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Banking Laws Reviewer
Banking Laws Reviewer
BANKING LAWS
GOVERNING LAW
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
Miravite, 2002 ed.) in Commercial Law, Jorge 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.
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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; That the public interest and economic conditions, both general and
local, justify the authorization; and 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).
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.
2.
3.
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.)
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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).
7.
ORDINARY CORPORATION May be a stock or non-stock corporation May issue par value or
no par value stocks. May be registered with the SEC without any certificate of
authority issued by a government agency. 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. 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. May declare dividends out of its unrestricted retained
earnings.
BANKING CORPORATION Must generally be a stock corporation Shall issue par value
stocks only (Sec. 9). Must secure a certificate of authority from the Monetary
Board before it can register with SEC.
1. 2.
The President may also intervene at any time and assume jurisdiction over such
labor dispute in order to settle or terminate the same.
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). Also
composed of 5 to 15 directors. In case of merger or consolidation, the number of
directors shall not exceed 21 (Sec. 17). May not declare dividends, if any of the
conditions set forth under Sec. 57 are present.
2.
3.
4.
5.
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UNIVERSAL BANK Authority to exercise additional powers other than those authorized
for commercial banks May invest in the equities of allied, whether financial or
non-financial, and non-allied enterprises (Sec. 24)
payment in legal tender upon demand by the presentation of checks (Sec. 58, NCBA).
100% of equity
100% of equity
100% of equity
100% of equity
Must seek approval of Monetary Board before accepting or creating demand deposits.
(Sec. 33)
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 Quasi-Banks
in 40% 40%
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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)
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.
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. 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).
2.
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Officers,
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. 3. Officers Either identified in the by-laws or are generally known as
such 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.
c.
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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). 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]). As
trustee-trustor a. Trust account As bailee-bailor
3. a.
b.
2.
3. 4.
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a. 5.
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
Note: DEMAND DEPOSITS Only a universal or commercial bank can accept or create
demand deposits. A bank other than a universal bank or commercial bank CANNOT
accept demand deposit SAVINGS ACCOUNT Evidenced passbook. by a # # 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)
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. A bank is negligent if it
allows the withdrawal without requiring the presentation of a passbook. (BPI v. CA)
Temporary overdrawing against current accounts shall not be allowed unless caused
by normal bank charges and other fees incidental to handling such accounts.
Drawings against uncollected deposits (uncleared checks) are generally prohibited.
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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 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 No security given to guarantee
repayment; the depositor relies on the stability and reputation of the bank.
DEPOSIT SUBSTITUTE Guaranteed by certificates and other instruments. (Handbook on
Bank Deposits, A. Viray, 1998 ed.)
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. 2. To directly act as insurer (Sec. 54) 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; it does not comply with the
liquidity standards/ratios prescribed by the Bangko Sentral for purposes of
determining funds available for dividend declaration; or It has committed a major
violation as may be determined by the Bangko Sentral (Sec. 57).
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.).
c.
d. 3. 4. 5. 6.
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2.
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.
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 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:
5.
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.
3.
4.
C. ON BORROWERS:
1. 2. Fraudulently overvalue property offered as security for a loan from the bank;
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; Attempt to defraud the said bank in the event of a court action to recover
a loan or other credit accommodation; or 1. #
3.
2. #
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1.
Entry: Governed by the provisions of the Foreign Bank Liberalization Act and the
Offshore Banking System Decree (Sec. 72) 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).
2.
2.
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).
2.
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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).
vs. CA, 321 SCRA 83); thus, converting it to conventional redemption or by estoppel
if the extension was unilaterally made.
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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)
P RIMARY OBJECTIVES :
1. To maintain price stability conducive to a balanced and sustainable growth of
the economy. To promote and maintain monetary stability and the convertibility of
the peso.
2.
R ESPONSIBILITIES :
1. To provide policy directions in the areas of money, banking, and credit To
supervise bank operations To regulate the operations of finance companies and non-
bank financial institutions performing quasi-banking functions, and similar
institutions (Sec. 3)
2. 3.
P OWERS / FUNCTIONS :
1. Issuer of currency (Sec. 49-60) Custodian of reserves (Secs. 64-66, 94, 103)
Clearing channel or house; especially where the PCHC does not operate (Sec. 102)
Banker of the government the BSP shall be the official depository of the
Government and shall
2. 3.
4.
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represent it in all monetary fund dealings (Secs. 110- 116) 5. Financial advisor of
the government (Secs. 123124) 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. Source of credit (Secs. 61-63, 81-89, 109)
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 Government agent (Secs. 117-122)
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); 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); 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); the Governor of the Bangko
Sentral and the fulltime 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); 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).
6. 7.
3.
4.
8.
5.
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). #
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.
3.
4.
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and made in bad faith and the petitioner or plaintiff files with the clerk or judge
of the court in which the action is pending a bond executed in favor of the Bangko
Sentral, in an amount to be fixed by the court.
3. 4. 5. 6. 7.
To lease, own, and sell property To sue and be sued 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 To compromise, condone, or release any claim of, or
settled liability to the BSP To do and perform such other necessary powers
OR
PERMIT
2. 3. 4.
Reorganize the management; Collect all monies and debts due said bank; and 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
nonimpairment 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.
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.
2.
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QUASI-BANK/CLOSURE
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 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; 2. Insufficiency of realizable assets to meet its liabilities; Under GBL
1. Notification to the BSP or public announcement of a bank holiday (Sec. 53, GBL)
#
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.
recognized
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.
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2. 3. 4.
5.
Examination shows that the condition of the bank is one of insolvency Director
shall inform the MB in writing of such fact 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]). 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.
1. 2.
1-Peso, 5-Peso and 10-Peso coins: In amounts not exceeding P1,000.00 25 centavo
coin or less: In amounts not exceeding P100.00 (Circular No. 537, 2006)
BSP Authority to Replace 1. 2. Notes for any series or denomination More than 5
years old Coins More than 10 years old
Rules:
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.
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.
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.
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
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]) The
corporation retains its legal personality (Teal Motor Co. vs. CFI, 51 Phil. 549
[1928]) Deposits do not become preferred credits (CB vs. Morfe, 20 SCRA 507 [1967])
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
4. 5.
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 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
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b.
4.
In cases where the money deposited or invested is the subject matter of the
litigation; (Sec. 2)
Rules: 1. 2. The required reserves of each bank shall be proportional to the volume
of its deposit liabilities. Since the required reserves are imposed primarily to
control the volume of money, the Bangko Sentral shall not pay interests thereon
(Sec. 94). 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). No increase of more than 4% point within
30day period. 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 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. 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.
3.
4.
2.
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. Any disclosure by any official or employee of any bank to any
unauthorized person of any information concerning the said deposits.
2.
2.
A.
1. 2. 3.
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established that there is probable cause that the deposits or investments are
related to an unlawful activity or a money laundering offense, except that 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).
3.
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
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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.
# 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.
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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 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).
ANTI-MONEY LAUNDERING ACT OF 2001 (R.A. No. 9160, as amended by R.A. 9194)
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 To pursue States foreign policy to extend
cooperation in transnational investigations and prosecution on money laundering
activities.
2.
COVERED TRANSACTION:
Transaction, in cash or other equivalent monetary instrument in excess of P500,000,
within one banking day.
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
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
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2. 3. 4.
Client is not properly identified Amount involved is not commensurate with the
business or financial capacity 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
J URISDICTION :
# # All cases: RTC Public officers and private persons in conspiracy with them:
Sandiganbayan
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
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 Analogous transactions to any
of the foregoing
6.
7.
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.
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. b. upon ex
parte application of AMLC; and 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%)
2.
Any person knowing that any monetary instrument or property involves the proceeds
of any unlawful activity, performs or fails to perform any act as a result of which
he facilitates the offense referred to in number 1 above.
3.
Any person knowing that any monetary instrument or property is required under this
Act to be disclosed and filed with the AMLC fails to do so.
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).
2.
3.
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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 AntiMoney 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%)
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.
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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
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.
INSURANCE FUNCTION
1. 2. Nature: Compulsory insurance on all bank deposits 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. Specific risk
insured against: Bank closure only. Thus, losses due to a bank robbery are not
covered. Amount of insurance: Maximum of P250,000.00 per deposit (RA 9302)
Condition precedent for entitlement to payment: Filing of claim within twenty-four
months from order of closure 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. 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.
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.
3.
4. 5.
6.
7.
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.
# 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).
2. Case Digest PDIC vs. CA, 283 SCRA 462 3.
The insurance premiums are to be paid by the insured bank, not the depositors. 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.
Facts:
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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.
Demand drafts cannot be escheated but telegraphic notes can be escheated (Republic
vs. FNCB, 3 SCRA 851 [1961]).
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).
LEGAL CONSEQUENCE
The unclaimed balances may be subject of escheat proceedings, after proper
publication and the depositors still do not lay claim to them.
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.
PESO DEPOSIT Governed by R.A. No. 1405 4 exceptions + exceptions found in special
laws May be garnished or attached (not a violation of R.A. No. 1405)
Note: The PDIC law is not applicable to Offshore Banking Units (P.D. No. 1034).
OTHER FEATURES:
1. Authorized banks may adopt a numbered account system for recording and servicing
deposits in nonchecking accounts
The credit or deposit must be with a bank, building and loan association, or trust
corporation; and The credit or deposit is in favor of a person: a. b. who is dead,
or who has not made further deposits or withdrawals during the preceding 10 years
or more.
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Note: This case does not constitute another exception, the SC only ruled as such
due to the special circumstances of the said case.
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.
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.
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. 7. The finance charge expressed in terms of pesos and
centavos; and 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.
***
*2'#63(('####
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
Notes of
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