BANKING LAWS

Course Outline
Atty. Maria Zarah R. Villanueva-Castro

Zarah banking lecture transcribed by beet faller :>

I. GENERAL CONCEPTS

A. Definition of Banks
- Banks shall refer to entities engaged in the lending of funds obtained in the form of deposits.
- Quasi-Banks
- entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes for purposes of relending or purchasing receivables and other obligations.
- Deposit substitute is an alternative form of borrowing funds from the public, other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing receivables
or other obligations.

B. Nature of the Business

1. Utmost Diligence
- Like common carriers the degree of diligence required of banking institutions are expected to exercise the highest degree of diligence
in the conduct of its business
- Banks are entities for safekeeping
- Active instruments of business and commerce
- Significant role in providing an atmosphere that is conducive to the sustained national economy
- It is for the foregoing reasons that the degree of diligence required of banking institutions is likewise utmost or extraordinary diligence
- Their business is greatly impressed and imbued with public interest

2. Strikes and Lockouts

- The banking industry is hereby declared as indispensable to the national interest and, notwithstanding the provisions of any law to the
contrary, any strike or lockout involving banks, if unsettled after seven (7) calendar days shall be reported by the Bangko Sentral to
the Secretary of Labor who may assume jurisdiction over the dispute or decide it or certify the same to the National Labor
Relations Commission for compulsory arbitration.
- However, the President of the Philippines may at any time intervene and assume jurisdiction over such labor dispute in order to settle
or terminate the same.

C. Requirements to Operate
1. Incorporation
- Basic requirement for incorporation purposes that the bank should have secured favorable recommendation from the BSP with
regard to its proposed articles of incorporation for the SEC's imprimatur.
- You do not go straight to the SEC
- Entities and holders of secondary franchise
- For the BSP to see to it that the proposed provisions in the AI are consistent with law as well as bank regulations, without which the SEC
would not take action on the proposed incorporation
- Same holds true when for amending by-laws

- Banks cannot be organized or registered as a closed corporation

- Banks must be openly held or publicly held, it could not be a closed corporation
- Because we do not want vital enterprises like banking institutions to be concentrated in the hands of a few people or family

- Limitations with regard to the use of corporate name

- if the use of a particular word under existing law or regulation
- The use of the word bank as part of the corporate name is forbidden unless the bank is allowed to engage in a banking business

Monetary Board may authorize the organization of a bank or quasi-bank subject to the following conditions:
1. That the entity is a stock corporation;
- Authority in its charter to distribute its dividends and earnings to its shareholders.
- Must be registered with the SEC.
2. That its funds are obtained from the public, which shall mean twenty (20) or more persons; and
3. That the minimum capital requirements prescribed by the Monetary Board for each category of banks are satisfied.

2. Business Operation
No person or entity shall engage in banking operations or quasi-banking functions without authority from the Bangko Sentral: Provided,
however, That an entity authorized by the Bangko Sentral to perform universal or commercial banking functions shall likewise have the
authority to engage in quasi-banking functions.

Upon issuance of this authority, such person or entity may commence to engage in banking operations or quasi-banking functions and
shall continue to do so unless such authority is sooner surrendered, revoked, suspended or annulled by the Bangko Sentral in accordance
with this Act or other special laws.

D. Applicable Laws see page 329, commercial law memaid 2016

II. CLASSIFICATION OF BANKS

A. Universal Banks
- banks that have the authority to exercise the powers of a commercial bank and an investment house, and may invest in non-allied
enterprises
B. Commercial Banks
- banks that have lower capitalization requirements than universal banks and can exercise neither the powers of an investment house
nor invest in non-allied enterprises
1. Rural Banks
- mandated to make needed credit available and readily accessible in the rural areas on reasonable terms
2. Other Banks (cooperative, thrift, Islamic, foreign, etc.)

Cooperative (Cooperative RA 6938)

- Those banks organized by cooperatives and the majority shares of which is owned and controlled by cooperatives,
primarily to provide financial and credit services to cooperatives
Islamic
- purpose and accelerate the socio-economic development of autonomous region by performing banking, financing, and
investment operations and to establish and participate in agricultural, commercial and industrial ventures based on the
islamic concept of banking.
- all business dealings and activities are subject to the basic principles and rulings of Islamic Shari'a such as the Al
Almanah Islamic Investment Bank of the Philippines

Thrift banks (Thrift Banks Act RA 7906)

- are engaged in accumulating savings of depositors and investing them and provide providing short term working
capital and medium-term and long-term financing to businesses engaged in agriculture, services, industry and housing,
and diversified financial and allied services, and to their chosen markets and constituencies, especially small- and
medium- enterprises and individuals.
- savings and mortgage banks
- stock savings and loan associations
- private development banks

Other classification of banks

1.Philippine Veterans Bank
- private commercial bank owned by the Filipino Veterans of world war two
2.Land Bank of the Philippines
- created to finance the acquisition and distribution of agricultural estates for division and resale to small landlords as
well as purchase of the landholding by the agricultural lessee

3.Development Bank of the Philippines (rehabilitation finance corporation)

- provide banking services principally to cater to the medium and long-term needs of agricultural and industrial
enterprises with emphasis on small and medium enterprises

3. Areas of Distinctions
(a) capitalization
- they have different minimum capitalization requirements
(b) purpose
- rural banks are created to be able to extend loans and credit facilities to meet the normal credit needs of
fishermen and farmers
- cooperative banks to extend credit facilities to cooperatives as well as federations of cooperatives

(c) powers/ activities and businesses that they are allowed to indulge or engage in
- universal banks has the more comprehensive authority in terms of investment because unlike other banks they
have the authority to engage in non-allied enterprises or those which are completely alien to banking (agriculture, mining, quarrying,
manufacturing, public utilities, construction, industrial park project, real estate development, financial and commercial complex, and
others as may be authorized by the monetary board).
(d) equity
- foreign equity is generally allowed up to 40%
- RA 10641 allowing foreign banks 100% ownership of voting stock of local banks.
- RA 10574 amended RA 7353 (40% fil, 60% foreign)
(e) board composition
- Public officers can be directors of Rural Banks while such officers are prohibited from being directors or
officers of other types of banks.
(f) public offering
- a mandatory requirement for those domestic banks seeking authority to act or operate as a universal banks but
such requirement does not apply to other banks

III. DEPOSIT FUNCTION

A. Contractual relationship between the bank and the depositor

- When money is deposited in a bank a relationship is inevitably created, it is neither bailor-bailee relationship nor is it trustor-trustee
relationship, it's one of creditor-debtor relationship. The one depositing his money being the creditor and the bank being the debtor.
- The deposit function in effect allows the bank to borrow from the public
- Regardless of the type of deposit the relationship is the same

B. Legal consequences of contractual relationship

- While it is said that the bank is fiduciary and it is deemed a trustee of the funds of its depositors/creditors in a fiduciary relationship,
the relationship the is thereby created cannot be labeled as a trustor-trustee relationship
- The amount is delivered by the depositor not as trustor but as creditor, and the relationship created is governed by the
provisions of the civil code on simple loan
• Unlike in an ordinary trust agreement, where the trustee does not become the owner of the money deposited, in deposits, when
money is deposited in a bank the bank effectively becomes the owner thereof. In other words, there is passing of ownership to
the bank.
- Accordingly, if the bank were to appropriate the money deposited to whatever use that it has in mind, there can be no liability
for estafa because title has passed to the bank already.
- Even if the bank should fail to return the money deposited, there is no criminal liability, at best there would only be civil liability.
The bank is not expected to return exactly the same bill, note or coin.
- Requirement of payment of interest
- Third persons who may have a right to the money deposited cannot hold the bank responsible unless there is a court order or
garnishment.

• Another consequence is that compensation is legally possible. As was said, the bank also has a loan function so the depositor could
likewise be a debtor of the bank if it obtains a loan. Legal compensation is possible as the parties are mutual creditor and debtor of
each other.
- Phil. Banking Corporation v. CA (2004), where the bank was seeking compensation but was not allowed because the bank was not able
to show to the satisfaction of the court that indeed it had a loan agreement with the depositor such as a promissory note and other
supporting papers. By the nature of its business, banks should have had in its possession or records, an original copy of the disputed
promissory note.

C. Capacity of Depositor
1. minors/incompetents
- The validity of the contract will be impaired, at the very least the contract will be voidable
- However, PD 734, Sec. 1, gives special capacity to minors to maintain or open savings and time deposits but subject to the following
requirements:
• They have reached the age of at least 7 years
• Able to read and write and has sufficient discretion
• Not otherwise disqualified by any other incapacity
• The kind of deposit that they are allowed to maintain are only savings and time deposit accounts (expressio unios est exclusio
alterius); consequently, they could not maintain demand or checking accounts.
- There is an evil that is avoided by limiting the kind of deposits that a minor may open.

2. married Woman
- RA 7192 allows married women to open bank accounts even without the assistance/consent of the husband

3. corporations
- juridical persons are capacitated to open bank accounts. With respect to corporations, the opening of an account on its behalf is in
fact a requirement even before its life commences.

Requirements:
A. Incorporation stage - the SEC requires a bank certificate of deposit of paid-up capital notarized in the place where signed
B. Post-incorporation - resolution of the board of directors authorizing the signatories and specifying the depositary bank.

D. Kinds of Deposits (Savings, Time, Demand, others)

Deposits are money or funds placed with a bank that can be withdrawn on the depositor's order and demand.

Savings deposits are the most common type of deposits and is usually evidenced by a passbook.

Time deposit is an account with a fixed term; payment of which cannot be legally required within a specified number of days.

Demand deposits are liabilities of the BSP and of other banks which are denominated in Philippine currency and are subject to payment
of legal tender upon demand by the presentation of checks.

Negotiable order of withdrawal accounts (NOW) are interest bearing deposit accounts that combine the payable on demand feature of
checks and the investment feature of savings accounts.

Trust account is a savings account established under a trust agreement, containing funds administered by the bank for the benefit of
the trustor or another person or persons.

Foreign currency deposits - any person, natural or juridical, may deposit with such Philippine banks in good standing as designated by
the bsp, foreign currencies which are acceptable as part of the international reserve, except those as are required by the bsp to be
surrendered under RA 7635.

E. Ownership of Deposit and Authority to Withdraw

1. Individual
- a deposit maintained by a single individual or entity. It is a personal account.
2. Joint
- a deposit maintained by two or more individual and/or juridicial entities.
Whether held in as an "and" or "and/or" capacity the general rule is that it is deemed to be for the benefit of both; so they hold the
deposits share and share alike/ equal shares in the deposit absent any evidence to the contrary.
Art. 484, NCC portions belonging to the coowners in the coownership shall be presumed equal unless the contrary is proved by an
agreement between the parties that is known to the bank.

'And' accounts require the permission of both depositors for withdrawal purposes.
'And/or' the rule is that anyone of the depositors could effect a withdrawal at anytime without the consent of the other; for it is
deemed that they have given the advanced consent to the other to effect withdrawal.
Thus such terms only govern or affect the authority to withdraw as reflected by their agreement. Ownership of the funds is a
different/ another matter.

When the depositor dies, the rules is that until the appropriate provisions of the civil code regarding the distribution of the estate has
been complied with and the appropriate taxes have been satisfied by the heirs, the bank should not allow the deposit. Until such time
that the person who will be entitled to the deposit has been identified by the heirs, the rules is that the provisions of will should be
respected or the heirs must either execute an extrajudicial settlement of the estate if the agree, if they don't, then judicial settlement.

For banks are instrumentalities of the government in the collection of taxes. Thus, the heirs must be able to present clearance from the
BIR showing that the required taxes has already been settled by the estate. For estates have personality for tax purposes.

Until such time that the person who will be entitled to the deposit has been identified by the heirs, the rules is that the provisions of
will should be respected or the heirs must either execute an extrajudicial settlement of the estate if the agree, if they don't, then
judicial settlement.

Allowable deductions from the estate tax of the deceased are:

- expenses incurred in the funeral or the wake of the deceased but only up to the amount of 200k
- Hospitalization expenses of the decedent 500k
- By implication, to the extent of the amounts mentioned, withdrawals may be allowed provided that the bank has taken precautionary
measures in ensuring that the payee is actually the person who is entitled thereto (hospital/funeral parlor as the case may be).

F. Rule on Anonymous Accounts

- Anonymous accounts or those under fictitious names are prohibited
- An anonymous account is one where the name of the depositor is not disclosed
- Exception: Foreign currency deposits; however, the banks or non-bank financial institutions should ensure that the client is identified
in an official or other identifying document.

G. Disposition of Deposit of a Deceased Depositor (Survivorship Agreements)

- Since it is presumed that the depositors hold the deposit in equal shares, only 50% would go to the estate of the deceased depositor.
- Survivorship agreement is an agreement by virtue of which the depositors permit each other to withdraw the whole amount during
their life, with the caveat that upon the demise of anyone, the remaining balance goes to the survivor. Normally, those who trust and
are confident with each other are the ones who enter into such agreement.
- Vitug v. CA, respondents were questioning the validity of the survivorship agreement on account of the civil code provision which is
now incorporated in the family code, which forbids the spouses from giving donations to each other in consideration of marriage. The
SC sustained the SA, explaining that the donation contemplated in the civil code is a donation which will take effect during the
lifetime or during the marriage, but in the SA the donation only takes effect after the dissolution of the marriage for it takes effect
after the demise of the donor. So it's a donation mortis causa, and therefore strictly speaking, it is not the donation contemplated
under the CC/FC.
- Futhermore, there is doubt if could really be considered as a donation because to become a donor, you must have a definite interest
or that you must have definite ownership of the thing to be donated. In this case, the subject matter is conjugal and thus, you cannot
claim any definite interest in the properties held by the conjugal partnership.

H. Secrecy of Bank Deposits

1. Confidentiality of Deposits (Rationale)
- because of the importance of deposits, there are several pieces of legislation that were enacted to protect them, one of which is the
secrecy of bank deposits act/RA 1405
- Under Sec 2 of RA 1405, all deposits of whatever nature with banks or banking institutions in the Philippines; including
investments in bonds issued by the government of the Philippines, its political subdivisions and instrumentalities, are considered
absolutely confidential and therefore, they may not be inquired, examined or looked into by any person(even as to private
individuals), government official, bureau or office.
- therefore the rule is confidentiality.
- the rule is in place to encourage investment by way of deposits

Does it include messengers of banks?

What information is covered by the secrecy? Does it include the address and contact details of a depositor?

2. Exceptions to the Secrecy Rule

(a) Exceptions under RA 1405
1. Written permission emanating from the depositor/investor
Does the waiver/consent have to be a public instrument?
2. Impeachment cases (ejercito case)
3. Upon the order of the competent court, but specifically in cases of bribery and deriliction of public duty of public officials
4. Upon the order of the competent court, in cases where the money deposited is the subject matter of litigation
Ejercito v. Sandiganbayan
- Plunder case
- The prosecutor requested for the production and examination of documents/records, involving/relating to among other things, the
savings account plus trust account of Erap being maintained in EIB.
- Contention of prosecution:
- When you open a trust account, strictly speaking, the relationship is not one of debtor-creditor like deposits, for you are entrusting
your money to the bank and thus you are allowing it to manage it for you. You are giving the bank a certain level of authority. Thus it
is not covered by RA 1405.
- Ruling:
- The term "investment" in Sec. 2 of RA 1405 is broad enough to cover trust accounts. However, there are exemptions to bank secrecy
which are:
• Upon the order of the competent court, but specifically in cases of bribery and deriliction of public duty of public officials
• Upon the order of the competent court, in cases where the money deposited is the subject matter of litigation

- Erap claims that plunder is different from bribery and dereliction; hence, the rule should be sustained, that is secrecy.
- The SC ruled that erap's contention is untenable.
- Upon examination of the elements of plunder, it would appear basically that the acts/omissions constituting/comprising the crime of
plunder, are analogous to or identical, if not the same as bribery. The only difference is that the law imposed a higher penalty for
plunder because of the amount involved.

(b) Anti-Graft and Corrupt Practices Act

- sec. 8, for purposes of determining violations of sec. 8 (unexplained wealth), which is wealth that is manifestly out of proportion to
the lawful source of income of the public official concerned
- Upon order of the competent court or tribunal concerned in cases involving unexplained wealth under this act

- Inquiry by the CIR for the purposes of determining the net estate of a deceased depositor
(c) Unclaimed Balances Act
- involves the disclosure/ report/ referral by banks to the treasurer of the Philippines (bureau of treasury) of the so-called dormant
accounts. For the treasurer to refer the matter to the office of the solicitor general for the filing/ initiation of an escheat case
- The amount is not automatically forfeited in favor of the state because estate is a proceeding, therefore it follows a process. One of
the basic requirements for the escheat proceedings to take place is publication. The publication is to put everyone on notice that
there is an account involving (person so and so), so that those who are interested (such as heirs, creditors) in the account should make
a proper representation to the court so that their claims may be adjudicated properly.
- If no one files a claim to the account, the court may thus make a finding that the account is in fact dormant and adjudicate the same
in favor of the state.
- Dormant account is an account where the depositor is known to be dead or has not made any transaction, meaning withdrawal for the
past 10 years or more
- In the process of complying with the unclaimed balances act, it is unavoidable for the bank to make a disclosure with regard to
the deposit, subject matter of dormancy. But in so doing, since it is by virtue of the express mandate of the law, the bank officer
or employee concerned will not be held liable for violating RA 1405.

(d) Tax law

- when a taxpayer offers to compromise his tax liability, one of the requirements for the BIR to consider the offer is for the taxpayer to
waive in writing the protective provisions of the bank secrecy law

(e) Anti-Money Laundering Act

The AMLC may inquire into any deposit or investment, including related accounts, upon order of any competent court where there is
probable cause that the deposits or investments, including related accounts involved, are related to an unlawful activity.

Related accounts are funds or the sources of which originated from and/or are materially linked to the monetary instruments or
properties subject of the freeze order.

- Covered transaction report

Transaction in cash or other equivalent monetary instruments involving a total amount in excess of P500,000.00 within one business day.

- suspicious transaction report


Transactions, regardless of the amount involved, where the following circumstances 

exist:
a. there is no underlying legal or trade obligation, purpose or economic justification;
b.the client is not properly identified;
c. the amount involved is not commensurate with the business or financial capacity of the client;
d. taking into account all known circumstances, it may be perceived that the client’s 

transaction is structured in order to avoid being the subject of reporting requirements under the Act;
e. any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past
transactions with the covered institution;
f. the transaction is in any way related to an unlawful activity or offense under this Act that is about to be, is being or has been
committed; or
g. any transaction that is similar or analogous to the foregoing.

Covered institutions shall report to the AMLC all covered transactions and suspicious transactions within five working days from
occurrence thereof, unless the Supervision Authority (the Bangko Sentral ng Pilipinas, the Securities and Exchange Commission, or the
Insurance Commission) prescribes a longer period not exceeding ten working days. 

Should a transaction be determined to be both a covered transaction and a suspicious transaction, it shall be reported as suspicious
transaction.

The reports on covered and/or suspicious transactions shall be accomplished in the prescribed formats and submitted within five
business days from occurrence of the transactions in a secured manner to the AMLC in electronic form, either via diskettes, leased lines,
or through internet facilities. The corresponding hard copy for suspicious transactions shall be sent to AMLC at the 5th Floor EDPC
Building, Bangko Sentral ng Pilipinas Complex, Manila, Philippines.

When reporting covered transactions or suspicious transactions to the AMLC, covered institutions and their officers and employees, are
prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, the media, the fact that a
covered or suspicious transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such
reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation
thereof, the concerned officer, and employee, of the covered institution, or media shall be held criminally liable.

(f) Human Security Act

- the justices of the CA designated as a special court to handle anti-terrorism cases may authorize the examination of bank deposits of:
1. A person charged with or suspected of the crime of terrorism or conspiracy to commit terrorism;
2. A judicially declared and outlawed terrorist organization, association, or group of persons; and
3. A member of such judicially declared and outlawed terrorist organization, association, or group of persons.

(g) Rule under Foreign Currency Deposit Act

- a statute subsequent to the bank secrecy law
- When there is a written permission from the depositor concerned
- Sec. 8, all foreign currency deposits authorized under this act are hereby declared as and considered of an absolutely confidential
nature, and except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined,
inquired or looked into by any person, government official, bureau or office, whether judicial or administrative or legislative, or
any other entity whether public or private.
- So the policy is confidentiality, absolutely confidential. It is even stronger than the one contained under Sec. 2 of RA 1405 because of
the succeeding clause stating that foreign currency deposits shall be exempt from attachment, garnishment or any other order or
process of any court, legislative body or agency or any administrative body whatsoever.
- So the only exception that we could derive from sec. 8 is the written permission from the depositor himself.

Other exceptions:
Ejercito v sandiganbayan - plunder
China bank corporation v ortega - garnishment
Salvacion v. CA/Central Bank (landmark case) - equity

I. PDIC Insurance
- nothing prevents the bank to get voluntary insurance coverage
1. Amount of coverage
- Up to 500k net of the liabilities of the depositor concerned to the bank
- If the depositor has different accounts (savings, time, demand deposits..etc) with the same bank, the aggregate value/ amount of all
the deposits being maintained in the same capacity (in his name and personal capacity as distinguished from an instance when it is
just in his name but in the capacity of a trustee for a third party, in which case it is not to be included in the computation of the
aggregate) shall be the basis of the maximum insurable amount
- The amount over the maximum insured amount may be recovered from the receiver or liquidator, as the case may be, but the
disadvantage is that he will have no preference. The claim of preferred creditors, secured creditors, government for taxes, would
have to take precedence. If there is no asset left, then he could no longer recover.
- If the accounts are being maintained in different branches of the same bank by the same person in his personal capacity, it would not
matter, the rule in the computation of the aggregate amount would be the same.'

- Note that under the law, it is the responsibility of the bank and not the depositor who is obligated under the pdic law to take
insurance upon the deposit. The failure of the bank to pay the required premium does not deprive the depositor of his claim against
the PDIC. The PDIC cannot revoke insurance coverage despite non-payment of premium on the part of the bank, but this is without
prejudice to the PDIC going after the bank in default for the recovery of the supposed premium.

Cash and carry rule (sec. 77, insurance code)

- you pay me the required consideration, and then i will carry out my responsibility or my obligation to you.
- the insurance does not bind the insurer until and unless the required premium therefor has been paid; exceptions:
- Cases when the required premium has not yet been paid at the time of loss the insurer would still be liable.
- despite failure to pay premium, payment to the depositor beneficiary shall not be declined without prejudice to the pdic running after
the party in default

Under the PDIC law, joint accounts have different coverage

- RA9576, a joint account regardless of the conjunction and, or or and/or is used, shall be insured separately from the any individually
owned deposit account.
- The joint depositors would not get 500k each, the coverage is for the whole joint account; if they hold the account share and share
alike, then they could get 250k each.
- The aggregate of the interest of each co-owner(co-depositors) over several joint accounts whether owned by the same or different
combination of individuals, juridical persons or entities, shall likewise be subject to the maximum insured deposit of 500k.
- In other words, if a person has 4 joint accounts and his interest therein is 2million, the total insurance proceeds to which he will be
entitled to would only be 500k, whatever amount they would not be able to recover they should get from the liquidator and receiver,
as the case may be.

Under the law, when an account is held by a juridical person or entity jointly, with one or more natural persons, the presumption
is that the deposit pertains to the juridical person concerned (disputable, evidence to the contrary may be received).

The following are expressly excluded from the mandatory insurance coverage of the PDIC:
1. anything in excess of 500k would no longer be within the ambit of the PDIC
2. Those under sec. 2 RA 9576, to wit:
• any obligation of the insured bank which is payable outside the Philippines/ payable at the office of the bank but located outside the
Philippines, i.e. Branch of a local bank outside 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 the insured deposits/ the same shall not be covered by the PDIC
• Investment products such as, bonds, securities, trust accounts and other similar instruments
• Accounts constituting and/or emanating from unsafe and unsound banking practice upon consultation with the BSP, the deposit
account or transaction shall not likewise be covered by the PDIC
• Deposit accounts or transactions which are unfounded or those that are fictitious or fraudulent
• Those deposits determined to be the proceeds of an unlawful activity as defined under the AMLA

2. Rules on payment
- payment can be made:
1. By giving the cash equivalent of the insurance proceeds
2.For security reasons and to facilitate payment, by making available to each depositor a transferred deposit in another
insured bank, in which you could withdraw the proceeds (so that the other bank would likewise be a bank insured by the
PDIC)

- In cases of doubtful claims/ PDIC is in doubt as to the veracity/viability of the claim of a particular depositor
- The PDIC may, in the exercise of its sound discretion, require that the claim be proved/ be properly substantiated.
- And if the PDIC is not satisfied with the evidence/proof proffered, the PDIC could require final determination of the claim by a
court of competent jurisdiction before actual payment of insurance proceeds.

Payment of the claim should have been effected within 6 months from the date of the filing of the claim for the insured deposit
- If failure of the PDIC to attend to such claim is attributable to gross negligence, grave abuse of discretion, bad faith or malice, the
directors, officers or employees of the PDIC involved/responsible for the delay may be penalized with imprisonment for a period of 6
months to 1 year
- However, if there is a justifiable reason for refusing payment, i.e. Where there is doubt as to the veracity of the claim, the period (6
months from filing of claim) will no longer hold/apply. In other words, the period would no longer apply if the claim would require
resolution of factual issues or issues of law before payment may be made by the PDIC.

The rule on subrogation equally applies to the PDIC.

- Subrogation takes place upon payment of the insurance by the insurance company, in this case is the PDIC. PDIC should be considered
to be stepping into the shoes of the depositor.
- Upon payment of the insurance proceeds to the depositor, insofar as the PDIC is concerned, whatever rights that the depositor has
against the bank, are by operation of law transferred to the PDIC.
- So the PDIC could still file a claim against the bank for the amount paid as insurance proceeds, subject still to the outcome of
receivership or liquidation.
- Such subrogation shall also include the right on the part of the PDIC to receive dividends and payments from the proceeds of the assets
of the banks and recoveries on account of stockholder's liability as would have been payable to the depositor on a claim for the
insured deposit.
- The depositor may still be allowed to proceed against the bank as regards any amount not covered by the insurance.

All payments made by the PDIC of the insured deposit partake of the nature of public funds because the PDIC is a GOCC, it's a
public corporation. As such, it must be considered as a preferred credit, similar to taxes due to the national government.
- The preference shall be effective only upon liquidation proceedings subject to the approval of the Monetary Board.

The filing of claim with the PDIC is within 2 years

- the counting of the 2 year period shall begin from the actual takeover of the bank pursuant to sec. 30 of the NCBA
- Notice shall be published in a newspaper of general circulation that the depositor is already required to file a claim
- Failure to file a claim within the prescribed period shall bar recovery from the PDIC; the only recourse left to the depositor is to file a
claim during the liquidation proceedings.

Denial of insurance claim by the PDIC is final and executory.

- the only remedy left is a special civil action for certiorari
- Nonetheless, ra 9576 prescribes the period of only 30 days (compared to 60 days under the rules of court) to file a petition for
certiorari from the notice of the denial of the insurance claim

Sec. 11 of RA 9576, Splitting of deposits

- the pdic is not likewise obliged to pay insurance on deposit accounts that result from splitting of account/deposit
- Splitting of deposit occurs whenever a deposit account with an outstanding balance of more than the maximum insurance coverage is
broken into two or more accounts in the names of natural or juridical persons who has no beneficial interest whatsoever on the
transferred deposit
- The splitting occurred within 120 days immediately preceding a closure issued by the monetary board, in an obvious attempt to avail
himself of the maximum deposit insurance coverage
- It is one way of circumventing the maximum deposit insurance amount covered by the pdic

CASES:
BPI v. First Metro, G.R. No. 132390, December 8, 2004, 429 SCRA 30;
FMIC deposited a check of 100m with BPI FB on the condition that 17% interest will be paid in advance. Thereafter, upon an authority to
debit purportedly signed by FMIC's EVP and Senior Manager, 80M was transferred from FMIC's deposit to Tevesteco's account, it turned
out that the said authority was spurious. Immediately, FMIC withdrew all its deposit with BPI FB by issuing a check payable to it against
its deposit;however, it was dishonored for being DAIF. Hence, FMIC sued BPI for collection of money before the RTC of Makati and won.
CA affirmed with modification. Before the SC BPI contends that the CA erred in awarding 17% interest on the deposit in the ground that
the deposit should be characterized as a demand deposit which should is prohibited from earning interest under CB circular 777 and not
a time deposit.

Ordinarily, a time deposit is defined as "one the payment of which cannot legally be required within such a specified number of days."

In contrast, demand deposits are "all those liabilities of the Bangko Sentral and of other banks which are denominated in Philippine
currency and are subject to payment in legal tender upon demand by the presentation of (depositor’s) checks."

[We hold] that the parties did not intend the deposit to be treated as a demand deposit but rather as an interest-earning time deposit
not withdrawable any time. This is quite obvious from the communications between Jaime Sebastian, petitioner’s Branch Manager, and
Antonio Ong, respondent’s Executive Vice President. Both agreed that the deposit of P100 million was non-withdrawable for one year
upon payment in advance of the 17% per annum interest. Respondent’s time deposit of P100 million was accepted by petitioner as shown
by a deposit slip prepared and signed by Ong himself who indicated therein the account number to which the deposit is to be credited,
the name of FMIC as depositor or account holder, the date of deposit, and the amount of P100 million as deposit in check. Clearly, when
respondent FMIC invested its money with petitioner BPI FB, they intended the P100 million as a time deposit, to earn 17% per annum
interest and to remain intact until its maturity date one year thereafter.

Likewise, time deposits are not subject to interest rate ceiling. In fact, the rate ceiling was abolished and even allowed to float
depending on the market conditions. Sections 1244 and 1244.1 of the Manual of Regulations of the Central Bank of the Philippines
provide:

"Sec. 1244. Interest on time deposit. Time deposits shall not be subject to any interest rate ceiling.

Sec. 1244.1. Time of payment. Interest on time deposit may be paid at maturity or upon withdrawal or in advance. Provided, however,
That interest paid in advance shall not exceed the interest for one year."

Thus, even assuming that respondent’s account with petitioner is a demand deposit, still it would earn interest.

Vitug vs. Court of Appeals, 29 March 1990;

Probate court granted the motion to sell some of the estate of Dolores L. Vitug, the proceeds of which shall be used to pay the personal
funds of Romarico Vitug in the total sum of P667,731.66.

On the other hand, the CA, held that the above-quoted survivorship agreement constitutes a conveyance mortis causa which "did not
comply with the formalities of a valid will as prescribed by Article 805 of the Civil Code," and secondly, assuming that it is a mere
donation inter vivos, it is a prohibited donation under the provisions of Article 133 of the Civil Code.

The conveyance in question is not, first of all, one of mortis causa, which should be embodied in a will. A will has been defined as "a
personal, solemn, revocable and free act by which a capacitated person disposes of his property and rights and declares or complies
with duties to take effect after his death." In other words, the bequest or device must pertain to the testator.

In this case, there is no showing that the funds exclusively belonged to one party, and hence it must be presumed to be conjugal, having
been acquired during the existence of the marital relations.

Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it was to take effect after the death of one
party. Secondly, it is not a donation between the spouses because it involved no conveyance of a spouse's own properties to the other.

It is also our opinion that the agreement involves no modification petition of the conjugal partnership, by "mere stipulation" and that it
is no "cloak" to circumvent the law on conjugal property relations. Certainly, the spouses are not prohibited by law to invest conjugal
property, say, by way of a joint and several bank account, more commonly denominated in banking parlance as an "and/or" account.

In the case at bar, when the spouses Vitug opened savings account No. 35342-038, they merely put what rightfully belonged to them in a
money-making venture. They did not dispose of it in favor of the other, which would have arguably been sanctionable as a prohibited
donation. And since the funds were conjugal, it can not be said that one spouse could have pressured the other in placing his or her
deposits in the money pool.

The validity of the contract seems debatable by reason of its "survivor-take-all" feature, but in reality, that contract imposed a mere
obligation with a term, the term being death. Such agreements are permitted by the Civil Code. 24

Under Article 2010 of the Code:

ART. 2010. By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in consideration
of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an indeterminate time.

Under the aforequoted provision, the fulfillment of an aleatory contract depends on either the happening of an event which is (1)
"uncertain," (2) "which is to occur at an indeterminate time." A survivorship agreement, the sale of a sweepstake ticket, a transaction
stipulating on the value of currency, and insurance have been held to fall under the first category, while a contract for life annuity or
pension under Article 2021, et sequentia, has been categorized under the second. In either case, the element of risk is present. In the
case at bar, the risk was the death of one party and survivorship of the other.

But although the survivorship agreement is per se not contrary to law its operation or effect may be violative of the law. For instance, if
it be shown in a given case that such agreement is a mere cloak to hide an inofficious donation, to transfer property in fraud of
creditors, or to defeat the legitime of a forced heir, it may be assailed and annulled upon such grounds. No such vice has been
imputed and established against the agreement involved in this case.

There is no demonstration here that the survivorship agreement had been executed for such unlawful purposes, or, as held by the
respondent court, in order to frustrate our laws on wills, donations, and conjugal partnership.

Intengan vs. Court of Appeals, 15 February 2002;

Treasurer of the Global Consumer Group of the bank, namely, Dante L. Santos.
Ms. Marilou Genuino apart from being an Assistant Vice President in the office of Santos is also an Account Officer who personally
attends to clients of the bank in the effort to persuade clients to place and keep their monies in the products of Citibank, NA.
Through their positions they were able to divert the deposits/money placements of Carmen Intengan, Rosario Neri and Rita
Brawner with citibank, N.A. to products offered by other companies that were commanding higher rate of yields to the prejudice
of citibank.

Citibank thus filed a complaint for violation of section 31, in relation to section 144 of the Corporation Code against dante and
malou, disclosing information relative to the dollar deposits which were diverted in the process. Consequently, citibank officers
were sued for violation of act 1405 but was dismissed by the prosecutors, the doj and the ca for the disclosure allegedly fell under
the exception that the account was a subject matter of litigation. Hence, this appeal.

The accounts in question are U.S. dollar deposits; consequently, the applicable law is not Republic Act No. 1405 but Republic Act
(RA) No. 6426, known as the Foreign Currency Deposit Act of the Philippines, section 8 of which provides:

Sec. 8. Secrecy of Foreign Currency Deposits.- All foreign currency deposits authorized under this Act, as amended by Presidential
Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, are hereby declared as and
considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall such
foreign currency deposits be examined, inquired or looked into by any person, government official bureau or office whether
judicial or administrative or legislative or any other entity whether public or private: Provided, however, that said foreign
currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.

Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is, disclosure is
allowed only upon the written permission of the depositor.

A case for violation of Republic Act No. 6426 should have been the proper case brought against private respondents. It does not
matter if that such disclosure was necessary to establish Citibanks case against Dante L. Santos and Marilou Genuino. Lims act of
disclosing details of petitioners bank records regarding their foreign currency deposits, with the authority of Reyes, would appear
to belong to that species of criminal acts punishable by special laws, called malum prohibitum.

A violation of Republic Act No. 6426 shall subject the offender to imprisonment of not less than one year nor more than five years,
or by a fine of not less than five thousand pesos nor more than twenty-five thousand pesos, or both. Applying Act No. 3326, the
offense prescribes in eight years.

The filing of the complaint or information in the case at bar for alleged violation of Republic Act No. 1405 did not have the effect
of tolling the prescriptive period. For it is the filing of the complaint or information corresponding to the correct offense which
produces that effect. Hence the action has prescribed.

China Bank vs. Ortega, 49 SCRA 356;

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.

Ruling: the lower court 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.
It is sufficiently clear from the foregoing discussion of the conference committee report of the two houses of Congress 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 the existence of the deposit is disclosed the
disclosure is purely incidental to the execution process. It is hard to conceive that it was ever within the intention of Congress to
enable debtors to evade payment of their just debts, even if ordered by the Court, through the expedient of converting their
assets into cash and depositing the same in a bank.

Salvacion vs. Central Bank, 21 August 1997;

Makati Investigating Fiscal Edwin G. Condaya filed against Greg Bartelli complaints for Serious Illegal Detention and four (4) counts
of Rape. On the same day, petitioners (karen salvacion with her parents as guardians) filed with the Regional Trial Court of Makati a
complaint for damages with preliminary attachment against Greg Bartelli. Court granted the attachment.

Pursuant to an Order granting leave to publish notice of decision, said notice was published in the Manila Bulletin once a week for
three consecutive weeks. After the lapse of fifteen (15) days from the date of the last publication of the notice of judgment and
the decision of the trial court had become final, petitioners tried to execute on Bartellis dollar deposit with China Banking
Corporation. Likewise, the bank invoked Section 113 of Central Bank Circular No. 960. Thus, petitioners decided to seek relief
from this Court.

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 tortizerzmente con damo 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.

Ejercito vs. Sandiganbayan, 30 November 2006;

The contention that trust accounts are not covered by the term deposits, as used in R.A. 1405, by the mere fact that they do not
entail a creditor-debtor relationship between the trustor and the bank, does not lie. An examination of the law shows that the
term deposits used therein is to be understood broadly and not limited only to accounts which give rise to a creditor-debtor
relationship between the depositor and the bank.

The policy behind the law is laid down in Section 1:

SECTION 1. It is hereby declared to be the policy of the Government to give encouragement to the people to deposit their money
in banking institutions and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans
to assist in the economic development of the country. (Underscoring supplied)

If the money deposited under an account may be used by bank for authorized loans to third persons, then such account, regardless
of whether it creates a creditor-debtor relationship between the depositor and the bank, falls under the category of accounts
which the law precisely seeks to protect for the purpose of boosting the economic development of the country.

Trust Account No. 858 is, without doubt, one such account. The Trust Agreement between petitioner and Urban Bank provides that
the trust account covers deposit, placement or investment of funds by Urban Bank for and in behalf of petitioner. The money
deposited under Trust Account No. 858, was, therefore, intended not merely to remain with the bank but to be invested by it
elsewhere. To hold that this type of account is not protected by R.A. 1405 would encourage private hoarding of funds that could
otherwise be invested by bank in other ventures, contrary to the policy behind the law.

Section 2 of the same law in fact even more clearly shows that the term deposits was intended to be understood broadly:

SECTION 2. All deposits of whatever nature with bank or banking institutions in the Philippines including investments in bonds
issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an
absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or
office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases
of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the
litigation. (Emphasis and underscoring supplied)

The phrase of whatever nature proscribes any restrictive interpretation of deposits. Moreover, it is clear from the immediately
quoted provision that, generally, the law applies not only to money which is deposited but also to those which are invested. This
further shows that the law was not intended to apply only to deposits in the strict sense of the word. Otherwise, there would have
been no need to add the phrase or invested.

Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account No. 858.

People vs. Ejercito Estrada, 2 April 2009;

The People claims that even on the assumption that Ocampo and Curato are bank officers sworn to secrecy under the law, the
presence of two other persons who are not bank officers Aprodicio Laquian and Fernando Chua when Estrada signed the bank
documents as Jose Velarde amounted to a public use of an alias that violates CA No. 142.
At most, the People argues, the prohibition in R.A. No. 1405 covers bank employees and officers only, and not Estrada; the law
does not prohibit Estrada from disclosing and making public his use of an alias to other people, including Ocampo and Curato, as he
did when he made a public exhibit and use of the alias before Messrs. Lacquian and Chua.

The People posits, too, that R.A. No. 1405 does not apply to trust transactions, such as Trust Account No. C-163, as it applies only
to traditional deposits (simple loans).

Finally, the People argues that the Sandiganbayan ruling that the use of an alias before bank officers does not violate CA No. 142
effectively encourages the commission of wrongdoing and the concealment of ill-gotten wealth under pseudonyms; it sustains an
anomalous and prejudicial policy that uses the law to silence bank officials and employees from reporting the commission of
crimes. The People contends that the law R.A. No. 1405 was not intended by the Legislature to be used as a subterfuge or
camouflage for the commission of crimes and cannot be so interpreted; the law can only be interpreted, understood and applied
so that right and justice would prevail.

How this law is violated has been answered by the Ursua definition of an alias a name or names used by a person or intended to be
used by him publicly and habitually usually in business transactions in addition to his real name by which he is registered at birth
or baptized the first time or substitute name authorized by a competent authority. There must be, in the words of Ursua, a sign or
indication that the user intends to be known by this name (the alias) in addition to his real name from that day forth [for the use
of alias to] fall within the prohibition contained in C.A. No. 142 as amended.

The required publicity in the use of alias is more than mere communication to a third person; the use of the alias, to be
considered public, must be made openly, or in an open manner or place, or to cause it to become generally known. In order to be
held liable for a violation of CA No. 142, the user of the alias must have held himself out as a person who shall publicly be known
under that other name. In other words, the intent to publicly use the alias must be manifest.

To our mind, the presence of Lacquian and Chua when Estrada signed as Jose Velarde and opened Trust Account No. C-163 does
not necessarily indicate his intention to be publicly known henceforth as Jose Velarde. In relation to Estrada, Lacquian and Chua
were not part of the public who had no access to Estradas privacy and to the confidential matters that transpired in Malacaan
where he sat as President; Lacquian was the Chief of Staff with whom he shared matters of the highest and strictest confidence,
while Chua was a lawyer-friend bound by his oath of office and ties of friendship to keep and maintain the privacy and secrecy of
his affairs. Thus, Estrada could not be said to have intended his signing as Jose Velarde to be for public consumption by the fact
alone that Lacquian and Chua were also inside the room at that time. The same holds true for Estradas alleged representations
with Ortaliza and Dichavez, assuming the evidence for these representations to be admissible. All of Estradas representations to
these people were made in privacy and in secrecy, with no iota of intention of publicity.

We have consistently ruled that bank deposits under R.A. No. 1405 (the Secrecy of Bank Deposits Law) are statutorily protected or
recognized zones of privacy. Given the private nature of Estradas act of signing the documents as Jose Velarde related to the
opening of the trust account, the People cannot claim that there was already a public use of alias when Ocampo and Curato
witnessed the signing. We need not even consider here the impact of the obligations imposed by R.A. No.1405 on the bank
officers; what is essentially significant is the privacy situation that is necessarily implied in these kinds of transactions. This
statutorily guaranteed privacy and secrecy effectively negate a conclusion that the transaction was done publicly or with the
intent to use the alias publicly.

Marquez v. Desierto, G.R. No. 135882, June 27, 2001

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.
- the account must be clearly identified
- the inspection limited to the subject matter of the pending case before the court of competent jurisdiction.
- The bank personnel and the account holder must be notified to be present during the inspection, and
- such inspection may cover only the account identified in the pending case.

In Union Bank of the Philippines v. Court of Appeals, we held that Section 2 of the Law on Secrecy of Bank Deposits, as amended,
declares bank deposits to be absolutely confidential except:

(1) In an examination made in the course of a special or general examination of a bank that is specifically authorized by the Monetary
Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been or is being
committed and that it is necessary to look into the deposit to establish such fraud or irregularity,

(2) In an examination made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is
for audit purposes only and the results thereof shall be for the exclusive use of the bank,

(3) Upon written permission of the depositor,

(4) In cases of impeachment,

(5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or
(6) In cases where the money deposited or invested is the subject matter of the litigation.

In the case at bar, there is yet no pending litigation before any court of competent authority. What is existing is an investigation by the
office of the Ombudsman. In short, what the Office of the Ombudsman would wish to do is to fish for additional evidence to formally
charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending case in court which would warrant the opening
of the bank account for inspection.

Zones of privacy are recognized and protected in our laws. The Civil Code provides that "every 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 a 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, the 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.

IV. LOAN FUNCTION OF BANKS

- extension of credit to the public

A. Legal basis
Section 39 of the General Banking Law permits or allows a bank to grant or extend loans and other credit
accommodations but only in the amount and period necessary for the completion of the operations, services or
whatever transactions/operations to be financed.

- Relationship is also that of creditor-debtor, however, there is the reversal of the roles. The creditor in this situation
is the bank.
- The requirement of handling loans necessitates extraordinary diligence.
- A bank should ascertain that the debtor can fulfill its commitments or obligations to the bank.
- Toward this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of their
income and expenditures and such information as may be prescribed by law or by rules and regulations of 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.

- The extension of credit facility should be consistent with safe and sound banking practices.
- The purpose of all loans and other credit accommodations shall be stated in the application and in the contract between the bank
and the borrower. If the bank finds that the proceeds of the loan or other credit accommodation have been employed, without its
approval, for purposes other than those agreed upon with the bank, it shall have the right to terminate the loan or other credit
accommodation and demand immediate repayment of the obligation.

1. Amortization
- amortization schedules of bank loans and other credit accommodations should be adapted to the nature of the
operations to be financed
- In case of loans and other credit accommodations with maturities of more than 5 years, provisions must be made for
periodic amortization payments, but such payments must be made at least annually
- Provided, however, That when the borrowed funds are to be used for purposes which do not initially produce
revenues adequate for regular amortization payments therefrom, the bank may permit the initial amortization
payment to be deferred until such time as said revenues are sufficient for such purpose, but in no case shall the
initial amortization date be later than five (5) years from the date on which the loan or other credit
accommodation is granted.
- In case of loans and other credit accommodations to microfinance sectors, the schedule of loan amortization shall
take into consideration the projected cash flow of the borrower and adopt this into the terms and conditions
formulated by banks.

2. Rules on Pre-Payment and Renewal

- a borrower may at any time prior to the agreed maturity date prepay, in whole or in part, the unpaid balance of any
bank loan or other credit accommodation, subject to reasonable terms and conditions as may be agreed upon
between the bank and its borrower
- The Monetary Board may, by regulation, prescribe the conditions and limitations under which a bank may grant
extensions or renewals of its loans and other credit accommodations.

3. Interest

The Monetary Board shall regulate the interest imposed on microfinance 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.

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 shall apply only
to loans and other credit accommodations made after the date of such action.

B. DOSRI Accounts
▪ One area of consideration with respect to this function of the bank is the DOSRI account. Certain restrictions are
imposed on borrowings and securities arrangements and agreements made by director, officers, stockholders as well
as their related interests.

▪ The question, is it illegal, unlawful, for the banks DOS and their related interest to avail of themselves of the
credit facility of the bank? NO, the conditions imposed to them as opposed to ordinary borrowers are more
stringent. The rationale behind the stringent rules, is to protect the public against possible abuse by director,
officers, stockholders as well as their related interests because of their connection, affiliation and they are in a
position to unduly influence the people running the bank.

▪ Basic premise is that we are trying to guard against possible abuse by the dosri in securing loans, credit
accommodations and facilities from the lending bank which they serve in their capacity as director or officer or
whenever they are stockholders of the said bank.

1. Requisites
- the borrower must be a dos of a bank (and related interests)
- He contracts a loan or any form of financial accommodation
- The loan or financial accommodation is from:
- 1. His bank
- 2. A bank that is a subsidiary of a bank holding company of which both his bank and the lending bank are
subsidiaries
- 3. A bank in which a controlling proportion of the shares is owned by the same interest that owns the controlling
proportion of the shares in his bank
- The loan or credit accommodation of the dos, singly or with that of his related interest, is in excess of 5% of the
capital surplus of the lending bank or in the maximum amount permitted by law, whichever is lower.

2. Persons Covered (See BSP Circular No. 423, Series of 2004

▪ X Bank, the lending bank
▪ The DOS of X Bank
▪ Those who have related interest - those who have an indirect relationship with the bank through any of DOS

▪ Directors are elected by the stockholders of the bank. The provisions of Sections 23 of the Corporation Law holds
true with the Banking Corporation.

▪ Officers, on the other hand are those elected by directors and they are in-charge of the day to day operation of
the corporation, they execute and implement the policies set the board.

▪ Under existing jurisprudence, the corporate officers consist of the following based on the corporation code
(statutory officers):
• the president, the treasurer, the secretary, those whose office is mentioned in the by-laws of the
corporation is concerned.
• Those as may be elected or appointed by the board, if the board has the authority of create other
corporate offices in the by-laws

▪ Stockholders are owners of shares/holders of shares in a bank, and as such they are those who have contributed
something such as properties, cash, services that will form part of the capitalization of the bank. The way to do it is
through subscription to the shares of the corporation
▪ Subscriptions, whether fully paid or not, will determine the outstanding stock of the corporation.

▪ With respect to shareholders, the old rule provides that the threshold is 2%, the amended rule as provided by the
BSP Circular provides that the extent of ownership of the stockholder concerned should be 1% of the outstanding
shares of the corporation, circular 423, s. 2004

▪ In other words, for a stockholder to be covered by the statutory rules and restrictions with regard to DOSRi
accounts the extent of ownership of the stockholder concerned should be 1% of the outstanding shares of the
corporation

▪ The GBL and the NCBA do not particularly define who RI are. But Circular 423 s. 2004 provides persons who
could be considered as RI:
▪ Spouse
▪ relative up to the 1st degree of consanguinity or affinity (parents, children)
▪ includes relationship via legal adoption of the DOS
▪ The borrower is abc partnership, a partnership in civil law is a juridical person, it also just like corporations
enjoy personality separate and distinct from the partners comprising it. A juridical person cannot be a director/
possible, and assuming that it is also not a stockholder. But if you look into the articles of partnership of abc, and
one sees a character for example a general partner who is a director of the lending bank (X), this interlocking
relationship effectively makes abc partnership a related interest
 ▪ Another situation is when a borrower, who is neither a director/officer/stockholder of the lending bank; however,
when he presented documents in relation to the security that he is offering to the bank, it was found that the
property being mortgaged, assuming the property is land, is not absolutely owned by the borrower. The title to the
land being mortgaged is in the name of the said borrower and a director of the lending bank (coownership). In
such case, the loan of the said borrower should be covered by the dosri restrictions. However, the dosri restriction
will not apply when the mortgage only pertains to the undivided share of the borrower in the property; in other
words, without including the interest of the coowner who is a director of the lending bank, the dosri restriction
would no longer be applicable.
▪ Another situation is when a borrower is a corporation, abc corporation. The said corporation's general
information sheet (GIS), which is required to be updated on a year-to-year basis, shows who the incumbent directors
and officers of the organization are. So, for liability purposes it's easier to look after this people. Abc corporation
could be a related interest when a DOS of abc corporation is a DOSRI of the lending bank. In other words, there is
an interlocking relationship/common personality
▪ Another situation which still involves abc corporation, is when more than 20% of the capital stock abc
corporation (borrower corporation) is owned by [a dosri] of the lending bank. Such 20% interest is already
substantial.

3. Transactions Covered
▪ when a director of x bank borrows or becomes a guarantor, surety, solidary obligor, co-maker, any manner by
which the dosri incurs contractual obligation with the bank, availment of letter of credit, advances of salary,
increase of existing indebtedness.
▪ No director or officer of any bank shall, directly or indirectly, for himself or as the representative or agent
of others, borrow from such bank nor shall he become a guarantor, indorser or surety for loans from such bank
to others, or in any manner be an obligor or incur any contractual liability to the bank except upon compliance
with the following restrictions.
4. Restrictions under the GBL, sec 36
▪ Q: Is it not allowed for the DOSRI to borrow or guaranty loans from X Bank, or to avail themselves of any of the
credit facilities in the bank, or in anyway be contractually obliged with X bank? No, the applications process is more
stringent only. It is just that they would have to comply with more stringent requirements.

▪ And under sec. 36 of the General Banking Law (GBL), these requirements are:
▪ a written approval of the (majority) of all the directors of the lending bank with the exclusion of the director
concerned (procedural requirement)
▪ Entry of such resolution approving the loan in the records of the bank and a copy of such entry embodied in a
form prescribed by the bsp shall be transmitted forthwith to the supervising and examination sector of the bsp
(reportorial requirement)
▪ The terms to be offered to the dosri should not be less favorable to the bank than those offered to others; this is
more popularly known as the arms-length rule. The idea here is whatever terms that the bank offers to the ordinary
borrower the same should be at par with the terms that you are offering to your dosri (arms length rule)
▪ Moreover, the monetary board shall have the authority to regulate the maximum amount extended to dos, taking
into consideration also their related interest.
▪ Aggregate ceiling - 15% of the total loan portfolio of the bank or 100% of the combined capital accounts,
whichever is lower
▪ Individual ceiling - dosri's respective unencumbered deposits and book value of their paid-in capital contribution
in the bank
▪ These ceilings do no apply to:
- loans secured by assets considered by the MB as non-risk items
- those extended under a fringe benefit plan approved by the BSP
- those extended by cooperatives to its cooperative stockholders

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.
5. Restrictions under Sec. 26, NCBA
- the borrower shall be required by the lending bank to waive the secrecy of his deposits of whatever nature in all
banks in the Philippines
- The accounts are subject to examination but any information obtained from an examination of his deposits shall be
strictly confidential and may be used by examiners only in connection with the supervisory and examination
responsibility of the bsp or in an appropriate legal action initiated by the bsp involving the deposit account

C. Collaterals
1. Value of Collaterals

- the loanable amount a person could apply for would much depend of the value of the collateral being offered
- so for example, the collateral consists in real property; the loanable amount would not be equal to the value of such real property;
there is to be expected an allowance for depreciation; so it would only be up to 75% of the value of the real property plus 60% of the
appraised value of the improvements thereon e.g. building, structures and the like
- May be increased on a case to case basis when there is more than enough collateral
- when the collateral consists of a chattel e.g. chattel bus, only 75% of the value of such chattel bus shall be the loanable amount.
- The fact that property has been used as collateral does not make it the property of the bank

2. Foreclosure of Mortgage
- In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan or other
credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount
due under the mortgage deed, with interest thereon at the rate specified in the mortgage, and all the costs and expenses
incurred by the bank or institution from the sale and custody of said property less the income derived therefrom.
- However, the purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter
upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the
same in accordance with law.

3. Redemption Period
Natural person as mortgagor - within 1 year after the registration of the certificate of sale
Juridical person as mortgagor - not after the registration of the certificate of sale which in no case shall be more than
three months after the foreclosure, whichever is earlier [When the lender is a bank and the borrower is a
juridical person]

4. Effect of Estoppel and/or Agreement

The one-year period of redemption provided in Act No. 3135, as amended, is only directory and can be extended
by agreement of the parties.32 When the parties voluntarily agree to extend the redemption period, the
concept of legal redemption is converted into conventional redemption.
However, two (2) requisites must be established, to wit:
(a) voluntary agreement of the parties to extend the redemption period; and
(b) (the debtor's commitment to pay the redemption price on a fixed date.

Ibaan Rural Bank Inc. v. Court of Appeals,35 the sheriff unilaterally and arbitrarily extended the period of
redemption to two years. The parties were not even privy to the extension made by the sheriff. However,
We ruled that the bank cannot, after two years had elapsed, insist that the redemption period was only one
year. When it received a copy of the certificate of sale registered in the Office of the Register of Deeds, it
was deemed to have actual and constructive knowledge of the certificate and its contents. The bank was
found guilty of estoppel in pais. By its silence and inaction, it was considered that the mortgagors were
misled to believe that they had two years within which to redeem the subject lots.

5. Effect of Restraining Order

- Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall
be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will
pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding.

D. Single Borrower Limit

1. Rationale
- The bank’s exposure would be very critical, it is not advisable for a bank to only have exposure to a single entity or person, because if
the exposure insofar as the/your loan portfolio is concerned is just concentrated to a few people, worst, to a single person, it would
be quite frightening or risky, especially if for example the exposure would be 50%/60% is confined to a single individual only.
- there would be a domino effect, if the single borrower goes bankrupt/falls the bank falls with it.

- Limitation on the total credit accommodation that could be extended to a single borrower
- Legal basis: Sec. 35 of the GBL
2. Ceiling
The total amount of loans, credit accomodation, and guarantees that may be extended by a bank to any person, partnership,
association, corporation, or other entity shall at no time exceed 25% of the networth of the bank; it used to be 20% but it has been
increased by the Monetary Board to 25% by virtue of BSP Circular No. 425.
- The over-all basis for gauging the compliance with the single borrower’s limit is the total credit commitment of the subject bank to
the borrower
- Further increase may be allowed but only up to 10%, subject to the requirement that the increase should be adequately secured by
collaterals
- What are the possible collaterals? Mortgages, pledges, trust receipts, shipping papers, documents of title, warehouse receipts and the
like, particularly those documents that are readily marketable and of course, insurance coverage should likewise be presented to the
bank

3. Inclusions/Exclusions from SBL

- All of the borrower's direct/indirect exposure or loan to the banks

The above prescribed ceilings shall include:

(a) the direct liability of the maker or acceptor of paper discounted with or sold to such bank and the liability of a general
indorser, drawer or guarantor who obtains a loan or other credit accommodation from or discounts paper with or sells
papers to such bank;
(b)in the case of an individual who owns or controls a majority interest in a corporation, partnership, association or any other
entity, the liabilities of said entities to such bank;
(c) in the case of a corporation, all liabilities to such bank of all subsidiaries in which such corporation owns or controls a
majority interest; and
Subsidiary - majority of the shares, if not all of the shares are owned by the holding corporation/parent corporation
(d) in the case of a partnership, association or other entity, the liabilities of the members thereof to such bank.
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:
(a) the parent corporation, partnership, association, entity or individual guarantees the repayment of the liabilities;
(b) the liabilities were incurred for the accommodation of the parent corporation or another subsidiary or of the partnership or
association or entity or such individual; or
(c) the subsidiaries though separate entities operate merely as departments or divisions of a single entity.

For purposes of this Section, loans, other credit accommodations and guarantees shall exclude:
(a) loans and other credit accommodations secured by obligations of the Bangko Sentral or of the Philippine Government, US
Treasury and other central banks of states with high credit quality
(b)loans and other credit accommodations fully guaranteed by the government as to the payment of principal and interest;
(c) loans and other credit accommodations covered by assignment of deposits maintained in the lending bank and held in the
Philippines; [the deposits are made as collateral.]
(d)loans, credit accommodations and acceptances under letters of credit to the extent covered by margin deposits; and
(e) other loans or credit accommodations which the Monetary Board may from time to time, specify as non-risk items.

F. Limit on Loans Against Real or Personal Property

Except as the Monetary Board may otherwise prescribe, loans and other credit accommodations against real estate shall
not exceed seventy-five percent (75%) of the appraised value of the respective real estate security, plus sixty percent
(60%) of the appraised value of the insured improvements, and such loans may be made to the owner of the real estate
or to his assignees.

Except as the Monetary Board may otherwise prescribe, loans and other credit accommodations on security of chattels
and intangible properties, such as, but not limited to, patents, trademarks, trade names, and copyrights shall not
exceed seventy-five percent (75%) of the appraised value of the security, and such loans and other credit
accommodations may be made to the title-holder of the chattels and intangible properties or his assignees.

G. Truth in Lending

Section 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its citizens from a lack of
awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the
uninformed use of credit to the detriment of the national economy.

- Law which seeks to protect borrowers

- The primary purpose for the enactment of the law is avoidance of hidden charges
- RA 3765 otherwise known as an act to require the disclosure of finance charges in connection with extensions of credit
- More popularly know as the TILA - truth in lending act
-
- Sec. 3, (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.

- Sec. 3, (4) "Creditor" means any person engaged in the business of extending credit (including any person who as a regular
business practice make loans or sells or rents property or services ', either as principal or as agent) who requires as an
incident to the extension of credit, the payment of a finance charge.
- Thus, he must be regularly engaged in business of lending funds not an isolated, private transaction/negotiations
- Thus, it includes banks in the exercise of their loan function and financial institutions and lenders

1. Matters required to be disclosed

Section 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the
transaction, a clear statement in writing [disclosure statement] setting forth, to the extent applicable and in
accordance with rules and regulations prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the
transaction but which are not incident to the extension of credit;
(5) the total amount to be financed;
 (6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate
on the outstanding unpaid balance of the obligation.

Sec. 3, (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.

UCPB V SPS. BELUSO, the subsequent disclosure will not excuse the creditor concerned from liability.
The reason [for the law] is to protect users and borrowers to enable them to ascertain the interests that they're going
to pay, avoidance of hidden charges and unwarranted deductions, so that they may be able to fully appreciate the cost
of their borrowing and they're able to evaluate the options that are available to them, and so in giving consent to the
loan transaction we are able to ensure that here the debtor has been able to give full consent to the loan
accommodation.

Are the co-makers/guarantors/sureties covered by the protection of the TILA? Because in a way they are also
borrowers, although they may be held liable for the obligation? Is the notice to the principal borrower, notice to
the persons secondarily liable as well?

When is disclosure required to be made? Prior to the [consummation]; what does consummation mean in so far as
the TILA is concerned? Check the essence/prior motivation for the law - even prior to the perfection of the
contract.

2. Penalties

Section 6.
A. Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or
any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance
charged required by such creditor in connection with such transaction, whichever is the greater, except that such liability shall
not exceed P2,000 on any credit transaction.
• Action to recover such penalty may be brought by such person within one year from the date of the occurrence of the violation, in
any court of competent jurisdiction.
• In any action under this subsection in which any person is entitled to a recovery, the creditor shall be liable for reasonable
attorney's fees and court costs as determined by the court.

(b) Except as specified in subsection (a) of this section, nothing contained in this Act or any regulation contained in this Act or any
regulation thereunder shall affect the validity or enforceability of any contract or transactions.

(c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than
P1,000 or more than P5,000 or imprisonment for not less than 6 months, nor more than one year or both.

(d) No punishment or penalty provided by this Act shall apply to the Philippine Government or any agency or any political subdivision
thereof.

(e) A final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a defendant has willfully violated
this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such
defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto.

CASES:
Soriano vs. People of the Phils., 30 June 2009;
Petioners Hilario P. Soriano (Soriano) and Rosalinda Ilagan (Ilagan) were the President and General Manager, respectively, of the
Rural Bank of San Miguel (Bulacan), Inc. (RBSM).

During their incumbency, petitioners indirectly obtained loans from RBSM. They falsified the loan applications and other bank
records, and made it appear that Virgilio Malang and Rogelio Maaol obtained loans of P15,000,000.00 each, when in fact they did
not.

RULING: Soriano was faced not with one information charging more than one offense, but with more than one information, each
charging a different offense - violation of DOSRI rules in one, and estafa thru falsification of commercial documents in the others.
Ilagan, on the other hand, was charged with estafa thru falsification of commercial documents in separate informations. Thus,
petitioners erroneously invoke duplicity of charges as a ground to quash the Informations.

BSP in its memorandum, there are differences between the two (2) offenses. A DOSRI violation consists in the failure to observe
and comply with procedural, reportorial or ceiling requirements prescribed by law in the grant of a loan to a director, officer,
stockholder and other related interests in the bank, i.e. lack of written approval of the majority of the directors of the bank and
failure to enter such approval into corporate records and to transmit a copy thereof to the BSP supervising department. The
elements of abuse of confidence, deceit, fraud or false pretenses, and damage, which are essential to the prosecution for estafa,
are not elements of a DOSRI violation. The filing of several charges against Soriano was, therefore, proper.

In Criminal Case Nos. 1719 & 1980 for violation of DOSRI rules, the informations alleged that Soriano was the president of RBSMI,
while Ilagan was then its general manager; that during their tenure, Soriano, with the direct participation of Ilagan, and by using
the names of Virgilio Malang and Rogelio Maaol, was able to indirectly obtain loans without complying with the requisite board
approval, reportorial and ceiling requirements, in violation of Section 83 of R.A. No. 377 as amended.
BPI vs. Sps. Yu, 20 January 2010;

Yus filed their new complaint before the RTC of Legazpi against BPI for recovery of alleged excessive penalty charges, attorney’s
fees, and foreclosure expenses that the bank caused to be incorporated in the price of the auctioned properties.

RULING: Penalty charge, which is liquidated damages resulting from a breach, falls under item (6) or finance charge. A finance
charge "represents the amount to be paid by the debtor incident to the extension of credit." The lender may provide for a penalty
clause so long as the amount or rate of the charge and the conditions under which it is to be paid are disclosed to the borrower
before he enters into the credit agreement.

In this case, although 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, 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." The promissory note is an
acknowledgment of a debt and commitment to repay it on the date and under the conditions that the parties agreed on. It is a
valid contract absent proof of acts which might have vitiated consent.

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.

DBP vs. Arcilla, G.R. No. 161397, 30 June 2005

What is the effect of failure to comply with the TILA on the loan itself? Will the contract be ineffectual? Will the lender be
prevented from collecting amortizations on the loan?
Consolidated cases involving another case where both parties filed petitions before the supreme court arising from the same case.

Atty. felipe arcilla was an employee of dbp (development bank of the phils.)and he was assigned to the legal dept and thereafter
he decided to avail of a loan under the bank's individual housing project. Atty. arcilla executed a deed of conditional sale with dbp
over property as well as the house to be built thereon for the price of 160,000. Said amount was borrowed by Atty. Arcilla for the
purchase of the lot as well as for the construction of the office-residential house thereon. Upon payment of the loan, the
obligation of dbp was to transfer title to Atty. Arcilla.
It was agreed that if Atty. Arcilla were to avail of optional retirement, he could continue paying the loan or convert his real estate
loan with the prevailing interest x x x [immaterial]

There was a service charge and interest provision in the promissory note and other items that he is required to pay. Nonetheless,
when Atty. Arcilla was being charged with the said finance charges, he objected to the payment thereof; claiming that he was not
properly apprised/advised of these other charges, in other words, he claims that the same are hidden charges. He specifically
claims that dbp failed to furnish him with the disclosure statement required under RA 3765 (TILA) and CB circular 158 specifically
prescribing the form to be followed in making the disclosure statement under the TILA before entering into the sale and its
conversion into a regular housing loan. Nevertheless, DBP deducted the charges from Atty. Arcilla's salaries as early as 1984. For
DBP's part, it claims to have substantially complied with the requirements of the TILA and the circular in question because the
details required under the TILA were specifically disclosed in the P/N, deed of conditional sale and the notices sent to Atty. Arcilla.
In any event, it's failure to comply strictly with the requirement of RA 3765 and the circular [to make a separate form for
disclosure] by simply incorporating the matters required to be disclosed under the TILA in the foregoing documents, such omission
does not affect the validity and enforceability of the transaction. But Atty. Arcilla insists that the bank should have furnished him
with the information required to be disclosed in the form prescribed by TILA and the circular adverted to prior to the
consummation of the loan transaction the disclosure in the P/N and the deed of conditional sale does not substantially comply with
the said requirement. Furthermore, such failure to comply forecloses DBP's right to demand compliance with his obligation under
the transaction and DBP shall not have the right to deduct payment from his salaries without first complying with the mandate of
the TILA.

RULING: The SC sustained DBP. The circular adverted to states that the contract covering the credit transaction or any other
document to be acknowledged by the debtor should indicate the additional charges, if any, which shall be collected in case any
stipulations in the contract are not met by the debtor. If the borrower is not duly informed of the data required by the TILA prior
to the consummation of the availment or draw down, the lender will have no right to collect the finance charges or increases
thereof, even if stipulated in the promissory note.

However, on the assumption that the bank failed to comply with the disclosure required under the TILA, the effect is only for dbp
to be foreclosed from collecting finance charges or increases thereof, though the same may have been stipulated in the loan
contract. It shall not affect the validity or enforceability of the loan transaction.

There's no evidence on record that DBP sought to collect any interest, penalty or other charges from arcilla other than those
disclosed in the deeds or documents. Since the charges were incorporated in the loan documents, there is deemed to be a
substantial compliance with the requirements of the TILA.

The TILA is for the purpose of information [informing], you being notified, you being made aware of the cost of your borrowing;
the court was convinced, considering among other things, arcilla's profession/educational background, that such purpose was
achieved. A lawyer would not be so gullible or negligent, as to sign documents, without knowing fully well the legal implications
and consequences of his actions and that he is presumed knowledgeable with the matters relating to the business of dbp [being an
employee thereof] and fully cognizant of the terms of the loan he applied for, including the charges that he had to pay.

It would have been different if the borrower was an ordinary employee who was so eager to buy his first house and is easily
enticed into accepting onerous terms so long as the same is payable via installments, in such a case, the court will be disposed to
be stricter in imposing the requirements of the TILA insisting that the borrower be fully informed of what he is entering into.
However, in the case at bar considering Mr. Arcilla's education and training the court must hold in the light of the evidence on
hand, that he was properly, duly informed of the necessary charges and their corresponding implications or effects. Accordingly,
the position taken by atty. arcilla is without merit.

V.BANK REGULATIONS

A. Ownership of Banks
1. Guidelines for Establishment
SECTION 14. Certificate of Authority to Register.
The Securities and Exchange Commission shall not register the articles of incorporation of any bank, or any amendment thereto,
unless accompanied by a certificate of authority issued by the Monetary Board, under its seal.

Such certificate shall not be issued unless the Monetary Board is satisfied from the evidence submitted to it:
14.1 That all requirements of existing laws and regulations to engage in the business for which the applicant is proposed to be
incorporated have been complied with;
14.2. That the public interest and economic conditions, both general and local, justify the authorization; and
14.3. That the amount of capital, the financing, organization, direction and administration, as well as the integrity and responsibility of
the organizers and administrators reasonably assure the safety of deposits and the public interest.

The Securities and Exchange Commission shall not register the by-laws of any bank, or any amendment thereto, unless accompanied
by a certificate of authority from the Bangko Sentral.

SECTION 8. Organization. — The Monetary Board may authorize the organization of a bank or quasi-bank subject to the following
conditions:
8.1. That the entity is a stock corporation;
8.2. That its funds are obtained from the public, which shall mean twenty (20) or more persons; and
8.3. That the minimum capital requirements prescribed by the Monetary Board for each category of banks are satisfied.

In the exercise of the authority granted herein, the Monetary Board shall take into consideration their capability in terms of their
financial resources and technical expertise and integrity.

The bank licensing process shall incorporate an assessment of the bank's ownership structure, directors and senior management, its
operating plan and internal controls as well as its projected financial condition and capital base.

2.Foreign Stockholdings
(a) Individual and non-banks

SECTION 11. Foreign Stockholdings. — Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of
the voting stock of a domestic bank.

The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the individual stockholders in that
bank.

The citizenship of the corporation which is a stockholder in a bank shall follow the citizenship of the controlling stockholders of the
corporation, irrespective of the place of incorporation.

e.g. total voting shares of x bank is 1 million shares, 400k filipinos, 400k foreign, 200k is held by Y corporation
so how do we determine the citizenship of Y co.? depends on the citizenship of its controlling stockholders; we do not apply the
incorporation test.

What do you mean by controlling shareholders? The threshold is more than 50% of the voting stocks are held. Thus, if Y co. voting shares
are 60% held by Filipino citizens, Y co. is a filipino citizen, regardless of where it was incorporated.

(b) Foreign Banks

- The 40% equity limitation does not apply to foreign banks
- RA 7721
- sec. 2 the monetary board may authorize foreign banks to operate in the Philippine Banking System through any of the following modes
of entry:
- by acquiring, purchasing or owning up to 60% of the voting stock of any existing bank
- by investing (creation of a subsidiary), infuse capitalization of up to 60% in a new banking corporation which it could make as a
subsidiary, incorporated under the laws of the RP
- by establishing branches in the Philippines with full banking authority

Restrictions:
- the foreign bank may avail itself of only one mode of entry
- the foreign bank could only own up to 60% of the voting stock of only one domestic bank or a new subsidiary

BUT THE FOREGOING HAS BEEN AMENDED BY RA 10641, Sec. 1, to wit:

The Monetary Board may authorize foreign banks to operate in the Philippines through any of the following modes of entry:
1. by acquiring, purchasing or owning up to one hundred percent (100%) of the voting stock of an existing domestic bank;
2. by investing in up to one hundred percent (100%) of the voting stock of a new banking subsidiary incorporated under the laws of the
Philippines;
3. by establishing branches with full banking authority.

Note:
-Only established, reputable and financially sound foreign banks shall be allowed entry in the Philippines.
- Furthermore, the foreign bank applicant must be widely-owned and publicly-listed in its country of origin, unless the foreign bank
applicant is owned and controlled by the government of its country of origin (RA 10641, Sec. 2, amending RA 7721, sec. 3)

Sec. 3, RA 7721 the general requirement is for the MB to adopt measures as may be necessary to ensure that at all times control of
70% of the resources or assets of the entire banking system in the Philippines is held by domestic banks majority held by Filipinos
- Measures that would prevent dominant market position by one bank
- Or the concentration of economic power in one or more financial institutions
- Secure the listing in the PSE of the shares of such corporation
- for the proper regulation of foreign banks in so far as they are allowed to do business in the country

3.Filipino Stockholdings

From Memaid:
A Filipino individual and a domestic non-bank corporation may each own up to 40% of the voting stock of a bank.
Thus, while the restriction on foreigners refers to the total equity participation, the restriction on Filipinos and domestic non-bank
corporations refer to individual equity participation.

From Lecture:
This rule [40% limit on foreigners] shall [likewise] apply to Filipinos and domestic non-bank corporations.
- However, this 40% limitation applies to single filipino individuals and to domestic corporate shareholders which is not a banking
institution (domestic non-bank corporations)
- In other words, no single filipino individual can own more than 40% of the voting stocks of such bank; the same rule applies to domestic
non-bank corporations
- Transcriber’s note: Thus, Filipinos may still own up to 60% in a bank but such 60 percent could not be held by a single filipino individual
or a single domestic non-bank corporation

We could also pierce for the purposes of determining compliance with sec. 11:
- E.g. Of the 1 million voting shares X bank, 800k is filipino, 200k foreign – so on it’s face it would seem that the shareholdings are
compliant with the minimum 60-40 requirement (pero pag kinalkal natin si 800k - 400k of which is held by a single filipino individual
(bea faller) and the other 400k is held by a non-bank shareholder (bea incorporated). If 40% of bea incorporated is controlled by bea
faller; ergo, bea faller is indirectly in control of the 40% of the 400k shares owned by the non-bank shareholder (400k*40%=160k) shares –
Thus, the shares which are actually held by bea faller in X bank is 560k or more than the 40% limit on a single filipino individual (400k
owned in her name +160k indirectly held = 560k, in violation of the 40% limitation).

Commercial bank – at least 60% of voting stock shall be owned by Filipino Citizens
Thrift bank – at least 40% of its voting stock shall be owned by Filipino Citizens
Rural banlk – no less than 40% of the voting stocks shall be owned by Filipino Citizens while non-filipino citizens may own up to 60% of
the voting stocks

4. Stockholdings of family Groups or Related Interests

SECTION 12. Stockholdings of Family Groups or Related Interests.
Stockholdings of individuals related to each other within the fourth degree of consanguinity or affinity, legitimate or common-law,
shall be considered family groups or related interests and must be fully disclosed in all transactions by such an individual with the
bank.

5. BSP Circulars on Ownership

(Circular No. 332, Series of 2002)

Pursuant to Monetary Board Resolution No. 567 dated 25 April 2002, the following rules and regulations are hereby issued to
implement Sections 12, 13 and 14 of Republic Act No. 8791, otherwise known as “The General Banking Law of 2000”.

Section 1. Stockholdings of Family Groups or Related Interests. Individuals related to each other within the fourth degree of
consanguinity or affinity, whether legitimate, illegitimate or common-law, shall be considered family groups or related interests but
may each own up to forty percent (40%) of the voting stock of a domestic bank: Provided, That said relationship must be fully
disclosed in all transactions by such individual or family group with the bank.

Section 2. Corporate Stockholdings. Two or more corporations owned or controlled by the same family group or same group of persons
shall be considered related interests but may each own up to forty percent (40%) of the voting stock of a domestic bank: Provided,
That said relationship must be fully disclosed in all transactions by such corporations or related groups of persons with the bank.

Section 3. A natural person and a corporation or corporations which are wholly-owned, or a majority of the voting stock of which is
owned, by him may own only up to a combined forty percent (40%) of the voting stock of a domestic bank.
CIRCULAR NO. 256
Series of 2000

Pursuant to Monetary Board Resolution No. 1233 dated July 21, 2000, the following rules and regulations are hereby issued to implement
Section 11 of Republic Act No. 8791, "The General Banking Law of 2000".

Section 1. Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of the voting stock of a domestic
bank: Provided, That the aggregate foreign owned voting stocks owned by foreign individuals and non-bank corporations in a
domestic bank shall not exceed forty percent (40%) of the outstanding voting stock of the bank. The percentage of foreign-owned
voting stocks in a bank shall be determined by the citizenship of the individual stockholders in that bank.

Section 2. A Filipino individual and a domestic non-bank corporation may each own up to forty percent (40%) of the voting stock of a
domestic bank. There shall be no aggregate ceiling on the ownership by such individuals and corporations in a domestic bank.

Section 3. The citizenship of the corporation which is a stockholder of a bank shall follow the citizenship of the controlling stockholders
of the corporation, irrespective of the place of incorporation. For purposes hereof, the term "controlling stockholders" shall refer to
individuals holding more than fifty percent (50%) of the voting stock of the corporate stockholder of the bank.

B. Directors and Officers

1.Composition of Board
SECTION 15. Board of Directors. — The provisions of the Corporation Code to the contrary notwithstanding, there shall be at least five
(5), and a maximum of fifteen (15) members of the board of directors of bank, two (2) of whom shall be independent directors.

In case of merged or consolidated banks, the maximum number of directors is twenty-one (21).

Non-filipino citizens may become members of the board of directors of a bank to the extent of the foreign participation in the equity of
said bank.

An "independent director" shall mean a person other than an officer or employee of the bank, its subsidiaries or affiliates or related
interests.
- The requirement of independent directors was pioneered by the BSP (origin of the requirement)
- Public corporations as defined under the SRC should have at least 2 independent directors or at least 20% of the board, whichever is
lesser (minimum)
- The requirement of independent directors is mandatory
- The reason for ID:
- The necessity to ensure that in making decisions for the bank objectivity is ensured
- Check and balance is in place
- Outside experience
- Directors who are independent, who can decide without being subservient to the interest of the majority stockholders (act for the
benefit of all)
- Issues are carefully assessed
- Helps break deadlocks

An independent directors is a person who:

1. Is not a director or officer of the related companies of the institution’s majority stockholder;
2. Is not or has not been an officer or employee of the bank/quasi-bank/trust entity, its subsidiaries or affiliates or related interests
during the past 3 years counted from the date of his election;
3. Is not a majority shareholder of the institution;
4. Is not a relative, legitimate or common-law, of any director, officer or stockholder holding any shares of stock sufficient to elect one
seat in the board of the bank or any of its related companies;

Note: “Relatives” refer to spouse, parent, child, brother, sister, parent-in-law, son/daughter-in-law, and brother-/sister-in-law.

5. Is not acting as a nominee or representative of any director or substantial shareholder of the b/q/t.
6. Is free from any business or other relationship with the institution or any of its majority stockholders which could materially interfere
with his judgment (Circular 391, Sec. 1,Series of 2003)

Can an independent director come from the minority shareholders of the corporation?
Most of the independent directors being appointed today are retired judges/justices.

2. Public Officials
SECTION 19. Prohibition on Public Officials. — Except as otherwise provided in the Rural Banks Act, no appointive or elective public
official, whether full-time or part-time shall at the same time serve as officer of any private bank, save in cases where such service is
incident to financial assistance provided by the government or a government-owned or controlled corporation to the bank or unless
otherwise provided under existing laws.
What is the evil that this disqualification seeks to address?
Conflict of interest

3. Meetings
The meetings of the board of directors may be conducted through modern technologies such as, but not limited to, teleconferencing
and video-conferencing.

4. Qualifications
(a) Fit and Proper Rule
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 [CITEE]

From lecture:
- As a rule under the Corporation Code, removal or replacement of a director is an intra-corporate matter – removal or replacement of
an officer is a director’s issue. While removal of directors is a stockholder’s issue – because it’s the stockholder’s who have the authority
to replace directors, following the procedure laid down in sec. 28 of the Corporation Code (2/3 vote).
- But as regards banks, the Monetary Board may interfere with the qualifications and disqualifications of the people running the affairs
of the bank
- Their qualifications may be reviewed by the MB to the extent that it may even disqualify them if found unfit – it is actually a deviation
from corporation law, for it is for the greater interest of the public – depositors, creditors and other stakeholders.
- The purpose is to maintain the integrity of the banking system

(b) Minimum Qualifications

Qualifications of a director

A director shall have the following minimum qualifications:

1. He shall be at least twenty-five (25) years of age at the time of his election or appointment;
2. He shall be at least a college graduate or have at least five(5) years experience in business;
3. He must have attended a special seminar for board of directors conducted or accredited by the BSP: Provided, That incumbent
directors as well as those who will be elected after the approval of this circular must attend said seminar within a period of six (6)
months from the date of this circular or from the date of their election, as the case may be; and
4. He must be fit and proper for the position of a director of the bank/quasi-bank/trust entity.

In determining whether a person is fit and proper for the position of a director, the following matters must be considered:

• integrity/probity;
• competence;
• education;
• diligence; and
• experience/training.

The foregoing qualifications for directors shall be in addition to those required or prescribed under R.A. No. 8791 and other existing
applicable laws and regulations.

Qualifications of an officer

An officer shall have the following minimum qualifications:

1. He shall be at least twenty-one (21) years of age;

2. He shall be at least a college graduate, or have at least five (5) years experience in banking or trust operations or related activities or
in a field related to his position and responsibilities, or have undergone training in banking or trust operations acceptable to the
appropriate supervising and examining department of the BSP: Provided, however, That trust officers shall have at least two (2) years
of actual experience or training in trust operations or fund management or other related fields; and
3. He must be fit and proper for the position he is being proposed/appointed to.

In determining whether a person is fit and proper for a particular position, the following matters must be considered:
integrity/probity;
competence;
education;
diligence; and
experience/training.
The foregoing qualifications for officers shall be in addition to those required or prescribed under R.A. No. 8791 and other existing
applicable laws and regulations.

5.Prohibited Acts and Disqualifications

Prohibited acts
1.Make false entries in any bank report or statement or participate in any fraudulent transaction;
2. Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any bank;
3. Outsource inherent banking functions - a bank cannot engage the services of another entity to receive deposits on its behalf; the
bank has to do it by itself; to ensure security of bank deposits;
4. Without order of a court of competent jurisdiction, disclose to any unauthorized person any information relative to the funds or
properties in the custody of the bank belonging to private individuals, corporations, or any other entity; and
5. Accept gifts or any other form of remuneration in connection with the approval of a loan or credit accommodation from said bank.

Persons disqualified to become directors

Without prejudice to specific provisions of law prescribing disqualifications for directors, the following are disqualified from
becoming directors:

a. Permanently disqualified
Directors/officers/employees permanently disqualified by the Monetary Board from holding a director position:
(1) Persons who have been convicted by final judgment of a court for offenses involving dishonesty or breach of trust such as, but
not limited to, estafa, embezzlement, extortion, forgery, malversation, swindling, theft, robbery, falsification, bribery, violation of B.P.
Blg. 22, violation of Anti-Graft and Corrupt Practices Act and prohibited acts and transactions under Section 7 of R.A. No. 6713
(2) Persons who have been convicted by final judgment of a court sentencing them to serve a maximum term of imprisonment more
than six (6) years;
(3) Persons who have been convicted by final judgment of the court for violation of banking laws, rules and regulations;
(4) Persons who have been judicially declared insolvent, spendthrift or incapacitated to contract;
(5) Directors, officers or employees of closed banks who were found to be culpable for such institution’s closure as determined by
the Monetary Board;
(6) Directors and officers of banks found by the Monetary Board as administratively liable for violation of banking laws, rules and
regulations where a penalty for removal from office is imposed, and which finding of the Monetary Board has become final and
executory; or
(7) Directors and officers of banks or any person found by the Monetary Board to be unfit for the position of directors or officers because
they were found administratively liable by another government agency for violation of banking laws, rules and regulations of any
offense/violation involving dishonesty or breach of trust, and which finding of said government agency has become final and
executory

b. Temporary disqualified

(1) Persons who refuse to fully disclose the extent of their business interest or any material information to the appropriate
department of the SES when required pursuant to a provision of law or of a circular, memorandum, rule or regulation of the Bangko
Sentral. This disqualification shall be in effect as long as the refusal persists;
(2) Directors who have been absent or who have not participated for whatever reasons in more than fifty percent (50%) of all
meetings, both regular and special, of the board of directors who failed to physically attend for whatever reasons in at least twenty-
five percent (25%) of all board meetings in any year, except that when a notarized certification executed by the corporate secretary
has been submitted attesting that said directors were given the agenda materials prior to the meeting and that their comments/
decisions thereon were submitted for deliberation/discussion and were taken up in the actual board meeting, said directors shall be
considered present in the board meeting. This disqualification applies only for purposes of the immediately succeeding election;
(3) Persons who are delinquent in the payment of their obligations as defined hereunder:
a. Delinquency in the payment of obligations means that an obligation of a person with a bank/quasi bank/trust entity where he/she is
a director or officer, or at least two obligations with other banks/financial institution, under different credit lines or loan contracts, are
past due pursuant to Sec. X306;
b. Obligations shall include all borrowings from a bank/quasi bank obtained by:
i. A director or officer for his own account or as the representative or agent of others or where he/she acts as a guarantor, indorser, or
surety for loans from such financial institutions;
ii. The spouse or child under the parental authority of the director or officer;
iii. Any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of a director or officer;
iiii. A partnership of which a director or officer, or his/her spouse is the managing partner or a general partner owning a controlling
interest in the partnership; and
v. A corporation, association or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned
in the foregoing Items (i),(ii) and (iv);
vi. This disqualification shall be in effect as long as the delinquency persists.
(4) Persons convicted for offenses involving dishonesty, breach of trust or violation of banking laws but whose conviction has not
yet become final and executory;
(5) Directors and officers of closed banks/quasi-banks/trust entities pending their clearance by the Monetary Board;
(6) Directors disqualified for failure to observe/discharge their duties and responsibilities prescribed under existing regulations. This
disqualification applies until the lapse of the specific period of disqualification or upon approval by the Monetary Board on
recommendation by the appropriate supervising and examining department of such directors’ election/reelection;
(7) Directors who failed to attend the special seminar for board of directors required under item 3 of subsecs. X141.2/4141Q.2. This
disqualification applies until the director concerned had attended such seminar;
(8) Persons dismissed/terminated from employment for cause. This disqualification shall be in effect until they have cleared themselves
of involvement in the alleged irregularity;
(9) Those under preventive suspension; or
(10) Persons with derogatory records with the National Bureau of Investigation (NBI), court, police, interpol and monetary authority
(central bank) of other countries (for foreign directors and officers) involving violation of any law, rule or regulation of the Government
or any of its instrumentalities adversely affecting the integrity and/or ability to discharge the duties of a bank/quasi bank/trust entity
director/officer. This disqualification applies until they have cleared themselves of involvement in the alleged irregularity.
(11) Directors and officers of banks found by the Monetary Board as administratively liable for violation of banking laws, rules and
regulations where a penalty of removal from office is imposed, and which finding of the Monetary Board is pending appeal before the
appellate court, unless execution or enforcement thereof is restrained by the court;
(12) Directors and officers of the bank or any person found by the Monetary Board to be unfit for the position of director or officer
because they were found administratively liable by another government agency for violation of banking law, rules and regulations or
an offense/violation involving dishonesty or breach of trust, and which finding of said government agency is pending appeal before the
appellate court, unless execution or enforcement thereof is restrained by the court; and
(13) Directors and officers of banks found by the Monetary Board as administratively liable for violation of banking laws, rules and
regulations where a penalty of suspension from office or fine is imposed, regardless whether the finding of the Monetary Board is
final and executory or pending appeal before the appellate court, unless execution or enforcement thereof is restrained by the
court. The disqualification shall be in effect during the period of suspension or so long as the fine is not fully paid.

Persons disqualified to become officers

a. The disqualifications for directors mentioned in Subsec. X143.1 shall likewise apply to officers, except those stated in Items “b(2)”
and “b(7)”.
b. The spouses or relatives within the second degree of consanguinity or affinity are prohibited from holding officership positions across
the following functional categories within a bank:
1. Decision making and senior management function, e.g., chairman, president, chief executive officer (CEO), chief operating officer
(COO), general manager, and chief financial officer (CFO) other than the treasurer or controller;
2. Treasury function, e.g., Treasurer and Vice President – Treasury;
3. Recordkeeping and financial reporting functions, e.g., controller and chief accountant;
4. Safekeeping of assets, e.g., chief cashier;
5. Risk management function, e.g., chief risk officer;
6. Compliance function, e.g., compliance officer; and
7. Internal audit function, e.g., internal auditor.
The spouse or a relative within the second degree of consanguinity or affinity of any person holding the position of manager, cashier, or
accountant of a branch or extension office of a bank or their respective equivalent positions is disqualified from holding or being
appointed to any of said positions in the same branch or extension office.
c. Any appointive or elective official, whether full time or part time, except in cases where such service is incident to financial
assistance provided by the government or government owned or -controlled corporations (GOCCs) or in cases allowed under existing law.
d. In the case of Coop Banks, any officer or employee of CDA or any elective public official, except a barangay official.
e. Except as may otherwise be allowed under Commonwealth Act No. 108, otherwise known as “The Anti-Dummy Law”, as amended,
foreigners cannot be officers or employees of banks.

C. Ownership of Real Property

SECTION 51. Ceiling on Investments in Certain Assets. —
Any bank may acquire real estate as shall be necessary for its own use in the conduct of its business:

Provided, however, That the total investment in such real estate and improvements thereof, including bank equipment, shall not exceed
fifty percent (50%) of combined capital accounts:

Provided, further, That the equity investment of a bank in another corporation engaged primarily in real estate shall be considered as
part of the bank's total investment in real estate, unless otherwise provided by the Monetary Board.

SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. —

Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or convey real property under the following
circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or
52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to
secure debts due it.

Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the bank within
a period of five (5) years or as may be prescribed by the Monetary Board:

Provided, however, That the bank may, after said period, continue to hold the property for its own use, subject to the limitations of the
preceding Section.

CASE: Tala Realty Corp. vs. Banco Filipino, 7 April 2009

VI. BANKS IN DISTRESS
- banks are closely regulated by the monetary board
- This close regulation entails:
• Regular inspection of the records
• Examination of record, f/s, and other documents

- Thorough, detailed audit exercises by the BSP, it's a serious matter

- Recommendations coming from the auditors must be taken seriously otherwise, the bank will be subject to sanctions by the BSP

- In the exercise of monitoring, if the bank is no longer operating in a safe and sound manner, since it is having serious problems
with its finances, certain remedies may be taken by the monetary board to address the situation, to wit:
• To extend loans and advance to the bank even without requiring the bank to present/provide collateral therefor (NCBA)/emergency
loans
- the amount of the emergency loan should not extend 50% of its total deposit with the central bank and the loan is to be released in
two tranches/installments (emergency loans suggest that the financial situation is not that serious)

- [however] if the scenario is one where the bank is in a state of inability or unwillingness to maintain a condition of liquidity, which
condition is necessary to protect the interest of the depositors/creditors of the bank, the monetary board in the exercise of the
states police power may appoint a CONSERVATOR with such powers as the monetary board may consider necessary under the
circumstances
- The period for conservatorship is only 1 year
- GENERAL QUALIFICATION: Competence - knowledgeable in bank operations and management

- PDIC - statutory receiver; for purposes of conservatorship it is within the discretion of the monetary board to appoint who it deems to
be qualified or fit to serve as conservator
- BSP may opt to designate a person who is connected with the bsp to act as conservator; however, if he serves as such [hindi muna siya
swesweldo, kasi swesweldo naman siya dun sa bangko e] in the meantime he wont be receiving salary from the bsp because he will be
getting paid by the bank to be placed under receivership [otherwise, dal-dalawa ang kanyang sweldo/employer]

- Liquidity - having enough cash to attend to your day to day activities

A. Loans to Banks
1. Loans without Collateral
SEC. 83. Loans for Liquidity Purposes.
The Bangko Sentral may extend loans and advances to banking institutions for a period of not more than seven (7) days without
any collateral for the purpose of providing liquidity to the banking system in times of need.

2. Emergency Loans
SEC. 84. Emergency Loans and Advances.
- In periods of national and/or local emergency or
- of imminent financial panic which directly threaten monetary and banking stability,
- the Monetary Board may, by a vote of at least five (5) of its members, authorize the Bangko Sentral to grant extraordinary loans or
advances to banking institutions secured by assets as defined hereunder:
- Provided, That while such loans or advances are outstanding, the debtor institution shall not, except upon prior authorization by
the Monetary Board, expand the total volume of its loans or investments.

The Monetary Board may, at its discretion, likewise authorize the Bangko Sentral to grant emergency loans or advances to banking
institutions,
- even during normal periods,
- for the purpose of assisting a bank
- in a precarious financial condition or
- under serious financial pressures brought by unforeseen events, or events which, though foreseeable, could not be prevented by
the bank concerned:
- Provided, however, That the Monetary Board has ascertained that the bank is not insolvent and has the assets defined hereunder to
secure the advances:
- Provided, further, That a concurrent vote of at least five (5) members of the Monetary Board is obtained.

The amount of any emergency loan or advance shall not exceed the sum of fifty percent (50%) of total deposits and deposit
substitutes of the banking institution and shall be disbursed in two (2) or more tranches.

The amount of the first tranche shall be limited to twenty-five percent (25%) of the total deposit and deposit substitutes of the
institution and shall be secured by government securities to the extent of their applicable loan values and other unencumbered first
class collaterals which the Monetary Board may approve: Provided, That if as determined by the Monetary Board, the circumstances
surrounding the emergency warrant a loan or advance greater than the amount provided hereinabove, the amount of the first
tranche may exceed twenty- five percent (25%) of the bank's total deposit and deposit substitutes if the same is adequately secured by
applicable loan values of government securities and unencumbered first class collaterals approved by the Monetary Board, and the
principal stockholders of the institution furnish an acceptable undertaking to indemnify and hold harmless from suit a conservator
whose appointment the Monetary Board may find necessary at any time.
Prior to the release of the first tranche, the banking institution shall submit to the Bangko Sentral a resolution of its board of directors
authorizing the Bangko Sentral to evaluate other assets of the banking institution certified by its external auditor to be good and
available for collateral purposes should the release of the subsequent tranche be thereafter applied for.

The Monetary Board may, by a vote of at least five (5) of its members, authorize the release of a subsequent tranche on condition
that the principal stockholders of the institution: [thus, there is need for a different authorization for the release of the second
tranche]
(a) furnish an acceptable undertaking to indemnify and hold harmless from suit a conservator whose appointment the Monetary Board
may find necessary at any time; and
(b) provide acceptable security which, in the judgment of the Monetary Board, would be adequate to supplement, where necessary, the
assets tendered by the banking institution to collaterize the subsequent tranche.

In connection with the exercise of these powers, the prohibitions in Section 128 of this Act shall not apply insofar as it refers to
acceptance as collateral of shares and their acquisition as a result of foreclosure proceedings, including the exercise of voting rights
pertaining to said shares: Provided, however, That should the Bangko Sentral acquire any of the shares it has accepted as collateral as a
result of foreclosure proceedings, the Bangko Sentral shall dispose of said shares by public bidding within one (1) year from the date of
consolidation of title by the Bangko Sentral.

Whenever a financial institution incurs an overdraft in its account with the Bangko Sentral, the same shall be eliminated within the
period prescribed in Section 102 of this Act.

B. Conservatorship
PURPOSE:
- preservation of the assets of the bank
- Main object of which to make the bank liquid; translation of assets to cash
- So that when the debts mature the bank would be able to pay its liabilities
- Conservatorship is not a condition sine qua non for receivership; depending on the findings of the bsp, the bank may
directly be placed under receivership/ worse case is putting it under liquidation

1. Powers of Conservator
- take charge of the assets and liabilities of the bank and effectively manage the same
- power to reorganize the management of the subject bank
- collect all the monies and debts due to the bank
- exercise such other powers as to effectively carry out the powers of the conservator

LB: SECTION 29, NCBA

Appointment of Conservator.
Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds that a
bank or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors, the Monetary Board may appoint a conservator with such powers as the Monetary
Board shall deem necessary to take charge of the assets, liabilities, and the management thereof, reorganize the management, collect
all monies and debts due said institution, and exercise all powers necessary to restore its viability.

2. Report of the Conservator

The conservator shall report and be responsible to the Monetary Board and shall have the power to overrule or revoke the actions of the
previous management and board of directors of the bank or quasi-bank

3. Qualifications and Remunerations

- The conservator should be competent and knowledgeable in bank operations and management
- The conservator shall receive remuneration to be fixed by the Monetary Board in an amount not to exceed two-thirds (2/3)
of the salary of the president of the institution in one (1) year, payable in twelve (12) equal monthly payments:
- Provided, That, if at any time within one-year period, the conservatorship is terminated on the ground that the institution
can operate on its own, the conservator shall receive the balance of the remuneration which he would have received up to
the end of the year; but if the conservatorship is terminated on other grounds, the conservator shall not be entitled to
such remaining balance.
- The Monetary Board may appoint a conservator connected with the Bangko Sentral, in which case he shall not be
entitled to receive any remuneration or emolument from the Bangko Sentral during the conservatorship. The
expenses attendant to the conservatorship shall be borne by the bank or quasi-bank concerned.

4. Termination of Conservatorship
- The conservatorship shall not exceed one (1) year.
- The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to operate on its own and
the conservatorship is no longer necessary.
- The conservatorship shall likewise be terminated should the Monetary Board, on the basis of the report of the conservator or of its
own findings, determine that the continuance in business of the institution would involve probable loss to its depositors or
creditors, in which case the provisions of Section 30 shall apply.

Note: if the conservator would be able to improve the liability of the bank within 6 months then we could terminate the conservatorship
within 6 months; but if not, after the lapse of the 1 year period, conservatorship will terminate and receivership will ensue or worse
liquidation
 C. Receivership
- no other than the PDIC will be appointed as receiver of the bank
- The bank does not have enough assets to meet its liabilities
- If the bank will continue in business more losses would be suffered by the stakeholders

1. Grounds
- findings of the bsp is such that the bank is not able to pay its liabilities as they become due in the ordinary course of business
- The bank has insufficient realizeable assets as determined by the bsp to meet its liabilities
- The bank has deliberately violated as cease and desist order which have already become final, which involve acts or transactions
amounting to fraud or dissipation of the assets of the bank

2. Duties of Receiver
- effectively manage the the assets and liabilities of the bank and administer the same for the equal benefit of those who have stake in
the bank
- Powers given to a receiver under the rules of court
- Make placements - so that the company may become financially viable again
- Bring suits to enforce liabilities to the bank
- Suspend/terminate employment of officers and employees of the bank
- Borrow on behalf of the bank, if necessary for the purpose of preserving the assets
- Reduce the interest on deposits if found to be exhorbitant

3. Close Now-Hear Later Scheme

- an act that can be taken by the bsp ex parte [without the necessity of prior notice/hearing]
- This exercise is embodied in the rule known as close now hear later scheme
- No prior hearing is necessary in appointing a receiver and in effecting the closure of a bank; it is enough that subsequent judicial
review is available due to practical considerations - reactions of depositors [bank runs -panic and hysteria among the depositors will be
the order of the day if prior notice is required]
- Central bank v CA [Rationale:] nature of the transactions that banks handle; government has the responsibility to see to it that the
financial interest of those who deal with banks are protected because otherwise public faith in our banking system will deteriorate
- The sc could not subscribe to a situation where procedural due process has to take precedence over the more substantive interest and
concerns of the depositors, stockholders and other stakeholders of the bank; nonetheless, subsequent judicial review is an available
remedy
4. Other Legal Effects
- just like corporate rehab, the diff only is you do it via the MB not the RTC
- Corp rehab there must be prior notice and hearing and is initiated via petition

- Upon receivership the properties of the bank shall be deemed under custodia legis in the hands of the receiver
- Thus the properties of the bank shall enjoy exemption from garnishment, levy or attachment or any execution process
- In the meanwhile, creditors [broad enough to include depositors] will stand on equal footing [no preference will be accorded to
anyone, but the preferred status is not effectively lost - it's just in the meantime the receivership process would have to be respected]

- Effect of stay order when one has been issued by the rehabilitation court
- Basically the effect would be as if the bank has acquired injunction
- To enable the receiver to devote fully his time and resources to the rehabilitation process involving the bank

- The basic rule is putting a bank under receivership does not dissolve it
- The concept is diametrically opposed to dissolution become the objective of receivership is to make the bank financially viable again;
for the bank to overcome its financial problems; it has in mind continuity of corporate existence

- nor does receivership interfere with its corporate powers, the bank may still sue and be sued but the case must be initiated and
prosecuted through the receiver

xxx

- custodia legis; the properties are held in trust by the receiver

- The officers/directors suspended ang authority nila with regard to the assets of the bank

- Abacus realty v manila bank [2005] upon putting the bank in receivership, the president of the bank could no longer enter into a
contract concerning the assets of the bank
- Exclusive option to the other party to buy certain assets of the bank; the sc nullified the same for lack of authority of the officer
concerned to do so because at that point in time the bank officers authority to act upon properties and assets of the bank is deemed
suspended
- The bank should act through the receiver

- the bsp may further forbid the bank from doing business
- 'Doing business' as interpreted by the supreme court in Larrobis, Jr. v. Phil. veterans bank [2004] the court explained that while it's
true that the bank was prohibited from doing business, such prohibition does not extend to foreclosure of mortgages constituted by
borrowers in favor of the bank - this activity could enhance the receivership process because it would mean that the bank would be
able to enforce collection of claims
- But when it would be the creditor of the bank who will foreclose the mortgage it will be forbidden following the legal consequences of
receivership
- Fifelity savings bank v. Cenzon, it is a settled rule that interest accruing during the period of receivership shall not be paid by the
bank because the closure of the bank has the effect of exempting the bank from paying interest on deposit
- The bank should not be held liable for interest payment because it is a matter of common knowledge that what enables the bank to
pay interest is through generation of fund by lending money as well as engaging in transactions, local and international and
considering that the bank has no right to do business then it may not have enough resources to attend to the payment of interest
earned by the deposits - so interest accruing during the period of receivership shall not be paid by the subject bank

- Judicial review
- Sec. 30 of the NCBA
- A petition for certiorari may be filed within 10 days from receipt of the directors/officers of the bank of the order coming form the
bsp putting the subject bank under receivership or liquidation
- The petition cannot be filed by the receiver or the conservator that was appointed, but only by stockholders of record [not just any
stockholder of record] but by stockholders of record representing majority of the capital stock of the bank

BASIC DISTINCTIONS BETWEEN BANK CLOSURE AND DISSOLUTION OF AN ORDINARY CORPORATION

- in re: petition for assistance in the liquidation of the rural bank of bokod
- under the corp code, the sec may dissolve a corporation but upon the filing of a verified complaint and after proper notice and hearing
on grounds allowed by law
- Under the corporation code dissolution of a private corporation can happen [involuntarily]
- Despite the passage of the src, the sec retained its regulatory authority over private corporations and in the exercise of
administration/regulation of a private corporation the sec's authority to disenfranchise a private corporation remains intact - but it is
administrative in character
- Basic requirement is upon receipt by the corporation of the order of suspension by the sec the company is required to notify and
submit a copy of the order together with its final tax return to the BIR
- The SEC is also required to furnish the bir a copy of the order of its suspension
- For its part, the BIR is supposed to issue tax clearance to the corporation once it has paid its remaining tax obligations
- The sec will only issue the final order of dissolution after the corporation has submitted its tax clearance.

- Under the corporation code, the company which has been dissolved shall be allowed three years to wind up its affairs; the three year
period shall not be extendible for the simple reason that it is statutory; however, if the corporation really needs a longer period to
wind up its remaning affairs affairs [because after the three year period the corporation loses existence for all legal intents and
purposes]
- At least during the three year period the corporation enjoys residual corporate existence just so that it would be able to wind up
whatever remaining affairs it has
- During the three year winding up period, what the corporation could do is to convey the assets/properties to a [trustee] who then
could continue winding up the affairs of the corporation even beyond the three year period

IN CONTRAST, the monetary board insofar as banks are concerned [and this is the prevailing rule with regard to banks]
- the monetary board can summarily, and without need of prior hearing, forbid the bank from doing business and then and there appoint
the pdic as receiver, the pdic shall immediately gather and take charge of all the assets and liabilities of the bank and administer the
same for the equal benefit of those who have stake in the bank.
- The summary nature of the procedure for involuntary closure is especially emphasized in sec. 30 of the NCBA
- Which explicitly states that the action of the monetary board under the said section is final and executory and may not be restrained
by the court except via petition for certiorari filed by the stockholders of record representing majority of the capital stock of the bank
- The pdic as appointed receiver shall file ex parte with the proper rtc, again - without the necessity of prior notice or hearing or any
other action - if it will come to this point, a petition for liquidation of the bank
- The bank is not given [kasi sa corporation code, who can actually liquidate the affairs - pwedeng corporation na yan mismo, acting
through its board, yung huling board pwedeng sila na yung iappoint na trustee, or pwede rin namang third party trustee, but it is upon
the instruction still of the incumbent board]
- Sec. 112 of the corporation code [residual corporate existence] winding up would still require capacity on the part of the corporation,
so pinagbibigyan siya ng tatlong taon na meron pa siyang malinggit nalang na buhay, in the sense that, such existence should be
utilized for a specific purpose and that is to enable it to wind up its affairs [selling assets/disposing properties in bulk so that the bank
would be liquid so that payment of creditors/payment of liquidating dividends to shareholders would be easier] eh disposition is a
juridical act, kung dissolved na yan, defunct na yan, strictly speaking, wala na yan dapat capacity to act, [so binibigyan] ng residual
corporate existence [3 years]

- pero ang kaibahan daw po, kapag bank ang corporation, it cannot initiate or undertake is own liquidation, the basic rule is there
should be a petition for assistance in the liquidation of the bank and the petition should be initiated by the pdic if the result of the
receivership is [wala ng pag-asa to, hindi na to magiging financially viable again, aabot ka sa liquidation] filed with the RTC

Rural bank of san miguel v monetary board [16 feb 2007]

- Does sec. 30, NCBA require a current and complete examination of the bank before it can be closed and placed under
receivership?
- The sc ruled that its no longer strictly required under sec. 30, examination of the bank [used to be a requirement]; however, with the
changes made in sec. 30 it would seem that a mere REPORT of the head of the assigned supervising and examining department is
sufficient
- It is an established rule in statcon that when the words of the statute are plain, clear and free from ambiguity it must be given its
literal meaning and applied without any attempted interpretation; there is no room for doubt, there is no room for interpretation, you
apply it as it is; it's plain meaning
- The word REPORT has a definite and unambiguous meaning which is clearly different from EXAMINATION
- A report, as a noun, may be defined as something that gives information or a usually detailed account or statement; on the other
hand, examination means a search, investigation, or scrutiny.
- The absence of an examination before the closure of the bank subject matter of this case did not mean however, that there was no
basis for such closure, needless to say the decision of the monetary board, just like any administrative body must have something to
support itself and its findings of fact must be supported by substantial evidence; however, it is very clear under sec. 30 of the NCBA
that such basis need arise from thorough examination as required under the old statute. The purpose of the law is to make the closure
of the bank summary and expeditious in order to protect public interest; this is also the reason why prior notice and hearing is not
necessary before the issuance of a closure order

D. Liquidation
- dissolution time baby!
- Waay discussion mga indai
Sec. 30. Proceedings in Receivership and Liquidation. – Whenever, upon report of the head of the supervising or examining department,
the Monetary Board finds that a bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include inability to
pay caused by extraordinary demands induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has wilfully violated a cease and desist order under Section 37 that has become final, involving acts or transactions which amount to
fraud or a dissipation of the assets of the institution;
in which cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in
the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution.

For a quasi-bank, any person of recognized competence in banking or finance may be designated as receiver.

The receiver shall

- immediately gather and take charge of all the assets and liabilities of the institution
- administer the same for the benefit of its creditors, and
- exercise the general powers of a receiver under the Revised Rules of Court
- but shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or disposition of
any asset of the institution: Provided, That the receiver may deposit or place the funds of the institution in nonspeculative
investments.
- The receiver shall determine as soon as possible, but not later than ninety (90) days from take-over, whether the institution may
be rehabilitated or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors
and creditors and the general public: Provided, That any determination for the resumption of business of the institution shall be
subject to prior approval of the Monetary Board.

LIQUIDATION

- If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in accordance with the
next preceding paragraph, the Monetary Board shall notify in writing the board of directors of its findings and direct the receiver
to proceed with the liquidation of the institution.

The receiver shall:

(1) file ex parte with the appropriate RTC, and without requirement of prior notice or any other action, a petition for assistance in the
liquidation of the institution pursuant to a liquidation plan adopted by the Philippine Deposit Insurance Corporation for general
application to all closed banks. In case of quasi-banks, the liquidation plan shall be adopted by the Monetary Board.

Upon acquiring jurisdiction, the court shall, upon motion by the receiver after due notice, adjudicate disputed claims against the
institution, assist the enforcement of individual liabilities of the stockholders, directors and officers, and decide on other issues as may
be material to implement the liquidation plan adopted. The receiver shall pay the cost of the proceedings from the assets of the
institution.

(2) convert the assets of the institution to money, dispose of the same to creditors and other parties, for the purpose of paying the
debts of such institution in accordance with the rules on concurrence and preference of credit under the Civil Code of the Philippines
and he may, in the name of the institution, and with the assistance of counsel as he may retain, institute such actions as may be
necessary to collect and recover accounts and assets of, or defend any action against, the institution.

The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and
shall, from the moment the institution was placed under such receivership or liquidation, be exempt from any order of
garnishment, levy, attachment, or execution.

The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and executory, and may
not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may
only be filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt by the
board of directors of the institution of the order directing receivership, liquidation or conservatorship.

The designation of a conservator under Section 29 of this Act or the appointment of a receiver under this section shall be vested
exclusively with the Monetary Board. Furthermore, the designation of a conservator is not a precondition to the designation of a
receiver.
CASES:
• Central Bank and Tiaoqui vs. Court of Appeals, 30 March 1993
Facts:
Acting on the report of the (SES) that the financial condition of Triumph Savings Bank is one of insolvency and its continuance in business
would involve probable loss to its depositors and creditors, the (MB) issued Resolution No. 596 ordering the closure of TSB, forbidding it
from doing business in the Philippines, placing it under receivership, and appointing Ramon V. Tiaoqui as receiver.

TSB filed a complaint with the RTC of QC against petitioners Central Bank and Tiaoqui to annul MB Resolution No. 596, with prayer for
injunction, challenging in the process the constitutionality of Sec. 29 of R.A. 269 (The Central Bank Act) insofar as it authorizes the
Central Bank to take over a banking institution even if it is not charged with violation of any law or regulation, much less found guilty
thereof.

The RTC issued a TRO but was thereafter quashed upon the motion of the petitioners on the ground that TSB failed to show arbitrariness
and bad faith on its part and failed to post a bond. TSB questioned the quashal on certiorari with the SC.

Meantime, petitioners sought to dismiss the complaint for for failure to state a cause of action, i.e., it did not allege ultimate facts
showing that the action was plainly arbitrary and made in bad faith. RTC however denied dismissal and directed petitioners to restore
the management of TSB to its board subject to CB comptrollership [rendering moot the certiorari proceedings initiated by TSB before
the SC].

Petitioners thus filed a rule 65 petition before the CA maintaining the validity of the closure of the bank without prior notice and
hearing for it may later be set aside on the ground of arbitrariness and bad faith in a subsequent judicial review. The CA dismissed the
certiorari petition on the ground that the closure itself without prior notice and hearing denies TSB of due process and therefore
amounts to bad faith and arbitrariness. Hence, this appeal.

Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and hearing in cases involving bank closures should not be
required since in all probability a hearing would not only cause unnecessary delay but also provide bank "insiders" and stockholders the
opportunity to further dissipate the bank's resources, create liabilities for the bank up to the insured amount of P40,000.00, and even
destroy evidence of fraud or irregularity in the bank's operations to the prejudice of its depositors and creditors. Petitioners further
argue that the legislative intent of Sec. 29 is to repose in the Monetary Board exclusive power to determine the existence of statutory
grounds for the closure and liquidation of banks, having the required expertise and specialized competence to do so.

The respondents, on the other hand, allege inter alia that since MB Resolution No. 596 was adopted without TSB being previously
notified and heard, the same is void for want of due process; consequently, the bank's management should be restored to its board of
directors and officers.

ISSUE:
- Whether the absence of prior notice and hearing may be considered acts of arbitrariness and bad faith sufficient to annul a
Monetary Board resolution enjoining a bank from doing business and placing it under receivership. Otherwise stated, is absence
of prior notice and hearing constitutive of acts of arbitrariness and bad faith?

RULING: NO.
Under Sec. 29 of R.A. 265, 15 the Central Bank, through the Monetary Board, is vested with exclusive authority to assess, evaluate and
determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, forbid the bank or non-bank financial institution to do business in the Philippines;
and shall designate an official of the CB or other competent person as receiver to immediately take charge of its assets and liabilities.
The fourth paragraph, which was then in effect at the time the action was commenced, allows the filing of a case to set aside the
actions of the Monetary Board which are tainted with arbitrariness and bad faith.

Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing before a bank may be directed to
stop operations and placed under receivership. When par. 4 (now par. 5, as amended by E.O. 289) provides for the filing of a case within
ten (10) days after the receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede the
filing of the case. Plainly, the legislature could not have intended to authorize "no prior notice and hearing" in the closure of the bank
and at the same time allow a suit to annul it on the basis of absence thereof.

may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial institution placed under receivership of the
opportunity to be heard and present evidence on arbitrariness and bad faith because within ten (10) days from the date the receiver
takes charge of the assets of the bank, resort to judicial review may be had by filing an appropriate pleading with the court. Respondent
TSB did in fact avail of this remedy by filing a complaint with the RTC of Quezon City on the 8th day following the takeover by the
receiver of the bank's assets.

This "close now and hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the
bank's assets and as a valid exercise of police power to protect the depositors, creditors, stockholders and the general public.

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.
Unless adequate and determined efforts are taken by the government against distressed and mismanaged banks, public faith in the
banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the
bank depositors, creditors, and stockholders, who all deserve the protection of the government.
The government cannot simply cross its arms while the assets of a bank are being depleted through mismanagement or
irregularities. It is the duty of the Central Bank in such an event to step in and salvage the remaining resources of the bank so that
they may not continue to be dissipated or plundered by those entrusted with their management.

Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a situation where the procedural
rights invoked by private respondent would take precedence over the substantive interests of depositors, creditors and
stockholders over the assets of the bank.

Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a bank run and drain its assets in days or
even hours leading to insolvency even if the bank be actually solvent. The procedure prescribed in Sec. 29 is truly designed to
protect the interest of all concerned, i.e., the depositors, creditors and stockholders, the bank itself, and the general public, and
the summary closure pales in comparison to the protection afforded public interest. At any rate, the bank is given full opportunity
to prove arbitrariness and bad faith in placing the bank under receivership, in which event, the resolution may be properly
nullified and the receivership lifted as the trial court may determine.

In sum, appeal to procedural due process cannot just outweigh the evil sought to be prevented; hence, We rule that Sec. 29 of
R.A. 265 is a sound legislation promulgated in accordance with the Constitution in the exercise of police power of the state.
Consequently, the absence of notice and hearing is not a valid ground to annul a Monetary Board resolution placing a bank under
receivership. The absence of prior notice and hearing cannot be deemed acts of arbitrariness and bad faith. Thus, an MB resolution
placing a bank under receivership, or conservatorship for that matter, may only be annulled after a determination has been made
by the trial court that its issuance was tainted with arbitrariness and bad faith. Until such determination is made, the status quo
shall be maintained, i.e., the bank shall continue to be under receivership.

• Cudiamat vs. Batangas Savings, 9 March 2010

Issue: does the RTC of Balayan have jurisdiction over the case [for quieting of title filed by the petitioners against the respondent
bank] despite the bank having been placed under receivership and under liquidation by the Philippine Deposit Insurance
Corporation (PDIC) and the PDIC having filed before the RTC of Nasugbu a petition for assistance in the liquidation of the bank?

To the CA, the Balayan RTC, as a court of general jurisdiction, should have deferred to the Nasugbu RTC which sits as a liquidation
court, given that the bank was already under receivership when petitioners filed the complaint for quieting of title. Hence, this petition
for certiorari.

RULING: Exceptionally, YES. While it is well-settled that lack of jurisdiction on the subject matter can be raised at any time and is not
lost by estoppel by laches, the present case is an exception. To compel petitioners to re-file and relitigate their claims before the
Nasugbu RTC when the parties had already been given the opportunity to present their respective evidence in a full-blown trial before
the Balayan RTC which had, in fact, decided petitioners complaint (about two years before the appellate court rendered the assailed
decision) would be an exercise in futility and would unjustly burden petitioners.

As a general rule, if there is a judicial liquidation of an insolvent bank, all claims against the bank should be filed in the liquidation
proceeding. However, it has been held that the general rule should not be applied if to order the aggrieved party to refile or relitigate
its case before the litigation court would be an exercise in futility.

Here, Petitioner Restituto was 78 years old at the time the petition was filed in this Court, and his co-petitioner-wife Erlinda died during
the pendency of the case. And, except for co-petitioner Corazon, Restituto is a resident of Ozamis City. To compel him to appear and
relitigate the case in the liquidation court-Nasugbu RTC when the issues to be raised before it are the same as those already
exhaustively passed upon and decided by the Balayan RTC would be superfluous.

• Lipana vs. Development Bank of Rizal, 24 September 1987;

Issue: May the rtc of pasig stay the execution of a money judgment against the respondent bank which have become final and
executory only AFTER the bank was placed under receivership but the complaint from which the judgment stemmed was filed
BEFORE the receivership?

RULING: YES.
The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution, admits of
certain exceptions as in cases of special and exceptional nature where it becomes imperative in the higher interest of justice to direct
the suspension of its execution; whenever it is necessary to accomplish the aims of justice; or when certain facts and circumstances
transpired after the judgment became final which could render the execution of the judgment unjust.

In the instant case, the stay of the execution of judgment is warranted by the fact that respondent bank was placed under
receivership. To execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other
depositors and creditors, since, as aptly stated in Central Bank of the Philippines vs. Morfe (63 SCRA 114), after the Monetary
Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for
the equal benefit of all the creditors, including depositors. The assets of the insolvent banking institution are held in trust for the
equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an
attachment, execution or otherwise.

The time of the filing of the complaint is immaterial. It is the execution that will obviously prejudice the other depositors and
creditors. Moreover, as stated in the said Morfe case, the effect of the judgment is only to fix the amount of the debt, and not give
priority over other depositors and creditors. After a declaration of insolvency, the remedy of the depositors is to intervene in the
liquidation proceedings.

The staying of execution is not without a time limit. The staying of the writ of execution will be lifted after approval by the
liquidation court of the project of distribution, and the liquidator or his deputy will authorize payments to all claimants concerned
in accordance with the approved project of distribution.

• Sps. Larrobis, Jr. vs. Philippine Veterans Bank, 1 October 2004

Facts:
Petitioner spouses Cesar and Virginia Larrobis got a 135k loan from Philippine Veterans Bank secured by a Real Estate Mortgage on their
lot. Subsequently, the PVB was placed under receivership/liquidation from April 25, 1985 until August 1992. During the period of
receivership the bank, through Go, sent the spouses a demand letter for the insurance premiums advanced by the bank over their
mortgaged property.

3 years after the bank was placed under receivership, and more than 14 years from the time the loan of the spouses became due and
demandable, PVB filed a petition for extrajudicial foreclosure of the spouses' mortgage. Sale ensued with PVB as highest bidder.
Consequently, petitioners sought to annul the sale before the RTC of Cebu on the ground that its right to foreclose the mortgage has
already prescribed considering that the receivership is not a fortuitous event which could have tolled/suspended the running of the 10
year prescriptive period to foreclose the mortgage. The RTC dismissed the complaint on the ground that foreclosure comes within the
term of doing business as defined by Justice Laurel and as the bank was prohibited from doing business during the period of
receivership, it could not have enforced its right to foreclose during said period. In other words, the RTC ruled that the prescriptive
period to foreclose was interrupted when the bank was placed under receivership. MR having been denied, petitioners filed this appeal.

ISSUE: is receivership a fortuitous event which suspended the running of the period to foreclose the mortgage executed in FAVOR
of the insolvent bank?

RULING: NO.
One characteristic of a fortuitous event, in a legal sense and consequently in relations to contract, is that its occurrence must be
such as to render it impossible for a party to fulfill his obligation in a normal manner.
While it is true that foreclosure falls within the broad definition of doing business, that is: a continuity of commercial dealings and
arrangements and contemplates to that extent, the performance of acts or words or the exercise of some of the functions
normally incident to and in progressive prosecution of the purpose and object of its organization.
It should not be considered included, however, in the acts prohibited whenever banks are prohibited from doing business during
receivership and liquidation proceedings.

Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that when a bank is forbidden to do
business in the Philippines and placed under receivership, the person designated as receiver shall immediately take charge of the
banks assets and liabilities, as expeditiously as possible, collect and gather all the assets and administer the same for the benefit
of its creditors, and represent the bank personally or through counsel as he may retain in all actions or proceedings for or against
the institution, exercising all the powers necessary for these purposes including, but not limited to, bringing and foreclosing
mortgages in the name of the bank.

This is consistent with the purpose of receivership proceedings, i.e., to receive collectibles and preserve the assets of the bank in
substitution of its former management, and prevent the dissipation of its assets to the detriment of the creditors of the bank.

When a bank is declared insolvent and placed under receivership, the Central Bank, through the Monetary Board, determines
whether to proceed with the liquidation or reorganization of the financially distressed bank.

A receiver, who concurrently represents the bank, then takes control and possession of its assets for the benefit of the banks
creditors. A liquidator meanwhile assumes the role of the receiver upon the determination by the Monetary Board that the bank
can no longer resume business. His task is to dispose of all the assets of the bank and effect partial payments of the banks
obligations in accordance with legal priority.

In both receivership and liquidation proceedings, the bank retains its juridical personality notwithstanding the closure of its
business and may even be sued as its corporate existence is assumed by the receiver or liquidator. The receiver or liquidator
meanwhile acts not only for the benefit of the bank, but for its creditors as well.

When a bank is prohibited from continuing to do business by the Central Bank and a receiver is appointed for such bank, that bank
would not be able to do new business, i.e., to grant new loans or to accept new deposits. However, the receiver of the bank is in
fact obliged to collect debts owing to the bank, which debts form part of the assets of the bank. The receiver must assemble the
assets and pay the obligation of the bank under receivership, and take steps to prevent dissipation of such assets. Accordingly, the
receiver of the bank is obliged to collect pre-existing debts due to the bank, and in connection therewith, to foreclose mortgages
securing such debts.

There is also no truth to respondents claim that it could not continue doing business from the period of April 1985 to August 1992,
the time it was under receivership. As correctly pointed out by petitioner, respondent was even able to send petitioners a demand
letter, through Francisco Go, on August 23, 1985 for accounts receivable in the total amount of P6,345.00 as of August 15, 1984
for the insurance premiums advanced by respondent bank over the mortgaged property of petitioners. How it could send a
demand letter on unpaid insurance premiums and not foreclose the mortgage during the time it was prohibited from doing
business was not adequately explained by respondent.
Settled is the principle that a bank is bound by the acts, or failure to act of its receiver. All the acts of the receiver and liquidator
pertain to petitioner, both having assumed petitioners corporate existence. However, the bank may go after the receiver who is
liable to it for any culpable or negligent failure to collect the assets of such bank and to safeguard its assets.

• Fidelity Savings Bank vs. Cenzon, 5 April 1990

The instant petition seeks the review, on pure questions of law, of the decision rendered by the RTC of manila (br. 40) ordering
herein petitioner to pay private respondents the following amounts:

(a) P90,000.00 with accrued interest in accordance with Exhibits A and B until fully paid;
(b) P30,000,00 as exemplary damages; and
(c) P10,000.00 as and for attorney's fees.

The payment by the defendant Fidelity Savings and Mortgage Bank of the aforementioned sums of money shall be subject to the
Bank Liquidation Rules and Regulations embodied in the order of the liquidation court- RTC Manila, br. 19).

Spouses Timoteo and Olimpia Santiago maintained (savings and time deposits) 50k each with Fidelity Savings Bank.
They initiated a complaint for recovery of sum of money against FBS, CB and 8 others before rtc br. 40. On motion of the spouses
the complaint was dismissed against the bank and cb except as against 4 other defendants.

Sometime feb 1969, Monetary Board, after finding the report of the Superintendent of Banks, that the condition of the defendant
Fidelity Savings and Mortgage Bank is one of insolvency, to be true, issued Resolution No. 350, forbidding Fidelity Savings Bank to
do business in the Philippines; instructing the Acting Superintendent of Banks to take charge, in the name of the Monetary Board,
of the Bank's assets

8 months after the resolution was issued the pdic paid the spouses P10,000.00 on the aggregate deposits of P100,000.00 pursuant
to Republic Act No. 5517, thereby leaving a deposit balance of P90,000.00.

2 months later, the mb issued another resolution ordering the liquidation of FBS, the solgen filed the petition for assistance in the
rtc of manila br. 13 which has not yet terminated up to the present.

RULING:
It is settled jurisprudence that a banking institution which has been declared insolvent and subsequently ordered closed by the
Central Bank of the Philippines cannot be held liable to pay interest on bank deposits which accrued during the period when the
bank is actually closed and non-operational.

It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay stipulated interest on
money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such
interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their
proceeds and generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it
can carry on as a depository obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just
conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic proposition. Consequently,
it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the
moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank.

From the aforecited authorities, it is manifest that petitioner cannot be held liable for interest on bank deposits which accrued
from the time it was prohibited by the Central Bank to continue with its banking operations, that is, when Resolution No. 350 to
that effect was issued on February 18, 1969.

The order, therefore, of the Central Bank as receiver/liquidator of petitioner bank allowing the claims of depositors and creditors
to earn interest up to the date of its closure on February 18, 1969, 7 in line with the doctrine laid down in the jurisprudence
above.

The awards of moral and exemplary damages and attorney's fees to be erroneous.

There was no fraud or bad faith on the part of petitioner bank and the other defendants in accepting the deposits of private
respondents.

Petitioner bank could not even be faulted in not immediately returning the amount claimed by private respondents considering
that the demand to pay was made and The complaint for sum of money was filed in the trial court several months after the Central
Bank had ordered petitioner's closure. By that time, petitioner bank was no longer in a position to comply with its obligations to its
creditors, including herein private respondents. Even the trial court had to admit that petitioner bank failed to pay private
respondents because it was already insolvent.

Further, this case is not one of the specified or analogous cases wherein moral damages may be recovered.

There is no valid basis for the award of exemplary damages which is supposed to serve as a warning to other banks from dissipating
their assets in anomalous transactions. It was not proven by private respondents, and neither was there a categorical finding made
by the trial court, that petitioner bank actually engaged in anomalous real estate transactions. The same were raised only during
the testimony of the bank examiner of the Central Bank, but no documentary evidence was ever presented in support thereof.
Hence, it was error for the lower court to impose exemplary damages upon petitioner bank since, in contracts, such sanction
requires that the offending party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.
Neither does this case present the situation where attorney's fees may be awarded.

In the absence of fraud, bad faith, malice or wanton attitude, petitioner bank may, therefore, not be held responsible for damages
which may be reasonably attributed to the non-performance of the obligation. Consequently, we reiterate that under the premises
and pursuant to the aforementioned provisions of law, it is apparent that private respondents are not justifiably entitled to the
payment of moral and exemplary damages and attorney's fees.

While we tend to agree with petitioner bank that private respondents' claims should he been filed in the liquidation proceedings in
Civil Case No. 86005, entitled "In Re: Liquidation of the Fidelity Savings and Mortgage Bank," pending before Branch XIII of the
then Court of First Instance of Manila, we do not believe that the decision rendered in the instant case would be violative of the
legal provisions on preference and concurrence of credits.

As the trial court puts it:

But this order of payment should not be understood as raising these deposits to the category of preferred credits of the defendant
Fidelity Savings and Mortgage Bank but shall be paid in accordance with the Bank Liquidation Rules and Regulations embodied in
the Order of the. Court of First Instance of Manila, Branch XIII dated October 3, 1972 (Exh. 3).

In Re: Petition for Assistance in the Liquidation of Rural Bank of Bokod, 18 December 200

The designated BSP liquidator of RBBI caused the filing with the RTC of a Petition for Assistance in the Liquidation of RBBI.
Subsequently, the Monetary Board transferred to herein petitioner Philippine Deposit Insurance Corporation (PDIC) the
receivership/liquidation of RBBI.

PDIC then filed a Motion for Approval of Project of Distribution of the assets of RBBI, in accordance with Section 31, in relation to
Section 30, of Republic Act No. 7653, otherwise known as the New Central Bank Act.

During one of the hearings, the respondent Bureau of Internal Revenue (BIR), through Atty. Justo Reginaldo, manifested that PDIC
should secure a tax clearance certificate from the appropriate BIR Regional Office, pursuant to Section 52(C) of Republic Act No.
8424, or the Tax Code of 1997, before it could proceed with the dissolution of RBBI.

On even date, the RTC issued an order directing PDIC to comply with Section 52(C) of the Tax Code of 1997 within 30 days from
receipt of a copy of the said order. Pending compliance therewith, the RTC held in abeyance the Motion for Approval of Project of
Distribution.

PDIC filed an MR alleging that Section 52-C of Republic Act 8424 does not cover closed banking institutions like the Rural Bank of
Bokod as the law that covers liquidation of closed banks is Section 30 of Republic Act No. 7653 otherwise known as the new
Central Bank Law.

Commenting on the motion for reconsideration the Bureau of Internal Revenue states that the only logic why the Bureau is
requesting for a tax clearance is to determine how much taxes, if there be any, is due the government.

Rtc denied the mr ruling that rbbi should still secure the necessary tax clearance in order for it to be cleared of all its tax
liabilities as regardless of what law covers the liquidation of closed banks, still these banks are subject to payment of taxes
mandated by law.

Hence, PDIC filed the present Petition for Review on Certiorari, under Rule 45 of the revised Rules of Court.

PDIC argues that the closure of banks under Section 30 of the New Central Bank Act is summary in nature and procurement of tax
clearance as required under Section 52(C) of the Tax Code of 1997 is not a condition precedent thereto; that under Section 30, in
relation to Section 31, of the New Central Bank Act, asset distribution of a closed bank requires only the approval of the
liquidation court; and that the BIR is not without recourse since, subject to the applicable provisions of the Tax Code of 1997, it
may therefore assess the closed RBBI for tax liabilities, if any.

In its Comment, the BIR countered that Section 52(C) of the Tax Code of 1997 applies to all corporations, including banks ordered
closed by the Monetary Board pursuant to Section 30 of the New Central Bank Act; that the RTC may order the PDIC to obtain a tax
clearance before proceeding to rule on the Motion for Approval of Project of Distribution of the assets of RBBI, among others.

Issue: does the insolvent bank have to submit a tax clearance to the liquidation court before it could continue with its dissolution
in the same manner that corporations contemplating dissolution must submit the same to the SEC so that the SEC may issue a final
order of dissolution?

Issue as quoted from the case: The substantive issue deals with the determination of whether a bank ordered closed and placed
under receivership by the Monetary Board of the BSP still needs to secure a tax clearance certificate from the BIR before the
liquidation court approves the project of distribution of the assets of the bank.

RULING: NO.

FIRST, Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1 regulate the relations only as between the SEC and the
BIR, making a certificate of tax clearance a prior requirement before the SEC could approve the dissolution of a corporation. In Spec.
Proc. No. 91-SP-0060 pending before the RTC, RBBI was placed under receivership and ordered liquidated by the BSP, not the SEC; and
the SEC is not even a party in the said case, although the BIR is. This Court cannot find any basis to extend the SEC requirements for
dissolution of a corporation to the liquidation proceedings of RBBI before the RTC when the SEC is not even involved therein.

It is conceded that the SEC has the authority to order the dissolution of a corporation pursuant to Section 121 of Batas Pambansa Blg.
68, otherwise known as the Corporation Code of the Philippines, which reads

Sec. 121. Involuntary dissolution. A corporation may be dissolved by the Securities and Exchange Commission upon filing of a verified
complaint and after proper notice and hearing on the grounds provided by existing laws, rules and regulations.

The Corporation Code, however, is a general law applying to all types of corporations, while the New Central Bank Act regulates
specifically banks and other financial institutions, including the dissolution and liquidation thereof. As between a general and special
law, the latter shall prevail generalia specialibus non derogant.

The liquidation of RBBI is undertaken according to Sections 30 of the New Central Bank Act.
Section 30 of the New Central Bank Act lays down the proceedings for receivership and liquidation of a bank. The said provision is silent
as regards the securing of a tax clearance from the BIR. The omission, nonetheless, cannot compel this Court to apply by analogy the tax
clearance requirement of the SEC, as stated in Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1, since, again, the
dissolution of a corporation by the SEC is a totally different proceeding from the receivership and liquidation of a bank by the BSP.
This Court cannot simply replace any reference by Section 52(C) of the Tax Code of 1997 and the provisions of the BIR-SEC
Regulations No. 1 to the SEC with the BSP.

To do so would be to read into the law and the regulations something that is simply not there, and would be tantamount to
judicial legislation.

It should be noted that there are substantial differences in the procedure for involuntary dissolution and liquidation of a corporation
under the Corporation Code, and that of a banking corporation under the New Central Bank Act, so that the requirements in one cannot
simply be imposed in the other.

- Under the Corporation Code, the SEC may dissolve a corporation, upon the filing of a verified complaint and after proper notice and
hearing, on grounds provided by existing laws, rules, and regulations.
- Upon receipt by the corporation of the order of suspension from the SEC, it is required to notify and submit a copy of the said order,
together with its final tax return, to the BIR.
- The SEC is also required to furnish the BIR a copy of its order of suspension.
- The BIR is supposed to issue a tax clearance to the corporation within 30 days from receipt of the foregoing documentary
requirements.
- The SEC shall issue the final order of dissolution only after the corporation has submitted its tax clearance; or in case of involuntary
dissolution, the SEC may proceed with the dissolution after 30 days from receipt by the BIR of the documentary requirements without
a tax clearance having been issued.
- The corporation is allowed to continue as a body corporate for three years after its dissolution, for the purpose of prosecuting and
defending suits by or against it, to settle and close its affairs, and to dispose of and convey its property and distribute its assets, but
not for the purpose of continuing its business.
- The corporation may undertake its own liquidation, or at any time during the said three years, it may convey all of its property to
trustees for the benefit of its stockholders, members, creditors, and other persons in interest.

[IN CONTRAST]
- The Monetary Board may summarily and without need for prior hearing, forbid the banking corporation from doing business in the
Philippines, for causes enumerated in Section 30 of the New Central Bank Act; and appoint the PDIC as receiver of the bank.
- PDIC shall immediately gather and take charge of all the assets and liabilities of the closed bank and administer the same for the
benefit of its creditors.
- The summary nature of the procedure for the involuntary closure of a bank is especially stressed in Section 30 of the New Central Bank
Act, which explicitly states that the actions of the Monetary Board under the said Section or Section 29 shall be final and executory,
and may not be restrained or set aside by the court except on a Petition for Certiorari filed by the stockholders of record of the bank
representing a majority of the capital stock. PDIC, as the appointed receiver, shall file ex parte with the proper RTC, and without
requirement of prior notice or any other action, a petition for assistance in the liquidation of the bank. The bank is not given the
option to undertake its own liquidation.

SECOND, the alleged purpose of the BIR in requiring the liquidator PDIC to secure a tax clearance is to enable it to determine the tax
liabilities of the closed bank. It raised the point that since the PDIC, as receiver and liquidator, failed to file the final return of RBBI
for the year its operations were stopped, the BIR had no way of determining whether the bank still had outstanding tax liabilities.

To our mind, what the BIR should have requested from the RTC, and what was within the discretion of the RTC to grant, is not an
order for PDIC, as liquidator of RBBI, to secure a tax clearance; but, rather, for it to submit the final return of RBBI. The first
paragraph of Section 30(C) of the Tax Code of 1997, read in conjunction with Section 54 of the same Code, clearly imposes upon PDIC, as
the receiver and liquidator of RBBI, the duty to file such a return.

Section 54 of the Tax Code of 1997 imposes a general duty on all receivers, trustees in bankruptcy, and assignees, who operate and
preserve the assets of a corporation, regardless of the circumstances or the law by which they came to hold their positions, to file the
necessary returns on behalf of the corporation under their care.

The filing by PDIC of a final tax return, on behalf of RBBI, should already address the supposed concern of the BIR and would already
enable the latter to determine if RBBI still had outstanding tax liabilities.
The unreasonableness and impossibility of requiring a tax clearance before the approval by the RTC of the Project of Distribution of the
assets of the RBBI becomes apparent when the timeline of the proceedings is considered.

The BIR can only issue a certificate of tax clearance when the taxpayer had completely paid off his tax liabilities. The certificate of tax
clearance attests that the taxpayer no longer has any outstanding tax obligations to the Government.

Should the BIR find that RBBI still had outstanding tax liabilities, PDIC will not be able to pay the same because the Project of
Distribution of the assets of RBBI remains unapproved by the RTC; and, if RBBI still had outstanding tax liabilities, the BIR will not issue
a tax clearance; but, without the tax clearance, the Project of Distribution of assets, which allocates the payment for the tax liabilities,
will not be approved by the RTC. It will be a chicken-and-egg dilemma.

The Government, in this case, cannot generally claim preference of credit, and receive payment ahead of the other creditors of RBBI.
Duties, taxes, and fees due the Government enjoy priority only when they are with reference to a specific movable property, under
Article 2241(1) of the Civil Code, or immovable property, under Article 2242(1) of the same Code. However, with reference to the other
real and personal property of the debtor, sometimes referred to as free property, the taxes and assessments due the National
Government, other than those in Articles 2241(1) and 2242(1) of the Civil Code, will come only in ninth place in the order of
preference.

Thus, the recourse of the BIR, after assessing the final return and examining all other pertinent documents of RBBI, and making a
determination of the latters outstanding tax liabilities, is to present its claim, on behalf of the National Government, before the
RTC during the liquidation proceedings. The BIR is expected to prove and substantiate its claim, in the same manner as the other
creditors.

It is only after the RTC allows the claim of the BIR, together with the claims of the other creditors, can a Project for Distribution of
the assets of RBBI be finalized and approved. PDIC, then, as liquidator, may proceed with the disposition of the assets of RBBI and
pay the latters financial obligations, including its outstanding tax liabilities. And, finally, only after such payment, can the BIR issue
a certificate of tax clearance in the name of RBBI.

THIRD, the evident void in current statutes and regulations as to the relations among the BIR, as tax collector of the National
Government; the BSP, as regulator of the banks; and the PDIC, as the receiver and liquidator of banks ordered closed by the BSP, is not
for this Court to fill in. It is up to the legislature to address the matter through appropriate legislation, and to the executive to provide
the regulations for its implementation.

Although this Court rules in favor of PDIC, in the sense that a tax clearance is not a prerequisite to the approval of the Project of
Distribution of the assets of RBBI, it cannot uphold its argument that the Spec. Proc. No. 91-SP-0060 is summary in nature.

Section 30(d) of the New Central Bank Act gives the Monetary Board of the BSP the power to, summarily and without need for prior
hearing, forbid a bank or quasi-bank from doing business in the Philippines and designating the PDIC as receiver of the banking
institution. It bears to emphasize that: (1) the power is granted to the Monetary Board of the BSP; and (2) what is summary in nature is
the power of the Monetary Board of the BSP to forbid or stop a bank or quasi-bank from doing further business.

Once liquidation proceedings are instituted before the appropriate trial court, and the trial court assumes jurisdiction over the
Petition, then the proceedings take a different character. Spec. Proc. No. 91-SP-0600 is the liquidation proceedings initiated by the
PDIC before the RTC.

[A] liquidation proceeding resembles the proceeding for the settlement of estate 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

A liquidation proceeding is a single proceeding which consists of a number of cases properly classified as "claims."

It is basically a two-phased proceeding.

The first phase is concerned with the approval and disapproval of claims.
- Upon the approval of the petition seeking the assistance of the proper court in the liquidation of a closed entity, all money claims
against the bank are required to be filed with the liquidation court.
- This phase may end with the declaration by the liquidation court that the claim is not proper or without basis.
- On the other hand, it may also end with the liquidation court allowing the claim. In the latter case, the claim shall be classified
whether it is ordinary or preferred, and thereafter included Liquidator.
- In either case, the order allowing or disallowing a particular claim is final order, and may be appealed by the party aggrieved thereby.

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.
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.

Irrefragably, liquidation proceedings cannot be summary in nature. It requires the holding of hearings and presentation of evidence of
the parties concerned, i.e., creditors who must prove and substantiate their claims, and the liquidator disputing the same. It also allows
for multiple appeals, so that each creditor may appeal a final order rendered against its claim. Hence, liquidation proceedings may very
well be highly-contested and drawn-out, because, at the end of it all, all claims against the corporation undergoing litigation must be
settled definitively and its assets properly disposed off.

• Philippine International Bank v. CA, G.R. No. 115849, January 24, 1996;
May the Conservator Revoke the Perfected and Enforceable Contract?

NO, 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. A contrary understanding of the law would simply not be permitted by the Constitution.
Neither by common sense. To rule otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by
simply getting the conservator to unilaterally revoke all previous dealings which had one way or another or come to be considered
unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt with the
Bank.

• Vivas v. Monetary Board, G.R. No. 191424, August 7, 2013

The thrust of Vivas’ argument is that ECBI did not commit any financial fraud and, hence, its placement under receivership was
unwarranted and improper. He asserts that, instead, the BSP should have taken over the management of ECBI and extended loans
to the financially distrained bank pursuant to Sections 11 and 14 of R.A. No. 7353 [rural banks act] because the BSP’s power is
limited only to supervision and management take-over of banks, and not receivership.

Vivas argues that implementation of the questioned resolution 726 [placing the bank under receivership] was tainted with
arbitrariness and bad faith, stressing that ECBI was placed under receivership without due and prior hearing, invoking Section 11
of R.A. No. 7353 which states that the BSP may take over the management of a rural bank after due hearing. He adds that because
R.A. No. 7353 is a special law, the same should prevail over R.A. No. 7653 [NCBA] which is a general law.

RULING: the bank was not deprived of its right to hearing under the rural banks act. It appears from all over the records that ECBI was
given every opportunity to be heard and improve on its financial standing. The records disclose that BSP officials and examiners met
with the representatives of ECBI, including Vivas, and discussed their findings. There were also reminders that ECBI submit its financial
audit reports for the years 2007 and 2008 with a warning that failure to submit them and a written explanation of such omission shall
result in the imposition of a monetary penalty. More importantly, ECBI was heard on its motion for reconsideration. For failure of ECBI
to comply, the MB came out with Resolution No. 1548 denying its request for reconsideration of Resolution No. 726. Having been heard
on its motion for reconsideration, ECBI cannot claim that it was deprived of its right under the Rural Bank Act.

At any rate, if circumstances warrant it, the MB may forbid a bank from doing business and place it under receivership without prior
notice and hearing. Section 30 of R.A. No. 7653 provides, viz:

Sec. 30. Proceedings in Receivership and Liquidation. – Whenever, upon report of the head of the supervising or examining department,
the Monetary Board finds that a bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include inability to
pay caused by extraordinary demands induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has wilfully violated a cease and desist order under Section 37 that has become final, involving acts or transactions which amount to
fraud or a dissipation of the assets of the institution;
in which cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in
the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution.

Accordingly, there is no conflict which would call for the application of the doctrine that a special law should prevail over a general law.
It must be emphasized that R.A .No. 7653 is a later law and under said act, the power of the MB over banks, including rural banks,
was increased and expanded. The Court, in several cases, upheld the power of the MB to take over banks without need for prior
hearing. It is not necessary inasmuch as the law entrusts to the MB the appreciation and determination of whether any or all of the
statutory grounds for the closure and receivership of the erring bank are present. The MB, under R.A. No. 7653, has been invested
with more power of closure and placement of a bank under receivership for insolvency or illiquidity, or because the bank’s continuance
in business would probably result in the loss to depositors or creditors.

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.

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.

The doctrine is founded on practical and legal considerations to obviate 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. Swift, adequate and determined
actions must be taken against financially distressed and mismanaged banks by government agencies lest the public faith in the banking
system deteriorate to the prejudice of the national economy.

Accordingly, the MB can immediately implement its resolution prohibiting a banking institution to do business in the Philippines and,
thereafter, appoint the PDIC as receiver. The procedure for the involuntary closure of a bank is summary and expeditious in nature. Such
action of the MB shall be final and executory, but may be later subjected to a judicial scrutiny via a petition for certiorari to be filed by
the stockholders of record of the bank representing a majority of the capital stock. Obviously, this procedure is designed to protect the
interest of all concerned, that is, the depositors, creditors and stockholders, the bank itself and the general public. The protection
afforded public interest warrants the exercise of a summary closure.

In the case at bench, the ISD II submitted its memorandum, containing the findings noted during the general examination conducted on
ECBI, underscoring the inability of ECBI to pay its liabilities as they would fall due in the usual course of its business, its liabilities being
in excess of the assets held. Also, it was noted that ECBI’s continued banking operation would most probably result in the incurrence of
additional losses to the prejudice of its depositors and creditors. On top of these, it was found that ECBI had willfully violated the
cease-and-desist order of the MB, and had disregarded the BSP rules and directives. For said reasons, the MB was forced to issue the
assailed Resolution No. 276 placing ECBI under receivership.

In light of the circumstances obtaining in this case, the application of the corrective measures enunciated in Section 30 of R.A. No. 7653
was proper and justified. Management take-over under Section 11 of R.A. No. 7353 was no longer feasible considering the financial
quagmire that engulfed ECBI showing serious conditions of insolvency and illiquidity. Besides, placing ECBI under receivership would
effectively put a stop to the further draining of its assets.

No Undue Delegation of Legislative Power

Lastly, the petitioner challenges the constitutionality of Section 30 of R.A. No. 7653, as the legislature granted the MB a broad and
unrestrained power to close and place a financially troubled bank under receivership. He claims that the said provision was an undue
delegation of legislative power. The contention deserves scant consideration.

There are two accepted tests to determine whether or not there is a valid delegation of legislative power, viz, the completeness test
and the sufficient standard test. Under the first test, the law must be complete in all its terms and conditions when it leaves the
legislature such that when it reaches the delegate the only thing he will have to do is enforce it. Under the sufficient standard test,
there must be adequate guidelines or stations in the law to map out the boundaries of the delegate's authority and prevent the
delegation from running riot. Both tests are intended to prevent a total transference of legislative authority to the delegate, who is not
allowed to step into the shoes of the legislature and exercise a power essentially legislative.

In this case, under the two tests, there was no undue delegation of legislative authority in the issuance of R.A. No. 7653. To address the
growing concerns in the banking industry, the legislature has sufficiently empowered the MB to effectively monitor and supervise banks
and financial institutions and, if circumstances warrant, to forbid them to do business, to take over their management or to place them
under receivership. The legislature has clearly spelled out the reasonable parameters of the power entrusted to the MB and assigned to
it only the manner of enforcing said power. In other words, the MB was given a wide discretion and latitude only as to how the law
should be implemented in order to attain its objective of protecting the interest of the public, the banking industry and the economy.

VII. THE BANGKO SENTRAL NG PILIPINAS

A. Responsibilities and Objectives

SEC. 3. Responsibility and Primary Objective.
The Bangko Sentral shall
- provide policy directions in the areas of money, banking, and credit.
- It shall have supervision over the operations of banks and
- exercise such regulatory powers as provided in this Act and other pertinent laws over the operations of finance companies
and non-bank financial institutions performing quasi-banking functions, hereafter referred to as quasi- banks, and
institutions performing similar functions.

The primary objective of the Bangko Sentral is to

- maintain price stability conducive to a balanced and sustainable growth of the economy.
- It shall also promote and maintain monetary stability and the convertibility of the peso.

1. Supervision of Banks (Effect on SEC Jurisdiction)

SEC. 25. Supervision and Examination.

The Bangko Sentral shall have supervision over, and conduct periodic or special examinations of, banking institutions and
quasi-banks, including their subsidiaries and affiliates engaged in allied activities.

For purposes of this section

- a subsidiary means a corporation more than fifty percent (50%) of the voting stock of which is owned by a bank or quasi-
bank and
- an affiliate means a corporation
- the voting stock of which, to the extent of fifty percent (50%) or less, is owned by a bank or quasi-bank or
- which is related or linked to such institution or intermediary through common stockholders or such other factors as may be
determined by the Monetary Board.

EFFECT ON SEC JURISDICTION

When the thrust of a complaint is on the ulta vires act of a bank as a corporation; that is the complained act of a corporation
is contrary to its declared corporate purposes, the SEC has jurisdiction to entertain the complaint before it and not the
Central Bank (Pilipinas Loan Company v. SEC [2001]).

2. Issuance of Regulations
- the power to issue regulations to prevent circulation of
- foreign currencies
- Currency substitutes
- As well as the reproduction of facsimiles of bsp notes

3. Bank Examination [still sec. 25, ncba]

The department heads and the examiners of the supervising and/or examining departments are hereby authorized
- to administer oaths to any director, officer, or employee of any institution under their respective supervision or subject to
their examination and
- to compel the presentation of all books, documents, papers or records necessary in their judgment to ascertain the facts
relative to the true condition of any institution
- as well as the books and records of persons and entities relative to or in connection with the operations, activities or
transactions of the institution under examination -- subject to the provision of existing laws protecting or safeguarding the
secrecy or confidentiality of bank deposits as well as investments of private persons, natural or juridical, in debt
instruments issued by the Government.

No restraining order or injunction shall be issued by the court enjoining the Bangko Sentral from examining any institution
subject to supervision or examination by the Bangko Sentral, unless there is convincing proof that the action of the Bangko
Sentral is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or judge of the court in
which the action is pending a bond executed in favor of the Bangko Sentral, in an amount to be fixed by the court.

The provisions of Rule 58 of the New Rules of Court insofar as they are applicable and not inconsistent with the provisions of
this section shall govern the issuance and dissolution of the restraining order or injunction contemplated in this section

SEC. 28. Examination and Fees.

The supervising and examining department head, personally or by deputy, shall examine the books of every banking
institution once in every twelve (12) months, and at such other times as the Monetary Board by an affirmative vote of five
(5) members, may deem expedient and to make a report on the same to the Monetary Board: Provided, That there shall be
an interval of at least twelve (12) months between annual examinations

The bank concerned shall afford to the head of the appropriate supervising and examining departments and to his authorized
deputies full opportunity to examine its books, cash and available assets and general condition at any time during banking
hours when requested to do so by the Bangko Sentral: Provided, however, That none of the reports and other papers relative
to such examinations shall be open to inspection by the public except insofar as such publicity is incidental to the
proceedings hereinafter authorized or is necessary for the prosecution of violations in connection with the business of such
institutions.

Banking and quasi-banking institutions which are subject to examination by the Bangko Sentral shall pay to the Bangko
Sentral, within the first thirty (30) days of each year, an annual fee in an amount equal to a percentage as may be prescribed
by the Monetary Board of its average total assets during the preceding year as shown on its end-of-month balance sheets,
after deducting cash on hand and amounts due from banks, including the Bangko Sentral and banks abroad.

4. Overseeing Compliance

5. Money Function

SEC. 50. Exclusive Issue Power. _ The Bangko Sentral shall have the sole power and authority to issue currency, within the
territory of the Philippines. No other person or entity, public or private, may put into circulation notes, coins or any other
 object or document which, in the opinion of the Monetary Board, might circulate as currency, nor reproduce or imitate the
facsimiles of Bangko Sentral notes without prior authority from the Bangko Sentral.

The MB may issue such regulations as it may deem advisable in order to:
A. Prevent circulation of foreign currency or of currency substitutes;
B. Prevent the reproduction of facsimiles of bsp notes

The Bangko Sentral shall have the authority to investigate, make arrests, conduct searches and seizures in accordance with
law, for the purpose of maintaining the integrity of the currency.

Violation of this provision or of any regulation issued by the Bangko Sentral pursuant thereto shall constitute an offense
punishable by imprisonment of not less than five (5) years but not more than ten (10) years. In case the Revised Penal Code
provides for a greater penalty, then that penalty shall be imposed.

6. Monetary Policy

ARTICLE I. DOMESTIC MONETARY STABILIZATION

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

The exercise of monetary policy involves altering of the economy's money supply to stabilize aggregate output,
employment and price level.

The policy may mean two things:

1. Increasing monetary supply during recession to stimulate spending; or
2. Restricting it during inflation to curtail spending

[for in depth discussion see page 358, memaid]

7. International Monetary Stabilization

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

B. Organization of the BSP (The Monetary Board)

1. Composition

SEC.6. Composition of the monetary board

The powers and functions of the Bangko Sentral shall be exercised by the Bangko Sentral Monetary Board, hereafter referred to as the
Monetary Board, composed of seven (7) members appointed by the President of the Philippines for a term of six (6) years.
The seven (7) members are:
(a) theGovernoroftheBangkoSentral,whoshallbethe Chairman of the Monetary Board. The Governor of the Bangko Sentral shall be head
of a department and his appointment shall be subject to confirmation by the Commission on Appointments. Whenever the Governor is
unable to attend a meeting of the Board, he shall designate a Deputy Governor to act as his alternate: Provided, That in such event, the
Monetary Board shall designate one of its members as acting Chairman;
(b) a member of the Cabinet to be designated by the President of the Philippines. Whenever the designated Cabinet Member is unable to
attend a meeting of the Board, he shall designate an Undersecretary in his Department to attend as his alternate; and
(c) five (5) members who shall come from the private sector, all of whom shall serve full-time: Provided, however, That of the members
first appointed under the provisions of this subsection, three (3) shall have a term of six (6) years, and the other two (2), three (3)
years.
No member of the Monetary Board may be reappointed more than once.

2. Qualifications and Disqualifications

SEC. 8. Qualifications.
The members of the Monetary Board must be:
- natural-born citizens of the Philippines
- at least thirty-five (35) years of age, with the exception of the Governor who should at least be forty (40) years of age
- of good moral character, of unquestionable integrity, of known probity and patriotism, and with recognized competence in social and
economic disciplines.

SEC. 9. Disqualifications.
In addition to the disqualifications imposed by Republic Act No. 6713, a member of the Monetary Board is disqualified from being a
director, officer, employee, consultant, lawyer, agent or stockholder of any bank, quasi-bank or any other institution which is
subject to supervision or examination by the Bangko Sentral, in which case such member shall resign from, and divest himself of any
and all interests in such institution before assumption of office as member of the Monetary Board.

The members of the Monetary Board coming from the private sector shall not hold any other public office or public employment during
their tenure.
No person shall be a member of the Monetary Board if
- he has been connected directly with any multilateral banking or financial institution or has a substantial interest in any private bank in
the Philippines, within one (1) year prior to his appointment;
- likewise, no member of the Monetary Board shall be employed in any such institution within two (2) years after the expiration of his
term except when he serves as an official representative of the Philippine Government to such institution.