Banking Laws

Page 1 of 26
Notes of hotjurist
in foro conscientiae

BANKING LAWS

G GO OV VE ER RN NI IN NG G L LA AW W
Banking Institution are governed by the following
laws:

A. General banking laws
General Banking Law (R.A. No. 8791)
. New Central Bank Act (R.A. No.
7653)

B. Special banking laws
New Rural Banks Act (R.A. No. 7353)
Private Development Banks Act
(R.A. No. 4093)
Savings and Loan Association Act
(R.A. No. 3779)
. Thrift Banks Act (R.A. No. 7906)

C. Other laws affecting banks
Secrecy of Bank Deposits Law
(R.A. No. 1405)
Unclaimed Balances Law (Act No. 3936)
Philippine Deposit Insurance Corporation Act
(R.A. No. 3591)

The general banking laws above mentioned are
applicable to government banks like DBP and PNB.
The Al- Amanah Islamic Bank is subject to all banking
and pertinent laws.

(Bar Review Materials in Commercial Law, Jorge
Miravite, 2002 ed.)

THREE KINDS OF ENTITIES THAT INTRODUCE FUNDS
INTO THE ECONOMY:
1. banks : entities that obtains funds from the public
in the form of deposits and re-lend it to the public;
2. quasi-banks : those that obtain funds in the form of
deposit substitutes and re-lend the same and not
from the public or depositors.
3. Finance companies and other financial
intermediaries: those that lend funds from their
own assets.

FIVE PERSONS PRIMARILY INTERESTED IN THE
BUSINESS OF BANKING
1. Government
2. Depositors
3. Investors
4. Creditors
5. Borrowers

BAR QUESTION:

JOINT ACCOUNT VS. PARTNERSHIP (2000)
Distinguish joint account from partnership. (3%)

SUGGESTED ANSWER
The following are the distinctions between joint
account and partnership:

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

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

Page 2 of 26

Notes of hotjurist

GENERAL BANKING LAW OF 2000
(GBL)
(RA No. 8791)

Purpose: To promote and maintain a stable and
efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of
a developing economy (Sec. 2).

Scope of Application: The GBL primarily governs
universal banks and commercial banks. It suppletorily
governs thrift banks, rural banks and other banking
institutions.

GENERAL CONCEPTS
BANKS

Entities engaged in the lending of funds obtained in
the form of deposits (Sec. 2)

Entities duly authorized by the Monetary Board to
engage in the business of regularly lending funds
obtained regularly from the public through the
receipt of deposits of any kind.

An investment company that performs function as
such is NOT a bank. Thus an investment company
that is engage solely in investing, reinvesting or
trading in securities is not engage in banking. (
Banas vs. Asia Pacific Finance Corp., Oct. 18,
2000).

However, an investment company which loans out
money of its customers, collects interest, and
charges a commission to both lender or borrower is
engage in banking (Republic vs. Security Credit
and Acceptance Corp.)

QUASI-BANKS

Entities engaged in the borrowing of funds through
the issuance, endorsement or assignment with
recourse or acceptance of deposit substitutes (Sec.
95)

Entities authorized to perform universal or
commercial banking functions may also engage in
quasi-banking functions.

FINANCIAL INTERMEDIARIES

Persons or entities whose principal functions
include the lending, investing or placement of funds
on evidences of indebtedness or equity deposited
with them, acquired by them or otherwise coursed
through them, either for their own account or for the
account of others.

ORGANIZATION AND OPERATION
A. Authority to Register/Incorporate

The SEC shall not register the articles of
incorporation of any bank or any amendment
thereto unless accompanied by a certificate of
authority issued by the Monetary Board under its
seal (Sec. 14).

The certificate of authority shall not be issued
unless the Monetary Board is satisfied:

1. That all requirements of existing laws and
regulations to engage in the business for which
the applicant is proposed to be incorporated
have been complied with;

2. That the public interest and economic
conditions, both general and local, justify the
authorization; and

3. That the amount of the capital, the financing,
organization, direction and administration, as
well as the integrity and responsibility of the
organizers and administrators, reasonably
assure the safety of deposits and the public
interest (Sec. 14).

Organization of a Bank or Quasi-Bank
Requirements:
1. The entity is a stock corporation;
2. Its funds are obtained from the public,
i.e. 20 or more persons; and
3. The minimum capital requirements prescribed
by the Monetary Board are satisfied (Sec. 8).

Note:
In Quasi banks, Deposit substitute are
alternative forms of obtaining funds for the
public, other than deposit, through the
issuance, endorsement, or acceptance of debt
instrument for the borrowers own account, for
the purpose of relending or purchasing of
receivables and other obligations.in banking or
quasi-banking functions

A person or entity cannot engage in banking or
quasi-banking functions without a certificate of
authority from the BSP (Sec. 6).
The determination of whether a person or entity is
performing banking or quasi-banking functions
without BSP authority shall be decided by the
Monetary Board.
NATURE OF BANKING BUSINESS

Impressed with public interest where the trust and
confidence of the public in general is of paramount
importance such that:

1. The appropriate standard of diligence must be
very high, if not the highest, degree of
diligence; highest degree of care (PCI Bank vs.
CA, 350 SCRA 446, PBCom vs. CA, G.R. No.
121413, 29 Jan. 2001)
This applies only to cases where banks
are acting in their fiduciary capacity, that
is, as depository of the deposits of their
depositors (Reyes vs. CA, G.R. No.
118492, 15 Aug. 2001).

2. Subject to reasonable regulation under the
police power of the state.

While an innocent mortgagee is not expected to
conduct an exhaustive investigation on the history
of the mortgagors title, in case of a banking
Page 3 of 26

Notes of hotjurist

institution, it must exercise due diligence before
entering into said contract, and cannot rely upon on
what is or is not annotated on the title. Reason:
Before a loan is approved, representatives are sent
to the premises offered as collaterals so as to
investigate who the real owners are (DBP vs. CA,
331 SCRA 267).

The business of a bank is one affected by public
interest for which reason the bank should guard
against loss due to negligence and bad faith. It is
expected to ascertain and verify the identities of the
persons it transacts business with (UCPB vs.
Ramos, G.R. No. 147800, November 11, 2003,
Callejo, J.).

Due diligence required of banks extend even to
persons, or institutions like the GSIS, regularly
engaged in the business of lending money secured
by real estate mortgages (GSIS vs. Eduardo
Santiago, G.R. No. 155206. October 28, 2003).
CONSEQUENCES OF NATURE OF BUSINESS:
1. It is subject to heavy and close supervision and/or
regulation by the BSP (Central Bank of the Phils. v.
CA, 208 SCRA 652).
1. It is required to exercise utmost diligence in the
handling of deposits (Simex International Manila
Inc., 183 SCRA 361).
2. Special rules on strikes and lockouts: any strike or
lockout involving banks, if unsettled after 7
calendar days shall be reported by the BSP to the
Sec. of Labor who has 2 options:
a. He may assume jurisdiction over and decide
the dispute; or
b. certify it to the NLRC for compulsory
arbitration

The President may also intervene at any time and
assume jurisdiction over such labor dispute in order to
settle or terminate the same.
CLASSIFICATION OF BANKS (SEC. 3)

1. Universal banks - Primarily governed by the
General Banking Law (GBL), can exercise the
powers of an investment house and invest in non-
allied enterprises and have the highest
capitalization requirement.

2. Commercial banks - Ordinary banks governed by
the GBL which have a lower capitalization
requirement than universal banks and can neither
exercise the powers of an investment house nor
invest in non-allied enterprises.

3. Thrift banks These are a) Savings and mortgage
banks; b) Stock savings and loan associations; c)
Private development banks, which are primarily
governed by the Thrift Banks Act (R.A. 7906).

4. Rural banks Mandated to make needed credit
available and readily accessible in the rural areas
on reasonable terms and which are primarily
governed by the Rural Banks Act of 1992 (RA
7353).

5. Cooperative banks Those banks organized
whose majority shares are owned and controlled by
cooperatives primarily to provide financial and
credit services to cooperatives. It shall include
cooperative rural banks. They are governed
primarily by the Cooperative Code (RA 6938).

6. Islamic banks Banks whose business dealings
and activities are subject to the basic principles and
rulings of Islamic Shari a, such as the Al Amanah
Islamic Investment Bank of the Philippines which
was created by RA 6848.

7. Other classification of banks as determined by
the Monetary Board of the Bangko Sentral ng
Pilipinas.

ORDINARY
CORPORATION
BANKING
CORPORATION
May be a stock or
non-stock
corporation
Must generally be a
stock corporation
May issue par value
or no par value
stocks.
Shall issue par value
stocks only (Sec. 9).
May be registered
with the SEC
without any
certificate of
authority issued by
a government
agency.
Must secure a
certificate of authority
from the Monetary
Board before it can
register with SEC.
May
purchase/acquire
its own shares for a
legitimate corporate
purpose; provided
that, it has
unrestricted
retained earnings in
its books to cover
the shares to be
purchased/
acquired.
May not purchase/
acquire its shares or
accept them as
security for a loan.
Except: when
authorized by the
Monetary Board. In
such case, the bank
must sell or dispose
of said shares within
6 months from the
time of their
acquisition (Sec. 10).
Must be composed
of 5 to 15 directors,
each of whom shall
own at least one (1)
share of the capital
stock of the
corporation.
Also composed of 5
to 15 directors. In
case of merger or
consolidation, the
number of directors
shall not exceed 21
(Sec. 17).
May declare
dividends out of its
unrestricted
retained earnings.
May not declare
dividends, if any of
the conditions set
forth under Sec. 57
are present.

Page 4 of 26

Notes of hotjurist

UNIVERSAL BANK COMMERCIAL BANK
Authority to exercise
additional powers
other than those
authorized for
commercial banks
No such additional
powers
May invest in the
equities of allied,
whether financial or
non-financial, and
non-allied enterprises
(Sec. 24)
May only invest in
equities of allied
enterprises, whether
financial or non-financial
Powers
1. The powers
authorized for a
commercial bank;
2. The powers of an
investment house;
and
3. The power to invest
in non-allied
enterprises (Sec.
23).
1. General powers
incident to
corporations
2. Such powers as may
be necessary to carry
on the business of
commercial banking:
a. Accepting drafts
and issuing letter of
credits;
b. Discounting and
negotiating
promissory notes,
drafts, bills of
exchange and other
evidence of debt;
c. Accepting or
creating demand
deposits; receiving
other types of
deposits and deposit
substitutes;
d. Buying and selling
foreign exchange
and other debt
securities;
e. Extending credit.
(Sec. 29)

UNIVERSAL &
COMMERCIAL BANK
OTHER BANKS
Authorized to engage in
quasi-banking functions
without need for
approval
Not so authorized
May accept or create
demand deposits
without need for
approval

Demand deposits -
Liabilities of the BSP
and of other banks
which are denominated
in Philippine currency
and are subject to
Must seek approval of
Monetary Board
before accepting or
creating demand
deposits. (Sec. 33)
payment in legal tender
upon demand by the
presentation of checks
(Sec. 58, NCBA).

EQUITY INVESTMENTS
POINT OF
DISTINCTION
UNIVERSAL BANK
(Sec. 24-28)
COMML BANK
(Sec. 30-32)
Total investment
in allied
enterprises
50%
of net worth
35%
of net worth
Total investment
in non-allied
enterprises
50%
of net worth
N/A
Equity
investment in any
one enterprise
25%
of net worth
25%
of net worth
(Allied only)
Equity
investment in
financial allied
enterprise: thrift
bank, rural bank
or any financial
allied enterprise
(Sec. 25)
A publicly-
listed bank may
own up to 100%
of the voting
stock of only one
other UB / CB
(Sec. 25).

100%
of equity

100%
of equity

In other
financial allied
enterprises,
investment shall
remain a
minority holding
(Sec. 31).
Equity
investment in
non-financial
allied enterprises

100%
of equity

100%
of equity
Equity
investment in a
single non-allied
enterprise
Shall not exceed
35% of the total
equity in that
enterprise nor
shall it exceed
35% of the
voting stock in
that enterprise

N/A
Equity
investment in
Quasi-Banks

40% 40%

Page 5 of 26

Notes of hotjurist

Allied Enterprises those entities which enhance or
complement banking

Non-Financial Allied Enterprises pertains to
activities that do not involve money matters (such as
warehousing, safety deposit boxes)

NET WORTH
The total of the unimpaired paid-in capital including
paid-in surplus, retained earnings and undivided profit,
net valuation reserves and other adjustments as may be
required by the Bangko Sentral (Sec. 24).

RISKBASED CAPITAL

The minimum ratio prescribed by the Monetary
Board which the net worth of a bank must bear to
its total risk assets which may include contingent
accounts.

However, the Monetary Board may require or
suspend compliance with such ratio whenever
necessary for a maximum period of one year;
PROVIDED that, such ratio shall be applied
uniformly to banks of the same category (Sec. 34).

Effect of non-compliance with the prescribed
minimum ratio:

1. Distribution of net profits may be limited or
prohibited and MB 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; or
2. Acquisition of major assets and making of new
investments may be restricted. EXCEPT:
purchases of evidence of indebtedness
guaranteed by the Government (Sec. 34).
3. In case of a bank merger or consolidation, or
when a bank is under rehabilitation under a
program approved by BSP, the MB may
temporarily relieve the surviving bank,
consolidated bank, or constituent bank or
corporations under rehabilitation from full
compliance with the required capital ratio.

Effects of non-compliance with the prescribed
minimum ratio:
1. Distribution of net profits may be limited or
prohibited and MB 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; or
2. Acquisition of major assets and making of new
investments may be restricted. EXCEPT:
purchases of evidence of indebtedness guaranteed
by the Government.
3. In case of a bank merger or consolidation, or when
a bank is under rehabilitation under a program
approved by BSP, the MB may temporarily relieve
the surviving bank, consolidated bank, or
constituent bank or corporations under
rehabilitation from full compliance with the required
capital ratio.

FUNCTIONS OF BANKS

BASIC FUNCTIONS:
1. Loan Function
2. Deposit Function

OTHER FUNCTIONS
Universal banks and commercial banks may also
exercise any of the following functions:
a. Receive in custody funds, documents and
valuable objects;
b. Act as financial agent and buy and sell, by
order of and for the account of their customer,
shares, evidences of indebtedness and types
of securities;
c. Make collection and payments for the account
of others and perform such other services for
their customer as are not incompatible with
banking business;
d. Upon prior approval of the Monetary Board, act
as managing agent, adviser, consultant or
administrator of investment management/
advisory/consultancy accounts; and
e. Rent out safety deposit boxes.

The depositary would be liable if in performing its
obligation it is found guilty of fraud, negligence; in the
absence of any stipulation prescribing the degree of
diligence required, that of a good father of the family is
to be observed. Any stipulation exempting the
depositary from any liability arising from loss on account
of fraud, negligence would be void for being contrary to
public policy (CA-Agro Devt vs. CA, 219 SCRA 426,
March 5, 1993).

Note: The bank acting as depositary or as an agent
shall keep the funds, securities and other effects which
it receives duly separated from its own assets and
liabilities. (Sec. 53)

A. LOAN FUNCTION

Requirement for Grant of Loans

Before granting a loan, a bank must ascertain that
the debtor is capable of fulfilling his commitments to the
bank.

Rules:

1. A bank may demand from its applicants a
statement of their assets and liabilities and of their
income and expenditures and other information.

2. Should such statements prove to be false or
incorrect, the bank may terminate any loan granted
on the basis of said statements and shall have the
right to demand immediate repayment or liquidation
of obligation (Sec. 40).

Page 6 of 26

Notes of hotjurist

Classification of Loans
UNCLASSIFIED
LOANS
CLASSIFIED LOANS
Those that do not
have a greaterthan
normal risk and the
borrower have
apparent ability to
satisfy it in full and no
loss in ultimate
collection is
anticipated.

Those that have
extraordinary risks of
loss in collection due to
some defects such as
bad debts or those
under litigation.

Limit on loans, credit accommodations and
guarantees (Sec. 35)

1. Single Borrowers Limit (SBL) Rules

b. The total amount of loans extended by a bank to
any person, partnership, association, corporation or
other entity shall at no time exceed 20% of the net
worth of such bank.

c. The total amount of loans may be increased by an
additional 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;

Exclusions (NON-RISK LOANS):
1. Loans secured by obligations of the Bangko Sentral
or the Philippine Government;
2. Loans fully guaranteed by the government;
3. Loans covered by assignment of deposits
maintained in the lending bank and held in the
Philippines;
4. Loans, credit accommodations and acceptances
under letters of credit to the extent covered by
margin deposits; and
5. Other loans or credit accommodations which the
MB may specify as non-risk items.

Joint and Solidary Signature (JSS) Practice
A common banking practice requiring as an additional
security for a loan granted to a corporation the joint and
Solidary signature of a major stockholder or corporate
officer of the borrowing corporation (Security Bank vs.
Cuenca, 341 SCRA 781).
Reasons:
a. In case of default, creditors recourse is not limited
to corporate properties but extends to personal
assets of the surety;
b. Surety would be compelled to ensure that the loan
would be used for the purpose intended.
Note: While R.A. 8791 provides for the rates of 20%
and 10% respectively, the Bangko Sentral has not yet
implemented such rates. The prevailing rates are 25%
and 15% respectively.

2. DOSRI Accounts (Directors, Officers,
Stockholders, and Related Interests)

Requisites (BSP Circular No. 170):

a. The borrower is director, officer, or any
stockholder of a bank and related interest.
b. He contracts a loan or any form of financial
accommodation
c. The loan or financial accommodation is from
(1) his bank or (2) a bank that is a subsidiary of a
bank holding company of which both his bank and
lending bank are subsidiaries, (3) a bank 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;
and
d. The loan or financial accommodation of
the DOS, singly or with that of his related
interest, is in excess of 5% of the capital and
surplus of the lending bank or in the maximum
amount permitted by law, whichever is lower.

Who are covered (BSP Circular No. 170):
1. Directors Directors of the lending bank

2. Officers Either identified in the by-laws or are
generally known as such

3. Stockholders those whose stockholdings,
individually and/or together with any of the following
persons, amount to 2% or more of the total
subscribed capital stock of the bank:
a. His spouse or relative within the first degree of
affinity/consanguinity or relative by legal
adoption, partnership wherein any of the
foregoing is a general partner; and

b. A co-owner, with the stockholder or the
stockholders spouse, or relative mentioned
above, of property/right/interest (mortgaged,
pledged or assigned to secure the loan or
credit accommodations, except when the
mortgage, pledge or assignment covers only
said co-owners undivided interest.

4. Related Interest
a. Spouse, relatives within first degree of
consanguinity or affinity, or relative by legal
adoption of a DOS, partnerships of which a
DOS or any of the foregoing is a general
partner.
b. Co-owner, with the DOS or his spouse or
relative within the first degree of consanguinity
or affinity, or relative by legal adoption, of the
property/interest/ right mortgaged, pledged,
assigned to secure the loans or credit
accommodations, except when the mortgage,
pledge or assignment covers only said co-
owners undivided interest.

c. Corporation with inter-locking directors or
where 20% of the capital stock is owned by the
DOS and/or their spouses or relatives
mentioned above, or wholly or majority owned
or controlled by any related entity or a group of
related entities in items (b), (d), and (e).

Page 7 of 26

Notes of hotjurist

Restrictions under the GBL and NCBA:
a. No director or officer of any bank shall, directly or
indirectly, borrow from such bank nor shall be
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. The written approval shall not be
required for loans granted to officers under a fringe
benefit plan approved by the Bangko Sentral.

b. Dealings of a bank with any of its DOSRI shall be
upon terms not less favorable to the bank than
those offered to others (ARMS LENGTH RULE).

c. Loans extended to 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.
Except:
i. Loans, credit accommodations, and
guarantees secured by assets considered as
non-risk by the Monetary Board.
ii. Loans, credit accommodations, and advances
to officers in the form of fringe benefits.
iii. Cooperative banks with regard to their
cooperative shareholders.

d. The resolution approving the loan shall be entered in
the records of the bank and transmitted to the BSP.

e. Waiver of secrecy of deposits of whatever nature in
all banks in the Philippines by the borrower. No
waiver is required if the related interests are the
borrower.

f. Information obtained from examination is strictly
confidential.

3. Rules on amount of secured loans
a. Those secured by real estate shall not exceed 75%
of the appraised value of the real estate security,
plus 60% of the appraised value of the insured
improvements (Sec. 37).
b. Those secured by chattels and intangible properties
(such as patents, trademarks, trade names and
copyrights) shall not exceed 75% of the appraised
value of the security (Sec. 38).
BAR QUESTION:
BANKS; RESTRICTIONS ON LOAN
ACCOMMODATIONS (2006)
Pio is the president of Western Bank. His wife
applied for a loan with the said bank to finance an
internet cafe. The loan officer told her that her
application will not be approved because the grant of
loans to related interests of bank directors,
officers, and stockholders is prohibited by the
General Banking Law. Explain whether the loan
officer is correct. (5%)
SUGGESTED ANSWER:
Section 36 of the General Banking Law of 2000 does
not entirely prohibit directors or officers of the
bank, directly or indirectly, from borrowing from the
bank. In this case, Pio is the president of Western
Bank, which makes him an officer, director and
stockholder of the said bank. The General Banking
Law provides for additional restrictions to the bank
before it can lend to its directors or officers. A
written approval of the majority vote of all the
directors of the bank, excluding the director
concerned, is required. Furthermore, such dealings
must be upon terms not less favorable to the bank
than those offered to others (Section 1326, Central
Bank's "Manual of Regulations for Banks and Other
Financial Intermediaries, cited in Ranioso v. CA, G.R.
No. 117416, December 8, 2000). A violation of this
provision will cause his or her position to be declared
vacant and the erring director or officer subjected
to the penal provisions of the New Central Bank Act.

COLLATERALS
1. Value of collaterals
The loan shall not exceed 75% of the appraised
value of the real property plus 60% of the appraised
value of the improvements or 75% of the appraised
value of the chattel ( Secs. 37 & 38, GBL )
B. DEPOSIT FUNCTION

Kinds of Deposits between a Bank and its Depositor

1. As debtor-creditor
a. Savings
b. Time
c. Demand
Characteristics:
i. In the nature of irregular deposits (Serrano
vs. Central Bank, 96 SCRA 96)
ii. Contract of loan/mutuum with the
depositor as creditor
iii. Bank acquires ownership of the thing
deposited and the right to use and dispose
iv. Money deposited is commingled with the
other money, constituting a common fund.
v. Not preferred credits (Central Bank vs.
Morfe, 20 SCRA 507).

2. As lessor-lessee
a. Safety deposit boxes the relation between a
bank renting out safety deposit boxes and its
customer with respect to the contents of the
box is that of a bailor and bailee the bailment
for hire and mutual benefit has been adopted in
this jurisdiction. It cannot be considered as a
contract of lease because the full possession
and control of the safety deposit box is not
given to the renters (Sia vs. CA, 222 SCRA 24
[1993]).

3. As trustee-trustor
a. Trust account

4. As bailee-bailor
a. Deposit strictly for safekeeping and for specific
purposes

5. As agent-principal:
Page 8 of 26

Notes of hotjurist

a. Deposit of check for collection
b. Deposit for specific purpose
c. Deposit for safekeeping
Depositors:
1. Minors :
a. at least seven years of age
b. able to read and write
c. not disqualified by any incapacity
d. it should only be savings or time deposits

Note: Parents may deposit for their minor children
or wards (Sec.1 PD No.734)
If the 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 to the guardian. (Sec.
22, Thrift Banks Act of 1995)

Married Women are allowed to open
bank accounts without assistance of their
husbands (RA No. 7192

Kinds of Deposits
DEMAND DEPOSITS SAVINGS ACCOUNT
Only a universal or
commercial bank can
accept or create demand
deposits.
Evidenced by a
passbook.

A bank other than a
universal bank or
commercial bank
CANNOT accept
demand deposit
Banks are prohibited
from issuing / accepting
withdrawal slips or
other similar
instruments to effect
withdrawals without the
passbooks except for
bank authorized by the
BSP to adopt the no
passbook withdrawal
system.
Temporary overdrawing
against current accounts
shall not be allowed
unless caused by normal
bank charges and other
fees incidental to
handling such accounts.
A bank is negligent if it
allows the withdrawal
without requiring the
presentation of a
passbook. (BPI v. CA)
Drawings against
uncollected deposits
(uncleared checks) are
generally prohibited.

NOW ACCOUNTS
(Negotiable Order of
Withdrawal)
TIME DEPOSITS
Interest bearing deposit
accounts that combine
the payable on demand
feature of checks and
investment feature of
savings account.
An account with fixed
term

Note:
Demand, savings, NOW accounts, time deposits
and deposit substitutes shall not be subject to
interest ceilings.
A bank other than a universal or commercial bank
must seek approval of Monetary Board before
accepting or creating demand deposits. (Sec. 33)

Anonymous accounts are prohibited. ( R.A. No
9160 as amended by RA 9194; BSP Circular No. 251,
July 21, 2000) exception: Foreign currency deposits
may be a numbered account. However, the law
requires that the necessary measures are undertaken
by the bank to record and establish the true identity of
the depositor.

Joint account may be the subject of a survivorship
agreement whereby the co-depositor agree to permit
either of them to withdraw the whole deposit during their
lifetime and transferring the balance to the survivor upon
the death of one of them ( Vitug vs, CA., March 29,
1990)

Types of deposit accounts
(Handbook on Bank Deposits, A. Viray, 1998 ed.)

1. Individual

2. Joint
a. And account
Co-ownership
The signatures of both co-depositors are
required for withdrawals.

b. And/or account
Either one of the co-depositors may
deposit and withdraw from the account
without the knowledge, consent and
signature of the other. And upon the death
Page 9 of 26

Notes of hotjurist

of one, the survivor may withdraw the
entire balance on deposit.

The account may be deemed a
survivorship agreement depending on the
intention of the parties; aleatory contract
supported by a lawful consideration which
is valid unless when made as a mere
cloak to hide an inofficious donation, to
transfer property in fraud of creditors, or to
defeat the legitime of a forced heir (Rivera
vs. Peoples Bank and Trust Co., 73 Phil.
546 [1942]).

Deposit substitutes

An alternative form of obtaining funds from the public,
other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the
borrowers own account, for the purpose of re-lending or
purchasing of receivables and other obligations (Sec.
95, RA 7653).

DEPOSIT
DEPOSIT
SUBSTITUTE
No security given to
guarantee
repayment; the
depositor relies on
the stability and
reputation of the
bank.
Guaranteed by
certificates and other
instruments.
(Handbook on Bank
Deposits, A. Viray,
1998 ed.)

A bank has the right to set-off the deposits in its
hands for the payment of any outstanding
indebtedness to it on the part of the depositor
(Gullas vs. PNB, 62 Phil. 519; PNB vs. CA, 272
SCRA 291).

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. 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 (CBTC vs. CA,
G.R. No. 138569, September 11, 2003).

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 (CBTC vs. CA,
Ibid.).

Suspension of Payment on its Deposit
Liabilities
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 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 (Sec.
53).

The depositary would be liable if in performing
its obligation it is found guilty of fraud,
negligence; in the absence of any stipulation
prescribing the degree of diligence required,
that of a good father of the family is to be
observed. Any stipulation exempting the
depositary from any liability arising from loss
on account of fraud, negligence would be void
for being contrary to public policy (CA-Agro
Devt vs. CA, 219 SCRA 426, March 5, 1993).

Note: The bank shall act as depositary or as an agent
shall keep the funds, securities and other effects which
it receives duly separated from its own assets and
liabilities (Sec. 53)

PROHIBITIONS

A. ON BANKS:

1. To directly act as insurer (Sec. 54)

2. For banks or quasi-banks to declare dividends, if at
the time of declaration:
a. its clearing account with the Bangko Sentral is
overdrawn;

b. it is deficient in the required liquidity floor for
government deposits for 5 or more consecutive
days;

c. it does not comply with the liquidity
standards/ratios prescribed by the Bangko
Sentral for purposes of determining funds
available for dividend declaration; or

d. It has committed a major violation as may be
determined by the Bangko Sentral (Sec. 57).

3. To conduct business in an unsafe or unsound
manner (Sec. 56);

4. Publication of capital stock (Sec. 62);

5. Unauthorized advertisement or business
representation (Sec. 64); or

6. To employ casual or non-regular personnel or too
lengthy probationary personnel in the conduct of its
business involving bank deposits (Sec. 55).

Rationale: To prevent violation of Bank Secrecy
Law.

B. ON DIRECTORS, OFFICERS, EMPLOYEES,
OR AGENTS OF BANKS:

1. Make false entries in any bank report or statement
or participate in any fraudulent transaction;

2. Without order of a court of component
jurisdiction, disclose to any unauthorized
person any information relative to the funds or
properties in the custody of the bank belonging to
Page 10 of 26

Notes of hotjurist

private individuals, corporations, or any other
entity;

3. Accept gifts or any other form of remuneration in
connection with the approval of a loan or other
credit accommodation from said bank;

4. Overvalue or aid in overvaluing any security for
the purpose of influencing in any way the actions
of the bank or any bank; or

5. Outsource inherent banking functions a
bank cannot engage the services of another
entity to receive deposits on its behalf; the bank
has to do it by itself.

Rationale: To prevent violation of Bank Secrecy
Law (Handbook on Bank Deposits, A. Viray, 1998
ed.).

However, a bank may outsource, upon prior
approval of the Monetary Board the following
functions:

a. All information technology systems and
processes, except for certain functions
affecting the ability of the bank to ensure the fit
of technology services deployed to meet its
strategic and business objectives and comply
with pertinent laws and regulations;
b. Data imaging, storage, and other related
systems;
c. Clearing and processing of checks not included
in the Philippine Clearing House System;
d. Printing of bank statements;
e. Credit card services;
f. Printing of bank loan statements and other
non-deposit records, bank forms and
promotional materials;
g. Credit investigation and collection;
h. Processing of export, import and other trading
transactions;.
i. Transfer agent services for debt and equity
services;
j. Property appraisal;
k. Property management services;
l. Messenger, courier and postal services;
m. Security guard services;
n. Vehicle service contracts
o. Janitorial services;
p. Other services as determined by the Monetary
Board.

C. ON BORROWERS:

1. Fraudulently overvalue property offered as security
for a loan from the bank;

2. Furnish false or make misrepresentations or
suppression of material facts for the purpose of
obtaining, renewing, or increasing a loan or
extending the period thereof;

3. Attempt to defraud the said bank in the event of a
court action to recover a loan or other credit
accommodation; or

4. 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.

D. ON EXAMINERS, BSP OR GOVERNMENT
OFFICERS AND EMPLOYEES ASSIGNED TO
SUPERVISE, EXAMINE, ASSIST OR RENDER
TECHNICAL ASSISTANCE TO ANY BANK:

Commit any of the acts enumerated in Sec. 55 or aid in
the commission of the same.

The making of false reports or
misrepresentations or suppression of material
facts by personnel of the BSP shall constitute
fraud and shall be subject to administrative and
criminal sanctions.

CONDUCTING BUSINESS IN AN UNSAFE OR UNSOUND
MANNER (SEC. 56)
In determining whether a particular act or omission,
which is not otherwise prohibited by law, rule or
regulation affecting banks, quasi-banks, or trust entities,
may be deemed as conducting business in an unsafe or
unsound manner, the MB shall consider any of the
following circumstances:
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;

2. The act or omission has resulted or may result in
material loss or damage, or abnormal risk to the
institutions depositors, creditors, investors, and
stockholders or to the BSP or to the public in
general;

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;

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.

OWNERSHIP OF STOCKS OF A DOMESTIC
BANK
1. Filipino
In case of a Filipino individual or a domestic non-
bank corporation, each may own up to 40% of the
outstanding voting stock of a local bank.

2. Foreign
Foreign individuals and non-bank corporations may
own or control up to an aggregate of 40% of the
voting stock of a domestic bank.

The percentage of foreign-owned voting stocks in a
bank shall be determined: (GRANDFATHER
RULE)
a. If individuals: by the citizenship of the
individuals
Page 11 of 26

Notes of hotjurist

b. If corporations: by the citizenship of the
controlling stockholders of the corporation,
irrespective of the place of incorporation (Sec.
11).

ACT LIBERALIZING ENTRY OF FOREIGN BANKS
(R.A. NO. 7721)

The Monetary Board authorizes foreign banks to
operate through any of the following modes of
entry:

1. By acquiring, purchasing or owning up to
60% of the voting stock of an existing bank;

2. By investing in up to 60% of the voting stock of a
new banking subsidiary incorporated under
laws of Philippines;

3. By establishing branches with full banking
authority, provided:
a. foreign bank may avail itself of only one
mode of entry; and
b. Foreign bank or Philippine corporation
may own up to 60% of the voting stock
of only one domestic bank or new
banking subsidiary (Sec. 2).

Entries under the second and third modes are
restricted to banks which are among the top 150
foreign banks in the world or top 5 banks in their
country of origin.
MINIMUM CAPITALIZATION:

1. For locally incorporated subsidiaries equal to that
of domestic banks of the same category

2. For foreign bank branches not less than the US$
equivalent of P210M

Amendments introduced by GBL 2000
1. Within seven years from effectivity of the GBL
(June 13, 2000), foreign banks may be allowed
to own up to 100% equity of only one domestic
bank as a mode of entry if authorized by the
Monetary Board (Sec. 73, GBL).

2. Other foreign individuals and non-bank
corporations may own up to 40% of the voting
stock of a domestic bank; the nationality of the
controlling shareholders of the non-bank
corporations will be traced to determine the
foreign ownership of the domestic bank (Sec.
11, GBL).

FOREIGN BANKS (SECS. 7278)

1. Entry: Governed by the provisions of the Foreign
Bank Liberalization Act and the Offshore Banking
System Decree (Sec. 72)

2. Revocation of license to do business in the
Philippines: The Monetary Board may revoke such
license on the grounds 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 (Sec. 78).
STOCKHOLDINGS OF FAMILY GROUPS OR RELATED
INTEREST

The law does not prohibit ownership of the stock by
members of the same family or related interest.
However, the law provides that stockholdings of
individuals related to each other within the 4
th
degree of
consanguinity or affinity, legitimate or common law, shall
be considered family groups or related interest and must
be fully disclosed in all transaction by such individual
with the bank. (Sec 12, GBL)

Two or more corporations owned and controlled by
the same family group or same group of person shall be
considered related interest and must be fully disclosed
in all transaction by such corporations or related group
of person with the bank. (Sec 13, GBL)

Unlike the former law, the GBL does NOT impose a
limit on the number of shares that can be owned by the
same family or related interest. However this should not
be without prejudice to the 40% restriction imposed by
Sec 11of the GBL.

OWNERSHIP OF REAL PROPERTY

GENERAL RULE: A bank cannot acquire and own real
property.

Rationale: Banks are not engaged in the business of
acquiring and possessing real property. Also, banks
must maintain liquidity at all times to enable it to perform
its functions. Thus, banks must as much as possible
retain only assets that are easily marketable.

EXCEPTIONS:
1. As shall be necessary for its own use in the conduct
of its business, provided:
a. The total investment in such real estate and
improvements shall not exceed 50% of the
combined capital accounts; and

b. the equity investment of a bank in another
corporation engaged primarily in real estate
shall be considered as part of the bank's total
investment in real estate, unless otherwise
provided by the Monetary Board (Sec. 51).

2. As mortgaged to it in good faith by way of security
for debts, conveyed to it in satisfaction of a debt
previously contracted in the course of its dealings,
and such as it shall purchase at forced sales or to
secure debts; provided, however, that property
acquired under such circumstances shall be
disposed of by the bank within a period of 5 years;
provided that the bank may after said period
continue to hold the property for its own use,
subject to (1) (Sec. 52).
Page 12 of 26

Notes of hotjurist

RULES ON FORECLOSURE OF A REAL ESTATE
MORTGAGE BY A MORTGAGEE-BANK

Application: Judicial or extrajudicial foreclosure

JUDICIAL EXTRAJUDICIAL
Right of redemption
Within 1 year from
registration of the
foreclosure sale
(exception to Rule 68)
1. Mortgagor is a
natural person
Within one year after
the registration of
sale with the
Register of Deeds
(Sec. 1(3) SC Cir.
AM No. 99-10-05)
2. Mortgagor is a
juridical person At
any time before the
registration of the
certificate of
foreclosure sale
which in no case
shall be more than 3
months after
foreclosure,
whichever is earlier.
Redemption price:
Amount due under the mortgage deed + interest
+ all the cost and expenses incurred by the
bank or institution from the sale and custody of
the property less the derived income (Sec 78;
Union Bank vs. CA, GR 134068, June 25,
2001)
Right of purchaser to possess property:
Immediately after the date of the confirmation of
the auction sale.

To enjoin or restrain the conduct of foreclosure
proceedings, the petitioner must file a bond
conditioned that he will pay all the damages which
the bank may suffer by the injunction (Sec. 47).

A bank may be bound by an agreement providing
for a longer redemption period (Ibaan Rural Bank
vs. CA, 321 SCRA 83); thus, converting it to
conventional redemption or by estoppel if the
extension was unilaterally made.

DIRECTORS & OFFICERS

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 as bank directors or
officers and disqualify those found unfit (Sec. 16)

Independent Director
A person other than an officer or employee of the bank,
its subsidiaries or affiliates or related interests.

Prohibition on Public Officials
GENERAL RULE: No appointive or elective official,
whether full-time or part-time, shall, at the same time,
serve as an officer of any private bank (Sec. 19).

EXCEPTIONS:
1. As otherwise provided under Sec. 5 of the Rural
Bank Act
2. Where such service is incidental to financial
assistance provided by the government-owned or -
controlled corporation to the bank
3. As otherwise provided under existing laws.
A bank holding out its officers and agents 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
from its responsibility for such frauds, even
though no benefit may accrue to the bank
therefrom (10 Am Jur 2d, p. 114). 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
(Philippine Banking Corp. vs. CA and Marcos,
G.R. No. 127469. January 15, 2004).

TRUST OPERATIONS (SECS. 79-93)

Only a stock corporation or a person duly
authorized by the Monetary Board shall act as a trustee
or administer any trust or hold property in trust or on
deposit for the use, benefit, or behalf of others (Sec. 79)

Trust Business- any activity resulting from a trustor-
trustee relationship involving the appointment of a
trustee by a trustor for the administration, holding,
management of funds and/or properties of the trustor by
the trustee for the use, benefit, advantage of trustor or
others called beneficiaries.
Page 13 of 26

Notes of hotjurist

Powers of trust entities:
1. Act as trustee on any mortgage or bond issued by
any municipality, corporation or body politic and to
accept and execute any trust consistent with law

2. Act under the order or appointment of any court as
guardian, receiver, trustee, or depositary of the
estate of any minor or incompetent person, and as
receiver and depositary of any money paid into
court by parties to any legal proceedings

3. Act as the executor of any will when it is named the
executor thereof
4. Act as administrator of the estate of any deceased
person, with the will annexed, or when there is no
will

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

6. Establish and manage common trust funds (Sec.
83)

Prohibitions:
1. No trust entity shall, for 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, purchase debt from
instruments of, any of the departments, directors,
officers, stockholders or employees of the trust
entity, including relatives within the 1
st
degree of
consanguinity or affinity, or the related interests, of
such directors, officers and stockholders, unless the
transaction is specifically authorized by the trustor
and the relationship of the trustee and the other
party involved in the transaction is fully disclosed to
the trustor or beneficiary of the trust prior to the
transaction (Sec. 80, GBL).

2. 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 (Sec. 87,
GBL).

PENALTIES FOR VIOLATION OF THE GBL (SEC.
66)

1. As provided by specific provisions
2. Sections 34-37 of RA 7653 (by excluding the bank
from clearing)
3. Suspension or removal of the director or officer
4. Dissolution of the corporation by quo warranto
proceedings

THE NEW CENTRAL BANK ACT
(NCBA)
(R.A. No. 7653)
Purpose: To maintain a central monetary authority that
shall function and operate as an independent and
accountable body in the discharge of its responsibilities
concerning money, banking and credit.

BANGKO SENTRAL NG PILIPINAS (BSP)
The states central monetary authority; it 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 bank and non-bank financial
institutions performing quasi-banking functions,
including savings and loan associations (Busuego vs.
CA, 151 SCRA 376 [1987]).

PRIMARY OBJECTIVES:
1. To maintain price stability conducive to a balanced
and sustainable growth of the economy.
2. To promote and maintain monetary stability and the
convertibility of the peso.

RESPONSIBILITIES:
1. To provide policy directions in the areas of money,
banking, and credit
2. To supervise bank operations
3. To regulate the operations of finance companies
and non-bank financial institutions performing
quasi-banking functions, and similar institutions
(Sec. 3)

POWERS/FUNCTIONS:
1. Issuer of currency (Sec. 49-60)
2. Custodian of reserves (Secs. 64-66, 94, 103)
3. Clearing channel or house; especially where the
PCHC does not operate (Sec. 102)
4. Banker of the government the BSP shall be the
official depository of the Government and shall
represent it in all monetary fund dealings (Secs.
110- 116)
Page 14 of 26

Notes of hotjurist

5. Financial advisor of the government (Secs. 123-
124) Under Article VII, Sec. 20 of the 1987
Constitution, the President may contract or
guarantee foreign loans but with the prior
concurrence of the Monetary Board.
6. Source of credit (Secs. 61-63, 81-89, 109)
7. Supervisor of the banking system (Sec. 25) shall
include the power to:
a. Examine, extending to enterprises wholly or
majority-owned or controlled by the bank (Sec.
7, RA 8791); this power may not be restrained
by a writ of injunction unless there is
convincing proof that the action of the BSP is
plainly arbitrary (Sec. 25)
b. Place a bank under receivership or liquidation
(Sec. 30)
c. Initiate criminal prosecution of erring officers of
banks
8. Government agent (Secs. 117-122)

MONETARY BOARD (MB)
The body by which the powers and functions of the
Bangko Sentral are exercised (Sec.6).

COMPOSITION:
Seven members consisting of:

1. Chairman: Governor of the BSP
2. A member of the cabinet to be designated by the
President of the Philippines
3. Five (5) members who shall come from the private
sector, all of whom shall serve full-time.

Note: The degree of diligence required of the members
of the MB, officials and employees of the BSP in the
performance of their functions is extraordinary diligence
(Sec.16, NCBA).

QUALIFICATIONS OF MEMBERS OF THE MONETARY
BOARD:
1. must be natural-born citizens of the Philippines,
2. at least 35 years of age, with the exception of the
Governor who should at least be 40 years of age,
3. of good moral character, of unquestionable
integrity, of known probity and patriotism, and
4. with recognized competence in social and
economic disciplines.
DISQUALIFICATIONS AND INHIBITION ON GOVERNOR
AND BOARD MEMBERS:

1. 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 (Sec. 9);
2. those coming from the private sector shall not hold
any other public office or public employment during
their tenure (Sec. 9);
3. cannot be 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 (Sec. 9);
4. cannot 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. 9);
5. 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. 20);
6. in case 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 (Sec. 14).

SUPERVISION AND EXAMINATION OF BANKS
The BSP 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.

Subsidiary a corporation more than 50% of the
voting stock of which is owned by a bank or quasi-bank
Affiliate a corporation the voting stock of which, to the
extent of 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 other
factors determined by the Monetary Board.

NO RESTRAINING ORDER AGAINST BSP
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
Page 15 of 26

Notes of hotjurist

pending a bond executed in favor of the Bangko Sentral,
in an amount to be fixed by the court.

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 the Bangko Sentral 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 under the Act. (Sec. 34)
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. (Sec. 35)
PROHIBITIONS ON BANK OFFICERS, DIRECTORS,
LAWYERS, AGENTS
Personnel of the Bangko Sentral are hereby
prohibited from:
1. 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;

Exception: non-stock savings and loan
associations and provident funds organized
exclusively for employees of the Bangko Sentral,
and except as otherwise provided in this Act;
2. 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;

3. revealing in any manner, except under orders of the
court, the Congress or any government office or
agency authorized by law, information relating to
the condition or business of any institution;

4. 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.
(Sec. 27)

CORPORATE POWERS OF THE BSP
1. To adopt, alter and use a corporate seal which shall
be judicially noticed
2. To enter into contracts
3. To lease, own, and sell property
4. To sue and be sued
5. To acquire and hold such assets and incur such
liabilities in connection with its operations or as are
essential to the proper conduct of operation
6. To compromise, condone, or release any claim of,
or settled liability to the BSP
7. To do and perform such other necessary powers

CONSERVATORSHIP OF A BANK OR
QUASI-BANK

Ground: State of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors.
A conservator appointed by the BSP may take over
without the need of first declaring the bank
insolvent.

Duration: Not to exceed 1 year

Effects:
1. Bank/quasi-bank retains juridical personality
2. Not a precondition to the designation of a receiver

Powers of conservator:
1. To take charge of the assets, liabilities, and the
management thereof;

2. Reorganize the management;
3. Collect all monies and debts due said bank; and
4. Exercise all powers necessary to restore its
viability, with the power to overrule or rebuke the
actions of the previous management and board of
directors of the bank or quasi-bank.
The powers must be related to preservation of
assets, reorganization of management and the
restoration of viability. Such power to revoke cannot
extend to post-facto repudiation of perfected
transactions, otherwise they would infringe the non-
impairment clause of the Constitution. The power
to revoke contracts only covers those that are
deemed defective i.e., void, voidable,
unenforceable or rescissible (First Phil. Intl Bank
vs. CA, 252 SCRA 259). The conservators power
is not unilateral and he cannot simply repudiate
valid obligations of the bank. His authority would be
only to bring actions to assail the same.

Termination:
1. When the MB is satisfied that the institution can
continue to operate on its own and the
conservatorship is no longer necessary;
2. But if the continuance in business of the bank
would involve probable loss to its depositors or
creditors, proceedings for receivership and
liquidation shall be pursued (Sec. 29).

RECEIVERSHIP OF A BANK OR
QUASI-BANK/CLOSURE
Page 16 of 26

Notes of hotjurist

Receivership is equivalent to an injunction to restrain
the bank in any way. Thus, the appointment of a
receiver operates to suspend the authority of the bank
and of its directors and officers over its property and
effects (Villanueva vs. CA, 244 SCRA 395 [1995]).

Grounds:

Under NCBA Under GBL
1. Inability to pay
liabilities as they become
due in the ordinary
course of business, but
not including inability to
pay those caused by
extraordinary demands
induced by financial
panic in the banking
community;
1. Notification to the
BSP or public
announcement of a
bank holiday (Sec.
53, GBL)
2. Insufficiency of
realizable assets to meet
its liabilities;
2. Suspension of
payment of deposit
liabilities
continuously for more
than 30 days (Sec.
53, GBL)

3. Inability to continue
business without
involving probable losses
to its depositors or
creditors; or
3. Persistence in
conducting business
in an unsafe or
unsound manner.
(Sec. 56, GBL)
4. Willful violation of a
cease and desist order
that has become final,
involving acts or
transactions which
amount to fraud or a
dissipation of the assets
of the institution (Sec.
30)

Receiver:
1. Banks PDIC
2. Quasi-banks Any person of recognized
competence in banking or finance

Functions:
1. Immediate gathering and taking charge of all the
assets and liabilities of the institution and
administering them for the benefit of creditors
2. General powers of a receiver
3. Determination ASAP but not later than 90 days,
whether the institution should undergo
rehabilitation or liquidation.
Note the distinctions between rehabilitation and
liquidation.

CLOSE NOW, HEAR LATER SCHEME
Sec. 29 of the Central Bank Act does not
contemplate prior notice and hearing before a bank
is placed under receivership. It is enough that such
action is made the subject of a subsequent judicial
review. The purpose of the scheme is to protect
the depositors, creditors, stockholders and general
public (Central Bank vs. CA, 220 SCRA 536).

Only stockholders representing the majority of the
capital stock of a bank have the personality to file a
petition for certiorari to be filed within 10 days from
receipt by the board of directors of the institution of
the order directing receivership, liquidation or
conservatorship.

Reason: Stockholders owning a majority of the
shares are expected to be more objective in
determining whether the resolution is plainly
arbitrary and issued in bad faith (Sec. 30, NCBA;
Central Bank vs. CA, G.R. No. 76118, March 30,
1993).

CASE DIGEST
Central Bank of the Philippines vs. Court of
Appeals, 220 SCRA 536

Facts:
Based on the financial reports submitted to the
Central Bank, which states that the Financial condition
of The Triumph Savings Bank (TSB) is one of
insolvency and its continuance in the business world
involve probable loss to its depositors and creditors, the
Monetary Board issued a Resolution ordering the
closure of TSB, forbidding it from doing business in the
Philippines, placing it under receivership and appointing
Ramon V. Taiaoqi as receiver. The TSB filed a
complaint assailing the resolution on the ground of lack
of prior notice and hearing

Issue:
Whether or not a Monetary Board Resolution
be annulled on the ground of lack of prior notice and
hearing.

Ruling:
Section 29 of the Central Bank Act does not
contemplate prior notice and hearing before a bank may
be declared to stop operations and placed under
receivership. When it provides for the filing of the case
within 10 days after the receiver takes charge of the
assets of the bank, it is unmistakable that the assailed
actions should precede the filing of the case. Plainly, the
legislature could not have intended or authorize no
prior notice and hearing in the closure of the bank and
at the same time allow the suit to annul it on the basis of
the absence thereof.
This close now and hear later scheme is
grounded on practical and legal consideration to prevent
the unwarranted dissipation of the banks asset and as a
valid exercise of the police power to protect the
depositors, creditors, stockholders and the general
public.

MANDATORY REQUIREMENTS FOR BANK
CLOSURE
1. Examination by the appropriate BSP department as
to the condition of the bank
2. Examination shows that the condition of the bank is
one of insolvency
3. Director shall inform the MB in writing of such fact
Page 17 of 26

Notes of hotjurist

4. If the MB shall find the statement of the department
to be true, it shall appoint a receiver of the assets
and liabilities of the bank (Banco Filipino vs. MB,
204 SCRA 519 [1991]).
5. Within 60 days, the MB shall determine and confirm
if the bank is insolvent, and if public interest
requires, shall order the liquidation of the bank.

LIQUIDATION
Grounds:
1. The condition of the bank is one of insolvency or
that its continuance would involve probable loss to
its depositors and creditors.

2. A determination by the MB that the bank cannot be
rehabilitated.

Procedure:
1. Receiver shall file ex parte, with the proper RTC, a
petition for assistance in the liquidation of the
institution pursuant to a liquidation plan adopted by
the PDIC for general application to all closed banks.
In case of quasi-banks, the liquidation plan shall be
adopted by the Monetary Board.

2. He shall convert the assets of the institution to
money for the purpose of paying the debts of the
institution (Sec. 30).

3. Payment shall be in accordance with the rules on
concurrence and preference of credits.
Regular courts have no jurisdiction over actions
filed by claimants against an insolvent bank (Ong
vs CA, 253 SCRA 105).

EFFECTS OF APPOINTMENT OF RECEIVER/
LIQUIDATION
1. Suspension of operation
2. The assets under receivership or liquidation shall
be deemed in custodia legis in the hands of the
receiver and shall be exempt from garnishment,
levy, attachment or execution (Sec. 30).

3. Bank is not liable to pay interest on deposits during
the period of suspension of operation (Overseas
Bank vs. CA, 113 SCRA 778 [1982])

4. The corporation retains its legal personality (Teal
Motor Co. vs. CFI, 51 Phil. 549 [1928])

5. Deposits do not become preferred credits (CB vs.
Morfe, 20 SCRA 507 [1967])

LEGAL TENDER

All notes and coins issued by the Bangko Sentral are
fully guaranteed by the Republic and shall be legal
tender in the Philippines for all debts, both public and
private (Sec. 52)

Legal tender power of coins
1. 1-Peso, 5-Peso and 10-Peso coins: In amounts not
exceeding P1,000.00
2. 25 centavo coin or less: In amounts not exceeding
P100.00 (Circular No. 537, 2006)

BSP Authority to Replace
1. Notes for any series or denomination More than 5
years old
2. Coins More than 10 years old

Rules:
1. Notes and coins called in for replacement shall
remain legal tender for a period of one year from
the date of call.

2. After that period, they shall cease to be legal tender
during the following year or for such longer period
as MB may determine.

3. After the expiration of this latter period, the notes
and coins which have not been exchanged shall
cease to be a liability of BSP and shall be
demonetized (Sec. 57).

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.

However, 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. 60).

MONETARY STABILIZATION

3 IMPORTANT TOOLS TO ACHIEVE PRICE STABILITY

1. Loans to Banks (Sec. 83) (Rediscounting)
a. If BSP wants to increase money supply, it
opens the rediscount window by reducing
interest on loans
b. If BSP wants to decrease money supply, it
closes the rediscount window or charges very
high interest rates for rediscounted notes

2. Open Market Operations (Sec. 90)
a. If BSP wants to increase money supply, it buys
government securities
b. If BSP wants to decrease money supply, it
sells government securities

3. Reserve Requirements (Sec. 94) - where a certain
percentage of the deposit is set aside and cannot
be lent out
a. if the volume of money is high, BSP will raise
reserve requirement
b. if the volume of money is low, reserve
requirement is reduced.

Page 18 of 26

Notes of hotjurist

Rules:
1. The required reserves of each bank shall be
proportional to the volume of its deposit
liabilities.
2. Since the required reserves are imposed
primarily to control the volume of money, the
Bangko Sentral shall not pay interests thereon
(Sec. 94).

3. Deposits maintained with the Bangko Sentral
as part of the reserve requirements shall be
exempt from attachment, garnishment, or any
other order or process of any court or agency
(Sec. 103).
4. No increase of more than 4% point within 30-
day period.

PROHIBITIONS ON THE BSP
1. It shall not acquire shares of any kind or accept
them as collateral, and shall not participate in the
ownership or management of any enterprise, either
directly or indirectly; and
2. It shall not engage in development banking and
financing (Sec. 128).

SECRECY OF BANK DEPOSITS LAW
(R.A. No. 1405)

Purposes:
1. To encourage people to deposit in banks
2. To discourage private hoarding so that banks may
lend such funds and assist in the economic
development

Coverage:
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.

PROHIBITED ACTS:
1. Examination and inquiry or looking into all deposits,
of whatever nature, with the banks in the
Philippines including investments in bonds issued
by the Government.
2. Any disclosure by any official or employee of any
bank to any unauthorized person of any information
concerning the said deposits.

GENERAL RULE: The deposits covered by law are
considered as of an absolutely confidential nature and
may not be examined, inquired or looked into by any
person, governmental bureau, or office.

EXCEPTIONS:
A. FROM R.A. NO. 1405
1. Upon written permission of the depositor;
2. In cases of impeachment;
3. Upon order of a competent court in cases of bribery
or dereliction of duty of public officials;
4. In cases where the money deposited or invested is
the subject matter of the litigation; (Sec. 2)

BAR QUESTION:
Banks: Secrecy of Bank Deposits; Garnishment
(2004)
CDC maintained a savings account with CBank. On
orders of the MM Regional Trial Court, the Sheriff
garnished P50,000 of his account, to satisfy the
judgment in favor of his creditor, MO. CDC
complained that the garnishment violated the Law on
the Secrecy of Bank Deposits because the existence
of his savings account was disclosed to the public.
(5%) Is CDC's complaint meritorious or not? Reason
briefly.

SUGGESTED ANSWER
No. CDC's complaint is not meritorious. It was held in
China Banking Corporation v. Ortega, 49 SCRA
355 (1973) that peso deposits may be garnished and
the depositary bank can comply with the order of
garnishment without violating the Law on the
Secrecy of Bank Deposits. Execution is the goal of
litigation as it is its fruit. Garnishment is part of the
execution process. Upon service of the notice of
garnishment on the bank where the defendant
deposited funds, such funds become part of the
subject matter of litigation.
B. From other laws
1. Anti-Graft and Corrupt Practices Act cases (R.A.
No. 3019; added by analogy in PNB vs. Gancayco,
15 SCRA 91 [1965]);
2. NIRC - Inquiry by the Commissioner of Internal
Revenue into bank deposits of:
a. A decedent to determine his gross estate;
b. A taxpayer who has filed an application for
compromise of his tax liability by reason of
financial incapacity to pay his tax liability. He
must file a written waiver of his privilege under
RA 1405 or other general or special laws (Sec.
6[f], NIRC).

3. Inquiry or examination by the Anti-Money
Laundering Council (AMLC) of 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 the Anti-
Money Laundering Law, when it has been
established that there is probable cause that the
deposits or investments are related to an unlawful
activity or a money laundering offense, except that
Page 19 of 26

Notes of hotjurist

no court order shall be required in the following
unlawful activities:
a. Kidnapping for ransom under Art. 267 RPC;
b. Comprehensive Dangerous Drugs Act of 2002
(RA No. 9165);

c. Hijacking and other violations under RA 6235;
destructive arson and murder under RPC.
Including those perpetrated by terrorists against
non-combatant persons and similar targets
(Sec. 11, R.A. No. 9160 as amended by Sec. 8
of RA 9194)
4. Disclosure to the Treasurer of the Philippines of
dormant deposits for at least 10 years under the
Unclaimed Balances Act (Act No. 3936).

OTHER LAWS RELATING TO SECRECY OF BANK
DEPOSITS

A. Foreign Currency Deposit Act (R.A. No. 6426):
B. Extends confidentiality to foreign currency deposits,
but the law contains only one ground authorizing
examination: upon written permission of the
depositor.

C. General Banking Law of 2000 (R.A. No. 8791):

1. No bank shall employ casual or non-regular
personnel or too lengthy probationary personnel in
the conduct of its business involving bank deposits
(Sec. 55.4).
2. No director, officer, employee, or agent of any bank
shall, without court order, 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. 55[b]).
3. Outsourcing of inherent bank functions

D. New Central Bank Act (R.A. No. 7653):
1. DOSRI loans
2. Periodic and special examinations by the BSP
(Sec. 25)

E. Anti-Money Laundering Act (R.A. No. 9160)

Provides for another exception to
confidentiality, which is applicable to both peso
and foreign currency deposits.

Garnishment of bank deposit of judgment
debtor does not violate RA 1405. It was not the
intention of the legislature to place bank
deposits beyond the reach of execution to
satisfy a final judgment. Its purpose is merely
to secure information as to the name of the
depositor and whether or not the defendant
had a deposit in said bank, only for purposes of
garnishment. Any disclosure is purely
incidental to the execution process (China
Banking Corporation vs. Ortega, 49 SCRA
355).

Illegally acquired property extends to cases
where property is concealed by being held by
or recorded in the name of respondents
spouse, ascendants, descendants, relatives, or
any other persons (Banco Filipino Savings and
Mortgage Bank vs. Purisima, 161 SCRA 576).

Money-market placement is not covered by RA
1405 because it is not deposited in the bank.
BAR QUESTION:
BANKS: APPLICABILITY: FOREIGN CURRENCY
DEPOSIT ACT & SECRECY OF BANK DEPOSITS
(2005)
Hi Yielding Corporation filed a complaint against five
of its officers for violation of Section 31 of the
Corporation Code. The corporation claimed that the
said officers were guilty of advancing their personal
interests to the prejudice of the corporation, and
that they were grossly negligent in handling its
affairs. Aside from documents and contracts, the
corporation also submitted in evidence records of
the officers U.S. Dollar deposits in several banks
overseas - Boston Bank, Bank of Switzerland, and
Bank of New York. For their part, the officers filed
a criminal complaint against the directors of Hi
Yielding Corporation for violation of Republic Act No.
6426, otherwise known as the Foreign Currency
Deposit Act of the Philippines. The officers alleged
that their bank deposits were illegally disclosed for
want of a court order, and that such deposits were
not even the subject of the case against them.
a) Will the complaint filed against the directors of
Hi Yielding Corporation prosper? Explain

SUGGESTED ANSWER:
No, because the Foreign Currency Deposit Act (R.A.
No. 6426), including its punitive provisions, refers to
foreign currency deposits accounts constituted
within the Philippines. It has no application at all to
accounts, even though they are banks, opened and
constituted abroad

b) Was there a violation of the Secrecy of Bank
Deposits Law (Republic Act No. 1405)? Explain.

SUGGESTED ANSWER:
No, because the punitive provisions of the Secrecy
of Bank Deposits Law (R.A. No. 1405), including the
statutory exemptions provided therein, are not
applicable to FCDU accounts, even when constituted
locally. (Intengan v. Court of Appeals, G.R. No.
128996, February 15, 2002)

REQUISITES FOR IN-CAMERA INSPECTION OF
BANK DEPOSITS
Marquez vs. Desierto, G.R. No. 135882,
June 27, 2001
Page 20 of 26

Notes of hotjurist

1. Pending case before a court of competent
jurisdiction
2. Account must be clearly identified
3. The inspection is limited to the subject of the
pending litigation.
4. The bank personnel and account holder must be
present during the inspection.
5. The inspection must cover only the account
identified in the pending case.

R.A. NO. 1405 VIS--VIS POWER OF THE BSP TO
CONDUCT PERIODIC AND/OR SPECIAL
EXAMINATIONS (SEC. 4, GBL & SEC. 25, NCBA)
Prof. Aquino and Prof. Viray believe that the
general rule still applies. Hence, the deposit
remains confidential.

Penalties
Imprisonment of not more than 5 years or a fine not
more than P20,000 or both, in the discretion of the
court.

Impeachment
In impeachment proceedings, the impeachment
court may inquire into bank deposits. Thus, during the
impeachment proceedings against former President
Estrada, Chief Justice Davide ruled that Clarissa
Ocampo could testify on the Jose Estrada/Jaime
Dichaves accounts maintained with Equitable PCIB
Bank, over the objections of the defense that this would
violate the Bank Secrecy Law. Basis for this ruling was
that the inquiry would be made in the course of an
impeachment proceeding.

WRITTEN PERMISSION OF DEPOSITOR
A bank may allow an inquiry into a deposit with the
written consent of the depositor. An oral or implied
authorization does not suffice. This consent may be
given voluntarily. In some cases, however, the consent
is involuntary because the law requires it.
Thus, Section 26 of the New Central Bank Act as
implemented by BSP Circular No. 170, series of 1998,
requires a director, officer or stockholder of a bank or
their related interests to submit a written waiver of the
secrecy of all his deposits of whatever nature in all
banks of the Philippines in favor of the Bangko Sentral,
if he applies for a DOSRI loan. However, the
information obtained from the examination remains
confidential and may be used by BSP examiners only in
legal action it may initiate involving the said deposits.
A waiver of the Bank Secrecy Law is also required
in case of loans secured by a hold-out or an assignment
of certificates of time deposits. (Section X315, Manual of
Regulations for Banks).

WHERE FUNDS DEPOSITED ARE SUBJECT OF
LITIGATION

Case Digest
Onate v Hon Zeus Abrogar, 230 SCRA 181

Facts:
Sun Life brought a collection case to recover
the proceeds of a check it had issued, the insurance
company wanted to determine how the defendant had
applied the proceeds of the check. The trial court
allowed Sun Life to examine pertinent records of the
bank in which the check was deposited.

Ruling:
The Supreme Court held that the examination
was authorized by Section 10 of Rule 57, on the
examination of a person whose property has been
attached and person indebted to him or controlling his
property. The Court struck down the argument that the
examination would violate the Bank Secrecy Law,
explaining that the examination fell within the exception
in cases where the money deposited or invested is the
subject matter of litigation. The Court added that the
examination of bank records was not a fishing
expedition, but rather a method by which Sun Life could
trace the proceeds of the check that it paid to the
petitioners.

In another case, Mellon Bank remitted $1
million rather that an intended $1,000 to the recipient,
who deposited part of the remittance in a local bank.
When personnel of the depositary bank testified on the
bank deposits, the defense moved to strike out the
testimonies of the depositary banks witnesses. The
Supreme Court allowed their testimonies to remain on
the record, stating Section 2 of said law allows the
disclosure of bank deposits in cases where the money
deposited is the subject matter of the litigation. (Mellon
Bank v. Magsino, 190 SCRA 633.

UNEXPLAINED WEALTH (RA3019)
Although the Bank Secrecy Law did not include
cases covered by the Anti-Graft Law among the
exceptions, the Supreme Court held that they should be
included. 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 disclosure of band
deposits. (PNB v. Gancayco, 15 SCRA 91 (1965).
This overturned an earlier case decided by the High
Court where it held that a prosecution under the Anti-
Graft Law was not embraced within any of the
exceptions to the Bank Secrecy Law that would allow
disclosure by a bank of information concerning a
deposit. (Tatalon Bario Council v. Bank of PI, 7 SCRA
10 (1963).
In another case, the Supreme Court expanded the
exception under the Anti-Graft Law, when it allowed an
examination not only of the accuseds deposits, but also
those of his spouse, ascendant, descendants and
relatives, and other persons as well. (Banco Filipino v.
Hon. Fidel Purisima, 161 SCRA 576 (1988). Here, the
Court declared as proper the 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 of having
allegedly acquired property manifestly out of proportion
to his salary and lawful income. The Court explained:
To sustain the petitioners theory, and restrict the
inquiry only to property held by or in the name of the
government official or employee, or his spouse and
Page 21 of 26

Notes of hotjurist

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.

Upon Order of the Ombudsman
Although Section 8 of the law that created the
Office of the Ombudsman expressly granted the
Ombudsman the power to administer oaths, issue
subpoena and subpoena duces tecum and take
testimony in any investigation or inquiry, including the
power to examine and have access to bank accounts
and records, the Supreme court held that the
Ombudsman could not inquire into bank deposits until
there was a pending case in court involving the
deposits.(Marquez v. Desierto, 359 SCRA 772 (2001)

Unclaimed Balances Law
The Unclaimed Balances Law (Republic Act No.
3936) requires each bank to file a sworn statement with
the Treasurer of the Philippines stating the deposits that
the bank holds in the names of persons known to be
dead or who have not made deposits or withdrawals
during the preceding ten years or more. It is also
requires the bank to post a copy of the sworn statement
in the bank premises. However, this is done only after
the bank shall have first communicated with the
depositor at his last known residence or post office
address. Such a disclosure of the deposits and the
depositors, does not violate the Bank Secrecy Law.

Garnishment of Bank Deposit

In China Banking Corporation v. Court of Appeals,
(193 SCRA 452 (1991) the Supreme Court held that the
garnishment of a bank deposit does not violate the Bank
Secrecy Law. Said the court:
It is clear from the discussion of the
conference committee report on x x x Republic Act.
No. 1405, that the prohibition against examination of
or inquiry into a bank deposit under Republic Act
No. 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 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.(Phil. Commercial & International Bank v.
Court of Appeals, 93 SCRA 452 (1991).

BAR QUESTION:
Banks; Secrecy of Bank Deposits (2000)
GP is a suspected Jueteng lord who is rumored to be
enjoying police and military protection. The envy of
many drug lords who had not escaped the dragnet of
the law, GP was summoned to a hearing of the
Committee on Racketeering and Other Syndicated
Crimes of the House of Representatives, which was
conducting a congressional investigation in aid of
legislation on the involvement of police and military
personnel, and possibly even of local government
officials, in the illegal activities of suspected
gambling and drug lords. Subpoenaed to attend the
investigation were officers of certain identified
banks with a directive to them to bring the records
and documents of bank deposits of individuals
mentioned in the subpoenas, among them GP. GP and
the banks opposed the production of the banks
records of deposits on the ground that no such
inquiry is allowed under the Law on Secrecy of Bank
Deposits (RA 1405 as amended). Is the opposition of
GP and the banks valid? Explain.
SUGGESTED ANSWER:
Yes. The opposition is valid. GP is not a public official.
The investigation does not involve one of the
exceptions to the prohibition against disclosure of
any information concerning bank deposits under the
Law on Secrecy of Bank Deposits. The Committee
conducting the investigation is not a competent court
or the Ombudsman authorized under the law to issue
a subpoena for the production of the bank record
involving such disclosure.

A AN NT TI I- -M MO ON NE EY Y L LA AU UN ND DE ER RI IN NG G A AC CT T
O OF F 2 20 00 01 1
( (R R. .A A. . N No o. . 9 91 16 60 0, , a as s a am me en nd de ed d b by y
R R. .A A. . 9 91 19 94 4) )
Purposes:
1. To protect and preserve the integrity and
confidentiality of bank accounts, to ensure that the
Philippines shall not be used as a site for unlawful
money laundering activities; and
2. To pursue States foreign policy to extend
cooperation in transnational investigations and
prosecution on money laundering activities.

Covered Entities:
1. Banks
2. Non-banks
3. Quasi-banks
4. Trust entities
5. All other institutions, their subsidiaries and affiliates
supervised or regulated by the BSP

COVERED TRANSACTION:
Transaction, in cash or other equivalent monetary
instrument in excess of P500,000, within one banking
day.
SUSPICIOUS TRANSACTIONS:
Transactions with covered institutions regardless of the
amounts involved, where any of the following
circumstances exists:
1. There is no underlying legal or trade obligation
Page 22 of 26

Notes of hotjurist

2. Client is not properly identified
3. Amount involved is not commensurate with the
business or financial capacity
4. Taking into account all known circumstances, it
may be perceived that the clients transaction is
structured in order to avoid being the subject of
reporting requirements under the Act

5. Any circumstance relating to the transaction which
is observed to deviate from the profile and/or the
clients past transactions with the covered institution
6. Transaction is in any way related to an unlawful
activity or offense under this Act that is about to be,
is being or has been committed
7. Analogous transactions to any of the foregoing

MONEY LAUNDERING:
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.

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 referred to
in number 1 above.

or property is required under this Act to be
disclosed and filed with the AMLC fails to do so.

PREVENTION OF MONEY LAUNDERING
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 their clients and in
case of corporate client, require a system of
verifying their legal existence and organizational
structure, s well as the authority and identification of
all person purporting to act on their behalf.
2. Record Keeping- All records of all transaction of
covered institution shall be maintained and safely
stored for 5 years from the dates of transaction.
With respect to closed accounts, the records on
customer identification, account files and business
correspondence, shall be preserved and safely
stored for at least 5 years from the dates when they
were closed.
3. Reporting of Covered and Suspicious
Transactions. Covered institution shall report to
the AMLC all covered and suspicious transactions
within 5 working days from the occurrence thereof,
unless the Supervising Authority prescribes a
longer period not exceeding 10 working days.

JURISDICTION:
All cases: RTC
Public officers and private persons in conspiracy
with them: Sandiganbayan

POWER TO FREEZE ACCOUNTS
The power of the AMLC to freeze accounts has
been deleted under RA 9194

The Court of Appeals may issue a freeze order,
which shall be effective immediately and for a
period of 20 days, unless extended by the court,
only:
a. upon ex parte application of AMLC; and
b. after determination that probable cause exists
that any monetary instrument or property is in
any way related to an unlawful activity.

BAR QUESTION:
BANKS; SECRECY OF BANK DEPOSIT; AMLC
(2006)
Rudy is jobless but is reputed to be a Jueteng
operator. He has never been charged or convicted of
any crime. He maintains several bank accounts and
has purchased 5 houses and lots for his children
from the Luansing Realty, Inc. Since he does not
have any visible job, the company reported his
purchases to the Anti-Money Laundering Council
(AMLC). Thereafter, AMLC charged him with
violation of the Anti-Money Laundering Law. Upon
request of the AMLC, the bank disclosed to it Rudy's
bank deposits amounting to P100 Million.
Subsequently, he was charged in court for violation
of the Anti-Money Laundering Law.
1. Can Rudy move to dismiss the case on the
ground that he has no criminal record? (2.5%)

SUGGESTED ANSWER:
No. Under the Anti-Money Laundering Law, Rudy
would be guilty of a "money laundering crime"
committed when the proceeds of an "unlawful
activity," like Jueteng operations, are made to
appear as having originated from legitimate sources.
The money laundering crime is separate from the
unlawful activity of being a Jueteng operator, and
requires no previous conviction for the unlawful
activity (See also Sec. 3, Anti-Money Laundering Act
of 2001).

Page 23 of 26

Notes of hotjurist

2. To raise funds for his defense, Rudy sold the
houses and lots to a friend. Can Luansing Realty,
Inc. be compelled to transfer to the buyer
ownership of the houses and lots? (2.5%)

SUGGESTED ANSWER:
Luansing Realty, Inc. is a real estate company, hence
it is not a covered institution under Section 3 of the
Anti-Money Laundering Act. Only banking
institutions, insurance companies, securities dealers
and brokers, pre-need companies and other entities
administering or otherwise dealing in currency,
commodities or financial derivatives are covered
institutions. Hence, Luansing Realty, Inc. may not use
the Anti-Money Laundering Act to refuse to transfer
to the buyer ownership of the houses and lots.

3. In disclosing Rudy's bank accounts to the
AMLC, did the bank violate any law? (2.5%)

SUGGESTED ANSWER:
No, the bank did not violate any law. The bank being
specified as a "covered institution" under the Anti-
Money Laundering Law, is obliged to report to the
AMLC covered and suspicious transactions, without
thereby violating any law. This is one of the
exceptions to the Secrecy of Bank Deposit Act.

4. Supposing the titles of the houses and lots are
in possession of the Luansing Realty, Inc., is it
under obligation to deliver the titles to Rudy?
(2.5%)

SUGGESTED ANSWER:
Yes, it has an obligation to deliver titles to Rudy. As
Luansing Realty, Inc. is not a covered institution
under Section 3 of the Anti-Money Laundering Act,
it may not invoke this law to refuse delivery of the
titles to Rudy.
BAR QUESTION:
BANKS; SECRECY OF BANK DEPOSITS (1991)
The law (RA 6832) creating a Commission to conduct
a Thorough Fact-Finding Investigation of the Failed
Coup detat of Dec 1989, Recommend Measures to
Prevent the Occurrence of Similar Attempts At a
Violent Seizure of Power and for Other Purposes,
provides that the Commission may ask the Monetary
Board to disclose information on and/or to grant
authority to examine any bank deposits, trust or
investment funds, or banking transactions in the
name of and/or utilized by a person, natural or
juridical, under investigation by the Commission, in
any bank or banking institution in the Philippines,
when the Commission has reasonable ground to
believe that said deposits, trust or investment funds,
or banking transactions have been used in support or
in furtherance of the objectives of the said coup
detat. Does the above provision not violate the Law
on Secrecy of Bank Deposits (RA 1405)?
SUGGESTED ANSWER:
The Law on Secrecy of Bank Deposits is itself merely
a statutory enactment, and it may, therefore, be
modified, or amended (such as by providing further
exceptions therefrom), or even repealed, expressly
or impliedly, by a subsequent law. The Secrecy of
Bank Deposits Act did not amount to a contract
between the depositors and depository banks within
the meaning of the non-impairment clause of the
Constitution. Even if it did, the police power of the
State is superior to the non- impairment clause. RA
6832, creating a commission to conduct an
investigation of the failed 1989 coup detat and to
recommend measures to prevent similar attempts to
seize power is a valid exercise of police power.

P PH HI IL LI IP PP PI IN NE E D DE EP PO OS SI IT T I IN NS SU UR RA AN NC CE E
C CO OR RP PO OR RA AT TI IO ON N ( (P PD DI IC C) ) A AC CT T
( (R R. . A A. . 9 93 30 02 2) )
Purposes:
1. To create a government-owned entity, the PDIC;
2. To insure the deposit liability of banks in an account
up to P250,000 for every single depositor of each
bank irrespective of the number of accounts
therewith.
PHILIPPINE DEPOSIT INSURANCE CORPORATION
FUNCTIONS:
A. Insurance
The PDIC assesses and collects insurance
assessments from member-banks to insure
member-banks deposit accounts. In case of bank
closures, the PDIC processes and services claim
for insured deposits. Deposits are insured up to a
maximum coverage of P250,000 per depositor.

B. Bank Examination
Under the new law, PDIC's authority to examine its
member banks, with prior approval by the Monetary
Board, has been restored.

C. Bank Rehabilitation
The PDIC may grant financial assistance to
distressed banks if it is proven to be a less costly
alternative than closure.
Page 24 of 26

Notes of hotjurist

D. Receivership of closed banks
Once a bank is ordered closed by the Monetary
Board (MB) of the Bangko Sentral ng Pilipinas, the
PDIC is designated as statutory receiver. The PDIC
upon receipt of the MB resolution ordering the
closure of a bank, immediately physically takes
over the closed bank. Receivership is the stage
within which the PDIC manages the affairs of the
closed bank and preserves its assets for the benefit
of creditors.

E. Liquidation of closed banks
After it is determined that the closed bank can not
be rehabilitated, the PDIC shall recommend the
liquidation of the assets of the closed bank.
Liquidation refers to the recovery and conversion of
assets into cash for distribution to all creditors in
accordance with the order of creditor preference
pursuant to law

INSURANCE FUNCTION
1. Nature: Compulsory insurance on all bank deposits

2. Coverage: Insured deposits - the net amount due
to any depositor for deposits in an insured bank,
after deducting unpaid loans and other obligations
of the depositor to the closed bank. In no case shall
insured deposit exceed P250,000 per depositor.

3. Specific risk insured against: Bank closure only.
Thus, losses due to a bank robbery are not
covered.

4. Amount of insurance: Maximum of P250,000.00 per
deposit (RA 9302)
5. Condition precedent for entitlement to payment:
Filing of claim within twenty-four months from
order of closure

6. Manner of payment:
a. Cash
b. Transferred deposit A deposit in an insured
bank made available to a depositor by the
PDIC as payment of the insured deposit of
such depositor in a closed bank and assumed
by another insured bank.

7. Effect of payment by the PDIC to the depositor of
his insured deposit:
a. Discharges the PDIC from further liability
b. Subrogates the PDIC to all the rights of the
depositor against the closed bank to the extent
of such payment.

The fact that a bank instrument provides that the
certificate is insured by the PDIC does not ipso facto
make the latter liable for the same; the deposit liability of
the PDIC is determined by the provisions of RA 3519
(PDIC vs. CA, 283 SCRA 462).

Case Digest
PDIC vs. CA, 283 SCRA 462

Facts:
The plaintiffs invested in the money market
placement with the Premier Financing Corporation
(PFC) but when they went to PFC to encashed the
checks and promissory notes corresponding to their
investment the PFC referred them to the Regent
Savings Bank (RSB). Instead of paying the promissory
notes and checks, the RSB issued 13 certificate of time
deposit which was insured with the PDIC. The bank
failed to pay the corresponding amount of the time
deposit on its maturity date due to insolvency and
advised the plaintiffs to file a claim with the PDIC. But
the PDIC refused to pay the claim for it is not included in
the list of duly recorded liabilities of the RSB.
Issue:
Whether or not the PDIC is liable for the
plaintiffs claims.
Ruling:
The fact that the certificate state that the
certificates are insured by PDIC does not ipso facto
make the latter liable for the same should the
contingency insured against arise. The deposit liability
of the PDIC is determined by the provisions of R.A.
3519 and statements in the certificate that the same are
insured by PDIC are not binding upon the latter.

Insured deposits
The net amount due to any depositor for deposits in
an insured bank, after deducting offsets, less any part
thereof which is in excess of P250,000.
Trust funds and safety deposit boxes are not
covered.
After deducting offsets
Consistent with the rulings in Gullas vs. PNB, 62 Phil.
519 and Republic vs. CA, G.R. No. 15012, July 22,
1975 recognizing the debtor-creditor relationship of the
bank and the depositor, set-off takes place ipso jure with
respect to the depositors bank deposit and his matured
loan with the bank.
Transferred deposits
A deposit in an insured bank made available to a
depositor by the PDIC as payment of the insured
deposit of the depositor in a closed bank and assumed
by another insured bank.

SPECIAL RULES
1. PDIC liability is on a per bank basis. Accounts in a
bank, even though in several branches, are to be
added together, provided that they are maintained
in the same capacity and the same right for his
benefit either in his own name or in the name of
others.
Capacities: individual account, joint and
account, joint and/or account.

2. The insurance premiums are to be paid by the
insured bank, not the depositors.
3. In case the depositors account is more than the
insurance coverage, the balance may still be
recovered from the PDIC after the final liquidation
of the remaining assets of the closed bank.
Page 25 of 26

Notes of hotjurist

4. a. 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.
b. 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 interests 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 Two hundred fifty thousand pesos
(P250,000.00).

Authority to terminate insured status
1. Non-payment of insurance premiums
2. Continued engagement in unsafe and unsound
banking practices

Sec. 9 of RA 6426 (An Act Instituting a Foreign
Currency Deposit System in the Philippines,
and for Other Purposes") and Sec. 79 of
Central Bank (CB) Circular No. 1389, dated
August 13, 1993, mandate that foreign
currency deposits shall be insured under the
provisions of RA 3591, as amended. Under CB
Circular No. 1389, depositors are entitled to
receive payment in the same currency in which
the insured deposit is denominated.
Note: The PDIC law is not applicable to Offshore
Banking Units (P.D. No. 1034).

U UN NC CL LA AI IM ME ED D B BA AL LA AN NC CE ES S L LA AW W
( (R R. .A A. . N NO O. . 3 39 93 36 6) )

ELEMENTS OF UNCLAIMED BALANCES
1. There must be a claim or deposit of:
a. Money;
b. Bullion;
c. Security; or
d. other evidence of indebtedness.
2. The credit or deposit must be with a bank, building
and loan association, or trust corporation; and
3. The credit or deposit is in favor of a person:
a. who is dead, or
b. who has not made further deposits or
withdrawals during the preceding 10 years or
more.

Demand drafts cannot be escheated but
telegraphic notes can be escheated (Republic
vs. FNCB, 3 SCRA 851 [1961]).

LEGAL CONSEQUENCE
The unclaimed balances may be subject of escheat
proceedings, after proper publication and the depositors
still do not lay claim to them.

F FO OR RE EI IG GN N C CU UR RR RE EN NC CY Y D DE EP PO OS SI IT T
A AC CT T
( (R R. .A A. . N No o. . 6 64 42 26 6) )

PESO DEPOSIT
FOREIGN CURRENCY
DEPOSIT
Governed by R.A.
No. 1405
Governed by R.A. No.
6426
4 exceptions +
exceptions found in
special laws
1 exception + 1 provided
under AMLA (R.A. No.
9160)
May be garnished
or attached (not a
violation of R.A. No.
1405)
GENERAL RULE: Exempt
from attachment,
garnishment, and other
court order and
processes.
EXCEPTION: Salvacion
vs. CB (278 SCRA 27)

OTHER FEATURES:
1. Authorized banks may adopt a numbered account
system for recording and servicing deposits in non-
checking accounts

2. Foreign currency deposits are exempt from taxes
except the interests

3. In the event a new enactment or regulation is issued
decreasing the rights granted under the law, it shall
not apply to FCDs already made or existing at the
time of the issuance of such new regulation or
enactment.

In a sui generis case, the SC allowed garnishment
of such deposits of a transient American tourist
arising out of a heinous crime committed against a
Page 26 of 26

Notes of hotjurist

Filipino minor since to hold otherwise would result
to injustice to a citizen perpetrated by a foreigner
(Salvacion, et al. vs. Central Bank et al., 278 SCRA
27).

Note: This case does not constitute another
exception, the SC only ruled as such due to the
special circumstances of the said case.

REPEALING LAW TO UNIFORM CURRENCY
ACT (R.A. NO. 8183)
All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines.
However, the parties may agree that the obligation or
transaction shall be settled in any other currency at the
time of payment (Sec. 1).

T TR RU UT TH H I IN N L LE EN ND DI IN NG G A AC CT T
( ( R RA A 3 37 76 65 5) )

The law assures full disclosure by requiring the lender
to give the borrower all the details regarding the
transaction.
Under Sec. 4, any creditor shall furnish to each
person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in
writing setting forth, to the extent applicable and in
accordance with rules and regulation prescribed by
the Board the following informations:

1. The cash price or delivered price of the property or
service required;
2. The amounts, if any to be credited as down payment
and/or trade-ins;
3. The difference between the amounts set forth under
clauses 1 and 2;
4. The charges, individually itemized, which are paid or
to be paid by such person in connection with the
transaction but which are not incident to the extension
of credit.
5. The total amount to be financed;
6. The finance charge expressed in terms of pesos
and centavos; and
7. The percentage that the finance bears to the total
amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of
the obligation.

BAR QUESTION:
TRUTH IN LENDING ACT (1991)
Dana Gianina purchased on a 36 month installment
basis the latest model of the Nissan Sentra Sedan
car from the Jobel Cars Inc. In addition to the
advertised selling price, the latter imposed finance
charges consisting of interests, fees and service
charges. It did not, however, submit to Dana a
written statement setting forth therein the
information required by the Truth in Lending Act (RA
3765). Nevertheless, the conditional deed of sale
which the parties executed mentioned that the total
amount indicated therein included such finance
charges.

Has there been substantial compliance of
the aforesaid Act?
If your answer to the foregoing question is in the
negative, what is the effect of the violation on the
contract?
In the event of a violation of the Act, what
remedies may be availed of by Dana?
SUGGESTED ANSWER:
a) There was no substantial compliance with
the Truth in Lending Act. The law provides that the
creditor must make a full disclosure of the credit
lost. The statement that the total amount due
includes the principal and the financial charges,
without specifying the amounts due on each portion
thereof would be insufficient and unacceptable.
b) A violation of the Truth in Lending Act will
not adversely affect the validity of the contract
itself.
c) It would allow Dana to refuse payment of
financial charges or, if already paid, to recover the
same. Dana may also initiate criminal charges against
the creditor.

***
GOD SPEED!!!

Banking Laws

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