Professional Documents
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Commercial Law Reviewer Banking and Allied Laws PDF
Commercial Law Reviewer Banking and Allied Laws PDF
I
BANGKO SENTRAL NG PILIPINAS LAW
RA 7653 (1993).
1.1 Topics
State policies (Sec. 1)
How State policies are to be achieved (compare, e.g., Secs. 2, 6, 9, 11, 15, 16,
18 and 47 of RA 7653 with similar provisions in RA 265) [SEE PAGE 2 OF BOOK]
A. Capital [Sec. 2]
B. MB Composition [Sec. 6]
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D. Additional disqualifications for MB Members [Sec. 9]; Divestment requirement
[Sec. 9]; Post-BSP restriction [Sec. 9]
THE MEMBERS OF THE MONETARY BOARD COMING FROM THE PRIVATE SECTOR
SHALL NOT HOLD ANY OTHER PUBLIC OFFICE OR PUBLIC EMPLOYMENT DURING
THEIR TENURE.
SECTION 11. MEETINGS. - THE MONETARY BOARD SHALL MEET AT LEAST ONCE A
WEEK. THE BOARD MAY BE CALLED TO A MEETING BY THE GOVERNOR OF THE
BANGKO SENTRAL OR BY TWO (2) OTHER MEMBERS OF THE BOARD.
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H. Greater responsibility [Sec. 16]
I. Transparency [Sec. 16]
PROVIDED, HOWEVER—
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Conservatorship (Sec. 29; Sec, 67, RA 8791)
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THE DESIGNATION OF A CONSERVATOR UNDER SECTION 29 OF THIS ACT OR
THE APPOINTMENT OF A RECEIVER UNDER THIS SECTION SHALL BE VESTED
EXCLUSIVELY WITH THE MONETARY BOARD. FURTHERMORE, THE
DESIGNATION OF A CONSERVATOR IS NOT A PRECONDITION TO THE
DESIGNATION OF A RECEIVER.
THE MONETARY BOARD MAY SUMMARILY AND WITHOUT NEED FOR PRIOR
HEARING FORBID THE INSTITUTION FROM DOING BUSINESS IN THE PHILIPPINES
AND DESIGNATE THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AS
RECEIVER OF THE BANKING INSTITUTION. [FOR A QUASI-BANK, ANY PERSON OF
RECOGNIZED COMPETENCE IN BANKING OR FINANCE MAY BE DESIGNED AS
RECEIVER.] WHENEVER, UPON REPORT OF THE HEAD OF THE SUPERVISING OR
EXAMINING DEPARTMENT, THE MONETARY BOARD FINDS THAT A BANK OR Comment [WU3]: In RA 7653, only a "report
QUASI-BANK: of the head of the supervising or examining
department" is necessary. It is an established
rule in statutory construction that where the
(A) IS UNABLE TO PAY ITS LIABILITIES AS THEY BECOME DUE IN THE words of a statute are clear, plain and free from
ambiguity, it must be given its literal meaning
ORDINARY COURSE OF BUSINESS: PROVIDED, THAT THIS SHALL NOT and applied without attempted
INCLUDE INABILITY TO PAY CAUSED BY EXTRAORDINARY DEMANDS interpretation.Laying down the requisites for the
INDUCED BY FINANCIAL PANIC IN THE BANKING COMMUNITY; closure of a bank under the law is the
prerogative of the legislature and what its
wisdom dictates. The lawmakers could have
(B) HAS INSUFFICIENT REALIZABLE ASSETS, AS DETERMINED BY THE easily retained the word "examination" (and in
the process also preserved the jurisprudence
BANGKO SENTRAL, TO MEET ITS LIABILITIES; OR attached to it) but they did not and instead
opted to use the word "report." The insistence
on an examination is not sanctioned by RA
(C) CANNOT CONTINUE IN BUSINESS WITHOUT INVOLVING PROBABLE 7653 and we would be guilty of judicial
LOSSES TO ITS DEPOSITORS OR CREDITORS; OR legislation were we to make it a requirement
when such is not supported by the language of
the law.
(D) HAS WILLFULLY VIOLATED A CEASE AND DESIST ORDER UNDER
SECTION 37 THAT HAS BECOME FINAL, INVOLVING ACTS OR TRANSACTIONS
WHICH AMOUNT TO FRAUD OR A DISSIPATION OF THE ASSETS OF THE
INSTITUTION;
Comment [O4]: 56.1 The act or omission has
resulted or may result in material loss or
SECTION 53. RA 8791. OTHER BANKING SERVICES. - IN CASE A BANK OR damage, or abnormal risk or danger to the
safety, stability, liquidity or solvency of the
QUASI-BARK NOTIFIES THE BANGKO SENTRAL OR PUBLICLY ANNOUNCES A institution;
BANK HOLIDAY, OR IN ANY MANNER SUSPENDS THE PAYMENT OF ITS DEPOSIT
LIABILITIES CONTINUOUSLY FOR MORE THAN THIRTY (30) DAYS, THE 56.2 The act or omission has resulted or may
result in material loss or damage or abnormal
MONETARY BOARD MAY SUMMARILY AND WITHOUT NEED FOR PRIOR HEARING risk to the institution's depositors, creditors,
CLOSE SUCH BANKING INSTITUTION AND PLACE IT UNDER RECEIVERSHIP OF investors, stockholders or to the Bangko Sentral
or to the public in general;
THE PHILIPPINE DEPOSIT INSURANCE CORPORATION. (72A)
56.3 The act or omission has caused any undue
SECTION 56. RA 8791. CONDUCTING BUSINESS IN AN UNSAFE OR UNSOUND injury, or has given any unwarranted benefits,
advantage or preference to the bank or any
MANNER - W HENEVER A BANK, QUASI-BANK OR TRUST ENTITY PERSISTS IN party in the discharge by the director or officer
CONDUCTING ITS BUSINESS IN AN UNSAFE OR UNSOUND MANNER, THE of his duties and responsibilities through
manifest partiality, evident bad faith or gross
MONETARY BOARD MAY, WITHOUT PREJUDICE TO THE ADMINISTRATIVE inexcusable negligence; or
SANCTIONS PROVIDED IN SECTION 37 OF THE NEW CENTRAL BANK ACT, TAKE
ACTION UNDER SECTION 30 OF THE SAME ACT AND/OR IMMEDIATELY EXCLUDE 56.4 The act or omission involves entering into
any contract or transaction manifestly and
THE ERRING BANK FROM CLEARING, THE PROVISIONS OF LAW TO THE grossly disadvantageous to the bank, quasi-
CONTRARY NOTWITHSTANDING. bank or trust entity, whether or not the director
or officer profited or will profit thereby.
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SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. - THE
RECEIVER SHALL :
PROVIDED, THAT THE RECEIVER MAY DEPOSIT OR PLACE THE FUNDS OF THE
INSTITUTION IN NON-SPECULATIVE INVESTMENTS. THE RECEIVER SHALL
DETERMINE AS SOON AS POSSIBLE, BUT NOT LATER THAN NINETY (90) DAYS
FROM TAKE OVER, WHETHER THE INSTITUTION MAY BE REHABILITATED OR
OTHERWISE PLACED IN SUCH A CONDITION SO THAT IT MAY BE PERMITTED TO
RESUME BUSINESS WITH SAFETY TO ITS DEPOSITORS AND CREDITORS AND
THE GENERAL PUBLIC: PROVIDED, THAT ANY DETERMINATION FOR THE
RESUMPTION OF BUSINESS OF THE INSTITUTION SHALL BE SUBJECT TO PRIOR
APPROVAL OF THE MONETARY BOARD.
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BAR Q [2009]: TRUE OF FALSE—A BANK UNDER RECEIVERSHIP CAN STILL
GRANT NEW LOANS AND ACCEPT NEW DEPOSITS.
A. MAY THE MONETARY BOARD ORDER THE CLOSURE OF THE MPBC RURAL
BANKS RELYING ONLY ON THE SED REPORT, WITHOUT NEED OF AN
EXAMINATION?
SUGGESTED ANSWER:
A. Yes. Upon receipt of the report of the SED, the Monetary Board is
authorized to take any of the actions enumerated under the Sec. 30,
RA 7653, otherwise known as the New Central Bank Act, leading to
the receivership and liquidation of a bank or quasi-bank. There is no
requirement that an examination be first conducted before a banking
institution may be placed under receivership. [RURAL BANK OF SAN
MIGUEL V. MONETARY BOARD, 2007]
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BAR Q [2002]: DISTINGUISH BETWEEN THE ROLE OF A CONSERVATOR AND THAT
OF A RECEIVER OF A BANK.
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Liquidation (Sec. 30; Sec. 69, RA 8791)
(1) FILE EX PARTE WITH THE PROPER REGIONAL TRIAL COURT, AND
WITHOUT REQUIREMENT OF PRIOR NOTICE OR ANY OTHER ACTION, A
PETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE INSTITUTION
PURSUANT TO A LIQUIDATION PLAN ADOPTED BY THE PHILIPPINE DEPOSIT
INSURANCE CORPORATION FOR GENERAL APPLICATION TO ALL CLOSED
BANKS. IN CASE OF QUASI-BANKS, THE LIQUIDATION PLAN SHALL BE
ADOPTED BY THE MONETARY BOARD. UPON ACQUIRING JURISDICTION,
THE COURT SHALL, UPON MOTION BY THE RECEIVER AFTER DUE NOTICE,
ADJUDICATE DISPUTED CLAIMS AGAINST THE INSTITUTION, ASSIST THE
ENFORCEMENT OF INDIVIDUAL LIABILITIES OF THE STOCKHOLDERS,
DIRECTORS AND OFFICERS, AND DECIDE ON OTHER ISSUES AS MAY BE
MATERIAL TO IMPLEMENT THE LIQUIDATION PLAN ADOPTED. THE RECEIVER
SHALL PAY THE COST OF THE PROCEEDINGS FROM THE ASSETS OF THE
INSTITUTION.
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ACT: PROVIDED, THAT THE PETITIONER OR PLAINTIFF FILES WITH THE CLERK
OR JUDGE OF THE COURT IN WHICH THE ACTION IS PENDING A BOND,
EXECUTED IN FAVOR OF THE BANGKO SENTRAL, IN AN AMOUNT TO BE FIXED
BY THE COURT. THIS SECTION SHALL ALSO APPLY TO THE EXTENT POSSIBLE
TO THE RECEIVERSHIP AND LIQUIDATION PROCEEDINGS OF QUASI-BANKS. (N)
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Functions of the BSP (e.g., Secs. 49-60; 61-63, 81-89, 109; 64-66; 82-84; 94 and
103; 102; 110-116; 117-122; 123-124)
Exclusive issue power (Sec. 50); liability for notes and coins (Sec. 51); legal
tender power (Sec. 53)
SECTION 50. EXCLUSIVE ISSUE POWER. - THE BANGKO SENTRAL SHALL HAVE
THE SOLE POWER AND AUTHORITY TO ISSUE CURRENCY, WITHIN THE
TERRITORY OF THE PHILIPPINES. NO OTHER PERSON OR ENTITY, PUBLIC OR
PRIVATE, MAY PUT INTO CIRCULATION NOTES, COINS OR ANY OTHER OBJECT
OR DOCUMENT WHICH, IN THE OPINION OF THE MONETARY BOARD, MIGHT
CIRCULATE AS CURRENCY, NOR REPRODUCE OR IMITATE THE FACSIMILES OF
BANGKO SENTRAL NOTES WITHOUT PRIOR AUTHORITY FROM THE BANGKO
SENTRAL. XXX.
SECTION 51. LIABILITY FOR NOTES AND COINS. - NOTES AND COINS ISSUED
BY THE BANGKO SENTRAL SHALL BE LIABILITIES OF THE BANGKO SENTRAL
AND MAY BE ISSUED ONLY AGAINST, AND IN AMOUNTS NOT EXCEEDING, THE
ASSETS OF THE BANGKO SENTRAL. SAID NOTES AND COINS SHALL BE A FIRST
AND PARAMOUNT LIEN ON ALL ASSETS OF THE BANGKO SENTRAL.
THE BANGKO SENTRAL'S HOLDINGS OF ITS OWN NOTES AND COINS SHALL NOT
BE CONSIDERED AS PART OF ITS CURRENCY ISSUE AND, ACCORDINGLY, SHALL
NOT FORM PART OF THE ASSETS OR LIABILITIES OF THE BANGKO SENTRAL.
SECTION 52. LEGAL TENDER POWER. - ALL NOTES AND COINS ISSUED BY THE
BANGKO SENTRAL SHALL BE FULLY GUARANTEED BY THE GOVERNMENT OF
THE REPUBLIC OF THE PHILIPPINES AND SHALL BE LEGAL TENDER IN THE
PHILIPPINES FOR ALL DEBTS, BOTH PUBLIC AND PRIVATE: PROVIDED,
HOWEVER, THAT, UNLESS OTHERWISE FIXED BY THE MONETARY BOARD,
COINS SHALL BE LEGAL TENDER IN AMOUNTS NOT EXCEEDING FIFTY PESOS
(P50.00) FOR DENOMINATIONS OF TWENTY-FIVE CENTAVOS AND ABOVE, AND
IN AMOUNTS NOT EXCEEDING TWENTY PESOS (P20.00) FOR DENOMINATIONS
OF TEN CENTAVOS OR LESS.
Instruments of action (e.g., Secs. 68; 69-79; 81-89, 93; 90-92; 94-103; 104-108)
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Setting of bank reserve requirements (Secs. 94-103)
THESE INSTRUMENTS MAY INCLUDE, BUT NEED NOT BE LIMITED TO, BANKERS
ACCEPTANCES, PROMISSORY NOTES, PARTICIPATIONS, CERTIFICATES OF
ASSIGNMENT AND SIMILAR INSTRUMENTS WITH RECOURSE, AND REPURCHASE
AGREEMENTS. THE MONETARY BOARD SHALL DETERMINE WHAT SPECIFIC
INSTRUMENTS SHALL BE CONSIDERED AS DEPOSIT SUBSTITUTES FOR THE
PURPOSES OF SECTION 94 OF THIS ACT: PROVIDED, HOWEVER, THAT
DEPOSIT SUBSTITUTES OF COMMERCIAL, INDUSTRIAL AND OTHER NON-
FINANCIAL COMPANIES FOR THE LIMITED PURPOSE OF FINANCING THEIR OWN
NEEDS OR THE NEEDS OF THEIR AGENTS OR DEALERS SHALL NOT BE COVERED
BY THE PROVISIONS OF SECTION 94 OF THIS ACT.
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SECTION 96. REQUIRED RESERVES AGAINST PESO DEPOSITS. - THE
MONETARY BOARD MAY FIX AND, WHEN IT DEEMS NECESSARY, ALTER THE
MINIMUM RESERVE RATIOS TO PESO DEPOSITS, AS WELL AS TO DEPOSIT
SUBSTITUTES, WHICH EACH BANK AND/OR QUASI-BANK MAY MAINTAIN, AND
SUCH RATIO SHALL BE APPLIED UNIFORMLY TO ALL BANKS OF THE SAME
CATEGORY AS WELL AS TO QUASI-BANKS.
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EXCESS RESERVES WHICH THEY MAY HOLD ON OTHER DAYS OF THE SAME
WEEK AND SHALL BE REQUIRED TO PAY THE PENALTY ONLY ON THE AVERAGE
DAILY DEFICIENCY DURING THE WEEK. IN CASES OF ABUSE, THE MONETARY
BOARD MAY DENY ANY BANK OR QUASI-BANK THE PRIVILEGE OF OFFSETTING
RESERVE DEFICIENCIES IN THE AFORESAID MANNER.
THE MONETARY BOARD MAY MODIFY OR SET ASIDE THE RESERVE DEFICIENCY
PENALTIES PROVIDED IN THIS SECTION, FOR PART OR THE ENTIRE PERIOD OF A
STRIKE OR LOCKOUT AFFECTING A BANK OR A QUASI-BANK AS DEFINED IN THE
LABOR CODE, OR OF A NATIONAL EMERGENCY AFFECTING OPERATIONS OF
BANKS OR QUASI-BANKS. THE MONETARY BOARD MAY ALSO MODIFY OR SET
ASIDE RESERVED DEFICIENCY PENALTIES FOR REHABILITATION PROGRAM OF A
BANK.
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GOVERNMENT AGENCY OR ANY OTHER ADMINISTRATIVE BODY ISSUED TO
SATISFY THE CLAIM OF A PARTY OTHER THAN THE GOVERNMENT, OR ITS
POLITICAL SUBDIVISIONS OR INSTRUMENTALITIES.
Control of bank credit (Secs. 104-108; Secs. 37-38 and 43, RA 8791)
SECTION 104. GUIDING PRINCIPLE. - THE MONETARY BOARD SHALL USE THE
POWERS GRANTED TO IT UNDER THIS ACT TO ENSURE THAT THE SUPPLY,
AVAILABILITY AND COST OF MONEY ARE IN ACCORD WITH THE NEEDS OF THE
PHILIPPINE ECONOMY AND THAT BANK CREDIT IS NOT GRANTED FOR
SPECULATIVE PURPOSES PREJUDICIAL TO THE NATIONAL INTERESTS.
REGULATIONS ON BANK OPERATIONS SHALL BE APPLIED TO ALL BANKS OF THE
SAME CATEGORY UNIFORMLY AND WITHOUT DISCRIMINATION.
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1.2 Cases
FACTS: First Bank is refusing the tender of payment being made by the private respondents
for an alleged perfected sale of certain parcels of land owned by First Bank.
To justify its refusal, First Bank brought forth the argument that the person whom the private
respondents have been negotiating with had no authority to represent First Bank; that at the
time the negotiations between First Bank and the private respondents took place, its
appointed conservator [First Bank has been placed by the Central Bank under
conservatorship] had already repudiated the authority of said person.
HELD: NO. It is not disputed that the petitioner Bank was under a conservator placed by the
Central Bank of the Philippines during the time that the negotiation and perfection of the
contract of sale took place. Petitioners energetically contended that the conservator has the
power to revoke or overrule actions of the management or the board of directors of a bank,
under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act).
While admittedly, the Central Bank law gives vast and far-reaching powers to the
conservator of a bank, it must be pointed out that such powers must be related to the
"(preservation of) the assets of the bank, (the reorganization of) the management thereof
and (the restoration of) its viability." Such powers, enormous and extensive as they are,
cannot extend to the post-facto repudiation of perfected transactions, otherwise they would
infringe against the non-impairment clause of the Constitution. If the legislature itself cannot
revoke an existing valid contract, how can it delegate such non-existent powers to the
conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke
contracts that are, under existing law, deemed to be defective — i.e., void, voidable,
unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's
board of directors. What the said board cannot do — such as repudiating a contract validly
entered into under the doctrine of implied authority — the conservator cannot do either.
Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the
Bank. His authority would be only to bring court actions to assail such contracts — as he has
already done so in the instant case.
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No need for prior hearing
FACTS: On January 10, 1980, a general examination of the bank's affairs and operations was
conducted and there were found by the Rural Banks and Savings and Loan Association
[DRBSLA] represented byConsolacion V. Odra, Director of DRBSLA, among others,
massive irregularities in its operations consisting of loans to unknown and fictitious
borrowers, where the sum of P 1,704,782.00 was past due and another sum
of P1,130,000.00 was also past due in favor of the Central Bank. The promissory notes
evidencing these loans were rediscounted with the Central Bank for cash. As a result
thereof, the bank became insolvent and prejudiced its depositors and creditors.
Ïssue: Petitioner Rural Bank's position is to the effect that due process was not observed by
the Monetary Board before said bank was placed under receivership. Said Rural Bank
claimed that it was not given the chance to deny and disprove such claim of insolvency
and/or any other ground which the Monetary Board used in justification of its action.
It will be observed from the foregoing provision of law, that there is no requirement whether
express or implied, that a hearing be first conducted before a banking institution may be
placed under receivership. On the contrary, the law is explicit as to the conditions
prerequisite to the action of the Monetary Board to forbid the institution to do business in the
Philippines and to appoint a receiver to immediately take charge of the bank's assets and
liabilities. They are: (a) an examination made by the examining department of the Central
Bank; (b) report by said department to the Monetary Board; and (c) prima facie showing that
the bank is in a condition of insolvency or so situated that its continuance in business would
involve probable loss to its depositors or creditors.
Due process does not necessarily require a prior hearing; a hearing or an opportunity to be
heard may be subsequent to the closure. One can just imagine the dire consequences of a
prior hearing: bank runs would be the order of the day, resulting in panic and hysteria. In the
process, fortunes may be wiped out, and disillusionment will run the gamut of the entire
banking community.
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Section 30 of the BSP Law merely requires a report, not an examination, by the head of the
supervising or examining department before a bank could be closed
ISSUE: Petitioners argue that Resolution No. 105 was bereft of any basis considering that no
complete examination had been conducted before it was issued. This case essentially boils
down to one core issue: whether Section 30 of RA 7653 (also known as the New Central
Bank Act) and applicable jurisprudence require a current and complete examination of the
bank before it can be closed and placed under receivership.
HELD: In RA 7653, only a "report” of the head of the supervising or examining department"
is necessary. It is an established rule in statutory construction that where the words of a
statute are clear, plain and free from ambiguity, it must be given its literal meaning and
applied without attempted interpretation.
Laying down the requisites for the closure of a bank under the law is the prerogative of the
legislature and what its wisdom dictates. The lawmakers could have easily retained the word
"examination" (and in the process also preserved the jurisprudence attached to it) but they
did not and instead opted to use the word "report." The insistence on an examination is not
sanctioned by RA 7653 and we would be guilty of judicial legislation were we to make it a
requirement when such is not supported by the language of the law.
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BSP, not RTC, has jurisdiction over acts complained of that pertain to bank’s
business
HELD: Whether the loans referred to in Koruga’s complaint are covered by the prohibition
on self-dealing or not is a matter for the BSP to determine [not the RTC]. These are not
ordinary intra-corporate matters. The acts complained of pertain to the conduct of Banco
Filipino’s banking business. A bank, as defined in the General Banking Law, refers to an
entity engaged in the lending of funds obtained in the form of deposits. The law vests in the
BSP the supervision over operations and activities of banks.
Also, it is the BSP [and not the RTC] which has jurisdiction to hear and decide the suit that
seeks to place Banco Filipino under receivership. Following the principle of “generalia
specialibus non derogant,” is not the Interim Rules of Procedure on Intra-Corporate
Controversies nor Rule 59 of the Rules of Civil Procedure on Receivership, that would apply
to this case. Instead, Sections 29 and 30 of the New Central Bank Act should be followed.
Crystal clear in Section 30 is the provision that says the "appointment of a receiver under
this section shall be vested exclusively with the Monetary Board." The term "exclusively"
connotes that only the Monetary Board can resolve the issue of whether a bank is to be
placed under receivership and, upon an affirmative finding, it also has authority to appoint a
receiver. This is further affirmed by the fact that the law allows the Monetary Board to take
action "summarily and without need for prior hearing." And, as a clincher, the law explicitly
provides that "actions of the Monetary Board taken under this section or under Section 29 of
this Act shall be final and executory, and may not be restrained or set aside by the court
except on a petition for certiorari on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction."
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“Close now, hear later” doctrine
FACTS: Acting on a BSP Report of Examination [on the books of the private respondents],
the BSP required the private respondents to undertake certain remedial measures. Private
respondents are asking for the nullification of a BSP Report of Examination (ROE) and the
issuance of a writ of preliminary investigation on the ground that they were not furnished
copies of the ROE, despite the fact that they’ve been requesting for copies of the said report.
The lower court nevertheless granted the request.
HELD: NO.
The respondent banks have shown no necessity for the writ of preliminary injunction to
prevent serious damage. The serious damage contemplated by the trial court was the
possibility of the imposition of sanctions upon respondent banks, even the sanction of
closure. Under the law, the sanction of closure could be imposed upon a bank by the BSP
even without notice and hearing. The apparent lack of procedural due process would not
result in the invalidity of action by the MB. This "close now, hear later" scheme is grounded
on practical and legal considerations to prevent unwarranted dissipation of the bank’s assets
and as a valid exercise of police power to protect the depositors, creditors, stockholders, and
the general public. The writ of preliminary injunction cannot, thus, prevent the MB from
taking action, by preventing the submission of the ROEs and worse, by preventing the MB
from acting on such ROEs.
The "close now, hear later" doctrine has already been justified as a measure for the
protection of the public interest. Swift action is called for on the part of the BSP when it finds
that a bank is in dire straits. Unless adequate and determined efforts are taken by the
government against distressed and mismanaged banks, public faith in the banking system is
certain to deteriorate to the prejudice of the national economy itself, not to mention the
losses suffered by the bank depositors, creditors, and stockholders, who all deserve the
protection of the government.
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II
THE GENERAL BANKING LAW OF 2000
RA 8791 (2000).
2.1 Topics
State policy
Concept of intermediation
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Classification of banks (Secs. 3.2 and 71)
(C) THRIFT BANKS, COMPOSED OF: (I) SAVINGS AND MORTGAGE BANKS, (II)
STOCK SAVINGS AND LOAN ASSOCIATIONS, AND (III) PRIVATE DEVELOPMENT
BANKS, AS DEFINED IN THE REPUBLIC ACT NO. 7906 (HEREAFTER THE
"THRIFT BANKS ACT");
(D) RURAL BANKS, AS DEFINED IN REPUBLIC ACT NO. 73S3 (HEREAFTER THE
"RURAL BANKS ACT");
SECTION 71. OTHER BANKING LAWS. - THE ORGANIZATION, THE OWNERSHIP AND
CAPITAL REQUIREMENTS, POWERS, SUPERVISION AND GENERAL CONDUCT OF
BUSINESS OF THRIFT BANKS, RURAL BANKS AND COOPERATIVE BANKS SHALL BE
GOVERNED BY THE PROVISIONS OF THE THRIFT BANKS ACT, THE RURAL BANKS
ACT, AND THE COOPERATIVE CODE, RESPECTIVELY. THE ORGANIZATION,
OWNERSHIP AND CAPITAL REQUIREMENTS, POWERS, SUPERVISION AND GENERAL
CONDUCT OF BUSINESS OF ISLAMIC BANKS SHALL BE GOVERNED BY SPECIAL
LAWS. THE PROVISIONS OF THIS ACT, HOWEVER, INSOFAR AS THEY ARE NOT IN
CONFLICT WITH THE PROVISIONS OF THE THRIFT BANKS ACT, THE RURAL BANKS
ACT, AND THE COOPERATIVE CODE SHALL LIKEWISE APPLY TO THRIFT BANKS,
RURAL BANKS, AND COOPERATIVE BANKS, RESPECTIVELY. HOWEVER, FOR
PURPOSES OF PRESCRIBING THE MINIMUM RATIO WHICH THE NET WORTH OF A
THRIFT BANK MUST BEAR TO ITS TOTAL RISK ASSETS, THE PROVISIONS OF
SECTION 33 OF THIS ACT SHALL GOVERN. (N)
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Distinction between universal banks and commercial banks (Secs. 23, 24 and 30)
24.1. THE TOTAL INVESTMENT IN EQUITIES OF 30.1. THE TOTAL INVESTMENT IN EQUITIES OF
ALLIED AND NON-ALLIED ENTERPRISES SHALL ALLIED ENTERPRISES SHALL NOT EXCEED
NOT EXCEED FIFTY PERCENT (50%) OF THE THIRTY-FIVE PERCENT (35%) OF THE NET
NET WORTH OF THE BANK; AND WORTH OF THE BANK; AND
24.2. THE EQUITY INVESTMENT IN ANY ONE 30.2. THE EQUITY INVESTMENT IN ANY ONE
ENTERPRISE, WHETHER ALLIED OR NON- ENTERPRISE SHALL NOT EXCEED TWENTY-
ALLIED, SHALL NOT EXCEED TWENTY-FIVE FIVE PERCENT (25%) OF TILE NET WORTH OF
PERCENT (25%) OF THE NET WORTH OF THE THE BANK.
BANK.
THE ACQUISITION OF SUCH EQUITY OR EQUITIES THE ACQUISITION OF SUCH EQUITY OR EQUITIES
IS SUBJECT TO THE PRIOR APPROVAL OF THE IS SUBJECT TO THE PRIOR APPROVAL OF THE
MONETARY BOARD WHICH SHALL PROMULGATE MONETARY BOARD WHICH SHALL PROMULGATE
APPROPRIATE GUIDELINES TO GOVERN SUCH APPROPRIATE GUIDELINES TO GOVERN SUCH
INVESTMENTS. (21-BA) INVESTMENT.(2LA-A; 21-CA)
1. PAID-IN SURPLUS,
2. RETAINED EARNINGS AND
3. UNDIVIDED PROFIT,
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Distinction between universal or commercial banks and other banks (Sec. 33)
SECTION 58, RA 7653. DEFINITION. - FOR PURPOSES OF THIS ACT, THE TERM
"DEMAND DEPOSITS" MEANS ALL THOSE LIABILITIES OF THE BANGKO SENTRAL AND
OF OTHER BANKS WHICH ARE DENOMINATED IN PHILIPPINE CURRENCY AND ARE
SUBJECT TO PAYMENT IN LEGAL TENDER UPON DEMAND BY THE PRESENTATION OF
CHECKS.
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FURTHER LIMIT TO FORTY PERCENT (40%) EQUITY INVESTMENTS OF UNIVERSAL
BANKS IN QUASI-BANKS. THIS RULE SHALL ALSO APPLY IN THE CASE OF
COMMERCIAL BANKS. (12-E) ARTICLE II. OPERATIONS OF COMMERCIAL BANKS
Institutions subject to BSP supervisory and regulatory powers (Sec. 4; see Sec. 25,
RA 7653)
THE BANGKO SENTRAL SHALL ALSO HAVE SUPERVISION OVER THE OPERATIONS
OF AND EXERCISE REGULATORY POWERS OVER QUASI-BANKS, TRUST ENTITIES
AND OTHER FINANCIAL INSTITUTIONS WHICH UNDER SPECIAL LAWS ARE SUBJECT
TO BANGKO SENTRAL SUPERVISION. (2-CA)
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Authority to engage in banking functions (Sec. 6)
8.2 THAT ITS FUNDS ARE OBTAINED FROM THE PUBLIC, WHICH SHALL MEAN
TWENTY (20) OR MORE PERSONS (2-DA); AND
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Not a close corporation (Sec. 96, Corporation Code)
MB certificate of authority
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Powers of a universal bank (Secs. 23-29, 53)
SECTION 29. POWERS OF A SECTION 25. UP TO 100% OF THE SECTION 27. THE EQUITY
COMMERCIAL BANK. - A EQUITY IN A THRIFT BANK, A RURAL INVESTMENT OF A UNIVERSAL
COMMERCIAL BANK SHALL HAVE, IN BANK OR A FINANCIAL ALLIED BANK, OR OF ITS WHOLLY OR
ADDITION TO THE GENERAL POWERS ENTERPRISE. MAJORITY-OWNED SUBSIDIARIES,
INCIDENT TO CORPORATIONS, ALL IN A SINGLE NON-ALLIED
SUCH POWERS AS MAY BE A PUBLICLY-LISTED UNIVERSAL OR ENTERPRISE SHALL NOT EXCEED
NECESSARY TO CARRY ON THE COMMERCIAL BANK MAY OWN UP 35% OF THE TOTAL EQUITY IN
BUSINESS OF COMMERCIAL BANKING TO 100% OF THE VOTING STOCK THAT ENTERPRISE NOR SHALL IT
SUCH AS – OF ONLY ONE OTHER UNIVERSAL EXCEED 35% OF THE VOTING
OR COMMERCIAL BANK. STOCK IN THAT ENTERPRISE. (21-
1. ACCEPTING DRAFTS AND ISSUING B)
LETTERS OF CREDIT; SECTION 26. UP TO 100% OF THE
EQUITY IN A NON-FINANCIAL ALLIED
2. DISCOUNTING AND NEGOTIATING ENTERPRISE. (21-BA)
PROMISSORY NOTES, DRAFTS,
BILLS OF EXCHANGE, AND OTHER
SECTION 28. THE MONETARY
EVIDENCES OF DEBT;
BOARD MAY FURTHER LIMIT TO
40% EQUITY INVESTMENTS OF
3. ACCEPTING OR CREATING
UNIVERSAL BANKS IN QUASI-BANKS.
DEMAND DEPOSITS;
THIS RULE SHALL ALSO APPLY IN
THE CASE OF COMMERCIAL BANKS.
4. RECEIVING OTHER TYPES OF
DEPOSITS AND DEPOSIT
SECTION 24. EQUITY INVESTMENTS OF A UNIVERSAL BANK.
SUBSTITUTES;
5. BUYING AND SELLING FOREIGN 24.1. THE TOTAL INVESTMENT IN EQUITIES OF ALLIED AND NON-ALLIED
EXCHANGE AND GOLD OR SILVER ENTERPRISES SHALL NOT EXCEED FIFTY PERCENT (50%) OF THE NET
BULLION; WORTH OF THE BANK; AND
6. ACQUIRING MARKETABLE BONDS 24.2. THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE, WHETHER
AND OTHER DEBT SECURITIES; ALLIED OR NON-ALLIED, SHALL NOT EXCEED TWENTY-FIVE PERCENT
(25%) OF THE NET WORTH OF THE BANK.
7. EXTENDING CREDIT, SUBJECT TO
SUCH RULES AS THE MONETARY AS USED IN THIS ACT, "NET WORTH" SHALL MEAN THE TOTAL OF THE
BOARD MAY PROMULGATE. UNIMPAIRED PAID-IN CAPITAL INCLUDING PAID-IN SURPLUS, RETAINED
THESE RULES MAY INCLUDE THE EARNINGS AND UNDIVIDED PROFIT, NET OF VALUATION RESERVES AND
DETERMINATION OF BONDS AND OTHER ADJUSTMENTS AS MAY BE REQUIRED BY THE BANGKO SENTRAL.
OTHER DEBT SECURITIES
ELIGIBLE FOR INVESTMENT, THE
THE ACQUISITION OF SUCH EQUITY OR EQUITIES IS SUBJECT TO THE
MATURITIES AND AGGREGATE PRIOR APPROVAL OF THE MONETARY BOARD WHICH SHALL PROMULGATE
AMOUNT OF SUCH INVESTMENT. APPROPRIATE GUIDELINES TO GOVERN SUCH INVESTMENTS. (21-BA)
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SECTION 53. OTHER BANKING SERVICES. - IN ADDITION TO THE OPERATIONS
SPECIFICALLY AUTHORIZED IN THIS ACT, A BANK MAY PERFORM THE FOLLOWING
SERVICES:
53.2. ACT AS FINANCIAL AGENT AND BUY AND SELL, BY ORDER OF AND FOR
THE ACCOUNT OF THEIR CUSTOMERS, SHARES, EVIDENCES OF INDEBTEDNESS
AND ALL TYPES OF SECURITIES;
53.3. MAKE COLLECTIONS AND PAYMENTS FOR THE ACCOUNT OF OTHERS AND
PERFORM SUCH OTHER SERVICES FOR THEIR CUSTOMERS AS ARE NOT
INCOMPATIBLE WITH BANKING BUSINESS;
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Powers of a commercial bank (Secs. 29-32, 53)
30.2. THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE SHALL NOT EXCEED
TWENTY-FIVE PERCENT (25%) OF TILE NET WORTH OF THE BANK. THE
ACQUISITION OF SUCH EQUITY OR EQUITIES IS SUBJECT TO THE PRIOR
APPROVAL OF THE MONETARY BOARD WHICH SHALL PROMULGATE
APPROPRIATE GUIDELINES TO GOVERN SUCH INVESTMENT.(2LA-A; 21-CA)
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SECTION 53. OTHER BANKING SERVICES. - IN ADDITION TO THE OPERATIONS
SPECIFICALLY AUTHORIZED IN THIS ACT, A BANK MAY PERFORM THE FOLLOWING
SERVICES:
53.2. ACT AS FINANCIAL AGENT AND BUY AND SELL, BY ORDER OF AND FOR
THE ACCOUNT OF THEIR CUSTOMERS, SHARES, EVIDENCES OF INDEBTEDNESS
AND ALL TYPES OF SECURITIES;
53.3. MAKE COLLECTIONS AND PAYMENTS FOR THE ACCOUNT OF OTHERS AND
PERFORM SUCH OTHER SERVICES FOR THEIR CUSTOMERS AS ARE NOT
INCOMPATIBLE WITH BANKING BUSINESS;
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Independent directors (Sec. 15)
Qualifications of directors and officers: the fit and proper rule (Sec. 16)
SECTION 16. FIT AND PROPER RULE. - TO MAINTAIN THE QUALITY OF BANK
MANAGEMENT AND AFFORD BETTER PROTECTION TO DEPOSITORS AND THE PUBLIC
IN GENERAL THE MONETARY BOARD SHALL PRESCRIBE, PASS UPON AND REVIEW
THE QUALIFICATIONS AND DISQUALIFICATIONS OF INDIVIDUALS ELECTED OR
APPOINTED BANK DIRECTORS OR OFFICERS AND DISQUALIFY THOSE FOUND UNFIT.
AFTER DUE NOTICE TO THE BOARD OF DIRECTORS OF THE BANK, THE MONETARY
BOARD MAY DISQUALIFY, SUSPEND OR REMOVE ANY BANK DIRECTOR OR OFFICER
WHO COMMITS OR OMITS AN ACT WHICH RENDER HIM UNFIT FOR THE POSITION. IN
DETERMINING WHETHER AN INDIVIDUAL IS FIT AND PROPER TO HOLD THE POSITION
OF A DIRECTOR OR OFFICER OF A BANK, REGARD SHALL BE GIVEN TO HIS
INTEGRITY, EXPERIENCE, EDUCATION, TRAINING, AND COMPETENCE. (9-AA)
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Compensation and other benefits of directors and officers (Sec. 18)
Ratio of net worth to total risk assets (Sec. 34); the Basle Accord
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OF THE PHILIPPINES, UNTIL THE MINIMUM REQUIRED CAPITAL RATIO HAS BEEN
RESTORED.
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35.4. EVEN IF A PARENT CORPORATION, PARTNERSHIP, ASSOCIATION, ENTITY OR
AN INDIVIDUAL WHO OWNS OR CONTROLS A MAJORITY INTEREST IN SUCH ENTITIES
HAS NO LIABILITY TO THE BANK, THE MONETARY BOARD MAY PRESCRIBE THE
COMBINATION OF THE LIABILITIES OF SUBSIDIARY CORPORATIONS OR MEMBERS OF
THE PARTNERSHIP, ASSOCIATION, ENTITY OR SUCH INDIVIDUAL UNDER CERTAIN
CIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO ANY OF THE FOLLOWING
SITUATIONS—
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Restrictions on bank exposure: the DOSRI rules (Sec. 36)
EXCEPT WITH THE WRITTEN APPROVAL OF THE MAJORITY OF ALL THE DIRECTORS
OF THE BANK, EXCLUDING THE DIRECTOR CONCERNED: PROVIDED, THAT SUCH
WRITTEN APPROVAL SHALL NOT BE REQUIRED FOR LOANS, OTHER CREDIT
ACCOMMODATIONS AND ADVANCES GRANTED TO OFFICERS UNDER A FRINGE
BENEFIT PLAN APPROVED BY THE BANGKO SENTRAL. THE REQUIRED APPROVAL
SHALL BE ENTERED UPON THE RECORDS OF THE BANK AND A COPY OF SUCH
ENTRY SHALL BE TRANSMITTED FORTHWITH TO THE APPROPRIATE SUPERVISING
AND EXAMINING DEPARTMENT OF THE BANGKO SENTRAL.
AFTER DUE NOTICE TO THE BOARD OF DIRECTORS OF THE BANK, THE OFFICE OF
ANY BANK DIRECTOR OR OFFICER WHO VIOLATES THE PROVISIONS OF THIS
SECTION MAY BE DECLARED VACANT AND THE DIRECTOR OR OFFICER SHALL BE
SUBJECT TO THE PENAL PROVISIONS OF THE NEW CENTRAL BANK ACT.
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THE MONETARY BOARD SHALL DEFINE THE TERM "RELATED INTERESTS." THE
LIMIT ON LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES PRESCRIBED
HEREIN SHALL NOT APPLY TO LOANS, CREDIT ACCOMMODATIONS AND
GUARANTEES EXTENDED BY A COOPERATIVE BANK TO ITS COOPERATIVE
SHAREHOLDERS. (83A)
BAR Q [2006]: PIO IS THE PRESIDENST 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%)
TOWARD THIS END, A BANK MAY DEMAND FROM ITS CREDIT APPLICANTS A
STATEMENT OF THEIR ASSETS AND LIABILITIES AND OF THEIR INCOME AND
EXPENDITURES AND SUCH INFORMATION AS MAY BE PRESCRIBED BY LAW OR BY
RULES AND REGULATIONS OF THE MONETARY BOARD TO ENABLE THE BANK TO
PROPERLY EVALUATE THE CREDIT APPLICATION WHICH INCLUDES THE
CORRESPONDING FINANCIAL STATEMENTS SUBMITTED FOR TAXATION PURPOSES
TO THE BUREAU OF INTERNAL REVENUE. SHOULD SUCH STATEMENTS PROVE TO
BE FALSE OR INCORRECT IN ANY MATERIAL DETAIL, THE BANK MAY TERMINATE ANY
LOAN OR OTHER CREDIT ACCOMMODATION GRANTED ON THE BASIS OF SAID
STATEMENTS AND SHALL HAVE THE RIGHT TO DEMAND IMMEDIATE REPAYMENT OR
LIQUIDATION OF THE OBLIGATION. IN FORMULATING RULES AND REGULATIONS
UNDER THIS SECTION, THE MONETARY BOARD SHALL RECOGNIZE THE PECULIAR
CHARACTERISTICS OF MICRO FINANCING, SUCH AS CASH FLOW -BASED LENDING TO
THE BASIC SECTORS THAT ARE NOT COVERED BY TRADITIONAL COLLATERAL. (76A)
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SECTION 43. AUTHORITY TO PRESCRIBE TERMS AND CONDITIONS OF LOANS AND
OTHER CREDIT ACCOMMODATIONS. - THE MONETARY BOARD, MAY, SIMILARLY IN
ACCORDANCE WITH THE AUTHORITY GRANTED TO IT IN SECTION 106 OF THE NEW
CENTRAL BANK ACT, AND TAKING INTO ACCOUNT THE REQUIREMENTS OF THE
ECONOMY FOR THE EFFECTIVE UTILIZATION OF LONG-TERM FUNDS, PRESCRIBE
THE MATURITIES, AS WELL AS RELATED TERMS AND CONDITIONS FOR VARIOUS
TYPES OF BANK LOANS AND OTHER CREDIT ACCOMMODATIONS. ANY CHANGE BY
THE BOARD IN THE MAXIMUM MATURITIES, AS WELL AS RELATED TERMS AND
CONDITIONS FOR VARIOUS TYPES OF BANK LOANS AND OTHER CREDIT
ACCOMMODATIONS. ANY CHANGE BY THE BOARD IN THE MAXIMUM MATURITIES
SHALL APPLY ONLY TO LOANS AND OTHER CREDIT ACCOMMODATIONS MADE AFTER
THE DATE OF SUCH ACTION. THE MONETARY BOARD SHALL REGULATE THE
INTEREST IMPOSED ON MICRO FINANCE BORROWERS BY LENDING INVESTORS AND
SIMILAR LENDERS SUCH AS, BUT NOT LIMITED TO, THE UNCONSCIONABLE RATES
OF INTEREST COLLECTED ON SALARY LOANS AND SIMILAR CREDIT
ACCOMMODATIONS. (78A)
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CONSIDERED AS PART OF THE BANK'S TOTAL INVESTMENT IN REAL ESTATE,
UNLESS OTHERWISE PROVIDED BY THE MONETARY BOARD. (25A)
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57.4 IT HAS COMMITTED A MAJOR VIOLATION AS MAY BE DETERMINED BY THE
BANGKO SENTRAL (84A)
Deposit required as security for faithful performance of trust duties (Sec. 84)
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AND, FROM TIME TO TIME, WITH THE APPROVAL OF THE BANGKO SENTRAL, TO
EXCHANGE THE SECURITIES FOR OTHERS. IF THE TRUST ENTITY FAILS TO COMPLY
WITH ANY LAW OR REGULATION, THE BANGKO SENTRAL SHALL RETAIN SUCH
INTEREST ON THE SECURITIES DEPOSITED WITH IT FOR THE BENEFIT OF RIGHTFUL
CLAIMANTS. AL CLAIMS RISING OUT OF THE TRUST BUSINESS OF A TRUST ENTITY
SHALL HAVE PRIORITY OVER ALL OTHER CLAIMS AS REGARDS THE CASH OR
SECURITIES DEPOSITED AS ABOVE PROVIDED. THE MONETARY BOARD MAY NOT
PERMIT THE CASH OR SECURITIES DEPOSITED IN ACCORDANCE WITH THE
PROVISIONS OF THIS SECTION TO BE REDUCED BELOW THE PRESCRIBED MINIMUM
AMOUNT UNTIL THE DEPOSITING ENTITY SHALL DISCONTINUE ITS TRUST BUSINESS
AND SHALL SATISFY THE MONETARY BOARD THAT IT HAS COMPLIED WITH ALL ITS
OBLIGATIONS IN CONNECTION WITH SUCH BUSINESS. (65A)
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2.2 Cases
Fiduciary nature of banking requires high standards of integrity and performance
The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory note.
The BANK’s failure to explain the absence of the original documents and to maintain a
record of the offsetting of this loan with the time deposits bring to fore the BANK’s dismal
failure to fulfill its fiduciary duty to Marcos.
Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes this
fiduciary duty on banks when it declares that the State recognizes the "fiduciary nature of
banking that requires high standards of integrity and performance." This statutory
declaration merely echoes the earlier pronouncement of the Supreme Court in Simex
International (Manila) Inc. v. Court of Appeals requiring banks to "treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship." The Court reiterated this fiduciary duty of banks in subsequent cases.
Thus, the BANK’s fiduciary duty imposes upon it a higher level of accountability than that
expected of Marcos, a businessman, who negligently signed blank forms and entrusted his
certificates of time deposits to Pagsaligan without retaining copies of the certificates. As the
BANK’s depositor, Marcos had the right to expect that the BANK was accurately recording
his transactions with it. Upon the maturity of his time deposits, Marcos also had the right to
withdraw the amount due him after the BANK had correctly debited his outstanding
obligations from his time deposits.
By the very nature of its business, the BANK should have had in its possession the original
copies of the disputed promissory note and the records and ledgers evidencing the offsetting
of the loan with the time deposits of Marcos. The BANK inexplicably failed to produce the
original copies of these documents. Clearly, the BANK failed to treat the account of Marcos
with meticulous care.
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Banks have the duty to exercise the highest degree of diligence when transacting
with the public
FACTS: The private respondents are accusing Solidbank Corp. of negligence as the latter
allegedly lost one of 10 checks they were trying to deposit with the bank. [Private
respondents delivered 10 checks; but only 9 checks were credited to their account.] The lost
check was later on discovered to have been deposited by a certain Dolores Lagsac in
Premier Bank in San Pedro, Laguna.
The lower court found Solidbank negligent; it awarded exemplary damages to the Spouses
Tan, among others. Petitioner argues the award of exemplary damages was without basis.
According to it, such award is justified only when the act complained of was done in a
wanton, fraudulent and oppressive manner.
HELD:
As to the award of exemplary damages, the law allows it by way of example for the public
good. The business of banking is impressed with public interest and great reliance is
made on the bank’s sworn profession of diligence and meticulousness in giving
irreproachable service. For petitioner’s failure to carry out its responsibility and to account
for respondents’ lost check, we hold that the lower courts did not err in awarding exemplary
damages to the latter.
FACTS: Go, President and CEO of Oriental Bank] was charged with violating Section 83 of
RA 337 [for being a borrower and/or a guarantor for loans borrowed from Oriental Bank
without Board approval].
He filed a motion to quash on the ground that the facts allged do not constitute a crime.
According to him, Sec. 83 of RA 337 penalized only directors and officers of banking
institutions who acted either as borrower or as guarantor, but not as both.
Go further pointed out that the Information failed to state that his alleged act of
borrowing and/or guarantying was not among the exceptions provided for in the law.
According to Go, the second paragraph of Section 83 allowed banks to extend credit
accommodations to their directors, officers, and stockholders, provided it is "limited to an
amount equivalent to the respective outstanding deposits and book value of the paid-in
capital contribution in the bank." Extending credit accommodations to bank directors,
officers, and stockholders is not per se prohibited, unless the amount exceeds the legal limit.
Since the Information failed to state that the amount he purportedly borrowed and/or
guarantied was beyond the limit set by law, Go insisted that the acts so charged did not
constitute an offense.
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Under Section 83, RA 337, the following elements must be present to constitute a violation
of its first paragraph:
A simple reading of the above elements easily rejects Go’s contention that the law penalizes
a bank director or officer only either for borrowing the bank’s deposits or funds or for
guarantying loans by the bank, but not for acting in both capacities. The essence of the
crime is becoming an obligor of the bank without securing the necessary written approval of
the majority of the bank’s directors. The second element merely lists down the various
modes of committing the offense. The third mode, by declaring that "[no director or officer of
any banking institution shall xxx] in any manner be an obligor for money borrowed from the
bank or loaned by it," in fact serves a catch-all phrase that covers any situation when a
director or officer of the bank becomes its obligor. The prohibition is directed against a bank
director or officer who becomes in any manner an obligor for money borrowed from or
loaned by the bank without the written approval of the majority of the bank’s board of
directors. To make a distinction between the act of borrowing and guarantying is
therefore unnecessary because in either situation, the director or officer concerned
becomes an obligor of the bank against whom the obligation is juridically
demandable. The language of the law is broad enough to encompass either act of
borrowing or guaranteeing, or both.
The approval requirement (found in the first sentence of the first paragraph of the law)
refers to the written approval of the majority of the bank’s board of directors required before
bank directors and officers can in any manner be an obligor for money borrowed from or
loaned by the bank. Failure to secure the approval renders the bank director or officer
concerned liable for prosecution and, upon conviction, subjects him to the penalty provided
in the third sentence of first paragraph of Section 83.
As to his second ground for the quashal: Credit accommodation limit is not an exception nor
is it an element of the offense. Contrary to Go’s claims, the second paragraph of Section 83,
RA 337 does not provide for an exception to a violation of the first paragraph thereof, nor
does it constitute as an element of the offense charged. Section 83 of RA 337 actually
imposes three restrictions: approval, reportorial, and ceiling requirements.
The reportorial requirement, on the other hand, mandates that any such approval should
be entered upon the records of the corporation, and a copy of the entry be transmitted to the
appropriate supervising department. The reportorial requirement is addressed to the bank
itself, which, upon its failure to do so, subjects it to quo warranto proceedings under Section
87 of RA 337.
The ceiling requirement under the second paragraph of Section 83 regulates the amount of
credit accommodations that banks may extend to their directors or officers by limiting these
to an amount equivalent to the respective outstanding deposits and book value of the paid-in
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capital contribution in the bank. Again, this is a requirement directed at the bank. In this light,
a prosecution for violation of the first paragraph of Section 83, such as the one involved
here, does not require an allegation that the loan exceeded the legal limit. Even if the loan
involved is below the legal limit, a written approval by the majority of the bank’s directors is
still required; otherwise, the bank director or officer who becomes an obligor of the bank is
liable. Compliance with the ceiling requirement does not dispense with the approval
requirement.
Evidently, the failure to observe the three requirements under Section 83 paves the way for
the prosecution of three different offenses, each with its own set of elements.
PNB not a mortgagee in good faith for failure to conduct exhaustive investigation of
mortgagor’s title before extending a loan
ISSUE: The sole issue presented in this case is whether or not petitioner PNB is a mortgagee
in good faith, entitling it to its lien on the title to the property in dispute. Petitioner PNB points
out that, since it did a credit investigation, inspected the property, and verified the clean
status of the title before giving out the loan to the Songcuans, it should be regarded as a
mortgagee in good faith. PNB claims that the precautions it took constitute sufficient
compliance with the due diligence required of banks when dealing with registered lands.
HELD: As a rule, the Court would not expect a mortgagee to conduct an exhaustive
investigation of the history of the mortgagor’s title before he extends a loan. But petitioner
PNB is not an ordinary mortgagee; it is a bank. Banks are expected to be more cautious
than ordinary individuals in dealing with lands, even registered ones, since the business of
banks is imbued with public interest. It is of judicial notice that the standard practice for
banks before approving a loan is to send a staff to the property offered as collateral and
verify the genuineness of the title to determine the real owner or owners.
One of the CA’s findings in this case is that in the course of its verification, petitioner PNB
was informed of the previous TCTs covering the subject property. And the PNB has not
categorically contested this finding. It is evident from the faces of those titles that the
ownership of the land changed from Corpuz to Bondoc, from Bondoc to the Palaganases,
and from the Palaganases to the Songcuans in less than three months and mortgaged to
PNB within four months of the last transfer. The above information in turn should have driven
the PNB to look at the deeds of sale involved. It would have then discovered that the
property was sold for ridiculously low prices: Corpuz supposedly sold it to Bondoc for
justP50,000.00; Bondoc to the Palaganases for just P15,000.00; and the Palaganases to the
Songcuans also for justP50,000.00. Yet the PNB gave the property an appraised value
of P781,760.00. Anyone who deliberately ignores a significant fact that would create
suspicion in an otherwise reasonable person cannot be considered as an innocent
mortgagee for value.
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2.3 Additional Materials
(a) BSP Circulars Nos. 488 (issued June 21, 2005), 493 (issued September 16,
2005), 543 (issued September 8, 2006), 548 (issued September 25, 2006), and
642 (issued January 30, 2009) re functions that banks could outsource;
(b) BSP Circular No. 341 (issued August 6, 2002) and 640 (issued January 16,
2009) re unsafe and unsound banking practices;
(c) BSP Circular No. 650 (issued March 9, 2009) re authority of thrift banks to issue
foreign letters of credit, etc.
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III
PHILIPPINE DEPOSIT INSURANCE CORPORATION ACT
RA 3591 (1963), as amended by RA 6037 (1969), PD 120 (1973), PD 1094 (1977), PD 1451 (1978),
PD 1935 (1984), RA 7400 (1992), RA 8791 (2000), RA 9302 (2004), and RA 9576 (2009).
3.1 Topics
Basic policy (Sec. 1) Comment [WU5]: The purpose of the law is
to create a government-owned and controlled
entity, the Philippine Deposit Insurance
SECTION 1. THERE IS HEREBY CREATED A PHILIPPINE DEPOSIT INSURANCE Corporation, which shall insure the deposit
CORPORATION HEREINAFTER REFERRED TO AS THE “CORPORATION” WHICH SHALL liabilities of all banks entitled to the benefits of
insurance under the Act. Such insurance is
INSURE, AS HEREIN PROVIDED, THE DEPOSITS OF ALL BANKS WHICH ARE ENTITLED intended to protect depositors from situations
TO THE BENEFITS OF INSURANCE UNDER THIS ACT, AND WHICH SHALL HAVE THE that prevent banks from paying out deposits, as
POWERS HEREINAFTER GRANTED. in bank failures or closures, and to encourage
people to deposit in banks.
Main functions
Examination of banks (Secs. 8 and 9) Comment [WU7]: The PDIC may examine a
bank with the prior approval of the Monetary
Board of the Bangko Sentral ng Pilipinas. Such
SECTION 8.THE CORPORATION AS A CORPORATE BODY SHALL HAVE THE POWER examination may extend to all the affairs of the
bank and includes the authority to investigate
- EIGHTH – TO CONDUCT EXAMINATION OF BANKS WITH PRIOR APPROVAL OF THE frauds, irregularities and anomalies committed
MONETARY BOARD: PROVIDED, THAT NO EXAMINATION CAN BE CONDUCTED in the bank.
WITHIN TWELVE (12) MONTHS FROM THE LAST EXAMINATION DATE: PROVIDED,
HOWEVER, THAT THE CORPORATION MAY, IN COORDINATION WITH THE BANGKO
SENTRAL, CONDUCT A SPECIAL EXAMINATION AS THE BOARD OF DIRECTORS, BY
AN AFFIRMATIVE VOTE OF A MAJORITY OF ALL OF ITS MEMBERS, IF THERE IS A
THREATENED OR IMPENDING CLOSURE OF A BANK; PROVIDED, FURTHER, THAT,
NOTWITHSTANDING THE PROVISIONS OF REPUBLIC ACT NO. 1405, AS AMENDED,
REPUBLIC ACT NO. 6426, AS AMENDED, REPUBLIC ACT NO. 8791, AND OTHER
LAWS, THE CORPORATION AND/OR THE BANGKO SENTRAL, MAY INQUIRE INTO OR Comment [WU8]: – Upon determination by
EXAMINE DEPOSIT ACCOUNTS AND ALL INFORMATION RELATED THERETO IN CASE the PDIC that (i) a bank is in danger of closing,
THERE IS A FINDING OF UNSAFE OR UNSOUND BANKING PRACTICE; PROVIDED, (ii) the continued operation of such bank is
essential to provide adequate banking service in
FINALLY, THAT TO AVOID OVERLAPPING OF EFFORTS, THE EXAMINATION SHALL the community or maintain financial stability in
MAXIMIZE THE EFFICIENT USE OF THE RELEVANT REPORTS, INFORMATION, AND the economy, and (iii) the actual liquidation and
payoff of the bank will be more expensive than
FINDINGS OF THE BANGKO SENTRAL, WHICH IT SHALL MAKE AVAILABLE TO THE the extension of financial assistance to the
CORPORATION; bank, it may make loans to, purchase the
assets or assume the liabilities of, or make
deposits in, said bank to prevent its closing.
Rehabilitation of banks (Sec. 17) Authority may also be exercised by the PDIC
over a closed bank.
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Receivership of closed banks (Secs. 8 and 10; see also Sec. 30, RA 7653) Comment [WU9]: (Secs. 8 and 10; see also
Sec. 30, RA 7653) – As receiver, the PDIC shall
control, manage and administer the affairs of
SECTION 8.THE CORPORATION AS A CORPORATE BODY SHALL HAVE THE POWER the closed bank for the purpose of preserving its
assets for the benefit of bank creditors .
-NINTH - TO ACT AS RECEIVER;
SECTION 10.
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MONTHS, FROM AVAILABLE FUNDS OF THE CLOSED BANK; (AS ADDED
BY R.A. 9302,
12 AUGUST 2004)
5. COLLECT LOANS AND OTHER CLAIMS OF THE CLOSED BANK, AND FOR
THE PURPOSE, MODIFY, COMPROMISE OR RESTRUCTURE THE TERMS
AND CONDITIONS OF SUCH LOANS OR CLAIMS AS MAY BE DEEMED
ADVANTAGEOUS TO THE INTEREST OF THE CREDITORS AND CLAIMANTS
OF THE CLOSED BANK; (AS ADDED BY. R.A. 9302,12 AUGUST 2004)
6. HIRE OR RETAIN PRIVATE COUNSELS AS MAY BE NECESSARY; (AS
ADDED BY R.A. 9302, 12 AUGUST 2004)
7. BORROW OR OBTAIN A LOAN, OR MORTGAGE, PLEDGE OR ENCUMBER
ANY ASSET OF THE CLOSED BANK, WHEN NECESSARY TO PRESERVE
OR PREVENT DISSIPATION OF THE ASSETS, OR TO REDEEM
FORECLOSED ASSETS OF THE CLOSED BANK, OR TO MINIMIZE LOSSES
TO THE DEPOSITORS AND CREDITORS; (AS ADDED BY R.A. 9302, 12
AUGUST 2004)
8. IF THE STIPULATED INTEREST ON DEPOSITS IS UNUSUALLY HIGH
COMPARED WITH THE PREVAILING APPLICABLE INTEREST RATE, THE
CORPORATION AS RECEIVER MAY EXERCISE SUCH POWERS WHICH
MAY INCLUDE A REDUCTION OF THE INTEREST RATE TO A REASONABLE
RATE: PROVIDED, THAT ANY MODIFICATION OR REDUCTION SHALL
APPLY ONLY TO UNPAID INTEREST; (AS ADDED BY R.A. 9302, 12
AUGUST 2004) AND
9. EXERCISE SUCH OTHER POWERS AS ARE INHERENT AND NECESSARY
FOR THE EFFECTIVE DISCHARGE OF THE DUTIES OF THE
CORPORATION AS A RECEIVER. (AS ADDED BY R.A. 9302, 12 AUGUST
2004)
Liquidation of closed banks (Sec. 30, RA 7653) Comment [WU10]: If the closed bank cannot
be rehabilitated, the PDIC would proceed with
its liquidation. This would involve the conversion
of the assets of the bank into cash for
distribution to the creditors in accordance with
SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. - W HENEVER, the provisions of the NCC on concurrence and
UPON REPORT OF THE HEAD OF THE SUPERVISING OR EXAMINING DEPARTMENT, preference of credits.
THE MONETARY BOARD FINDS THAT A BANK OR QUASI-BANK:
(A) IS UNABLE TO PAY ITS LIABILITIES AS THEY BECOME DUE IN THE ORDINARY
COURSE OF BUSINESS: PROVIDED, THAT THIS SHALL NOT INCLUDE INABILITY
TO PAY CAUSED BY EXTRAORDINARY DEMANDS INDUCED BY FINANCIAL PANIC
IN THE BANKING COMMUNITY;
(D) HAS WILLFULLY VIOLATED A CEASE AND DESIST ORDER UNDER SECTION 37
THAT HAS BECOME FINAL, INVOLVING ACTS OR TRANSACTIONS WHICH AMOUNT
TO FRAUD OR A DISSIPATION OF THE ASSETS OF THE INSTITUTION; IN WHICH
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CASES, THE MONETARY BOARD MAY SUMMARILY AND WITHOUT NEED FOR
PRIOR HEARING FORBID THE INSTITUTION FROM DOING BUSINESS IN THE
PHILIPPINES AND DESIGNATE THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION AS RECEIVER OF THE BANKING INSTITUTION.
THE RECEIVER SHALL IMMEDIATELY GATHER AND TAKE CHARGE OF ALL THE
ASSETS AND LIABILITIES OF THE INSTITUTION, ADMINISTER THE SAME FOR THE
BENEFIT OF ITS CREDITORS, AND EXERCISE THE GENERAL POWERS OF A RECEIVER
UNDER THE REVISED RULES OF COURT BUT SHALL NOT, WITH THE EXCEPTION OF
ADMINISTRATIVE EXPENDITURES, PAY OR COMMIT ANY ACT THAT WILL INVOLVE
THE TRANSFER OR DISPOSITION OF ANY ASSET OF THE INSTITUTION: PROVIDED,
THAT THE RECEIVER MAY DEPOSIT OR PLACE THE FUNDS OF THE INSTITUTION IN
NON-SPECULATIVE INVESTMENTS. THE RECEIVER SHALL DETERMINE AS SOON AS
POSSIBLE, BUT NOT LATER THAN NINETY (90) DAYS FROM TAKE OVER, WHETHER
THE INSTITUTION MAY BE REHABILITATED OR OTHERWISE PLACED IN SUCH A
CONDITION SO THAT IT MAY BE PERMITTED TO RESUME BUSINESS WITH SAFETY TO
ITS DEPOSITORS AND CREDITORS AND THE GENERAL PUBLIC: PROVIDED, THAT
ANY DETERMINATION FOR THE RESUMPTION OF BUSINESS OF THE INSTITUTION
SHALL BE SUBJECT TO PRIOR APPROVAL OF THE MONETARY BOARD.
(1) FILE EX PARTE WITH THE PROPER REGIONAL TRIAL COURT, AND WITHOUT
REQUIREMENT OF PRIOR NOTICE OR ANY OTHER ACTION, A PETITION FOR
ASSISTANCE IN THE LIQUIDATION OF THE INSTITUTION PURSUANT TO A
LIQUIDATION PLAN ADOPTED BY THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION FOR GENERAL APPLICATION TO ALL CLOSED BANKS. IN CASE OF
QUASI-BANKS, THE LIQUIDATION PLAN SHALL BE ADOPTED BY THE MONETARY
BOARD. UPON ACQUIRING JURISDICTION, THE COURT SHALL, UPON MOTION BY
THE RECEIVER AFTER DUE NOTICE, ADJUDICATE DISPUTED CLAIMS AGAINST
THE INSTITUTION, ASSIST THE ENFORCEMENT OF INDIVIDUAL LIABILITIES OF
THE STOCKHOLDERS, DIRECTORS AND OFFICERS, AND DECIDE ON OTHER
ISSUES AS MAY BE MATERIAL TO IMPLEMENT THE LIQUIDATION PLAN ADOPTED.
THE RECEIVER SHALL PAY THE COST OF THE PROCEEDINGS FROM THE ASSETS
OF THE INSTITUTION.
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LIQUIDATION, BE EXEMPT FROM ANY ORDER OF GARNISHMENT , LEVY,
ATTACHMENT, OR EXECUTION.
THE ACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION OR UNDER
SECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAY NOT BE
RESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FOR CERTIORARI
ON THE GROUND THAT THE ACTION TAKEN WAS IN EXCESS OF JURISDICTION OR
WITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TO LACK OR EXCESS OF
JURISDICTION. THE PETITION FOR CERTIORARI MAY ONLY BE FILED BY THE
STOCKHOLDERS OF RECORD REPRESENTING THE MAJORITY OF THE CAPITAL
STOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARD OF DIRECTORS OF
THE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP, LIQUIDATION OR
CONSERVATORSHIP.
Concept of insured deposits (Sec. 4[g]) Comment [WU11]: An insured deposit is the
amount due any depositor for deposits in an
insured bank net of any matured or unmatured
SECTION 4. AS USED IN THIS ACT - (RENUMBERED FROM SEC. 3 BY R.A. 9302, obligation of the depositor to the insured bank
as of the date of closure but not to exceed
12 AUGUST 2004) [G] THE TERM “INSURED DEPOSIT” MEANS THE AMOUNT DUE TO P250,000. In determining s depositor’s insured
ANY BONA FIDE DEPOSITOR FOR LEGITIMATE DEPOSITS IN AN INSURED BANK NET deposit, the PDIC shall add together all deposits
OF ANY OBLIGATION OF THE DEPOSITOR TO THE INSURED BANK AS OF THE DATE in the bank maintained by the depositor in the
same right and capacity for his benefit either in
OF CLOSURE, BUT NOT TO EXCEED FIVE HUNDRED THOUSAND PESOS his own name or in the name of others. The
(P500,000.00).2 SUCH NET AMOUNT SHALL BE DETERMINED ACCORDING TO SUCH outstanding balance of each account would also
REGULATIONS AS THE BOARD OF DIRECTORS MAY PRESCRIBE. IN DETERMINING be adjusted to take into account any interest
earned by the account as of the date of closure
SUCH AMOUNT DUE TO ANY DEPOSITOR, THERE SHALL BE ADDED TOGETHER ALL of the bank less any withholding tax due on
DEPOSITS IN THE BANK MAINTAINED IN THE SAME RIGHT AND CAPACITY FOR HIS such interest.
BENEFIT EITHER IN HIS OWN NAME OR IN THE NAME OF OTHERS. A JOINT ACCOUNT
REGARDLESS OF WHETHER THE CONJUNCTION "AND," "OR," "AND/OR" IS USED,
SHALL BE INSURED SEPARATELY FROM ANY INDIVIDUALLY-OWNED DEPOSIT
ACCOUNT: PROVIDED, THAT (1) IF THE ACCOUNT IS HELD JOINTLY BY TWO OR
MORE NATURAL PERSONS, OR BY TWO OR MORE JURIDICAL PERSONS OR ENTITIES,
THE MAXIMUM INSURED DEPOSIT SHALL BE DIVIDED INTO AS MANY EQUAL SHARES
AS THERE ARE INDIVIDUALS, JURIDICAL PERSONS OR ENTITIES, UNLESS A
DIFFERENT SHARING IS STIPULATED IN THE DOCUMENT OF DEPOSIT , AND (2) IF THE
ACCOUNT IS HELD BY A JURIDICAL PERSON OR ENTITY JOINTLY WITH ONE OR MORE
NATURAL PERSONS, THE MAXIMUM INSURED DEPOSIT SHALL BE PRESUMED TO
BELONG ENTIRELY TO SUCH JURIDICAL PERSON OR ENTITY: PROVIDED, FURTHER,
THAT THE AGGREGATE OF THE INTEREST OF EACH CO-OWNER OVER SEVERAL
JOINT ACCOUNTS, WHETHER OWNED BY THE SAME OR DIFFERENT COMBINATIONS
OF INDIVIDUALS, JURIDICAL PERSONS OR ENTITIES, SHALL LIKEWISE BE SUBJECT
TO THE MAXIMUM INSURED DEPOSIT OF FIVE HUNDRED THOUSAND PESOS
(P500,000.00): PROVIDED, FURTHERMORE, THAT THE PROVISIONS OF ANY LAW
TO THE CONTRARY NOTWITHSTANDING, NO OWNER/HOLDER OF ANY NEGOTIABLE
CERTIFICATE OF DEPOSIT SHALL BE RECOGNIZED AS A DEPOSITOR ENTITLED TO
THE RIGHTS PROVIDED IN THIS ACT UNLESS HIS NAME IS REGISTERED AS
OWNER/HOLDER THEREOF IN THE BOOKS OF THE ISSUING BANK: PROVIDED,
FINALLY, THAT, IN CASE OF A CONDITION THAT THREATENS THE MONETARY AND
FINANCIAL STABILITY OF THE BANKING SYSTEM THAT MAY HAVE SYSTEMIC
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CONSEQUENCES, AS DEFINED IN SECTION 17 HEREOF, AS DETERMINED BY THE
MONETARY BOARD, THE MAXIMUM DEPOSIT INSURANCE COVER MAY BE ADJUSTED
IN SUCH AMOUNT, FOR SUCH A PERIOD, AND/OR FOR SUCH DEPOSIT PRODUCTS,
AS MAY BE DETERMINED BY A UNANIMOUS VOTE OF THE BOARD OF DIRECTORS IN
A MEETING CALLED FOR THE PURPOSE AND CHAIRED BY THE SECRETARY OF
FINANCE, SUBJECT TO THE APPROVAL OF THE PRESIDENT OF THE
PHILIPPINES. (AS AMENDED BY R.A. 9302, 12 AUGUST 2004; R.A. 9576, 2009)
Liability to depositors
Deposit liabilities required to be insured with PDIC (Sec. 5)
SECTION 14. W HENEVER AN INSURED BANK SHALL HAVE BEEN CLOSED BY THE Comment [WU12]: When an insured bank
MONETARY BOARD PURSUANT TO SECTION 30 OF R.A. 7653, PAYMENT OF THE is closed, how will payment of the insured
deposits in such bank be made by the PDIC?
INSURED DEPOSITS ON SUCH CLOSED BANK SHALL BE MADE BY THE (Sec. 14)
CORPORATION AS SOON AS POSSIBLE EITHER (1) BY CASH OR (2) BY MAKING
AVAILABLE TO EACH DEPOSITOR A TRANSFERRED DEPOSIT IN ANOTHER INSURED The PDIC shall pay either (i) in cash or (ii) by
making available to each depositor a transferred
BANK IN AN AMOUNT EQUAL TO INSURED DEPOSIT OF SUCH deposit in another insured bank in an amount
DEPOSITOR: PROVIDED, HOWEVER, THAT THE CORPORATION, IN ITS DISCRETION, equal to the insured deposit
MAY REQUIRE PROOF OF CLAIMS TO BE FILED BEFORE PAYING THE INSURED
DEPOSITS, AND THAT IN ANY CASE WHERE THE CORPORATION IS NOT SATISFIED
AS TO THE VIABILITY OF A CLAIM FOR AN INSURED DEPOSIT , IT MAY REQUIRE FINAL
DETERMINATION OF A COURT OF COMPETENT JURISDICTION BEFORE PAYING SUCH
CLAIM: PROVIDED, FURTHER, THAT FAILURE TO SETTLE THE CLAIM, WITHIN SIX (6)
MONTHS FROM THE DATE OF FILING OF CLAIM FOR INSURED DEPOSIT, WHERE Comment [WU13]: When PDIC required to
SUCH FAILURE WAS DUE TO GRAVE ABUSE OF DISCRETION, GROSS NEGLIGENCE, settle a claim for an insured deposit? (Sec.
14)
BAD FAITH, OR MALICE, SHALL, UPON CONVICTION, SUBJECT THE DIRECTORS,
OFFICERS OR EMPLOYEES OF THE CORPORATION RESPONSIBLE FOR THE DELAY, The PDIC is required to settle the claim within 6
TO IMPRISONMENT FROM SIX (6) MONTHS TO ONE (1) YEAR: PROVIDED, months from the date of filing thereof provided
that the claim was filed within 2 years from
FURTHERMORE, THAT THE PERIOD SHALL NOT APPLY IF THE VALIDITY OF THE actual takeover of the closed bank by PDIC.
CLAIM REQUIRES THE RESOLUTION OF ISSUES OF FACTS AND OR LAW BY ANOTHER The 6-month period shall not apply if the
documents of the claimant are incomplete or the
OFFICE, BODY OR AGENCY INCLUDING THE CASE MENTIONED IN THE FIRST validity of the claim requires the resolution of
PROVISO OR BY THE CORPORATION TOGETHER WITH SUCH OTHER OFFICE, BODY issues of facts or law by another office, body or
OR AGENCY. (AS AMENDED BY R.A. 9302, 12 AUGUST 2004) agency, independently or in coordination with
the PDIC.
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Deposit accounts not entitled to payment (Sec. 4[f], as amended by Sec. 2, RA
9576)
SECTION 4. [F] THE TERM “DEPOSIT” MEANS THE UNPAID BALANCE OF MONEY OR
ITS EQUIVALENT RECEIVED BY A BANK IN THE USUAL COURSE OF BUSINESS AND
FOR WHICH IT HAS GIVEN OR IS OBLIGED TO GIVE CREDIT TO A COMMERCIAL,
CHECKING, SAVINGS, TIME OR THRIFT ACCOUNT, OR ISSUED IN ACCORDANCE
WITH BANGKO SENTRAL RULES AND REGULATIONS AND OTHER APPLICABLE LAWS,
TOGETHER WITH SUCH OTHER OBLIGATIONS OF A BANK, WHICH, CONSISTENT WITH
BANKING USAGE AND PRACTICES, THE BOARD OF DIRECTORS SHALL DETERMINE
AND PRESCRIBE BY REGULATIONS TO BE DEPOSIT LIABILITIES OF THE BANK:
PROVIDED, THAT ANY OBLIGATION OF A BANK WHICH IS PAYABLE AT THE OFFICE
OF THE BANK LOCATED OUTSIDE OF THE PHILIPPINES SHALL NOT BE A DEPOSIT
FOR ANY OF THE PURPOSES OF THIS ACT OR INCLUDED AS PART OF THE TOTAL
DEPOSITS OR OF INSURED DEPOSIT: PROVIDED, FURTHER, THAT, SUBJECT TO THE
APPROVAL OF THE BOARD OF DIRECTORS, ANY INSURED BANK WHICH IS
INCORPORATED UNDER THE LAWS OF THE PHILIPPINES WHICH MAINTAINS A
BRANCH OUTSIDE THE PHILIPPINES MAY ELECT TO INCLUDE FOR INSURANCE ITS
DEPOSIT OBLIGATIONS PAYABLE ONLY AT SUCH BRANCH.
THE CORPORATION SHALL NOT PAY DEPOSIT INSURANCE FOR THE FOLLOWING
ACCOUNTS OR TRANSACTIONS, WHETHER DENOMINATED, DOCUMENTED,
RECORDED OR BOOKED AS DEPOSIT BY THE BANK:
THE ACTIONS OF THE CORPORATION TAKEN UNDER THIS SECTION SHALL BE FINAL
AND EXECUTORY, AND MAY NOT BE RESTRAINED OR SET ASIDE BY THE COURT,
EXCEPT ON APPROPRIATE PETITION FOR CERTIORARI ON THE GROUND THAT THE
ACTION WAS TAKEN IN EXCESS OF JURISDICTION OR WITH SUCH GRAVE ABUSE OF
DISCRETION AS TO AMOUNT TO A LACK OR EXCESS OF JURISDICTION. THE
PETITION FOR CERTIORARI MAY ONLY BE FILED WITHIN THIRTY (30) DAYS FROM
NOTICE OF DENIAL OF CLAIM FOR DEPOSIT INSURANCE. (AS AMENDED BY P.D.
1940, 27 JUNE 1984; R.A. 7400, 13 APRIL 1992; R.A. 9302, 12 AUGUST 2004;
R.A. 9576, 29 APRIL 2009)
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Extent of liability (Sec. 4[g], as amended by Sec. 3, RA 9576)
Determination of insured deposits (Sec. 16) Comment [WU14]: Is the PDIC required to
notify the depositors of a closed bank of the
fact of such closure and the need to file their
SECTION 16. claims? (Sec. 16)
b. PAYMENT OF AN INSURED DEPOSIT TO ANY PERSON BY THE CORPORATION Comment [WU15]: Effect of payment to the
SHALL DISCHARGE THE CORPORATION, AND PAYMENT OF TRANSFERRED depositor of his insured deposit? (Sec. 16[b])
DEPOSIT TO ANY PERSON BY THE NEW BANK OR BY AN INSURED BANK IN It (i) discharges the PDIC from any further
WHICH A TRANSFERRED DEPOSIT HAS BEEN MADE AVAILABLE SHALL liability to the depositor, and (ii) subrogates the
DISCHARGE THE CORPORATION AND SUCH NEW BANK OR OTHER INSURED PDIC to all the rights of the depositor against
the closed bank to the extent of such payment.
BANK, TO THE SAME EXTENT THAT PAYMENT TO SUCH PERSON BY THE CLOSED
BANK WOULD HAVE DISCHARGED IT FROM LIABILITY FOR THE INSURED
DEPOSIT. (RENUMBERED FROM SEC. 11 (A) BY R.A. 9302, 12 AUGUST 2004)
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DEPOSITOR AGAINST THE CORPORATION WITH RESPECT TO THE INSURED
DEPOSIT SHALL BE BARRED; HOWEVER, ALL RIGHTS OF THE DEPOSITOR
AGAINST THE CLOSED BANK AND ITS SHAREHOLDERS OR THE RECEIVERSHIP
ESTATE TO WHICH THE CORPORATION MAY HAVE BECOME SUBROGATED,
SHALL THEREUPON REVERT TO THE DEPOSITOR. THEREAFTER, THE
CORPORATION SHALL BE DISCHARGED FROM ANY LIABILITY ON THE INSURED
DEPOSIT. (AS AMENDED BY R.A. 9302, 12 AUGUST 2004)
Calculation of liability (Sec. 4[g]; see also PDIC Bulletin No. 2004-04, dated
August 12, 2004)
Per depositor, per capacity rule
Joint accounts
Example: Pedro and Mario have P400,000 in a joint savings account with
ABC Bank. Pedro also has P300,000 in another savings account that he
maintains with the same bank solely in his name. Mario’s total deposit is
P200,000 while that of Pedro is P500,000. If ABC Bank were closed,
Mario could claim P125,000 from PDIC (representing his 50% share of
the maximum insured deposit of the joint account with Pedro) while Pedro
could claim a total of P250,000 (P125,000, representing his 50% share of
the maximum insured deposit of the joint account with Mario), plus
P125,000 out of the savings account solely in his name.
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Example: Pedro and Mario have P200,000 in a joint “and/or” savings
account with ABC Bank. Pedro borrowed P50,000 from the bank and
secured it with a hold-out on the joint “and/or” savings account. If ABC
Bank were closed, Pedro and Mario could each claim only P75,000 from
the PDIC.
It (i) discharges the PDIC from any further liability to the depositor, and (ii)
subrogates the PDIC to all the rights of the depositor against the closed
bank to the extent of such payment.
Payments of insured deposits as preferred credit under Art. 2244, Civil Code
(Sec. 15)
Yes. A depositor of a closed bank must file his claim with the PDIC within
2 years from actual takeover of the closed bank by PDIC. If he does not,
all his rights against the PDIC in respect of the insured deposits shall be
barred. However, all the rights of the depositor against the closed bank
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and its shareholders or the receivership estate to which PDIC may have
become subrogated shall thereupon revert to the depositor
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SECTION 10[B]. HE CORPORATION AS RECEIVER SHALL CONTROL, MANAGE
AND ADMINISTER THE AFFAIRS OF THE CLOSED BANK. EFFECTIVE IMMEDIATELY
UPON TAKEOVER AS RECEIVER OF SUCH BANK, THE POWERS, FUNCTIONS AND
DUTIES, AS WELL AS ALL ALLOWANCES, REMUNERATIONS AND PERQUISITES OF
THE DIRECTORS, OFFICERS, AND STOCKHOLDERS OF SUCH BANK ARE
SUSPENDED, AND THE RELEVANT PROVISIONS OF THE ARTICLES OF
INCORPORATION AND BY-LAWS OF THE CLOSED BANK ARE LIKEWISE DEEMED
SUSPENDED. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)
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Prohibition against issuance of TROs, etc. (Sec. 22)
3.2 Case
ISSUE: The principal question involved is the same: whether a petition for liquidation under
§29 of Rep. Act No. 265, otherwise known as the Central Bank Act, is a special proceeding
or an ordinary civil action.
HELD: Considering this distinction, a petition for liquidation of an insolvent corporation should
be classified a special proceeding and not an ordinary action. Such petition does not seek
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the enforcement or protection of a right nor the prevention or redress of a wrong against a
party. It does not pray for affirmative relief for injury arising from a party's wrongful act or
omission nor state a cause of action that can be enforced against any person.
What it seeks is merely a declaration by the trial court of the corporation's insolvency so that
its creditors may be able to file their claims in the settlement of the corporation's debts and
obligations. Put in another way, the petition only seeks a declaration of the corporation's
debts and obligations. Put in another way, the petition only seeks a declaration of the
corporation's state of insolvency and the concomitant right of creditors and the order of
payment of their claims in the disposition of the corporation's assets.
Contrary to the rulings of the Fourteenth Division, liquidation proceedings do not resemble
petitions for interpleader. Rather, a liquidation proceeding resembles the proceeding for the
settlement of state of deceased persons under Rules 73 to 91 of the Rules of Court.
The two have a common purpose: the determination of all the assets and the payment of all
the debts and liabilities of the insolvent corporation or the estate. The Liquidator and the
administrator or executor are both charged with the assets for the benefit of the claimants. In
both instances, the liability of the corporation and the estate is not disputed. The court's
concern is with the declaration of creditors and their rights and the determination of their
order of payment
As in the settlement of estates, multiple appeals are allowed in proceedings for liquidation of
an insolvent corporation. As the Fifth Division of the Court of Appeals, quoting the Liquidator,
correctly noted:
The second phase involves the approval by the Court of the distribution plan
prepared by the duly appointed liquidator. The distribution plan specifies in detail the
total amount available for distribution to creditors whose claim were earlier allowed.
The Order finally disposes of the issue of how much property is available for
disposal. Moreover, it ushers in the final phase of the liquidation proceeding —
payment of all allowed claims in accordance with the order of legal priority and the
approved distribution plan.
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A liquidation proceeding is commenced by the filing of a single petition by the
Solicitor General with a court of competent jurisdiction entitled, "Petition for
Assistance in the Liquidation of e.g., Pacific Banking Corporation. All claims against
the insolvent are required to be filed with the liquidation court. Although the claims
are litigated in the same proceeding, the treatment is individual. Each claim is heard
separately. And the Order issued relative to a particular claim applies only to said
claim, leaving the other claims unaffected, as each claim is considered separate and
distinct from the others. Obviously, in the event that an appeal from an Order
allowing or disallowing a particular claim is made, only said claim is affected, leaving
the others to proceed with their ordinary course. In such case, the original records of
the proceeding are not elevated to the appellate court. They remain with the
liquidation court. In lieu of the original record, a record of appeal is instead required
to be prepared and transmitted to the appellate court.
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IV
LAW ON SECRECY OF BANK DEPOSITS
RA 1405 (1955), as amended by PD 1792 (1981), RA 6832 (1990) and RA 7653 (1993);
see also Sec. 6 (f), NIRC, and Sec. 15 (8), RA 6770 (Ombudsman Act of 1989);
Sec. 11, RA 9160 (Anti-Money Laundering Act of 2001), as amended by
Sec. 8 of RA 9194 (2003); and RA 9576 (2009).
4.1 Topics
Purpose
Prohibited acts
Exceptions
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WHO HAS FILED AN APPLICATION FOR COMPROMISE OF HIS TAX LIABILITY UNDER
SEC. 204 (A) (2) OF THIS CODE BY REASON OF FINANCIAL INCAPACITY TO PAY HIS
TAX LIABILITY.IN CASE A TAXPAYER FILES AN APPLICATION TO COMPROMISE THE
PAYMENT OF HIS TAX LIABILITIES ON HIS CLAIM THAT HIS FINANCIAL POSITION
DEMONSTRATES A CLEAR INABILITY TO PAY THE TAX ASSESSED, HIS APPLICATION
SHALL NOT BE CONSIDERED UNLESS AND UNTIL HE WAIVES IN WRITING HIS
PRIVILEGE UNDER REPUBLIC ACT NO. 1405 OR UNDER OTHER GENERAL OR
SPECIAL LAWS, AND SUCH WAIVER SHALL CONSTITUTE THE AUTHORITY OF THE
COMMISSIONER TO INQUIRE INTO THE BANK DEPOSITS OF THE TAXPAYER.
SECTION 15, RA 6770. POWERS, FUNCTIONS AND DUTIES. — THE OFFICE OF THE
OMBUDSMAN SHALL HAVE THE FOLLOWING POWERS, FUNCTIONS AND DUTIES: (8)
ADMINISTER OATHS, ISSUE SUBPOENA AND SUBPOENA DUCES TECUM, AND TAKE
TESTIMONY IN ANY INVESTIGATION OR INQUIRY, INCLUDING THE POWER TO
EXAMINE AND HAVE ACCESS TO BANK ACCOUNTS AND RECORDS;
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Garnishment of deposits
Safety deposit box
4.2 Cases
Unexplained wealth exception
ISSUE: The principal question presented in this case is whether a bank can be compelled to
disclose the records of accounts of a depositor who is under investigation for unexplained
wealth.
Defendants cite the Anti-Graft and Corrupt Practices Act (Republic Act No. 3019) in support
of their claim of authority—
HELD: YES; THE BANK MAY BE COMPELLED TO DISCLOSE SUCH BANK RECORDS.
RA 1405 and RA 3019 [with respect to secrecy of bank accounts] are so repugnant to each
other than no reconciliation is possible. Thus, while Republic Act No. 1405 provides that
bank deposits are "absolutely confidential ... and [therefore] may not be examined, inquired
or looked into," except in those cases enumerated therein, the Anti-Graft Law directs in
mandatory terms that bank deposits "shall be taken into consideration in the enforcement of
this section, notwithstanding any provision of law to the contrary." The only conclusion
possible is that section 8 of the Anti-Graft Law is intended to amend section 2 of
Republic Act No. 1405 by providing additional exception to the rule against the
disclosure of bank deposits.
With regard to the claim that disclosure would be contrary to the policy making bank
deposits confidential, it is enough to point out that while section 2 of Republic Act 1405
declares bank deposits to be "absolutely confidential," it nevertheless allows such disclosure
in the following instances: (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 is the subject matter of the
litigation. Cases of unexplained wealth are similar to cases of bribery or dereliction of
duty and no reason is seen why these two classes of cases cannot be excepted from
the rule making bank deposits confidential.
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Garnishment of deposit
ISSUE: Whether or not a banking institution may validly refuse to comply with a court process
garnishing the bank deposit of a judgment debtor, by invoking the provisions of Republic Act
No. 1405.
The petitioners argue that the disclosure of the information required by the court does not fall
within any of the four (4) exceptions enumerated in Section 2, and that if the questioned
orders are complied with Tan Kim Liong may be criminally liable under Section 5 and the
bank exposed to a possible damage suit by B & B Forest Development Corporation.
Specifically referring to this case, the position of the petitioners is that the bank
deposit of judgment debtor B & B Forest Development Corporation cannot be subject
to garnishment to satisfy a final judgment against it in view of the aforequoted
provisions of law.
HELD: A BANK MAY NOT REFUSE TO COMPLY WITH ORDER OF GARNISHMENT SIMPLY BY INVOKING
THE SECRECY OF BANK ACCOUNTS UNDER RA 1405.
The lower court, in issuing an order of garnishment, did not order an examination of or
inquiry into the deposit of B & B Forest Development Corporation, as contemplated in
the law. It merely required Tan Kim Liong to inform the court whether or not the defendant B
& B Forest Development Corporation had a deposit in the China Banking Corporation only
for purposes of the garnishment issued by it, so that the bank would hold the same intact
and not allow any withdrawal until further order. Indeed there is no real inquiry in such a
case, and if the existence of the deposit is disclosed the disclosure is purely incidental to the
execution process.
It will be noted from the discussion of the conference committee report on Senate Bill No.
351 and House Bill No. 3977, which later became Republic Act 1405, that it was not the
intention of the lawmakers to place bank deposits beyond the reach of execution to satisfy a
final judgment. It is hard to conceive that it was ever within the intention of Congress to
enable debtors to evade payment of their just debts, even if ordered by the Court, through
the expedient of converting their assets into cash and depositing the same in a bank.
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G.R. 84526, January 28, 1991.
ISSUE: Whether or not a bank violates Republic Act No. 1405, otherwise known as the
Secrecy of Bank Deposits Act, when it allowes the sheriff to garnish the deposit of one of its
depositors.
HELD: NO VIOLATION
The Court in China Banking Corporation vs. Ortega had the occasion to dispose of this
issue when it stated, thus: t is clear from the discussion of the conference committee report
on Senate Bill No. 351 and House Bill No. 3977, which later became Republic Act 1405, that
the prohibition against examination of or inquiry into a bank deposit under Republic Act 1405
does not preclude its being garnished to insure satisfaction of a judgment. Indeed there is no
real inquiry in such a case, and if existence of the deposit is disclosed the disclosure is
purely incidental to the execution process. It is hard to conceive that it was ever within the
intention of Congress to enable debtors to evade payment of their just debts, even if ordered
by the Court, through the expedient of converting their assets into cash and depositing the
same in a bank.
Since there is no evidence that the petitioners themselves divulged the information that the
private respondent had an account with the petitioner bank and it is undisputed that the said
account was properly the object of the notice of garnishment and writ of execution carried
out by the deputy sheriff, a duly authorized officer of the court, we can not therefore hold the
petitioners liable under R.A. 1405.
ISSUE: WHETHER OR NOT INQUIRY MAY BE MADE WITH RESPECT TO THE BANK ACCOUNTS OF
PERSONS OTHER THAN THE PERSON UNDER INVESTIGATION UNDER THE ANTI-GRAFT AND
CORRUPT PRACTICES ACT?
HELD: INQUIRY MAY EXTEND TO BANK ACCOUNTS OF PEOPLE OTHER THAN PERSON BEING
INVESTIGATED; ACCOUNTS OF RESPONDENTS’ SPOUSE, ASCENDANTS, DESCENDANTS, RELATIVES,
OR ANY OTHER PERSONS MAY BE INQUIRED INTO.
The inquiry into illegally acquired property — or property NOT "legitimately acquired" —
extends to cases where such property is concealed by being held by or recorded in the
name of other persons. This proposition is made clear by R.A. No. 3019 which quite
categorically states that the term, "legitimately acquired property of a public officer or
employee shall not include property unlawfully acquired by the respondent, but its ownership
is concealed by its being recorded in the name of, or held by, respondent's spouse,
ascendants, descendants, relatives or any other persons."
To sustain the petitioner's theory, and restrict the inquiry only to property held by or in the
name of the government official or employee, or his spouse and unmarried children is
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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.
FACTS: MELLON bank inadvertently caused the transfer of US$1,000,000.00 [instead of only
US$1,000.00] into Victoria Javier’s account. Victoria Javier, transferred the wrongfully
transferred amount into several new accounts. Eventually, the amount was converted into
several cashier’s checks, which Javier used to pay several of her obliglations. Mellon Bank
now wants to inquire into the bank accounts of the people who transacted with Javier [and
who deposited the cashier’s checks received from her]; it filed Civil Case No. 26899.
ISSUE: WOULD THE INQUIRY INTO THE BANKS ACCOUNTS OF PEOPLE WHO WERE NOT
RESPONSIBLE FOR THE ‘ILLEGAL ACQUISITION’ VIOLATE THE BANK SECRECY LAW?
HELD: NO.
Section 2 of RA 1405 allows the disclosure of bank deposits in cases where the money
deposited is the subject matter of the litigation. Inasmuch as Civil Case No. 26899 is aimed
at recovering the amount converted by the Javiers for their own benefit, necessarily, an
inquiry into the whereabouts of the illegally acquired amount extends to whatever is
concealed by being held or recorded in the name of persons other than the one responsible
for the illegal acquisition.
Case pending in court required before Ombudsman can examine bank accounts
The order of the Ombudsman to produce for in camera inspection the subject accounts with
the Union Bank of the Philippines, Julia Vargas Branch, is based on a pending investigation
at the Office of the Ombudsman against Amado Lagdameo, et. al. for violation of R.A. No.
3019, Sec. 3 (e) and (g) relative to the Joint Venture Agreement between the Public Estates
Authority and AMARI.
We rule that before an in camera inspection may be allowed, there must be a pending case
before a court of competent jurisdiction. Further, the account must be clearly identified, the
inspection limited to the subject matter of the pending case before the court of competent
jurisdiction. The bank personnel and the account holder must be notified to be present
during the inspection, and such inspection may cover only the account identified in the
pending case.
In the case at bar, there is yet no pending litigation before any court of competent authority.
What is existing is an investigation by the Office of the Ombudsman. In short, what the office
of the ombudsman would wish to do is to fish for additional evidence to formally charge
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Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending case in
court which would warrant the opening of the bank account for inspection.
Zone of privacy are recognized and protected in our laws. The Civil Code provides that"
[e]very person shall respect the dignity, personality, privacy and peace of mind of his
neighbors and other persons" and punishes as actionable torts several acts for meddling
and prying into the privacy of another. It also holds public officer or employee or any private
individual liable for damages for any violation of the rights and liberties of another person,
and recognizes the privacy of letters and other private communications. The Revised Penal
Code makes a crime of the violation of secrets by an officer, revelation of trade and
industrial secrets, and trespass to dwelling. Invasion of privacy is an offense in special laws
like the Anti-Wiretapping Law, the Secrecy of Bank Deposits Act, and the Intellectual
Property Code.
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4.3 Related statutes
(a) Foreign Currency Deposit Act - RA 6426 (1972), as amended by PD 1035 (1976),
PD 1246 (1977), PD 1453 (1978), and Sec. 11, RA 9160, as amended by Sec. 8
of RA 9194 (2003);
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Salvacion, et al. vs. Central Bank, et al.,
G.R. 94723, August 21, 1997.
FACTS: Salvacion is trying to garnish the dollar accounts of Greg Bartelli to satisfy the
judgment for damages rendered by the RTC of Makati against the latter. [Damages were
sought for because Greg Bartelli raped and illegally detained Salvacion]
Issue: China Bank refuses to comply with the writ of execution issued by the RTC of Makati
arguing that Section 11 of Central Bank Circular No. 960 exempts foreign currency deposits
from attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.
If Karen's sad fate had happened to anybody's own kin, it would be difficult for him to fathom
how the incentive for foreign currency deposit could be more important than his child's rights
to said award of damages; in this case, the victim's claim for damages from this alien who
had the gall to wrong a child of tender years of a country where he is a mere visitor. This
further illustrates the flaw in the questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when the
country's economy was in a shambles; when foreign investments were minimal and
presumably, this was the reason why said statute was enacted. But the realities of the
present times show that the country has recovered economically; and even if not, the
questioned law still denies those entitled to due process of law for being unreasonable and
oppressive. The intention of the questioned law may be good when enacted. The law failed
to anticipate the iniquitous effects producing outright injustice and inequality such as
the case before us.
In fine, the application of the law depends on the extent of its justice. Eventually, if we
rule that the questioned Section 113 of Central Bank Circular No. 960 which exempts from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever, is applicable to a foreign
transient, injustice would result especially to a citizen aggrieved by a foreign guest like
accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides
that "in case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail. "Ninguno non deue enriquecerse
tortizeramente con dano de otro." Simply stated, when the statute is silent or ambiguous,
this is one of those fundamental solutions that would respond to the vehement urge of
conscience. (Padilla vs. Padilla, 74 Phil. 377).
It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would be
used as a device by accused Greg Bartelli for wrongdoing, and in so doing, acquitting the
guilty at the expense of the innocent.
Call it what it may — but is there no conflict of legal policy here? Dollar against Peso?
Upholding the final and executory judgment of the lower court against the Central Bank
Circular protecting the foreign depositor? Shielding or protecting the dollar deposit of a
transient alien depositor against injustice to a national and victim of a crime? This situation
calls for fairness against legal tyranny.
We definitely cannot have both ways and rest in the belief that we have served the ends of
justice
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(b) Human Security Act – RA 9372 (2007)
(i) Judicial authorization to examine bank deposits, accounts, and records
(Sec. 27)
(ii) Application to examine bank deposits, accounts, and records (Sec. 28)
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WRITING TO FILE SUCH EX PARTE APPLICATION BY THE ANTI-
TERRORISM COUNCIL CREATED IN SECTION 53 OF THIS ACT TO FILE
SUCH EX PARTE APPLICATION, AND UPON EXAMINATION UNDER OATH
OR AFFIRMATION OF THE APPLICANT AND, THE WITNESSES HE MAY
PRODUCE TO ESTABLISH THE FACTS THAT WILL JUSTIFY THE NEED AND
URGENCY OF EXAMINING AND FREEZING THE BANK DEPOSITS,
PLACEMENTS, TRUST ACCOUNTS, ASSETS, AND RECORDS: (1) OF THE
PERSON CHARGED WITH OR SUSPECTED OF THE CRIME OF TERRORISM
OR CONSPIRACY TO COMMIT TERRORISM; (2) OF A JUDICIALLY
DECLARED AND OUTLAWED TERRORIST ORGANIZATION, ASSOCIATION
OR GROUP OF PERSONS; OR (3) OF ANY MEMBER OF SUCH
ORGANIZATION, ASSOCIATION, OR GROUP OF PERSONS.
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PROVIDED, THAT, WITHOUT PREJUDICE TO THE LIABILITY OF THE
POLICE OR LAW ENFORCEMENT PERSONNEL UNDER SECTION 19
HEREOF, THE APPLICANT POLICE OR LAW ENFORCEMENT OFFICIAL
SHALL HAVE THIRTY (30) DAYS AFTER THE TERMINATION OF THE
PERIOD GRANTED BY THE COURT OF APPEALS AS PROVIDED IN THE
PRECEDING PARAGRAPHS WITHIN WHICH TO FILE THE APPROPRIATE
CASE BEFORE THE PUBLIC PROSECUTOR'S OFFICE FOR ANY
VIOLATION OF THIS ACT.
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V
TRUTH IN LENDING ACT
RA 3765 (1963).
5.1 Topics
Purpose
Obligation of creditors
SECTION 3. AS USED IN THIS ACT, THE TERM: (2) "CREDIT" MEANS ANY LOAN,
MORTGAGE, DEED OF TRUST, ADVANCE, OR DISCOUNT; ANY CONDITIONAL SALES
CONTRACT; ANY CONTRACT TO SELL, OR SALE OR CONTRACT OF SALE OF
PROPERTY OR SERVICES, EITHER FOR PRESENT OR FUTURE DELIVERY, UNDER
WHICH PART OR ALL OF THE PRICE IS PAYABLE SUBSEQUENT TO THE MAKING OF
SUCH SALE OR CONTRACT; ANY RENTAL-PURCHASE CONTRACT; ANY CONTRACT
OR ARRANGEMENT FOR THE HIRE, BAILMENT, OR LEASING OF PROPERTY; ANY
OPTION, DEMAND, LIEN, PLEDGE, OR OTHER CLAIM AGAINST, OR FOR THE
DELIVERY OF, PROPERTY OR MONEY; ANY PURCHASE, OR OTHER ACQUISITION OF,
OR ANY CREDIT UPON THE SECURITY OF, ANY OBLIGATION OF CLAIM ARISING OUT
OF ANY OF THE FOREGOING; AND ANY TRANSACTION OR SERIES OF TRANSACTIONS
HAVING A SIMILAR PURPOSE OR EFFECT .
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Finance and non-finance charges
SECTION 3. AS USED IN THIS ACT, THE TERM: (3) "FINANCE CHARGE" INCLUDES
INTEREST, FEES, SERVICE CHARGES, DISCOUNTS, AND SUCH OTHER CHARGES
INCIDENT TO THE EXTENSION OF CREDIT AS THE BOARD MAY BE REGULATION
PRESCRIBE.
(C) ANY PERSON WHO WILLFULLY VIOLATES ANY PROVISION OF THIS ACT OR ANY
REGULATION ISSUED THEREUNDER SHALL BE FINED BY NOT LESS THAN P1,00 OR
MORE THAN P5,000 OR IMPRISONMENT FOR NOT LESS THAN 6 MONTHS, NOR
MORE THAN ONE YEAR OR BOTH.
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5.2 Cases
Excessive interests, penalties and other charges not revealed in disclosure
statements issued by banks, even if stipulated in the promissory notes, cannot be
given effect under the Truth in Lending Act
ISSUE: Whether or not PNB may collect penalty charges contained in the Promissory Notes,
but not in the Disclosure Statements issued prior to the execution of the notes.
HELD: No penalty charges or increases thereof appear either in the Disclosure Statements or
in any of the clauses in the second and the third Credit Agreements earlier discussed. While
a standard penalty charge of 6 percent per annum has been imposed on the amounts stated
in all three Promissory Notes still remaining unpaid or unrenewed when they fell due, there
is no stipulation therein that would justify any increase in that charges. The effect, therefore,
when the borrower is not clearly informed of the Disclosure Statements -- prior to the
consummation of the availment or drawdown -- is that the lender will have no right to
collect upon such charge or increases thereof, even if stipulated in the Notes.
Although the first Disclosure Statement was furnished Petitioner NSBCI prior to the
execution of the transaction, it is not a contract that can be modified by the related
Promissory Note, but a mere statement in writing that reflects the true and effective cost of
loans from respondent. Novation can never be presumed, and the animus novandi “must
appear by express agreement of the parties, or by their acts that are too clear and
unequivocal to be mistaken.” To allow novation will surely flout the “policy of the State
to protect its citizens from a lack of awareness of the true cost of credit.”
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Failure to disclose required information in disclosure statement cured by disclosure
thereof in loan transaction documents
FACTS: Arcilla availed of of a loan under the Individual Housing Project of DBP. The
Disclosure Statement made by DBP did not include some of the required items under R.A.
No. 3765 and CB Circular No. 158. These infromation were, however, indicated in the other
documents that were executed pursuant to the Individual Housing Project [Deed of
Conditional Sale, Promissory Notes, etc.]
ISSUE: Arcilla avers that the disclosure of the details of the loan contained in the deed of
conditional sale and the supplement thereto, the promissory notes and release sheet, do not
constitute substantial compliance with the law and the CB Circular.
HELD: Under Circular 158 of the Central Bank, the lender is required to include the
information required by R.A. 3765 in the contract covering the credit transaction or any
other document to be acknowledged and signed by the borrower. In the present case,
DBP failed to disclose the requisite information in the disclosure statement form authorized
by the Central Bank, but did so in the loan transaction documents between it and Arcilla.
Furthermore, the Court is convinced that Arcilla’s claim of not having been furnished the
data/information required by R.A. No. 3765 and CB Circular No. 158 was but an
afterthought.
The appellee had been sufficiently informed of the terms and the requisite charges
necessarily included in the subject loan. It must be stressed that the Truth in Lending Act
(R.A. No. 3765), was enacted primarily “to protect its citizens from a lack of awareness of
the true cost of credit to the user by using a full disclosure of such cost with a view of
preventing the uninformed use of credit to the detriment of the national economy”
Contrary to appellee’s claim that he was not sufficiently informed of the details of the loan,
the records disclose that the required information were readily available in the 3 promissory
notes he executed. Precisely, the said promissory notes were executed to apprise appellee
of the remaining balance on his loan when the same was converted into a regular housing
loan. And on its face, the promissory notes signed by no less than the appellee readily
shows all the data required by the Truth in Lending Act (R.A. No. 3765).
It might have been different if the borrower was, say, an ordinary employee eager to buy his
first house and is easily lured into accepting onerous terms so long as the same is payable
on installments. In such cases, the Court would be disposed to be stricter in the application
of the Truth in Lending Act, insisting that the borrower be fully informed of what he is
entering into. But in the case at bar, considering appellee’s education and training, We must
hold, in the light of the evidence at hand, that he was duly informed of the necessary
charges and fully understood their implications and effects. Consequently, the trial court’s
annulment of the rescission anchored on this ground was unjustified.
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Arcilla decision followed
FACTS: BPI failed to state the penalty charges in the disclosure statement, the promissory
note that the Yus signed, on the same date as the disclosure statement, however, contained
a penalty clause that said: “I/We jointly and severally, promise to further pay a late payment
charge on any overdue amount herein at the rate of 3% per month.”
ISSUE: Whether or not the reference to the penalty charges in the promissory note
constitutes substantial compliance with the disclosure requirement of the Truth in Lending
Act.
HELD: The Court has affirmed that financial charges are amply disclosed if stated in the
promissory note in the case of Development Bank of the Philippines v. Arcilla, Jr. The Court
there said, “Under Circular 158 of the Central Bank, the lender is required to include the
information required by R.A. 3765 in the contract covering the credit transaction or any other
document to be acknowledged and signed by the borrower. In addition, the contract or
document shall specify additional charges, if any, which will be collected in case certain
stipulations in the contract are not met by the debtor.” In this case, the promissory notes
signed by the Yus contained data, including penalty charges, required by the Truth in
Lending Act. They cannot avoid liability based on a rigid interpretation of the Truth in
Lending Act that contravenes its goal.
NOTE: The court said that the New Samaguita case [first TILA case in the outline] is not
applicable to the facts of the case: “What New Sampaguita disallowed, because it was not
mentioned either in the disclosure statement or in the promissory note, was the unilateral
increase in the rates of penalty charges that the creditor imposed on the borrower.” But if I
read the case correctly, the penalty charges being contested in that case were contained in
the Promissory Notes, though not in the Disclosure Statements issued prior to the
execution of the notes.
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5.3 Additional materials
(a) Implementing Rules: CB Circular No. 158-63, dated October 29, 1963;
(b) Additional Implementing Rules: CB Circular No. 431-74, dated September 2,
1974.
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(E) OVER-THE-LIMIT-FEE – ANY FEE IMPOSED IN CONNECTION WITH AN
EXTENSION OF CREDIT IN EXCESS OF THE AMOUNT OF CREDIT AUTHORIZED
TO BE EXTENDED WITH RESPECT TO SUCH AMOUNT: PROVIDED, HOWEVER,
THAT IN CASE THE APPLICATION OR SOLICITATION TO OPEN A CREDIT CARD
ACCOUNT FOR ANY PERSON UNDER AN OPEN-END CONSUMER CREDIT
PLAN BE MADE THROUGH CATALOGS, MAGAZINES, OR OTHER
PUBLICATIONS, THE FOLLOWING ADDITIONAL INFORMATION SHALL BE
DISCLOSED:
(b) Detailed explanation and clear illustration of computation of charges and fees
(Sec. 5);
(A) DOES NOT IMPOSE ANY FEE IN CONNECTION WITH PARAGRAPH (B)(1),
SECTION 4 OF THIS ACT;
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(C) DISCLOSES CLEARLY THE INFORMATION DESCRIBED IN SECTION 4 OF
THIS ACT IN WRITING WITHIN THIRTY (30) DAYS AFTER THE CONSUMER
REQUESTS THE CARD, BUT IN NO EVENT LATER THAN THE DATE OF
DELIVERY OF THE CARD; AND
(A) THE DATE BY WHICH, THE MONTH BY WHICH, OR THE BILLING PERIOD AT
THE CLOSE OF WHICH, THE ACCOUNT WILL EXPIRE IF NOT RENEWED;
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VI
ANTI-MONEY LAUNDERING ACT
RA 9160 (2001), as amended by RA 9194 (2003).
6.1 Topics
Background on money laundering and RAs 9160 and 9194;
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Suspicious transactions (Sec. 3[b-1]);
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11. VIOLATIONS UNDER REPUBLIC ACT NO. 8792, OTHERWISE KNOWN AS THE
ELECTRINIC COMMERCE ACT OF 2000;
12. HIJACKING AND OTHER VIOLATIONS UNDER REPUBLIC ACT NO. 6235;
DESTRUCTIVE ARSON AND MURDER, AS DEFINED UNDER THE REVISED
PENAL CODE, AS AMENDED, INCLUDING THOSE PERPETRATED BY
TERRORISTS AGAINST NON-COMBATANT PERSONS AND SIMILAR TARGETS;
13. FRAUDULENT PRACTICES AND OTHER VIOLATIONS UNDER REPUBLIC ACT
NO. 8799, OTHERWISE KNOWN AS THE SECURITIES REGULATION CODE OF
2000;
14. FELONIES OR OFFENSES OF A SIMILAR NATURE THAT ARE PUNISHABLE
UNDER THE PENAL LAWS OF OTHER COUNTRIES."
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BELIEVED BY THE COUNCIL, ON THE BASIS FO SUBSTANTIAL EVIDENCE, TO
BE, IN WHOLE OR IN PART, WHEREVER LOCATED, REPRESENTING,
INVOLVING, OR RELATED TO DIRECTLY OR INDIRECTLY, IN ANY MANNER OR
BY ANY MEANS, THE PROCEEDS OF AN UNLAWFUL ACTIVITITY.
"(8) TO RECEIVE AND TAKE ACTION IN RESPECT OF, ANY REQUEST FROM
FOREIGN STATES FOR ASSISTANCE IN THEIR OWN ANTI-MONEY
LAUNDERING OPERATIONS PROVIDED IN THIS ACT;
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Basic activities required of covered institutions to prevent money laundering (Sec. 9);
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REPORT IN THE REGULAR PERFORMANCE OF HIS DUTIES IN GOOD FAITH,
WHETHER OR NOT SUCH REPORTING RESULTS IN ANY CRIMINAL
PROSECUTION UNDER THIS ACT OF ANY OTHER LAW.
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Penal provisions (Sec. 14);
NO CASE FOR MONEY LAUNDERING MAY BE FILED AGAINST AND NO ASSETS SHALL
BE FROZEN, ATTACHED OR FORFEITED TO THE PREJUDICE OF A CANDIDATE FOR AN
ELECTORAL OFFICE DURING AN ELECTION PERIOD.
6.2 Case:
Bank inquiry order under Section 11 cannot be made ex parte
ISSUE1: Respondents posit that a bank inquiry order under Section 11 may be obtained only
upon the pre-existence of a money laundering offense case already filed before the
courts. The conclusion is based on the phrase “upon order of any competent court in cases
of violation of this Act,” the word “cases” generally understood as referring to actual cases
pending with the courts.
HELD1: We are unconvinced by this proposition, and agree instead with the then Solicitor
General who conceded that the use of the phrase “in cases of” was unfortunate, yet
submitted that it should be interpreted to mean “in the event there are violations” of the
AMLA, and not that there are already cases pending in court concerning such
violations. If the contrary position is adopted, then the bank inquiry order would be limited in
purpose as a tool in aid of litigation of live cases, and wholly inutile as a means for the
government to ascertain whether there is sufficient evidence to sustain an intended
prosecution of the account holder for violation of the AMLA. Should that be the situation, in
all likelihood the AMLC would be virtually deprived of its character as a discovery tool, and
thus would become less circumspect in filing complaints against suspect account holders.
After all, under such set-up the preferred strategy would be to allow or even encourage the
indiscriminate filing of complaints under the AMLA with the hope or expectation that the
evidence of money laundering would somehow surface during the trial. Since the AMLC
could not make use of the bank inquiry order to determine whether there is evidentiary basis
to prosecute the suspected malefactors, not filing any case at all would not be an
alternative. Such unwholesome set-up should not come to pass. Thus Section 11 cannot be
interpreted in a way that would emasculate the remedy it has established and encourage the
unfounded initiation of complaints for money laundering.
ISSUE2: Petitioner argues that a bank inquiry order necessitates a finding of probable cause,
a characteristic similar to a search warrant which is applied to and heard ex parte.
HELD2: Still, even if the bank inquiry order may be availed of without need of a pre-
existing case under the AMLA, it does not follow that such order may be availed of ex
parte. Such orders cannot be issued unless notice is given to the owners of the account,
allowing them the opportunity to contest the issuance of the order. Without such a
consequence, the legislated distinction between ex parte proceedings under Section 10 and
those which are not ex parte under Section 11 would be lost and rendered useless.
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Furthermore, the Court is unconvinced by the supposed analogy between a search warrant
and a bank inquiry forwarded by petitioner. The Constitution and the Rules of Court
prescribe particular requirements attaching to search warrants that are not imposed by the
AMLA with respect to bank inquiry orders. A constitutional warrant requires that the judge
personally examine under oath or affirmation the complainant and the witnesses he may
produce such examination being in the form of searching questions and answers. Those are
impositions which the legislative did not specifically prescribe as to the bank inquiry order
under the AMLA, and we cannot find sufficient legal basis to apply them to Section 11 of the
AMLA. Simply put, a bank inquiry order is not a search warrant or warrant of arrest as it
contemplates a direct object but not the seizure of persons or property.
Even as the Constitution and the Rules of Court impose a high procedural standard for the
determination of probable cause for the issuance of search warrants which Congress chose
not to prescribe for the bank inquiry order under the AMLA, Congress nonetheless
disallowed ex parte applications for the inquiry order. We can discern that in exchange for
these procedural standards normally applied to search warrants, Congress chose instead to
legislate a right to notice and a right to be heard— characteristics of judicial proceedings
which are not ex parte. Absent any demonstrable constitutional infirmity, there is no reason
for us to dispute such legislative policy choices.
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