrecy of foreign currency
deposits, that is, disclosure is allowed upon the written permission
of the depositor. The following facts are established: (1) Jose Gotianuy
and Mary Margaret Dee are co-payees of various Citibank checks; (2) Mary
Margaret Dee withdrew these checks from Citibank; (3) Mary Margaret Dee
admitted in her Answer to the Request for Admissions by the Adverse Party
sent to her by Jose Gotianuy that she withdrew the funds from Citibank
upon the instruction of her father Jose Gotianuy and that the funds belonged
exclusively to the latter; (4) these checks were endorsed by Mary Margaret
Dee at the dorsal portion; and (5) Jose Gotianuy discovered that these
checks were deposited with China Bank as shown by the stamp of China
Bank at the dorsal side of the checks.
Thus, with this, there is no issue as to the source of the funds
NOTES
As the owner of the funds unlawfully taken and which are undisputably now
deposited with China Bank, Jose Gotianuy has the right to inquire into the
said deposits.
iii.
A depositor, in cases of bank deposits, 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 or the beneficiary of the funds held by the bank as trustee.
Furthermore, it is indubitable that the Citibank checks were drawn against
the foreign currency account with Citibank, NA. The monies subject of said
checks originally came from the late Jose Gotianuy, the owner of the
account. Thus, he also has legal rights and interests in the CBC account
where said monies were deposited. More importantly, the Citibank checks
readily demonstrate that the late Jose Gotianuy is one of the payees of said
checks. Being a co-payee thereof, then he or his estate can be considered
as a co-depositor of said checks. Ergo, since the late Jose Gotianuy is a codepositor of the CBC account, then his request for the assailed
subpoena is tantamount to an express permission of a depositor for
the disclosure of the name of the account holder. The April 16, 1999
Order perforce must be sustained.
One more point. It must be remembered that in the complaint of Jose
Gotianuy, he alleged that his US dollar deposits with Citibank were illegally
taken from him. On the other hand, China Bank employee Cristuta Labios
testified that Mary Margaret Dee came to China Bank and deposited the
money of Jose Gotianuy in Citibank US dollar checks to the dollar account of
her sister Adrienne Chu. This fortifies our conclusion that an inquiry into the
said deposit at China Bank is justified. At the very least, Jose Gotianuy as
the owner of these funds is entitled to a hearing on the whereabouts of
these funds.
ii.
Under the AMLA

1. Upon order of a competent court
2. BSP inquiry or examination
SEC. 11, AMLA: 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 involved
are in any way related to a money laundering offense: Provided,
That this provision shall not apply to deposits and investments
made prior to the effectivity of this Act.
d.
117
Under the PDIC Charter

SEC. 8, PAR. 8, PDIC CHARTER: The Corporation as a corporate
body shall have the power To conduct examination of banks with
prior approval of the Monetary Board: Provided, That no
examination can be conducted within twelve (12) months from the
last examination date: Provided, however, That the Corporation
may, in coordination with the Bangko Sentral, conduct a special
examination as the Board of Directors, by an affirmative vote of a
majority of all of its members, if there is a threatened or impending
closure of a bank; Provided, further, That, notwithstanding the
provisions of Republic Act No. 1405, as amended, Republic Act No.
6426, as amended, Republic Act No. 8791, and other laws, the
Corporation and/or the Bangko Sentral, may inquire into or
examine deposit accounts and all information related thereto in
case there is a finding of unsafe or unsound banking practice;
Provided, finally, That to avoid overlapping of efforts, the
examination shall maximize the efficient use of the relevant
reports, information, and findings of the Bangko Sentral, which it
shall make available to the Corporation; (As amended by R.A.
9302, 12 August 2004, R.A. 9576,29 April 2009)
Penalty for Violation

SEC. 10, FCDA: 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.
4. Rules for Deposits in Specific Banks and Financial Institutions

a. Under the GBL
SEC. 55.1 (B), GBL: No director, officer, employee, or agent of any
bank shall, 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;
b.
Islamic Banks
SEC. 33, ISLAMIC BANK CHARTER: Confidential Information. Banking transactions relating to all deposits of whatever nature are
confidential and may not be examined, inquired or looked into by any
person, government official, bureau or office except as provided in the
preceding section, or upon written permission by the depositor, or in
cases where the money deposited or the transaction concerned is the
subject of a court order.

It shall be unlawful for any official or employee of the Islamic Bank or
any person as may be designated by the Board of Director to examine
or audit the books of the Bank to disclose or reveal to any person any
confidential information except under the circumstances mentioned in
the preceding paragraph.
SEC. 45, ISLAMIC BANK CHARTER: Penalties for Violation. - Any
director, officer, employee, auditor, or agent of the Islamic Bank who
violates or permits the violation of any provision of this Act shall be
punished by a fine not exceeding Ten thousand pesos (P10,000.00) or
an imprisonment of not more than five (5) years, or both at the
discretion of the court.
NOTES
118
or dereliction of duty of public officials, or in cases where the money

deposited or invested is the subject matter of litigation.
It shall be unlawful for any official or employee of an Association to
disclose to any person any information concerning said deposits,
except in the cases mentioned in the preceding paragraph of this
section. Any official or employee of an Association who violates this
section shall be punished under Republic Act No. 1405, as amended.
G. GARNISHMENT
c.
Rural Banks
SEC. 26 (A) (2), RURAL BANKS ACT: Without prejudice to any
prosecution under any law which may have been violated, a fine of not
more than Ten thousand pesos (P10,000), or imprisonment for not
less than six (6) months but more than ten (10) years, or both, at the
discretion of the court, shall be imposed upon.
(a) Any officer, employee, or agent of a rural bank who shall:
(2) Without order of a court of competent jurisdiction,
disclose any information relative to the funds or properties
in the custody of the bank belonging to private individuals,
corporations, or any other entity;
d.
Thrift Banks
SEC. 21 (A) (2), THRIFT BANKS ACT: Prohibited Acts. Without
prejudice to any prosecution under any law which may have been
violated, a fine of not more than Ten thousand pesos (P10,000) or
imprisonment for not less than six (6) months but not more than ten
(10) years, or both, at the discretion of the court, shall be imposed
upon:
(a) Any officer, employee, or agent of a thrift bank who shall:
(2) Without order of a court of competent jurisdiction,
disclose any information relative to the funds or properties
in the custody of the bank belonging to private individuals,
corporations, or any other entity;
1. Procedure
SEC. 9 (C), RULE 39 OF RULES OF COURT: 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 posssession 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 garnishing 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.
e.
Non-Stock Savings and Loan Association

SEC.
6,
REVISED
NON-STOCK
SAVINGS
AND
LOANS
ASSOCIATION ACT OF 1997: Prohibition against inquiry into or
disclosure of deposits. All deposits of whatever nature with an
Association in the Philippines 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
2. Exempt Deposits
a. Foreign Currency Deposits

1977.)
b.
Under the Rules of Court

SEC. 13, RULE 39 OF RULES OF COURT: 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 hs 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;
(g) The professional libraries and equipment of judges, lawyers,
physicians, pharmacists, dentists, engineers, surveyors, clergymen,
teachers, and other professionals, not exceeding three hundred
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;
NOTES
119
(i) So much of the salaries, wages, or earnings of the judgment

obligor of 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 exempt by law.
But no article or species of property mentioned in his section shall be
exempt from executio issued upon a judgment recovered for its price
or upon a judgment of foreclosure of a mortgage thereon.
3. No violation of Law on Secrecy of Bank Deposits
Cases
CHINA BANKING v. ORTEGA, 49 SCRA 356 (1973)
The prohibition against examination of or inquiry into a bank deposit
under Republic Act 1405 does not preclude its being garnished to insure
satisfaction of a judgment. Indeed there is no real inquiry in such a
case, and if the existence of the deposit is disclosed the disclosure is
purely incidental to the execution process. It is hard to conceive that it
was ever within the intention of Congress to enable debtors to evade
payment of their just debts, even if ordered by the Court, through the
expedient of converting their assets into cash and depositing the same
in a bank.
PCI BANK v. CA, 193 SCRA 452 (1991)
It is clear from the discussion of the conference committee report on
Senate Bill No. 351 and House Bill No. 3977, which later became
Republic Act 1405, that the prohibition against examination of or inquiry
into a bank deposit under Republic Act 1405 does not preclude its being
garnished to insure satisfaction of a judgment. Indeed there is no real
inquiry in such a case, and if existence of the deposit is disclosed the
disclosure is purely incidental to the execution process. It is hard to
conceive that it was ever within the intention of Congress to enable
debtors to evade payment of their just debts, even if ordered by the
Court, through the expedient of converting their assets into cash and
depositing the same in a bank.

4. Liability for Release
Cases
RCBC v. DE CASTRO. 168 SCRA 49 (1988)
FACTS
In connection with a civil case between Badoc Planters Inc(BADOC) vs.
Philippine Virginia Tobacco Administration (PVTA) et al, an action for
recovery of unpaid tobacco deliveries, the Judge issued a partial order,
directing PVTA to pay plaintiff BADOC.
BADOC filed a motion to for a writ of execution, which was granted on the
same day. The sheriff then issued a Notice of Garnishment addressed to
RCBC asking if PVTA had any proterty in the possession RCBC. to which
RCBC replied in the affirmative. PVTA was notified by RCBC of such notice.
Later on the Judge issued and order directing RCBC to ""to deliver in check
the amount garnished to the Sheriff and the Sheriff in turn is ordered to
cash the check and deliver the amount to BADOC". RCBC complied with the
order, the check was issued, delivered to the Sheriff, and subsequently
encashed.
PVTA however filed an MR assailing the execution. The court granted the
MR, invalidated the execution, and ordered RCBC and BADOC to jointly and
severally restore the account of PVTA.
ISSUE
Whether RCBC is liable to restore the account of PVTA
HELD
NO. RCBC merely obeyed a mandatory directive from the respondent Judge,
ordering it "to deliver in check the amount garnished to the Sheriff and the
Sheriff is in turn ordered to cash the check and deliver the amount to
BADOC."
As to the allegation by PVTA that RCBC was negligent in prematurely
releasing its funds. The court held that the contention by PVTA was without
merit since RCBC was expressly ordered by the court to deliver and encash
the check. RCBC had already filed a reply to the Notice of Garnishment
stating that it had in its custody funds belonging to the PVTA. Also, RCBC
promptly notified PVTA of the existence of the Notice of Garnishment.
It is important to stress, at this juncture, that there was nothing irregular in
the delivery of the funds of PVTA by check to the sheriff, whose custody is
equivalent to the custody of the court, he being a court officer. The order of
the court was composed of two parts, requiring: 1) RCBC to deliver in check
the amount garnished to the designated sheriff and 2) the sheriff in turn to
cash the check and deliver the amount to the plaintiffs representative
and/or counsel on record. It must be noted that in delivering the garnished
NOTES
120
amount in check to the sheriff, the RCBC did not thereby make any
payment, for the law mandates that delivery of a check does not produce
the effect of payment until it has been cashed. [Article 1249, Civil Code.]
Moreover, by virtue of the order of garnishment, the same was placed in
custodia legis and therefore, from that time on, RCBC was holding the funds
subject to the orders of the court a quo. That the sheriff, upon delivery of
the check to him by RCBC encashed it and turned over the proceeds thereof
to the plaintiff was no longer the concern of RCBC as the responsibility over
the garnished funds passed to the court. Thus, no breach of trust or
dereliction of duty can be attributed to RCBC in delivering its depositor's
funds pursuant to a court order, which was merely in the exercise of its
power of control over such funds.
The bank had no choice but to comply with the order demanding delivery of
the garnished amount in check. The very tenor of the order called for
immediate compliance therewith. On the other hand, the bank cannot be
held liable for the subsequent encashment of the check as this was upon
order of the court in the exercise of its power of control over the funds
placed in custodia legis by virtue of the garnishment.
H. DEPOSIT INSURANCE
1. Coverage
SEC. 5, PDIC CHARTER: The deposit liabilities of any bank or banking
institution, which is engaged in the business of receiving deposits as
herein defined on the effective date of this Act, or which thereafter may
engage in the business of receiving deposits, shall be insured with the
Corporation. (As amended by R.A. 6037, 04 August 1969; renumbered
from Sec. 4 by R.A. 9302, 12 August 2004)
SEC. 9, FCDA: Deposit insurance coverage. The deposits under this
Act shall be insured under the provisions of Republic Act No. 3591, as
amended (Philippine Deposit Insurance Corporation), 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.
2. Amount Insured
SEC. 4 (G), PDIC CHARTER: The term insured deposit means the
amount due to any bona fide depositor for legitimate deposits in an
insured bank net of any obligation of the depositor to the insured bank
as of the date of closure, but not to exceed Five Hundred Thousand
Pesos (P500,000.00).2 Such net amount shall be determined according
to such regulations as the Board of Directors may prescribe. In
determining such amount due to any depositor, there shall be added
together all deposits in the bank maintained in the same right and

capacity for his benefit either in his own name or in the name of others.
A joint account regardless of whether the conjunction "and," "or,"
"and/or" is used, shall be insured separately from any individuallyowned deposit account: Provided, That (1) If the account is held jointly
by two or more natural persons, or by two or more juridical persons or
entities, the maximum insured deposit shall be divided into as many
equal shares as there are individuals, juridical persons or entities, unless
a different sharing is stipulated in the document of deposit, and (2) if
the account is held by a juridical person or entity jointly with one or
more natural persons, the maximum insured deposit shall be presumed
to belong entirely to such juridical person or entity: Provided, further,
That the aggregate of the interest of each co-owner over several joint
accounts, whether owned by the same or different combinations of
individuals, juridical persons or entities, shall likewise be subject to the
maximum insured deposit of Five Hundred Thousand Pesos
(P500,000.00): Provided, furthermore, That the provisions of any law to
the contrary notwithstanding, no owner/holder of any negotiable
certificate of deposit shall be recognized as a depositor entitled to the
rights provided in this Act unless his name is registered as owner/holder
thereof in the books of the issuing bank: Provided, finally, That, in case
of a condition that threatens the monetary and financial stability of the
banking system that may have systemic consequences, as defined in
section 17 hereof, as determined by the Monetary Board, the maximum
deposit insurance cover may be adjusted in such amount, for such a
period, and/or for such deposit products, as may be determined by a
unanimous vote of the Board of Directors in a meeting called for the
purpose and chaired by the Secretary of Finance, subject to the
approval of the President of the Philippines. (As amended by R.A. 9302,
12 August 2004; R.A. 9576, 2009)
3. Rules on Payment
SEC. 10 (B), PDIC CHARTER: REPEALED ALREADY. For purposes of
this Act an insured bank shall be deemed to have been closed on
account of insolvency when ordered closed by the Monetary Board of the
Central Bank of the Philippines pursuant to Section 29 of R.A. 265, as
amended.
SEC. 10 (C), PDIC CHARTER: Whenever an insured bank shall have
been closed by the Monetary Board pursuant to Section 30 of R.A. 7653,
payment of the insured deposits on such closed bank shall be made by
the Corporation as soon as possible either (1) by cash or (2) by making
available to each depositor a transferred deposit in another insured bank
in an amount equal to insured deposit of such depositor: Provided,
however, That the Corporation, in its discretion, may require proof of
claims to be filed before paying the insured deposits, and that in any
case where the Corporation is not satisfied as to the viability of a claim
for an insured deposit, it may require final determination of a court of
NOTES
121
competent jurisdiction before paying such claim: Provided, further, That

failure to settle the claim, within six (6) months from the date of filing of
claim for insured deposit, where such failure was due to grave abuse of
discretion, gross negligence, bad faith, or malice, shall, upon conviction,
subject the directors, officers or employees of the Corporation
responsible for the delay, to imprisonment from six (6) months to one
(1) year: Provided, furthermore, That the period shall not apply if the
validity of the claim requires the resolution of issues of facts and or law
by another office, body or agency including the case mentioned in the
first proviso or by Corporation together with such other office, body or
agency."
SEC. 10 (D), PDIC CHARTER: The Corporation, upon payment of any
depositor as provided for in subsection (c) of this Section3, shall be
subrogated to all rights of the depositor against the closed bank to the
extent of such payment. Such subrogation shall include the right on the
part of the Corporation to receive the same dividends and payments
from the proceeds of the assets of such closed bank and recoveries on
account of stockholders liability as would have been payable to the
depositor on a claim for the insured deposits but, such depositor shall
retain his claim for any uninsured portion of his deposit. All payments by
the Corporation of insured deposits in closed banks partake of the
nature of public funds, and as such, must be considered a preferred
credit similar to taxes due to the National Government in the order of
preference under Article 2244 of the New Civil Code: Provided, further,
That this preference shall be likewise effective upon liquidation
proceedings already commenced and pending as of the approval of this
Act, where no distribution of assets has been made. (As amended by
P.D. 1940, 27 June 1984; R.A. 7400, 13 April 1992; renumbered from
Sec. 10(d) by R.A. 9302, 12 August 2004)
4. Liability of PDIC
Cases
PDIC v. CA
FACTS
Rosa Aquero (and 8 others) invested in money market placements with the
Premiere Financing Corporation (Premiere) in the sum of P10,000.00 each
for which they were issued by the PFC corresponding promissory notes and
checks. Their lawyer, on the same day, went to PFC to encash, but they
were referred to Regent savings Bank (Regent). Instead of paying these,
Regent, in an agreement with the lawyer, issued 13 Certificates of Time
Deposit (CTD), each stating that "that the same certifies that the bearer
thereof has deposited with the RSB the sum of P10,000.00; that the
certificate shall bear 14% interest per annum; that the certificate is
INSURED up to P15,000.00 with the PDIC".
Regent was not able to pay on maturity. In fact, the Central bank liquidated

Regent. When Aquero et al filed a claim with the PDIC, it was rejected since
the check (125k) that Premiere had issued in consideration for the CTDs had
bounced;and said check was not replaced by the Premiere, resulting in the
cancellation of the certificates as indebtedness or liabilities of Regent.
Thus this collection case against PDIC.
ISSUES
1) Are the CTDs negotiable instrument, and does it matter?
2) Does the fact that the CTDs state that the same were insured by the
PDIC make PDIC liable?
3) Were the CTDs issued for consideration, and if not, what is the
consequence?
HELD
1) It doesn't matter. Whether the CTDs in question are negotiable or not is
immaterial in the present case.
The Philippine Deposit Insurance
Corporation was created by law and, as such, is governed primarily by the
provisions of the special law creating it. The liability of the PDIC for insured
deposits therefore is statutory and such liability rests upon the existence of
deposits with the insured bank, not on the negotiability or non-negotiability
of the certificates evidencing these deposits.
NOTES
122
Philippines to be used as the National Assembly may direct.

"Banks", "building and loan associations" and "trust corporations",
within the meaning of this Act, shall refer to institutions defined under
Section two, thirty-nine and fifty-six, respectively, of Republic Act
Numbered Three Hundred Thirty Seven, otherwise known as the General
Banking Act, as amended, whether organized under special charters or
not.
2. Report to Treasurer; Notice, Posting, Publication
SEC. 2, UNCLAIMED BALANCES LAW: Immediately after the taking
effect of this Act and within the month of January of every odd year, all
banks, building and loan associations, and trust corporations shall
forward to the Treasurer of the Philippines 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 creditors and
depositors, and showing:
"(a) The names and last known place of residence or post office
addresses of the persons in whose favor such unclaimed balances stand;
2) NO. the deposit liability of PDIC is determined by the provisions of the

law that created it, RA 3519, and statements in the certificates that the
same are insured by PDIC are not binding upon the latter.
"(b) The amount and the date of the outstanding unclaimed balance and
whether the same is in money or in security, and if the latter, the nature
of the same;
3) NO consideration. PDIC not liable. In order that a claim for deposit

insurance with the PDIC may prosper, the law requires that a corresponding
deposit be placed in the insured bank. The problem is that Regent did not
receive anything in consideration for the CTDs it issued, since the check
representing the vale of the CTDs (issued by Premiere) bounced; therefore
no deposit ever came into existence. Accordingly, there is nothing here for
PDIC to insure.
"(c) The date when the person in whose favor the unclaimed balance
stands died, if known, or the date when he made his last deposit or
withdrawal; and
I. UNCLAIMED BALANCES
1. Definition
SEC. 1, UNCLAIMED BALANCES LAW: "Unclaimed balances", within
the meaning of this Act, shall include credits or deposits of money,
bullion, security or other evidence of indebtedness of any kind, and
interest thereon with banks, buildings and loan associations, and trust
corporations, as hereinafter defined, in favor of any person known to be
dead or who has not made further deposits or withdrawals during the
preceding ten years or more. Such unclaimed balances, together with
the increase and proceeds thereof, shall be deposited with the Treasurer
of the Philippines to the credit of the Government of the Republic of the
"(d) The interest due on such unclaimed balance, if any, and the amount
thereof.
"A copy of the above sworn statement shall be posted in a conspicuous
place in the premises of the bank, building and loan association, or trust
corporation concerned for at least sixty days from the date of filing
thereof: Provided, That immediately before filing the above sworn
statement, the bank, building and loan association, and trust
corporation shall communicate with the person in whose favor the
unclaimed balance stands at his last known place of residence or post
office address.
"It shall be the duty of the Treasurer of the Philippines to inform the
Solicitor General from time to time the existence of unclaimed balances
held by banks, building and loan associations, and trust corporations.
NOTES
123
Cases
Republic v. CA, 345 SCRA 63 (2000)
FACTS
On December 28, 1988, a complaint for escheat filed by petitioner, Republic
of the Philippines, with the Regional Trial Court of Davao City against
several banks which had branches within the jurisdiction of the said court.
of unclaimed balances would only result in additional and unnecessary

expense to the government.
The complaint alleged that pursuant to Act No. 3936 as amended by P.D.
679, the respective managers of the defendant banks submitted to the
Treasurer of the Republic of the Philippines separate statements prepared
under oath which listed all deposits and credits held by them in favor of
depositors or creditors either known to be dead, have not been heard from,
or have not made depositors or withdrawals for ten years or more since
December 31, 1970.
Petitioner filed with the Court of Appeals a petition for mandamus and
certiorari, which was also dismissed.
The complaint prayed that after due notice to the defendant banks, and
after hearing, judgment be rendered declaring that the deposits, credits and
unpaid balances in question be escheated to petitioner, commanding
defendant banks to forthwith deposit the same with the Treasurer of the
Philippines.
The lower court issued an order directing petitioner to show cause why the
complaint should not be dismissed for failure to state a cause of action.
According to the order, the complaint contained no allegation that defendant
banks have complied with two of the conditions in Section 2 of Act No.
3936, compliance with the requirements being necessary for the complaint
to prosper
Petitioner submitted amended complaint prayed that judgment be rendered
ordering that the amount of P97,263.38, deposited with the defendant
banks by depositors who are known to be dead or have not made further
deposits or withdrawals during the preceding ten years or more be
escheated in favor of the Republic of the Philippines.
The trial court found the amendment sufficient and issued an order requiring
petitioner to publish a notice in the Mindanao Forum Standard once a week
for two consecutive weeks, containing the summons, notice to the public,
the amended petition incorporated in the summons and the list of unclaimed
balances. The notice was estimated to occupy 27 pages of the said
newspaper at an estimated cost of P50,000.00.
On July 11, 1989, petitioner submitted a manifestation to the lower court
praying that the publication of the list of the unclaimed balances be
dispensed with. Petitioner posited that under Section 3, Act No. 3936, only
the following are required to be published: (1) summons to respondent
banks; and (2) notice to all persons other than those named defendants
therein. Petitioner submitted that to require it to publish the names and list
The court however issued an order that if petitioner fails to comply with the
publication of unclaimed balances as already ordered, the petition shall be
dismissed.
ISSUE
(1) Whether or not respondent RTC judge committed grave abuse of
discretion tantamount to lack of jurisdiction in ordering the publication of
the list of unclaimed balances listed under annexes A to P of the
complaint.
HELD
The petition is without merit.
The publication of the list of unclaimed balances is intended to safeguard the
right of the depositors, their heirs and successors to due process. This was
made clear by the lower court in its assailed Order, to wit:
Moreover, how would other persons who may have an interest in
any of the unclaimed balances know what this case is all about and
whether they have an interest in this case if the amended complaint
and list of unclaimed balances are not published? Such other
persons may be heirs of the bank depositors named in the list of
unclaimed balances.
xxx
The fact that the government is in a tight financial situation is not a
justification for this Court to dispense with the elementary rule of due
process.
As declared by the trial court in its Order dated August 1, 1989, the
dismissal of the petition for escheat is without prejudice. In other words,
the State can refile the said petition, notwithstanding the lapse of time.
Prescription of action does not run against the government.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals
dated August 14, 1990 is AFFIRMED.
SO ORDERED.
3. Escheat Proceedings
SEC. 3, UNCLAIMED BALANCES LAW: Whenever the Solicitor General
shall be informed of such unclaimed balances, he shall commence an

action or actions in the name of the People of the Republic of the
Philippines in the Court of First Instance of the province or city where
the bank, building and loan association or trust corporation is located, in
which shall be joined as parties the bank, building and loan association
or trust corporation and all such creditors or depositors. All or any of
such creditors or depositors or banks, building and loan association or
trust corporations may be included in one action. Service of process in
such action or actions shall be made by delivery of a copy of the
complaint and summons to the president, cashier, or managing officer
of each defendant bank, building and loan association or trust
corporation and by publication of a copy of such summons in a
newspaper of general circulation, either in English, in Filipino, or in a
local dialect, published in the locality where the bank, building and loan
association or trust corporation is situated, if there be any, and in case
there is none, in the City of Manila, at such time as the court may order.
Upon the trial, the court must hear all parties who have appeared
therein, and if it be determined that such unclaimed balances in any
defendant bank, building and loan association or trust corporation are
unclaimed as hereinbefore stated, then the court shall render judgment
in favor of the Government of the Republic of the Philippines, declaring
that said unclaimed balances have escheated to the Government of the
Republic of the Philippines and commanding said bank, building and loan
association or trust corporation to forthwith deposit the same with the
Treasurer of the Philippines to credit of the Government of the Republic
of the Philippines to be used as the National Assembly may direct.
"At the time of issuing summons in the action above provided for, the
clerk of court shall also issue a notice signed by him, giving the title and
number of said action, and referring to the complaint therein, and
directed to all persons, other than those named as defendants therein,
claiming any interest in any unclaimed balance mentioned in said
complaint, and requiring them to appear within sixty days after the
publication or first publication, if there are several, of such summons,
and show cause, if they have any, why the unclaimed balances involved
in said action should not be deposited with the Treasurer of the
Philippines as in this Act provided and notifying them that if they do not
appear and show cause, the Government of the Republic of the
Philippines will apply to the court for the relief demanded in the
complaint. A copy of said notice shall be attached to, and published with
the copy of, said summons required to be published as above, and at
the end of the copy of such notice so published, there shall be a
statement of the date of publication, or first publication, if there are
several, of said summons and notice. Any person interested may appear
in said action and become a party thereto. Upon the publication or the
completion of the publication, if there are several, of the summons and
notice, and the service of the summons on the defendant banks,
building and loan associations or trust corporations, the court shall have
NOTES
124
full and complete jurisdiction in the Republic of the Philippines over the
said unclaimed balances and over the persons having or claiming any
interest in the said unclaimed balances, or any of them, and shall have
full and complete jurisdiction to hear and determine the issues herein,
and render the appropriate judgment thereon.
4. Effects of Compliance/Non-Compliance
SEC. 4, UNCLAIMED BALANCES LAW: If the president, cashier or
managing officer of the bank, building and loan association, or trust
corporation neglects or refuses to make and file the sworn statement
required by this action, such bank, building and loan association, or
trust corporation shall pay to the Government the sum of five hundred
pesos a month for each month or fraction thereof during which such
default shall continue.
SEC. 5, UNCLAIMED BALANCES LAW: Any bank, building and loan
association or trust corporation which shall make any deposit with the
Treasurer of the Philippines in conformity with the provisions of this Act
shall not thereafter be liable to any person for the same and any action
which may be brought by any person against in any bank, building and
loan association, or trust corporation for unclaimed balances so
deposited with the Treasurer of the Philippines shall be defended by the
Solicitor General without cost to such bank, building and loan
association or trust corporation."
J. ANTI-MONEY LAUNDERING ACT

1. Declared Policy
SEC. 2, AMLA: Declaration of Policy. - It is hereby declared the
policy of the State to protect and preserve the integrity and
confidentiality of bank accounts and to ensure that the Philippines shall
not be used as a money laundering site for the proceeds of any unlawful
activity. Consistent with its foreign policy, the State shall extend
cooperation in transnational investigations and prosecutions of persons
involved in money laundering activities wherever committed.
2. Covered Transactions
SEC. 3 (B), AMLA: "Covered transaction" is a single, series, or
combination of transactions involving a total amount in excess of Four
million Philippine pesos (Php4,000,000.00) or an equivalent amount in
foreign currency based on the prevailing exchange rate within five (5)
consecutive banking days except those between a covered institution
and a person who, at the time of the transaction was a properly
identified client and the amount is commensurate with the business or
financial capacity of the client; or those with an underlying legal or trade
obligation, purpose, origin or economic justification.
NOTES
It likewise refers to a single, series or combination or pattern of

unusually large and complex transactions in excess of Four million
Philippine pesos (Php4,000,000.00) especially cash deposits and
investments having no credible purpose or origin, underlying trade
obligation or contract.
3. Suspicious Transactions
SEC. 3 (B-1), AMLA: SEC. 3 (B), AMLA: "Covered transaction" is a
single, series, or combination of transactions involving a total amount in
excess of Four million Philippine pesos (Php4,000,000.00) or an
equivalent amount in foreign currency based on the prevailing exchange
rate within five (5) consecutive banking days except those between a
covered institution and a person who, at the time of the transaction was
a properly identified client and the amount is commensurate with the
business or financial capacity of the client; or those with an underlying
legal or trade obligation, purpose, origin or economic justification.
4. Covered Institutions
SEC. 3 (A), AMLA: "Covered Institution" refers to:
1. banks, non-banks, quasi-banks, trust entities, and all other
institutions and their subsidiaries and affiliates supervised or
regulated by the Bangko Sentral ng Pilipinas (BSP);
2.
insurance companies and all other institutions

regulated by the Insurance Commission; and
supervised
or
3.
securities dealers, brokers, salesmen, investment houses and other

similar entities managing securities or rendering services as
investment agent, advisor, or consultant, (ii) mutual funds, close
and investment companies, common trust funds, pre-need
companies and other similar entities, (iii) foreign exchange
corporations, money changers, money payment, remittance, and
transfer companies and other similar entities, and (iv) other entities
administering or otherwise dealing in currency, commodities or
financial derivatives based thereon, valuable objects, cash
substitutes and other similar monetary instruments or property
supervised or regulated by Securities and Exchange Commission.
5. Obligations of Covered Institutions

SEC. 9, AMLA: Prevention of Money Laundering; Customer
Identification Requirements and Record Keeping. 1.
Customer Identification. - Covered institutions shall establish and

record the true identity of its clients based on official documents.
They shall maintain a system of verifying the true identity of their
clients and, in case of corporate clients, require a system of
verifying their legal existence and organizational structure, as well
125
as the authority and identification of all persons purporting to act on

their behalf.
anonymous accounts, accounts under fictitious names, and all other
similar accounts shall be absolutely prohibited. Peso and foreign
currency non-checking numbered accounts shall be allowed. The
BSP may conduct annual testing solely limited to the determination
of the existence and true identity of the owners of such accounts.
2.
Record Keeping. -All records of all transactions of covered

institutions shall be maintained and safely stored for five (5) years
from the date of transactions. With respect to closed accounts, the
records on customer identification, account files and business
correspondence, shall be preserved and safely stored for at least
five (5) years from the dates when they were closed.
3.
Reporting of Covered
report to the AMLC all
days from occurrence
concerned prescribes
working days.
Transactions. - Covered institutions shall

covered transactions within five (5) working
thereof, unless the Supervising Authority
a longer period not exceeding ten (10)
When reporting covered transactions to the AMLC, covered institutions

and their officers, employees, representatives, agents, advisors,
consultants or associates shall not be deemed to have violated Republic
Act No. 1405, as amended; Republic Act No. 6426, as amended;
Republic Act No. 8791 and other similar laws, but are prohibited from
communicating, directly or indirectly, in any manner or by any means,
to any person the fact that a covered transaction report was made, the
contents thereof, or any other information in relation thereto. In case of
violation thereof, the concerned officer, employee, representative,
agent, advisor, consultant or associate of the covered institution, shall
be criminally liable. However, no administrative, criminal or civil
proceedings, shall lie against any person for having made a covered
transaction report in the regular performance of his duties and in good
faith, whether or not such reporting results in any criminal prosecution
under this Act or any other Philippine law.
When reporting covered transactions to the AMLC, covered institutions
and their officers, employees, representatives, agents, advisors,
consultants or associates are prohibited from communicating, directly or
indirectly, in any manner or by any means, to any person, entity, the
media, the fact that a covered transaction report was made, the
contents thereof, or any other information in relation thereto. Neither
may such reporting be published or aired in any manner or form by the
mass media, electronic mail, or other similar devices. In case of

violation thereof, the concerned officer, employee, representative,
agent, advisor, consultant or associate of the covered institution, or
media shall be held criminally liable.
a. Customer Identification
b. Record Keeping
c. Reporting of Covered and Suspicious Transactions to AMLC
6. Money-Laundering Crime
SEC. 4, AMLA: Money Laundering Offense. - Money laundering is a
crime whereby the proceeds of an unlawful activity are transacted,
thereby making them appear to have originated from legitimate
sources. It is committed by the following:
1. Any person knowing that any monetary instrument or property
represents. involves, or relates to the proceeds of any unlawful
activity, transacts or attempts to transact said monetary instrument
or property.
2. Any person-knowing that any monetary instrument or property
involves the proceeds of any unlawful activity, performs or fails to
perform any act as a result of which he facilitates the offense of
money laundering referred to in paragraph (a) above.
3. Any person knowing that any monetary instrument or property is
required under this Act to be disclosed and filed with the Anti-Money
Laundering Council (AMLC), fails to do so.
a.
b.
c.
Transacting or attempting to transact, with monetary instrument or

property, knowing it represents, involves, or related to proceeds of
any Unlawful Activity
Facilitating money-laundering referred to in Item (a) above, by failing
to perform an act
Failing to disclose and file report with AMLC of any monetary
instrument or property as required under AMLA
7. Unlawful Activities
SEC. 3 (i), AMLA: "Unlawful activity" refers to any act or omission or
series or combination thereof involving or having relation to the
following:
a. Kidnapping for ransom under Article 267 of Act No.3815, otherwise
known as the Revised Penal Code, as amended;
b. Sections 3,4,5,7,8 and 9 of Article Two of Republic Act No.6425, as
amended, otherwise known as the Dangerous Drugs Act of 1972;
c. Section 3 paragraphs B,C,E,G,H and I of Republic Act No.3019, as
amended; otherwise known as the Anti-Graft and Corrupt Practices
Act;
d. Plunder under Republic Act No.7080, as amended;
e. Robbery and extortion under Articles 294,295,296,299,300,301 and
302 of the Revised Penal Code, as amended;
NOTES
126
f.
Jueteng and Masiao punished as illegal gambling under Presidential

Decree No.1602;
g. Piracy on the high seas under the Revised Renal Code, as amended
and Presidential Decree No.532;
h. Qualified theft under Article 310 of the Revised Penal Code, as
amended; (9) Swindling under Article 315 of the Revised Penal Code,
as amended;
i. Smuggling under Republic Act Nos. 455 and 1937;
j. Violations under Republic Act No.8792, otherwise known as the
Electronic Commerce Act of 2000;
k. Hijacking and other violations under Republic Act No.6235; destructive
arson and murder, as defined under the Revised Penal Code, as
amended, including those perpetrated by terrorists against noncombatant persons and similar targets;
l. Fraudulent practices and other violations under Republic Act No.8799.
otherwise known as the Securities Regulation Code of 2000;
m. Felonies or offenses of a similar nature that are punishable under the
penal laws of other countries.
8. Jurisdiction
SEC. 5, AMLA: Jurisdiction of Money Laundering Cases. - The
regional trial courts shall have jurisdiction to try all cases on money
laundering. Those committed by public officers arid private persons who
are in conspiracy with such public officers shall be under the jurisdiction
of the Sandiganbayan.
9. Prosecution
SEC. 6, AMLA: Prosecution of Money Laundering.
1.
2.
Any person may be charged with and convicted of both the offense
of money laundering and the unlawful activity as herein defined.
Any proceeding relating to the unlawful activity shall be given
precedence over the prosecution of any offense or violation under
this Act without prejudice to the freezing and other remedies
provided.
10. Prohibition against Political Harassment

SEC. 16, AMLA: Prohibitions Against Political Harassment. - This
Act shall not be used for political prosecution or harassment or as an
instrument to hamper competition in trade and commerce.
No case for money laundering may be filed against and no assets shall
be frozen, attached or forfeited to the prejudice of a candidate for an
electoral office during an election period.
NOTES
11. Penalties and Other Consequences

a. Penalties
SEC. 14, AMLA: Penal Provisions. -
the same or purposely fails to testify shall suffer the same penalties
prescribed herein.
4.
1.
2.
3.
Penalties for the Crime of Money Laundering. The penalty of

imprisonment ranging from seven (7) to fourteen (14) years and a
fine of not less than Three million Philippine pesos (Php ,
3,000,000.00) but not more than twice the value of the monetary
instrument or property involved in the offense, shall be imposed
upon a person convicted under Section 4(a) of this Act. The penalty
of imprisonment from four (4) to seven (7) years and a fine of not
less than One million five hundred thousand Philippine pesos (Php
1,500,000.00) but not more than Three million Philippine pesos (Php
3,000,000.00), shall be imposed upon a person convicted under
Section 4(b) of this Act. The penalty of imprisonment from six (6)
months to four (4) years or a fine of not less than One hundred
thousand Philippine pesos (Php 100,000.00) but not more than Five
hundred thousand Philippine pesos (Php 500,000.00), or both, shall
be imposed on a person convicted under Section 4(c) of this Act.
Penalties for Failure to Keep Records. The penalty of imprisonment
from six (6) months to one (1) year or a fine of not less than One
hundred thousand Philippine pesos (Php100,000.00) but not more
than Five hundred thousand Philippine pesos (Php500,000.00), or
both, shall be imposed on a person convicted under Section 9(b) of
this Act.
Malicious Reporting. Any person who, with malice, or in bad faith,
report or files a completely unwarranted or false information relative
to money laundering transaction against any person shall be subject
to a penalty of six (6) months to four (4) years imprisonment and a
fine of not less than One hundred thousand Philippine pesos (Php
100,000.00) but not more than Five hundred thousand Philippine
pesos (Php500,000.00), at the discretion of the court: Provided,
That the offender is not entitled to avail the benefits of the Probation
Law. If the offender is a corporation, association, partnership or any
juridical person, the penalty shall be imposed upon the responsible
officers, as the case may be, who participated in the commission of
the crime or who shall have knowingly permitted or failed to prevent
its commission. If the offender is a juridical person, the court may
suspend or revoke its license. If the offender is an alien, he shall, in
addition to the penalties herein prescribed, be deported without
further proceedings after serving the penalties herein prescribed. If
the offender is a public official or employee, he shall, in addition to
the penalties prescribed herein, suffer perpetual or temporary
absolute disqualification from office, as the case may be. Any public
official or employee who is called upon to testify and refuses to do
127
Breach of Confidentiality. The punishment of imprisonment ranging

from three (3) to eight (8) years and a fine of not less than Five
hundred thousand Philippine pesos (Php 500,000.00) but not more
than One million Philippine pesos (Php 1,000,000.00), shall be
imposed on a person convicted for a violation under Section 9 (c).
(i)
(ii)
(iii)
(iv)
b.
Money Laundering
Failure to Keep Records
Malicious Reporting
Breach of Confidentiality
Civil Forfeiture
SEC. 12, AMLA: Forfeiture Provisions.
1.
Civil Forfeiture. - When there is a covered transaction report made,

and the court has, in a petition filed for the purpose ordered seizure
of any monetary instrument or property, in whole or in part, directly
or indirectly, related to said report, the Revised Rules of Court on
civil forfeiture shall apply.
2.
Claim on Forfeited Assets. - Where the court has issued an order of

forfeiture of the monetary instrument or property in a criminal
prosecution for any money laundering offense defined under Section
4 of this Act, the offender or any other person claiming an interest
therein may apply, by verified petition, for a declaration that the
same legitimately belongs to him and for segregation or exclusion of
the monetary instrument or property corresponding thereto. The
verified petition shall be filed with the court which rendered the
judgement of conviction and order of forfeiture, within fifteen (15)
days from the date of the order or forfeiture, in default of which the
said order shall become final and executory. This provision shall
apply in both civil and criminal forfeiture.
3.
Payment in Lieu of Forfeiture. - Where the court has issued an order

of forfeiture of the monetary instrument or property subject of a
money laundering offense defined under Section 4, and said order
cannot be enforced because any particular monetary instrument or
property cannot, with due diligence, be located, or it has been
substantially altered, destroyed, diminished in value or otherwise
rendered worthless by any act or omission, directly or indirectly,
attributable to the offender, or it has been concealed, removed,
converted or otherwise transferred to prevent the same from being
found or to avoid forfeiture thereof, or it is located outside the
Philippines or has been placed or brought outside the jurisdiction of

the court, or it has been commingled with other monetary
instruments or property belonging to either the offender himself or a
third person or entity, thereby rendering the same difficult to
identify or be segregated for purposes of forfeiture, the court may,
instead of enforcing the order of forfeiture of the monetary
instrument or property or part thereof or interest therein,
accordingly order the convicted offender to pay an amount equal to
the value of said monetary instrument or property. This provision
shall apply in both civil and criminal forfeiture.
Cases
Republic v. Glasgow Credit and Collection Services, 542 SCRA 384
(2008)
FACTS
Republic filed a complaint for civil forfeiture of assets against the bank
deposits of Glasgow in Citystate Savings Bank (CSB). This is pursuant to the
Anti-Money Laundering Act (RA 9160). The court issued summons and
several alias summons. However, all the summons to Glasgow was left
unserved as it could not be found at its last known address.
Glasgow now files a motion to dismiss on the ground that the court has no
jurisdiction over its person due to lack of summons served, the complaint
was premature and there was failure to prosecute by the Republic. The RTC
dismissed the case on the grounds of improper venue, insufficiency in form
and substance and failure to prosecute.
ISSUE
Whether the complaint for Civil Forfeiture was correctly dismissed on the
grounds of (1) improper venue (2) insufficiency in form and substance and
(3) failure to prosecute.
RULING
(1) NO, the trial court was the proper venue.
The Rules of Procedure in Cases of Civil Forfeiture applies to this case.
Sec. 3. Venue of cases cognizable by the regional trial court. A
petition for civil forfeiture shall be filed in any regional trial court of
the judicial region where the monetary instrument, property or
proceeds representing, involving, or relating to an unlawful activity
or to a money laundering offense are located; provided, however,
that where all or any portion of the monetary instrument, property
or proceeds is located outside the Philippines, the petition may be
filed in the regional trial court in Manila or of the judicial region
where any portion of the monetary instrument, property, or
proceeds is located, at the option of the petitioner.
The venue of civil forfeiture cases is any RTC of the judicial region where the
monetary instrument, property or proceeds representing, involving, or
NOTES
128
relating to an unlawful activity or to a money laundering offense are located.

Pasig City, where the account sought to be forfeited in this case is situated,
is within the National Capital Judicial Region (NCJR). Clearly, the complaint
for civil forfeiture of the account may be filed in any RTC of the NCJR. Since
the RTC Manila is one of the RTCs of the NCJR, it was a proper venue of the
Republics complaint for civil forfeiture of Glasgows account.
(2) NO, it was sufficient in form and substance.
In a motion to dismiss for failure to state a cause of action, the focus is on
the sufficiency, not the veracity, of the material allegations. The
determination is confined to the four corners of the complaint and nowhere
else. The test of the sufficiency of the facts alleged in the complaint is
whether or not, admitting the facts alleged, the court could render a valid
judgment upon the same in accordance with the prayer of the complaint.
Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture
provides:
Sec. 4. Contents of the petition for civil forfeiture. - The petition for
civil forfeiture shall be verified and contain the following allegations:
(a) The name and address of the respondent;
(b) A description with reasonable particularity of the monetary
instrument, property, or proceeds, and their location; and
(c) The acts or omissions prohibited by and the specific provisions of
the Anti-Money Laundering Act, as amended, which are alleged to
be the grounds relied upon for the forfeiture of the monetary
instrument, property, or proceeds; and
(d) The reliefs prayed for.
Here, the verified complaint of the Republic contained the following
allegations:
(a) the name and address of the primary defendant therein,
Glasgow;
(b) a description of the proceeds of Glasgows unlawful activities
with particularity, as well as the location thereof, account no. CA005-10-000121-5 in the amount of P21,301,430.28 maintained with
CSBI;
(c) the acts prohibited by and the specific provisions of RA 9160, as
amended, constituting the grounds for the forfeiture of the said
proceeds. In particular, suspicious transaction reports showed that
Glasgow engaged in unlawful activities of estafa and violation of the
Securities Regulation Code (under Section 3(i)(9) and (13), RA
9160, as amended); the proceeds of the unlawful activities were
transacted and deposited with CSBI in account no. CA-005-10000121-5 thereby making them appear to have originated from
legitimate sources; as such, Glasgow engaged in money laundering
(under Section 4, RA 9160, as amended); and the AMLC subjected
the account to freeze order and

(d) the reliefs prayed for, namely, the issuance of a TRO or writ of
preliminary injunction and the forfeiture of the account in favor of
the government as well as other reliefs just and equitable under the
premises.
The form and substance of the Republics complaint substantially conformed
with Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture.
In relation thereto, Rule 12.2 of the Revised Implementing Rules and
Regulations of RA 9160 states the following:
RULE 12
Forfeiture Provisions
xxx xxx xxx
Rule 12.2. When Civil Forfeiture May be Applied. When there is a
SUSPICIOUS TRANSACTION REPORT OR A COVERED TRANSACTION
REPORT DEEMED SUSPICIOUS AFTER INVESTIGATION BY THE
AMLC, and the court has, in a petition filed for the purpose, ordered
the seizure of any monetary instrument or property, in whole or in
part, directly or indirectly, related to said report, the Revised Rules
of Court on civil forfeiture shall apply.
RA 9160, as amended, and its implementing rules and regulations lay down
two conditions when applying for civil forfeiture:
(1) when there is a suspicious transaction report or a covered transaction
report deemed suspicious after investigation by the AMLC (Anti-Money
Laundering Council)
(2) the court has, in a petition filed for the purpose, ordered the seizure of
any monetary instrument or property, in whole or in part, directly or
indirectly, related to said report.
Since account of Glasgow in CSB was (1) covered by several suspicious
transaction reports and (2) placed under the control of the trial court upon
the issuance of the writ of preliminary injunction, the conditions provided in
RA 9160 were satisfied. Hence, the Republic, represented by the AMCL,
properly instituted the complaint for civil forfeiture.
Whether or not there is truth in the allegation that account of Glasgow
contains the proceeds of unlawful activities is an evidentiary matter that
may be proven during trial. The complaint, however, did not even have to
show or allege that Glasgow had been implicated in a conviction for, or the
commission of, the unlawful activities of estafa and violation of the
Securities Regulation Code.
A criminal conviction for an unlawful activity is not a prerequisite for the
institution of a civil forfeiture proceeding. Stated otherwise, a finding of guilt
for an unlawful activity is not an essential element of civil forfeiture. Thus,
NOTES
129
regardless of the absence, pendency or outcome of a criminal prosecution

for the unlawful activity or for money laundering, an action for civil
forfeiture may be separately and independently prosecuted and resolved.
(3) NO, there was no failure to prosecute on the part of the Republic.
Immediately after the complaint was filed, the trial court ordered the
process server to serve summons to Glasgow. The subpoena to Glasgow
was, however, returned unserved as Glasgow "could no longer be found at
its given address" and had moved out of the building. Republic then filed a
motion for issuance of alias summons and leave of court to serve summons
by publication. The court archived the case for failure to cause service of
alias summons, still, the Republic motioned the case to be reinstated.
Meanwhile, the Republic continued to exert efforts to obtain information
from other government agencies on the whereabouts or current status of
respondent Glasgow. Its efforts, however, proved futile. The alias summons
was again unserved. It was then that Glasgow filed the motion to dismiss.
Given these circumstances, how could the Republic be faulted for failure to
prosecute the complaint for civil forfeiture? While there was admittedly a
delay in the proceeding, it could not be entirely or primarily ascribed to the
Republic. That Glasgows whereabouts could not be ascertained was not only
beyond the Republics control, it was also attributable to Glasgow which left
its principal office address without informing the Securities and Exchange
Commission or any official regulatory body of its new address. Moreover, as
early as October 8, 2003, the Republic was already seeking leave of court to
serve summons by publication.
ADDINTIONAL RULING: the service of summons may be made by
publication in cases of civil forfeiture as they are proceedings in rem. The
Rules of Procedure in Cases of Civil Forfeiture also allows summons by
publication in cases where the whereabouts of the owner are unknown and
cannot be ascertained by diligent inquiry.
12. Freezing of Accounts
SEC. 10, AMLA: Authority to Freeze. - Upon determination that
probable cause .exists that any deposit or similar account is in any way
related to an unlawful activity, the AMLC may issue a freeze order,
which shall be effective immediately, on the account for a period not
exceeding fifteen (15) days. Notice to the depositor that his account has
been frozen shall be issued simultaneously with the issuance of the
freeze order. The depositor shall have seventy-two (72) hours upon
receipt of the notice to explain why the freeze order should be lifted.
The AMLC has seventy-two (72) hours to dispose of the depositor's
explanation. If it fails to act within seventy-two (72) hours from receipt
of the depositors explanation, the freeze order shall automatically be
dissolved. The fifteen (15)-day freeze order of the AMLC may be
extended upon order of the court, provided that the fifteen (15)-day

period shall be tolled pending the court's decision to extend the period.
No court shall issue a temporary restraining order or writ of injunction
against any freeze order issued by the AMLC except the Court of
Appeals or the Supreme Court.
Cases
Republic v. Eugenio
FACTS
case).
NOTES
130

ISSUE
RULING
YES . Under this section, the AMLC may file an application ex parte, with
the CA, and upon determination of probable cause, they may issue a freeze
order effective immediately. This is to prevent funds that is related to any
money-laundering from being misused while the case is being tried. It is ex
parte because the fact of freezing the account must be kept secret from the
owner, else the funds may just be moved elsewhere before the freeze order
may be issued.
Since the application of AMLC has nothing to do with any of the provided
enumerations under Section 11, it must prove that there is probable cause
with the case, in order to inquire into the bank accounts. Probable cause
may only be decided by the courts (Art III, Sec 2 of Constitution). Section
10 contains the application for ex parte, but it is connected to freezing of
accounts. This must be done ex parte, since notifying the accused my cause
him to disburse the account before the order freezing the account is issued.
Section 11 does not contain the application for ex parte, for the fact that
there is nothing wrong with the accused knowing that his accounts are being
checked. It is immaterial for the accused to know that his accounts are
being checked, since he cannot hide the bank records to prove that the
accounts are linked to the crime imputed against him. Hence, using the ex
parte application found in section 10 in inquiring into bank accounts (section
11) may be stayed with injunction.
13. Examination of Accounts

SEC. 11, AMLA: 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 involved are in any way related to a money laundering
offense: Provided, That this provision shall not apply to deposits and
investments made prior to the effectivity of this Act.
14. AMLC; Composition and Powers

SEC. 7, AMLA: Creation of Anti-Money Laundering Council
(AMLC). The Anti-Money Laundering Council is hereby created and
shall be composed of the Governor of the Bangko Sentral ng Pilipinas as

chairman, the Commissioner of the Insurance Commission and the
Chairman of the Securities and Exchange Commission as members. The
AMLC shall act unanimously in the discharge of its functions as defined
hereunder:
1.
to require and receive covered transaction reports from covered

institutions;
2.
to issue orders addressed to the appropriate Supervising Authority

or the covered institution to determine the true identity of the owner
of any monetary instrument or property subject of a covered
transaction report or request for assistance from a foreign State, or
believed by the Council, on the basis of substantial evidence to be in
whole or in part, wherever located, representing, involving. or
related to, directly or indirectly, in any manner or by any means. the
proceeds of an unlawful activity;
3.
to institute civil forfeiture proceedings and all other remedial

proceedings through the Office of the Solicitor General;
4.
to cause the filing of complaints with the Department of Justice or

the Ombudsman for the prosecution of money laundering offenses;
5.
to initiate investigations of covered transactions, money laundering

activities and other violations of this Act;
6.
to freeze any monetary instrument or property alleged to be

proceed of any unlawful activity;
7.
to implement such measures as may be necessary and justified

under this Act to counteract money laundering;
to receive and take action in respect of, any request from foreign
states for assistance in their own anti-money laundering operations
provided in this Act;
8.
9.
to develop educational programs on the pernicious effects of money

laundering, the methods and techniques used in money laundering,
the viable means of preventing money laundering and the effective
ways of prosecuting and punishing offenders; and
10. to enlist the assistance of any branch, department, bureau, office,

agency or instrumentality of the government, including governmentowned and -controlled corporations, in undertaking any and all antimoney laundering operations, which may include the use of its
personnel, facilities and resources for the more resolute prevention,
detection and investigation of money laundering offenses and
prosecution of offenders.
NOTES
131
15. Mutual Assistance among States

SEC. 13, AMLA: Mutual Assistance among States.
1. Request for assistance from a Foreign State. - Where a foreign State
makes a request for assistance in the investigation or prosecution of
a money laundering offense, the AMLC may execute the request or
refuse to execute the same and inform the foreign State of any valid
reason for not executing the request or for delaying the execution
thereof. The principles of mutuality and reciprocity shall, for this
purpose, be at all times recognized.
2.
Power of the AMLC to Act on a Request for Assistance from a

Foreign State. - The AMLC may execute a request for assistance
from a foreign State by: (1) tracking down, freezing, restraining and
seizing assets alleged to be proceeds of any unlawful activity under
the procedures laid down in this Act; (2) giving information needed
by the foreign State within the procedures laid down in this Act; and
(3) applying for an order of forfeiture of any monetary instrument or
property in the court: Provided, That the court shall not issue such
an order unless the application is accompanied by an authenticated
p copy of the order of a court in the requesting State ordering the
forfeiture of said monetary instrument or property of a person who
has been convicted of a money laundering offense in the requesting
State, and a certification of an affidavit of a competent officer of the
requesting State stating that the conviction and the order of
forfeiture are final and then no further appeal lies in respect or
either.
3.
Obtaining Assistance from Foreign States. -The AMLC may make a

request to any foreign State for assistance in (1) tracking down,
freezing, restraining and seizing assets alleged to be proceeds of
any unlawful activity; (2) obtaining information that it needs relating
to any covered transaction, money laundering offense or any other
matter directly or indirectly, related thereto; (3) to the extent
allowed by the law of the Foreign State, applying with the proper
court therein for an order to enter any premises belonging to or in
the possession or control of, any or all of the persons named in said
request, and/or search any or all such persons named therein
and/or remove any document, material or object named in said
request: Provided, That the documents accompanying the request in
support of the application have been duly authenticated in
accordance with the applicable jaw or regulation of the foreign
State; and (4) applying for an order of forfeiture of any monetary
instrument or property in the proper court in the foreign State:
Provided, That the request is accompanied by an authenticated copy
of the order of the regional trial court ordering the forfeiture of said
monetary instrument or property of a convicted offender and an
affidavit of the clerk of court stating that the conviction and the

order of forfeiture are final and that no further appeal lies in respect
of either.
4.
5.
6.
7.
Limitations on Request for Mutual Assistance. The AMLC may

refuse to comply with any request for assistance where the action
sought by the request contravenes any provision of the Constitution
or the execution of a request is likely to prejudice the national
interest of the Philippines unless therein is a treaty between the
Philippines and the requesting State relating to the provision of
assistance in relation to money laundering offenses.
Requirements for Requests for Mutual Assistance from Foreign
States. - A request for mutual assistance from a foreign State must
(1) confirm that an investigation or prosecution is being conducted
in respect of a money launderer named therein or that he has been
convicted of any money laundering offense; (2) state the grounds
on which any person is being investigated or prosecuted for money
laundering or the details of his conviction; (3) gives sufficient
particulars as to the identity of said person; (4) give particulars
sufficient to identify any covered institution believed to have any
information, document, material or object which may be of
assistance to the investigation or prosecution; (5) ask from the
covered institution concerned any information, document, material
or object which may be of assistance to the investigation or
prosecution; (6) specify the manner in which and to whom said
information, document, material or object detained pursuant to said
request, is to be produced; (7) give all the particulars necessary for
the issuance by the court in the requested State of the writs, orders
or processes needed by the requesting State; and (8) contain such
other information as may assist in the execution of the request.
Authentication of Documents. - For purposes of this Section, a
document is authenticated if the same is signed or certified by a
judge, magistrate or equivalent officer in or of, the requesting State,
and authenticated by the oath or affirmation of a witness or sealed
with an official or public seal of a minister, secretary of State, or
officer in or of, the government of the requesting State, or of the
person administering the government or a department of the
requesting territory, protectorate or colony. The certificate of
authentication may also be made by a secretary of the embassy or
legation, consul general, consul, vice consul, consular agent or any
officer in the foreign service of the Philippines stationed in the
foreign State in which the record is kept, and authenticated by the
seal of his office.
Extradition. -The Philippines shall negotiate for the inclusion of
money laundering offenses as herein defined among extraditable
offenses in all future treaties.
NOTES
132
IV. LOAN FUNCTION

A. Basic Concepts
1.
Grant, Purpose and Requirement of Loans

a.
Grant of Loans
SEC. 39, GBL: 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.
b.
Purpose of Loans
SEC. 39, GBL: 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.
c.
Requirement of Loans
SEC. 40, GBL: 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 the
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 micro financing, such as cash flow-based lending to the
basic sectors that are not covered by traditional collateral.

Cases
United Coconut Planters Bank v Ramos, 415 SCRA 596 (2003)
FACTS
UCPB granted a P2.8M loan to Zamboanga Development Corp. (ZDC) with
VIvencio Ramos and the Spouses Teofilo Ramos, Sr. and Amelita Ramos as
sureties. Teofilo Ramos Sr. was the Executive officer of Iglesia ni Kristo.
ZDC defaulted on its obligation. UCPB filed a collection suit and obtained a
favorable judgment. A writ of execution was issued for the enforcement of
the decision ordering Sheriff Villapana to levy and attach all the real and
personal properties belonging to ZDC and the Ramoses to satisfy the
judgment.
To help the Sheriff implement the writ, UCPB through its employees
ascertained if defendants (ZDC et al) had any leviable real and personal
property. UCPB produced a copy of a Tax Declaration covering a property in
Quezon City under the name of Teofilo C. Ramos, President and Chairman of
Ramdustrial Corp. married to Rebecca E. Ramos. UCPB informed the Sheriff
of the existence of such property and caused the annotation of a notice of
levy on the title thereof.
Meanwhile, Ramdustrial Corporation applied for a loan with UCPBusing the
same property as collateral. Ramdustrial intended to use the proceeds of the
loan as additional capital to participate in a bidding project. Teofilo C.
Ramos was informed that there was an annotation on said property,
because of which the bank had to hold in abeyance any action on its loan
application. Teofilo C. Ramos was of course surprised. He sent a letter to the
Sheriff to have the annotation cancelled or else appropriate legal action will
be taken.
The loan was eventually approved. Business was not good so Teofilo C.
Ramos and Rebecca Ramos again applied for a loan with Planters Devt Bank
to pay their obligations with UCPB. Again they encountered problems with
the approval of the loan due to the annotation on their property which until
now has not been cancelled. Spouses Ramos again demanded UCPB to have
the annotation cancelled. UCPB told the spouses to file a motion to cancel
said annotation and UCPB promised that the will not oppose. The annotation
was eventually cancelled. Still spouses Ramos filed an action for damages
against UCPB.
ISSUES
(1) Whether the petitioner acted negligently in causing the annotation of
levy on the title of the respondent? YES.
(2) Whether the respondent was the real party-in-interest as plaintiff to file
an action for damages against the petitioner considering that the loan
applicant with UCPB and PDB was RAMDUSTRIAL CORPORATION? YES.
NOTES
133
(3) Whether the respondent is entitled to damages? YES.

HELD
(1) It bears stressing that the petitioner is a banking corporation, a financial
institution with power to issue its promissory notes intended to circulate as
money (known as bank notes); or to receive the money of others on general
deposit, to form a joint fund that shall be used by the institution for its own
benefit, for one or more of the purposes of making temporary loans and
discounts, of dealing in notes, foreign and domestic bills of exchange, coin
bullion, credits, and the remission of money; or with both these powers, and
with the privileges, in addition to these basic powers, of receiving special
deposits, and making collection for the holders of negotiable paper, if the
institution sees fit to engage in such business.[25] In funding these
businesses, the bank invests the money that it holds in trust of its
depositors. For this reason, we have held that the business of a bank is one
affected with public interest, for which reason the bank should guard against
loss due to negligence or bad faith.[26] In approving the loan of an
applicant, the bank concerns itself with proper informations regarding its
debtors. The petitioner, as a bank and a financial institution engaged in the
grant of loans, is expected to ascertain and verify the identities of the
persons it transacts business with.[27] In this case, the petitioner knew that
the sureties to the loan granted to ZDC and the defendants in Civil Case No.
94-1822 were the Spouses Teofilo Ramos, Sr. and Amelita Ramos. The
names of the Spouses Teofilo Ramos, Sr. and Amelita Ramos were specified
in the writ of execution issued by the trial court.
The petitioner has access to more facilities in confirming the identity of their
judgment debtors. It should have acted more cautiously, especially since
some uncertainty had been reported by the appraiser whom the petitioner
had tasked to make verifications. It appears that the petitioner treated the
uncertainty raised by appraiser Eduardo C. Reniva as a flimsy matter. It
placed more importance on the information regarding the marketability and
market value of the property, utterly disregarding the identity of the
registered owner thereof.
(2) It must be underscored that the registered owner of the property which
was unlawfully levied by the petitioner is the respondent. As owner of the
property, the respondent has the right to enjoy, encumber and dispose of
his property without other limitations than those established by law. The
owner also has a right of action against the holder and possessor of the
thing in order to recover it.[32] Necessarily, upon the annotation of the
notice of levy on the TCT, his right to use, encumber and dispose of his
property was diminished, if not negated. He could no longer mortgage the
same or use it as collateral for a loan.
Arising from his right of ownership over the said property is a cause of
action against persons or parties who have disturbed his rights as an

owner.[33] As an owner, he is one who would be benefited or injured by the
judgment, or who is entitled to the avails of the suit[34] for an action for
damages against one who disturbed his right of ownership.
Hence, regardless of the fact that the respondent was not the loan applicant
with the UCPB and PDB, as the registered owner of the property whose
ownership had been unlawfully disturbed and limited by the unlawful
annotation of notice of levy on his TCT, the respondent had the legal
standing to file the said action for damages. In both instances, the
respondents property was used as collateral of the loans applied for by
Ramdustrial Corporation. Moreover, the respondent, together with his wife,
was a surety of the aforesaid loans.
While it is true that the loss of business opportunities cannot be used as a
reason for an action for damages arising from loss of business opportunities
caused by the negligent act of the petitioner, the respondent, as a
registered owner whose right of ownership had been disturbed and limited,
clearly has the legal personality and cause of action to file an action for
damages. Not even the respondents failure to have the annotation
cancelled immediately after he came to know of the said wrongful levy
negates his cause of action.
(3) For the award of moral damages to be granted, the following must exist:
(1) there must be an injury clearly sustained by the claimant, whether
physical, mental or psychological;
(2) there must be a culpable act or omission factually established;
(3) the wrongful act or omission of the defendant is the proximate cause
of the injury sustained by the claimant; and
(4) the award for damages is predicated on any of the cases stated in
Article 2219 of the Civil Code.[35]
In the case at bar, although the respondent was not the loan applicant and
the business opportunities lost were those of Ramdustrial Corporation, all
four requisites were established. First, the respondent sustained injuries in
that his physical health and cardio-vascular ailment were aggravated; his
fear that his one and only property would be foreclosed, hounded him
endlessly; and his reputation as mortgagor had been tarnished. Second,
the annotation of notice of levy on the TCT of the private respondent was
wrongful, arising as it did from the petitioners negligent act of allowing the
levy without verifying the identity of its judgment debtor. Third, such
wrongful levy was the proximate cause of the respondents misery. Fourth,
the award for damages is predicated on Article 2219 of the Civil Code,
particularly, number 10 thereof
Liable for Attorneys fees but no exemplary damages.
NOTES
134
Banco De Oro-EPCI Inc v JAPRL Development Corporation, 551 SCRA

342 (2008)
FACTS
JPRL obtained a P230M loan from Banco de Oro but soon after defaulted on
its obligations. It was later discovered that the loan was obtained by JPRL by
fraudulently bloating its sales revenue. Upon knowing of this fraud, BDO
demanded immediate payment of JPRLs outstanding obligations.
Banco de Oro tried to attach the properties of JPRL but was unsuccessful in
all its attempt since no proper officer of JPRL could be found and served with
summonses.
Meanwhile, JPRL filed two applications for corporate rehabilitation. The first
was denied while the second was granted. By virtue of the granted
rehabilitation, all proceedings against JPRL. Banco de Oro appealed the
case alleging that JPRL maliciously evaded the service of summonses to
prevent the court from acquiring jurisdiction. Furthermore, they employed
bad faith to delay proceedings by cunningly exploiting procedural
technicalities to avoid payment of their obligation.
ISSUES
Whether there was malice and bad faith on the part of JPRL by avoiding
service of summons? Whether the court acquired jurisdiction even of the
summons were served only to administrative officers of JPRL and not to the
officers enumerated in the Corp Code?
HELD
The Makati RTC may proceed to hear Civil Case No. 03-991 only against
Arollado if there is no ground to go after JAPRL and RFC (as will later be
discussed). A creditor can demand payment from the surety solidarily liable
with the corporation seeking rehabilitation.
Respondents abused procedural technicalities (albeit unsuccessfully) for the
sole purpose of preventing, or at least delaying, the collection of their
legitimate obligations. Their reprehensible scheme impeded the speedy
dispensation of justice. More importantly, however, considering the amount
involved, respondents utterly disregarded the significance of a stable and
efficient banking system to the national economy.
Banks are entities engaged in the lending of funds obtained through
deposits[45] from the public.[46] They borrow the public's excess money
(i.e., deposits) and lend out the same.[47] Banks therefore redistribute
wealth in the economy by channeling idle savings to profitable investments.
Banks operate (and earn income) by extending credit facilities financed
primarily by deposits from the public.[48] They plough back the bulk of said
deposits into the economy in the form of loans.[49] Since banks deal with

the public's money, their viability depends largely on their ability to return
those deposits on demand. For this reason, banking is undeniably imbued
with public interest. Consequently, much importance is given to sound
lending practices and good corporate governance.
Protecting the integrity of the banking system has become, by large, the
responsibility of banks. The role of the public, particularly individual
borrowers, has not been emphasized. Nevertheless, we are not unaware of
the rampant and unscrupulous practice of obtaining loans without intending
to pay the same.
NOTES
135
cash flow-based lending to the basic sectors that are not covered by
traditional collateral. (emphasis supplied)
Under this provision, 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. Petitioner would then be entitled to
the immediate payment of P194,493,388.98 and other appropriate
damages.
2.
In this case, petitioner alleged that JAPRL fraudulently altered and falsified
its financial statements in order to obtain its credit facilities. Considering the
amount of petitioner's exposure in JAPRL, justice and fairness dictate that
the Makati RTC hear whether or not respondents indeed committed fraud in
securing the credit accomodation.
Prohibited Transactions
SEC. 55.1 (C): No director, officer, employee, or agent of any bank
shall
(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;
A finding of fraud will change the whole picture. In this event, petitioner can
use the finding of fraud to move for the dismissal of the rehabilitation case
in the Calamba RTC.
SEC. 55.1 (D): Overvalue or aid in overvaluing any security for the
purpose of influencing in any way the actions of the bank or any
bank;
The protective remedy of rehabilitation was never intended to be a refuge of

a debtor guilty of fraud.
SEC. 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;
Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991
against the three respondents guided by Section 40 of the General Banking
Law which states:
(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;
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.
Towards 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 the 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 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 the rules and regulations under this Section, the Monetary
Board shall recognize the peculiar characteristics of microfinancing, such as
(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.
3.
MB Regulation
a. Unsecured Loans
SEC. 41, GBL: 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.

b.
Other Security Requirements

SEC. 42, GBL: 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.
SEC. 106, NCBA: 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.
c.
d.
e.
NOTES
Terms and Conditions

SEC. 43, GBL: 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, 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.
Renewal or Extension
SEC. 48, GBL: 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.
Provisions for Losses and Write-Offs
SEC. 49, GBL: 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
136
Monetary Board, unless the same are welt-secured and in

the process of collection shall be considered bad debts
within the meaning of this Section.
The Monetary Board may fix, by regulation or by order in a
specific case, the amount of reserves for bad debts or
doubtful accounts or other contingencies.
Writing off of loans, other credit accommodations, advances
and other assets shall be subject to regulations issued by
the Monetary Board.
4.
Development Assistance Incentives

SEC. 46, GBL: 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 lowcost housing, local government units and other activities with social
content.
5.
Disclosure Requirements
SEC. 2, RA 3765: 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.
SEC. 4, RA 3765: 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:
(5) The cash price or delivered price of the property or service to
be acquired;
(6) The amounts, if any, to be credited as down payment and/or
trade-in;
(7) The difference between the amounts set forth under clauses
(1) and (2);
(8) 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;
(9) The total amount to be financed;

(10) The finance charge expressed in terms of pesos and
centavos; and
(11) 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.
SEC. 6, RA 3765: (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 charged 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 transactions.
(c) Any person who willfully violates any provision of this Act or any
regulation issued thereunder shall be fined by not less than P1,00 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 willfully 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 respecting which said
judgment would be an estoppel as between the parties thereto.
NOTES
137
Cases
New Sampaguita Builders Construction, Inc. v PNB, 435 SCRA 565
(2004)
FACTS
NSBC obtained a loan with PNB in an aggregate amount of P8M, using or
mortgaging the real estate properties registered in the name of its Pres. Mr.
Dee as collateral. Spouses Dee were authorized to secure the loan and to
sign any document which may be required by PNB. Further, the spouses
shall act as sureties or co- obligors who shall be solidarily liable with NSBC
for the payment of any of the obligations.
Upon request of PNB, the P8M loan was broken down into a revolving credit
line of P7.7M and an unadvised line of P0.3M for additional operating and
working capital to mobilize its various construction projects.
The loan was secured by a first mortgage on several parcels of residential
land owned by the spouses Dee. It was further secured by the joint and
several signatures of spouses Dee, who signed as accommodationmortgagors since all the collaterals were owned by them.
NSBC also executed 3 promissory notes (PNs) as follows: 1) in the amount
of P5M (issued on June 29, 1989 and to mature on: Oct. 27); 2) P2.7M with
due date on Dec.30; 3) in the amount of P300k (issued on Sept 6, 1989,
with due date on Jan. 4, 1990). NSBC also signed 2 Credit Agreements.
Then, spouses Dee also executed a Joint and Solidary Agreement (JSA) in
favor of PNB.
Later on, NSBC failed to pay their obligations under the PNs. Mr. Dee asked
for an extension for the payment of interests and the restructuring of its
loan. Petitioners tried to pay but there are still unpaid obligations.
PNB accepted Mr. Dees proposal to remit to the bank post-dated checks
covering interests, penalties and part of the principals of his due account,
provided however, that the total payment should be P4M++ which would
cover the amount of P1M++ as principal, and P3M++ as interests and
penalties! Mr. Dee reiterated his proposal for the settlement of NSBCs past
due loan account (P7M++). Then, Mr. Dee tendered 4 post-dated checks
aggregating to P1M++. However, 2 of those checks were dishonored and
returned due to a stop payment order from petitioners.
PNB demanded for NSBC to fulfill its obligation. But petitioners still failed to
pay their loan obligations, so to make the story shorter, petitioners
properties were extrajudicially foreclosed and sold at public auction
(P10M++) to PNB. Petitioners failed to redeem the properties within 1 year.
However, the proceeds of the sale were not sufficient to cover PNBs total
claim (12M++) and thus demanded from petitioners the deficiency of

P2M++ plus interest and other charges, until the amount was fully paid.
Petitioners refused to pay the same.
NOTES
B. Terms and Conditions
1.
CA RULING: The increases in the interest rates on NSBCIs loan were also
held to be authorized by law and the Monetary Board and -- like the
increases in penalty rates -- voluntarily and freely agreed upon by the
parties in the Credit Agreements they executed. Thus, these increases were
binding upon petitioners. However, after considering that two to three of
Petitioner NSBCIs projects covered by the loan were affected by the
economic slowdown in the areas near the military bases in the cities of
Angeles and Olongapo, the appellate court annulled and deleted the
adjustment in penalty from 6 percent to 36 percent per annum. The
attorneys fees were also reduced by the appellate court from 10 percent to
1 percent of the total indebtedness. Respondent was also declared to have
the unquestioned right to foreclose the Real Estate Mortgage. It was allowed
to recover any deficiency in the mortgage account not realized in the
foreclosure sale, since petitioner- spouses had agreed to be solidarily liable
for all sums due and payable to respondent. Finally, the appellate court
concluded that the extrajudicial foreclosure proceedings and auction sale
were valid
ISSUES
1. W/N the loan accounts were bloated accounts YES.
2. W/N the foreclosure and the subsequent claim for deficiency are valid and
proper NO.
Petitioners accessory duty to pay interest did not give PNB unrestrained
freedom to charge any rate other than that which was agreed upon. No
interest shall be due, unless expressly stipulated in writing. The unilateral
determination and imposition of increased rates is violative of the principle
of mutuality of contracts.
Amortization
SEC. 44, GBL: 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.
In case of loans and other credit accommodations to micro finance
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.
2.
Pre-Payment
SEC. 45, GBL: 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 upon between
the bank and its borrower.
3.
Interest
ART. 1956, NCC: No interest shall be due unless it has been
expressly stipulated in writing.
HELD
1. YES. Petitioner NSBCs loan accounts with PNB appear to be bloated with
some iniquitous imposition of interests, penalties, other charges and
attorneys fees. The Court primarily held that the increases in interest are
baseless.
The 3 PNs issued specified the interest rate to be charged: 19.5% in the
first, and 21.5 in the second and third. However, a uniform clause therein
permitted PNB to increase the rate within the limits allowed by law at any
time depending on whatever policy it may adopt in the future without even
giving prior notice to petitioners.
138
a. No Ceiling
Cases
Bulos Jr v Yasuma, 527 SCRA 727 (2007)
FACTS
The original loan obtained by the petitioner, together with Dr. Lim and Atty.
Tabalingcos, from the respondent amounted to P2,500,000.00 with 4%
interest for three months, or from 11 October 1988 up to 10 January 1989,
and in case of extension of the loan, the interest of 5% per month will be
imposed. The obligation of the petitioner, Dr. Lim and Atty. Tabalingcos was
joint and solidary. Petitioner failed to pay the loan by 10 January 1989;
thus, from 11 October 1988 up to February 1989, the loan obligation,

including interest, reached a total amount of P2,700,000.00. Petitioner
made a partial payment via a dacion en pago, amounting to P1,630,750.00,
which was deducted from the total loan obligation of P2,700,000.00 leaving
a balance of P1,069,000.00 as of 24 February 1989. By March 1989, the
balance of the loan began earninga 5% interest per month after all the
parties agreed to an increase in the interest rate during the extended
period. Taking into consideration the outstanding loan balance of
P1,069,000.00, plus interest, and minus a discount granted by respondent,
the amount still due respondent was determined by the parties to be
P2,240,000.00. And to pay the remaining indebtedness, Atty. Tabalingcos
issued a check covering the amount but it was dishonored, therefore, the
indebtedness remains at P2,240,000.00.
NOTES
interest rate agreed upon by parties does not violate the Usury Law, as
amended by P.D. 116. The Court has consistently held that for sometime
now, usury has been legally non-inexistent and that interest can now be
charged as lender and borrower may agree upon.
Petitioners also cannot find refuge in Medel. In this case, what this Court
declared as unconscionable was the imposition of a 66% interest rate per
annum. In the instant case, the interest rate is only 24% per annum,
agreed upon by both parties. By no means can it be considered
unconscionable or excessive.
b.
In the absence of stipulation

SEC. X305.1, MRB: Rate of interest in the absence of
stipulation. The rate of interest for the loan or forbearance
of any money, goods or credits and the rate allowed in
judgments, in the absence of expressed contract as to such
rate of interest, shall be twelve percent (12%) per annum.
c.
Escalation Clause, when allowable

ART. 1308, NCC: The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of
one of them.
ISSUE
Whether or not the imposed interest (4% per month imposed originally by
the bank and the lowered rate of 21% p.a. imposed by the RTC) has legal
and factual basis.
RULING
NO, the interest is highly unconscionable and inordinate. The agreed
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, that
is, 7 April 1990.The aforequoted paragraph 3 of the guidelines is also
appropriate herein, and a 12% interest per annum is imposed on petitioners
monetary liability to respondent.
Bacolor v Bangko Filipino Savings and Mortgage Bank, 515 SCRA 79
(2007)
FACTS
On February 11, 1982, spouses Zacarias and Catherine Bacolor, herein
petitioners, obtained a loan of P244,000.00 from Banco Filipino Savings and
Mortgage Bank, Dagupan City Branch, respondent. They executed a
promissory note providing that the amount shall be payable within a period
of ten (10) years with a monthly amortization of P5,380.00 beginning March
11, 1982 and every 11th day of the month thereafter; that the interest rate
shall be twenty-four percent (24%) per annum. From March 11, 1982 to
July 10, 1991, petitioners paid respondent bank P412, 199.36. Thereafter,
they failed to pay the remaining balance of the loan.
ISSUE
Whether or not the interest of 24% p.a. imposed is legal?
RULING
In the present case, the term of the subject loan is for a period of 10 years.
Considering that its maturity is more than 730 days, the interest rate is not
subject to any ceiling following the above provision. Therefore, the 24%
139
SEC. X305.2, MRB: Escalation clause; when allowable.

Parties to an agreement pertaining to a loan or forbearance
of money, goods or credits may stipulate that the rate of
interest agreed upon may be increased in the event that the
applicable maximum rate of interest is increased by the
Monetary Board: Provided, That such stipulation shall be
valid only if there is also a stipulation in the agreement that
the rate of interest agreed upon shall be reduced in the
event that the applicable maximum rate of interest is
reduced by law or by the Monetary Board: Provided, further,
That the adjustment in the rate of interest agreed upon shall
take effect on or after the effectivity of the increase or
decrease in the maximum rate of interest.
Cases
PNB v CA, 196 SCRA 536 (1991)
FACTS
Ambrosio Padilla applied for and was granted a by PNB a credit line of
P1.8M, secured by a real estate mortgage, for a term of two years with 18%
interest per annum.
The Real Estate Mortgage Contract provided that:
(k) INCREASE OF INTEREST RATE

The rate of interest charged on the obligation secured by this
mortgage as well as the interest on the amount which may have
been advanced by the MORTGAGEE, in accordance with the
provisions hereof, shall be subject during the life of this contract to
such an increase within the rate allowed by law, as the Board of
Directors of the MORTGAGEE may prescribe for its debtors.
August 10, 1984 the Bank unilaterally increased the interest rate from 18%
to 32%. On September 12, 1984 the interest rate was again adjusted from
32% to 41%. On October 1984 it was again increased to 48%.
ISSUE
Whether or not the increase of interest from 18% to 48% is valid.
RULING
NO. The interest is exorbitant and highly unconscionable. PNBs successive
increases of the interest rate on Ambrosios loan, over the latters protest,
were arbitrary as they violated an express provision of the Credit Agreement
that by its terms may be amended only by an instrument in writing signed
by the party to be bound as burdened by such amendment. The increases
imposed by PNB also contravene ART. 1956 of the Civil Code which provides
that no interest shall be sue unless it has been expressly stipulated in
writing.
The debtor herein never agreed in writing to pay the interest increases fixed
by the PNB beyond 24% p.a., hence, he is not bound to pay a higher rate
than that.
That an increase in the interest rate from 18% to 48% within a period of
four months is excessive.
New Sampaguita Builders Construction Inc v PNB, 435 SCRA 565
(2004)supra
d.
Floating rates of interest

SEC. X305.3, MRB: Floating rates of interest. The rate of
interest on a floating rate loan during each interest period
shall be stated on the basis of Manila Reference Rates
(MRRs), T- Bill Rates (TBRs) or other market based
reference rates plus a margin as may be agreed upon by the
parties.
The MRRs for various interest periods shall be determined
and announced by the BSP every week and shall be based
on the weighted average of the interest rates paid during
the immediately preceding week by the ten (10) commercial
banks with the highest combined levels of outstanding
NOTES
140
deposit substitutes and time deposits, on promissory notes

issued and time deposits received by such banks, of
P100,000 and over per transaction account, with maturities
corresponding to the interest periods for which such MRRs
are being determined. Such rates and the composition of the
sample commercial banks shall be reviewed and determined
at the beginning of every calendar semester on the basis of
the banks' combined levels of outstanding deposit
substitutes and time deposits as of May 31 or November 30,
as the case may be.
The rate of interest on floating rate loans existing and
outstanding as of December 23, 1995 shall continue to be
determined on the basis of the MRRs obtained in accordance
with the provisions of the rules existing as of January 1,
1989: Provided, however, That the parties to such existing
floating rate loan agreements are not precluded from
amending or modifying their loan agreements by adopting a
floating rate of interest determined on the basis of the TBR
or other market based reference rates.
Where the loan agreement provides for a floating interest
rate, the interest period, which shall be such period of time
for which the rate of interest is fixed, shall be such period as
may be agreed upon by the parties.
For the purpose of computing the MRRs, banks shall
accomplish the report forms, RS Form 2D and Form 2E (BSP
5-17-34A).
Cases
Consolidated Bank and Trust Corp v CA, 356 SCRA 671 (2001)
FACTS
Continental Cement Corp and Gregory Lim (Both as Respondents)obtained
a Letter of Credit with Consolidated Bank and Trust Corp (CBTC). The Letter
of Credit was used to purchase bunker fuel oil from Petrophil Corp. In
relation to the same transaction, a Trust Receipt was executed by
Continental Cement, with Lim as signatory.
CBTC file a complaint with the RTC, arguing that respondents failed to turn
over the goods covered by the Trust Receipt. In their defense, CCC content
that the transaction was a simple loan and not a trust receipt. RTC
dismissed the complaint by CBTC but granted the counterclaim by
respondents. CA revered the decision. (The disputed transaction had a
provision on interest)
NOTES
141
ISSUE
W/N the floating rate of interest imposed by CBTC is valid.
ordered Equitable to pay moral/exemplary damages to respondents. The CA

dismissed the appeal of Equitable
RULING
NO. The trust agreement provides:
I, WE jointly and severally agree to any increase or decrease in the
interest rate which may occur after July 1, 1981, when the Central
Bank floated the interest rate, and to pay additionally the penalty of
1% per month until the amount/s or installment/s due and unpaid
under the trust receipt on the reverse side hereof is/are fully paid
ISSUE
W/N there was extraordinary deflation.
The stipulation is invalid, having no reference rate set by either by it or by

the Central Bank, essentially leaving the determination thereof to the CBTC.
While it may be acceptable for banks to stipulate interest rates that are
depended upon prevailing market conditions, there should always be a
reference rate upon which to peg such variable interest. An example of such
is given in Polotan v. CA if there occurs any change in the prevailing
market rates, the new interest rate shall be the guiding rate. In this
example, the basis of any increase / decrease is the market rates. In the
present case, there was no basis for any increase / decrease.
*The transaction is a simple loan. It is not a trust receipt as the goods was
received before the trust receipt was executed. (Vic is gay) Thus,
respondents were required to comply with their loan obligation.
4.
Extraordinary Inflation/Deflation
ART. 1250, NCC: 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.
Cases
EPCI Bank v Ng Sheung Ngor, 541 SCRA 223 (2007)
FACTS
Ng Sheung Ngor, Ken Appliance Division and Benjamin Go (Respondents)
filed an annulment/reformation case against Equitable PCI Bank and its
employees. They claim that the Equitable induced them to avail of its PesoDollar credit facilities (evidenced by Promissory Notes) by offering low
interest rates. However, there were not aware that escalation clauses were
also stipulated, thus allowing Equitable to increase interest rates w/o their
consent.
RTC validated the transaction but invalidated the escalation clause.
Nevertheless, it took judicial notice of extraordinary deflation during the
intervening period and ordered to use 1996 Dollar Exchange Rate. It also
RULING
NO. Extraordinary inflation exists when there is an unusual decrease in the
purchasing power of the currency and such decrease could not be
reasonably foreseen or manifestly beyond the contemplation of the parties
at the time of the obligation. Extraordinary Deflation involves an inverse
situation.
For Extraordinary inflation/deflation to affect an obligation, the following
must be present. (1) official declaration by the BSP (2) obligation was
contractual in nature (3) parties expressly agreed to consider the effects of
extraordinary inflation/deflation.
In the present case, BSP never declared a situation of extraordinary
inflation. In addition, the parties did not agree to recognize the effects of
extraordinary inflation. Thus, the rate should be pegged at the simply on
exchange rate fixed by the BSP on the date of maturity.
*the promissory notes are valid because despite being a contract of
adhesion, there was no situation where the dominant party took advantage
of the weakness of the other party.
*Escalation clauses in this case are void as Equitable as unbridled discretion
in determining the rate when the notes are extended, not based by law or
by the Monetary Board. (Again, Vic is gay) Thus, the petitioners were
required to comply with their obligation with 12% legal interest .
5.
Restructuring
SEC. X322, MRB: Restructured Loans; General Policy. Banks shall
have full discretion in the restructuring of loans in order to provide
flexibility in arranging the repayment of such loans without
impairing or endangering the lending banks financial interest,
except in special cases approved by the Monetary Board such as
loans funded by foreign currency obligations. However, the
restructuring of loans granted to DOSRI should be upon terms not
less favorable to the bank than those offered to others. While
agreements on loan restructuring should be considered as
management tools to maintain or improve the soundness of the
banks lending operations, these should be drawn mainly to assist
borrowers towards the settlement of their obligations, taking into
account their capacity to pay.

C. Single Borrowers Limit
1.
Ceilings
SEC. 35.1, GBL: 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.
SEC. 35.2, GBL: 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.
SEC. 24, GBL: 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. .
NOTES
2.
142
What is Included in Ceiling

SEC. 35.3, GBL: 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 endorser, 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.
SEC. 35.4, GBL: 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: .
(e) the parent corporation, partnership, association, entity or
individual guarantees the repayment of the liabilities;
(f)
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
(g) the subsidiaries though separate entities operate merely as

departments or divisions of a single entity.
SEC. 35.6, GBL: 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.
SEC. 35.7, GBL: 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.

3.
Exceptions
SEC. 35.1, GBL: 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.
SEC. 17, RURAL BANKS ACT: Deposits of rural banks with
government-owned or controlled financial institutions like the Land
Bank of the Philippines, the Development Bank of the Philippines,
and the Philippine National Bank are exempted from the Single
Borrower's Limit imposed by the General Banking Act.
In areas where there are no government banks, rural banks may
deposit in private banks more than the amount prescribed by the
Single Borrower's Limit, subject to Monetary Board regulations.
4.
Sanctions
SUBSEC. 303.5, MRB: Sanctions. Violations of the provisions of this
Section shall be subject to the following:
a. Monetary penalties - Fines of onetenth of one percent (1/10 of
1%) of the excess over the ceiling but not to exceed P30,000.00 a
day for each SBL violation shall be assessed on the bank to be
reckoned from the date the excess started up to the date when such
excess was eliminated: Provided, That a maximum fine of P500.00 a
day for each violation shall be imposed against banks with total
resources of less than P50 million at the time of granting of
loan/credit accommodation.
b. Other sanctions
First Offense Reprimand for the directors/officers who approved
the credit availment which resulted in the excess with a warning
that subsequent violations will be subject to more severe sanctions.
Subsequent offenses
(1) Fine of P1,000.00 for directors/ officers who approved the credit
availment which resulted in the excess.
(2) Suspension of the banks branching privileges and access to BSP
rediscounting facilities until the excess is eliminated.
(3) Other penalties as the Monetary Board may impose depending
on the gravity of the offense.
NOTES
143
Transitory provision. Outstanding credit commitments of a bank as

of 2 May 2004 which are within the ceiling prescribed under the
regulations existing prior to said date but will exceed the limitations
prescribed in this Section shall not be subject to penalty for a period
of one (1) year or until said credit commitments become past due or
are extended, renewed or restructured whichever comes later: Said
credit commitments shall, however, be reported to the Bangko
Sentral within fifteen (15) banking days from 2 May 2004.
D. DOSRI Accounts
SEC. 36, GBL: 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, borrow from such bank nor shall he become a
guarantor, endorser or surety for loans from such bank to others, or 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
NOTES
144
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.
board of directors of a bank or who is directly or indirectly the

registered or beneficial owner of more than ten percent (10%) of
any class of its equity security.
The Monetary Board shall define the term related interests.
e. Related interest shall refer to any of the following:

(1) Spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, of a
director, officer or stockholder of the bank;
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.
SEC. 26, NCBA: 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.
1.
Coverage: Persons and Transactions Covered

SEC. X326, MRB: General Policy. Dealings of a bank with any of its
DOSRI should be in the regular course of business and upon terms
not less favorable to the bank than those offered to others.
Definitions. For purposes
definitions shall apply:
of
these
regulations,
the
following
a. Directors shall refer to bank directors as defined in Subsec.

X141.1.
b. Officers shall refer to bank officers as defined in Subsec. X142.1.
c. Stockholder shall refer to any stockholder of record in the books
of the bank, acting personally, or through an attorney-in-fact, or
any other person duly authorized by him. Stockholder shall also
refer to a juridical person such as corporation, association or firm.
d. Substantial stockholder shall mean a person, or group of persons
whether natural or juridical, owning such number of shares that will
allow such person or group to elect at least one (1) member of the
(2) Partnership of which a director, officer, or stockholder of

a bank or his spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, is a
general partner;
(3) Co-owner with the director, officer, stockholder or his
spouse or relative within the first degree of consanguinity or
affinity, or relative by legal adoption, of the property or
interest or right mortgaged, pledged or assigned to secure
the loans or other credit accommodations, except when the
mortgage, pledge or assignment covers only said co-owners
undivided interest;
(4) Corporation, association, or firm of which a director or
officer of the bank, or his spouse is also a director or officer
of such corporation, association or firm, except (a) where
the securities of such corporation, association or firm are
listed and traded in the big board or commercial and
industrial board of domestic stock exchanges and less than
fifty percent (50%) of the voting stock thereof is owned by
any one (1) person or by persons related to each other
within the first degree of consanguinity or affinity; or (b)
where the director, officer or stockholder of the bank sits as
a representative of the bank in the board of directors of such
corporation: Provided, That the bank representative shall
not have any equity interest in the borrower corporation
except for the minimum shares required by law, rules and
regulations, or by the by-laws of the corporation: Provided,
further, That the borrowing corporation is not among those
mentioned in Items e(5), e(6), e(7) and e(8) of this
Section;
(5) Corporation, association or firm of which any or a group
of directors, officers, stockholders of the lending bank
and/or their spouses or relatives within the first degree of
consanguinity or affinity, or relative by legal adoption, hold
or own at least twenty percent (20%) of the subscribed

capital of such corporation, or of the equity of such
association or firm;
(6) Corporation, association or firm wholly or majorityowned or controlled by any related entity or a group of
related entities mentioned in Items e(2), e(4) and e(5)
of this Section.
(7) Corporation, association or firm which owns or controls
directly or indirectly whether singly or as part of a group of
related interest at least twenty percent (20%) of the
subscribed capital of a substantial stockholder of the lending
bank or which controls majority interest of the bank
pursuant to Subsec. X303.1.
(8) Corporation, association or firm in which the lending
bank and/or its parent/ subsidiary holds or owns at least
twenty percent (20%) of the subscribed capital of such
corporation, or in the equity of such association or firm, or
has an existing management contract or any similar
arrangement with the lending bank or its parent/subsidiary.
f. Subsidiary shall refer to a corporation or firm more than fifty
percent (50%) of the outstanding voting stock of which is directly or
indirectly owned, controlled or held with power to vote by its parent
corporation.
g. Unencumbered deposits shall refer to savings, time and demand
deposits, which are not subject to an assignment or hold-out
agreement or any other encumbrance.
h. Book value of the paid-in capital contribution shall mean the
proportional amount of the banks total capital accounts (net of such
unbooked valuation reserves and other capital adjustments as may
be required by the BSP) as the corresponding paid-in capital
contribution of each of the banks directors, officers, stockholders
and their related interests bear to the total paid-in capital of the
bank: Provided, That as a basis for determining the individual ceiling
referred to in Sec. X330, the corresponding book value of the shares
of stock of said directors, officers, stockholders and their related
interests which are the subject of pledge, assignment or any other
encumbrance shall be deducted therefrom.
i. 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 BSP.
NOTES
145
j. Total loan portfolio shall refer to the sum of all loan accounts
outstanding, gross of valuation reserves, as reflected in the banks
consolidated statement of condition, excluding outstanding loans
financed by special/specific funds from the government financial
institutions.
k. Secured loan, borrowing or other credit accommodation shall
refer to any loan, or credit accommodation or portion thereof
referred to in Sec. X327 which is secured by:
(1) Real estate mortgage, chattel mortgage on tangible
assets, and pledge of jewelry, precious stones and other
valuable articles;
(2) Assignment of intangible assets such as patents,
trademarks, trade names and copyrights;
(3) Unconditional payment guarantees such as standby
letters of credit and letter of indemnity issued by
banks/multilateral financial institutions;
(4) Assignment of, or hold-out on, deposits or deposit
substitutes maintained in the lending bank;
(5) Cash margin deposits; or assignment or pledge of
government securities or readily marketable bonds and
other high-grade debt securities and blue-chip stocks,
except those issued by the lending entity, or by its parent
company which owns more than fifty percent (50%) of its
outstanding shares of stocks, subject to the additional
provision that the issuer corporation has a net worth of at
least P1 billion and with annual net earnings during the
immediately preceding five (5) years;
(6) Customers liability under import bills outstanding for not
more than thirty (30) days from date of original entry;
(7) Sales contract receivables arising from sale of real
property on credit where title to the property is retained by
the bank; and
(8) Customers liability-import bills under trust receipts
outstanding for not more than thirty (30) days from date of
booking: Provided, That the booking under trust receipts
shall have been made not later than the thirty-first day from
the date of original entry referred to in Item (6) above.

l. Unsecured loan, borrowing or other credit accommodation shall
refer to any loan, or other credit accommodation or portion thereof
referred in Sec. X327 which is not secured in accordance with Item
k above.
SEC. X327, MRB: Transactions Covered. The terms loans, other
credit accommodations and guarantees as used herein shall refer to
transactions of the bank which involve the grant of any loan,
advance or other credit accommodation in any form whatsoever,
whether renewal, extension or increase, and shall include:
a. Any advance by means of an incidental or temporary overdraft,
cash item, vale, etc.;
b. Any advance of unearned salary or other unearned compensation
for periods in excess of thirty (30) days;
c. Any advance by means of DAUDs;
d. Outstanding availments under an established credit line;
e. Drawings against an existing letter of credit;
f. The acquisition of any note, draft, bill of exchange or other
evidence of indebtedness upon which the banks directors, officers,
stockholders, and their related interests may be liable as makers,
drawers, acceptors, endorsers, guarantors or sureties;
g. Indirect lending such as loans or other credit accommodations
granted by another financial intermediary to said directors, officers,
stockholders, and their related interests from funds of the bank
invested in the other institutions trust or other department when
there is a clear relationship between the transactions;
NOTES
146
SEC. X328, MRB: Transactions Not Covered. The terms loans, other
credit accommodations and guarantees as used herein shall not
refer to the following:
a. Advances against accrued compensation, or for the purpose of
providing payment of authorized travel, legitimate expenses or other
transactions for the account of the bank or for utilization of
maternity and other leave credits;
b. The increase in the amount of outstanding credit accommodations
as a result of additional charges or advances made by the bank to
protect its interest such as taxes, insurance, etc.;
c. The discount of bills of exchange drawn in good faith against
actually existing values, and the discount of commercial or business
paper actually owned by the person negotiating the same, including,
but not limited to, the acquisition by a domestic bank of export bills
from any of its DOSRI which are drawn in accordance with the terms
and conditions of the covering letters of credit: Provided, That the
transaction shall automatically be subject to the ceilings as herein
provided once the DOSRI who is a party to the transaction becomes
directly liable to the bank;
d. Transactions with a foreign bank which has stockholdings in the
local bank where the foreign bank acts as guarantor through the
issuance of letters of credit or assignment of a deposit in a currency
eligible as part of the international reserves and held in a bank in
the Philippines to secure other credit accommodations granted to
another person or entity: Provided, That the foreign bank
stockholder shall automatically be subject to the ceilings as herein
provided in the event that its contingent liability as guarantor
becomes a real liability; and
e. Interbank call loan transactions.
h. The increase of an existing indebtedness, as well as additional

availments under a credit line or additional drawings against a letter
of credit;
i. The sale of assets, such as shares of stock, on credit; and
j. Any other transactions as a result of which the banks directors,
officers, stockholders and their related interests become obligated or
may become obligated to the lending bank, by any means
whatsoever to pay money or its equivalent.
SEC. X329, MRB: Direct or Indirect Borrowings

Loans, other credit accommodations and guarantees to DOSRI shall
be considered direct or indirect borrowings in accordance with the
following criteria:
a. Direct borrowing. If the director, officer or stockholder of the
lending bank is a party to any of the transactions enumerated in
Sec. X327 for himself, or as the representative or agent of others,
or if he acts as a guarantor, endorser or surety for loans from the
bank, or if the loan or other credit accommodation to another party
is secured by a property interest or right of the director, officer or
stockholder.
b. Indirect Borrowing. If in any of the transactions in Sec. X327 the

borrower, guarantor, endorser or surety is a related interest as
defined in Item e, Subsec. X326.1.
Other cases of direct/indirect borrowing shall be resolved on a caseto-case basis.
It shall be the responsibility of the bank concerned to ascertain
whether the borrower, guarantor, endorser or surety is related or
connected with the bank or with any of the directors, officers or
stockholders of the bank in any of the capacities mentioned in Item
e of Subsec. X326.1.
In determining indirect borrowings, as enumerated above, only
those cases involving living relatives shall be considered.
2.
Ceilings: Individual and Aggregate Ceilings and Exclusions

SEC. X330, MRB: Individual Ceilings. The total outstanding loans,
other credit accommodations and guarantees to each of the banks
DOSRI 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 unsecured loans,
other credit accommodations and guarantees to each of the banks
DOSRI shall not exceed thirty percent (30%) of their respective total
loans, other credit accommodations and guarantees.
Exclusions from individual ceiling. The following loans, other credit
accommodations and guarantees shall be excluded in determining
compliance with the individual ceiling.
a. Loans, other credit accommodations and guarantees secured by
assets considered as non-risk by the Monetary Board;
Assets considered as non-risk shall refer to the following:
(1) Cash;
(2) Debt securities issued by the BSP or the Philippine
government;
(3) Deposits maintained in the lending bank and held in the
Philippines;
(4) Debt securities issued by the U.S. government;
(5) Debt securities issued by central governments, central
banks of foreign countries and multilateral financial
institutions such as International Finance Corporation, Asian
Development Bank and World Bank, with the highest credit
quality given by any two (2) internationally accepted rating
agencies; and
NOTES
147
(6) Such other assets considered as non- risk by the Monetary

Board.
b. Loans, other credit accommodations and advances to officers in
the form of fringe benefits granted in accordance with existing
regulations; and
c. Loans, other credit accommodations and guarantees extended by
a Coop Bank to its cooperative shareholders.
SEC. X331, MRB: Aggregate Ceiling; Ceiling on Unsecured Loans,
Other Credit Accommodations and Guarantees. Except with the prior
approval of the Monetary Board, the total outstanding loans, other
credit accommodations and guarantees to DOSRI shall not exceed
fifteen percent (15%) of the total loan portfolio of the bank or 100%
of net worth whichever is lower: Provided, That in no case shall the
total unsecured loans, other credit accommodations and guarantees
to said DOSRI exceed thirty percent (30%) of the aggregate ceiling
or the outstanding loans, other credit accommodations and
guarantees, whichever is lower. For the purpose of determining
compliance with the ceiling on unsecured loans, other credit
accommodations and guarantees, banks shall be allowed to average
their ceiling on unsecured loans, other credit accommodations and
guarantees every quarter.
In evaluating requests for extension of loans in excess of the
aggregate ceiling, the BSP shall consider the credit standing of the
borrower, viability of the projects financed by such other credit
accommodations in relation to national objectives, collateral or
security and other pertinent considerations.
SEC. X332. MRB: Exclusions from Aggregate Ceiling. The following
loans, other credit accommodations and guarantees shall be
excluded in determining compliance with the aggregate ceiling:
a. Credit accommodations or portions thereof to the extent secured
by assets considered as non-risk by the Monetary Board;
b. Credit accommodations to a corporate stockholder which meets
all the following conditions:
(1) The corporation is a non-financial institution;
(2) Its shares are listed and traded in the domestic stock
exchanges; and
(3) No person or group of persons related within the first degree of
consanguinity or affinity holds/owns more than twenty percent
(20%) of the subscribed capital of the corporation.
NOTES
c. Credit accommodations to government-owned or controlled

corporations, in cases where a director, officer or stockholder of the
lending bank is a representative of the government in the borrowing
corporation and does not hold any proprietary interest in such
corporation: Provided, That other rules on loans to DOSRI, such as
procedural and reportorial requirements under Sections X334 and
X335 are followed.
participated in the board meeting and who approved such

resolution failed to sign, the corporate secretary may issue a
certification to this effect indicating the reason for the failure
of the said director to sign the resolution.
e. Transmittal of copy of board approval; contents thereof. A copy of
the written approval of the board of directors, as herein required,
shall be submitted to the appropriate supervising and examining
department of the BSP within twenty (20) banking days from the
date of approval. The copy may be a duplicate of the original, or a
reproduction copy showing clearly the signatures of the approving
directors: Provided, That if a reproduction copy is to be submitted, it
shall contain on its face or reverse side a signed certification by the
secretary that it is a reproduction of the original written approval:
Provided, further, 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 BSP.
d. Exclusions from individual ceiling mentioned under Items (b)

and (c) of Subsec. X330.1.
3.
148
Requirements: Procedural and Reportorial

SEC. X334, MRB: Procedural Requirements. The following provisions
shall apply if the banks DOSRI are parties to, or act as
representatives or agents of others in, any of the transactions
enumerated under Sec. X327:
a. Approval of the board, when to obtain. Except with prior written
approval of the majority of the directors, excluding the director
concerned, no loan, other credit accommodation and guarantee shall
be granted nor shall any of the transactions enumerated under Sec.
X327 be entered into.
SEC. X335, MRB: Reportorial Requirements. Each bank shall

maintain a record of loans, other credit accommodations and
guarantees covered by these regulations in a manner and form that
will facilitate verification of such transactions by BSP examiners.
b. Approval by the board, how manifested. The approval shall be

manifested in a resolution passed by the board of directors during a
meeting and made of record.
The appropriate supervising and examining department may require

banks to furnish such data or information as may be necessary for
purposes of implementing the provisions of the foregoing rules.
c. Determination of majority of the directors. The determination of

the majority of the directors, excluding the director concerned, shall
be based on the total number of directors of the bank as provided in
its articles of incorporation and by-laws.
d. Contents of the resolution. The resolution of the board of
directors shall contain the following information:
(1) Name of the director or officer concerned and his involvement
as regards the credit accommodation, such as principal,
endorser, spouse of borrower, etc.;
(2) Nature of the loan or other credit accommodation, purpose,
amount, credit basis for such loan or other credit
accommodation, security and appraisal thereof, maturity,
interest rate, schedule of repayment and other terms of the
loan or other credit accommodation;
(3) Date of resolution;
(4) Names of the directors who participated in the deliberations
of the meeting; and
(5) Names in print and signatures of the directors approving the
resolution: Provided, That in instances where a director who
4.
Sanctions
SEC. X336, MRB: Sanctions. Any violation of the provisions of the
foregoing rules shall be subject to any or all of the following
sanctions:
a. Restriction or prohibition on the bank from declaring dividends for
non-compliance with the prescribed ceiling on DOSRI until the
outstanding loans and other credit accommodations have been
reduced to within the herein prescribed ceilings;
b. 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;
c. Application of (1) the borrowing directors or officers share in the
banks profit sharing program; and (2) the share of the director
voting for the approval of the loan or other credit accommodation,
against the excess of such loan or other credit accommodation over
any of the herein prescribed ceilings; and
d. For the duration of each violation, imposition of a fine of onetenth of one percent (1/10 of 1%) of the excess over the ceilings
per day but not to exceed P30,000 a day on the following:
(1) The lending bank;
(2) The director, officer or stockholder whose borrowing exceeds his
individual ceiling; and
(3) Each of the directors voting for the approval of the loan or other
credit accommodation in excess of any of the ceilings prescribed
in Secs. X330 and X331.
The penalty for exceeding the individual ceiling, aggregate ceiling
and ceiling on unsecured loans shall be computed on the average
amount of loans in excess of said ceilings during the same week.
E. Collateral/Security
1.
Unsecured Loans
SEC. X319, MRB: General guidelines. Before granting a loan or other
credit accommodation, a bank must ascertain that the borrowers,
co-makers, endorsers, sureties and/or guarantors are financially
capable of fulfilling their commitments to the bank. For this purpose,
banks shall obtain adequate information on their credit standings
and financial capacities.
Proof of financial capacity of borrower. In addition to the usual
information sheet about the borrower, banks may require
submission of a statement of the borrowers assets and liabilities.
Banks shall, however, require the following:
a. A copy of the latest Income Tax Return (ITR) of the borrower and
his co-maker, if applicable, duly stamped as received by the Bureau
of Internal Revenue (BIR); and
b. Except as otherwise provided in other regulations, if the borrower
is engaged in business, a copy of the borrowers latest financial
statements as submitted for taxation purposes to the BIR.
Should the document(s) submitted prove to be spurious or incorrect
in any material detail, the bank may terminate any loan or other
credit accommodation granted on the basis of said document(s) and
shall have the right to demand immediate repayment or liquidation
of the obligation. Moreover, the bank may seek redress from the
court for any harm done by the borrowers submission of spurious
documents.
Signatories. Banks shall require that loans and other credit
accommodations be made under the signature of the principal
NOTES
149
borrower and in the case of unsecured loans and other credit

accommodations to an individual borrower, at least one (1) comaker, except when the principal borrower has the financial capacity
and a good track record of paying his obligations.
2.
Joint and Solidary Signature (JSS)

ART. 2047, NCC: 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.
Cases
PNB v CA, 198 SCRA 767 (1991)
PNB v. CA
FACTS
EE Depusoy Construction entered into a building contract with the Bureau of
Public Works for the construction of the GSIS Building. Requiring money for
such construction, Depusoy applied credit accommodation by PNB. As
security, Depusoy executed a Deed of Assignment in favor of PNB, assigning
all money to be received from GSIS. As additional security, Luzon Surety
executed 2 surety bonds.
2 years later, Depusoy defaulted in the building contract. As a result, GSIS
stopped payment. PNB now demands payment for the credit accommodation
it extended to Depusoy. It filed a complaint in the courts. RTC granted
PNBs recourse against Depusoy but not with Luzon Surety. CA affirmed the
decision. Initially, SC dismissed the appeal of PNB due to lack of merit and
pertaining to factual issues. This is the MR.
ISSUE
W/N Luzon Surety should be held solidarily liable with Depusoy.
RULING
NO. As based on the findings of both RTC and CA, Depusoy and Luzon
Surety bound themselves jointly and severally to PNB on the ground of the
Deed of Assignment only. Luzon Surety executed the bonds to guarantee
the faithful performance of Depusoy in his obligation under the Deed of
Assignment, NOT to guarantee the payment of loans of Depusoy to PNB.
Even Delfin Santiago, Manager of PNB, admitted that what was guaranteed
was the Deed of Assignment and not the loan.
As the language of the bonds is clear and explicit, there is no doubt to
require an interpretation. Even if there is doubt, the issue should be
resolved in favor of the surety based on Art 2055 guaranty is not

presumed, it must be expressed and cannot extend to more than what is
stipulated therein. Thus, the liability of the surety is measured by the terms
of the contract and strictly limited by its terms.
NOTES
longer connected with the corporation. They should have introduced a new
surety for the new loan.
3.
Security Bank v Cuenca, 341 SCRA 781 (2000)

FACTS
Sta Ines is a corporation engaged in logging operations. They were able to
obtain a credit line from Security Bank expiring on November 1 1981 for an
amount not exceeding P8.8M. Sta Ines executed a chattel mortgage over its
machineries and equipments, while having Rodolfo Cuenca execute an
indemnity agreement, being solidary liable with Sta Ines. They availed of
the credit line only on one instance, worth P6.1M. Four years after the
expiration, Cuenca resigned as President, and his shares of stock was sold
to Adolfo Angala through public auction. Sta Ines was able to obtain
additional loan, and restructured its previous credit line with the bank to
accommodate the extra loan obtained, without informing Cuenca of such
deal. Sta Ines defaulted and the bank demanded from both the corporation
and Cuenca.
4.
***A "joint and solidary signature" is a common practice of a bank where

they require a major stockholder or corporate officer as an additional
security for loans granted to the corporation for two reasons: the bank can
go beyond the veil of separate corporate entity and go after the surety;
second, it assures the bank that the loan will be used for the purpose
agreed upon.
As Cuenca was not related to the bank at the time of the restructuring of
the credit line for which he was previously a surety, there is no reason to
include him again. There had been negligence on the part of the bank when
he was still considered as a surety, as it failed to realize that Cuenca was no
Loans Secured by Chattels or Intangible Property

a. Limits
SEC. 38, GBL: 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, an such loans and other credit accommodation may
be made to the title-holder of the chattels and intangible
properties or his assignees.
b.
ISSUE
Whether Cuenca is still liable to the bank
RULING
NO. When additional loan was given to Sta Ines that paved way for the
restructuring of the credit line, there had been a novation of agreements
between the bank and the corporation, which removed the accessory
obligation of Cuenca as surety. There were also several inconsistencies
between both agreements that the two cannot coexist. Art 1296 states that,
"when principal obligation is extinguished in consequence of a novation,
accessory obligation (in this case a surety agreement) may subsist only
insofar as they may benefit third persons who did not give their consent."
Also, Art 2079 which the CA relied on states that, "an extension granted to
the debtor by the creditor without the consent of the guarantor extinguishes
the guaranty."
150
Types of Security
i. Chattel Mortgage
ii. Pledge
iii. Hold-Out and/or Assignment
Loans Secured by Real Estate Mortgages (REMs)

a. Limits
SEC. 37, GBL: 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.
b. Mortgagee in Good Faith v Mortgagee in Bad Faith

Cases
Phil. National Coop Bank v Carandang-Villalon, 139 SCRA 570
(1985)
FACTS
Faustino Galvan was the owner of the parcel of land, being litigated in this
case, when it was donated to his daughter, Aida Galvan. He was a lessee of
Spouses Dionisio Galvan and Carmen Cabrera when he failed to pay rentals.
The spouses sued him for the unpaid rentals where he lost the case. During
execution, the spouses died, and the administrators Bengzon and Jimenez
continued the execution. A year after the finality of the case against her
father, Aida mortgaged the property to the bank. The administrators failed
to execute the judgement, thus they tried to rescind the donation, alleging
that it was done in fraud of creditors. The bank was not impleaded in this
case. The administrators won in the CA level, which became final and

executory. The property was sold at public auction to the administrators.
The bank then foreclosed the property upon failure of Aida to pay the bank,
where the bank was the highest bidder. However, it failed to register the
property in its name, since the mortgagor was no longer the owner of the
property.
NOTES
151
harmonious system. It simply confirms a title already created and already

vested, rendering it forever indefeasible. If one happened to obtain a
certificate of title by mistake, to the prejudice of another, with or without
bad faith, the certificate of title should be cancelled.
ISSUE
Whether or not the bank is entitled to the protection accorded to "innocent
purchasers for value"
2. YES. Cajes can still claim the property since constructive trust that
prescribes in ten years does not run on property held by in possession by
the plaintiff. When a person claiming to be the owner has actual possession
of the property, an action to seek reconveyance does prescribe.
RULING
YES. 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 acted in good faith. The claim cannot be justified that the
bank, before accepting the mortgage, should have made an investigation of
the title, as such claim would be unreasonable.
3. NO. DBP was not in good faith when it became a mortgagee on two
grounds. First, the bank was told by the spouses that the property was in
possession of Cajes. Second, the bank's representative conducted an
investigation of the property when Cajes mortgaged the property with the
bank. DBP was fully aware that a person, other than the registered owner
was in possession of the property. They disregarded such fact, and now they
cannot feign ignorance of Cajes's claim.
DBP v CA, 331 SCRA 267 (2000)

FACTS
Ulpiano Mumar was the original owner of the disputed land when it was sold
to Carlos Cajes. Cajes was issued a tax declaration for the property he
bought. Unknown to them, Jose Alvarez was able to register a parcel of
land, which included the property sold to Cajes. Alvarez sold the land to
Spouses Beduya, which they were issued a TCT. The spouses mortgaged the
property to DBP, for a loan which they were not able to pay. DBP foreclosed
the property, and consolidated its ownership over the property.
Canlas v CA, 326 SCRA 425 (2000)

FACTS
Osmundo Canlas and Vicente Maosca decided to venture into business and
to raise the capital needed. The former executed an SPA authorizing the
latter to mortgage two parcels of land in the name of himself and his wife
Angelina.
Prior to the foreclosure, Cajes also applied for a loan with DBP, using the
property sold to him. The property was inspected, and the loan was granted.
However, it was discovered the property was really part of the land
mortgaged by the spouses for which they cancelled the loan.
A year after the foreclosure, they tried to re-appraise the property, and
found out that the property was occupied by the Cajes. DBP filed a suit for
recovery of property.
ISSUES: (non-banking)
1. Whether DBP has a right over the property
2. Whether Cajes can still claim the property
3. Whether DBP was in good faith when the property was bought (banking
issue)
RULING:
1. NO. Registration has never been a mode of acquiring ownership over
immovable property. The sole purpose of the creation of Land Registration
was to bring land titles of the Philippines under one comprehensive and
Subsequently, Canlas agreed to sell the said lands to Manosca for P850K,
P500K of which was payable within one week, and the balance of P350K to
serve as his investment. Canlas delivered the TCTs and Maosca issued two
postdated checks in the amounts of P40K and P460K respectively, but it
turned out that the latter check was not sufficiently funded. Later on,
Maosca was able to mortgage the same parcels of land for P100k to a
certain Atty Magno, with the help of impostors who misrepresented
themselves as the spouses Canlas. After that, Maosca was granted a loan
by the respondent Asian Savings Bank (ASB) in the amount of P500,000.00,
with the lands as security, and with the same impostors who again
introduced themselves as the Canlas spouses. When the loan it extended
was not paid, respondent bank extrajudicially foreclosed the mortgaged.
Before the auction could be held, (the real) Osmundo Canlas wrote a letter
informing the respondent bank that the execution of subject mortgage over
the two parcels of land in question was without their authority, and
requested that steps be taken to annul the questioned mortgage. But Asian
Savings Bank refused and proceeded with the scheduled auction sale.
Consequently, Canlas instituted the present case for annulment of deed of
real estate mortgage; the trial court issued an Order restraining the sheriff
from issuing the corresponding Certificate of Sheriffs Sale. Maosca was
declared in default.

The lower court annulled the mortgage. CA reversed, reinstating the
mortgage.
ISSUE
Whether the bank was a mortgagee in good faith
HELD
NO. Reversed. Not even a single identification card was exhibited by the
said impostors to show their true identity; and yet, the bank acted on their
representations simply on the basis of the residence certificates bearing
signatures which tended to match the signatures affixed on a previous deed
of mortgage to a certain Atty. Magno, covering the same parcels of land in
question. But the previous deed of mortgage did not bear the tax account
number of the spouses, nor the Community Tax Certificate of Angelina
Canlas. But such fact notwithstanding, the bank did not require the
impostors to submit additional proof of their true identity. Under the
doctrine of last clear chance, which is applicable here, the respondent bank
must suffer the resulting loss. Settled is the rule that a contract of mortgage
must be constituted only by the absolute owner on the property mortgaged;
a mortgage constituted by an impostor is void.
c.
Acquisition of Property By Way of Satisfaction of Claims

SEC. 52, GBL: 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:
previously contracted in the course of its dealings; or
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.
NOTES
152
d. Dragnet Clause or Blanket Mortgage Clause

Cases
Union Bank v CA, 471 SCRA 751 (2005)
FACTS
DRossa Incorporated (DRI) mortgaged parcels of land in favor of Union
Bank as security for the credit facility of Josephine Marine Trading
Corporation (JMTC). JMTC availed P3m from the credit line. It was increased
to 8.61m. Subsequently, Union Bank unilaterally increased the credit facility
of JMTC to P27 million, from which JMTC availed P18.3M. Upon JMTC's
failure to pay its obligation, Union Bank instituted foreclosure proceedings
on DRI's properties. Union bank was the highest bidder.
DRI filed a complaint seeking to declare the public sale as null. It claimed
that its liability is only P8.61 million which was the liability incurred by JMTC
under its first agreement with Union Bank. However, Union Bank alleged
that DRI was liable to JMTC's total outstanding obligations, regardless of
whether it was incurred during or subsequent to the first agreement. The
Trial Court dismissed the complaint, the CA reversed. The CA said that the
mortgage was pegged at 8.61M and thus DRI could not be made liable for
more than this.
ISSUE
What is the liability of DRI?
HELD
DRI is liable to the full extent of JMTC's obligations, because the mortgage
contained a dragnet clause. The pertinent provisions of the Real Estate
Mortgage provide: "The obligations secured by this Mortgage (the Secured
Obligations') are the following:...any and all instruments or documents
issued upon the renewal, extension, amendment or novation of the Notes,
the Agreement and this Mortgage, irrespective of whether such obligations
as renewed, extended, amended or novated are in the nature of new,
separate or additional obligations"
"A blanket mortgage clause, also known as a 'dragnet clause in American
jurisprudence, is one which is specifically phrased to subsume all debts of
past or future origins. Such clauses are 'carefully scrutinized and strictly
construed. Mortgages of this character enable the parties to provide
continuous dealings, the nature or extent of which may not be known or
anticipated at the time, and they avoid the expense and inconvenience of
executing a new security on each new transaction. A 'dragnet clause
operates as a convenience and accommodation to the borrowers as it makes
available additional funds without their having to execute additional security
documents, thereby saving time, travel, loan closing costs, costs of extra
legal services, recording fees, et cetera. Indeed, it has been settled in a long
line of decisions that mortgages given to secure future advancements are
valid and legal contracts, and the amounts named as consideration in said

contracts do not limit the amount for which the mortgage may stand as
security if from the four corners of the instrument the intent to secure
future and other indebtedness can be gathered."
5.
Foreclosure of REMs
a. Types of Foreclosure
i. Judicial
RULE 68, ROC
Section 1. Complaint in action for foreclosure.
In an action for the foreclosure of a mortgage or
other encumbrance upon real estate, the complaint
shall set forth the date and due execution of the
mortgage; its assignments, if any; the names and
residences of the mortgagor and the mortgagee; a
description of the mortgaged property; a statement
of the date of the note or other documentary
evidence of the obligation secured by the mortgage,
the amount claimed to be unpaid thereon; and the
names and residences of all persons having or
claiming an interest in the property subordinate in
right to that of the holder of the mortgage, all of
whom shall be made defendants in the action.
Sec. 2. Judgment on foreclosure for payment or
sale.
If upon the trial in such action the court shall find
the facts set forth in the complaint to be true, it
shall ascertain the amount due to the plaintiff upon
the mortgage debt or obligation, including interest
and other charges as approved by the court, and
costs, and shall render judgment for the sum so
found due and order that the same be paid to the
court or to the judgment obligee within a period of
not less than ninety (90) days nor more than one
hundred twenty (120) days from the entry of
judgment, and that in default of such payment the
property shall be sold at public auction to satisfy the
judgment.
Sec. 3. Sale of mortgaged property; effect.
When the defendant, after being directed to do so as
provided in the next preceding section, fails to pay
the amount of the judgment within the period
specified therein, the court, upon motion, shall order
the property to be sold in the manner and under the
provisions of Rule 39 and other regulations
governing sales of real estate under execution. Such
NOTES
153
sale shall not affect the rights of persons holding

prior encumbrances upon the property or a part
thereof, and when confirmed by an order of the
court, also upon motion, it shall operate to divest
the rights in the property of all the parties to the
action and to vest their rights in the purchaser,
subject to such rights of redemption as may be
allowed by law.
Upon the finality of the order of confirmation or
upon the expiration of the period of redemption
when allowed by law, the purchaser at the auction
sale or last redemptioner, if any, shall be entitled to
the possession of the property unless a third party is
actually holding the same adversely to the judgment
obligor. The said purchaser or last redemptioner
may secure a writ of possession, upon motion, from
the court which ordered the foreclosure.
Sec. 4. Disposition of proceeds of sale.
The amount realized from the foreclosure sale of the
mortgaged property shall, after deducting the costs
of the sale, be paid to the person foreclosing the
mortgage, and when there shall be any balance or
residue, after paying off the mortgage debt due, the
same shall be paid to junior encumbrancers in the
order of their priority, to be ascertained by the
court, or if there be no such encumbrancers or there
be a balance or residue after payment to them, then
to the mortgagor or his duly authorized agent, or to
the person entitled to it.
Sec. 5. How sale to proceed in case the debt is not
all due.
If the debt for which the mortgage or encumbrance
was held is not all due as provided in the judgment,
as soon as a sufficient portion of the property has
been sold to pay the total amount and the costs due,
the sale shall terminate; and afterwards, as often as
more becomes due for principal or interest and other
valid charges, the court may, on motion, order more
to be sold. But if the property cannot be sold in
portions without prejudice to the parties, the whole
shall be ordered to be sold in the first instance, and
the entire debt and costs shall be paid, if the
proceeds of the sale be sufficient therefor, there
NOTES
being a rebate of interest where such rebate is

proper.
Sec. 6. Deficiency judgment.
If upon the sale of any real property as provided in
the next preceding section there be a balance due to
the plaintiff after applying the proceeds of the sale,
the court, upon motion, shall render judgment
against the defendant for any such balance for
which, by the record of the case, he may be
personally liable to the plaintiff, upon which
execution may issue immediately if the balance is all
due at the time of the rendition of the judgment;
otherwise, the plaintiff shall be entitled to execution
at such time as the balance remaining becomes due
under the terms of the original contract, which time
shall be stated in the judgment.
Sec. 7. Registration.
A certified copy of the final order of the court
confirming the sale shall be registered in the registry
of deeds. If no right of redemption exists, the
certificate of title in the name of the mortgagor shall
be cancelled, and a new one issued in the name of
the purchaser.
Where a right of redemption exists, the certificate of
title in the name of the mortgagor shall not be
cancelled, but the certificate of sale and the order
confirming the sale shall be registered and a brief
memorandum thereof made by the registrar of
deeds upon the certificate of title. In the event the
property is redeemed, the deed of redemption shall
be registered with the registry of deeds, and a brief
memorandum thereof shall be made by the registrar
of deeds on said certificate of title.
If the property is not redeemed, the final deed of
sale executed by the sheriff in favor of the purchaser
at the foreclosure sale shall be registered with the
registry of deeds; whereupon the certificate of title
in the name of the mortgagor shall be cancelled and
a new one issued in the name of the purchaser.
Sec. 8. Applicability of other provisions.
The provisions of sections 31, 32 and 34 of Rule 39
shall be applicable to the judicial foreclosure of real
154
estate mortgages under this Rule insofar as the

former are not inconsistent with or may serve to
supplement the provisions of the latter.
ii.
Extra-Judicial
ACT NO. 3135, as amended
iii.
Specific Rules for TB/RB/Coop Banks

SEC. 6, RURAL BANKS ACT: Loans or advances
extended by rural banks organized and operated
under this Act shall be primarily for the purpose of
meeting the normal credit needs of farmers,
fishermen or farm families owning or cultivating land
dedicated to agricultural production as well as the
normal credit needs of cooperatives and merchants.
In the granting of loans, the rural bank shall give
preference to the application of farmers and
merchants whose cash requirements are small.
Loans may be granted by rural banks on the security
of lands without Torrens Title where the owner of
private property can show five (5) years or more of
peaceful, continuous and uninterrupted possession
in concept of owner; or of portions of friar land
estates or other lands administered by the Bureau of
Lands that are covered by sales contracts and the
purchasers have paid at least five (5) years
installment thereon, without the necessity of prior
approval and consent by the Director of Lands, or of
portions of other estates under the administration of
the Department of Agrarian Reform or other
governmental agency which are likewise covered by
sales contracts and the purchasers have paid at
least five (5) years installment thereon, without the
necessity of prior approval and consent of the
Department of Agrarian Reform or corresponding
governmental agency; or of homesteads or free
patent lands pending the issuance of titles but
already approved, the provisions of any law or
regulations to the contrary notwithstanding:
Provided, That when the corresponding titles are
issued, the same shall be delivered to the Register
of Deeds of the province where such lands are
situated for the annotation of the encumbrance:
Provided, further, That in the case of lands pending
homestead or free patent titles, copies of the notices
for the presentation of the final proof shall also be

furnished the creditor rural bank and, if the
borrower applicants fail to present the final proof
within thirty (30) days from date of notice, the
creditor rural bank may do so for then at their
expense: Provided, furthermore, That the applicant
for homestead or free patent has already made
improvements on the land and the loan applied for is
to be used for further development of the same or
for other productive economic activities: Provided,
finally, That the appraisal and verification of the
status of a land is a full responsibility of the rural
bank and any loan granted on any land which shall
be found later to be within the forest zone shall be
for the sole account of the rural bank.
The foreclosure of mortgages covering loans granted
by rural banks and executions of judgment thereon
involving real properties levied upon by sheriff shall
be exempt from the publications in newspapers now
required by law where the total amount of loan,
excluding interests due and unpaid, does not exceed
One Hundred thousand Pesos (P100,000) or such
amount as the Monetary Board may prescribe as
may
be
warranted
by
prevailing
economic
conditions. It shall be sufficient publication in such
cases if the notices of foreclosure and execution of
judgment are posted in the most conspicuous area
of the municipal building, the municipal public
market, the rural bank, the barangay hall, and the
barangay public market, if any, where the land
mortgaged is situated during the period of sixty (60)
days immediately preceding the public auction or
execution of judgment. Proof of publication as
required herein shall be accomplished by an affidavit
of the sheriff or officer conducting the foreclosure
sale or execution of judgment and shall be attached
with the records of the case: Provided, That when a
homestead or free patent is foreclosed, the
homesteader or free patent holder, as well as his
heirs shall have the right to redeem the same within
one (1) year from the date of foreclosure in the case
of land not covered by a Torrens Title or one (1)
year from the date of the registration of the
foreclosure in the case of land covered by a Torrens
Title: Provided, finally, That in any case, borrowers,
especially those who are mere tenants, need only to
NOTES
155
secure their loans with the procedure corresponding

to their share.
A rural bank shall be allowed to foreclosure lands
mortgaged to it; Provided, That said lands shall be
covered under Republic Act No. 6657.
b.
Right and Period of Redemption

SEC. 47 (1), GBL: 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 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 extra-judicial 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.
(i) Exception
SEC. 47 (2), GBL: 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 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.

(ii) Exercise of Right of Redemption
Cases
Metrobank v Tan, 569 SCRA 814 (2009)
FACTS
Lamb Construction Consortium Corporation obtained a P5.5M loan from
Metropolitan Bank & Trust Co. To secure the loan, respondent executed a
Real Estate Mortgage involving six parcels of land. Lamb failed to pay the
loan upon maturity hence petitioner filed a petition for the extra-judicial
foreclosure of the said properties. During the auction sale MBTC emerged as
the highest bidder with the bid amount of P6.7M.
During the period of redemption, MBTC filed a verified petition for issuance
of a writ of possession. It alleged that notwithstanding its demands, Lamb
refused and failed to turn over actual possession of the foreclosed
properties. The RTC denied the issuance of the writ on the ground that
because MBTC had not yet deposited the surplus (1.4M) from the
foreclosure sale. The CA reversed and allowed the issuance of the writ, but
still ordered MBTC to pay the surplus.
MBTC appealed to the SC, arguing that in a petition for the issuance of a
writ of possession, it is improper to rule upon the surplus or excess of the
purchase price because the only issue that must be resolved is the
purchasers entitlement to the writ. If there is any surplus or excess, the
remedy of the respondent is to file an independent action for collection of
surplus.
ISSUE
Whether or not the above statement is correct, and whether the writ of
possession should be issued.
HELD
YES, the only issue to be resolved is the purchaser's entitlement to the writ.
But for peculiar reasons, the writ of possession should NOT be a matter of
right, but a matter of discretion. However, since the period to redeem has
already lapsed, this point has become moot and the writ must now be
issued. As a general rule, the issuance of a writ of possession is ministerial.
However, there are exceptions.
In Sulit v. Court of Appeals we withheld the issuance of a writ of possession
because the mortgagee failed to deliver the surplus from the proceeds of
the foreclosure sale which is equivalent to approximately 40% of the total
mortgage debt.
In Barican v. IAC, long before the mortgagee bank had sold the disputed
property to the respondent therein, it was no longer the judgment debtor
who was in possession but the petitioner spouses who had assumed the
mortgage, and that there was a pending civil case involving the rights of
NOTES
156
third parties. Hence, it was ruled therein that under the circumstances, the
obligation of a court to issue a writ of possession in favor of the purchaser in
a foreclosure of mortgage case ceases to be ministerial, because under Act
3135, the possession of the mortgaged property may be awarded to a
purchaser in the extrajudicial foreclosure "unless a third party is actually
holding the property adversely to the judgment debtor."
In Cometa v. IAC, where the properties in question were found to have been
sold at an unusually lower price than their true value, that is, properties
worth at least P500K were sold for only P57K, the court decided to withhold
the issuance of the writ of possession on the ground that it could work
injustice because the petitioner might not be entitled to the same.
The general rule that mere inadequacy of price is not sufficient to set aside
a foreclosure sale is based on the theory that the lesser the price the easier
it will be for the owner to effect the redemption. The same thing cannot be
said where the amount of the bid is in excess of the total mortgage debt.
The reason is that in case the mortgagor decides to exercise his right of
redemption. The redemption price should be equivalent to the amount of the
purchase price, plus 1% monthly interest up to the time of the redemption,
plus assessments or taxes which the purchaser may have paid, and interest.
Applying this to the present case would be highly iniquitous because that
would mean exacting payment at a price unjustifiably higher than the real
amount of the mortgage obligation. Simply put, such a construction will
undeniably be prejudicial to the substantive rights of private respondent and
it could even effectively prevent it from exercising the right of redemption.
HOWEVER, since the period to redeem has already lapsed, as in this case,
the writ must be granted.
The failure of the mortgagee to deliver the surplus proceeds does not affect
the validity of the foreclosure sale. It gives rise to a cause of action for the
mortgagee to file an action to collect the surplus proceeds. An action to
collect the surplus proceeds is improper where there is a pending action for
the nullification of the foreclosure proceedings.
(iii) Extension of Redemption Period
Cases
Lazo v Republic Surety and Insurance Co, 31 SCRA 329 (1970)
FACTS
Jose Robles obtained a loan (12k) from Philippine Bank of Commerce.
Republic Surety & Insurance Co (Respondent) acted as the surety/co-debtor
for Robles with respect the loan obtained from the bank. On the other hand,
lazo spouses (petitioners) are the guarantors of Robles for the surety
contract and, in connection therewith, petitioner spouses executed a Real
Estate Mortgage over their property in favor of Respondent.
NOTES
157
Robles defaulted in the payment of the note covering the obligation with the
bank. It has been renewed several times until finally, the note was
transferred by the bank to Republic Investment. Robles still defaulted in
payment, hence, Respondent already paid the obligation. In turn,
Respondent foreclosed extra-judicially the REM on July 1, 1958, respondent
being the purchaser of the property. The sheriff cert. was issued on Aug. 2
1958. After which, due to the insistence of the petitioners, they started
paying rent to respondent and they were able to secure an extension for the
redemption of the foreclosed property. Several more extension were sought
and granted until 1963 where Jose Robles still reneged in his obligation to
redeem the property. The title to the property was consolidated in the name
of Respondent via registration of the deed of absolute sale and sheriffs cert.
of sale on Mar. 28, 1963.
Ibaan Rural Bank v CA, 321 SCRA 88 (1999)

FACTS
The spouses Reyes were owners of 3 lots covered by 3 TCTs. The spouses
mortaged these lots to Ibaan Rural Bank, Inc.
The Petitioner claims that the 1 year legal period of redemption should start
to run from Mar. 28, 1963. Since, they filed their action on December of the
same year (1968), then their right to redeem has not prescribed.
Private respondents then tried to redeem the properties and tendered

payment. However, the bank refused the redemption on the ground that it
had consolidated its tiles over the lot. Respondents then filed a complaint
asking the foreclosure to be held void because there was no notice and that
they were entitled to redeem the lots because they tendered payment for
redemption before the 2-year period for redemption expired. TC ruled in
favour of the private respondents.
ISSUE
Whether the period of redemption already expired?
RULING:
No it did not expire. The court ruled that the parties had abandoned
entirely the concept of legal redemption in this case and converted it into
one of conventional redemption, in which the only governing factor was the
agreement between them. The registration of the certificate of sale on
March 28, 1963 was entirely unnecessary and irrelevant to the question of
when the period of redemption agreed upon expired. The record shows that
the last request for extension approved by the defendant is that contained
in the letter of Jose Robles dated May 30, 1960, at the bottom of which
appears the handwrittten notation: "Ok for last extension one month. Please
attach note of Mr. Lazo," this last evidently referring to the latter's
confirmatory letter of May 31, 1960, Consequently, the period to redeem
expired on June 30, 1960.
The plaintiffs' repeated requests for time within which to redeem, each with
a definite date of expiration, generated binding contracts when approved by
the defendant company. A contract, needles to say, has the force of law
between the parties. In any event, the principle of estoppel would step in to
prevent the plaintiffs from going back upon their own acts and
representations to the prejudice of the other party who relied upon them.
This is a principle of equity and natural justice, expressly adopted in our
Civil Code and in Rule 31 of the Rules of Court.
The spouses Reyes, as sellers, and the spouses Tarnate (private

respondents) entered into a Deed of Absolute Sale with Assumption of
Mortgage of the lots. Respondents failed to pay the assumed loan so Ibaan
Rural Bank foreclosed on the property extra-judicially. The provincial Sheriff
conducted a public auction of the lots and awarded the lots to the bank, the
sole bidder. The certificate of sale stated that the redemption period expires
in 2 years from the registration of the sale. No notice of extrajudicial
foreclosure was given to the private respondents.
ISSUE
Was there proper redemption despite the expiration of the 1 year right of
redemption?
Was the 2-year redemption period unilaterally made by the sheriff valid
despite neither party agreeing to such?
HELD
Yes, there was a proper redemption by the respondents.
When petitioner received a copy of the certificate of sale registered at the
RD, it had actual and constructive knowledge of the certificate and its
contents. For two years it did not object to the two-year extension of the
redemption period. Thus it could be said that the petitioner consented to
the two-year redemption period especially since It had time to object to it
and did not.
When circumstances imply a duty to speak on the part of a person for whom
an obligation is proposed, his silence can be construed as consent. By its
silence and inaction, petitioner misled private respondent to believe that
they had two years within which to redeem the mortgage. After the lapose
of two years, petitioner is esopped from asserting that the period for
redemption was only one year and that the period had already lapsed.
Estoppel in pais arises when one, by his acts, representations or admissions,
or by his own silence when he out to speak out, intentionally or though
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 CA in affirming decision of the TC relied on Lazo vs Republic surety,
which stated that the one year period of redemption provided in act no.
3135 is only directory and can be extended by agreement of the parties.
This is not so in the instant case. There was no voluntary agreement. The
sheriff unilaterally and arbitrarily extended the period of redemption to two
years in the certificate of sale. The parties were not privy to the extension
made by the sheriff. Nonetheless, as above discussed, the bank can not
after the lapse of two years insist that the redemption period was one year
only. The rule on redemption is liberally interpreted in favor of the original
owner of the property.
Such interpretation will be as loose as the morals of Alex as proven by his
many homosexual advances on men.
(iv) Tolling of Redemption Period
Cases
Sumerariz v DBP, 21 SCRA 1374 (1967)
FACTS
Plaintiffs Spouses Sumerariz constituted in favour of Rehabilitation Finance
Corporation, now Development Bank of the Philippines, an REM on two
parcels of land in San Andres Subdivision, Manila with TCTs in the couples
name to guarantee a loan for 15K. Plaintiffs did not pay for the loan so DBP
foreclosed. After several postponements of the public auction on plaintiffs
request, sale was set for march 29, 1955. Upon the behest of Juan
sumerariz, made the day before, the bank agreed to postpone the sale if
there was a token payment of at least 100 before 9am the next day. No
such payment was made so the bank bought the property on march 29 for
8k as the highest bidder.
Bank notified plaintiffs they had one year to redeem the property or note
later than march 29, 1956 upon down payment of P2806, the balance
payable in ten years at the rate of 166 per month. Instead of exercising
redemption, on march 26, 1956 plaintiffs filed a case against the bank and
sheriff of manila to set aside the foreclosure sale on the ground that the
bank failed to comply with its agreement to postpone the auction sale
scheduled to be held on march 29, 1956.
In July 1956 the bank sold the property to Philippine Surety and Insurance
Co. In 1958 the case of the Sumerariz was dismissed because the plaintiffs
had not redeemed the property within the period prescribed by law
therefore the bank has thereby become its absolute owner. The couple lost
all the way to the SC hence the present case against the bank and the
Surety Co to annul the sale made to the latter by the bank and to be
allowed to redeem the property in question.
NOTES
158
Defendants plead res judicata and prescription and set a counterclaim for
rentals plus attorneys fees. Court dismissed the case and demanded
plaintiffs to vacate the property and to pay 100 a month to the bank from
march 30 1060 until property is vacated. Plaintiffs appealed to the CA,
which the CA then certified to the SC on questions of law.
ISSUE
Whether or not the plaintiffs had a right to redeem the property still?
(whether or not the filing of a case to annul foreclosure suspends the period
for redemption?
HELD
NO, it does not suspend the period. There is no statue or decision that
supports the plaintiffs contention that the period of one year to redeem land
sold at a sheriffs sale was suspended by the institution of an action to annul
the foreclosure sale. Moreover, up to now, plaintiffs have not exercised the
right to redemption. Indeed, although they have intimated their wish to
redeem the property in question, they have not deposited the amount
necessary therefore.
As to res judicata, although not a party in the first case, the inclusion of the
surety co as a defendant in the case at bar does not detract from the legal
identity of both cases because by buying the property subject matter of both
cases from the bank, the sure co became merely the banks successor in
interest. Neither does the absence of the sheriff in the first case negate the
identiy inasmuch as the sheriff was but a formal party in said previous case
and is virtually a party in the present case although not mentioned explicitly
as such therein.
Peoples Financing Corp v CA, 192 SCRA 34 (1990)
FACTS
Kalmar Construction and Muning Exploration Co. purchased several pieces of
heavy equipment from J.P. Enterprises for the total amount of P787,000.
The buyer paid 30% (P237,000) of the price and 18 paid monthly
instalments for the rest (P550,000). Additional charges were stated therein
in cases where there is overdue instalments/amount. A promissory note and
a chattel mortgage were signed by the officers, including the respondents
herein, of Kalmar to secure the amount unpaid by the latter. On the same
date, the seller assigned the promissory note and the chattel to Peoples
Financing Corporation. Respondent Manliguez and his wife executed a real
estate mortgage on one of the parcel of land owned by them as additional
security for the existing obligation (re: promissory note).
Thereafter, the petitioners caused the foreclosure of this mortgage for nonpayment of the promissory note. Petitioner PFC was the highest bidder and
was registered accordingly.

The private respondents moved to annul the foreclosure and sure for
damages. The lower court issued an injunction of the registration of Final
Deed of Sale and ruled in favor of the complainants granting them 1)
P191,906.00 worth of additional charges to be returned by the petitioners
for not properly informing the private respondents of such charges, 2) right
to redeem the mortgaged property.
On the matter of right of redemption. The lower court ruled that the oneyear period of redemption has never commenced because the issuance of
the Final Deed of Sale set for by the Sheriff was stopped by the trial court.
On registered lands, the one-year period of redemption starts not from the
date of the sale but from the date when the certificate of sale issued by the
sheriff is registered in the office of the register of deeds.
ISSUE
(Relevant to topic) Whether the right to redemption was properly granted?
RULING
NO. The certificate of sale was duly registered by the petitioners in the
Office of the Register of Deeds of Mandaue City. From thereon, the one-year
redemption began. Since the private respondents did not exercise their right
of redemption from the said time, the consequence is that ownership was
legally consolidated in PFC, which had a right to the issuance of a new
certificate of title in its name.
The one-year period to redeem a mortgage of land covered by
Torrens Title is not stopped or suspended by any TRO issued by the
courts.
An experienced businessman cannot claim that he and his wife did not know
of the total finance charges for he was one of the signatories to the
promissory note.
Consolidated Bank v IAC, 150 SCRA 591 (1987)
FACTS
Originally, petitioned Solidbank loaned private respondent NICOS sums of
money. NICOS failed to pay back the loan prompting Solidbank to file a
collection case. Pursuant to the writ of attachment issued by the Court and
upon petitioners posting of sufficient bond, the Sheriff of Manila levied and
attached the two real properties described by the foregoing order of
attachment. Pursuant to the foregoing inscription and annotations, guards
were deputized by the Manila Sheriff to secure the premises of the two
attached realties.
A year later, however, the attached properties which had been mortgaged
by NICOS to the UCPB were extra-judicially foreclosed by the latter. As the
highest bidder, a certificate of sale was issued to it over the subject realties
NOTES
159
including the buildings and improvements. Two transactions occurred

thereafter: (1) UCPB sold all of its rights, interests and participation over
the properties to a certain Manuel Go (2) Manuel Go sold all the rights he
acquired from the UCPB over the same lots on that very same day to private
respondent GOLDEN STAR. Barely a month later, respondent NICOS
suddenly executed a document entitled Waiver of Right of Redemption in
favor of respondent GOLDEN STAR, which then filed a petition for the
issuance of a writ of possession over the subject realties before the RTC. It
was granted.
Petitioner Solidbank filed an omnibus motion to annul the writ of possession
issued to GOLDEN STAR and to punish for contempt of court the persons
who implemented the writ of possession with the use of force and
intimidation. Petitioner interposed an appeal before the Intermediate
Appellate Court arguing inter alia that the properties were under custodia
legis, hence the extra-judicial foreclosure and the writ of possession were
null and void, and that the right of NICOS to redeem the auctioned
properties had been acquired by Solidbank. The Intermediate Appellate
Court found no merit to this appeal. Hence the petition for review, on the
grounds that appellate court decided the case contrary to law and applicable
decisions of the SC.
ISSUE
Whether the subject properties were under custodia legis by virtue of the
prior annotation of a writ of attachment in petitioners favor at the time the
properties were extrajudicially foreclosed?
RULING
YES. The disputed real properties were under custodia legis by virtue of a
valid attachment at the time the same were extrajudicially foreclosed by a
third party mortgagee. The rule is well 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. (1) It follows that the writ of
possession issued by the Malolos court in favour of respondent GOLDEN
STAR is null and void because it interfered with the jurisdiction of a coordinate and co-equal court. (2) The transactions on which respondent
GOLDEN STARs right to a writ of possession are based are highly irregular
and questionable. The attempts to bring the disputed properties out of the
petitioners reach inspite of the attachment, are plain and apparent. They
conspired to defeat petitioners lien on the attached properties and to deny
the latter its right of redemption.
In issuing the writ of possession, the Malolos court relied on copies of
documents submitted to it by GOLDEN STAR. It was thus led into the error
of ruling that the petitioners attachment was not properly annotated. It

likewise follows that the petitioner (the attaching creditor) has acquired by
operation of law the right of redemption over the foreclosed properties.
It has been held that an attaching creditor may succeed to the incidental
rights to which the debtor was entitled by reason of his ownership of the
property, as for example, a right to redeem from a prior mortgage. The fact
that respondent NICOS executed a waiver of right of redemption in favour of
respondent GOLDEN STAR is of no moment as by that time it had no more
right which it may waive in favor of another.
(Relevant to topic starts here)
GOLDEN STAR argues that even if the attachment in issue was duly
registered and the petitioner has a right of redemption, the certificate of
sale of the lands in question was registered on September 6, 1983. It claims
that the period to redeem therefore lapsed on September 6, 1984 without
the petitioner bank ever exercising any right to redemption. Well settled is
the rule that the pendency of an action tolls the term of the right of
redemption. In the case at bar, the petitioner commenced the instanct
action by way of an omnibus motion before the Bulacan Court on November
21, 2983 or barely two months after the certificate of sale was registered on
September 6, 1983, well within the one year period.
CMS Stock Brokerage v CA, 275 SCRA 790 (1997)
FACTS
Petitioner, as judgment debtor, seeks to redeem two parcels of land sold on
execution none years earlier upon the contention that the pendency of an
action involving the ownership thereof suspended the 12-month period of
redemption provided by the present Rules.
The deputy sheriff refused to execute a deed of redemption. Petitioner went
to the RTC. Respondent Judge Buenaventura thereafter ruled against
petitioner on the ground that the right of redemption had long expired.
Dissatisfied with this ruling which sustained the deputy sheriff's action,
petitioner filed a petition for certiorari and mandamus, with a prayer for a
writ of preliminary injunction with respondent CA. The appellate court
dismissed the petition hence the instant petition for review on certiorari.
The SC declared petitioner as the real owner of the subject parcel of land
and not Rosario S. Sandejas who initiated the proceedings for "quieting of
ownership of real property, injunction and damages". Petitioner filed a
notice to redeem and tendered the redemption money. Petitioner also paid
an additional sum as Sheriff's Commission. Respondents Sheriffs informed
petitioner that they cannot execute and issue the certificate of redemption
because of the absence a court order directing them to do so, and they
informed the latter that they accepted the tendered amounts for
safekeeping.
NOTES
160
Petitioner filed a "Motion to require Sheriff to Execute Certificate of

Redemption". Respondent Judge issued the challenged order denying
petitioner's motion requiring the Sheriff to execute a certificate of
redemption. A motion for reconsideration was denied by respondent Judge.
ISSUE
1) Whether petitioner could have effected the redemption of the subject
property within the 12-month period provided under the Rules; and
(Relevant topic)
2) Whether petitioner's period to redeem is tolled by an action to quiet title
filed by a third-party claimant questioning the ownership of the property
sold on execution?
RULING
(1) It is petitioner's contention that it could not have exercised the right of
redemption before the lapse of the 12-month redemption period because its
title at the time was clouded by the claim of a third party, Rosario Sandejas.
The CA rejected this contention principally because under the established
factual circumstances, petitioner considered itself to be the owner of the
subject property despite the alleged pending case for quieting of title. The
petitioner's reliance on the supposed cloud or uncertainty in its ownership
for not effecting redemption within the 12-month redemption period is
misplaced.
The real property sold on execution may be redeemed by the judgment
debtor (CMS Stock Brokerage, Inc.) or his successors in interest, in the
whole or any part of the property. The exercise of this right of redemption
by the judgment debtor 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 instances when a piece of property is claimed by a third
person, as in the case at hand When, however, property is levied upon and
sold, despite a claim by a third person who must vindicate then his claim in
a proper action, Section 29 determines who shall have a right of
redemption. Clearly, the right of redemption is given to the judgment debtor
and not to any third-party claimant.
The judgment debt or obligation and not ownership is the main
consideration in granting the judgment debtor the right to redeem.
Petitioner's supposition that unquestioned ownership of the subject property
is a requisite for its exercise of the right of redemption in this case has no
legal basis. Petitioner could have effected its right of redemption had it
wanted to within the 12-month redemption period provided under the Rules.
This is the law and ignorance thereof is no excuse for petitioner's failure to
exercise such right.

(2) NO. As already pointed out, the issue of ownership insofar as
petitioners right of redemption as judgement debtor is concerned, has no
bearing whatsoever, so as have the effect of tolling or interrupting the
running o running of the 12-month redemption period. If at all, as pointed
out by respondent CA, the condition imposed after the execution sale
relating to the pending action for quieting of title, may only benefit the
third-party claimant, Rosario Sandejas, that is should her claim prosper,
only then may the execution sale be declared null and void. But with respect
to petitioner's right of redemption as judgment debtor this condition is of no
moment.
(v) Payment of CGT and DST
c.
Redemption Price
SEC. 6, ACT NO. 3135: In all cases in which an
extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in
interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property
subsequent to the mortgage or deed of trust under which
the property is sold, may redeem the same at any time
within the term of one year from and after the date of the
sale; and such redemption shall be governed by the
NOTES
161
provisions of sections four hundred and sixty-four to four

hundred and sixty-six, inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with the
provisions of this Act.
SEC. 28, RULE 39 (ROC): Time and manner of, and
amounts payable on, successive redemptions; notice to be
given and filed.
The judgment obligor, or redemptioner, may redeem the
property from the purchaser, at any time within one (1)
year from the date of the registration of the certificate of
sale, by paying the purchaser the amount of his purchase,
with one per centum per month interest thereon in addition,
up to the time of redemption, together with the amount of
any assessments or taxes which the purchaser may have
paid thereon after purchase, and interest on such last
named amount at the same rate; and if the purchaser be
also a creditor having a prior lien to that of the
redemptioner, other than the judgment under which such
purchase was made, the amount of such other lien, with
interest. Property so redeemed may again be redeemed
within sixty (60) days after the last redemption upon
payment of the sum paid on the last redemption, with two
per centum thereon in addition, and the amount of any
assessments or taxes which the last redemptioner may have
paid thereon after redemption by him, with interest on such
last-named amount, and in addition, the amount of any liens
held by said last redemptioner prior to his own, with
interest. The property may be again, and as often as a
redemptioner is so disposed, redeemed from any previous
redemptioner within sixty (60) days after the last
redemption, on paying the sum paid on the last previous
redemption, with two per centum thereon in addition, and
the amounts of any assessments or taxes which the last
previous redemptioner paid after the redemption thereon,
with interest thereon, and the amount of any liens held by
the last redemptioner prior to his own, with interest.
Written notice of any redemption must be given to the
officer who made the sale and a duplicate filed with the
registry of deeds of the place, and if any assessments or
taxes are paid by the redemptioner or if he has or acquires
any lien other than that upon which the redemption was
made, notice thereof must in like manner be given to the
officer and filed with the registry of deeds; if such notice be
not filed, the property may be redeemed without paying
such assessments, taxes, or liens.

Cases
Union Bank v CA, 359 SCRA 480 (2001)
FACTS
Spouses Vincoy obtained a loan from Union Bank in the amount of P2M,
which they secured with a mortgage over their residence. For failure to pay
on its maturity date, Union Bank extrajudicially foreclosed the mortgage and
it became the highest bidder in the scheduled auction for P3.29K.
Before the expiration of the redemption period, Spouses Vincoy, together
with Gregorio sisters, filed a complaint for annulment of mortgage, alleging
that the property had been constituted as a family home as early as 1989
and that the Gregorio sisters did not consent to the mortgage.
RTC declared that the constitution of the family home is void because its
actual value exceeded P300K and that the mortgage in favor of Union Bank
valid. It also ordered Spouses Vincoy to pay their O/S balance to Union bank
in the amount of P4.8M. CA sustained the finding of RTC as to the issue of
the family home, but found that the proper redemption price should be
P3.29M, which is the purchase price at the foreclosure sale plus 1% monthly
interest pursuant to Rule 39 of the RoC.
ISSUE
Whether the redemption price set by the Court of Appeals is proper
RULING
NO. Section 78 of GBL governs the determination of the redemption price of
the subject property. The Court has settled that the amount at which the
foreclosed property is redeemable is the amount due under the mortgage
deed, or the O/S obligation of the mortgagor plus interests and expenses in
accordance with Sec. 78, GBL. It was therefore erroneous for the CA to
apply Rule 39 of the RoC in determining the redemption price in this case.
DBP v West Negros College, 391 SCRA 330 (2002)
FACTS
Bacolod Medical Center (BMC) obtained a loan worth P2.4M from DBP,
secured by a mortgage on 2 parcels of land, hospital building and medical
equipment.
For failure to pay, DBP extrajudicially foreclosed the mortgage under Act No
3135. At the public auction, DBP emerged as the highest bidder for P4.09M.
The O/S balance of BMC with DBP as of the date of public auction amounted
to P32.5M.
Before the expiration of the redemption period, BMC and DBP Bacolod
agreed to peg the redemption price at P21.5M, as a compromise settlement
of the O/S account--subject to approval of DBP Head Office.
NOTES
162
During the process of paying the 20% installment agreed upon, BMC
executed a Deed of Assignment to West Negros College, assigning to the
latter the interests of BMC in the properties foreclosed, as well as the right
to redeem them. West Negros demanded that the redemption price be
reduced for excessive interest charges.
Thereafter, DBP Head Office REJECTED the compromise amount of P21.5M
saying that the re-appraised value of the properties is P28.9M as of May
1991.
West Negros College requested the issuance of the certificate of redemption
after it had paid DBP P4.3M as 1% monthly interest. Its computation was
based on Rule 39 of the RoC and Act 3135, while that of DBP's was based
on its charter requiring payment of the amount owed as of the date of the
foreclosure sale. Pursuant to this, DBP refused to hand over the TCTs of the
foreclosed properties. However, West Negros was vested with possession of
the properties.
West Negros filed a petition with the RTC for the surrender of the TCTs (or
the issuance of new ones) alleging full payment of the redemption price
under Rule 39 of RoC and Act No 3135--the amount of purchase with 1%
monthly interest + expenses at the sale. DBP, on the other hand, contends
that the proper redemption price is based on the total outstanding loan as of
the date of the foreclosure sale, plus interests and expenses.
RTC ruled in favor of West Negros, which the CA sustained.
ISSUE
What is the proper redemption price?
RULING
TOTAL OUTSTANDING BALANCE AS OF THE DATE OF FORECLOSURE
SALE. It has long been settled that where real property is mortgaged to
and foreclosed judicially or extrajudicially by DBP, the right of redemption
may only be exercised by paying all the amount owed on the date of the
sale, with interest on the total indebtedness at the rate agreed upon, unless
the bidder has taken material possession of the property or unless it has
been delivered to him, in which case, the proceeds of the property shall
compensate the interest. This is applied whether the foreclosed property is
sold to DBP or to another person at the public auction, provided that the
property was mortgaged to DBP. Where property is sold to persons other
than the mortgagee, the procedure is for DBP to return to the bidder the
amount it received from him as a result of the auction sale with interest.
This rule is embodied in the charters of DBP and its predecessor agencies.
CA 459 (Agricultural and Industrial Bank) set the redemption price at the
total indebtedness plus interest as of the date of the auction sale.

Several cases had settled that CA 459, NOT Rule 39 of RoC, is applicable in
case of redemption of real estate mortgaged to DBP to secure a loan. As
such, the redemption price to be paid by the mortgagor to DBP is all amount
he owes on the date of the sale, with interest on the total indebtedness, and
NOT merely the amount paid for by the purchaser in the public auction.
d.
Possession
Cases
Samson v Rivera
FACTS
Spouses Samson obtained a loan amounting to P55M from Far East Bank,
which they secured with 2 REMs covering 5 parcels of commercial property
in Antipolo, Rizal.
Due to their failure to pay, FEBTC filed an Application for Extra-Judicial
Foreclosure of REM. FEBTC and Lenjul Realty were the 2 bidders in the 2nd
auction (1st auction was postponed because there was only 1 bidder then),
with the latter declared as the highest bidder in the amount of P80M.
Thereafter, Lenjul Realty filed a Petition for the Issuance of a Writ of
Possession, which the Spouses Samson opposed.
NOTES
163
Pending the Petition, Spouses Samson filed an action for Annulment of EJ

Foreclosure and/or Nullification of the Sale against Lenjul Realty, FEBTC,
BPI, the clerk of court and the RD of Antipolo City.
Judge Rivera gave due course to the Petition for Issuance
Possession and denied the opposition. Pursuant to this, a Writ of
was issued directing the sheriff to place Lenjul Realty in physical
of the foreclosed properties. On the same date, the sheriff issued
Vacate to Rempson Corp (owned by Samson spouses).
of Writ of
Possession
possession
a Notice to
Spouses Samson then filed with the CA a SCA for Certiorari with
Prohibition/Mandamus under Rule 65 to annul orders of Judge Rivera.
CA ruled that certiorari was improper and premature and that there was an
adequate remedy available--to file a petition to set aside the foreclosure
sale and to cancel the writ of possession.
ISSUE
1. Whether RTC committed GADLEJ in granting Petition for Issuance of
Writ of Possession
2. Whether Petition for Certiorari was the proper remedy
HELD
1. NO. The issuance of the Writ is explicitly authorized by Act No. 3135,
which regulates the methods of effecting an EJ Foreclosure of Mortgage.
Under Sec. 7 of Act No. 3135, the purchaser in a foreclosure sale may apply
for a writ of possession during the redemption period by filing for that
purpose an ex parte motion under oath. Upon the filing of such motion and
the approval of the corresponding bond, the court is expressly directed to
issue the writ.
The duty of the RTC to grant a writ of possession is ministerial. Such writ
issues as a matter of course upon the filing of the proper motion and the
approval of the corresponding bond.
2. NO. SCA for Certitorari could be availed of only if RTC acted with GADLEJ
and if there is no appeal or any other plain, speedy and adequate remedy in
the ordinary course of law.
There is grave abuse when the court acts in a capricious, whimsical,
arbitrary or despotic manner equivalent to acting with lack of jurisdiction.
In this case, there was no GADLEJ since the RTC only issued the Writ in
compliance with Act No. 3135.
Since there was no GADLEJ, Spouses Samson should have filed an ordinary
appeal instead of a petition for certiorari.

e.
NOTES
164
Injunction and Bond

Sec. 24.1, GBL: Except as the Monetary Board may otherwise

prescribe, the total investment in equities of allied and nonallied enterprises shall not exceed fifty percent (50%) of the net
worth of the bank.
V.
INVESTMENTS AND OTHER FUNCTIONS OF
BANKS
xSec. 52, GBL: 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:
A. EQUITY INVESTMENTS
(iii)
Sec. 24.2, GBL: Except as the Monetary Board may otherwise

prescribe, 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.
(iv)
Definition of net worth
Sec. 24, par. 3, GBL: As used in this Act, net worth shall
mean the total of the unimpaired paid-in capital including paidin surplus, retained earnings and undivided profit, net of
valuation reserves and other adjustments as may be required by
the Bangko Sentral.
(v)
Do the foregoing
conversions?
limits
apply
to
debt-to-equity
xSubsec. X116.3(i)., MRB: Equity investments. This refers to

investments in capital stock of companies, firms or enterprises,
made for purposes of control, affiliation or other continuing
business advantage.

1. Limits on Equity Investments of UB

a.
Investment in equity of any one enterprise
In general

Sec. 24, par. 1, GBL: 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.

Sec. 24, par. 4, GBL: 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.

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.
(ii)
(vi)
(i) Prior approval of MB
Total investment in equities of allied and non-allied

enterprises
Sanctions if without prior MB approval
xSec. 385, MRB: Sanctions. The following sanctions shall be

imposed for equity investments made without prior Monetary
Board approval:
a.
b.
First Offense - If the investment is not allowable under

existing regulations, divestment of the investment and
reprimand on officer/director who recommended/ approved
the investment.
Subsequent Offense
On the Bank. If the investment is not allowable under
existing regulations, divestment of the investment.
On the Director/Officer. Fine of P20,000 for each investment to

be imposed on the members of the board and the executive
officers who recommended/approved the investment per
investment and to be shouldered personally by the
officer/director: Provided, That if the subsequent offense is an
investment in a non-allied enterprise, the fine shall be P40,000.
b.
In specific areas
(i)
In financial allied enterprises
Sec. 25, GBL: 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.
(ii)
In Venture Capital Corporations (VCCs)
xSec. X379, MRB: Investments in Venture Capital Corporations.

The following rules and regulations shall implement Presidential
Decree No. 1688 entitled Authorizing Banks to Invest in the
Equity of Venture Capital Corporations to Assist Small and
Medium- Scale Enterprises.
For purposes of this Section, a venture capital corporation (VCC)

shall refer to an entity organized jointly by private banks, the
National Development Corporation and the Technology
Livelihood and Resource Center and/or such other government
agency as may be authorized by the appropriate authority, the
NOTES
165
primary purpose of which is to develop, promote and assist, thru

debt or equity financing or any other means, any small and
medium-scale enterprise in the country.
X379.2 Equity investments of venture capital corporations.
Equity investment of a VCC in small and medium- scale
enterprises shall be subject to the following conditions:
a. Equity financing by a VCC may be extended to a small and
medium-scale enterprise engaged in an industry certified as
desirable by the Department of Trade and Industry; and
b. The total assets of the enterprises shall not exceed P4
million, including the VCC's equity investment. Should the
total assets of the small and medium-scale enterprise
subsequently exceed the prescribed P4 million maximum,
the VCC equity investment therein made before the total
assets of the enterprise exceeded P4 million, may be
maintained but shall not be increased.
(iii)
In non-financial allied enterprises
Sec. 26, GBL: Equity Investments of a Universal Bank in NonFinancial Allied Enterprises. A universal bank may own up to
one hundred percent (100%) of the equity in a non-financial
allied enterprise.
xSec. X380, MRB: Non-Financial Allied Under- takings. A bank
may acquire up to 100% of the equity of a non-financial allied
undertaking: Provided, That the equity investment of a TB/RB in
any single enterprise shall remain less than fifty percent (50%)
of the voting shares in that enterprise: Provided, further, That
prior Monetary Board approval is required if the investment is in
excess of forty percent (40%) of the total voting stock of such
allied undertaking.
(iv)
In non-allied enterprises
Sec. 27, GBL: Equity Investments of a Universal Bank in NonAllied Enterprises. - The equity investment of a universal bank,
or of its wholly or majority-owned subsidiaries, in a single nonallied 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.
xSec. 1381, MRB: Investments in Non-Allied or Non-Related
Undertakings. Only UBs may invest in the equity of an
enterprise engaged in non-allied or non-related activities.
1381.2 Limits on investments in non- allied enterprises
a. The equity investment of a UB, 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.
For the purpose of determining compliance with the ceiling
prescribed
in
the
preceding
paragraph,
(i)
the
equityinvestment of the bank; and (ii) the equity investment
of the banks subsidiaries, shall be combined.
b.
(v)
In no case shall the total equity investments in a single nonallied enterprise of UBs, NBFIs performing QB functions and
their subsidiaries, whether or not the parent financial
intermediaries have equity investments in the enterprise,
amount to fifty percent (50%) or more of the voting stock of
that enterprise: Provided, however, That equity investments
in excess of the ceilings prescribed herein as of April 1, 1980
may be maintained but may not be increased and if
reduced, shall not be increased thereafter beyond the ceiling
prescribed herein.
In subsidiaries and affiliates abroad
xSec. X382, MRB: Investments in Subsidiaries and Affiliates

Abroad. The establishment or acquisition of subsidiaries or
affiliates abroad shall require prior approval of the BSP.
X382.8 Investment of a bank subsidiary in a foreign subsidiary.
The following guidelines shall govern the investment in a foreign
subsidiary by a bank subsidiary:
a. The investment of a bank subsidiary in the equity of a
subsidiary located abroad shall be subject to prior BSP approval;
b. The bank subsidiary may invest in a subsidiary if it meets the
following pre- qualification requirements:
(1) It has complied with the minimum capital requirement of
the host country;
(2) It has booked the required valuation reserves and other
capital adjustments, if any; and
(3) Its operations in the preceding three (3) years were
166
profitable; otherwise, the feasibility study on the proposed

subsidiary should show profits in the first two (2) years of
operations.
2. Limits on Equity Investments of KB
a.
In general
Sec. 30, par. 1, GBL: 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.
(i)
Prior approval of MB
Sec. 30, par. 3, GBL: 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
investment.
(ii)
In quasi-banks
Sec. 28, GBL: 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.
(vi)
NOTES
Total investment in equities of allied (financial or nonfinancial) enterprises
Sec. 30.1, GBL: The total investment in equities of allied

enterprises shall not exceed thirty-five percent (35%) of the net
worth of the bank.
(iii)
Investment in equity of any one enterprise
Sec. 30.2, GBL: The equity investment in any one enterprise

shall not exceed twenty-five percent (25%) of tile net worth of
the bank.
(iv)
Definition of net worth
Sec. 24, par. 3, GBL: As used in this Act, net worth shall
mean the total of the unimpaired paid-in capital including paidin surplus, retained earnings and undivided profit, net of
valuation reserves and other adjustments as may be required by
the Bangko Sentral.
(v)
Sanctions if without prior MB approval
xSec. 385, MRB: Sanctions. The following sanctions shall be

imposed for equity investments made without prior Monetary
Board approval:
a.
First Offense - If the investment is not allowable under

existing regulations, divestment of the investment and
reprimand on officer/director who recommended/ approved
the investment.

b.
Subsequent Offense
On the Bank. If the investment is not allowable under
existing regulations, divestment of the investment.
On the Director/Officer. Fine of P20,000 for each investment to

be imposed on the members of the board and the executive
officers who recommended/approved the investment per
investment and to be shouldered personally by the
officer/director: Provided, That if the subsequent offense is an
investment in a non-allied enterprise, the fine shall be P40,000.
b.
In specific areas
(i)
In financial allied enterprises
Sec. 31, GBL: 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.
(ii)
In VCCs
xSec. X379, MRB: Equity investments of venture capital

corporations. Equity investment of a VCC in small and mediumscale enterprises shall be subject to the following conditions:
a. Equity financing by a VCC may be extended to a small and
medium-scale enterprise engaged in an industry certified as
desirable by the Department of Trade and Industry; and
b. The total assets of the enterprises shall not exceed P4 million,
including the VCC's equity investment. Should the total
assets
of
the
small
and
medium-scale
enterprise
subsequently exceed the prescribed P4 million maximum, the
VCC equity investment therein made before the total assets
of the enterprise exceeded P4 million, may be maintained but
shall not be increased.
(iii)
In non-financial allied enterprises

Non-Financial Allied Enterprises. - A commercial bank may own
NOTES
167
up to one hundred percent (100%) of the equity in a nonfinancial allied enterprise.

(iv)
In quasi-banks
Sec. 28, GBL: Equity Investments in Quasi-Banks. To

(v)
xSec. X382, MRB: Equity Investments in Quasi-Banks. To

(vi)
xSec. X382, MRB: Investments in Subsidiaries and Affiliates

Abroad. The establishment or acquisition of subsidiaries or
affiliates abroad shall require prior approval of the BSP.
X382.8 Investment of a bank subsidiary in a foreign subsidiary.
The following guidelines shall govern the investment in a foreign
subsidiary by a bank subsidiary:
a. The investment of a bank subsidiary in the equity of a
subsidiary located abroad shall be subject to prior BSP approval;
b. The bank subsidiary may invest in a subsidiary if it meets the
following pre- qualification requirements:
(1) It has complied with the minimum capital requirement of
the host country;
(2) It has booked the required valuation reserves and other
capital adjustments, if any; and
(3) Its operations in the preceding three (3) years were
profitable; otherwise, the feasibility study on the proposed
subsidiary should show profits in the first two (2) years of
operations.
3. Limits on Equity Investments of TB
Sec. 12, Thrift Banks Act: Investment in Allied Undertakings.
Subject to such guidelines as may be established by the Monetary
Board, thrift banks may invest in equities of allied undertakings as
hereinafter enumerated: Provided, That: (a) the total investments in
equities shall not exceed twenty-five percent (25%) of the net worth of
NOTES
the thrift bank; (b) the equity investment in any single enterprise shall
be limited to fifteen percent (15%) of the net worth of the thrift bank;
(c) the equity investment in any single enterprise shall remain a
minority holding in that enterprise; and (d) the equity investment in
other banks shall be subject to the same provisions governing similar
investments of commercial banks and shall be deducted from the
investing bank's net worth for the purpose of computing of the
prescribed ratio as provided in Section 9 hereof: Provided, further, That
equity
investments
shall
not
be
permitted
in
non-related
activities.Where the allied activity is a wholly- or majority-owned
subsidiary of the thrift bank, the Bangko Sentral may subject it to
examination.
Investment in allied undertaking shall include institutions engaged in the
following activities:
(c) Fertilizer
distribution;
and
agricultural
chemical
and
168
pesticides
(d) Farm equipment distribution;

(e) Trucking and transportation of agricultural products;
(f) Marketing of agricultural products;
(g) Leasing; and
(h) Other undertakings as may be determined by the Monetary
Board.
5. Limits on Equity Investments of Islamic Bank
(a) Banking and financing;
Sec. 6(11), Islamic Bank Charter: 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:
(b) Warehousing and other post-harvesting activities;
To invest in equities of the following allied undertakings:
(c) Fertilizer
distribution;
and
agricultural
chemical
and
pesticides
(a) Warehousing companies;

(b) Leasing companies;
(d) Farm equipment distribution;
(c) Storage companies;
(e) Trucking and transportation of agricultural products;
(d) Safe deposit box companies;
(f) Marketing of agricultural products;
(e) Companies engaged in the management of mutual funds but

not in the mutual funds themselves; and
(g) Leasing; and

(h) Other undertakings
Monetary Board.
as
may
be
determined
by
the
4. Limits on Equity Investments of RB

Sec. 13, Rural Banks Act: Subject to such guidelines as may be
established by the Monetary Board, rural banks may invest in equities of
allied undertakings as hereinafter enumerated: Provided, That: (a) the
total investment to equities shall not exceed twenty-five percent (25%)
of the net worth of the rural bank; (b) the equity investment in any
single enterprise shall be limited to fifteen percent (15%) of the net
worth of the rural bank; and (c) the equity investment of the rural bank
in any single enterprise shall remain a minority holding in that
enterprise: Provided, further, That equity investment shall not be
permitted in non-related activities;
Allied undertakings shall include;
(a) Banks,
financial
intermediaries;
institutions
and
non-bank
(b) Warehousing and other post-harvest facilities;
financial
(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;
B. OTHER KB FUNCTIONS
Sec. 29, GBL: 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.
1. Non-Core/Quasi-Banking Functions

Sec. 4, GBL: 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. .
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 re-lending or purchasing of
receivables and other obligations.
Sec. 95, NCBA: 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 ofrelending 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 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.
2. Issuing L/Cs
Sec. 105, NCBA: Margin Requirements Against Letters of Credit.
The Monetary Board may at any time prescribe minimum cash
margins for the opening of letters of credit, and may relate the size of
the required margin to the nature of the transaction to be financed.
Cases
Bank of America, NT & SA v. Court of Appeals, 228 SCRA 357 (1993)
FACTS
Bank of America received an irrevocable letter of credit purportedly issued
by Bank of Ayudhua to cover the sale of plastic ropes and agricultural files
between General Chemicals Ltd of Thailand (Buyer) and Inter-Resin
Industrial Corporation of Philippines (Seller). Inter-Resin tried to have the
letter of credit confirmed. However, the Bank of America said that there was
no need for confirmation, as the letter of credit would not have been
transmitted if it were not genuine.
Afterwards, Inter-Resin sought to make partial availment under the letter of
credit from Bank of America, its advising bank. Assured by the
genuineness of letter of credit, Bank of America, issued a Cashiers check
amounting to 10M in favor of Inter-Resin. Again, Inter-Resin sought for
NOTES
169
another availment under the same letter of credit. However, the Bank of
Ayudhua informed the Bank of America that the letter of credit was
fraudulent. After investigation of the NBI, the officers of Inter-resin was
charged with estafa but their cases were dismissed due to lack of prima
facie evidence.
Now, Bank of America files a case against Inter-Resin for the recovery of
10M it issued under the fraudulent letter of credit. The TC ruled in favor of
Inter-Resin, stating that the Bank of America lead Inter-Resin to believe the
letter of credit was genuine. The CA affirmed the decision.
ISSUE
W/N the Bank of America is a mere advising/notifying bank or a confirming
bank.
RULING
The Bank is only an advising bank, based on the provisions of the letter of
credit, the banks letter of advice and request for payment of advising fee.
The fact that the Bank asked Inter-Resin to submit documents and paid the
proceeds did not make it a confirming bank. the Banks letter clearly limited
its obligation only to being an advising bank.
As an advising/notifying bank, it did not incur any obligation other than just
notifying Inter-Resin of the issuance of the letter of credit. The statement of
one of the bank employees regarding the genuineness of the letter of credit
did not have an effect of novating the position of the bank as an advising
bank. in addition, the Bank is bound only to check the apparent
authenticity of the letter of credit, which it did.
Thus, the Bank of America can recover what it has paid to Inter-Resin,
under the discounting agreement with the bank being a negotiating bank.
With this agreement, the bank independently assumed the obligation under
the letter of credit, with right of recourse against the bank of Ayudha,
saving Inter-Resin the trouble of traveling to Thailand.
Definition
A letter of credit is a financial device developed by merchants as a
convenient and relatively safe mode of dealing with sales of goods to satisfy
the seemingly irreconcilable interests of a seller, who refuses to part with
his goods before he is paid, and a buyer, who wants to have control of the
goods before paying. To break the impasse, the buyer may be required to
contract a bank to issue a letter of credit in favor of the seller so that, by
virtue of the latter of credit, the issuing bank can authorize the seller to
draw drafts and engage to pay them upon their presentment simultaneously
with the tender of documents required by the letter of credit. The buyer and
the seller agree on what documents are to be presented for payment, but
ordinarily they are documents of title evidencing or attesting to the

shipment of the goods to the buyer.
Once the credit is established, the seller ships the goods to the buyer and in
the process secures the required shipping documents or documents of title.
To get paid, the seller executes a draft and presents it together with the
required documents to the issuing bank. The issuing bank redeems the draft
and pays cash to the seller if it finds that the documents submitted by the
seller conform with what the letter of credit requires. The bank then obtains
possession of the documents upon paying the seller. The transaction is
completed when the buyer reimburses the issuing bank and acquires the
documents entitling him to the goods. Under this arrangement, the seller
gets paid only if he delivers the documents of title over the goods, while the
buyer acquires said documents and control over the goods only after
reimbursing the bank.
Parties
There would at least be three (3) parties: (a) the buyer, who procures the
letter of credit and obliges himself to reimburse the issuing bank upon
receipts of the documents of title; (b) the bank issuing the letter of credit,
which undertakes to pay the seller upon receipt of the draft and proper
document of titles and to surrender the documents to the buyer upon
reimbursement; and, (c) the seller, who in compliance with the contract of
sale ships the goods to the buyer and delivers the documents of title and
draft to the issuing bank to recover payment.
The number of the parties, not infrequently and almost invariably in
international trade practice, may be increased. Thus, the services of an
advising (notifying) bank may be utilized to convey to the seller the
existence of the credit; or, of a confirming bank which will lend credence to
the letter of credit issued by a lesser known issuing bank; or, of a paying
bank, which undertakes to encash the drafts drawn by the exporter.
Further, instead of going to the place of the issuing bank to claim payment,
the buyer may approach another bank, termed the negotiating bank, to
have the draft discounted.
Governing Law
Being a product of international commerce, the impact of this commercial
instrument transcends national boundaries, and it is thus not uncommon to
find a dearth of national law that can adequately provide for its governance.
This country is no exception. Our own Code of Commerce basically
introduces only its concept under Articles 567-572, inclusive, thereof. It is
no wonder then why great reliance has been placed on commercial usage
and practice, which, in any case, can be justified by the universal
acceptance of the autonomy of contract rules. The rules were later
developed into what is now known as the Uniform Customs and Practice for
Documentary Credits ("U.C.P.") issued by the International Chamber of
Commerce. It is by no means a complete text by itself, for, to be sure, there
NOTES
170
are other principles, which, although part of lex mercatoria, are not dealt
with the U.C.P.
Transfield Philippines, Inc. v. Luzon Hydro Corporation, 443 SCRA 307
(2004)
FACTS
On 26 March 1997, petitioner and respondent Luzon Hydro Corporation
(hereinafter, LHC) entered into a Turnkey Contract whereby petitioner, as
Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy
(70)-Megawatt hydro-electric power station at the Bakun River in the
provinces of Benguet and Ilocos Sur (hereinafter, the Project). Petitioner
was given the sole responsibility for the design, construction,
commissioning, testing and completion of the Project.
To secure performance of petitioners obligation on or before the target
completion date, or such time for completion as may be determined by the
parties agreement, petitioner opened in favor of LHC two (2) standby
letters of credit.
In the course of the construction of the project, petitioner sought various
EOT to complete the Project. The extensions were requested allegedly due
to several factors which prevented the completion of the Project on target
date, such as force majeure occasioned by typhoon Zeb, barricades and
demonstrations. LHC denied the requests, however. This gave rise to a
series of legal actions between the parties which culminated in the instant
petition.
ISSUE
Whether or not the beneficiary of an LOC can invoke the Independence
Principle?
RULING
YES. To say that the independence principle may only be invoked by the
issuing banks would render nugatory the purpose for which the letters of
credit are used in commercial transactions. As it is, the independence
doctrine works to the benefit of both the issuing bank and the beneficiary.
Vintola v. Insular Bank of Asia and America, 150 SCRA 578 (1987)
FACTS
The Vintola spouses were engaged in manufacturing finished products from
raw seashells. They applied for a Letter of Credit with IBAA, which
authorized IBAA to negotiate for the Vintolas account drafts drawn by a
certain Stalin Tan who was their supplier of seashells. Stalin Tan delivered
shells worth forty thousand. The Vintolas executed a Trust Receipt
Agreement with IBAA Cebu agreeing to hold the goods in trust for IBAA and

to turn over the proceeds in case of a sale. The Vintolas defaulted, hence,
IBAA demands from the Vintolas but they were not able to dispose of the
shells and offered them to IBAA. IBAA refused and charged them with
estafa. TC acquitted the Vintolas because the element of misappropriation
was not present and that under the Trust Receipt, the remedy of IBAA is
civil in nature not criminal. IBAA then filed a civil case but the TC dismissed
it again, but later reconsidered, ordering the Vintolas to pay twenty-seven
thousand and attorneys fees.
ISSUE
(1) Does the delivery of the seashells first to IBAA, and upon IBAAs
refusal, to the trial court extinguish the Vintolas liability?
(2) Does the previous acquittal bar the filing of the civil action since IBAA
did not reserve the right to enforce civil liability?
NOTES
171
banks to sell to the Bangko Sentral or to other banks all or part of their
surplus holdings of foreign exchange. Such transfers may be required
for all foreign currencies or for only certain of such currencies, according
to the decision of the Monetary Board. The transfers shall be made at
the rates established under the provisions of Section 74 of this Act.
The Monetary Board may, whenever warranted, determine the net
assets and net liabilities of banks and shall, in making such a
determination, take into account the bank's networth, outstanding
liabilities, actual and contingent, or such other financial or performance
ratios as may be appropriate under the circumstances. Any such
determination of net assets and net liabilities shall be applied in all
banks uniformly and without discrimination.
Both NO. Delivery of the seashells did not extinguish Vintolas liability and
the previous acquittal did not bar the filing of a civil action.
Sec. 77, NCBA: Requirement of Balanced Currency Position.

The Monetary Board may require the banks to maintain a balanced
position between their assets and liabilities in Philippine pesos or in any
other currency or currencies in which they operate. The banks shall be
granted a reasonable period of time in which to adjust their currency
positions to any such requirement.
A letter of credit-trust receipt arrangement is endowed with its own

distinctive features and characteristics. Under the agreed set up, the bank
extends a loan covered by the letter of credit, with the trust receipt as
security for the loan.
The powers granted under this section shall be exercised only when
special circumstances make such action necessary, in the opinion of the
Monetary Board, and shall be applied to all banks alike and without
discrimination.
According to Samo. V. People: a trust receipt is considered as a security

transaction intended to aid in financing importers and retail dealers who do
not have sufficient funds or resources to finance the importation or purchase
of merchandise, and who may not be able to acquire credit except through
utilization, as collateral of the merchandise imported or purchased.
Sec. 78, NCBA: Regulation of Non-spot Exchange Transactions.

In order to restrain the banks from taking speculative positions with
respect to future fluctuations in foreign exchange rates, the Monetary
Board may issue such regulations governing bank purchases and sales
of non-spot exchange as it may consider necessary for said purpose.
So IBAA never became the real owner of the goods, and was merely the
holder of a security title for the advances made under the LC. The Vintolas
own the shells and hold it at their own risk, the trust agreement did not
make the IBAA an investor. IBAA remained a creditor and a lender.
Depositing of the goods with IBAA did not convert them to investors and
extinguish the liability of the Vintolas. Even if they did not misappropriate or
misapply or convert the seashells, they are still liable ex contractu under the
terms of the LC/Trust Receipt separately from the estafa, hence they were
properly sued despite the acquittal in the criminal case.
Sec. 79, NCBA: Other Exchange Profits and Losses. The banks
shall bear the risks of non- compliance with the terms of the foreign
exchange documents and instruments which they buy and sell, and shall
also bear any other typically commercial or banking risks, including
exchange risks not assumed by the Bangko Sentral under the provisions
of the preceding section.
HELD
3. Foreign Exchange Operations

Sec. 76, NCBA: Foreign Exchange Holdings of the Banks. In
order that the Bangko Sentral may at all times have foreign exchange
resources sufficient to enable it to maintain the international stability
and convertibility of the peso, or in order to promote the domestic
investment of bank resources, the Monetary Board may require the
Sec. 80, NCBA: Information on Exchange Operations. The banks

shall report to the Bangko Sentral the volume and composition of their
purchases and sales of gold and foreign exchange each day, and must
furnish such additional information as the Bangko Sentral may request
with reference to the movements in their accounts in foreign
currencies.The Monetary Board may also require other persons and
entities to report to it currently all transactions or operations in gold, in
any shape or form, and in foreign exchange whether entered into or
undertaken by them directly or through agents, or to submit such data
as may be required on operations or activities giving rise to or in
connection with or relating to a gold or foreign exchange transaction.

The Monetary Board shall prescribe the forms on which such
declarations must be made. The accuracy of the declarations may be
verified by the Bangko Sentral by whatever inspection it may deem
necessary.
C. OTHER SERVICES
1. Custodian of Funds, Documents, Valuable Objects
Sec. 53.1, GBL: Other Banking Services. In addition to the operations
specifically authorized in this Act, a bank may perform the following
services, receive in custody funds, documents and valuable objects.
2. Financial Agent
services, 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
NOTES
172
4. Financial Adviser
services, upon prior approval of the Monetary Board, act as managing
agent,
adviser,
consultant
or
administrator
of
investment
management/advisory/consultancy accounts.
5. Renting Out Safety Deposit Boxes

services, rent out safety deposit boxes.
Cases
CA Agro-Industrial Development Corporation v. Court of Appeals,
219 SCRA (1993)
Cases
FACTS
Panlilio v. Citibank, N.A., 539 SCRA 69 (2007)
CA-Agro (through its President, Aguirre) and the spouses Pugao entered into
an agreement whereby the former bought two parcels of land for P350K
with a P75k downpayment. Among the terms were that the titles will be
transferred to CA-Agro upon full payment and that the owner's copies of the
titles will be deposited in a safety deposit box in a bank. The same could be
withdrawn upon the joint signatures of a representative of CA-Agro and the
Pugaos upon full payment of the purchase price. They then rented Safety
Deposit Box No. 1448 of private respondent Security Bank and Trust
Company. For this purpose, both signed a contract of lease which contains
these provisos:
The Central Bank, through the Monetary Board, is empowered to conduct

investigations and examine the records of savings and loan associations. If
any irregularity is discovered in the process, the Monetary Board may
impose appropriate sanctions, such as suspending the offender from holding
office or from being employed with the Central Bank, or placing the names
of the offenders in a watchlist.
The requirement of prior notice is also relaxed under Section 28 (c) of RA
3779 as investigations or examinations may be conducted with or without
prior notice "but always with fairness and reasonable opportunity for the
association or any of its officials to give their side." As may be gathered
from the records, the said requirement was properly complied with by the
respondent Monetary Board.
3. Collection/Payment Agent
services, make collections and payments for the account of others and
perform such other services for their customers as are not incompatible
with banking business
"13. The bank is not a depositary of the contents of the safe and it
has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except
herein expressly provided, and it assumes absolutely no liability in
connection therewith."
Renters keys were given to Aguirre, and the Pugaos. A guard key remained
with the bank. Thereafter, a certain Margarita Ramos offered to buy the land
from Ca-Agro at a price P280k higher than market, but demanded
immediate execution of deeds of sale and transfer of OCTs. Aguirre and the
Pugaos went to SBTC to open the safety deposit box, but when they opened
it...the titles were GONE (dun dun dun). Ca-Agro attempted to have the
Titles reconstituted, but because of the delay Ms. Ramos withdrew her offer
to purchase. CA-Agro then filed this damage suit against the bank, losing at
the RTC and CA level.

ISSUES
What is the contractual relation between the bank and a third party in a
contract of safety deposit? (If lease, then bank not liable because of SDB
being in total control of depositor, as held by RTC and CA). Is SBTC Liable?
NOTES
that either of them could ask the Bank for access to the safety deposit box
and, with the use of such key and the Bank's own guard key, could open the
said box, without the other renter being present."
HELD
Sia v. Court of Appeals, 222 SCRA 24 (1993)
SBTC is liable because the contract is not one of lease. The contract of
safety deposit is a special kind of deposit.
FACTS
Note that clauses 13 and 14 in the contract do not exempt the bank from
liability. Any stipulation exempting the depositary from any liability arising
from the loss of the thing deposited on account of fraud, negligence or delay
would be void for being contrary to law and public policy, and are
inconsistent with the respondent Bank's responsibility as a depositary under
Section 72(a) of the General Banking Act.
It cannot be characterized as an ordinary contract of lease under Article
1643 because the full and absolute possession and control of the safety
deposit box was not given to the joint renters the petitioner and the
Pugaos. The guard key of the box remained with the respondent Bank;
without this key, neither of the renters could open the box.
Our provisions on safety deposit boxes are governed by Section 72(a) of the
General Banking Act, and this primary function is still found within the
parameters of a contract of deposit like the receiving in custody of funds,
documents and other valuable objects for safekeeping. The renting out of
the safety deposit boxes is not independent from, but related to or in
conjunction with, this principal function. Thus, a depositary's liability is
governed by our Civil Code rules on oblicon, and thus the SBTC would be
liable if, in performing its obligation, it is found guilty of fraud, negligence,
delay or contravention of the tenor of the agreement.
"Thus, we reach the same conclusion which the Court of Appeals arrived at,
that is, that the petition should be dismissed, but on grounds quite different
from those relied upon by the Court of Appeals. In the instant case, the
respondent Bank's exoneration cannot, contrary to the holding of the Court
of Appeals, be based on or proceed from a characterization of the impugned
contract as a contract of lease, but rather on the fact that no competent
proof was presented to show that respondent Bank was aware of the
agreement between the petitioner and the Pugaos to the effect that the
certificates of title were withdrawable from the safety deposit box only upon
both parties' joint signatures, and that no evidence was submitted to reveal
that the loss of the certificates of title was due to the fraud or negligence of
the respondent Bank. This in turn flows from this Court's determination that
the contract involved was one of deposit. Since both the petitioner and the
Pugaos agreed that each should have one (1) renter's key, it was obvious
173
Luzan Sia rented a safety deposit box with the Security Bank and Trust
Company to put his collection of stamps. An agreement was entered
between the parties that the liability of the bank will be limited only to
prevent the opening of the box by any person other than the renter, and
that the bank will not be considered a depositary. There had been a flood
that entered into the banks premises, which seeped through the box, and
destroyed the stamps. Sia filed a complaint with the RTC, which ruled in his
favor. The CA reversed.
ISSUE
Whether or not renting of a deposit box is lease or deposit agreement
RULING
It is a deposit agreement. Both stipulations (stated above) are contrary to
law and public policy, and must be considered void. The primary functions of
the bank are within the scope of an agreement of deposit, and not of a lease
agreement. Under the General Banking Act, a bank shall perform the act of
renting out a safety deposit box as depositaries.
*The bank was also considered negligent when it did not report the effects
of the flooding with Sia. It failed to apply the diligence of a good father in
protecting the stamps deposited with them. It also aggravated the status of
the stamps in its failure to tell Sia that flood entered its premises.
D. OTHER FUNCTIONS/OPERATIONS
1. Issue Guarantees
Sec. 74, General Banking Act: No bank or banking institution shall
enter, directly or indirectly, into any contract of guaranty or suretyship,
or shall guarantee the interest or principal of any obligation of any
person, co-partnership, association, corporation or other entity. The
provisions of this section shall, however, not be held to apply to the
borrowing of money by any such bank or institution through the
rediscounting of its receivables, or otherwise, as may be permitted by
law, nor to the granting or guaranteeing of acceptance credits in the
ordinary course of its business. Nor shall the provisions of this section

apply to the certification of checks or to transactions involving the
release of documents attached to items received for collection, nor to
any other transaction which may properly be regarded as common
usage and accepted banking practice.
2. Act as Correspondent Bank
NOTES
174
that the condition was void since it depended on the sole will of the debtor,
the defendant Christiansen. The trial court ordered the immediate execution
of its judgment upon the private respondent's filing of a bond.
ISSUE
Cases
Whether or not a correspondent bank is to be held liable under the letter of

credit despite non-compliance by the beneficiary with the terms thereof?
Feati Bank & Trust Company v. Court of Appeals, 196 SCRA 576 (1991)
RULING
FACTS
It is a settled rule in commercial transactions involving letters of credit that

the documents tendered must strictly conform to the terms of the letter of
credit. The tender of documents by the beneficiary (seller) must include all
documents required by the letter. A correspondent bank which departs from
what has been stipulated under the letter of credit, as when it accepts faulty
tender, acts on its own risks and it may not thereafter be able to recover
from the buyer or the issuing bank.
Villaluz agreed to sell to the then defendant Christiansen 2,000 cubic meters
of lauan logs. The Security Pacific National Bank of Los Angeles, California
issued Irrevocable Letter of Credit available at sight in favor of Villaluz for
the sum of the total purchase price. The letter of credit was mailed to the
Feati Bank and Trust Company (now Citytrust) with the instruction to the
latter that it "forward the enclosed letter of credit to the beneficiary." The
letter of credit provided that the draft to be drawn is on Security Pacific
National Bank and that it be accompanied by some specified documents,
including a Certification from Christiansen stating that logs have been
approved prior to shipment. However, Christiansen refused to issue the
certification as required, despite several requests made by the private
respondent. Because of the absence of the certification by Christiansen, the
Feati Bank and Trust Company refused to advance the payment on the
letter of credit. Since the demands by the private respondent for
Christiansen to execute the certification proved futile, Villaluz, instituted an
action for mandamus and specific performance against Christiansen and the
Feati Bank and Trust Company before the Court.
The Court agreed with the plaintiff that the defendant bank may be held
liable under the principles and laws on both trust and estoppels, arguing
that when the defendant bank accepted its role as the notifying and
negotiating bank for and in behalf of the issuing bank, it in effect accepted a
trust reposed on it, and became a trustee in relation to plaintiff as the
beneficiary of the letter of credit. As trustee, it was then duty bound to
protect the interests of the plaintiff under the terms of the letter of credit.
When the defendant bank assumed the role of a notifying and negotiating
bank, it in effect represented to the plaintiff that, if the plaintiff complied
with the terms and conditions of the letter of credit and presents the same
to the bank together with the documents mentioned therein the said bank
will pay the plaintiff the amount of the letter of credit.
The defendant bank, in insisting upon the certification of defendant
Christiansen as a condition precedent to negotiating the letter of credit, in
the Court's opinion acted in bad faith, not only because of the clear
declaration of the Central Bank that such a requirement was illegal, but
because the bank, with all the legal counsel available to it must have known
The bank may only negotiate, accept or pay, if the documents tendered to it
are on their face in accordance with the terms and conditions of the
documentary credit. And since a correspondent bank, like the petitioner,
principally deals only with documents, the absence of any document
required in the documentary credit justifies the refusal by the correspondent
bank to negotiate, accept or pay the beneficiary, as it is not its obligation to
look beyond the documents. It merely has to rely on the completeness of
the documents tendered by the beneficiary.
In regard to the ruling of the lower court and affirmed by the Court of
Appeals that the petitioner is not a notifying bank but a confirming bank, it
was found to be erroneous. The trial court wrongly mixed up the meaning of
an irrevocable credit with that of a confirmed credit. In its decision, the trial
court ruled that the petitioner, in accepting the obligation to notify the
respondent that the irrevocable credit has been transmitted to the petitioner
on behalf of the private respondent, has confirmed the letter. The trial court
overlooked the fact that an irrevocable credit is not synonymous with a
confirmed credit. These types of letters have different meanings and the
legal relations arising from there varies. A credit may be an irrevocable
credit and at the same time a confirmed credit or vice-versa.
Hence, the mere fact that a letter of credit is irrevocable does not
necessarily imply that the correspondent bank in accepting the instructions
of the issuing bank has also confirmed the letter of credit. Another error
which the lower court and the CA made was to confuse the obligation
assumed by the petitioner.
In commercial transactions involving letters of credit, the functions
assumed by a correspondent bank are classified according to the
obligations taken up by it. The correspondent bank may be called a
notifying bank, a negotiating bank, or a confirming bank. In case of

a notifying bank, the correspondent bank assumes no liability
except to notify and/or transmit to the beneficiary the existence of
the letter of credit. A negotiating bank, on the other hand, is a
correspondent bank which buys or discounts a draft under the letter
of credit. Its liability is dependent upon the stage of the negotiation.
If before negotiation, it has no liability with respect to the seller but
after negotiation, a contractual relationship will then prevail
between the negotiating bank and the seller. In the case of a
confirming bank, the correspondent bank assumes a direct
obligation to the seller and its liability is a primary one as if the
correspondent bank itself had issued the letter of credit.
In this case, the letter merely provided that the petitioner "forward the
enclosed original credit to the beneficiary." Considering the aforesaid
instruction to the petitioner by the issuing bank, it is indubitable that the
petitioner is only a notifying bank and not a confirming bank as ruled by the
courts below. Since the petitioner was only a notifying bank, its
responsibility was solely to notify and/or transmit the documentary of credit
to the private respondent and its obligation ends there. A notifying bank is
not a privy to the contract of sale between the buyer and the seller, its
relationship is only with that of the issuing bank and not with the beneficiary
to whom he assumes no liability. It follows therefore that when the
petitioner refused to negotiate with the private respondent, the latter has no
cause of action against the petitioner for the enforcement of his rights under
the letter.
In order that the petitioner may be held liable under the letter, there should
be proof that the petitioner confirmed the letter of credit. No proof was
found. Whether therefore the petitioner is a notifying bank or a negotiating
bank, it cannot be held liable. Absent any definitive proof that it has
confirmed the letter of credit or has actually negotiated with the private
respondent, the refusal by the petitioner to accept the tender of the private
respondent is justified.
Philippine National Bank v. Court of Appeals, 259 SCRA 174 (1996)

FACTS
Lapez had remittances from Jeddah and Libya to be credited to his Citibank
and PNB accounts, respectively.
Prior to this, in 1980 and 1981, Lapez's PNB account was doubly credited
with $5,600 and $5,800 (total of P87,000). PNB made a demand upon Lapez
for the refund of the double credits erroneously made on his account.
Thereafter, a reduction of P34,000 was made by PNB not without the
knowledge and consent of Lapez, who was in fact issued a receipt.
NOTES
175
To be able to recover the amounts credited, PNB applied/appropriated the

amounts of $2,600 and P34,000 from the remittances of Lapez's principals
abroad.
ISSUE
Whether PNB was justified in making the set-off against the 2 remittances
coursed though it in favor of Lapez to recover on the double credits, based
on solutio indebiti
RULING
NO. Not all requisites for legal compensation are existing in this case.
The telegraphic money transfer was sent by the IBN, Lapezs principal in
Jeddah, Saudi Arabia, thru the National Commercial Bank of Jeddah, Saudi
Arabia (NCB, for short), for his account with Citibank, coursed thru the
PNB's head office, the NCB's correspondent bank in the Philippines.
The credit account, or simply account means that the amount stated in the
telegraphic money transfer is to be credited in the account of plaintiff with
the Citibank, and, in that sense, presupposes a creditor-debtor relationship
between the PNB, as creditor and the Citibank, as debtor. Withal the
telegraphic money transfer, no such creditor-debtor relationship could have
been created between them.
The telegraphic money transfer, or simply telegraphic transfer, was
purchased by the IBN from the NCB in Saudi Arabia, and since the PNB is
the NCB's corresponden) bank in the Philippines, there is created between
the two banks a sort of communication exchange for the correspondent
bank to transmit and/or remit and/or pay the value of the telegraphic
transfer in accordance with the dictate of the correspondence exchange.
Some such responsibility of the correspondent bank is akin to section 7 of
the Rules and Regulations Implementing E.O. 857, as amended by E.O. 925,
". . . to take charge of the prompt payment" of the telegraphic transfer, that
is, by transmitting the telegraphic money transfer to the Citibank so that the
amount can be promptly credited to the account of the plaintiff with the said
bank. That is all that the PNB can do under the remittance arrangement that
it has with the NCB. With its responsibility as defined as well as by the
nature of its banking business and the responsibility attached to it, and
through which the industry, trade and commerce of all countries and
communities are carried on, the PNB's liability as correspondent bank
continues until it has completely performed and discharged its obligation
thereunder."
Even if the beneficiary (Lapez) is indebted to PNB, the bank cannot do a
shortcut and simply intercept the funds being coursed through it, for
transmittal to another bank (Citi) and eventually to be deposited to the
account of the beneficiary. The bank cannot invoke legal compensation in
such case.

3. Credit Card Operations
xSec. X320, MRB: Credit Card Operations; General Policy. The BSP shall
foster the development of consumer credit through innovative products
such as credit cards under conditions of fair and sound consumer credit
practices. The BSP likewise encourages competition and transparency to
ensure more efficient delivery of services and fair dealings with
customers.
Towards this end, the following rules and regulations shall govern the
credit card operations of banks and subsidiary/affiliate credit card
companies, aligned with global best practices.
E. TRUST OPERATIONS
Sec. 79, GBL: 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.
Sec. 80, GBL: 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 of 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.
Sec. 81, GBL: 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.
Sec. 82, GBL: 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.
Sec. 83, GBL: Powers of a Trust Entity. A trust entity, in addition to the
NOTES
176
general powers incident to corporations, shall have the power to:

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.
Sec. 84, GBL: 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 or not less
than Five hundred thousand pesos (P500,000.00) or such higher amount as
may 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 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. Al claims rising 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.
Sec. 85, GBL: 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. 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.
Sec. 86, GBL: Exemption of Trust Entity from Bond Requirement. No
bond or other security shall be required by the court from a trust entry 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 therefore, require the
trust entity to post a bond or other security for the protection of funds or
property confided to such entity.
Sec. 87, GBL: 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.
Sec. 88, GBL: 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.
NOTES
177
Sec. 89, GBL: 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 purposes,
shall likewise be governed by the relevant provisions of Section 52 of this
Act.
Sec. 90, GBL: 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.
Sec. 91, GBL: 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 tinder Section
66 of this Act as well as Sections 36 and 37 of the New Central Bank Act.
Sec. 92, GBL: 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.
Sec. 93, GBL: Establishment of Branches of a Trust Entity. The ordinary
business of a trust entity shall be transacted at the place of business
specified in its articles of incorporation. Such trust entity may, with prior
approval of the Monetary Board, establish branches in the Philippines and
the said entity shall be responsible for all business conducted in such
branches to the same extent and in the same manner as though such
business had all been conducted in the head office.
For the purpose of this Act, the trust entity and its branches shall be treated
as one unit.
F. PROHIBITED ACTS
1. Insurance business
Sec. 54, GBL: Prohibition to Act as Insurer. - A bank shall not directly
engage in insurance business as the insurer.
Sec. 2, Insurance Code: Whenever used in this Code, the following
terms shall have the respective meanings hereinafter set forth or
indicated, unless the context otherwise requires:
(1) A "contract of insurance" is an agreement whereby one undertakes
for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event.
A contract of suretyship shall be deemed to be an insurance contract,
within the meaning of this Code, only if made by a surety who or which,
as such, is doing an insurance business as hereinafter provided.

(2) The term "doing an insurance business" or "transacting an insurance
business", within the meaning of this Code, shall include:
(a) making or proposing to make, as insurer, any insurance
contract;
(b) making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any other
legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance
business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to
any of the foregoing in a manner designed to evade the provisions
of this Code.
In the application of the provisions of this Code the fact that no profit is
derived from the making of insurance contracts, agreements or
transactions or that no separate or direct consideration is received
therefor, shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance
business.
(3) As used in this code, the term "Commissioner" means the
"Insurance Commissioner".
2. Outsourcing of inherent bank functions
Sec. 55(1)(e), GBL: No director, officer, employee, or agent of any
bank shall outsource inherent banking functions.
VI. BANK REGULATIONS

A. OWNERSHIP/CAPITALIZATION OF BANKS
1. Organization
Sec. 8, GBL: 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;
8.2 That its funds are obtained from the public, which shall mean
twenty (20) or more persons; and
8.3 That the minimum capital requirements prescribed by the
Monetary Board for each category of banks are satisfied.
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
NOTES
178
in terms of their financial resources and technical expertise and

integrity. The bank licensing process shall incorporate an assessment of
the banks ownership structure, directors and senior management, its
operating plan and internal controls as well as its projected financial
condition and capital base.
a.
Stock corporation (Sec. 8.1, GBL) See supra

(i)
Issuance of stocks
Sec. 9, GBL: 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.
(ii)
Treasury stocks
Sec. 10, GBL: 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.
Cases
Fua Cun v. Summers, 44 Phil. 705 (1923)
FACTS
Chua Soco subscribed 500 shares of stock with China Bank. He already
made payment of P25,000 representing 250 shares of stock, with the
balance forthcoming.
On a different transaction, Chua executed a promissory note in favor of Fue
Cun for P25,000 payable within 90 days. The note was secured by a chattel
mortgage on the shares of stock subscribed.
Meanwhile, Chua became indebted to China Bank for dishonored
acceptances of commercial papers. China bank brought an action against
Chua, resulting in the attachment of the whole 500 shares of stock. It was
after the attachment that Fue brought an action against Chua due to default
in payment. In addition, Fue allege that he is the owner of 250 shares of
stock by virtue of the chattel mortgage. The TC ruled in favor of Fue.
ISSUE
W/N Fue owns the 250 shares of stock.
RULING
YES. Fue owns the 250 shares. China Bank has no right over the shares of
stock of Chua on account of non-payment of drafts. The Corporation Act (old

law) provides that a corporation has no lien upon the shares of stockholders
for any indebtedness to the corporation. The rationale being that if the
corporations were given a lien on their own stocks for indebtedness of the
stockholders, the prohibition against granting loans or discounts upon the
security of the stock would become largely ineffective.
It is decided that shares of stock are classified as equity not permitted to be
a subject of a chattel mortgage. Having a character of intangibility, it would
be difficult to place it under a chattel mortgage. Though that being the case,
the shares of stock can still be validly assigned. The endorsement presented
explicitly mentions the assignment of rights in the shares from Chua to Fue.
The TC erred in holding Chua, as the owner of the shares upon the payment
of P25,000, had the right to dispose it to Fue. It should have been held that
Chua, having interest in the shares of stock, validly assigned said stocks to
Fue.
Filipinas Mils, Inc. v. Dayrit, 192 SCRA 177 (1990)

FACTS
FMI obtained a loan of P70,000 from CBT . Despite repeated demands, the
loan remained unpaid. CBT filed a complaint before the RTC where it was
able to obtain a Decision, and a writ of execution was issue pursuant to the
Decision. A Notice of garnishment was issued on the goods, effects,
interests, credits, moneys, stocks, shares and any other personal property
in the possession of FMI. A Notice of Sale was issued but the shares of stock
(issued by CBT, and owned by FMI) were not included in the items for sale.
ISSUE
Whether or not the sale of CBTs capital stock (owned by FMI) in a public
auction initiated by CBT itself, is a violation of Sec. 24 of the GBL.
RULING
NO. The sale in a public auction is not a violation. CBT must have misread
the provision. There is a specific exception (unless such security or
purchase be necessary to prevent loss upon a debt previously contracted in
good faith) and a general exception (or purchased or acquired for any
other reason in the course of its operations) mentioned therein. Thus, if
and when, CBT decides to purchase those shares of stock in the public
auction sale will not be a violation of Sec. 24 as it will come under the
general exception.
b.
Funds obtained from the public (Sec. 8.2, GBL) See supra
c.
Minimum capital requirements (Sec. 8.3, GBL) See supra
NOTES
d.
179
Capability and other requirements
Sec. 8, par. 2, GBL: 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 banks ownership
structure, directors and senior management, its operating plan and
internal controls as well as its projected financial condition and
capital base.
2. Stockholdings
a.
Foreign stockholdings
Cases
Nunga, Jr. v. Nunga III, 574 SCRA 760 (2008)
FACTS
Gonzalez decided to sell his shares of stock in the Rural Bank of Apalit.
Petitioners (father and son tandem) Francisco Nunga Jr and Victor Nunga
then negotiated a contract to sell with Gonzalez for the shares of stock for
200k. Initial payment of 50k the rest after. Gonzalez wrote a letter to the
Corp. Sec Isabel Firme to transfer to Victor the remaining shares of stock
but they could no longer be found. The contract to sell was notarized only
on February 28 1996.
Before Petitioners could pay the balance they found out that on Feb 27
Gonzalez executed a Deed of Assignment of his RBA shares in favor of
Francisco III (respondent) for 300k paid in full. On the 28th Francisco Jr.
arrives from the USA and proceeded with his son to the residence of
Gonzalez and convinced him to accept the balance despite having been told
the shares were sold the day before. Gonzales signed his name at the dorsal
portion of the stock certificates to endorse the same to Francisco Jr. and
also executed the absolute deed of sale in favor of Junior.
On the same day, the 28th of Feb, Franciso III demanded that Junior
surrender the shares to him, while Junior demanded corp sec. Firme to
register the sale to Junior but she denied because Franciso III had already
bought them the day before. They sued each other with Francisco III
contending that Junior was not allowed to own shares of stock of a Rural
Bank because he was a US citizen. Junior said that RA 8179, an act to
liberalize foreign investments granted Junior, who was a former natural born
citizen equal investment rights in rural banks of the Philippines because it
had retroactive effect (the act came after the sale of the shares of stock).
CA sided with Franciso III, hence the SC case.
NOTES
180
ISSUE
subsequent law.
Whether or not a former natural born citizen who is now a foreigner may
invest in Rural Banks by virtue of RA 8179 The act to further liberalize
foreign investments?
Nonetheless, it would not matter that Gonzalez executed the contract

to sell in favor of Junior prior to the Deed of Assignment to Franciso
III because the Contract to Sell between Gonzalez and Francisco
was void and without effect for being contrary to law.
HELD
NO. Petition without merit.
(i)
Francisco Jr. was disqualified from acquiring Gonzalezs shares of stock in

RBA. The argument of junior and victor that there was no specific provision
in RA 7353 that prohibited the transfer of rural bank shares to individuals
who were not Philippine citizens or declared such transfer void is both
erroneous and unfounded.
Sec. 11, GBL: 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.
Section 4 of RA 3353 states:
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.
With exception of shareholdings of corporations organized primarily to hold

equities in rural banks as provided for under section 12-C of RA 337, as
amended, and of Filipino-controlled domestic banks, the capital stock of
any rural bank shall be fully owned and held directly or indirectly by
citizens of the Philippines or corporations, associations or cooperatives
qualified under Philippine laws to own and hold such capital stock: xxx.
IN SUMMARY
The court held that the afore-quoted provision categorically provides that
only citizens of the Philippines can own and hold, directly or indirectly, the
capital stock of a rural bank, subject only to the exception of corporations,
associations, associations or cooperatives qualified under Philippine laws to
own and hold such capital stock. This was the very interpretation of Section
4 of RA 7353 made by this court in Bulos, Jr. v. Yasuma, on the basis of
which the Court disqualified Yasuma, a foreigner from owning capital stock
in the Rural Bank of Paranaque.
In the instant case, it is undisputed that when Gonzalez executed the
contract to sell and the deed of absolute sale covering his RBA
shares of stock in favor of Franciso Jr, the latter was already a
naturalized citizen of the Untied States of America. Consequently,
the acquisition by Franciso Jr. of the disputed RBA shares by virtue
of the foregoing contracts is a violation of the clear and mandatory
dictum of RA 7353 which the Court cannot countenance. Even with
the subsequent enactment of RA 8179 (Foreign Invenstment
Liberalization Act), such cannot benefit Franciso Junior. It is true that
under the Civil Code, laws shall have no retroactive effect, unless the
contrary is provided or when the statute is curative or remedial, or when it
creates new rights PROVIDED such rights do not prejudice or impair any
vested right. Francisco III clearly already had a vested right when such act
was enacted hence juniors qualification could not have been cured by the
(ii)
Individuals and non-bank corporations
Foreign banks
Sec. 11, GBL: See supra

Sec. 73, GBL: Acquisition of Voting Stock in a Domestic Bank.
Within seven (7) years from the effectivity of this act and
subject to guidelines issued pursuant to the Foreign Banks
Liberalization Act, the Monetary Board may authorize a foreign
bank to acquire up to one hundred percent (100%) of the voting
stock of only one (1) bank organized under the laws of the
Republic of the Philippines.
Within the same period, the Monetary Board may authorize any
foreign bank, which prior to the effectivity of this Act availed
itself of the privilege to acquire up to sixty percent (60%) of the
voting stock of a bank under the Foreign Banks Liberalization
Act and the Thrift Banks Act, to further acquire voting shares
such bank to the extent necessary for it to own one hundred
percent (100%) of the voting stock thereof.
In the exercise of the authority, the Monetary Board shall adopt
measures as may be necessary to ensure that at all times the
control of seventy percent (70%) of the resources or assets of
the entire banking system is held by banks which are at least
majority-owned by Filipinos.

Any right, privilege or incentive granted to a foreign bank under
this Section shall be equally enjoyed by and extended under the
same conditions to banks organized under the laws of the
Republic of the Philippines.
b.
Filipino stockholdings
(i)
Individuals and non-bank corporations
Sec. 11, par. 1, GBL: 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.
(iii)
Domestic banks
Sec. 25, GBL: 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.
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.
c.
Stockholdings of family groups or related interests

Sec. 12, GBL: Stockholdings of Family Groups of 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
corporations or related groups of persons with the bank.
Sec. 13, GBL: 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 group of persons with the bank.
d.
Required public offering
NOTES
181
xSec. 2.2, BSP Circular No. 271 (Series of 2001)

Public offering of bank shares. A domestic bank applying for a
UB authority shall, as a condition to the approval of its
application, make a public offering of at least ten percent (10%)
of the required minimum capital and this condition must be
complied with before it can be granted the license for authority
to operate as a UB.
The term public offering shall mean the offer to sell equity
shares to the public stockholders.
Public stockholders shall refer to all stockholders, excluding the
banks directors, shareholders owning twenty percent (20%) or
more of the banks subscribed capital stock together with those
of their relatives within the fourth degree of consanguinity or
affinity, and corporations controlled or affiliated with them.
A bank whose shares of stock are already listed in the Philippine
Stock Exchange (PSE) at the time of filing of its application for
UB authority shall be deemed to have complied with the public
offering requirement. Likewise, an applicant bank may opt to
have its shares listed in the PSE directly instead of passing
through the process of public offering. In either case, at least
ten percent (10%) of the applicant banks capital stock should
be held by public stockholders before it can be granted the
license for authority to operate as a UB.
B. DIRECTORS AND OFFICERS

1. Composition of Board
Sec. 15, GBL: 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 or 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. .
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.
The meetings of the board of directors may be conducted through
modern technologies such as, but not limited to, teleconferencing and
video-conferencing.
Sec. 17, GBL: 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).
Sec. 7, Foreign Banks Liberalization Act: 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.
Sec. 23, Corporation Code: The board of directors or trustees. Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by
the board of directors or trustees to be elected from among the holders
of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year until their successors
are elected and qualified.
Every director must own at least one (1) share of the capital stock of
the corporation of which he is a director, which share shall stand in his
name on the books of the corporation. Any director who ceases to be
the owner of at least one (1) share of the capital stock of the
corporation of which he is a director shall thereby cease to be a director.
Trustees of non-stock corporations must be members thereof. a
majority of the directors or trustees of all corporations organized under
this Code must be residents of the Philippines.
2. Qualifications
a.
Own at least one share
Sec. 23, Corporation Code: See supra

b.
Fit and proper rule
Sec. 16, GBL: 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.
Cases
Busuego v. Court of Appeals, 304 SCRA 473 (1999)
FACTS
On the 16th regular examination, Central Bank examiners discovered several
anomalies and irregularities committed by PAL Employees Savings and Loan
NOTES
182
Association (PESALA). CB sent letters to the Board of Directors of PESALA

inviting them to a conference to discuss the findings. Petitioners did not
attend.
The Monetary Board adopted and issued MB Resolution No. 805, which
noted, among others, the findings in the 16th regular examination. It also
contained a provision which states:
5. To include the names of Mr. Catalino Banez, Mr. Romeo Busuego
and Mr. Renato Lim in the Sector's watchlist to prevent them from
holding responsible positions in any institution under Central Bank
supervision;
Petitioners then filed an injunction suit to enjoin the Monetary Board from
implementing the resolution putting them under a watch list. According to
them their right to due process was violated since they were not granted
opportunity to be heard.
ISSUE
(1) W/N petitioners right to due process was violated?
(2) W/N the MB Resolution is valid insofar as it deprives petitioner of the
opportunity to seek employments in the field which they can excel and
are best fitted?
HELD
1. NO. Petitioners were duly afforded their right to due process by the
Monetary Board but they did not appear. Petitioners therefore cannot
complain of deprivation of their right to due process, as they were given
ample opportunity by the Monetary Board to air their submission and
defenses as to the findings of irregularity during the said 16th regular
examination. The essence of due process is to be afforded a reasonable
opportunity to be heard and to submit any evidence one may have in
support of his defense. What is offensive to due process is the denial of the
opportunity to be heard. Petitioner having availed of their opportunity to
present their position to the Monetary Board by their letters-explanation,
they were not denied due process.
2. NO. The resolution is valid. t must be remembered that the Central Bank
of the Philippines (now Bangko Sentral ng Pilipinas), through the Monetary
Board, is the government agency charged with the responsibility of
administering the monetary, banking and credit system of the country and
is granted the power of supervision and examination over banks and nonbank financial institutions performing quasi-banking functions of which
savings and loan associations, such as PESALA, from part of.
The special law governing savings and loan associations is Republic Act No.
3779, as amended, otherwise known as the "Savings and Loan Association
Act." Said law authorizes the Monetary Board to conduct regular yearly
examinations of the books and records of savings and loans associations, to

suspend a savings and loan association for violation of law, to decide any
controversy over the obligations and duties of directors and officers, and to
take remedial measures, among others.
c.
Other minimum qualifications
xSubsec. X141.2, MRB: Qualifications of a director

A director shall have the following minimum qualifications:
a.
He shall be at least twenty-five (25) years of age at the time

of his election or appointment;
b.
He shall be at least a college graduate or have at least five

(5) years experience in business;
c.
He must have attended a special seminar on corporate

governance for board of directors conducted or accredited
by the BSP: Provided, That incumbent directors as well as
those elected after September 17, 2001 must attend said
seminar on or before June 30, 2003 or within a period of six
(6) months from date of election for those elected after June
30, 2003, as the case may be; and
d.
He must be fit and proper for the position of a director of the

bank. In determining whether a person is fit and proper for
the position of a director, the following matters must be
considered:
integrity/probity,
competence,
education,
diligence and experience/training.
The foregoing qualifications for directors shall be in addition to those

required or prescribed under R.A. No. 8791 and other existing
applicable laws and regulations.
3. Disqualifications
xSubsec. X141.2, MRB: See supra
a.
Criminal conviction
Sec. 27, Corporation Code: Disqualification of directors,

trustees or officers. - No person convicted by final judgment of an
offense punishable by imprisonment for a period exceeding six (6)
years, or a violation of this Code committed within five (5) years
prior to the date of his election or appointment, shall qualify as a
director, trustee or officer of any corporation.
Sec. 17, PDIC Charter
a. Money of the Corporation not otherwise employed shall be
invested in obligations of the Republic of the Philippines or in
NOTES
183
obligations guaranteed as to principal and interest by the Republic of

the Philippines. (As amended by R.A. 6037, 04 August 1969;
renumbered from Sec. 12 by R.A. 9302, 12 August 2004)
b. The banking or checking accounts of the Corporation shall be kept
with the Bangko Sentral ng Pilipinas, with the Philippine National
Bank, or with any other bank designated as depository or fiscal
agent of the Philippine government. (As amended by R.A. 9302, 12
August 2004)
c. It is hereby declared to be the policy of the State that the Deposit
Insurance Fund of the Corporation shall be preserved and
maintained at all times. Accordingly, all tax obligations of the
Corporation for a period of five (5) years reckoned from the date of
effectivity of this Act shall be chargeable to the Tax Expenditure
Fund (TEF) in the annual General Appropriations Act pursuant to the
provisions of Executive Order No. 93, series of 1986; Provided,
That, on the 6th year and thereafter, the Corporation shall be
exempt from income tax, final withholding tax, value-added tax on
assessments collected from member banks, and local taxes. (As
added by R.A 9576, 29 April 2009)
d. When the Corporation has determined that an insured bank is in
danger of closing, in order to prevent such closing, the Corporation,
in the discretion of its Board of Directors, is authorized to make
loans to, or purchase the assets of, or assume liabilities of, or make
deposits in, such insured bank, upon such terms and condition as
the Board of Directors may prescribe, when in the opinion of the
Board of Directors, the continued operation of such bank is essential
to provide adequate banking service in the community or maintain
financial stability in the economy. (Renumbered from Sec. 17 (c) by
R.A. 9576, 29 April 2009)
The authority of the Corporation under the foregoing paragraph to
extend financial assistance to, assume liabilities of, purchase the
assets of an insured bank may also be exercised in the case of a
closed insured bank if the Corporation finds that the resumption of
operations of such bank is vital to the interests of the community, or
a severe financial climate exists which threatens the stability of a
number of banks possessing significant resources: Provided, That
the reopening and resumption of operations of the closed bank shall
be subject to the prior approval of the Monetary Board. (As
amended by R.A. 7400, 13 April 1992)
The Corporation may provide any corporation acquiring control of,
merging or consolidating with or acquiring the assets of an insured
bank in danger of closing in order to prevent such closing or of a
closed insured bank in order to restore to normal operations, with
such financial assistance as it could provide an insured bank under

this subsection: Provided, That, within sixty (60) days from date of
assistance the Corporation shall submit a report thereof to the
Monetary Board. (As amended by R.A. 7400, 13 April 1992)
The Corporation, prior to the exercise of the powers under this
Section, shall determine that actual payoff and liquidation thereof
will be more expensive than the exercise of this power: Provided,
That when the Monetary Board has determined that there are
systemic consequences of a probable failure or closure of an insured
bank, the Corporation may grant financial assistance to such insured
bank in such amount as may be necessary to prevent its failure or
closure and/or restore the insured bank to viable operations, under
such terms and conditions as may be deemed necessary by the
Board of Directors, subject to concurrence by the Monetary Board
and without additional cost to the Deposit Insurance Fund. (As
amended by R.A. 9302, 12 August 2004)
A systemic risk refers to the possibility that failure of one bank to
settle net transactions with other banks will trigger a chain reaction,
depriving other banks of funds leading to a general shutdown of
normal clearing and settlement activity. Systemic risk also means
the likelihood of a sudden, unexpected collapse of confidence in a
significant portion of the banking or financial system with potentially
large real economic effects. Finally, the Corporation may not use its
authority under this subsection to purchase the voting or common
stock of an insured bank but it can enter into and enforce
agreements that it determines to be necessary to protect its
financial interests: Provided, That the financial assistance may take
the form of equity or quasiequity of the insured bank as may be
deemed necessary by the Board of Directors with concurrence by
the Monetary Board: Provided, further, That the Corporation shall
dispose of such equity as soon as practicable. (As amended by R.A.
9302, 12 August 2004)
b.
Public officials
Sec. 19, GBL: 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.
Sec. 5, Rural Banks Act: All members of the Board of Directors of
the rural bank shall be citizens of the Philippines at the time of their
assumption to office: Provided, however, That nothing in this Act
shall be construed as prohibiting any appointive or in any capacity in
the bank.
NOTES
184
No director or officer of any rural bank shall, either directly or

indirectly, for himself or as the representative or agent of another,
borrow any of the deposits or funds of such banks, nor shall he
become a guarantor, indorser, or surety for loans from such bank to
others, or in any manner be an obligor for money borrowed from the
bank or loaned by it except with the written approval of the majority
of the directors of the bank, excluding the director concerned. Any
such approval shall be entered upon the records of the corporation
and a copy of such entry shall be transmitted forthwith to the
appropriate supervising department. The director/officer of the bank
who violates the provisions of this section shall be immediately
dismissed from his office and shall be penalized in accordance with
Section 26 of this Act.
The Monetary Board may regulate the amount of credit
accommodations that may be extended directly to the directors,
officers or stockholders of rural banks of banking institutions.
However, the outstanding credit accommodations which a rural bank
may extend to each of its stockholders owning two percent (2%) or
more of the subscribed capital stock, its directors, or officers shall
be limited to an amount equivalent to the respective outstanding
deposits and book value of the paid-in capital contributions in the
bank.
c.
MB member/BSP personnel
Sec. 9, NCBA: Disqualifications. In addition to the

disqualifications imposed by Republic Act No. 6713, a member of the
Monetary Board is disqualified from being a director, officer,
employee, consultant, lawyer, agent or stockholder of any bank,
quasi-bank or any other institution which is subject to supervision or
examination by the Bangko Sentral, in which case such member
shall resign from, and divest himself of any and all interests in such
institution before assumption of office as member of the Monetary
Board.
The members of the Monetary Board coming from the private sector
shall not hold any other public office or public employment during
their tenure.
No person shall be a member of the Monetary Board if he has been
connected directly with any multilateral banking or financial
institution or has a substantial interest in any private bank in the
Philippines, within one (1) year prior to his appointment; likewise,
no member of the Monetary Board shall be employed in any such
institution within two (2) years after the expiration of his term
except when he serves as an official representative of the Philippine
Government to such institution.
Sec. 27, NCBA: Prohibitions. In addition to the prohibitions

found in Republic Act Nos. 3019 and 6713, personnel of the Bangko
Sentral are hereby prohibited from:
a.
b.
c.
d.
Being an officer, director, lawyer or agent, employee, consultant

or stockholder, directly or indirectly, of any institution subject to
supervision or examination by the Bangko Sentral, except nonstock savings and loan associations and provident funds
organized exclusively for employees of the Bangko Sentral, and
except as otherwise provided in this Act;
Directly or indirectly requesting or receiving any gift, present or
pecuniary or material benefit for himself or another, from any
institution subject to supervision or examination by the Bangko
Sentral;
Revealing in any manner, except under orders of the court, the
Congress or any government office or agency authorized by law,
or under such conditions as may be prescribed by the Monetary
Board, information relating to the condition or business of any
institution. This prohibition shall not be held to apply to the
giving of information to the Monetary Board or the Governor of
the Bangko Sentral, or to any person authorized by either of
them, in writing, to receive such information; and
Borrowing from any institution subject to supervision or
examination by the Bangko Sentral shall be prohibited unless
said borrowings are adequately secured, fully disclosed to the
Monetary Board, and shall be subject to such further rules and
regulations as the Monetary Board may prescribe: Provided,
however, That personnel of the supervising and examining
departments are prohibited from borrowing from a bank under
their supervision or examination.
4. Compensation and Other Benefits

Sec. 18, GBL: Compensation and Other Benefits of Directors and
Officers. To protect the finds of depositors and creditors the Monetary
Board may regulate the payment by the bark 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:
NOTES
185
for reasonable pre diems: Provided, however, That any such

compensation other than per diems may be granted to directors by the
vote of the stockholders representing at least a majority of the
outstanding capital stock at a regular or special stockholders' meeting.
In no case shall the total yearly compensation of directors, as such
directors, exceed ten (10%) percent of the net income before income
tax of the corporation during the preceding year.
5. Meetings
Sec. 15, par. 3, GBL: The meetings of the board of directors may be
conducted through modern technologies such as, but not limited to,
teleconferencing and video-conferencing.
Sec. 25, Corporation Code: Corporate officers, quorum. Immediately after their election, the directors of a corporation must
formally organize by the election of a president, who shall be a director,
a treasurer who may or may not be a director, a secretary who shall be
a resident and citizen of the Philippines, and such other officers as may
be provided for in the by-laws. Any two (2) or more positions may be
held concurrently by the same person, except that no one shall act as
president and secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the
duties enjoined on them by law and the by-laws of the corporation.
Unless the articles of incorporation or the by-laws provide for a greater
majority, a majority of the number of directors or trustees as fixed in
the articles of incorporation shall constitute a quorum for the transaction
of corporate business, and every decision of at least a majority of the
directors or trustees present at a meeting at which there is a quorum
shall be valid as a corporate act, except for the election of officers which
shall require the vote of a majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings.
6. Powers of Directors
a.
General Powers
18.3. When a bank is found by the Monetary Board to be in an

unsatisfactory financial condition.
Sec. 23, Corporation Code: The board of directors or trustees.

- Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held
by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year
until their successors are elected and qualified.
Sec. 30, Corporation Code: Compensation of directors. - In the

absence of any provision in the by-laws fixing their compensation, the
directors shall not receive any compensation, as such directors, except
Every director must own at least one (1) share of the capital stock
of the corporation of which he is a director, which share shall stand
in his name on the books of the corporation. Any director who
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
NOTES
ceases to be the owner of at least one (1) share of the capital stock
of the corporation of which he is a director shall thereby cease to be
a director. Trustees of non-stock corporations must be members
thereof. a majority of the directors or trustees of all corporations
organized under this Code must be residents of the Philippines.
(10)
To meet regularly
(11)
To keep the individual members of the board and the
shareholders informed.
(12)
To ensure that the bank has beneficial influence on the
economy.
(13)
To assess at least annually its performance and
effectiveness as a body, as well as its various committees, the
chief executive officer and the bank itself.
(14)
To keep their authority within the powers of the institution
as prescribed in the articles of incorporation, charter, by-laws
and in existing laws, rules and regulations.
xSubsec. X141.3, MRB: General responsibility of the board of

directors. The position of a bank director is a position of trust. A
director assumes certain responsibilities to different constituencies
or stakeholders, i.e., the bank itself, its stockholders, its depositors
and other creditors, its management and employees, and the public
at large. These constituencies or stakeholders have the right to
expect that the institution is being run in a prudent and sound
manner.
c.
Specific Duties/ Responsibilities
xSubsec. X141.5, MRB: Specific duties and responsibilities of the

board of directors
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
To select and appoint officers who are qualified to administer

the banks affairs effectively and soundly and to establish
adequate selection process for all personnel.
To establish objectives and draw up a business strategy for
achieving them.
To conduct the affairs of the institution with high degree of
integrity.
To establish and ensure compliance with sound written
policies.
To prescribe a clear assignment of responsibilities and
decision-making authorities, incorporating a hierarchy of
required approvals from individuals to the board of directors.
To effectively supervise the banks affairs.
To monitor, assess and control the performance of
management.
To adopt and maintain adequate risk management policy.
To constitute the following committees (optional for banks
with net worth of less than P20 million but mandatory if a
subsidiary of other banks)
Certification of Directors
xBSP Circular No. 283 (Series of 2001): The directors concerned

shall each be required to acknowledge receipt of the copies of such
specific duties and responsibilities and shall certify that they fully
understand the same.
The board of directors is primarily responsible for the corporate

governance of the bank. To ensure good governance of the bank,
the board of directors should establish strategic objectives, policies
and procedures that will guide and direct the activities of the bank
and the means to attain the same as well as the mechanism for
monitoring managements performance. While the management of
the day-to-day affairs of the institution is the responsibility of the
management team, the board of directors is, however, responsible
for monitoring and overseeing management action.
b.
186
Copies of the acknowledgement and certification herein required

shall be submitted to the appropriate supervisory and examining
department of SES within fifteen (15) days from date thereof. It
shall be considered a major report (category a-2) and delay in its
submission shall be subject to penalty in accordance with existing
regulations.
7. Doctrine of Apparent Authority
Cases
Prudential Bank v. Court of Appeals, 223 SCRA 350 (1993)
FACTS
Aurora Cruz invested P200k in Central Bank bills with Prudential Bank. The
placement was for 63 days at 13.75% annual interest. For this purpose, the
amount of P196,122.88 was withdrawn from her account and applied to the
investment. The difference of P3,877.07 represented the pre-paid interest.
Susan Quimbo was the employee of the bank to whom Cruz was referred
and who was apparently in charge of such transactions. The transaction was
evidenced by a Confirmation of Sale delivered to Cruz , together with a
Debit Memo in the amount withdrawn and applied to the confirmed sale.
Upon maturity of the placement, Cruz returned to the bank to "roll-over" or
renew her investment. Quimbo, who again attended to her, prepared a
Credit Memo crediting the amount of P200k in Cruz's savings account
passbook. She also prepared a Debit Memo for the amount of P196,122.88
to cover the re-investment of P200,000.00 minus the prepaid interest of
P3,877.02.This time, Cruz was asked to sign a Withdrawal Slip for
P196,122.98, representing the amount to be re-invested after deduction of
the prepaid interest. Quimbo explained this was a new requirement of the
bank. Several days later, Cruz received another Confirmation of Sale and a
NOTES
187
copy of the Debit Memo.
is considered as entered into between the principal and the third person.
Subsequently, Cruz returned to the bank and sought to withdraw her P200k.
However, she was informed that the investment appeared to have been
already withdrawn by her (on the same day of the renewal) There was no
copy on file of the (2nd) Confirmation of Sale and the Debit Memo allegedly
issued to her by Quimbo. Quimbo herself was not available for questioning
as she had not been reporting for the past week. Shocked by this
information, Cruz became hysterical and burst into tears.
A bank is liable for wrongful acts of its officers done in the interests of the
bank or in the course of dealings of the officers in their representative
capacity but not for acts outside the scope of their authority. A bank holding
out its officers and agent as worthy of confidence will not be permitted to
profit by the frauds they may thus be enabled to perpetrate in the apparent
scope of their employment; nor will it be permitted to shirk its responsibility
for such frauds, even though no benefit may accrue to the bank therefrom.
Accordingly, 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, in the particular case,
the agent is secretly abusing his authority and attempting to perpetrate a
fraud upon his principal or some other person, for his own ultimate benefit.
She then filed suit for breach of contract against the bank. The RTC and CA
awarded damages in her favor.
ISSUE
Whether or not the bank should be liable (for Quimbo's acts)?
HELD
1. "It could not be that plaintiff Aurora F. Cruz withdrew only the amount of
P196,122.98 from their savings account, if her only intention was to make
such a withdrawal. For, if, indeed, it was the desire of the plaintiffs to
withdraw their money from the defendant/third-party plaintiff, they could
have withdrawn an amount in round figures. Certainly, it is unbelievable
that their withdrawal was in the irregular amount of P196,122.98."
2. "The bank has also not succeeded in impugning the authenticity of the
Confirmation of Sale and the Debit Memo which were made on its official,
forms...[e]ven assuming that they were not signed by its authorized
officials, as it claims, there was no obligation on the part of Cruz to verify
their authority because she had the right to presume it. The documents had
been issued in the office of the bank itself and by its own employees with
whom she had previously dealt. Such dealings had not been questioned
before, much leas invalidated. There was absolutely no reason why she
should not have accepted their authority to act on behalf of their employer."
3. "The liability of the principal for the acts of the agent is not even
debatable. Law and jurisprudence are clearly and absolutely against the
petitioner. He who does a thing by an agent is considered as doing it
himself. This rule is affirmed by the Civil Code thus:
Art. 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his authority.
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers.
Conformably, we have declared in countless decisions that the principal is
liable for obligations contracted by the agent. The agent's apparent
representation yields to the principal's true representation and the contract
First Philippine International Bank v. Court of Appeals, 252 SCRA 259

(1996)
FACTS
Producer Bank (now FPIB) obtained six parcels of land with a size o totaling
to 101 hectares. Demetrio Demeteria and Jose Janolo wanted to buy the
property, for which they wrote a letter with Mercurio Rivera, Manager of the
Property Management Department of the bank, offering P3.5M. Rivera wrote
back, making a counter-offer worth P5.5M. Demetria and Janolo made
another counter-offer worth P4.25M for which the bank did not reply to. Two
weeks later, they met with the majority stockholder, Mr. Co and Rivera, and
eventually accepted the P5.5M counter-offer. Two weeks had passed, the
bank was put under conservatorship. Demetria and Janolo demanded the
compliance for their agreement, which the bank ignored. After multiple
demands, they filed a case for specific performance, tendering payment with
the court. The bank lost with the RTC and CA level.
ISSUES
Whether there was a perfected contract of sale
RULING
1. Yes. Although a counter-offer was made for P4.25M and was rejected by
the bank, the previous offer of P5.5M was revived when the respondents
met with Co and Rivera, to which they acceded two days after. This was
evidenced by the letter and their meetings. Since there was meeting of the
minds, when the bank offered a price, to which respondents accepted,
object, the six parcels of land, and price, worth P5.5M, there was a
perfected contract of sale.
***Petitioners contend that Rivera did not have the authority to negotiate
as to the property involved in the litigation. There had been an apparent
authority when Rivera was the Manager of the Property Management
Department; he was the one who talks to potential buyers of such property;
NOTES
he referred the prices offered to him to the committee that decided the
counter-offer worth P5.5M; he was present in all transactions involving the
property. The bank cannot feign ignorance to the acts of its Manager that
handled the property.
BPI Family Savings Bank, Inc.

Corporation, 429 SCRA 30 (2004)
v.
First
Metro
Investment
FACTS
Respondent FMIC, through Executive VP Ong, opened an account and
deposited P100 million to petitioner BPI FB. Ong made the deposit upon
request of his friend who is a close acquaintance of Sebastian, then Branch
Manager of the BPI FB branch. Sebastians aim was to increase the deposit
level in his Branch.
BPI FB, through Sebastian, guaranteed a payment of 17% per annum
interest of what was deposited by FMIC. The latter, in turn, assured BPI FB
that it will maintain its deposit for a period of one year on condition that the
interest of 17% per annum is paid in advance. This agreement between the
parties was reached through their communications in writing. BPI FB paid
FMIC 17% interest upon clearance of the latters check deposit. However, on
the basis of an Authority to Debit signed by Ong, BPI FB transferred P80
million from FMICs current account to the savings account of Tevesteco.
claiming that the signatures were falsified. To recover immediately its
deposit, FMIC, issued a BPI FB check payable to itself and drawn on its
deposit with BPI FB. But upon presentation for payment, BPI FB dishonored
the check as it was "drawn against insufficient funds".
FMIC filed with the RTC against BPI FB. The court adjudged BPI FB liable to
FMIC for the amount plus interest at 17% per annum, among others. BPI FB
then filed a motion for reconsideration which was denied. Petitioner BPI FB
contended that the CA erred in awarding the 17% per annum interest
corresponding to the amount deposited by respondent FMIC. Petitioner
insists that respondents deposit is not a special savings account similar to a
time deposit, but actually a demand deposit, withdrawable upon demand,
proscribed from earning interest. It also contended that the transaction is
not valid as its Branch Manager clearly overstepped his authority in entering
into such an agreement with Ong.
ISSUE
Whether the deposit is a demand deposit or a time deposit?
(Relevant) Whether the bank was bound by the acts of its Branch Manager?
188
RULING
Its a time deposit. While it may be true that barely one month and seven
days from the date of deposit, respondent FMIC demanded the withdrawal
through the issuance of a check payable to itself, the same was made as a
result of the fraudulent and unauthorized transfer by petitioner BPI FB of its
P80 million deposit to Tevestecos savings account. It was a normal reaction
of respondent as a depositor to petitioners failure in its fiduciary duty to
treat its account with the highest degree of care. Under this circumstance,
the withdrawal of deposit by respondent FMIC before the one-year maturity
date did not change the nature of its time deposit to one of demand deposit.
Petitioner bound by the act of its Branch Manager. Petitioner maintains that
respondent should have first inquired whether the deposit of P100 Million
and the fixing of the interest rate were pursuant to its internal procedures.
Petitioners stance is a futile attempt to evade an obligation clearly
established by the intent of the parties. What transpires in the corporate
board room is entirely an internal matter. Hence, petitioner may not impute
negligence on the part of respondents representative in failing to find out
the scope of authority of Sebastian. Indeed, the public has the right to
rely on the trustworthiness of bank managers and their acts.
Significantly, the transaction was actually acknowledged and ratified by
petitioner when it paid respondent in advance the interest for one year.
Thus, petitioner is estopped from denying that it authorized Sebastian to
enter into an agreement with Ong concerning the deposit with the
corresponding 17% interest per annum.
Associated Bank v. Pronstroller, 558 SCRA 113 (2008)

FACTS
In 1988, Spouses Vaca executed a REM in favor of Associated Bank (now
United Overseas Bank) over a parcel of residential land and the house
constructed thereon.
For failure to pay, the property was sold at a public auction with the bank as
the highest bidder.
However, Spouses Vaca commenced an action for the nullification of the
REM and the foreclosure sale. A writ of possession was granted by the CA,
after it was denied by the RTC. This CA decision was questioned by Spouses
Vaca before the SC in another case.
Pending these cases, the bank advertised the property for sale for P9.7M.
Spouses Pronstroller offered to purchase the property for P7.5M, which was
accepted by the bank.
NOTES
189
Prior to the expiration of the 90-day period within which to make the escrow
deposit (as stipulated in the Letter-Agreement setting forth the terms and
conditions of the sale), Spouses Pronstroller requested that the balance of
the purchase price be made payable only upon service on them of a final
decision of the SC affirming the bank's right to possess the property. Atty.
Soluta, acting for the bank, allowed the Spouses' request.
certain acts for and on his behalf, the board may validly delegate some of
its functions and powers to officers, committees and agents. The authority
of such individuals to bind the corporation is generally derived from law,
corporate bylaws or authorization from the board, either expressly or
impliedly, by habit, custom, or acquiescence, in the general course of
business.
In 1994, the bank reorganized its management. Atty. Dayday replaced Atty.
Soluta as Asst. VP and Head of Documentation Section. Atty. Dayday
discovered that Spouses Pronstroller failed to pay the balance of the
purchase price and that they requested extension of time to pay. Upon
referral to ARRMC (Asset Recovery and Remedial Management Committee),
it was disapproved. Consequently, this was referred to the bank's Legal
Department for rescission of the contract.
The authority of a corporate officer or agent in dealing with third persons

may be actual or apparent. The doctrine of "apparent authority," with
special reference to banks, had long been recognized in this jurisdiction.
Apparent authority is derived not merely from practice. Its existence may be
ascertained through 1) the general manner in which the corporation holds
out an officer or agent as having the power to act, or in other words, the
apparent authority to act in general, with which it clothes him; or 2) the
acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of his ordinary powers.
Spouses Pronstroller proposed to pay the balance of the purchase price

(P3M upon approval and the balance after 6 months). But this was
disapproved by the bank's president and will only be allowed if they would
pay interest at 24.5% p.a. on the unpaid balance.
For failure to arrive to an agreement, Spouses Pronstroller reiterated that
they would enforce their agreement with Atty. Soluta. However, Atty.
Soluta's authority to enter into that agreement was denied by the bank.
In 1994, Spouses Pronstroller instituted this suit against the bank. The bank
countered saying that their contract had already been rescinded because of
the Spouses' failure to deposit in escrow the balance of the purchase price.
During the pendency of this case, the bank sold the property to Spouses
Vaca, who registered the sale.
RTC ruled in favor of Spouses Pronstroller on the ground of the rule of
"Apparent Authority" vested upon Atty. Soluta. CA affirmed ruling further
that the bank had no right to unilaterally rescind the contract and that the
bank were estopped from questioning the efficacy of the Soluta-Pronstroller
agreement because of its failure to repudiate the same for 1 year.
ISSUE
Whether the bank is bound by the agreement signed by Atty. Soluta under
the doctrine of apparent authority
RULING
YES. The general rule is that, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a corporation.
The power and responsibility to decide whether the corporation should enter
into a contract that will bind the corporation is lodged in the board of
directors. However, just as a natural person may authorize another to do
Accordingly, the authority to act for and to bind a corporation may be

presumed from acts of recognition in other instances, wherein the power
was exercised without any objection from its board or shareholders.
Undoubtedly, petitioner had previously allowed Atty. Soluta to enter into the
first agreement without a board resolution expressly authorizing him; thus,
it had clothed him with apparent authority to modify the same via the
second letter-agreement. It is not the quantity of similar acts which
establishes apparent authority, but the vesting of a corporate officer with
the power to bind the corporation.
Naturally, the third person has little or no information as to what occurs in
corporate meetings; and he must necessarily rely upon the external
manifestations of corporate consent. The integrity of commercial
transactions can only be maintained by holding the corporation strictly to
the liability fixed upon it by its agents in accordance with law. What
transpires in the corporate board room is entirely an internal matter. Hence,
petitioner may not impute negligence on the part of the respondents in
failing to find out the scope of Atty. Soluta's authority. Indeed, the public
has the right to rely on the trustworthiness of bank officers and their acts.
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.

8. Prohibited Acts
Sec. 55.1, GBL: No director, officer, employee, or agent of any bank
shall
NOTES
190
Philippine branches of a foreign bank, the head office of such branches

shall fully guarantee the prompt payment of all liabilities of its Philippine
branch.
(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;
Residents and citizens of the Philippines who are creditors of a branch in

the Philippines of a foreign bank shall have preferential rights to the
assets of such branch in accordance with the existing laws.
(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.
2. Banking Days and Hours
C. BANK OPERATIONS
1. Branches
Sec. 20, GBL: 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.
Sec. 74, GBL: Local Branches of Foreign Banks. In the case of a
foreign bank which has more than one (1) branch in the Philippines, all
such branches shall be treated as one (1) unit for the purpose of this
Act, and all references to the Philippine branches of foreign banks shall
be held to refer to such units.
Sec. 75, GBL: Head Office Guarantee. In order to provide effective
protection of the interests of the depositors and other creditors of
Sec. 21, GBL: 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.
3. Independent Auditor
Sec. 58, GBL: Independent Auditor. - The Monetary Board may require
a bank, quasi-bank or trust entity to engage the services of an
independent auditor to be chosen by the bank, quasi-bank or trust
entity concerned from a list of certified public accountants acceptable to
the Monetary Board. The term of the engagement shall be as prescribed
by the Monetary Board which may either be on a continuing basis where
the auditor shall act as resident examiner, or on the basis of special
engagements; but in any case, the independent auditor shall be
responsible to the banks, quasi-banks or trust entitys board of
directors. A copy of the report shall be furnished to the Monetary
Board. The Monetary Board may also direct the board of directors of a
bank, quasi-bank, trusty entity and/or the individual members thereof;
to conduct, either personally or by a committee created by the board,
an annual balance sheet audit of the bank, quasi-bank or trust entity to
review the internal audit and control system of the bank, quasi-bank or
trust entity and to submit a report of such audit.
4. Financial Statements
Sec. 60, GBL: Financial Statements. Every bank, quasi-bank or trust
entity shall submit to the appropriate supervising and examining
department of the Bangko Sentral financial statements in such form and
frequency as may be prescribed by the Bangko Sentral. Such
statements, which shall be as of a specific date designated by the
Bangko Sentral, shall show thee actual financial condition of the

institution submitting the statement, and of its branches, offices,
subsidiaries and affiliates, including the results of its operations, and
shall contain such information as may be required in Bangko Sentral
regulations.
Sec. 61, GBL: Publication of Financial Statements. - Every bank, quasibank or trust entity, shall publish a statement of its financial condition,
including those of its subsidiaries and affiliates, in such terms
understandable to the layman and in such frequency as may be
prescribed Bangko Sentral, in English or Filipino, at least once every
quarter in a newspaper of general circulation in the city or province
where the principal office, in the case of a domestic institution or the
principal branch or office in the case of a foreign bank, is located, but if
no newspaper is published in the same province, then in a newspaper
published in Metro Manila or in the nearest city or province.
The Bangko Sentral may by regulation prescribe the newspaper where
the statements prescribed herein shall be published. .
The Monetary Board may allow the posting of the financial statements of
a bank, quasi-bank or trust entity in public places it may determine, lieu
of the publication required in the preceding paragraph, when warranted
by the circumstances.
Additionally, banks shall make available to the public in such form and
manner as the Bangko Sentral may prescribe the complete set of its
audited financial statements as well as such other relevant information
including those on enterprises majority-owned or controlled by the
bank, that will inform the public of the true financial condition of a bank
as of any given time. .
In periods of national and/or local emergency or of imminent panic
which directly threaten monetary and banking stability, the Monetary
Board, by a vote of at least five (5) of its members, in special cases and
upon application of the bank, quasi-bank or trust entity, may allow such
bank, quasi-bank or trust entity to defer for a stated period of time the
publication of the statement of financial condition required herein.
Sec. 62, GBL: Publication of Capital Stock. A bank, quasi-bank or
trust entity incorporated under the laws of the Philippines shall not
publish the amount of its authorized or subscribed capital stock without
indicating at the same time and with equal prominence, the amount of
its capital actually paid up.
No branch of any foreign bank doing business in the Philippines shall in
any way announce the amount of the capital and surplus of its head
office, or of the bank in its entirety without indicating at the same time
and with equal prominence the amount of the capital, if any, definitely
assigned to such branch, such fact shall be stated in, and shall form part
of the publication.
NOTES
191
5. Electronic Transactions
Sec. 59, GBL: Authority to Regulate Electronic Transactions. - The
Bangko Sentral shall have full authority to regulate the use of electronic
devices, such as computers, and processes for recording, storing and
transmitting information or data in connection with the operations of a
bank; quasi-bank or trust entity, including the delivery of services and
products to customers by such entity.
6. Unsound Banking Practice
Sec. 56, GBL: 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.
a.
Factors to be considered by MB
b.
Effect of persistence in conducting business in unsafe and

unsound manner

7. Settlement of Disputes
Sec. 63, GBL: Settlement of Disputes. The provisions of any law to
the contrary notwithstanding, the Bangko Sentral shall be consulted by
other government agencies or instrumentalities in actions or
proceedings initiated by or brought before them involving controversies
in banks, quasi-banks or trust entities arising out of and involving
relations between and among their directors, officers or stockholders, as
well as disputes between any or all of them and the bank, quasi-bank or
trust entity of which they are directors, officers or stockholders.
Cases
Home Bankers Savings and Trust Co. v. Court of Appeals, 318 SCRA
558 (1999)
FACTS
Victor Tancuan issued a check amounting to P25,250,000 while Eugene
Arriesgado issued 3 checks, all amounting to P25,200,000. Both exchanged
each others check and deposited them with their respective banks for
collection. When Far East Bank and Trust Company (FEBTC) presented
Victors check to Home Bankers Savings and Trust Company (HBSTC),
HBSTC dishonored the check for insufficiency of funds. on the other hand,
when HBSTC presented Eugenes checks to FEBTC, it was also dishonored
for insufficiency. HBSTC returned the checks to FEBTC through the Philippine
Clearing House Corporation for the reason Beyond Reglementary Period,
implying that HBSTC already treasted Eugenes checks as cleared and
allowed to be withdrawn.
Now, FEBTC demands reimbursements for the returned checks. The issue
was subjected for arbitration. However, during the pendency of the
arbitration, FEBTC filed a case in court with prayer for attachment. HBSTC
countered with a motion to dismiss, arguing the case cannot be filed while
the arbitration is still on going. The LC ruled dismissed the motion of
FEBTC.
ISSUE
W/N FEBTC can file a separate case in court over the same subject matter of
an arbitration, while the arbitration is still ongoing.
RULING
YES. Section 14 of of RA 876 Arbitration Law allows any party to the
arbitration proceeding to petition the court to take measures to safeguard
and/or conserve any matter which is the subject of the dispute in
arbitration
Section 14. Subpoena and subpoena duces tecum. - Arbitrators shall
have the power to require any person to attend a hearing as a witness.
They shall have the power to subpoena witnesses and documents when
NOTES
192
the relevancy of the testimony and the materiality thereof has been
demonstrated to the arbitrators. Arbitrators may also require the
retirement of any witness during the testimony of any other witness. All
of the arbitrators appointed in any controversy must attend all the
hearings in that matter and hear all the allegations and proofs of the
parties; but an award by the majority of them is valid unless the
concurrence of all of them is expressly required in the submission or
contract to arbitrate. The arbitrator or arbitrators shall have the
power at any time, before rendering the award, without prejudice
to the rights of any party to petition the court to take measures to
safeguard and/or conserve any matter which is the subject of the
dispute in arbitration.
Participants in the regional clearing operations of the Philippine Clearing
House Corporation cannot bypass the arbitration process laid out by
the body and seek relief directly from the courts. In the case at bar,
undeniably, private respondent has initiated arbitration proceedings as
required by the PCHC rules and regulations, and pending arbitration has
sought relief from the trial court for measures to safeguard and/or conserve
the subject of the dispute under arbitration, as sanctioned by section 14 of
the Arbitration Law, and otherwise not shown to be contrary to the PCHC
rules and regulations.
Basically, the case filed by FEBTC is allowed on the ground of primarily
taking measures to safeguard the subject matter of the dispute
(attachment), notwithstanding the arbitration proceedings.
Allied Banking Corporation v. Court of Appeals, 294 SCRA 803 (1998)

FACTS
Hyatt Terraces Baguio issued two crossed checks drawn against Allied
Banking Corp. (hereinafter, ALLIED) in favor of appellee Meszellen
Commodities Services, Inc. (hereinafter, MESZELLEN). Said checks were
deposited on August 5, 1980 and August 18, 1980, respectively, with the
now defunct Commercial Bank and Trust Company (hereinafter,
COMTRUST). Upon receipt of the above checks, COMTRUST stamped at the
back thereof the warranty "All prior endorsements and/or lack of
endorsements guaranteed." After the checks were cleared through the
Philippine Clearing House Corporation (hereinafter, PCHC), ALLIED BANK
paid the proceeds of said checks to COMTRUST as the collecting bank.
On March 17, 1981, the payee, MESZELLEN, sued the drawee, ALLIED
BANK, for damages which it allegedly suffered when the value[s] of the
checks were paid not to it but to some other person.
Before defendant ALLIED BANK could finish presenting its evidence, it filed a
third party complaint against Bank of the Philippine Islands (hereinafter,
BPI, appellee herein) as successor-in-interest of COMTRUST, for
reimbursement in the event that it would be adjudged liable in the main

case to pay plaintiff, MESZELLEN.
A Motion to Dismiss was filed by BPI on the ground that the trial court had
no jurisdiction over the case as they are subject to mandatory arbitration
under the PCHC Rules.
NOTES
193
petition for review in the earlier case filed by respondent at the RTC Makati.
Respondent filed a Motion to Dismiss Petition for Review for Lack of
jurisdiction. RTC upheld and stated that petitioner should have been filed as
a separate case.
ISSUE
ISSUE
Whether or not the trial court has jurisdiction over the Third Party Complaint
of ALLIED against BPI.
Whether or not RTC erred in dismissing the Petition of Petitioner for lack of
jurisdiction on the ground it should have been docketed as a separate case?
HELD
RULING
NO. The parties are subject to mandatory arbitration.
Sec. 38 Arbitration
Any dispute or controversy between two or more clearing
participants involving any check/item cleared thru PCHC shall be
submitted to the Arbitration Committee, upon written complaint of
any involved participant by filing the same with the PCHC serving
the same upon the other party or parties, who shall within fifteen
(15) days after receipt thereof file with the Arbitration Committee its
written answer to such written complaint and also within the same
period serve the same upon the complaining participant, . . . .
We defer to the primary authority of PCHC over the present dispute,
because its technical expertise in this field enables it to better resolve
questions of this nature. This is not prejudicial to the interest of any party,
since primary recourse to the PCHC does not preclude an appeal to the
regional trial courts on questions of law.
Insular Savings Bank v. Far East Bank and Trust Company, 492 SCRA
145 (2006)
FACTS
Far East filed a complaint against Home Banks Trust and Company (HBTC)
with the Philippine Clearing House Corporations (PCHC) arbitration
committee for 25.2M. for the total amount of three checks drawn and
debited against its clearing account. HBTC sent these checks to respondent
for to respondent for clearing through the PCHC clearing system.
Respondent dishonour the checks for insuffiency of funds and returned to
HBTC however, the latter refused to accept them since the checks were
returned by respondent after the reglementary regional clearing period.
Pending arbitration respondent filed another complaint but this time with the
RTC in Makati. The RTC then suspended the case pending the outcome of
arbitration.
Arbitration was in favour of respondent and petitioners were told to pay the
25.2M. MR was denied at the arbitration committee so petitioner filed a
Petition Lacks merit. RTC ruling upheld except for ruling on requirement to
file a separate case.
PCHC has its own rules of procedure for arbitration. However, this is
governed by the arbitration law and supplemented by the rules of court. As
provided in the PCHC rules, the findings of facts of the decision or awared
rendered by the Arbitration Committee shall be final and conclusive upon all
the parties in said arbitration dispute. Under Article 2055 of the Civil Code,
the validy of any stipulation on the finality of arbitratiors award or decision
is recognized however, where the conditions desrbied in articles 2038-2040
applicable to both compromises and arbitration obtaining, the arbitrators
awards may be annulled or resciended. Consequently, the decision of the
arbi committee is subject to judicial review.
Furthermore, petitioner had several judicial remedies available at its
disposal after the Arbitration Committee denied its Motion for
Reconsideration. It may petition the proper RTC to issue an order
vacating the award on the grounds provided for under Section 24 of the
Arbitration Law. Petitioner likewise has the option to file a petition for
review under Rule 43 of the Rules of Court with the Court of Appeals on
questions of fact, of law, or mixed questions of fact and law. Lastly,
petitioner may file a petition for certiorari under Rule 65 of the Rules of
Court on the ground that the Arbitrator Committee acted without or in
excess of its jurisdiction or with grave abuse of discretion amounting to lack
or excess of jurisdiction. Since this case involves acts or omissions of a
quasi-judicial agency, the petition should be filed in and cognizable only by
the Court of Appeals.
In this instance, petitioner did not avail of any of the
abovementioned remedies available to it. Instead it filed a petition
for review with the RTC where Civil Case No. 92-145 is pending
pursuant to Section 13 of the PCHC Rules to sustain its action.
Clearly, it erred in the procedure it chose for judicial review of the
arbitral award.
In the instant case, petitioner and respondent have agreed that the PCHC
Rules would govern in case of controversy. However, since the PCHC
Rules came about only as a result of an agreement between and

among member banks of PCHC and not by law, it cannot confer
jurisdiction to the RTC. Thus, the portion of the PCHC Rules granting
jurisdiction to the RTC to review arbitral awards, only on questions
of law, cannot be given effect.
Consequently, the proper recourse of petitioner from the denial of its motion
for reconsideration by the Arbitration Committee is to file either a motion to
vacate the arbitral award with the RTC, a petition for review with the Court
of Appeals under Rule 43 of the Rules of Court or a petition for certiorari
under Rule 65 of the Rules of Court.
In the case at bar, petitioner filed a petition for review with the RTC
when the same should have been filed with the Court of Appeals
under Rule 43 of the Rules of Court. Thus, the RTC of Makati did not
err in dismissing the petition for review for lack of jurisdiction but
not on the ground that petitioner should have filed a separate case
but on the necessity of filing the correct petition in the proper court. It is
immaterial whether petitioner filed the petition for review in Civil
Case No. 92-145 as an appeal of the arbitral award or whether it
filed a separate case in the RTC, considering that the RTC will only
have jurisdiction over an arbitral award in cases of motions to
vacate the same. Otherwise, as elucidated herein, the Court of Appeals
retains jurisdiction in petitions for review or in petitions for
certiorari.
D. OTHER REGULATIONS
1. Risk Based Capital
Sec. 34, GBL: 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 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
NOTES
194
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,
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 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.
a.
MB Authority
b.
Effect of Non-Compliance
2. Major Investments/Ownership of Real Property

Sec. 50, GBL: Major Investments. - For the purpose or enhancing bank
supervision, the Monetary Board shall establish criteria for reviewing
major acquisitions of investments by a bank including corporate
affiliations or structures that may expose the bank to undue risks or in
any way hinder effective supervision.
Sec. 51, GBL: 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 banks total investment in real estate, unless otherwise provided
by the Monetary Board.
Sec. 52, GBL: 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;
52.3. 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.
3. Declaration of Dividends
Sec. 57, GBL: Prohibition on Dividend Declaration. No bank or quasibank shall 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.
E. PENALTY FOR VIOLATIONS

Sec. 66, GBL: 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.
Sec. 34, NCBA: Refusal to Make Reports or Permit Examination.
Any officer, owner, agent, manager, director or officer-in-charge of any
institution subject to the supervision or examination by theBangko Sentral
within the purview of this Act who, being required in writing by the
Monetary Board or by the head of the supervising and examining
department willfully refuses to file the required report or permit any lawful
examination into the affairs of such institution shall be punished by a fine of
not less than Fifty thousand pesos (P50,000) nor more than One hundred
NOTES
195
thousand pesos (P100,000) or by imprisonment of not less than one (1)

year nor more than five (5) years, or both, in the discretion of the court.
Sec. 35, NCBA: False Statement. The willful making of a false or
misleading statement on a material fact to the Monetary Board or to the
examiners of the Bangko Sentral shall be punished by a fine of not less than
One hundred thousand pesos (P100,000) nor more than Two hundred
thousand pesos (P200,000), or by imprisonment of not more than (5) years,
or both, at the discretion of the court.
Sec. 36, NCBA: 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 willfully
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.
Sec. 37, NCBA: 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 willful violation of its charter or by-laws, willful 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 willful making of a false or misleading statement to the
Board or the appropriate supervising and examining department or its
examiners; any willful 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 of 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.
NOTES
196
Cases
Perez v. Monetary Board, 20 SCRA 592 (1967)
FACTS
Perez instituted mandamus proceedings against the Monetary Board, the
Superintendent of Banks, the Central Bank and the Secretary of Justice. His
object was to compel respondents to prosecute, Pablo Roman and several
other Republic Bank officials for violations of the General Banking Act
(specifically secs. 76-78 and 83 thereof) and the Central Bank Act, and for
falsification of public or commercial documents in connection with certain
alleged anomalous loans authorized by Roman and the other bank officials.
Respondents assailed the propriety of mandamus. The Secretary of Justice
claimed that it was not their specific duty to prosecute the persons
denounced by Perez. The Central Bank and its respondent officials, on the
other hand, averred that they had already done their duty under the law by
referring to the special prosecutors of the Department of Justice for criminal
investigation and prosecution those cases involving the alleged anomalous
loans.
ISSUE
W/N mandamus would lie against respondents? (specifically the Central
Bank)
HELD
NO. The Central Bank and its respondent officials may have the duty under
the Central Bank Act and the General Banking Act to cause the prosecution
of those alleged violators, yet We find nothing in said laws that imposes a
clear, specific duty on the former to do the actual prosecution of the latter.
The Central Bank is a government corporation created principally to
administer the monetary and banking system of the Republic, not a
prosecution agency like the fiscal's office. Being an artificial person, The
Central Bank is limited to its statutory powers and the nearest power to
which prosecution of violators of banking laws may be attributed is its power
to sue and be sued. But this corporate power of litigation evidently refers to
civil cases only.
The Central Bank and its respondent officials have already done all they
could, within the confines of their powers, to cause the prosecution of those
persons denounced by Perez.
VII. BANKS IN DISTRESS;

CESSATION OF BANKING BUSINESS
A. LOANS TO BANKS
1. Loans without collateral
Sec. 83, NCBA: 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.
2. Emergency loans
Sec. 84, NCBA: 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 bankconcerned:
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 twentyfive 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
NOTES
197
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 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.
B. CONSERVATORSHIP
Sec. 67, GBL: 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.
Sec. 29, NCBA: 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
conservatorshall 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 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 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 emolument 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.
NOTES
198
Sec. 30, NCBA: 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 in 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) 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 nonspeculative 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.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 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 institutions 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.
Sec. 5, FRIA: 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
NOTES
199
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.
1. Grounds
Sec. 29, par. 1, NCBA: 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 quasibank.
2. Appointment of Conservator
Sec. 29, par. 1, NCBA: see supra
Sec. 30, last par. NCBA: 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.
3. Powers of Conservator
Cases
First Philippine International Bank v. Court of Appeals, 252 SCRA 259
(1996)
FACTS
First Phil International Bank (formerly Producers Bank of the Phil) acquired 6
parcels of land from BYME Investment and Development Corporation
through mortgage and foreclosure. Now, Demetrio Demetria and Jose
Janolo desire to buy the said property from the Bank.
The potential buyers coursed his offer to Mecurio Rivera, the manager of
property management department of the bank. initially, both offered 3.5M.
Rivera counter-offered with 5.5M. Both again offered 4.2M but later agreed
to the 5.5M purchase price. However, the Conservator of the bank was
replaced by an Acting Conservator, thus, the offer by Demetria and Janolo
was subjected to further review. Demetria and Janolo insisted that there
was a perfected contract of sale already. They tendered the price of 5.5M
but the Bank refused to acknowledge the perfected contact.
RTC ruled in favor of Demetria and Janolo. CA affirmed.
Note that the bank was placed under conservatorship during the time of
negotiation and perfection of the contact.
ISSUE
W/N the Conservator of the Bank can unilaterally repudiate the authority of
Bank Officers.
RULING
NO. The Conservator has no power to repudiate the contract.
First, the issue of Conservators authority to repudiate a contract was raised
for the first time on appeal. Issues not raised in the trial court cannot be
raised for the first time on appeal, as it is offensive to basic rules of fair
play.
Second, there was no evidence that the Conservator actually repudiated the
contract at the time it was perfected. The Acting Conservator never objected
to the contact, it only informed that the transaction was subject to review.
What the Acting Conservator did was he repudiated the authority of Rivera
to make a binding offer, NOT repudiate the contract itself.
NOTES
200
Third, the power under the Central Bank Law regarding conservatorship in
preservation of the banks assets CANNOT EXTEND to the post-facto
repudiation of perfected transaction; otherwise, it would infringe the nonImpairment clause of the Constitution. Thus, the authority under Section
28-A only pertains the power to revoke defective contracts void, voidable,
unenforceable or rescissible. The conservator cannot repudiate a contract
validly made under the doctrine of implied authority. Its only authority in
such case is to assail such contract in court.
NOTE: The Bank is guilty of Forum-Shopping. There is a Perfected Contract
of Sale. Such Contract is Enforceable. There is no Reversible Error of Facts.
4. Qualifications and Remuneration
Sec. 29, pars. 2 and 3, NCBA: 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 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 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 emolument from
the Bangko Sentral during the conservatorship. The expenses
attendant to the conservatorship shall be borne by the bank or
quasi-bank concerned.
5. PeriodNOT EXCEED 1 YEAR
6. Termination of Conservatorship
Sec. 29, par. 2 and last par., NCBA: The conservator should be
competent and knowledgeable in bank operations and management.
The conservatorship shall not exceed one (1) year.
xxx
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.
6. Effect
xProducers Bank of the Philippines v. NLRC, 355 SCRA 489 (2001)
Under Section 28-A, the Monetary Board may place a bank under
the control of a conservator when it finds that the bank is
continuously unable or unwilling to maintain a condition of solvency
or liquidity .In Central Bank of the Philippines v. Court of Appeals,
the Court declared that the order placing petitioner herein under
conservatorship had long become final and its validity could no
longer be litigated upon. Also, in the same case, the Court found
that sometime in August, 1983, some news items triggered a bankrun in petitioner which resulted in continuous over- drawings on
petitioner's demand deposit account with the Central Bank; the
over- drawings reached P143.955 million by 17 January 1984; and
as of 13 February 1990, petitioner had over-drawings of up to
P1.233 billion, which evidences petitioner's continuing inability to
maintain a condition of solvency and liquidity, thus justifying the
conservatorship.
7. Judicial Review
Sec. 30, 2nd to last par., NCBA: If the receiver determines that
the institution cannot be rehabilitated or permitted to resume
business in accordance with the next preceding paragraph, the
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
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.
NOTES
201
2. Convert the assets of the institutions 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.
C. VOLUNTARY LIQUIDATION
Sec. 68, GBL: Voluntary Liquidation. In case of 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 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.
D. RECEIVERSHIP AND INVOLUNTARY LIQUIDATION
Sec. 69, GBL: 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.
Sec. 30, NCBA: Whenever, upon report of the head of the supervising
or examining department, the Monetary Board finds that a bank or
quasi- bank:
banking community;

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 nonspeculative 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.If the receiver
determines that the institution cannot be rehabilitated or permitted to
resume business in accordance with the next preceding paragraph, the
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 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.
NOTES
202
2. Convert the assets of the institutions 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
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.
Sec. 31, NCBA: 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 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.
Sec. 32, NCBA: 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.
Sec. 33, NCBA: 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.
Sec. 5, FRIA: 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.
1. Governing Law
Cases
In Re: Petition for Assistance in the Liquidation of the Rural Bank of
Bokod (Benguet), Inc., PDIC v. Bureau of Internal Revenue, 511
SCRA 123 (2006)
FACTS
A special examination of the Rural Bank of Bokod, Inc (RBBI) was conducted
by the Bangko Sentral ng Pilipinas (BSP). The latter required RBBI to infuse
fresh capital, which the bank failed to do. The BSP warned the RBBI and
recommended closure, but the bank still failed to comply. An order was
released, putting the bank under receivership and transferred the liquidation
proceedings with the Philippine Deposit Insurance Corporation (PDIC). A
case was filed with the RTC, for the liquidation of the bank. PDIC then filed a
Motion for Approval of Project of Distribution in accordance with sec 30 and
31 of the New Central Bank Act. The BIR required PDIC to comply with
section 52(c) of the NIRC, which PDIC to secure a tax clearance certificate.
The RTC released an order, requiring the PDIC to comply.
ISSUE
NOTES
203
Whether a bank placed under receivership by the BSP is required to secure

a tax clearance certificate before the court approves the project distribution
of the assets of the bank
RULING
NO. Section 52(c) of the NIRC only refers to dissolutions falling under the
SEC, and not with the BSP. All liquidation of banks falls under Section 30 of
the New Central Bank Act. Between a general law (NIRC) and a special law
(NCBA), the latter will prevail. The court cannot apply by analogy the tax
clearance requirement because dissolution of corporation and the
receivership and liquidation of banks have a totally different proceeding.
The Monetary Board may summarily and without need for prior hearing,
forbid the bank from conducting business, appoint PDIC as receiver, and file
an ex parte with the RTC for liquidation of the bank. What the BIR should
have required was to submit the final return of the RBBI, and there assess
the tax liabilities of the bank.
***It must be noted that the liquidation proceedings in the RTC is NOT
summarily in nature, and the concurrence and preference in credit found in
Art 2241 and 2242 of the Civil Code may be applied, and the parties
concerned may question such project distribution of the PDIC.
Koruga v. Arcenas, 590 SCRA 49 (2009)
FACTS
Korugas Complaint charged defendants with violation of Sections 31 to 34
of the Corporation Code, prohibiting self-dealing and conflict of interest of
directors and officers; invoked her right to inspect the corporations records
under Sections 74 and 75 of the Corporation Code; and prayed for
Receivership and Creation of a Management Committee, pursuant to Rule
59 of the Rules of Civil Procedure, the Securities Regulation Code, the
Interim Rules of Procedure Governing Intra-Corporate Controversies, the
General Banking Law of 2000, and the New Central Bank Act. She accused
the directors and officers of Banco Filipino of engaging in unsafe, unsound,
and fraudulent banking practices, more particularly, acts that violate the
prohibition on self-dealing.
Koruga invoked Secs. 31, 32, 33 and 34 of the Corporation Code to support
his claims.
ISSUE
Which law governs in the appointment of conservator or liquidator in banks?
RULING
NEW CENTRAL BANK ACT governs in this case. Korugas invocation of the
provisions of the Corporation Code is misplaced. In an earlier case with
similar antecedents, the Court ruled that, the Corporation Code is a general
law applying to all types of corporations, while the New Central Bank Act
NOTES
204
regulates specifically banks and other financial institutions, including the

dissolution and liquidation thereof. As between a general and special law,
the latter shall prevail generalia specialibus non derogant.
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;
Consequently, it is not the Interim Rules of Procedure on Intra-Corporate

Controversies, or Rule 59 of the Rules of Civil Procedure on Receivership,
that would apply to this case. Instead, Sections 29 and 30 of the New
Central Bank Act should be followed.
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.
2. Grounds
Sec. 30, NCBA: Whenever, upon report of the head of the supervising
or examining department, the Monetary Board finds that a bank or
quasi- bank:
banking community;
xxx
Sec. 36, 2nd par., NCBA: 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.
Sec. 53, last par., GBL: 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;
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.
Cases
Banco Filipino Savings and Mortgage Bank v. Monetary Board, 204
SCRA 767 (1991)
FACTS
This refers to nine consolidated cases concerning the legality of the closure
and receivership of Banco Filipino Savings and Mortgage Bank pursuant to
the order of the Monetary Board. Six cases involve the common issue of
whether or not the liquidator appointed by the Central Bank has the
authority to prosecute as well as to defend suits, and to foreclose mortgage
and in behalf of the bank while the issue on the validity of the receivership
and liquidation of the bank is pending resolution. Corollary to this issue is
whether the CB can be sued to fulfill financial commitments of a closed bank
pursuant to Section 29 of the Central Bank Act. On the other hand the other
three cases all seek to annul and set aside the M.B. Resolution No. 75
issued by the Monetary Board.
ISSUE
What are the grounds for placing a bank under receivership?

HELD
Based on the afore-quoted provision the Monetary Board may order the
cessation of operation of a bank in the Philippines and place it under
receivership upon a finding of insolvency or when its continuance in
business would involve probable loss to its depositors or creditors. If the
Monetary Board shall determine and confirm within 60 days that the bank is
insolvent or can no longer resume business with safety to its depositors,
creditors, and the general public, it shall, if public interest will be served,
order its liquidation.
Rural Bank of San Miguel, Inc. v. Monetary Board, Bangko Sentral ng
Pilipinas, 516 SCRA 154 (2007)
FACTS
Respondent Monetary Board (MB), prohibited RBSM from doing business in
the Philippines, placing it under receivership and designating respondent
Philippine Deposit Insurance Corporation (PDIC) as receiver. Petitioners filed
a petition for certiorari and prohibition in the RTC to nullify and set aside the
resolution. But on February 2000, they filed a notice of withdrawal in the
RTC and a special civil action for certiorari and prohibition in the CA. The
RTC dismissed the case.
RBSM was unable to pay its liabilities as they became due in the ordinary
course of business; it was also found that they cannot continue in business
without involving probable losses to its depositors and creditors. The MB,
after evaluating and deliberating on the findings, issued closure order and
took over the management of RBSMs assets and affairs.
In their petition before the CA, petitioners claimed that respondents MB and
BSP committed grave abuse of discretion in issuing the said order and the it
was bereft of any basis considering that no complete examination had been
conducted before it was issued.
Thereafter, MB passed a resolution directing PDIC to proceed the liquidation
of RBSM.
ISSUE
Whether or not Section 30 of RA 7653 (also known as the New Central Bank
Act) and applicable jurisprudence require a current and complete
examination of the bank before it can be closed and placed under
receivership?
RULING
NO. Examination connotes in-depth analysis, evaluation, inquiry or
investigation while report connotes a simple disclosure or narration of facts
for informative purposes. In RA 7653, only a report of the head of the
supervising or examining department is necessary. It is an established rule
in statutory construction that where the words of a statute are clear, plain
NOTES
205
and free from ambiguity, it must be given its literal meaning and applied
without attempted interpretation.
Whenever, upon examination by the head of the appropriate supervising or
examining department or his examiners or agents into the condition of any
bank, it shall be disclosed that the condition of the same is one of
insolvency, or that its continuance in business would involve
probable loss to its depositors or creditors, it shall be the duty of the
department head concerned forthwith, in writing, to inform the Monetary
Board of the facts. The Board may, upon finding the statements of the
department head to be true, forbid the institution to do business in the
Philippines and designate an official of the Central Bank or a person of
recognized competence in banking or finance, as receiver to immediately
take charge of its assets and liabilities, as expeditiously as possible collect
and gather all the assets and administer the same for the benefits of its
creditors, and represent the bank personally or through counsel as he may
retain in all actions or proceedings for or against the institution, exercising
all the powers necessary for these purposes including, but not limited to,
bringing and foreclosing mortgages in the name of the bank.
The absence of an examination before the closure of RBSM did not mean
that there was no basis for the closure order. Needless to say, the decision
of the MB and BSP, like any other administrative body, must have
something to support itself and its findings of fact must be supported by
substantial evidence. But it is clear under RA 7653 that the basis need not
arise from an examination as required in the old law. The Court thus ruled
that the MB had sufficient basis to arrive at a sound conclusion that there
were grounds that would justify RBSMs closure. In short, MB and BSP
complied with all the requirements of RA 7653. By relying on a report before
placing a bank under receivership, the MB and BSP did not only follow the
letter of the law, they were also faithful to its spirit, which was to act
expeditiously. Accordingly, the issuance of Resolution was untainted with
arbitrariness.
3.
Who May Be Receiver

Sec. 30, 1st and 2nd pars., NCBA: Whenever, upon report of the
head of the supervising or examining department, the Monetary
Board finds that a bank or quasi- bank:
course of business: Provided, That this shall not include inability to
pay caused by extraordinary demands induced by financial panic in
the banking community;

(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.
4.
5.
Duties of Receiver
Sec. 30, par. 3, NCBA: 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 nonspeculative 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.
Close Now-Hear Later Doctrine
Cases
Central Bank of the Philippines v. Court of Appeals, 220 SCRA 536
(1993)
FACTS
Based on examination reports submitted by the Supervision and
Examination Sector of the Central Bank "that the financial condition of TSB
is one of insolvency and its continuance in business would involve probable
loss to its depositors and creditors,"
the Monetary Board issued a
RESOLUTION ordering the closure of Triumph Savings Bank, forbidding it
from doing business in the Philippines, placing it under receivership, and
appointing Ramon V. Tiaoqui as receiver. One week later, TSB filed a
complaint against Central Bank and Ramon V. Tiaoqui challenging in the
process the constitutionality of Sec. 29 of R.A. 269, otherwise known as
NOTES
206
"The Central Bank Act," as amended, insofar as it authorizes the Central

Bank to take over a banking institution even if it is not charged with
violation of any law or regulation, much less found guilty thereof. The RTC
granted a TRO against the CB resolution.
Central Bank filed a motion to dismiss the complaint before the RTC for
failure to state a cause of action, i.e., it did not allege ultimate facts showing
that the action was plainly arbitrary and made in bad faith, which are the
only grounds for the annulment of Monetary Board resolutions placing a
bank under conservatorship, and that TSB was without legal capacity to sue
except through its receiver. These were denied. The denial was elevated to
the CA, which upheld the orders of the RTC. Thus, this petition for (Rule 45)
certiorari.
Central BAnk claims that it is the essence of Sec. 29 of R.A. 265 that prior
notice and hearing in cases involving bank closures should not be required
since in all probability a hearing would not only cause unnecessary delay but
also provide bank "insiders" and stockholders the opportunity to further
dissipate the bank's resources, create liabilities for the bank and even
destroy evidence of fraud or irregularity in the bank's operations to the
prejudice of its depositors and creditors.
ISSUES
1) Is absence of prior notice and hearing constitutive of acts of
arbitrariness and bad faith, as to annul the MB resolution?
2) Is it only the receiver who has a right of action to question the
resolution of the CB, and not the stockholders of the corporation?
HELD
NO. Contrary to the notion of private respondent, 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 ten (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. Plainly, the legislature could not have
intended to authorize "no prior notice and hearing" in the closure of the
bank and at the same time allow a suit to annul it on the basis of absence
thereof. A previous hearing is NOT required. It is enough that a subsequent
judicial review be provided.
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. The mere filing of a case for
receivership by the Central Bank can trigger a bank run and drain its assets
in days or even hours leading to insolvency even if the bank be actually
solvent. The procedure prescribed in Sec. 29 is truly designed to protect the

interest of all concerned, i.e., the depositors, creditors and stockholders, the
bank itself, and the general public.
The absence of notice and hearing is not a valid ground to annul a Monetary
Board resolution placing a bank under receivership. The absence of prior
notice and hearing cannot be deemed acts of arbitrariness and bad faith.
2) As regards the second ground, to rule that only the receiver may bring
suit in behalf of the bank is, to echo the respondent appellate court, "asking
for the impossible, for it cannot be expected that the master, the CB, will
allow the receiver it has appointed to question that very appointment."
Consequently, only stockholders of a bank could file an action for annulment
of a Monetary Board resolution placing the bank under receivership and
prohibiting it from continuing operations.
6.
Liquidation
a. As opposed to rehabilitation
Cases
Philippine Veterans Bank Employees Union-N.U.B.E. v. Hon.
Benjamin Vega, 360 SCRA 33 (2001)
FACTS
Sometime in 1985 the Central Bank filed with the RTC of Manila a petition
for assitance in the liquidation of Philippine Veterans Bank (PVB) Thereafter,
the petitioner, the PVB Employees Union, filed claims for accrued and unpaid
employee wages and benefits with the said court.
After lengthy proceedings, partial payment of the sums due to the
employees were made. However, many remain unpaid. On March 8, 1991,
petitioners moved to disqualify the respondent judge from hearing the
above case on grounds of bias and hostility towards petitioners. January 2,
1992 Congress enacted RA 7169 providing for the rehabilitation of the
Philippine Veterans Bank. Thereafter, petitioners filed with the labor
tribunals their residual claims for benefits and for reinstatement upon
reopening of the bank. Sometime after in May 1992 the PVB reopened upon
authority issued by the Central Bank
NOTES
HELD
NO. A liquidation court may not continue with the liquidation proceedings of
Philippine Veterans Bank after congress has mandated its rehabilitation and
reopening. RA 7169 entitled an act to rehabilitate the PVB which was
published in the official gazette provides in part for the reopening of PVB
together with all its branches within the period of three years from the date
of the reopening of the head office. The law likewise provides for the
creation of a rehabilitation committee in order to facilitate the
implementation of the provisions of the same. The rehab committee
submitted the proposed rehab plan of PVB to the monetary board for its
approval. Meanwhile, ALX PRZ fag, PVB filed a motion to terminate the
liquidation of PVB with the respondent judge praying the proceedings be
immediately terminated in view of the passage of RA 7169. The MB issued
MB resolution, which approved the rehab plan of PVB that led to them
issuing a certificate of authority allowing PVB to reopen. Liquidator then
filed a motion with the respondent judge to terminate the proceedings. The
Court then issued a TRO restraining respondent judge from further
proceeding with the liquidation of PVB. Clearly RA7169 as well as
subsequent developments has rendered the liquidation court functus offico,
consequently, respondent judge has been stripped of the authority to issue
orders involving acts of liquidation for PVB. RA7169, by express provision
took effect immediately without need of the usual 15-day wait after
publication.
(Definition is part of the case)
Liquidation: In corporation law, connotes a winding up or settling with
creditors and debtors. Assets are distributed to those entitled to receive
them. It is the process of reducing assets to cash, discharging liabilities and
dividing surplus or loss.
Rehabilitation: contemplates a continuance of corporate life and activities
in an effort to restore and reinstate the corporation to its former position of
successful operation and solvency. It is contrary to the concept of
liquidation; to allow liquidation proceedings to continue would seriously
hinder the rehabilitation of the bank.
b.
Despite the legislative mandate for rehabilitation and reopening of PVB,

respondent judge continued with the liquidation proceedings of the bank.
Moreover, petitioners learned that the respondents (The judge, Central bank
and the liquidators of PVB) were set to order the payment and release of
employee benefits for another set of employees but not for the petitioner
(their claims were frozen).
ISSUE
May a liquidation court continue with liquidation proceedings of the PVB
when congress had mandated its rehabilitation and reopening?
207
Actions to take
Sec. 30, NCBA: 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 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 institutions 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.
c.
How assets are distributed

Sec. 31, NCBA: 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 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.
Sec. 32, NCBA: 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-
NOTES
208
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.
d. All claims filed in liquidation court
Cases
Ong v. Court of Appeals, 253 SCRA 105 (1996)
FACTS
The Rural Bank of Olongapo (RBO) owned 2 parcels of land in Tagaytay,
which it mortgaged in favor of Jerry Ong to guarantee the payment of
Omnibus Finance, Inc., which is undergoing liquidation proceedings of its
money market obligations to Ong.
Omnibus Finance failed to seasonably settle its obligations to Ong, which
prompted him to extrajudicially foreclose on the mortgages.
Ong was not able to effect the registration of the lands, after the public sale,
because RBO refused to surrender its copies of the TCT of the lands. For its
part, RBO contended that it was undergoing liquidation and, pursuant to
jurisprudence, it is the liquidation court which has jurisdiction to take
cognizance of the case.
RTC ruled in favor of Ong, which the CA reversed.
ISSUE
Whether the liquidation court has jurisdiction to take cognizance of this case
RULING
YES. Section 29, par. 3, of R.A. 265 as amended by P. D. 1827 provides
If the Monetary Board shall determine and confirm within (sixty
days) that the bank . . . is insolvent or cannot resume business with
safety to its depositors, creditors and the general public, it shall, if
the public interest requires, order its liquidation, indicate the
manner of its liquidation and approve a liquidation plan. The Central
Bank shall, by the Solicitor General, file a petition in the Court of
First Instance 7 reciting the proceedings which have been taken and
praying the assistance of the court in the liquidation of such
institution. The court shall have jurisdiction in the same proceedings
to adjudicate disputed claims against the bank . . . . and enforce
individual liabilities of the stockholders and do all that is necessary
to preserve the assets of such institution and to implement the
liquidation plan approved by the Monetary Board.

In Hernandez v Rural Bank of Lucena, the SC held that "The fact that the
insolvent bank is forbidden to do business, that its assets are turned over to
the Superintendent of Banks, as a receiver, for conversion into cash, and
that its liquidation is undertaken with judicial intervention means that, as far
as lawful and practicable, all claims against the insolvent bank should be
filed in the liquidation proceeding ."
The rationale behind the provision, i.e., the judicial liquidation is intended to
prevent multiplicity of actions against the insolvent bank. It is a pragmatic
arrangement designed to establish due process and orderliness in the
liquidation of the bank, to obviate the proliferation of litigations and to avoid
injustice and arbitrariness. The lawmaking body contemplated that for
convenience only one court, if possible, should pass upon the claims against
the insolvent bank and that the liquidation court should assist the
Superintendent of Banks and regulate his operations.
Manalo v. Court of Appeals, 366 SCRA 752 (2001)
FACTS
S. Villanueva Enterprises, through its president Therese Vargas, obtained a
3M loan and 1M from PAIC Savings and Mortgage Bank. To secure the loan,
they mortgaged 2 parcels of land. However, Villanueva Enterprise defaulted
in their payment and the properties were foreclosed in favor of the bank.
The redemption period lapsed and the title was consolidated in the Banks
name.
NOTES
RULING
NO. The case falls within the jurisdiction of regular courts.
Section 29 of the Central Bank Act regarding the Liquidation Court only
applies were there are claims against an insolvent bank. The Exclusive
jurisdiction of the liquidation court pertains only to the adjudication of
claims against the bank. It does not cover the reverse situation where it is
the bank which files a claim against another person or legal entity. The
intended purpose is to prevent multiplicity of actions against an insolvent
bank and designed to establish due process and orderliness in the
liquidation of the bank. being the situation where it is an action instituted by
the Bank, the liquidation court does not have jurisdiction over the case.
There is no forum shopping as only one case was filed by the bank for writ
of possession. Though the bank was already closed, it still has juridical
personality, which can sue and be sued. The bank, through its liquidator,
can still act on its claims.
NOTE: There is no prejudicial question regarding the redemption price as it
only applies to pending civil and criminal actions. Manalo has no right to
intervene as he acquired no right from Vargas, who possessed no right of
ownership. The new lease agreement is a different issue to be decided in
another case.
e.
The Central Bank decided the Bank to be liquidated and put under
liquidation proceedings.
Meanwhile, Vargas petitioned to annul the foreclosure but was denied. In
turn, the Bank filed a case for issuance of writ of possession over the
subject property.
Notwithstanding the judgment and pending case, Vargas sold the foreclosed
properties to Armando Angsico and leased the property to Domingo Manalo
for 10 years. Angsico then sold his rights to Manalo. Manalo now sought to
intervene in the case for possession and insists his right of ownership over
the foreclosed properties.
The RTC ruled in favor of the Bank and granted a writ of possession. The CA
affirmed.
Note: Manalo entered into a new lease agreement with the Bank.
ISSUE
W/N the case is under the jurisdiction of the Liquidation Court.
209
Disposition of banking franchise

Sec. 33, NCBA: 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.
7. Effects of Receivership and Liquidation

a. Restriction on capacity to act
Cases
Villanueva v. Court of Appeals, 244 SCRA 395 (1995)
FACTS
The lots in litigation were originally owned by spouses Celestino Villanueva
and Miguela Villanueva. Miguela tried to obtain a loan from Philippine
Veterans Bank (PVB), through Jose Viudez and Andres Sebastian. Viudez
and Sebastian was able to obtain the title of the land, but without signature
of Celestino. Miguela never got the loan. She then tried to repurchase the
lots, now in the name of PVB. This was stalled by the liquidation proceedings
filed against PVB.

Ildefonso Ong, on the other hand, offered to purchase the property, which
PVB accepted. He only knew of the acceptance when PVB was already under
receivership by the Central Bank (CB). He tried to purchase from CB but
was unheeded, which opted him to file a case against the CB that got
referred to the liquidation court. The Trial Court ruled in favor of Miguela
Villanueva, but was reversed by the CA.
ISSUE
Whether there was a valid contract between PVB and Ong
RULING
NO. At the time Ong offered to purchase the property from PVB, the bank
was still functioning normally. When he learned of the acceptance of the
bank, which should have created the contract, PVB was already under the
control of the CB. Under Art 1323 of the Civil Code, an offer becomes
ineffective upon insolvency of either party before acceptance is conveyed.
Therefore, the offer of Ong became ineffective due to the subsequent
insolvency of PVB, and the contract did not reach the perfection stage.
Abacus Real Estate Development Center, Inc. v. The Manila Banking
Corporation, 455 SCRA 97 (2005)
FACTS
Prior to 1984, the Manila Bank began constructing on said land a 14-storey
building. Not long after, however, the bank encountered financial difficulties
that rendered it unable to finish construction of the building.
On May 22, 1987, the Central Bank of the Philippines, now Bangko Sentral
ng Pilipinas, ordered the closure of Manila Bank and placed it under
receivership, with Feliciano Miranda, Jr. being initially appointed as
Receiver. On November 11, 1988, the Central Bank, by virtue of Monetary
Board (MB) Resolution No. 505, ordered the liquidation of Manila Bank and
designated Atty. Renan V. Santos as Liquidator.
In the interim, Manila Banks then acting president, the late Vicente G.
Puyat, in a bid to save the banks investment, started scouting for possible
investors who could finance the completion of the building earlier
mentioned. On August 18, 1989, a group of investors, represented by
Calixto Y. Laureano (hereafter referred to as Laureano group), wrote
Vicente G. Puyat offering to lease the building for ten (10) years and to
advance the cost to complete the same, with the advanced cost to be
amortized and offset against rental payments during the term of the lease.
Likewise, the letter-offer stated that in consideration of advancing the
construction cost, the group wanted to be given the exclusive option to
purchase the building and the lot on which it was constructed.
NOTES
210
building for One Hundred Fifty Million Pesos (P150,000,000.00). On

September 16, 1994, Abacus sent a letter to Manila Bank informing the
latter of its desire to exercise its exclusive option to purchase. However,
Manila Bank refused to honor the same.
ISSUE
Whether or not Laureano may exercise the Option to Purchase.
RULING
NO. There can be no quibbling that respondent Manila Bank was under
receivership, pursuant to Central Banks MB Resolution No. 505 dated May
22, 1987, at the time the late Vicente G. Puyat granted the exclusive
option to purchase to the Laureano group of investors. Owing to this
defining reality, the appellate court was correct in declaring that Vicente G.
Puyat was without authority to grant the exclusive option to purchase the lot
and building in question. With respondent bank having been already placed
under receivership, its officers, inclusive of its acting president, Vicente G.
Puyat, were no longer authorized to transact business in connection with the
banks assets and property. Clearly then, the exclusive option to purchase
granted by Vicente G. Puyat was and still is unenforceable against Manila
Bank.
Clearly, the receiver appointed by the Central Bank to take charge of the
properties of Manila Bank only had authority to administer the same for
the benefit of its creditors. Granting or approving an exclusive option to
purchase is not an act of administration, but an act of strict ownership,
involving, as it does, the disposition of property of the bank. Not being an
act of administration, the so-called approval by Atty. Renan Santos
amounts to no approval at all, a bank receiver not being authorized to do so
on his own.
b.
Penalties for transaction after Bank becomes insolvent

Sec. 70, GBL: Penalty for Transactions After a Bank Becomes
Insolvent. Any director or officer of any bank declared
insolvent or placed under receivership by the Monetary Board
who refuses to turn over the banks records and assets to the
designated receivers, or who tampers with banks records, or
who appropriates for himself for another party or destroys or
causes the misappropriation and destruction of the banks
assets, or who receives or permits or causes to be received in
said bank any deposit, collection of loans and/or receivables, or
who pays out or permits or causes to be transferred any
securities or property of said bank shall be subject to the penal
provisions of the New Central Bank Act.
In a letter dated August 30, 1989, Vicente G. Puyat accepted the Laureano
groups offer and granted it an exclusive option to purchase the lot and

c.
Effect on garnishment, levy on attachment or execution

Sec. 30, NCBA: 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
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.
Cases
Lipana v. Development Bank of Rizal, 154 SCRA 257 (1987)
FACTS
From 1982 to 1984, Spouses Lipana opened and maintained both time and
savings deposits with the Development Bank of Rizal. When some of the
time deposit certificates matured, Lipana were not able to cash them but
instead were issued a managers check which was dishonored upon
presentment. Lipana later on filed a complaint with prayer for issuance of
preliminary attachment for collection of a sum of money with damages.
Meanwhile, the Monetary Board, in its Resolution No. 1009, finding the
condition of Development Bank was one of insolvency and that its
continuance in business would result in probable loss to its depositors and
creditors, decided to place it under receivership.
Respondent judge ordered the issuance of a writ of execution. Later on,
upon motion, the same respondent judge stayed the execution.
ISSUE
Whether or not respondent judge could legally stay excecution of judgment
that has already become final and executory?
HELD
YES. The stay of execution of a judgment is warranted by the fact that
Development Bank was placed under receivership. To execute the judgment
would unduly deplete the assets of the respondent bank to the obvious
prejudice of other depositors and creditors, as stated in Central Bank v.
Morfe, after the Monetary Board has declared that a bank is insolvent and
has ordered it to c ease operation, the Board becomes the trustee of its
assets for the equal benefit of all the creditors, including depositors. The
NOTES
211
assets of the insolvent bank are held in trust for the equal benefit of all
creditors, and after its insolvency, one cannot obtain an advantage or a
preference over another by attachment, execution, or otherwise.
d. Stoppage of business
Cases
Provident Savings Bank v. Court of Appeals, 222 SCRA 125 (1993)
FACTS
On 16 February 1967, the spouses Lorenzo K. Guarin and Liwayway J.
Guarin (Guarins) obtained a loan from provident bank in the amount of
P62,500.00 payable on or before 20 June 1967. As security for the loan,
they executed a real estate mortgage in favor of provident bank over a
parcel of land.
In September, 1972, provident bank was placed under receivership by the
Central Bank of the Philippines until 27 July 1981 when the receivership was
set aside by the Honorable Supreme Court.
On 10 July 1986, the Guarins and respondent Wilson Chua executed a Deed
of Absolute Sale With Assumption of Mortgaged whereby the Guarins sold
the mortgaged property to Guarins sold the appellant for the sum of
P250,000.00 and plaintiff-appellant undertook to assume the mortgaged
obligation of the Guarins with defendant-appellant which as of 15 February
1985 amounted to P591,088.80
Wilson Chua wrote to Provident bank that the former had purchased the
mortgaged property from the Guarin's and requesting that the owner's copy
of TCT in the possession of defendant-appellant be released to him so that
he can register the sale and have the title to the property transferred in his
name. He likewise, informed defendant-appellant that it had lost whatever
right or action had against the Guarins because of prescription. (Defendantappellant replied on 10 August 1987 stating the reasons why they could not
comply with plaintiff-appellant's demands
Provident bank argues that the prescriptive period was suspended due to
the prohibition to do business issued by the Monetary Board.
ISSUE
Whether a foreclose proceeding falls within the purview of the phrase "doing
business"? Whether the prescriptive period for the mortage was
suspended?
RULING
YES to both.
Doing business means a continuity of commercial dealings and
arrangements, and contemplates to that extent, the exercise of some of the
NOTES
212
words or the normally incident to, and in progressive prosecution of, the
purpose ands object of its organizations. With banks it also involves the
collection of debts and foreclosure of mortgages.
ISSUES
1) Can an insolvent bank be adjudged to pay interest even after its closure?
2) Can they be asked to pay damages?
Generally, an appointment of a receiver does not dissolve the corporation

nor does it interfere with the exercise of its corporate rights. But this
principles is, of course, applicable to a situation where there is no restraint
imposed on the corporation, unlike in the case at bar where petitioner
Provident Savings Bank was specifically forbidden and immobilized from
doing business in the Philippines on September 15, 1972 1981 when the
decision in Central Bank vs. Court of Appeals was rendered.
HELD
1) NO. It is settled jurisprudence that a banking institution which has been
declared insolvent and subsequently ordered closed by the Central Bank of
the Philippines cannot be held liable to pay interest on bank deposits which
accrued during the period when the bank is actually closed and nonoperational.
Having arrived at the conclusion that the foreclosure is part of bank's

business activity which could not have been pursued by the receiver then
because of the circumstances discussed in the Central Bank case, we are
thus convinced that the prescriptive period was legally interrupted by fuerza
mayor in 1972 on account on the prohibition imposed by the Monetary
Board against petitioner from transacting business, until the directive of the
board was nullified in 1981. Indeed, the period during which the obligee was
prevented by a caso fortuito from enforcing his right is not reckoned against
him (Article 1154, New Civil Code). When prescription is interrupted, all the
benefits acquired so far from the possession cease and when prescription
starts anew, it will be entirely a new one
Also when respondent wrote to the Guarins requesting that the former be
allowed to pay off the loan of the mortgage, he in turn acknowledged the
existing debt thereby suspending the prescriptive period for the second
time.
e. Interest on deposits
Cases
Fidelity Savings and Mortgage Bank v. Cenzon, 184 SCRA 141 (1990)
FACTS
The spouses Santiago had P100k Time Deposit in Fidelity Bank. On February
18, 1969, the Monetary Board, after finding that the condition of the
defendant Fidelity Savings and Mortgage Bank is one of insolvency issued a
resolution deciding, to forbid the Fidelity Savings Bank to do business in the
Philippines and to instruct the Acting Superintendent of Banks to take
charge, in the name of the Monetary Board, of the Bank's assets.
The PDIC paid 10k of the Santiago's deposit. THe Bank subsequently
underwent liquidation (pending). The Santiagos then demanded the balance
from Fidelity in a collection case. The RTC awarded a) P90k accrued interest,
b) P30k exemplary damages, and c) P10k attorney's fees. Thus this petition
for certiorari.
"What enables a bank to pay stipulated interest on money deposited with it

is that thru the other aspects of its operation it is able to generate funds to
cover the payment of such interest. Unless a bank can lend money, engage
in international transactions, acquire foreclosed mortgaged properties or
their proceeds and generally engage in other banking and financing
activities from which it can derive income, it is inconceivable how it can
carry on as a depository obligated to pay stipulated interest. Conventional
wisdom dictates this inexorable fair and just conclusion. And it can be said
that all who deposit money in banks are aware of such a simple economic
proposition. Consequently, it should be deemed read into every contract of
deposit with a bank that the obligation to pay interest on the deposit ceases
the moment the operation of the bank is completely suspended by the duly
constituted authority, the Central Bank."
2) NO. There is no valid basis for the award of exemplary damages which is
supposed to serve as a warning to other banks from dissipating their assets
in anomalous transactions. It was not proven by private respondents, and
neither was there a categorical finding made by the trial court, that
petitioner bank actually engaged in anomalous real estate transactions. In
the absence of fraud, bad faith, malice or wanton attitude, petitioner bank
may, therefore, not be held responsible for damages which may be
reasonably attributed to the non-performance of the obligation. thus it
cannot even be held liable for Attorney's fees.
The award of damages and attorney's fees was deleted, while the bank was
adjudged liable for the P90k. with accrued interest only until the day the
bank was put under receivership via the MB resolution.
But See Rural Bank of Sta. Catalina, Inc. v. Land Bank of the
Philippines, 435 SCRA 183 (2004)
FACTS
Respondent Land Bank filed a complaint against the petitioner at the RTC for
the collection of the sun of 2.8m capitalized, accrued interests, penalties
and surcharges. On motion of the respondent, the petitioner was held in
default for failing to file an answer. The Rural Bank of Sta. Catalina (RBC)
was placed under receivership. And the Philippine Deposit Insurance

Corporation (PDIC) was designated as receiver (conservator) of the
petitioner as the latter was prohibited from doing business in the Philippines.
Unaware of the action of the Central Bank putting petitioner under
receivership, RTC rendered judgment against RBC to pay Land Bank with
interest. Petitioner, through PDIC appealed to the CA which affirmed RTC.
ISSUE
Whether or not the court erred in holding that Petitioner bank (RBC) is still
liable to pay interest and penalty on its loan obligation after it has been
placed under receivership/liquidation?
HELD
Petition has no merit,.
The petitioner asserts that, based on the ruling of this Court in Overseas
Bank of Manila vs. Court of Appeals ,its liability to the respondent under its
availments must be limited only to P5,814,712.40, the aggregate amount of
its outstanding liability as of the date of its closure, inclusive of accrued
interests and penalties. The petitioner avers that the PDIC, as the liquidator
of the petitioner, should not be faulted for failing to file its Answer to the
complaint and to move for a reconsideration of the default order in the trial
court and in the CA, because it had no knowledge of the case filed against
the petitioner. The petitioner avers that it was only when the PDIC was
served with a copy of the decision of the trial court that it learned, for the
first time, of the pendency of the case in the RTC.
The records show that the petitioner was served with a copy of summons
and the complaint, but failed to file its answer thereto. It also failed to file a
verified motion to set aside the Order of default despite its receipt of a copy
thereof. We note that the trial court rendered judgment only on April 7,
1998 or more than a year after the issuance of the default order; yet, the
petitioner failed to file any verified motion to set aside the said order before
the rendition of the judgment of default. The PDIC was designated by the
Central Bank of the Philippines as receiver (conservator) as early as January
14, 1998, and in the course of its management of the petitioner banks
affairs, it should have known of the pendency of the case against the latter
in the trial court.
Moreover, the petitioner, through the PDIC, received a copy of the decision
of the trial court on June 2, 1998, but did not bother filing a motion for
partial reconsideration, under Rule 37 of the Rules of Court, appending
thereto the orders of the Monetary Board or a motion to set aside the order
of default. Instead, the petitioner appealed the decision, and even failed to
assign as an error the default order of the trial court.
NOTES
213
The petitioner is, thus, barred from relying on the orders of the Monetary
Board of the Central Bank of the Philippines placing its assets and affairs
under receivership and ordering its liquidation.
It bears stressing that a defending party declared in default loses his
standing in court and his right to adduce evidence and to present his
defense. He, however, has the right to appeal from the judgment by default
and assail said judgment on the ground, inter alia, that the amount of the
judgment is excessive or is different in kind from that prayed for, or that
the plaintiff failed to prove the material allegations of his complaint, or that
the decision is contrary to law. Such party declared in default is proscribed
from seeking a modification or reversal of the assailed decision on the basis
of the evidence submitted by him in the Court of Appeals, for if it were
otherwise, he would thereby be allowed to regain his right to adduce
evidence, a right which he lost in the trial court when he was declared in
default, and which he failed to have vacated. In this case, the petitioner
sought the modification of the decision of the trial court based on the
evidence submitted by it only in the Court of Appeals.
The petitioner cannot, likewise, rely on the ruling of the Court in Overseas
Bank of Manila vs. Court of Appeals, because in the said case, the issue of
whether a party who had been declared in default is entitled to relief from
the judgment by default based on evidence presented only in the appellate
court, when such order of default was not vacated by the trial court prior to
the appeal from the judgment of default was not raised therein, much less
resolved by the Court.
8. Judicial Review
a. Availability of remedy
Sec. 30, NCBA: 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
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.

b. Ground: grave abuse of discretion
Cases
Central Bank v. Court of Appeals, 106 SCRA 143 (1981)
FACTS
In 1985, the Monetary Board ordered the closure of Triumph Savings Bank
(TSB) after it found that its financial condition is one of insolvency and its
continuance in business would involve probable loss to its depositors and
creditors.
TSB filed a complaint against Central Bank to annul its closure and
challenging the constitutionality of the Central Bank Act insofar as it
authorizes the Central Bank to take over a banking institution even if it is
not charged with violation of any law or regulation.
It further alleged that the Central Bank violated the rule on administrative
due process, which requires that prior notice and hearing be afforded to all
parties in administrative proceedings. Since MB Resolution No. 596 was
adopted without TSB being previously notified and heard, according to
respondents, the same is void for want of due process; consequently, the
bank's management should be restored to its board of directors and officers.
ISSUE
May a Monetary Board resolution placing a private bank under receivership
be annulled on the ground of lack of prior notice and hearing?
RULING
NO. Under Sec. 29 of R.A. 265, the Central Bank, 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 probable loss
to its depositors or creditors, forbid the bank or non-bank financial
institution to do business in the Philippines; and shall designate an official of
the CB or other competent person as receiver to immediately take charge of
its assets and liabilities. The fourth paragraph, which was then in effect at
the time the action was commenced, allows the filing of a case to set aside
the actions of the Monetary Board, which are tainted with arbitrariness and
bad faith.
Sec. 29 does not contemplate prior notice and hearing before a bank may
be directed to stop operations and placed under receivership. It may be
emphasized that 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 ten (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
NOTES
214
complaint with the RTC of Quezon City on the 8th day following the takeover
by the receiver of the bank's assets on 3 June 1985.
This "close now and hear later" scheme is grounded on practical and legal
considerations to prevent unwarranted dissipation of the bank's assets and
stockholders and the general public.
Admittedly, the mere filing of a case for receivership by the Central Bank
can trigger a bank run and drain its assets in days or even hours leading to
insolvency even if the bank be actually solvent. The procedure prescribed in
Sec. 29 is truly designed to protect the interest of all concerned, i.e., the
depositors, creditors and stockholders, the bank itself, and the general
public, and the summary closure pales in comparison to the protection
afforded public interest. At any rate, the bank is given full opportunity to
prove arbitrariness and bad faith in placing the bank under receivership, in
which event, the resolution may be properly nullified and the receivership
lifted as the trial court may determine.
The Court ruled in Banco Filipino (as relied upon by TSB) that the closure of
the bank was arbitrary and attendant with grave abuse of discretion, not
because of the absence of prior notice and hearing, but that the Monetary
Board had no sufficient basis to arrive at a sound conclusion of insolvency to
justify the closure. In other words, the arbitrariness, bad faith and abuse of
discretion were determined only after the bank was placed under
conservatorship and evidence thereon was received by the trial court.
We rule that Sec. 29 of R.A. 265 is a sound legislation promulgated in
accordance with the Constitution in the exercise of police power of the state.
Consequently, the absence of notice and hearing is not a valid ground to
annul a Monetary Board resolution placing a bank under receivership. The
absence of prior notice and hearing cannot be deemed acts of arbitrariness
and bad faith. Thus, an MB resolution placing a bank under receivership, or
conservatorship for that matter, may only be annulled after a determination
has been made by the trial court that its issuance was tainted with
arbitrariness and bad faith. Until such determination is made, the status quo
shall be maintained, i.e., the bank shall continue to be under receivership.
Banco Filipino Savings and Mortgage Bank v. Monetary Board, 204
SCRA 767 (1991)
FACTS
This refers to nine consolidated cases concerning the legality of the closure
and receivership of Banco Filipino Savings and Mortgage Bank pursuant to
the order of the Monetary Board. Six cases involve the common issue of
whether or not the liquidator appointed by the Central Bank has the
authority to prosecute as well as to defend suits, and to foreclose mortgage
and in behalf of the bank while the issue on the validity of the receivership

and liquidation of the bank is pending resolution. Corollary to this issue is
whether the CB can be sued to fulfill financial commitments of a closed bank
pursuant to Section 29 of the Central Bank Act. On the other hand the other
three cases all seek to annul and set aside the M.B. Resolution No. 75
issued by the Monetary Board.
ISSUE
What are the grounds for placing a bank under receivership?
HELD
Based on the afore-quoted provision the Monetary Board may order the
cessation of operation of a bank in the Philippines and place it under
receivership upon a finding of insolvency or when its continuance in
business would involve probable loss to its depositors or creditors. If the
Monetary Board shall determine and confirm within 60 days that the bank is
insolvent or can no longer resume business with safety to its depositors,
creditors, and the general public, it shall, if public interest will be served,
order its liquidation.
c.
Jurisdiction
Sec. 4, Rule 65, Rules of Court: The petition may be filed not
later than sixty (60) days from notice of the judgment, order or
resolution sought to be assailed in the Supreme Court or, if it
relates to the acts or omissions of a lower court or of a
corporation, board, officer or person, in the Regional Trial Court
exercising jurisdiction over the territorial area as defined by the
Supreme Court. It may also be filed in the Court of Appeals
whether or not the same is in aid of its appellate jurisdiction, or
in the Sandiganbayan if it is in aid of its jurisdiction. If it
involves the acts or omissions of a quasi-judicial agency, and
unless otherwise provided by law or these Rules, the petition
shall be filed in and cognizable only by the Court of Appeals.
d. Who may question

Cases
Central Bank of the Philippines v. Court of Appeals, 220 SCRA 537
(1993);
FACTS
e.
Actions of the MB final and executory; Injunction

Sec. 22, PDIC Charter: No court, except the Court of Appeals,
shall issue any temporary restraining order, preliminary
injunction or preliminary mandatory injunction against the
Corporation for any action under this Act. (As added by R.A.
9302, 12 August 2004)
NOTES
215
This prohibition shall apply in all cases, disputes or controversies

instituted by a private party, the insured bank, or any
shareholder of the insured bank. (As added by R.A. 9302, 12
August 2004)
The Supreme Court may issue a restraining order or injunction
when the matter is of extreme urgency involving a constitutional
issue, such that unless a temporary restraining order is issued,
grave injustice and irreparable injury will arise. The party
applying for the issuance of a restraining order or injunction
shall file a bond in an amount to be fixed by the Supreme Court,
which bond shall accrue in favor of the Corporation if the court
should finally decide that the applicant was not entitled to the
relief sought. (As added by R.A. 9302, 12 August 2004)
Any restraining order or injunction issued in violation of this
Section is void and of no force and effect and any judge who has
issued the same shall suffer the penalty of suspension of at least
sixty (60) days without pay. (As added by R.A. 9302, 12 August
2004)
Cases
Central Bank of the Philippines v. Dela Cruz, 191 SCRA 346 (1990);
FACTS
The Rural Bank of Libmanan started operations in 1965. In 1979, the
Department of Rural Banks and Savings and Loans Associations (DRBSLA) of
the Central Bank conducted an examination on the conditions of the
Libmanan Bank. It discovered serious irregularities; false entries and false
statement giving the appearance of solidity and soundness of the bank
which it did not have. The DRBSLA recommended the bank to be prohibited
from doing business and place it under receivership. The bank was then
placed under receivership. After that, the Central Bank decided to liquidate
the bank due to failure to submit rehabilitation plans.
The Libmanan Bank filed a complaint to restrain the Central Bank from
enforcing the liquidation in the RTC. Judge Rafael De la Cruz granted the
restraining order and ordered the Central Bank to desist from liquidating the
Libmanan Bank. it also allowed Libmanan Bank to withdraw money from its
bank deposits. Central Bank now challenges the orders of Judge De la Cruz
under a petition for certiorari.
ISSUE
W/N the judge acted with grave abuse of discretion in issuing the
questioned orders.

RULING
YES. Section 29 of the Central Bank Act provides that 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 by the
courts except upon convincing proof that the action is plainly arbitrary and
made in bad faith. Judge De la Cruz disregarded the law by ordering to
restrain the Monetary Board without receiving any convincing proof that the
actions of the Monetary Board was plainly arbitrary and made in bad faith.
Such act constitutes a grave abuse of discretion tantamount to excess or
lack of jurisdiction.
In addition, 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 filing of the case by Libmanan Bank, it was
already under control of DRBSLA. Thus, the order should not have removed
the Bank from the control of DRBSLA.
The judge also erred in denying the Central Banks motion to dismiss the
complaint by Libmanan Bank. The complaint of Libmanan Bank should be
filed in the proceedings for assistance in liquidation. It should have been a
counterclaim and not a separate action to avoid multiplicity of suits. Failure
to assert arbitrariness and bad faith in the liquidation proceedings
constitutes a waiver of that defense.
The judge also was wrong in allowing the Libmanan Bank to withdraw funds
from its deposit. Such act would result in the further diminution and
dissipation of its assets to the prejudice of its depositors and creditors in the
liquidation proceedings.
Bangko Sentral ng Pilipinas Monetary Board v. Antonio-Valenzuela,
602 SCRA 698 (2009)
FACTS
The BSP conducted examinations of the books of a lot of rural banks. They
required these banks to infuse fresh capital. Though the banks claimed that
they did, the BSP informed them that they failed to comply with the
remedial requirements imposed by the BSP. The banks asked for more
time, and told BSP that they have not received the Report of Examination
(ROE), which finalizes the audit findings. The Rural Bank of Paranaque filed
a complaint for nullification of the BSP ROE, with application for TRO and
preliminary Injunction, which was raffled with Judge Nina AntonioValenzuela. Other banks followed suit with their respective RTC branches.
The TRO application of RBPI was granted, and the other banks filed for
consolidation, where both the consolidation, and their TRO application were
granted. BSP filed a petition for certiorari, annulling the grant of injunction
against them. The CA dismissed the petition.
NOTES
216
ISSUE
Whether or not the submission of the ROE with the MB for the closure of the
banks may be prevented by an injunction
RULING
NO. The issuance by the RTC of an injunction is an unwarranted
interference with the powers of the MB. The actions of the MB under the
New Central Bank Act may not be restrained or set aside by the court
except on petition for certiorari on the ground that the action was taken
with 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 banks assets and
stockholders, and the general public. Such power of the MB to close banks
may be considered as an exercise of police power.
f. Effect of Filing Petition for Review
Cases
Banco Filipino Savings and Mortgage Bank v. Ybaez, 445 SCRA 482
(2004)
FACTS
On March 7, 1978, respondents obtained a loan secured by a Deed of Real
Estate Mortgage over Transfer Certificate of Title (TCT) No. 69836 from
petitioner bank. The loan was used for the construction of a commercial
building in Cebu City. On October 25, 1978, respondents obtained an
additional loan from the petitioner thus increasing their obligation to one
million pesos.
From 1989 onwards, respondents did not pay a single centavo. They aver
that Banco Filipino had ceased operations and/or was not allowed to
continue business, having been placed under liquidation by the Central
Bank.
On January 15, 1990, respondents lawyer wrote Special Acting Liquidator,
Renan Santos, and requested that plaintiff return the mortgaged property of
the respondents since it had sufficiently profited from the loan and that the
interest and penalty charges were excessive. Petitioner bank denied the
request.
Banco Filipino was closed on January 1, 1985 and re-opened for business on
July 1, 1994. From its closure to its re-opening, petitioner bank did not
transact any business with its customers.
On August 24, 1994, respondents were served a Notice of Extra Judicial
Sale of their property covered by TCT No. 69836 to satisfy their
indebtedness allegedly of P6,174,337.46 which includes the principal,

interest, surcharges and 10% attorneys fees. The public auction was
scheduled on September 22, 1994 at 2:00 in the afternoon.
On September 19, 1994, respondents filed a suit for Injunction,
Accounting and Damages, alleging that there was no legal and factual
basis for the foreclosure proceedings since the loan had already been fully
paid. A restraining order was issued the following day by the lower court
enjoining petitioner to cease and desist from selling the property at a public
auction.
ISSUE
What is the effect of the temporary closure of Banco Filipino from January 1,
1985 to July 1, 1994 on the loan?
RULING
NONE. In Banco Filipino Savings and Mortgage Bank v. Monetary Board, the
validity of the closure and receivership of Banco Filipino was put in issue.
But the pendency of the case did not diminish the authority of the
designated liquidator to administer and continue the banks transactions.
The Court allowed the banks liquidator to continue receiving collectibles and
receivables or paying off creditors claims and other transactions pertaining
to normal operations of a bank. Among these transactions were the
prosecution of suits against debtors for collection and for foreclosure of
mortgages. The bank was allowed to collect interests on its loans while
under liquidation, provided that the interests were legal.
g.
Liability of the MB and PDIC
Cases
Miranda v. Philippine Deposit Insurance Corporation, 501 SCRA 288
(2006)
FACTS
Leticia Miranda was a depositor of Prime Savings Bank. She withdrew a
substantial amount from her account but instead of cash she opted to be
issued a crossed cashiers check. She deposited the the two checks in her
account in another bank on the same day, however, Bangko Sentral ng
Pilipinas (BSP) suspended the clearing privileges of Prime Savings Bank. The
two checks were returned unpaid.
Later on Prime Savings bank declared a bank holiday. Subsequently BSP
placed Prime Savings Bank under receivership of the PDIC. Miranda filed a
collection suit and impleaded Prime Savings Bank, BSP, and PDIC. RTC held
all three solidarily liable. CA reversed and absolved BSP and PDIC.
ISSUE
Whether or not BSP and PDIC can be held liable?
NOTES
217
HELD
NO. It is only Prime Savings Bank that is liable for the two cashiers checks.
Solidary liability cannot attach to the BSP, in its capacity as government
regulator of banks, and the PDIC as statutory receiver under RA 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 factual
determination f the latters insolvency.
E. PDIC FINANCIAL ASSISTANCE
Sec. 12(c), PDIC Charter: When the Corporation has determined that
an insured bank is in danger of closing, in order to prevent such closing,
the Corporation, in the discretion of its Board of Directors, is authorized
to make loans to, or purchase the assets of, or assume liabilities of, or
make deposits in, such insured bank, upon such terms and condition as
the Board of Directors may prescribe, when in the opinion of the Board
of Directors, the continued operation of such bank is essential to provide
adequate banking service in the community or maintain financial
stability in the economy.
VIII. THE BANGKO SENTRAL NG PILIPINAS AND

THE SUPERVISION OF BANKS
A. THE BSP
1. Nature
Sec. 1, NCBA: 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.
2. Responsibility and Primary Objective
Sec. 3, NCBA: 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.
3. Corporate Powers
Sec. 5, NCBA: 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 operations authorized by the
provisions of this Act, or as are essential to the proper conduct of
such operations. The Bangko Sentral may compromise, condone or
release, in whole or in part, any claim of or settled liability to the
Bangko Sentral, regardless of the amount involved, under such
terms and conditions as may be prescribed by the Monetary Board
to protect the interests of the Bangko Sentral.
Cases
Emerito Ramos v. Central Bank of the Philippines, October 4, 1971
FACTS
OBM was in dire financial distress. To aid them, CB prompted the former to
enter into a trust agreement with PNB which the CB eventually took over.
In lieu of the Trust agreement, CB made OBM mortgage all its properties in
favour of CB and in return, the latter promised to support, normalize and
rehabilitate OBM (to do what it can to prevent OBM from being liquidated.)
Upon effectivity of the Trust agreement, CB elected its own directors and
officers. OBM, with its new officers and directors, requested substantial
loans from to help rehabilitate OBM. CB extended an initial 10M loan
however this measly sum proved to be inadequate as CB eventually was
force to liquidate OBM less than a year after the effectivity of the trust
agreement.
OBM is now questioning the resolutions of CB ordering the formers clearing,
suspension of operations and liquidation.
NOTES
218
RULING
YES to both. Even in the absence of contract, the record plainly shows that
the CB made express representations to petitioners herein that it would
support the OBM, and avoid its liquidation if the petitioners would execute
(a) the Voting Trust Agreement turning over the management of OBM to the
CB or its nominees, and (b) mortgage or assign their properties to the
Central Bank to cover the overdraft balance of OBM. The petitioners having
complied with these conditions and parted with value to the profit of the CB
(which thus acquired additional security for its own advances), the CB may
not now renege on its representations and liquidate the OBM, to the
detriment of its stockholders, depositors and other creditors, under the rule
of promissory estoppel
We are constrained to agree with petitioners that the conduct of the CB
from and after January, 1968, reveals a calculated attempt to evade
rehabilitating OBM despite its promises. What is more aggravating is that by
the ordered liquidation, depositors and other creditors would have to share
in the assets of the OBM, while the CB's own credits for advances were
secured by the new mortgages it had obtained from the petitioners, thereby
gaining for it what amounts to an illegal preference. To cap it all, the CB
disregarded its representations and promises to rehabilitate and normalize
the financial condition of OBM, as it had previously done with the Republic
Bank, without even offering to discharge the mortgages, given by
petitioners in consideration for its promises, or notifying petitioners that it
desired to rescind its contract, or bringing action in court for the purpose.
And all the while CB knew that the situation of the OBM was deteriorating
daily, with penalties at 3% per month continually accumulating, while its
creditors, depositors and stockholders awaited the promised aid that never
came, and which apparently CB never intended to give.
We conclude that having induced the petitioners to part with additional
security in reliance upon its (CB's) promises and commitments to avert
liquidation and to support, normalize and rehabilitate the OBM, the
respondent CB is duty bound to comply in good faith with such promises.
Consequently, being contrary thereto, CB Resolutions should be annulled
and set aside for having been adopted in abuse of discretion, equivalent to
excess of jurisdiction. And never having attempted to comply, nor even to
begin compliance, with its commitments and promises, the respondent CB is
precluded to invoke the expiration of the period specified for the duration of
its obligations under the Voting Trust Agreement. Such period should, in
justice and equity, be deemed to start running from and after the CB begins
due performance of its commitments, promises and representations in good
faith.
ISSUES
W/N CB agreed to rehabilitate OBM?
W/N the questioned resolutions were issued by CB in abuse of its
discretion?

Central Bank of the Philippines v. Intermediate Appellate Court,
December 4, 1989
FACTS
The Central Bank, in 1954, in order to improve the textile industry, entered
into an agreement with various textile mills for the latter to purchase
spinning mills to manufacture yarn from raw cotton. This was called a
Textile Mills Integration Program". Pursuant to this, these mills incurred
contractual obligations, payable in foreign currency, in the purchase of
capital machineries needed for the improvement of their textile mills. To
cover the importation of their textile mill machineries, equipment,
accessories and spare parts under the plan, the mills filed applications for
the corresponding foreign exchange allocations, approved by the Central
Bank under several Resolutions of its Monetary Board. These resolutions in
effect allowed the mills to purchase the needed machines at the exchange
rate of P2 = $1.
Then in 1961, Central Bank issued CB Circular No. 121 which eliminated
existing contractual obligations previously approved by the Monetary Board
from among the enumerated foreign exchange transactions within the
coverage of the P2 to $1 preferred exchange rate. Thus, plaintiffs were
denied access to the P2 to $1 exchange rate with which to service their
aforesaid foreign exchange obligations.
The mills filed a complaint for declaratory relief, praying that they be
allowed to complete all existing contractual obligations at the preferred
exchange rate, and that the Central Bank be ordered to pay back all
amounts that the mills had been forced to shell out so that they would not
be in default in the performance of existing contracts. The RTC and the IAC
found for the mills.
ISSUE
Whether CB made an enforceable promise to sell foreign exchange to
private respondents at the preferred rate of P2 to $1 to service the payment
of imported machinery and equipment? At what point does promissory
estoppel apply?
HELD
YES. Under the doctrine of promissory estoppel, an estoppel may arise from
the making of a promise, even though without consideration, if it was
intended that the promise should be relied upon and in fact it was relied
upon, and if a refusal to enforce it would be virtually to sanction the
perpetration of fraud or would result in other injustice. It applies in this
case. It was established that the mills would not have entered into long
term deferred payment contracts with foreign companies if they had not
been promissed the purchase of dollars at the preferred rate.
NOTES
219
This case is distinguished from Batchelder v Central Bank. In that case the
SC ruled that the Monetary Board Resolutions merely laid down a general
policy on the utilization of the dollar earnings of Filipino and resident
American contracts undertaking projects in U.S. military bases. They "are
not contracts that give rise to obligations which must be fulfilled by the
Central Bank in favor of affected parties."
Unlike the Batchelder case, however, the mills were required to integrate
and thereafter authorized to import capital machinery only upon CB
approval of the foreign currency costs of the project, as well as the
corresponding peso payments, aside from being directed to undertake
importation only on a deferred payment basis. In short, private respondents
merely complied with rules and regulations of the CB, as participants of the
textile mills integration program. As a result, they should not now be
deprived of rights acquired by reason thereof.
4. Organization
a. Monetary Board
Sec. 6, NCBA: Composition of the Monetary Board. The
powers and functions of the Bangko Sentral shall be exercised
by the Bangko Sentral Monetary Board, hereafter referred to as
the Monetary Board, composed of seven (7) members appointed
by the President of the Philippines for a term of six (6) years.
The seven (7) members are:
(a) The Governor of the Bangko Sentral, who shall be the
Chairman of the Monetary Board. The Governor of the
Bangko Sentral shall be head of a department and his
appointment shall be subject to confirmation by the
Commission on Appointments. Whenever the Governor is
unable to attend a meeting of the Board, he shall
designate a Deputy Governor to act as his alternate:
Provided, That in such event, the Monetary Board shall
designate one of its members as acting Chairman;
(b) A member of the Cabinet to be designated by the
President of the Philippines. Whenever the designated
Cabinet Member is unable to attend a meeting of the
Board, he shall designate an Undersecretary in his
Department to attend as his alternate; and
(c) Five (5) members who shall come from the private
sector, all of whom shall serve full-time: Provided,
however, That of the members first appointed under the
provisions of this subsection, three (3) shall have a term
of six (6) years, and the other two (2), three (3) years.

No member of the Monetary Board may be reappointed more
than once.
Sec. 7, NCBA: Vacancies. Any vacancy in the Monetary
Board created by the death, resignation, or removal of any
member shall be filled by the appointment of a new member to
complete the unexpired period of the term of the member
concerned.
Sec. 8, NCBA: Qualifications. The members of the
Monetary Board must be natural-born citizens of the Philippines,
at least thirty-five (35) years of age, with the exception of the
Governor who should at least be forty (40) years of age, of good
moral character, of unquestionable integrity, of known probity
and patriotism, and with recognized competence in social and
economic disciplines.
Sec. 9, NCBA: Disqualifications. In addition to the
disqualifications imposed by Republic Act No. 6713, a member
of the Monetary Board is disqualified from being a director,
officer, employee, consultant, lawyer, agent or stockholder of
any bank, quasi-bank or any other institution which is subject to
supervision or examination by the Bangko Sentral, in which case
such member shall resign from, and divest himself of any and all
interests in such institution before assumption of office as
member of the Monetary Board.
NOTES
220
(b) If he is physically or mentally incapacitated that he cannot

properly discharge his duties and responsibilities and such
incapacity has lasted for more than six (6) months; or
(c) If the member is guilty of acts or operations which are of
fraudulent or illegal character or which are manifestly
opposed to the aims and interests of the Bangko Sentral; or
(d) If the member no longer possesses the qualifications
specified in Section 8 of this
Sec. 11, NCBA: Meetings. The Monetary Board shall meet
at least once a week. The Board may be called to a meeting by
the Governor of the Bangko Sentral or by two (2) other
members of the Board.
The presence of four (4) members shall constitute a quorum:
Provided, That in all cases the Governor or his duly designated
alternate shall be among the four (4).
Unless otherwise provided in this Act, all decisions of the
Monetary Board shall require the concurrence of at least four (4)
members.
The Bangko Sentral shall maintain and preserve a complete
record of the proceedings and deliberations of the Monetary
Board, including the tapes and transcripts of the stenographic
notes, either in their original form or in microfilm.
The members of the Monetary Board coming from the private

sector shall not hold any other public office or public
employment during their tenure.
Sec. 12, NCBA: Attendance of the Deputy Governors.

The Deputy Governors may attend the meetings of the Monetary
Board with the right to be heard.
No person shall be a member of the Monetary Board if he has

been connected directly with any multilateral banking or
financial institution or has a substantial interest in any private
bank in the Philippines, within one (1) year prior to his
appointment; likewise, no member of the Monetary Board shall
be employed in any such institution within two (2) years after
the expiration of his term except when he serves as an official
representative of the Philippine Government to such institution.
Sec. 13, NCBA: Salary. The salary of the Governor and the
members of the Monetary Board from the private sector shall be
fixed by the President of the Philippines at a sum commensurate
to the importance and responsibility attached to the position.
Sec. 10, NCBA: Removal. The President may remove any

member of the Monetary Board for any of the following reasons:
(a) If the member is subsequently disqualified under the
provisions of Section 8 of this Act; or
Sec. 14, NCBA: Withdrawal of Persons Having a Personal

Interest. In addition to the requirements of Republic Act No.
6713, any member of the Monetary Board with personal or
pecuniary interest in any matter in the agenda of the Monetary
Board shall disclose his interest to the Board and shall retire
from the meeting when the matter is taken up. The decision
taken on the matter shall be made public. The minutes shall
reflect the disclosure made and the retirement of the member
concerned from the meeting.

Sec. 15, NCBA: Exercise of Authority. In the exercise of
its authority, the Monetary Board shall:
(a) Issue rules and regulations it considers necessary for the
effective discharge of the responsibilities and exercise of the
powers vested upon the Monetary Board and the Bangko
Sentral. The rules and regulations issued shall be reported to
the President and the Congress within fifteen (15) days from the
date of their issuance;
(b) Direct the management, operations, and administration of
the Bangko Sentral, reorganize its personnel, and issue such
rules and regulations as it may deem necessary or convenient
for this purpose. The legal units of the Bangko Sentral shall be
under the exclusive supervision and control of the Monetary
Board;
(c) Establish a human resource management system which shall
govern the selection, hiring, appointment, transfer, promotion,
or dismissal of all personnel. Such system shall aim to establish
professionalism and excellence at all levels of the Bangko
Sentral in accordance with sound principles of management.
A compensation structure, based on job evaluation studies and
wage surveys and subject to the Board's approval, shall be
instituted as an integral component of the Bangko Sentral's
human resource development program: Provided, That the
Monetary Board shall make its own system conform as closely
as possible with the principles provided for under Republic Act
No. 6758: Provided, however, That compensation and wage
structure of employees whose positions fall under salary grade
19 and below shall be in accordance with the rates prescribed
under Republic Act No. 6758.
On the recommendation of the Governor, appoint, fix the
remunerations and other emoluments, and remove personnel of
the Bangko Sentral, subject to pertinent civil service laws:
Provided, That the Monetary Board shall have exclusive and final
authority to promote, transfer, assign, or reassign personnel of
the Bangko Sentral and these personnel actions are deemed
made in the interest of the service and not disciplinary:
Provided, further, That the Monetary Board may delegate such
authority to the Governor under such guidelines as it may
determine.
NOTES
221
(d) Adopt an annual budget for and authorize such expenditures

by the Bangko Sentral as are in the interest of the effective
administration and operations of
(e) The Bangko Sentral in accordance with applicable laws and
regulations; and
(f) Indemnify its members and other officials of the Bangko
Sentral, including personnel of the departments performing
supervision and examination functions against all costs and
expenses reasonably incurred by such persons in connection
with any civil or criminal action, suit or proceedings to which he
may be, or is, made a party by reason of the performance of his
functions or duties, unless he is finally adjudged in such action
or proceeding to be liable for negligence or misconduct.
In the event of a settlement or compromise, indemnification
shall be provided only in connection with such matters covered
by the settlement as to which the Bangko Sentral is advised by
external counsel that the person to be indemnified did not
commit any negligence or misconduct.
The costs and expenses incurred in defending the
aforementioned action, suit or proceeding may be paid by the
Bangko Sentral in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on
behalf of the member, officer, or employee to repay the amount
advanced should it ultimately be determined by the Monetary
Board that he is not entitled to be indemnified as provided in
this subsection.
Sec. 16, NCBA: Responsibility. Members of the Monetary
Board, officials, examiners, and employees of the Bangko
Sentral who willfully violate this Act or who are guilty of
negligence, abuses or acts of malfeasance or misfeasance or fail
to exercise extraordinary diligence in the performance of his
duties shall be held liable for any loss or injury suffered by the
Bangko Sentral or other banking institutions as a result of such
violation, negligence, abuse, malfeasance, misfeasance or
failure to exercise extraordinary diligence.
Similar responsibility shall apply to members, officers, and
employees of the Bangko Sentral for: (1) the disclosure of any
information of a confidential nature, or any information on the
discussions or resolutions of the Monetary Board, or about the
confidential operations of the Bangko Sentral, unless the
disclosure is in connection with the performance of official

functions with the Bangko Sentral, or is with prior authorization
of the Monetary Board or the Governor; or (2) the use of such
information for personal gain or to the detriment of the
Government, the Bangko Sentral or third parties: Provided,
however, That any data or information required to be submitted
to the President and/or the Congress, or to be published under
the provisions of this Act shall not be considered confidential.
b.
Governor and Deputy Governors

Sec. 17, NCBA: Powers and Duties of the Governor. The
Governor shall be the chief executive officer of the Bangko
Sentral. His powers and duties shall be to:
(a) Prepare the agenda for the meetings of the Monetary Board
and to submit for the consideration of the Board the policies and
measures which he believes to be necessary to carry out the
purposes and provisions of this Act;
(b) Execute and administer the policies and measures approved
by the Monetary Board;
(c) Direct and supervise the operations and internal
administration of the Bangko Sentral. The Governor may
delegate certain of his administrative responsibilities to other
officers or may assign specific tasks or responsibilities to any
full-time member of the Monetary Board without additional
remuneration or allowance whenever he may deem fit or subject
to such rules and regulations as the Monetary Board may
prescribe;
(d) Appoint and fix the remunerations and other emoluments of
personnel below the rank of a department head in accordance
with the position and compensation plans approved by the
Monetary Board, as well as to impose disciplinary measures
upon personnel of the Bangko Sentral, subject to the provisions
of Section 15(c) of this Act: Provided, That removal of personnel
shall be with the approval of the Monetary Board;
(e) Render opinions, decisions, or rulings, which shall be final
and executory until reversed or modified by the Monetary Board,
on matters regarding application or enforcement of laws
pertaining to institutions supervised by the Bangko Sentral and
laws pertaining to quasi- banks, as well as regulations, policies
or instructions issued by the Monetary Board, and the
implementation thereof; and
NOTES
222
(f) Exercise such other powers as may be vested in him by the

Monetary Board.
Sec. 18, NCBA: Representation of the Monetary Board and
the Bangko Sentral. The Governor of the Bangko Sentral
shall be the principal representative of the Monetary Board and
of the Bangko Sentral and, in such capacity and in accordance
with the instructions of the Monetary Board, he shall be
empowered to:
(a) Represent the Monetary Board and the Bangko Sentral in all
dealings with other offices, agencies and instrumentalities of the
Government and all other persons or entities, public or private,
whether domestic, foreign or international;
(b) Sign contracts entered into by the Bangko Sentral, notes
and securities issued by the Bangko Sentral, all reports, balance
sheets, profit and loss statements, correspondence and other
documents of the Bangko Sentral.
The signature of the Governor may be in facsimile whenever
appropriate;
(c) Represent the Bangko Sentral, either personally or through
counsel, including private counsel, as may be authorized by the
Monetary Board, in any legal proceedings, action or specialized
legal studies; and
(d) Delegate his power to represent the Bangko Sentral, as
provided in subsections (a), (b) and (c) of this section, to other
officers upon his own responsibility: Provided, however, That in
order to preserve the integrity and the prestige of his office, the
Governor of the Bangko Sentral may choose not to participate in
preliminary discussions with any multilateral banking or financial
institution on any negotiations for the Government within or
outside the Philippines. During the negotiations, he may instead
be represented by a permanent negotiator.
Sec. 19, NCBA: Authority of the Governor in Emergencies.
In case of emergencies where time is sufficient to call a
meeting of the Monetary Board, the Governor of the Bangko
Sentral, with the concurrence of two (2) other members of the
Monetary Board, may decide any matter or take any action
within the authority of the Board.
NOTES
223
The Governor shall submit a report to the President and

Congress within seventy-two (72) hours after the action has
been taken.
of the operations of institutions and the substantive similarities of

specific functions to which such rules, modes or standards are to be
applied;
At the soonest possible time, the Governor shall call a meeting

of the Monetary Board to submit his action for ratification.
4.2.The conduct of examination to determine compliance with laws

and regulations if the circumstances so warrant as determined by
the Monetary Board;
Sec. 20, NCBA: Outside Interests of the Governor and the

Full-time Members of the Board The Governor of the
Bangko Sentral and the full-time members of the Board shall
limit their professional activities to those pertaining directly to
their positions with the Bangko Sentral. Accordingly, they may
not accept any other employment, whether public or private,
remunerated or ad honorem, with the exception of positions in
eleemosynary, civic, cultural or religious organizations or
whenever, by designation of the President, the Governor or the
full-time member is tasked to represent the interest of the
Government or other government agencies in matters connected
with or affecting the economy or the financial system of the
country.
Sec. 21, NCBA: Deputy Governors. The Governor of the
Bangko Sentral, with the approval of the Monetary Board, shall
appoint not more than three (3) Deputy Governors who shall
perform duties as may be assigned to them by the Governor and
the Board.
In the absence of the Governor, a Deputy Governor designated
by the Governor shall act as chief executive of the Bangko
Sentral and shall exercise the powers and perform the duties of
the Governor. Whenever the Government is unable to attend
meetings of government boards or councils in which he is an ex
officio member pursuant to provisions of special laws, a Deputy
Governor as may be designated by the Governor shall be vested
with authority to participate and exercise the right to vote in
such meetings.
B. SUPERVISION OF BANKS
1. Scope and Extent
Sec. 4, GBL: 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
standards of operation for uniform application to all institutions or
functions covered, taking into consideration the distinctive character
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; or
4.6.
Enforcing prompt corrective action.
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. .
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 re-lending or
purchasing of receivables and other obligations.
Cases
Busuego v. Court of Appeals, 304 SCRA 473 (1999)
FACTS
CB examiners conducted a regular examination of the books and records of
the PAL Employees Savings and Loan Association, Inc. (PESALA), after
which, several irregularities committed by Banez, Busuego and Lim
(petitioners), PESALA's directors and officers, were uncovered, among which
are:
1. Questionable investment in a multi-million peso real estate project
(Pesalaville).
2. Conflict of interest in the conduct of business.
3. Unwarranted declaration and payment of dividends.
4. Commission of unsound and unsafe business practices.

MB Resolution No. 805 was issued providing, among others:
2. To require the PESALA board of directors to immediately inform its
members of the results of the CB examination and their effects on its
financial condition;
5. To include the names of petitioners in the CBs watchlist to prevent them
from holding responsible positions in any institution under CB supervision;
6. To require PESALA to enforce collection of the overpayment to the Vista
Grande Management and Development Corp. and to require the accounting
of P12.28 million unaccounted and unremitted bank loan proceeds and P3.9
million other unsupported cash disbursements from the responsible directors
and officers;
7. To require the PESALA board to file civil and criminal cases against
petitioners.
Petitioners secured a TRO and the declaration of nullity of the MB Resolution
from the RTC, but the CA dismissed the same. Petitioners filed this petition,
claiming that they were denied due process. They also alleged that the MB
Resolution virtually deprived them of their gainful employment, and at the
same time marked them for judicial prosecution.
ISSUE
Whether or not Petitioners were depriVed of theIr right to due process , who
WINS?
HELD
Petitioners were duly afforded their right to due process by the MB, it
appearing that:
1. They were invited to a conference to discuss the findings made in the
regular examination, but they did not attend said conference;
2. Petitioner Lim's letter to PESALA's Board, explaining his side of the
controversy, was forwarded to the MB which the latter considered in
adopting MB Resolution No. 805; and
3. PESALA's Boards letter to the MB, explaining the Board's side of the
controversy, was properly considered in the adoption of MB Resolution No.
805.
The essence of due process is to be afforded a reasonable opportunity to be
heard and to submit any evidence one may have in support of his defense.
What is offensive to due process is the denial of the opportunity to be heard.
Petitioners having availed of their opportunity to present their position to
the MB by their letters-explanation, they were not denied due process.
NOTES
224
SC rejected petitioners claims that the MB is not vested with "the authority
to disqualify persons from occupying positions in institutions under CB
supervision without proper notice and hearing" nor is it vested with
authority "to file civil and criminal cases against its officers/directors for
suspected fraudulent acts."
The CB, through the MB, is the government agency charged with the
responsibility of administering the monetary, banking and credit system of
the country and is granted the power of supervision and examination over
banks and non-bank financial institutions performing quasi-banking
functions of which savings and loan associations, such as PESALA, form part
of The Savings and Loan Association Act (RA 3779) authorizes the MB to
conduct regular yearly examinations of the books and records of savings
and loan associations, to suspend a savings and loan association for
violation of law, to decide any controversy over the obligations and duties of
directors and officers, and to take remedial measures, among others. Also,
if any irregularity is discovered in the process, the MB may impose
appropriate sanctions, such as suspending the offender from holding office
or from being employed with the CB, or placing the names of the offenders
in a watchlist.
The requirement of prior notice is also relaxed under RA 3779, as
investigations or examinations may be conducted with or without prior
notice "but always with fairness and reasonable opportunity for the
association or any of its officials to give their side." Here, the said
requirement was properly complied with by the MB.
At any rate, petitioners' suspension was only preventive in nature and
therefore, no notice or hearing was necessary. Until such time that the
petitioners have proved their innocence, they may be preventively
suspended from holding office so as not to influence the conduct of
investigation, and to prevent the commission of further irregularities.
Neither were petitioners deprived of their lawful calling as they are free to
look for another employment so long as the company involved is not subject
to CB control and supervision. They can still practice their profession or
engage in business as long as these are not within the ambit of MB
Resolution No. 805.
Union Bank of the Philippines v. Securities and Exchange
Commission, 358 SCRA 479 (2001)
FACTS
In 1997, Union Bank sought the opinion of SEC Chairman Yasay as to the
applicability and coverage of Full Material Disclosure Rule on banks,
contending that these, in effect, amend Revised Securites Act, exempting
NOTES
225
securities issued or guaranteed by banking institutions from the registration

requirement provided therein.
partnerships or associations which are grantees of government-issued

primary franchises and/or licenses or permits to operate in the Philippines.
Yasay informed petitioner that while the requirements of registration do not

apply to securities of banks which are exempt under the Revised Securities
Act, however, banks with a class of securities listed for trading on the
Philippine Stock Exchange, Inc. are covered by certain Revised Securities
Act Rules governing the filing of various reports with respondent
Commission.
That petitioner is under the supervision of the Bangko Sentral ng Pilipinas

(BSP) and the Philippine Stock Exchange (PSE) does not exempt it from
complying with the continuing disclosure requirements embodied in the
assailed Rules. Petitioner, as a bank, is primarily subject to the control of
the BSP; and as a corporation trading its securities in the stock market, it is
under the supervision of the SEC. It must be pointed out that even the PSE
is under the control and supervision of respondent.14 There is no oversupervision here. Each regulating authority operates within the sphere of its
powers. That stringent requirements are imposed is understandable,
considering the paramount importance given to the interests of the
investing public.
Unsatisfied, Union Bank referred the matter to the PSE, which reiterated
that Union Bank is NOT exempt from the filing of certain reports.
Two months after, SEC wrote Union Bank enjoining the latter to show cause
why it should not be penalized for failure to submit certain records as
required under the Rules.
Union Bank failed to respond, prompting SEC to send another "Show Cause"
letter to it and assessing it a fine of P50,000 + P500 for every report not
filed (total of P91,000). Union Bank disputed the assessment through an
appeal, which the SEC denied. CA affirmed SEC's orders.
ISSUE
Whether Union Bank is required to comply with SEC's full disclosure rules
RULING
YES. Section 5(a) (3) of the said Act reads:
"Sec. 5. Exempt Securities. (a) Except expressly provided, the
requirement of registration under subsection (a) of Section four of
this Act shall not apply to any of the following classes of securities:
xxx xxx xxx
(3) Any security issued or guaranteed by any banking institution
authorized to do business in the Philippines, the business of which is
substantially confined to banking, or a financial institution licensed
to engage in quasi-banking, and is supervised by the Central Bank."
This provision exempts from registration the securities issued by banking or
financial institutions mentioned in the law. Nowhere does it state or even
imply that petitioner, as a listed corporation, is exempt from complying with
the reports required by the assailed RSA Implementing Rules.
It must be emphasized that petitioner is a commercial banking corporation
listed in a stock exchange. Thus, it must adhere not only to banking and
other allied special laws, but also to the rules promulgated by Respondent
SEC, the government entity tasked not only with the enforcement of the
Revised Securities Act, but also the supervision of all corporations,
Otherwise stated, the mere fact that in regard to its banking functions,
petitioner is already subject to the supervision of the BSP does not exempt
the former reasonable disclosure regulations issued by the SEC. These
regulations are meant to assure full, fair and accurate disclosure of
information for the protection of investors in the stock market. Imposing
such regulations is a function within the jurisdiction of the SEC. Since
petitioner opted to trade its shares in the exchange, then it must abide by
the reasonable rules imposed by the SEC.
2. Issuance of Regulations
Sec. 4.1, GBL: 4.1. The issuance of rules of, conduct or the
establishment 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;
Cases
Shell Philippines, Inc. v. Central Bank of the Philippines, 162 SCRA
629 (1988)
FACTS
Congress approved RA 6125 imposing a stabilization tax on consignments
abroad.
Subsequenlty , the Central Bank, through it Circular No. 309 (basically
setting the parameters for imposing stabilization tax on certain exports).
Shell made exports of seria residues. Later on, Monetary Board issued
Resolution No. 47 subjecting petroleum pitch and other petroleum
residues to the stabilization tax. Shell paid the tax under protest.

Shell filed a case to declare Resolution No. 47 null and void and prayed for a
refund.
ISSUE
Whether or not Resolution No. 47 is null and void?
HELD
YES. While it is true that under RA 6125 the Central Bank was given the
authority to promulgate rules and regulations to implement the statutory
provision in question, we reiterate the principle that this authority is limited
only to carrying out into effect what the law being implemented provides.
Administrative regulations adopted under legislative authority by a particular
department must be in harmony with the provisions of the law, and should
be for the sole purpose of carrying into effect its general provisions. By such
regulations, the law itself cannot be extended.
Central Bank v. Cloribel, 44 SCRA 307 (1972)
FACTS
In 1964, the Monetary board issued two circulars pegging the maximum
rate of interest on certain types of deposits and how they are imposed,
including allowing interest on savings deposits to accrue not more often
than quarterly, and providing that interest on time deposits should only be
paid on maturity, not in advance. Banco Filipino, in 1966, changed is policy
allowing interest on savings deposits to accrue monthly, and paying interest
on time deposits in advance of their maturity date. THe MB issued a
resolution directing BP to comply with their circulars. BP replied by applying
for prohibition in the CFI of Manila, against the implementation of the MB
circulars. Judge Cloribel granted the TRO, and then issued an injunction. CB
thus filed the present petition for certiorari with the SC.
ISSUE
What is the nature of the CB's regulatory power (specifically, to impose
interest hard caps)?
HELD
1) It is legislative in nature. The CB has no legal obligation to notify and
hear anybody, before exercising its power to fix the maximum rates of
interest that banks may pay on deposits or any other obligations. It is a
settled rule that if the nature of the administrative agency is essentially
legislative, the requirements of notice and hearing are not necessary. The
validity of a rule of future action which affects a group, if vested rights of
liberty or property are not involved, is not determined according to the
same rules which apply in the case of the direct application of a policy to a
specific individual.
NOTES
226
2) What is more, it is presumed that the Monetary Board has exercised its
power to fix maximum rates of interest conformably to law, and courts will
not interfere with the policy of the Board thereon unless it acted without
or in excess of its jurisdiction or in a manifestly arbitrary or unduly
oppressive manner upon the theory that the Board is, for obvious
reasons, in a better position to determine such question.
3) Furthermore, they do not impair vested rights because these circulars
applied only prospectively. Besides, it is understood that ALL contractual
obligations are subject as an implied reservation therein to the policy
power of the state, of which the regulatory authority of the Central Bank
may be regarded as a mere extension.
It is significant that the law does not merely authorize the Board to "fix the
maximum rates of interest which banks may pay on deposits and on any
other obligations." It, also, expressly empowers the Board "(i)n order to
avoid possible evasion of maximum interest rates set by the ... Board" to
fix also "the maximum rates that banks may pay to or collect from their
customers in the form of ... payments of any sort." Indeed, the authority to
establish maximum rates of interest carries with it, NECESSARILY, the
power to determine the maximum rates payable as interest for given
periods of time. In other words, it connotes the right to specify the length of
time for which the rates thus fixed shall be computed. The determination of
the rate must include a determinatino of how often that rate can be paid
out.
4) Neverthefurthermoreless, otherwise stated, the objective of the power to
fix maximum rates of interest payable by banks is to establish a uniform
ceiling applicable to all banks, in order to AVOID competition among the
same. Banking is exposed to the danger of cutthroat competition. There
exists a powerful temptation to try to attract added deposits by offering
higher interest rates. This practice tends to reduce banking profits and
encourages the banker to seek increased earnings by making less
conservative and more remunerative loans and investments. Not all bankers
can be trusted to watch competition cut into profits without taking some
unwise action to prevent it, and this is what interest hard caps seek to
prevent.
The purpose of the resolutions and circulars fixing maximum rates of
interest payable by banks on savings deposits and prohibiting the payment
in advance of interest on time deposits, is to protect the stability of banking
institutions as vital factors in the national economy from the danger
that may result from cut-throat competition among said institutions.

3. Bank Examination
Sec. 25, NCBA: 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 supervision 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.
NOTES
227
stock savings and loan associations and provident funds

organized exclusively for employees of the Bangko Sentral, and
except as otherwise provided in this Act;
(b) Directly or indirectly requesting or receiving any gift, present or
pecuniary or material benefit for himself or another, from any
institution subject to supervision or examination by the Bangko
Sentral;
(c) Revealing in any manner, except under orders of the court, the
Congress or any government office or agency authorized by law,
or under such conditions as may be prescribed by the Monetary
Board, information relating to the condition or business of any
institution. This prohibition shall not be held to apply to the
giving of information to the Monetary Board or the Governor of
the Bangko Sentral, or to any person authorized by either of
them, in writing, to receive such information; and
(d) Borrowing from any institution subject to supervision or
examination by the Bangko Sentral shall be prohibited unless
said borrowings are adequately secured, fully disclosed to the
Monetary Board, and shall be subject to such further rules and
regulations as the Monetary Board may prescribe: Provided,
however, That personnel of the supervising and examining
departments are prohibited from borrowing from a bank under
their supervision or examination.
Sec. 28, NCBA: 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.
Sec. 27, NCBA: Prohibitions. In addition to the prohibitions

found in Republic Act Nos. 3019 and 6713, personnel of the Bangko
Sentral are hereby prohibited from:
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.
(a) Being an officer, director, lawyer or agent, employee, consultant

or stockholder, directly or indirectly, of any institution subject to
supervision or examination by the Bangko Sentral, except non-
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 year
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.
Sec. 4, GBL: 4.2.The conduct of examination to determine
compliance with laws and regulations if the circumstances so
warrant as determined by the Monetary Board;
Sec. 7, GBL: 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.
4. Overseeing Compliance
Sec. 4, GBL: 4.3. Overseeing to ascertain that laws and regulations
are complied with;
Sec. 58, GBL: Independent Auditor. - The Monetary Board may
require a bank, quasi-bank or trust entity to engage the services of
an independent auditor to be chosen by the bank, quasi-bank or
trust entity concerned from a list of certified public accountants
acceptable to the Monetary Board. The term of the engagement
shall be as prescribed by the Monetary Board which may either be
on a continuing basis where the auditor shall act as resident
examiner, or on the basis of special engagements; but in any case,
the independent auditor shall be responsible to the banks, quasibanks or trust entitys board of directors. A copy of the report shall
be furnished to the Monetary Board. The Monetary Board may also
direct the board of directors of a bank, quasi-bank, trusty entity
and/or the individual members thereof; to conduct, either personally
or by a committee created by the board, an annual balance sheet
audit of the bank, quasi-bank or trust entity to review the internal
audit and control system of the bank, quasi-bank or trust entity and
to submit a report of such audit.
5. Enforcement
Sec. 34, NCBA: Refusal to Make Reports or Permit
Examination. Any officer, owner, agent, manager, director or
officer-in-charge of any institution subject to the supervision or
examination by theBangko Sentral within the purview of this Act
who, being required in writing by the Monetary Board or by the head
of the supervising and examining department willfully refuses to file
the required report or permit any lawful examination into the affairs
of such institution shall be punished by a fine of not less than Fifty
thousand pesos (P50,000) nor more than One hundred thousand
NOTES
228
pesos (P100,000) or by imprisonment of not less than one (1) year

nor more than five (5) years, or both, in the discretion of the court.
Sec. 35, NCBA: False Statement. The willful making of a false
or misleading statement on a material fact to the Monetary Board or
to the examiners of the Bangko Sentral shall be punished by a fine
of not less than One hundred thousand pesos (P100,000) nor more
than Two hundred thousand pesos (P200,000), or by imprisonment
of not more than (5) years, or both, at the discretion of the court.
Sec. 36, NCBA: 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 willfully 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.
Sec. 37, NCBA: Administrative Sanctions on Banks and Quasibanks. 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 willful violation of
its charter or by-laws, willful 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
willful making of a false or misleading statement to the Board or the
appropriate supervising and examining department or its examiners;
any willful 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 of 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.
NOTES
229
Cases
United Coconut Planters Bank v. E. Ganzon, Inc., 591 SCRA 321 (2009)
FACTS
E. Ganzon Inc. (EGI) obtained a loan from UCPB, and was able to pay its
periodic amortization payments, until the economic crisis caught up with
them. A memorandum of agreement was entered into between EGI and
UCPB for the settlement of the remaining loan. The MOA reflected the
remaining amount due, valued at P915,838,822.50. When portion of the
properties of EGI was sold through auction, it only amounted to
P723,592,000.00, where there was still an unpaid balance of
P192,246,822.50. Some other properties valued at P166,127,369.50 was
transferred to UCPB by way of dacion en pago. However, EGI noticed that
the value they owe changed to P226,963,905.50. This prompted them to
recheck their files, and saw that there are actually two values that points to
how much they owe: loan with a heading ACTUAL amounting to
P146,849,412.58, and another with the heading DISCLOSED TO EGI
amounting to P226,967,194.80. EGI demanded an explanation from UCPB,
which the latter ignored. EGI then filed a case of unfair and unsound bank
practices against UCPB with the BSP, which dismissed the complaint. EGI
appealed with the CA via Rule 43 of the Rules of Court which ruled that BSP
summarily dismissed the complaint, and remanded the case with the BSP.
ISSUE
Whether the CA had jurisdiction over the case
Whether CA was correct in remanding the case with BSP
RULING
YES and YES. Under sec 9 of BP 129 which amended Rule 43 of the Rules of
Court, the list of quasi-judicial agency listed is not an exclusive list. Since
BSP is a quasi-judicial agency, BSP is included under Rule 43 where the CA
may review the decisions made by the BSP.
CA was also correct in remanding the case with the BSP. BSP summarily
dismissed the case filed by EGI against UCPB, where it had not made any
conclusive findings, and since BSP is the proper quasi-judicial agency to
determine such allegations, it must be remanded back to the BSP. The CA
also failed to fined enough evidence on the record to resolve the complaint,
which is the main reason that the CA remanded the case with the BSP.
C. MONEY FUNCTION
Section 49. Definition of Currency. The word "currency" is hereby
defined, for purposes of this Act, as meaning all Philippine notes and
coins issued or circulating in accordance with the provisions of this Act.
Section 50. Exclusive Issue Power. The Bangko Sentral shall have
the sole power and authority to issue currency, within the territory of
the Philippines. No other person or entity, public or private, may put

into circulation notes, coins or any other object or document which, in
the opinion of the Monetary Board, might circulate as currency, nor
reproduce or imitate the facsimiles of Bangko Sentral notes without
prior authority from the Bangko Sentral.
The Monetary Board may issue such regulations as it may deem
advisable in order to prevent the circulation of foreign currency or of
currency substitutes as well as to prevent the reproduction of facsimiles
of Bangko Sentral notes.
The Bangko Sentral shall have the authority to investigate, make
arrests, conduct searches and seizures in accordance with law, for the
purpose of maintaining the integrity of the currency.
Violation of this provision or any regulation issued by the Bangko
Sentral pursuant thereto shall constitute an offense punishable by
imprisonment of not less than five (5) years but not more than ten (10)
years. In case the Revised Penal Code provides for a greater penalty,
then that penalty shall be imposed.
Section 51. Liability for Notes and Coins. Notes and coins issued
by the Bangko Sentral shall be liabilities of the Bangko Sentral and may
be issued only against, and in amounts not exceeding, the assets of the
Bangko Sentral. Said notes and coins shall be a first and paramount lien
on all assets of the Bangko Sentral.
The Bangko Sentral's holdings of its own notes and coins shall not be
considered as part of its currency issue and, accordingly, shall not form
part of the assets or liabilities of the Bangko Sentral.
Section 52. Legal Tender Power. All notes and coins issued by the
Bangko Sentral shall be fully guaranteed by the Government of the
Republic of the Philippines and shall be legal tender in the Philippines for
all debts, both public and private: Provided, however, That, unless
otherwise fixed by the Monetary Board, coins shall be legal tender in
amounts not exceeding Fifty pesos (P50.00) for denominations of
Twenty-five centavos and above, and in amounts not exceeding Twenty
pesos (P20.00) for denominations of Ten centavos or less.
Section 53. Characteristics of the Currency. The Monetary Board,
with the approval of the President of the Philippines, shall prescribe the
denominations,
dimensions,
designs,
inscriptions
and
other
characteristics of notes issued by the Bangko Sentral: Provided,
however, That said notes shall state that they are liabilities of the
Bangko Sentral and are fully guaranteed by the Government of the
Republic of the Philippines. Said notes shall bear the signatures, in
NOTES
230
facsimile, of the President of the Philippines and of the Governor of the

Bangko Sentral.
Similarly, the Monetary Board, with the approval of the President of the
Philippines, shall prescribe the weight, fineness, designs, denominations
and other characteristics of the coins issued by the Bangko Sentral. In
the minting of coins, the Monetary Board shall give full consideration to
the availability of suitable metals and to their relative prices and cost of
minting.
Section 54. Printing of Notes and Mining of Coins. The Monetary
Board shall prescribe the amounts of notes and coins to be printed and
minted, respectively, and the conditions to which the printing of notes
and the minting of coins shall be subject. The Monetary Board shall have
the authority to contract institutions, mints or firms for such operations.
All expenses incurred in the printing of notes and the minting of coins
shall be for the account of the Bangko Sentral.
Section 55. Interconvertibility of Currency. The Bangko Sentral
shall exchange, on demand and without charge, Philippine currency of
any denomination for Philippine notes and coins of any other
denomination requested. If for any reason the Bangko Sentral is
temporarily unable to provide notes or coins of the denominations
requested, it shall meet its obligations by delivering notes and coins of
the denominations which most nearly approximate those requested.
Section 56. Replacement of Currency Unfit for Circulation. The
Bangko Sentral shall withdraw from circulation and shall demonetize all
notes and coins which for any reason whatsoever are unfit for circulation
and shall replace them by adequate notes and coins: Provided, however,
That the Bangko Sentral shall not replace notes and coins the
identification of which is impossible, coins which show signs of filing,
clipping or perforation, and notes which have lost more than two-fifths
(2/5) of their surface or all of the signatures inscribed thereon. Notes
and coins in such mutilated conditions shall be withdrawn from
circulation and demonetized without compensation to the bearer.
Section 57. Retirement of Old Notes and Coins. The Bangko
Sentral may call in for replacement notes of any series or denomination
which are more than five (5) years old and coins which are more than
(10) years old.
Notes and coins called in for replacement in accordance with this
provision shall remain legal tender for a period of one (1) year from the
date of call. After this period, they shall cease to be legal tender but
during the following year, or for such longer period as the Monetary
Board may determine, they may be exchanged at par and without

charge in the Bangko Sentral and by agents duly authorized by the
Bangko Sentral for this purpose. After the expiration of this latter
period, the notes and coins which have not been exchanged shall cease
to be a liability of the Bangko Sentral and shall be demonetized. The
Bangko Sentral shall also demonetize all notes and coins which have
been called in and replaced.
B. DEMAND DEPOSITS
Section 58. Definition. For purposes of this Act, the term "demand
deposits" means all those liabilities of the Bangko Sentral and of other
banks which are denominated in Philippine currency and are subject to
payment in legal tender upon demand by the presentation of checks.
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 respect thereto under this Act.
Section 60. Legal Character. Checks representing demand deposits
do not have legal tender 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 creditor shall be equivalent to a delivery to the creditor of
cash in an amount equal to the amount credited to his account.
D. MONETARY POLICY
NOTES
231
(b) Submit to the President of the Philippines and the Congress, and
make public, a detailed report which shall include, as a minimum, a
description and analysis of:
(1) The causes of the rise or fall of the monetary aggregates, of
credit or of prices;
(2) The extent to which the changes in the monetary aggregates, in
credit, or in prices have been reflected in changes in the level of
domestic output, employment, wages and economic activity in
general, and the nature and significance of any such changes; and
(3) The measures which the Monetary Board has taken and the
other monetary, fiscal or administrative measures which it
recommends to be adopted.
Whenever the monetary aggregates, or the level of credit, increases or
decreases by more than fifteen percent (15%), or the cost of living
index increases by more than ten percent (10%), in relation to the level
existing at the end of the corresponding month of the preceding year, or
even though any of these quantitative guidelines have not been reached
when in its judgment the circumstances so warrant, the Monetary Board
shall submit the reports mentioned in this section, and shall state
thereinwhether, in the opinion of the Board, said changes in the
monetary aggregates, credit or cost of living represent a threat to the
stability of the Philippine economy or of important sectors thereof.
1. Domestic Monetary Stabilization

Section 61. Guiding Principle. The Monetary Board shall endeavor
to control any expansion or contraction in monetary aggregates which is
prejudicial to the attainment or maintenance of price stability.
The Monetary Board shall continue to submit periodic reports to the

President of the Philippines and to Congress until it considers that the
monetary, credit or price disturbances have disappeared or have been
adequately controlled.
Section 62. Power to Define Terms. For purposes of this article

and of this Act, the Monetary Board shall formulate definitions of
monetary aggregates, credit and prices and shall make public such
definitions and any changes thereof.
2. International Monetary Stabilization

Section 64.
International Monetary Stabilization. The
Bangko Sentral shall exercise its powers under this Act to preserve
the international value of the peso and to maintain its convertibility
into other freely convertible currencies primarily for, although not
necessarily limited to, current payments for foreign trade and
invisibles.
Section 63. Action When Abnormal Movements Occur in the

Monetary Aggregates, Credit, or Price Level. Whenever abnormal
movements in the monetary aggregates, in credit, or in prices endanger
the stability of the Philippine economy or important sectors thereof, the
Monetary Board shall:
(a) Take such remedial measures as are appropriate and within the
powers granted to the Monetary Board and the Bangko Sentral under
the provisions of this Act; and
Section 65. International Reserves. In order to maintain the

international stability and convertibility of the Philippine peso, the
Bangko Sentral shall maintain international reserves adequate to
meet any foreseeable net demands on the Bangko Sentral for
foreign currencies.

In judging the adequacy of the international reserves, the Monetary
Board shall be guided by the prospective receipts and payments of
foreign exchange by the Philippines. The Board shall give special
attention to the volume and maturity of the Bangko Sentral's own
liabilities in foreign currencies, to the volume and maturity of the
foreign exchange assets and liabilities of other banks operating in
the Philippines and, insofar as they are known or can be estimated,
the volume and maturity of the foreign exchange assets and
liabilities of all other persons and entities in the Philippines.
Section 66. Composition of the International Reserves. The
international reserves of the Bangko Sentral may include but shall
not be limited to the following assets:
(a) Gold; and
(b) Assets in foreign currencies in the form of: documents
and instruments customarily employed for the international
transfer of funds; demand and time deposits in central
banks, treasuries and commercial banks abroad; foreign
government securities; and foreign notes and coins.
The Monetary Board shall endeavor to hold the foreign exchange
resources of the Bangko Sentral in freely convertible currencies;
moreover, the Board shall give particular consideration to the
prospects of continued strength and convertibility of the currencies
in which the reserve is maintained, as well as to the anticipated
demands for such currencies. The Monetary Board shall issue
regulations determining the other qualifications which foreign
exchange assets must meet in order to be included in the
international reserves of the Bangko Sentral.
The Bangko Sentral shall be free to convert any of the assets in its
international reserves into other assets as described in subsections
(a) and (b) of this section.
Section 67. Action When the International Stability of the
Peso Is Threatened. Whenever the international reserve of the
Bangko Sentral falls to a level which the Monetary Board considers
inadequate to meet prospective net demands on the Bangko Sentral
for foreign currencies, or whenever the international reserve
appears to be in imminent danger of falling to such a level, or
whenever the international reserve is falling as a result of payments
or remittances abroad which, in the opinion of the Monetary Board,
are contrary to the national welfare, the Monetary Board shall:
NOTES
232
(a) Take such remedial measures as are appropriate and within the
powers granted to the Monetary Board and the Bangko Sentral
under the provisions of this Act; and
(b) Submit to the President of the Philippines and to Congress a
detailed report which shall include, as a minimum, a description and
analysis of:
(1) The nature and causes of the existing or imminent decline;
(2) The remedial measures already taken or to be taken by the
Monetary Board;
(3) The monetary, fiscal or administrative measures further
proposed; and
(4) The character and extent of the cooperation required from
other government agencies for the successful execution of the
policies of the Monetary Board.
If the resultant actions fail to check the deterioration of the reserve
position of the Bangko Sentral, or if the deterioration cannot be
checked except by chronic restrictions on exchange and trade
transactions or by sacrifice of the domestic objectives of a balanced
and sustainable growth of the economy, the Monetary Board shall
propose to the President, with appropriate notice of the Congress,
such additional action as it deems necessary to restore equilibrium
in the international balance of payments of the Philippines.
The Monetary Board shall submit periodic reports to the President
and to Congress until the threat to the international monetary
stability of the Philippines has disappeared.
3. Basic Tools of Monetary Policy
a. Operations in Gold and Foreign Exchange
Section 69. Purchases and Sales of Gold. The Bangko Sentral
may buy and sell gold in any form, subject to such regulations as
the Monetary Board may issue.
The purchases and sales of gold authorized by this section shall be
made in the national currency at the prevailing international market
price as determined by the Monetary Board.
Section 70. Purchases and Sales of Foreign Exchange. The
Bangko Sentral may buy and sell foreign notes and coins, and
documents and instruments of types customarily employed for the
international transfer of funds. The Bangko Sentral may engage in
future exchange operations.

The Bangko Sentral may engage in foreign exchange transactions
with the following entities or persons only:
(a) Banking institutions operating in the Philippines;
(b) The
Government,
its
political
subdivisions
and
instrumentalities;
(c) Foreign or international financial institutions;
(d) Foreign governments and their instrumentalities; and
(e) Other entities or persons which the Monetary Board is hereby
empowered to authorize as foreign exchange dealers, subject
to such rules and regulations as the Monetary Board shall
prescribe.
In order to maintain the convertibility of the peso, the Bangko
Sentral may, at the request of any banking institution operating in
the Philippines, buy any quantity of foreign exchange offered, and
sell any quantity of foreign exchange demanded, by such institution,
provided that the foreign currencies so offered or demanded are
freely convertible into gold or United States dollars. This
requirement shall not apply to demands for foreign notes and coins.
The Bangko Sentral shall effect its exchange transactions between
foreign currencies and the Philippine peso at the rates determined in
accordance with the provisions of Section 74 of this Act.
Section 71. Foreign Asset Position of the Bangko Sentral.
The Bangko Sentral shall endeavor to maintain at all times a net
positive foreign asset position so that its gross foreign exchange
assets will always exceed its gross foreign liabilities. In the event
that the equivalent amount in pesos of the foreign exchange
liabilities of the Bangko Sentral exceed twice the equivalent amount
in pesos of the foreign exchange assets of the bank, the Bangko
Sentral shall, within sixty (60) days from the date the limit is
exceeded, submit a report to the Congress stating the origin of
these liabilities, and the manner in which they will be paid.
Section 72. Emergency Restrictions on Exchange Operations.
In order to achieve the primary objective of the Bangko Sentral
as set forth in Section 3 of this Act, or protect the international
reserves of the Bangko Sentral in the imminence of, or during an
exchange crisis, or in time of national emergency and to give the
Monetary Board and the Government time in which to take
constructive measures to forestall, combat, or overcome such a
crisis or emergency, the Monetary Board, with the concurrence of at
least five (5) of its members and with the approval of the President
of the Philippines, may temporarily suspend or restrict sales of
exchange by the Bangko Sentral, and may subject all transactions in
gold and foreign exchange to license by the Bangko Sentral, and
NOTES
233
may require that any foreign exchange thereafter obtained by any

person residing or entity operating in the Philippines be delivered to
the Bangko Sentral or to any bank or agent designated by the
Bangko Sentral for the purpose, at the effective exchange rate or
rates: Provided, however, That foreign currency deposits made
under Republic Act No. 6426 shall be exempt from these
requirements.
Section 73. Acquisition of Inconvertible Currencies. The
Bangko Sentral shall avoid the acquisition and holding of currencies
which are not freely convertible, and may acquire such currencies in
an amount exceeding the minimum balance necessary to cover
current demands for said currencies only when, and to the extent
that, such acquisition is considered by the Monetary Board to be in
the national interest. The Monetary Board shall determine the
procedures which shall apply to the acquisition and disposition by
the Bangko Sentral of foreign exchange which is not freely utilizable
in the international market.
Section 74. Exchange Rates. The Monetary Board shall
determine the exchange rate policy of the country.
The Monetary Board shall determine the rates at which the Bangko
Sentral shall buy and sell spot exchange, and shall establish
deviation limits from the effective exchange rate or rates as it may
deem proper. The Bangko Sentral shall not collect any additional
commissions or charges of any sort, other than actual telegraphic or
cable costs incurred by it.
The Monetary Board shall similarly determine the rates for other
types of foreign exchange transactions by the Bangko Sentral,
including purchases and sales of foreign notes and coins, but the
margins between the effective exchange rates and the rates thus
established may not exceed the corresponding margins for spot
exchange transactions by more than the additional costs or
expenses involved in each type of transactions.
Section 75. Operations with Foreign Entities. The Monetary
Board may authorize the Bangko Sentral to grant loans to and
receive loans from foreign banks and other foreign or international
entities, both public and private, and may engage in such other
operations with these entities as are in the national interest and are
appropriate to its character as a central bank. The Bangko Sentral
may also act as agent or correspondent for such entities.
NOTES
234
Upon authority of the Monetary Board, the Bangko Sentral may

pledge any gold or other assets which it possesses as security
against loans which it receives from foreign or international entities.
shall also bear any other typically commercial or banking risks,

including exchange risks not assumed by the Bangko Sentral under
the provisions of the preceding section.
b. Regulation of Foreign Exchange Operations of Banks

Section 76. Foreign Exchange Holdings of the Banks. In
order that the Bangko Sentral may at all times have foreign
exchange resources sufficient to enable it to maintain the
international stability and convertibility of the peso, or in order to
promote the domestic investment of bank resources, the Monetary
Board may require the banks to sell to the Bangko Sentral or to
other banks all or part of their surplus holdings of foreign exchange.
Such transfers may be required for all foreign currencies or for only
certain of such currencies, according to the decision of the Monetary
Board. The transfers shall be made at the rates established under
the provisions of Section 74 of this Act.
Section 80. Information on Exchange Operations. The banks

shall report to the Bangko Sentral the volume and composition of
their purchases and sales of gold and foreign exchange each day,
and must furnish such additional information as the Bangko Sentral
may request with reference to the movements in their accounts in
foreign currencies.The Monetary Board may also require other
persons and entities to report to it currently all transactions or
operations in gold, in any shape or form, and in foreign exchange
whether entered into or undertaken by them directly or through
agents, or to submit such data as may be required on operations or
activities giving rise to or in connection with or relating to a gold or
foreign exchange transaction. The Monetary Board shall prescribe
the forms on which such declarations must be made. The accuracy
of the declarations may be verified by the Bangko Sentral by
whatever inspection it may deem necessary.
The Monetary Board may, whenever warranted, determine the net

assets and net liabilities of banks and shall, in making such a
determination, take into account the bank's networth, outstanding
liabilities, actual and contingent, or such other financial or
performance ratios as may be appropriate under the circumstances.
Any such determination of net assets and net liabilities shall be
applied in all banks uniformly and without discrimination.
Section 77. Requirement of Balanced Currency Position.
The Monetary Board may require the banks to maintain a balanced
position between their assets and liabilities in Philippine pesos or in
any other currency or currencies in which they operate. The banks
shall be granted a reasonable period of time in which to adjust their
currency positions to any such requirement.
The powers granted under this section shall be exercised only when
special circumstances make such action necessary, in the opinion of
the Monetary Board, and shall be applied to all banks alike and
without discrimination.
Section 78. Regulation of Non-spot Exchange Transactions.
In order to restrain the banks from taking speculative positions with
respect to future fluctuations in foreign exchange rates, the
Monetary Board may issue such regulations governing bank
purchases and sales of non-spot exchange as it may consider
necessary for said purpose.
Section 79. Other Exchange Profits and Losses. The banks
shall bear the risks of non- compliance with the terms of the foreign
exchange documents and instruments which they buy and sell, and
c.
Loans to Banks and Financial Institutions
A. CREDIT POLICY
Section 81. Guiding Principles. The rediscounts, discounts,
loans and advances which the Bangko Sentral is authorized to
extend to banking institutions under the provisions of the present
article of this Act shall be used to influence the volume of credit
consistent with the objective of price stability.
B. NORMAL CREDIT OPERATIONS
Section 82. Authorized Types of Operations. Subject to the
principle stated in the preceding section of this Act, the Bangko
Sentral may normally and regularly carry on the following credit
operations with banking institutions operating in the Philippines:
(a) Commercial credits. The Bangko Sentral may rediscount,
discount, buy and sell bills, acceptances, promissory notes and
other credit instruments with maturities of not more than one
hundred eighty (180) days from the date of their rediscount,
discount or acquisition by the Bangko Sentral and resulting from
transactions related to:
(1) the importation, exportation, purchase or sale of readily saleable
goods and products, or their transportation within the
Philippines; or
(2) the storing of non-perishable goods and products which are duly
insured and deposited, under conditions assuring their

preservation, in authorized bonded warehouses or in other
places approved by the Monetary Board.
(b) Production credits. The Bangko Sentral may rediscount,
discount, buy and sell bills, acceptances, promissory notes and
other credit instruments having maturities of not more than
three hundred sixty (360) days from the date of their
rediscount, discount or acquisition by the Bangko Sentral and
resulting from transactions related to the production or
processing of agricultural, animal, mineral, or industrial
products. Documents or instruments acquired in accordance
with this subsection shall be secured by a pledge of the
respective crops or products: Provided, however, That the crops
or products need not be pledged to secure the documents if the
original loan granted by the Bangko Sentral is secured by a lien
or mortgage on real estate property seventy percent (70%) of
the appraised value of which equals or exceeds the amount of
the loan granted.
(c) Other credits. Special credit instruments not otherwise
rediscountable under the immediately preceding subsections (a)
and (b) may be eligible for rediscounting in accordance with
rules and regulations which the Bangko Sentral shall prescribe.
Whenever necessary, the Bangko Sentral shall provide funds
from non-inflationary sources: Provided, however, That the
Monetary Board shall prescribe additional safeguards for
disbursing these funds.(d) Advances. The Bangko Sentral
may grant advances against the following kinds of collaterals for
fixed periods which, with the exception of advances against
collateral named in clause (4) of the present subsection, shall
not exceed one hundred eighty (180) days:
(1) gold coins or bullion;
(2) securities representing obligations of the Bangko Sentral
or of other domestic institutions of recognized solvency;
(3) the credit instruments to which reference is made in
subsection (a) of this section;
(4) the credit instruments to which reference is made in
subsection (b) of this section, for periods which shall not
exceed three hundred sixty (360) days;
(5) utilized portions of advances in current amount covered
by regular overdraft agreements related to operations
included under subsections (a) and (b) of this section,
and certified as to amount and liquidity by the institution
soliciting the advance;
(6) negotiable treasury bills, certificates of indebtedness,
notes and other negotiable obligations of the
NOTES
235
Government maturing within three (3) years from the

date of the advance; and
(7) negotiable bonds issued by the Government of the
Philippines, by Philippine provincial, city or municipal
governments, or by any Philippine Government
instrumentality, and having maturities of not more than
ten (10) years from the date of advance.
The rediscounts, discounts, loans and advances made in accordance
with the provisions of this section may not be renewed or extended
unless extraordinary circumstances fully justify such renewal or
extension.
Advances made against the collateral named in clauses (6) and (7)
of subsection (d) of this section may not exceed eighty percent
(80%) of the current market value of the collateral.
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.
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.
NOTES
236
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 twentyfive 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 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.
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.
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.
Section 86. Endorsement. The documents rediscounted,

discounted, bought or accepted as collateral by the Bangko Sentral
in the course of the credit operations authorized in this article shall
bear the endorsement of the institution from which they are
received.
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.
E. CREDIT TERMS
Section 85. Interest and Rediscount. The Bangko Sentral
shall collect interest and other appropriate charges on all loans and
advances it extends, the closure, receivership or liquidations of the
debtor-institution notwithstanding. This provision shall apply
prospectively.
The Monetary Board shall fix the interest and rediscount rates to be
charged by the Bangko Sentral on its credit operations in
accordance with the character and term of the operation, but after
due consideration has been given to the credit needs of the market,
the composition of the Bangko Sentral's portfolio, and the general
requirements of the national monetary policy. Interest and
rediscount rates shall be applied to all banks of the same category
uniformly and without discrimination.
Section 87. Repayment of Credits. Documents rediscounted,

discounted or accepted as collateral by the Bangko Sentral must be
withdrawn by the borrowing institution on the dates of their
maturities, or upon liquidation of the obligations which they
represent or to which they relate whenever said obligations have
been liquidated prior to their dates of maturity.
Banks shall have the right at any time to withdraw any documents
which they have presented to the Bangko Sentral as collateral, upon
payment in full of the corresponding debt to the Bangko Sentral,
including interest charges.
Section 88. Other requirements. The Monetary Board may
prescribe, within the general powers granted to it under this Act,
additional conditions which borrowing institutions must satisfy in
order to have access to the credit of the Bangko Sentral. These
conditions may refer to the rates of interest charged by the banks,
to the purposes for which their loans in general are destined, and to
any other clearly definable aspect of the credit policy of the bank.
NOTES
237
Section
89.
Provisional
Advances
to
the
National
Government. The Bangko Sentral may make direct provisional
advances with or without interest to the National Government to
finance expenditures authorized in its annual appropriation:
Provided, That said advances shall be repaid before the end of three
(3) months extendible by another three (3) months as the Monetary
Board may allow following the date the National Government
received such provisional advances and shall not, in their aggregate,
exceed twenty percent (20%) of the average annual income of the
borrower for the last three (3) preceding fiscal years.
be issued directly against the international reserve of the

Bangko Sentral or against the securities which it has acquired
under the provisions of Section 91 of this Act, or may be issued
without relation to specific types of assets of the Bangko
Sentral.
d.
Subject to the principles stated in Section 90 of this Act, the

evidences of indebtedness of the Bangko Sentral to which this
section refers may be acquired by the Bangko Sentral before
their maturity, either through purchases in the open market or
through redemptions at par and by lot if the Bangko Sentral has
reserved the right to make such redemptions. The evidences of
indebtedness acquired or redeemed by the Bangko Sentral shall
not be included among its assets, and shall be immediately
retired and cancelled.
Open Market Operations

Sec. 90, NCBA: Principles of Open Market Operations.
The open market purchases and sales of securities by the
Bangko Sentral shall be made exclusively in accordance with its
primary objective of achieving price stability.
Sec. 91, NCBA: Purchases and Sales of Government
Securities. In order to achieve the objectives of the national
monetary policy, the Bangko Sentral may, in accordance with
the principle stated in Section 90 of this Act and with such rules
and regulations as may be prescribed by the Monetary Board,
buy and sell in the open market for its own account:
(a) evidences of indebtedness issued directly by the
Government of the Philippines or by its political
subdivisions; and
(b) evidences of indebtedness issued by government
instrumentalities
and
fully
guaranteed
by
the
Government.
The evidences of indebtedness acquired under the provisions of
this section must be freely negotiable and regularly serviced and
must be available to the general public through banking
institutions and local government treasuries in denominations of
a thousand pesos or more.
Sec. 92, NCBA: Issue and Negotiation of Bangko Sentral
Obligations. In order to provide the Bangko Sentral with
effective instruments for open market operations, the Bangko
Sentral may, subject to such rules and regulations as the
Monetary Board may prescribe and in accordance with the
principles stated in Section 90 of this Act, issue, place, buy and
sell freely negotiable evidences of indebtedness of the Bangko
Sentral: Provided, That issuance of such certificates of
indebtedness shall be made only in cases of extraordinary
movement in price levels. Said evidences of indebtedness may
The Monetary Board shall determine the interest rates,

maturities and other characteristics of said obligations of the
Bangko Sentral, and may, if it deems it advisable, denominate
the obligations in gold or foreign currencies.
e. Reserve Requirements
Section 94. Reserve Requirements. In order to control the
volume of money created by the credit operations of the banking
system, all banks operating in the Philippines shall be required to
maintain reserves against their deposit liabilities: Provided, That the
Monetary Board may, at its discretion, also require all banks and/or
quasi-banks to maintain reserves against funds held in trust and
liabilities for deposit substitutes as defined in this Act. The required
reserves of each bank shall be proportional to the volume of its
deposit liabilities and shall ordinarily take the form of a deposit in
the Bangko Sentral. Reserve requirements shall be applied to all
banks of the same category uniformly and without discrimination.
Reserves against deposit substitutes, if imposed, shall be
determined in the same manner as provided for reserve
requirements against regular bank deposits, with respect to the
imposition, increase, and computation of reserves.
The Monetary Board may exempt from reserve requirements
deposits and deposit substitutes with remaining maturities of two
(2) years or more, as well as interbank borrowings.
Since the requirement to maintain bank reserves is imposed
primarily to control the volume of money, the Bangko Sentral shall
not pay interest on the reserves maintained with it unless the
Monetary Board decides otherwise as warranted by circumstances.

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 ofrelending 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 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.
NOTES
238
Section 100. Computation on Reserves. The reserve position

of each bank or quasi- bank shall be calculated daily on the basis of
the amount, at the close of business for the day, of the institution's
reserves and the amount of its liability accounts against which
reserves are required to be maintained: Provided, That with
reference to holidays or non-banking days, the reserve position as
calculated at the close of the business day immediately preceding
such holidays and non-banking days shall apply on such days.
For the purpose of computing the reserve position of each bank or
quasi-bank, its principal office in the Philippines and all its branches
and agencies located therein shall be considered as a single unit.
Section 97. Required Reserves Against Foreign Currency

Deposits. The Monetary Board is similarly authorized to prescribe
and modify the minimum reserve ratios applicable to deposits
denominated in foreign currencies.
Section 101. Reserve Deficiencies. Whenever the reserve

position of any bank or quasi- bank, computed in the manner
specified in the preceding section of this Act, is below the required
minimum, the bank or quasi-bank shall pay the Bangko Sentral onetenth of one percent (1/10 of 1%) per day on the amount of the
deficiency or the prevailing ninety-one-day treasury bill rate plus
three percentage points, whichever is higher: Provided, however,
That banks and quasi-banks shall ordinarily be permitted to offset
any reserve deficiency occurring on one or more days of the week
with any excess reserves which they may hold on other days of the
same week and shall be required to pay the penalty only on the
average daily deficiency during the week. In cases of abuse, the
Monetary Board may deny any bank or quasi-bank the privilege of
offsetting reserve deficiencies in the aforesaid manner.
Section 98. Reserves Against Unused Balances of Overdraft

Lines. In order to facilitate Bangko Sentral control over the
volume of bank credit, the Monetary Board may establish minimum
reserve requirements for unused balances of overdraft lines.
If a bank or quasi-bank chronically has a reserve deficiency, the

Monetary Board may limit or prohibit the making of new loans or
investments by the institution and may require that part or all of the
net profits of the institution be assigned to surplus.
The powers of the Monetary Board to prescribe and modify reserve

requirements against unused balances of overdraft lines shall be the
same as its powers with respect to reserve requirements against
demand deposits.
The Monetary Board may modify or set aside the reserve deficiency
penalties provided in this section, for part or the entire period of a
strike or lockout affecting a bank or a quasi-bank as defined in the
Labor Code, or of a national emergency affecting operations of
banks or quasi-banks. The Monetary Board may also modify or set
aside reserved deficiency penalties for rehabilitation program of a
bank.
Section 96. Required Reserves Against Peso Deposits. The

Monetary Board may fix and, when it deems necessary, alter the
minimum reserve ratios to peso deposits, as well as to deposit
substitutes, which each bank and/or quasi-bank may maintain, and
such ratio shall be applied uniformly to all banks of the same
category as well as to quasi-banks.
Section 99. Increase in Reserve Requirements. Whenever in

the opinion of the Monetary Board it becomes necessary to increase
reserve requirements against existing liabilities, the increase shall
be made in a gradual manner and shall not exceed four percentage
points in any thirty- day period. Banks and other affected financial
institutions shall be notified reasonably in advance of the date on
which such increase is to become effective.
Section 102. Interbank Settlement. The Bangko Sentral shall

establish facilities for interbank clearing under such rules and
regulations as the Monetary Board may prescribe: Provided, That
the Bangko Sentral may charge administrative and other fees for
the maintenance of such facilities.

The deposit reserves maintained by the banks in the Bangko Sentral
in accordance with the provisions of Section 94 of this Act shall
serve as basis for the clearing of checks and the settlement of
interbank balances, subject to such rules and regulations as the
Monetary Board may issue with respect to such operations:
Provided, That any bank which incurs on overdrawing in its deposit
account with the Bangko Sentral shall fully cover said overdraft,
including interest thereon at a rate equivalent to onetenth of one
percent (1/10 of 1%) per day or the prevailing ninety-one-day
treasury bill rate plus three percentage points, whichever is higher,
not later than the next clearing day: Provided, further, That
settlement of clearing balances shall not be effected for any account
which continues to be overdrawn for five (5) consecutive banking
days until such time as the overdrawing is fully covered or otherwise
converted into an emergency loan or advance pursuant to the
provisions of Section 84 of this Act: Provided, finally, That the
appropriate clearing office shall be officially notified of banks with
overdrawn balances. Banks with existing overdrafts with the Bangko
Sentral as of the effectivity of this Act shall, within such period as
may be prescribed by the Monetary Board, either convert the
overdraft into an emergency loan or advance with a plan of
payment, or settle such overdrafts, and that, upon failure to so
comply herewith, the Bangko Sentral shall take such action against
the bank as may be warranted under this Act.
Section 103. Exemption from Attachment and Other
Purposes. Deposits maintained by banks with the Bangko
Sentral as part of their reserve requirements shall be exempt from
attachment, garnishments, or any other order or process of any
court, government agency or any other administrative body issued
to satisfy the claim of a party other than the Government, or its
political subdivisions or instrumentalities.
F. BANKER AND FINANCIAL ADVISER OF GOVERNMENT

ARTICLE I. FUNCTIONS AS BANKER OF THE GOVERNMENT
SECTION 110. Designation of Bangko Sentral as Banker of the
Government. The Bangko Sentral shall act as a banker of the
Government, its political subdivisions and instrumentalities.
SECTION 111. Representation with the International Monetary Fund.
The Bangko Sentral shall represent the Government in all dealings,
negotiations and transactions with the International Monetary Fund and
shall carry such accounts as may result from Philippine membership in, or
operations with, said Fund.
NOTES
239
SECTION 112. Representation with Other Financial Institutions.

The Bangko Sentral may be authorized by the Government to represent it in
dealings, negotiations or transactions with the International Bank for
Reconstruction and Development and with other foreign or international
financial institutions or agencies. The President may, however, designate
any of his other financial advisors to jointly represent the Government in
such dealings, negotiations or transactions.
SECTION 113. Official Deposits. The Bangko Sentral shall be the
official depository of the Government, its political subdivisions and
instrumentalities as well as of government-owned or controlled corporations
and, as a general policy, their cash balances should be deposited with the
Bangko Sentral, with only minimum working balances to be held by
government-owned banks and such other banks incorporated in the
Philippines as the Monetary Board may designate, subject to such rules and
regulations as the Board may prescribe: Provided, That such banks may
hold deposits of thepolitical subdivisions and instrumentalities of the
Government beyond their minimum working balances whenever such
subdivisions or instrumentalities have outstanding loans with said banks.
The Bangko Sentral may pay interest on deposits of the Government or of
its political subdivisions and instrumentalities, as well as on deposits of
banks with the Bangko Sentral.
SECTION 114. Fiscal Operations. The Bangko Sentral shall open a
general cash account for the Treasurer of the Philippines, in which the liquid
funds of the Government shall be deposited.
Transfers of funds from this account to other accounts shall be made only
upon order of the Treasurer of the Philippines.
SECTION 115. Other Banks as Agents of the Bangko Sentral. In the
performance of its functions as fiscal agent, the Bangko Sentral may engage
the services of other government-owned and controlled banks and of other
domestic banks for operations in localities at home or abroad in which the
Bangko Sentral does not have offices or agencies adequately equipped to
perform said operations: Provided, however, That for fiscal operations in
foreign countries, the Bangko Sentral may engage the services of
foreign banking and financial institutions.
SECTION 116. Remuneration for Services. The Bangko Sentral may
charge equitable rates, commissions or fees for services which it renders to
the Government, its political subdivisions and instrumentalities.

ARTICLE II. THE MARKETING AND STABILIZATION OF SECURITIES
FOR THE ACCOUNT OF THE GOVERNMENT
A.
THE ISSUE AND PLACING OF GOVERNMENT SECURITIES
SECTION 117. Issue of Government Obligations. The issue of

securities representing obligations of the Government, its political
subdivisions or instrumentalities, may be made through the Bangko Sentral,
which may act as agent of, and for the account of, the Government or its
respective subdivisions or instrumentality, as the case may be: Provided,
however, That the Bangko Sentral shall not guarantee the placement of said
securities, and shall not subscribe to their issue except to replace its
maturing holdings of securities with the same type as the maturing
securities.
SECTION 118. Methods of Placing Government Securities. The
Bangko Sentral may place the securities to which the preceding section
refers through direct sale to financial institutions and the public.
The Bangko Sentral shall not be a member of any stock exchange or
syndicate, but may intervene therein for the sole purpose of regulating their
operations in the placing of government securities.
The Government, or its political subdivisions or instrumentalities, shall
reimburse the Bangko Sentral for the expenses incurred in the placing of the
aforesaid securities.
SECTION 119. Servicing and Redemption of the Public Debt. The
servicing and redemption of the public debt shall also be effected through
the Bangko Sentral.
B.
BANGKO SENTRAL SUPPORT OF THE GOVERNMENT

SECURITIES MARKET
SECTION 120. The Securities Stabilization Fund. There shall be

established a "Securities Stabilization Fund" which shall be administered by
the Bangko Sentral for the account of the Government.
The operations of the Securities Stabilization Fund shall consist of purchases
and sales, in the open market, of bonds and other evidences of
indebtedness issued or fully guaranteed by the Government. The purpose of
these operations shall be to increase the liquidity and stabilize the value of
said securities in order thereby to promote investment in government
obligations.
The Monetary Board shall use the resources of the Fund to prevent, or
moderate, sharp fluctuations in the quotations of said government
NOTES
240
obligations, but shall not endeavor to alter movements of the market

resulting from basic changes in the pattern or level of interest rates.
The Monetary Board shall issue such regulations as may be necessary to
implement the provisions of this section.
SECTION 121. Resources of the Securities Stabilization Fund.
Subject to Section 132 of this Act, the resources of the Securities
Stabilization Fund shall come from the balance of the fund as held by the
Central Bank under Republic Act No. 265 as of the effective date of this Act.
SECTION 122. Profits and Losses of the Fund. The Securities
Stabilization Fund shall retain net profits which it may make on its
operations, regardless of whether said profits arise from capital gains or
from interest earnings. The Fund shall correspondingly bear any net losses
which it may incur.
ARTICLE III. FUNCTIONS AS FINANCIAL ADVISOR OF THE
GOVERNMENT
SECTION 123. Financial Advice on Official Credit Operations. Before
undertaking any credit operation abroad, the Government, through the
Secretary of Finance, shall request the opinion, in writing, of the Monetary
Board on the monetary implications of the contemplated action. Such
opinions must similarly be requested by all political subdivisions and
instrumentalities of the Government before any credit operation abroad is
undertaken by them.
The opinion of the Monetary Board shall be based on the gold and foreign
exchange resources and obligations of the nation and on the effects of the
proposed operation on the balance of payments and on monetary
aggregates.
Whenever the Government, or any of its political subdivisions or
instrumentalities, contemplates borrowing within the Philippines, the prior
opinion of the Monetary Board shall likewise be requested in order that the
Board may render an opinion on the probable effects of the proposed
operation on monetary aggregates, the price level, and the balance of
payments.
SECTION 124. Representation on the National Economic and
Development Authority. In order to assure effective coordination
between the economic, financial and fiscal policies of the Government and
the monetary, credit and exchange policies of the Bangko Sentral, the
Deputy Governor designated by the Governor of the Bangko Sentral shall be
an ex officio member of the National Economic and Development Authority
Board.

Banking - Alexander Dy

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BANKING LAW 1 | ATTY.

campaign undertaken by the corporation, the same had managed to induce

Security Credit and Acceptance Corporation is a duly registered corporation

Accordingly, defendant-corporation has violated the law by engaging in

That the illegal transactions thus undertaken by defendant corporation

Notwithstanding, the corporation, as well as the members of its Board of

CENTRAL BANK v MORFE, 20 SCRA 507 (1967)

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

B. BANKING DISTINGUISHED FROM QUASI-BANKING

b. Requirement of Separate License: No person or entity shall

The determination of whether a person or entity is performing

a. Investment Houses: Sec. 2-3, PD 129

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

commercial papers on accounts receivable, or by buying and

g. Pawnshops: "Pawnshop" shall refer to a person or entity

Investment Companies: "Investment Company" means any

e. Cooperatives: A cooperative is a duly registered association of

Insurance Companies: The term "doing an insurance business"

DOCTRINE: A pawnshop's business and operations are governed by

a Pre-Assessment Notice, petitioner was informed by the BIR that it has

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

D. NATURE OF BANKING BUSINESS

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

conservatorship was maintained.

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

or loss of employment status or payment by the locking-out employer of

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

or of millions. The bank must record every single transaction accurately,

When Utmost Diligence Required

PHILIPPINE BANKING CORPORATION v CA, 419 SCRA 487 (2004)

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

with IBAA (later merged with PCI) and cleared by CB proceeds

2. In Selection and Supervision of Employees

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

3. To be Mortgagees in Good Faith

Banks, indeed, should exercise more care and prudence in dealing

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

Applicability to Commercial Transactions Outside of Core

REYES v CA, 363 SCRA 51 (2001)

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

In Philippine Bank of Commerce v. Court of Appeals15 upholding a

Applicability to Government Financial Institutions

GSIS v SANTIAGO, 414 SCRA 563 (2003)

Applicability to those Engaged in Lending Money Secured

ADRIANO v PANGILINAN, 373 SCRA 544 (2002)

Liability for Negligence

PHILIPPINE BANK OF COMMERCE v CA, 269 SCRA 695 (1997)

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

supplied by the imaginary conduct of the discreet paterfamilias of the

the Solidbank passbook.

Later on, it was discovered that an unauthorized withdrawal of P300,000.00

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

family.[22] Section 2 of RA 8791 prescribes the statutory diligence required

However, the fiduciary nature of a bank-depositor relationship does not

Because of these incidents, Araneta, through counsel, sent a letter to the

ARANETA v BANK OF AMERICA, 40 SCRA 144 (1970)

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011

RTC dismissed the complaint. However, CA reversed the decision, making

PRUDENTIAL BANK v CA, 328 SCRA 264 (2000)

The relationship between a bank and depositor is fiduciary in nature. The

BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011