INTERNATIONAL BUSINESS LAW of Atty.
Gaviola | EH404 SY 2017-2018
GENERAL BANKING LAW (RA 8791)
HISTORY
 “Bank” comes from the word “Banca” which is an
Italian words which means bench cause the original
bankers/money lenders would sit on benches outside
of market places to wait for their clients.
 In the Philippines, the 1st banking institution was Obras
Pias. It’s a charitable institution which engaged in
Insurance and Banking. It lends money to the public
and render Insurance business for the purpose of
funding hospitals, orphanages and other charitable
institutions.
 After the Independence of the Philippines, we created
our 1st Central Bank. The Central Bank’s Charter was
approved in 1948. The Central Bank started its
operations in January 3, 1949, which was the effective
date of the 1st Banking Law which is the General
Banking Act (R.A 337). So the General Banking Act
prescribes the rules for establishing banks for foreign
banks to come in the Philippines. It also prescribes
regulatory power of the Central Bank over the Banks.
 In 1955, Congress passed the law on Secrecy of Bank
Deposits which is the prevailing law now. Its aim was
to encourage the public to deposit their money in
banks with the guarantee that their deposits would not
be divulged to the public.
 In 1963, the law creating the Bank Deposit Insurance
was effected. The Charter of the Philippine Deposit
Insurance Commission which is the organization that
insures bank deposits.
 July 3, 1993, the old Central Bank charter was
repealed and along came the new Central Bank Act
RA 7653. The new Central Bank Act abolished the old
Central Bank Act and created the Bangko Sentral ng
Pilipinas in its place. So all powers, assets, liabilities
and obligations of Central Bank which were not
inconsistent of the provisions of the new Central Bank
Act were not transferred to the Bangko Sentral ng
Pilipinas.
 So currently, the primary regulatory body over banks
and non-bank institutions is the Bangko Sentral ng
Pilipinas which is governed by the Monetary Board. So
the Monetary Board is the governing Body.
 In 1994, a law was passed to liberalized the entry of
foreign banks in the Philippines (RA 7721). So under
this law, for the first 6 years after the passage of the
law, foreign banks were allowed to acquire 100% of
the equity in domestic banks but after that, any
acquisition was limited to 60% in domestic banks.
 Then came in RA 10641, this law allows the full entry
of foreign banks in the Philippines. This allows full
ownership of foreign banks in Filipino or foreign banks.
 General Banking Law (RA 8791) this was passed on
April 12, 2000.
GENERAL BANKING LAW
Sec. 2 Declaration of Policy – The State recognizes the vital
role of banks in providing an environment conducive to the
sustained national economy and the fiduciary nature of
banking that requires high standards of integrity and
performance. In furtherance thereof the State shall promote
and maintain a stable and efficient baking and financial system
that is globally competitive, dynamic and responsive to the
demands of the developing economy.
What is recognized by the policy of the GBL?
1. Banks play a vital rule in the sustained development of
the national economy.
2. There is a fiduciary relationship between banks and
the public.
o So banking business is imbued with fiduciary
interest such that the highest standard of
integrity and performance has to be
maintained.
I. Vital Role of Banks in the Development of the
National Economy
A. Payment System
So banks as payment systems, facilitate consummation of
transactions. It is an efficient way to extinguish your obligation.
So in that way, banks play a vital role in the development of our
national economy because it facilitates transactions by acting
as a payment system.
B. Money Supply
The BSP, who is tasked to regulate price increase or price
decreases. Now if the BSP that inflation is going up, they can
implement a policy that would allow Banks to increase their
interest rates for their deposits. When banks increase the
interest rates in their bank deposits, the public will stop buying
things and start depositing it in the banks since you know that
your money will earn more. Now if you deposit your money in
the bank, what will happen to the money going around? It will
decrease so if there is a decrease supply of money, the
demand will also decrease since there is lesser money going
around. So if demand ceases, what will happen to the prices of
goods? It will also decrease since no one is buying. So instead
of going up because of inflation, prices can go down. Now, the
opposite is also true when it comes to deflation (just think of the
opposite please).
What is the tool of the BSP to implement its monetary
policies?
 The Banks.
So that in that way, banks are the transmission belts of
monetary policy because it’s the tool that the BangkoSentral
uses to increase/decrease money supply in the public as may
be required. So that in that way, banks play a vital role as belts
of transmitting money supply policy of the BangkoSentral.
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C. As Financial Intermediaries
Banks act as a financial intermediary which allows the users
and the sources of funds to meet.
Example: 1 million people who deposit 10k each, individually
that’s really small but pool them together in a bank, that’s a lot
of money. And then the bank will use it to fund entrepreneurs.
So they take money from investors and they pool it and they
use the pooled money in other enterprises.
II. Fiduciary Nature of Banking
The fiduciary nature of banking is a recognition that the
business of banking is imbued with public interest and the
primary relationship between the public and the bank is one of
trust. Because if the public do not trust banks, they won’t put
their money in the banks. And if they don’t put money in the
bank, they can’t play their role as financial intermediary,
monetary supply or payment system and if that happens, the
economy will dry up. So in order to the bank to be able to play
its roles that we recognize is vital to the national economy,
there has to be trust and confidence from the public to the
banks. So banking business is impressed with public interest.
Paramount importance is given to the trust and confidence
given by the public to the bank. So the most important asset of
a bank is the trust and confidence that the public reposes to it.
What is the consequence of this fiduciary nature of
banking?
The fiduciary nature of Banking based on Sec. 2 of the GBL
requires that banks must perform their obligation to the highest
standards of integrity and performance. And based on the SC,
more than that of a good father in a family. Why? Because the
most important asset of a bank is the trust and confidence of its
depositors.
Does this fiduciary nature have to be explicitly placed in
the contract of the bank and its depositors?
Central Bank v. Citytrust
The SC said that the fiduciary nature of banking which
requires banks to exercise the highest degree of integrity and
performance is deemed written into the contract between the
bank and the depositor. There is no need to expressly provide
for it but since the law imposes on banks high standards in
view of the fiduciary nature of banking. The bank is under
obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary
nature of their relationship. This fiduciary relationship means
that the bank’s obligation to observe high standards of
integrity and performance is deemed written into every
deposit agreement between a bank and its depositor.
So where should banks apply the highest standard of
integrity and diligence?
1. Treatment of the accounts of
depositors/customers
Equitable PCI v. Tan
Apply it in the treatment of the accounts of the customers. They
should apply the highest degree of integrity and diligence in the
treatment of the account of the customers. They have to treat
the accounts with meticulous care, always having in the mind
the fiduciary nature of the relationship. The required diligence is
more than that of a good father in a family. In every case, the
depositor expects the bank to treat his account with utmost
privity regardless of the amount it contains. So where do we
apply the highest standard of integrity and diligence? In the
treatment of accounts of its customers. So the all accounts
must be recorded down to the last centavo.
2. Hiring, Selection, and supervision of employees
Westmont Bank v. Ramos
The banks should also exercise the integrity and diligence in
the hiring and supervision of its employees. So the SC said that
the banks work through their employees so they are
responsible for the actions of their employees.
Tan v. CA
So the SC even if Mr. Tan made a mistake in filling in the
wrong deposit slip, the teller should have called his attention to
that mistake because depositors are not expected to know the
technicalities and internal rules of the bank. So according to the
SC, depositors do not pretend to have a mastery on banking
technicalities much more of clearing procedures. So as soon as
deposits are accepted by the bank teller, they fully repose trust
on the banks personal mastery of banking. The banks sworn
diligence and meticulousness in giving a reproachable service.
3 BASIC RULES PROMOTED UNDER THE GBL
Sec. 2 further provides that the purpose of GBL is to establish a
stable and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a
developing economy.
3 basic rules promoted under the GBL:
a. Good Corporate Governance
 It should have Independent Directors
 Sets a limit on DOSRI transactions
 Fit and Proper rule must be complied
b. Market Discipline
 Competitiveness
 Information Accessing/ Transparency
c. External Governance
- the regulatory and supervisory role being played by the
BangkoSentral over banks.
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Sec. 3- Definition and Classification of Banks
3.1. “Banks” shall refer to the entities engaged in the
lending of funds obtained in the form of deposits
3.2 Banks shall be classified into:
(a) Universal banks;
(b) Commercial banks;
(c) Thrift banks, composed of: (i) Savings and mortgage
banks, (ii) Stock savings and loan associations, and (iii)
Private development banks, as defined in Republic Act
No. 7906 (hereafter the “Rural Banks Act”);
(d) Rural banks, as defined in Republic Act No. 7353
(hereafter the “Rural Banks Act”);
(e) Cooperative banks, as defined in Republic Act No.
6938 (hereafter the “Cooperative Code”);
(f) Islamic banks as defined in Republic Act No. 6848,
otherwise known as the “Charter of Al Amanah Islamic
Investment Bank of the Philippines”; and
(g) Other classifications of banks as determined by the
Monetary Board of the BangkoSentral ng Pilipinas
Basic Functions of the Bank:
1. Obtains funds in the form of deposits
 The banks accept deposits from the public.
General rule is that anyone can go to a bank
and deposit their money.
2. Engage in lending activities
 Extend loans to the public
The basic functions aforementioned show the first role of banks
that we recognize, that of being a Financial Intermediary. They
are the entities who act as the bridge between the sources of
funds, the depositors, and the users of funds, the people who
loan from the banks.
CLASSIFICATIONS OF BANKS
1. Universal bank
It’s also called “Expanded Commercial Bank” because on top of
the ordinary powers of a bank, it has additional powers that are
not enjoyed by other banks. A universal bank has the power of
an INVESTMENT HOUSE and the power to invest in NON-
ALLIED ENTERPRISES
 Investment House- is an entity which its major activity
is underwriting, in which it guarantees the sales and
distribution of securities. It means in case an entity
wants to share its shares to the public, it can only do so
if it gets an underwriter. The job of the underwriter is to
guarantee that all the shares would be sold. Such that if
no one buys the shares, the underwriter would have to
buy the shares itself. It guarantees sale and distribution
of securities.
 Non-allied enterprises- universal banks allows investment
to those enterprises that are not related to banking
functions or operations.
2. Commercial banks
It performs the ordinary banking functions like accepting
demand deposits, issuing letters of credit, discounting
deposit instruments, etc.
3. Thrift banks
Established for the purpose of meeting the needs of
capital/personal fund investment of Filipino entrepreneurs.
It caters the long term capitalization needs of ordinary
individuals
4. Rural bank
Found in provinces in order to promote rural development.
5. Cooperative banks
It meets the needs (financial, banking & credit services) of
the cooperative and its members.
6. Islamic Banks
It operates base on the Islamic concept of banking,
because there are certain rules which are required by the
Islamic community which does not allow Muslims to
transact with ordinary banks.
Why is there a need to classify the banks in different ways?
It’s because each particular type of bank caters to a particular
need or service orientation, so it’s tailor-made based on its
target clients.
Discussion: Imagine if we are not allowed to have rural banks
or thrift banks, then we only have commercial banks and
universal banks. Normally these types of banks require a large
amount of capital in billions of pesos.
So every time a bank establishes a branch, it’s required to put
up additional capital. Hence if we only have commercial banks
and we are required to put-up billions of pesos in order to put
up a branch then no bank will put up branches in the provinces
because most probably for example there are only farmers and
fishermen there, then that is not the target audience of a
commercial bank.
Because the amount of money that can be generated from that
kind of economy will not justify the extent of the investment
required for a universal or commercial bank. But rural banks
and thrift banks are required only to put up a lesser amount of
capital. So these types of banks can put up branches in the
provinces because their investment can cater to that kind of
revenue generation from the provinces.
STEPS ON ESTABLISHING A BANK:
1st step: Go to the BSP and apply for the CERTIFICATE OF
AUTHORITY TO ORGANIZE A BANK with the Monetary board
- At this point there’s no juridical entity yet. What you
have here is basically just a feasibility study or a project
brief that you are going to show to the monetary board,
that this is your plan for your bank.
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Basic requirements/main content of the project brief:
a. Must show that the entity you want to organize is a
stock corporation.
- There are 2 kinds of corporation:
 Stock corporation- means those capital
divided into shares and distributes profits in the
forms of dividends
 Non-stock corporation- means being a non-
profit organization, it does not distribute profits
to its owners.
- The banks can only be STOCK CORPORATIONS,
they cannot be organized as NON-STOCK. They’re
always a profit-making entity.
b. Must show that they intend to obtain funds from the
public in the form of deposits.
c. Must show that you’re able to comply with the
minimum capital requirement
-this changes regularly based on the determination by
the monetary board.
What does a monetary board do after receiving the
application?
- Based on the project brief that you will submit to the monetary
board, it will then assess and evaluate your project brief. They
will check who are your directors, officers. Do you have
sufficient capitalization? Do you have sufficient internal
controls? Can the bank survive in the long term?
If they find that your project brief is sufficient?
- BSP will then issue the CERTIFICATE OF AUTHORITY TO
ORGANIZE
By the way, where can you find the requirement for
proponent to first secure the authority to organize a bank?
 Sec. 8 of GBL
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 (7);
8.2. That its funds are obtained from the public, which shall
mean twenty (20) or more persons (2-Da); and
8.3. That the minimum capital requirements prescribed by
the Monetary Board for each category of banks are
satisfied. (n)
No new commercial bank shall be established within three
(3) years from the effectivity of this Act. In the exercise of
the authority granted herein, the Monetary Board shall take
into consideration their capability in terms of their financial
resources and technical expertise and integrity. The bank
licensing process shall incorporate an assessment of the
bank's ownership structure, directors and senior
management, its operating plan and internal controls as
well as its projected financial condition and capital base.
2nd step: Apply through the monetary board to get your
CERTIFICATE OF AUTHORITY TO REGISTER
Requirements:
a. Organizational/Charter Documents of a corporation
the Articles of Incorporation (AOI) and By Laws. That
is the charter document of a corporation.
b. Treasurer’s affidavit.
- It will show that the entity has complied with the
MINIMUM PAID-UP CAPITAL REQUIREMENT. This
pertains to the compliance of the minimum capital
requirement required by the Bangko Sentral to
establish a bank.
Discussion: At this point you don’t have an entity yet, you’re
just applying for an authority to be able to register your entity.
So of course you have to submit to the BSP, your
organizational documents (AOI and bylaws), and a treasurer’s
affidavit.
Once the BSP has issued your certificate of authority to
register, you still don’t have a juridical entity.
So the authority to register issued by the BSP, means an
authority to register where?
The Securities and Exchange Commission. Basis is Section 14
of the GBL.
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. (9)
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. (10)
So the Certificate to Register, once the BSP determines that
your articles and by-laws are sufficient and that you have
complied with the minimum paid up capital requirement, the
BSP will issue the Certificate or the authority to register.
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What will you do with this Authority to Register?
Once the BSP has issued the Certificate or Authority to
Register, you will use this Authority to Register, to register your
entity to the SEC.
Sec 14 of the GBL says that the SEC should not receive any
application for incorporation of a bank without the Authority to
Register issued by the BSP.
What do you submit to the SEC?
Submit your organizational documents (AOI, by-laws) and
treasurer’s affidavit to show your minimum paid up capital and
also your authority to register from the BSP.
Once you have completed the application, what will you
have now?
You will now have the Certificate of Incorporation.
What does it signify?
This Certificate of Incorporation is what we call as the
PRIMARY FRANCHISE. If this is an individual, this is the birth
certificate. This will show that you now have a juridical entity - a
corporation.
Does it mean now that we have a bank?
Not yet, this is just like a birth certificate that your entity is alive.
Now that you have this Primary Franchise, what do you
do?
Now you apply for an authority to operate.
What is this Authority to Operate?
SECTION 6. Authority to Engage in Banking and Quasi-
Banking Functions. — 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.
The determination of whether a person or entity is performing
banking or quasi-banking functions without Bangko Sentral
authority shall be decided by the Monetary Board. To resolve
such issue, the Monetary Board may, through the appropriate
supervising and examining department of the Bangko Sentral,
examine, inspect or investigate the books and records of such
person or entity. Upon issuance of this authority, such person or
entity may commence to engage in banking operations or quasi-
banking functions and shall continue to do so unless such
authority is sooner surrendered, revoked, suspended or annulled
by the Bangko Sentral in accordance with this Act or other
special laws.
The department head and the examiners of the appropriate
supervising and examining department are hereby authorized to
administer oaths to any such person, employee, officer, or
director of any such entity and to compel the presentation or
production of such books, documents, papers or records that are
reasonably necessary to ascertain the facts relative to the true
functions and operations of such person or entity. Failure or
refusal to comply with the required presentation or production of
such books, documents, papers or records within a reasonable
time shall subject the persons responsible therefore to the penal
sanctions provided under the New Central Bank Act.
Pursuant to Sec. 6 of the GBL, this is now your banking license
or your banking permit. This is now your SECONDARY
FRANCHISE. This is the permit which allows you to engage in
banking business. Without this Authority to Operate from the
BSP, if you just stop with SEC - that is not a bank, it is just a
corporation.
Now you have to go back to the BSP from the SEC, you now
apply for the banking license and your banking license
becomes your SECONDARY FRANCHISE, that allows you to
engage in the banking business.
Can an entity engage in the banking business without this
banking license?
An entity without the Authority to Operate cannot engage in the
banking business.
You also need to apply for a permit in the BSP in order for you
to engage in quasi-banking activities.
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Does the banking permit include the permit to engage in
quasi-banking activities?
There is an exception that is an entity authorized by the
BangkoSentral to perform universal or commercial banking
functions shall likewise have the authority to engage in quasi-
banking functions.
If your bank is a universal bank or a commercial bank, that
automatically carries with it the authority to engage in quasi-
banking functions.
Once you have a Universal Bank or Commercial Bank License,
that carries with it a quasi-banking license. But if the bank that
you are registering is a Thrift Bank or Rural Bank, there is no
automatic quasi-banking license. You have to apply for that
separately with the BangkoSentral.
Who has the power to determine if an entity is engaged in
banking or quasi-banking functions?
The Monetary Board has the power to determine whether an
entity is engaged in banking or quasi-banking functions.
Remember if you are engaged in banking or quasi-banking
functions without authority of the Monetary Board, without this
banking license, you can be held criminally liable under the
GBL and Central Bank Act.
Recap of Establishing a Bank:
1. Prepare a FEASIBILITY OR PROJECT BRIEF
- apply with the Monetary Board an Authority to
Organize (how my bank will look like, this is how it will
perform its functions, etc)
2. If the Monetary Board sees that the project is feasible
then MB will issue the AUTHORITY TO ORGANIZE
- this is now the time which you can create your AOI,
by-laws and other organizational documents and at
this stage, it will start accepting capital from your
stockholders.
3. Once you have completed your stockholder
documents, you now have your minimum paid-up
capital, you go back to the BSP and submit your
documents.
- You say to the BSP that I have this proposal, can you
now issue my authority to register?
4. Then the BSP upon evaluation will now issue the
CERTIFICATE of AUTHORITY TO REGISTER.
- It is the authority to register in the SEC.
- The SEC is not allowed to accept your application for
incorporation as a bank without this certificate from the
BSP.
5. Once the Certificate is issued, you go to SEC and
present your application documents then the SEC
approves your application. Once the SEC approves
your application, it issues you the CERTIFICATE OF
INCORPORATION. You do not have a bank yet, you
still have a corporation.
6. Now that you have a valid juridical entity, you go back
to BSP and apply for your banking license.
- If you are applying for a universal or commercial
banking license, it carries with it the authority to
engage in quasi-banking but if your license is ruralor
thrift bank, then you have to make a separate
application for you to engage in quasi-banking.
Do you still have to go through the process if you want to
open a branch?
No, this is to organize only. If you are just opening a branch,
you will notice in Sec. 20 of the GBL, what you need is just a
prior approval of the BSP. You don’t need to go to the SEC
because a branch is a separate juridical entity, in fact, in Sec.
20 you will see in the last paragraph, what we call as the ONE-
UNIT RULE.
One-unit rule meaning the branches of a bank are considered
as one unit with the head office of the bank.
Example: BPI has a head office and several branches all over
the Philippines but all of those branches and the head office are
one entity, the branch has no separate personality from the
head office.
Example:
So the BSP will allow a branch to be opened in V.Rama but if
the owner would want it to be moved then this will require
another BSP approval. BSP can also limit the number of
branches to be opened within that area.
Branch licenses are actually assets of a bank. You can actually
sell it so that another bank may use the area.
SHAREHOLDINGS OFA BANK
Who are allowed to be stockholders in a bank?
1. Individuals
a. Filipino
b. Foreign
2. Corporations
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. This rule
shall apply to Filipinos and domestic non-bank corporations.
(12a; 12-Aa)
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. (n)
Rules as to Individuals:
Foreign – can own up to 40% of the voting stock.
 “Voting stock” – allowed to vote in the election of
directors
 “Non-voting stock” – not allowed to vote in the
election of directors. Although still allowed to vote in
certain instances like during the amendment of the
Articles of Incorporation, non-voting stock can still be
allowed to vote. If you are going to sell substantially all
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assets of the corporation, non-voting stocks are still
allowed to vote.
The GBL says that foreigners are allowed to own only 40% of
voting stocks.
Is there a limitation for foreign ownership on non-voting
stocks?
Under Sec. 11, there is no limitation on foreign ownership on
non-voting stocks.
Generally, the provisions of the GBL apply to universal and
commercial banks. Rural banks and thrift banks are subject to
special laws. Those provisions in the GBL which are not
consistent with Rural Banking Act or the Thrift Banking Act will
apply to rural banks and thrift banks but the governing laws are
special laws.
The law does not provide a limitation for foreign ownership but
the BSP did provide. Under Sec. 126.1 of the MORB, that is
the IRR of the GBL, Filipinos are limited also to 40% voting
stock.
Situation 1: Mr. A, a foreigner owns 40% of the voting stock of
Bank X. Is that allowed? –YES
Situation 2: Mr. A, a Filipino, owns 40% of the voting stocks of
a bank. Is that allowed? –YES
Situation 3: Then comes Mr. B, owning 20%. Mr. A and Mr. B
are both foreigners. Is this allowed? –NO, because the
aggregate limit is only 40% for the foreigners in this case. They
each have an individual limit of 40% also.
What does this mean? It means that if there are many
foreigners, together all of them cannot own more than 40%.
Important: For foreigners, this 40% limit is both an individual
and aggregate limit.
EXAMPLE: if Mr. A only owns 20%, by himself that is allowed
because he is within the individual limit. Together with Mr. B,
another foreigner, this is allowed because they are within the
40% limit.
But if Mr. B now owns 21%, this is not allowed. Mr. A by himself
is allowed, Mr. B by himself should be allowed because it is
within the 40% individual limit but the limit is not just an
individual limit but also aggregate limit. So the 1% will make the
limit go beyond the 40% limit requirement so this is not allowed.
What about Filipinos?
The MORB provides an individual limit only of 40%.
Example:
Mr. A, Filipino, can he own 20%? –YES
Can he own 40%? –YES
Can he own 41%?-NO, because individual limit is 40%.
Now Mr. A and Mr. B, both Filipinos, Mr. A owns 40%, is this
allowed? – YES;
Mr. B owns 20%, allowed? –YES
If Mr. B also owns 40%, is that allowed? -YES
This is allowed because there is no aggregate limit for
Filipino ownership.
AGAIN:
 Voting share- Both foreign and Filipino individuals are
subject to the 40% limit on voting shares.
 Filipino- individual limit only
 Foreigner –both individual and aggregate limit
 Non-voting share – No limitation whether Filipino or
foreign
What about for CORPORATIONS?
Types:
1. Bank Corporations
2. Non-bank Corporations
 Sec. 11 speaks about non- bank corporations only so
the rules are different.
Who are NON-BANK corporations?
It can be:
1. Foreign – 40% of voting stocks (aggregate and
individual limitation)
2. Filipino – 40% (individual limitation)
Example: Mr. A and Mr. B are both foreigners and each own
20%. Then X Corporation, a foreign corporation owns 20%. Is
this allowed?
Not allowed because the limitation for foreign is individual and
aggregate and when we say aggregate, it doesn’t matter
whether it’s an individual or corporations. Aggregate on foreign
ownership, whether the stockholder is an individual or a non-
bank foreign corporation.
If these are all Filipino stockholders, is this allowed?
Yes because they fulfill the limit individually and there is no limit
in the aggregate.
What we are talking here is stockholdings of a domestic bank. A
domestic bank is different from a foreign bank. You can be a
foreign owned domestic bank but you are still considered a
domestic bank.
What is a domestic bank?
One which is incorporated in the Philippines.
How is that possible when we say that the aggregate limit for
foreigners is 40%?
If branch, you are not considered as a domestic bank because
you’re not incorporated in the Philippines, you’re considered as
a foreign bank.
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This is possible because foreign banking corporations are
allowed to own 100% of the voting stock of a domestic bank, as
long as it is a banking corporation.
What about Filipino banking corporations?
Yes, they are allowed to own 100% subject to the limitation
under Sec. 24 and Sec. 25 of the GBL. So for banks owning
another bank, general rule is allowed 100%. The law allowing
foreign banks to own 100% of the voting shares in a domestic
bank was recently passed in 2014.
When a foreign bank wants to do business in the Philippines, it
can either create a subsidiary, meaning they incorporate
another entity. That entity becomes a domestic bank, 100%
owned by foreigners. Or if you don’t want to put a subsidiary,
you put a branch. That branch is not domestic bank but a
foreign bank because it’s not incorporated in the Philippines.
Example: What if Mr. A (Filipino) owns 20% and you have
corporation X which is 100% owned by Mr. A, owning 30%. Is
this allowed?
A: Not allowed. If you look at the MORB, an individual and a
corporation which are wholly owned or majority of the voting
stock of which is owned by him, may own up to a combine 40%
of the voting stock of a UV, CV or PV. Because what you
cannot do directly, you cannot do indirectly.
Mr. A by himself, cannot own 50% of the voting shares of a
bank but this corporation, a different entity but still controlled by
Mr. A because he owns all if not majority of the stocks, owning
30%. He owns a total of 50% although, indirectly. This is not
allowed, they are subject to the 40% limit.
Example: What about if, it’s not a corporation but Mr. B, the
brother of Mr. A, who owns the other 30%?
A: Mr. A and Mr. B are a family group and the rule in family
group, Sec. 12 does not provide a limitation. Stockholdings of
individuals related to each other up to the 4 th civil degree of
consanguinity or affinity or common law shall be called family
groups or interests. And what is required by the law? It must be
fully disclosed in all transactions.
Example: You have corporation X owned by Mr. A and Mr. B,
owning 20%? So the stockholders of Corporation X is Mr. A and
Mr. B (50-50). Allowed?
A: Again Sec. 30 Corporate Stockholdings. 2 or more
corporations owned by the same family group or same group of
persons shall be considered related interests and what is the
requirement? Full disclosure in all transactions only.
If you look at the MORB, the rule is more explicit there. 126.1-
Individuals related to each other within the 4th civil degree
consanguinity or affinity, legitimate, illegitimate or common-law
shall be considered as family groups or related interests and
may each own 40%.
Two or more corporations owned or controlled by the same
family group or same groups of persons shall be considered
related interests and again may each own up to 40%.
STOCKS
Banks are only allowed to issue par value stocks. Meaning they
can have stocks that are par, non-par or stated value. In your
corporation code,
a. Par value - meaning the value of the stocks is stated
in your Article of Incorporation. You cannot sell the
stocks in a lesser amount than the par value.
b. No par value - meaning the Articles of Incorporation
does not state the value of the stocks. The directors
can determine and dictate how much the issuance will
be.
But for Banks, only par value stocks are allowed. You have to
state how much is the minimum value of each share.
Are banks allowed to purchase their own shares? Meaning
to have treasure stocks?
Yes they are but it has to be subject to the authority of the
Monetary Board.
BOARD OF DIRECTORS
You have at least 5 directors and a maximum of 15.
How many of those should be an independent director?
A: The law says 2 but the MORB says 20% but not less than 2.
So if 5, 2 independent directors but if 10 then 20% is still 2. If
you have 15, 20% of 15 is 3 because the law says 20% but not
less than 2.
If there’s a merge or consolidated bank, you can have 21
directors. Then of course the fit and proper rule says that the
Monetary Board passes upon the qualifications and
disqualifications of a director and an officer of a bank. Meaning
if you elect an officer of a bank, that person cannot take office
immediately. If you elect a director of a bank, that requires the
approval of the Monetary Board. The Monetary Board has to
see if that person has all the qualifications and none of the
disqualifications of a director.
QUALIFICATIONS Sec 141.2 of the MORB
oAt least 25 years of age at time
of election or appointment
o At least a college graduate or
have at least 5 years of
experience in business
o Have attended a special
seminar on corporate
governance
o Must be fit and proper
DISQUALIFICATIONS Sec. 143.1
1. Permanent
2. Temporary
Example:
You have a person against whom a case of violation of BP 22
was filed. Can he be elected as director?
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 Yes, he’s not disqualified at all because to be
temporarily disqualified, there has to be a judgment,
he must have been found guilty of violation of BP 22.
 When does it become a permanent disqualification?
When the judgment becomes final and executory. So
filing a case does not disqualify, there has to be
judgment first. If there’s a judgment, that’s not yet final
because it was appealed, then it’s temporary
disqualification. Meaning if it’s dismissed, then he will
be qualified. But if there’s no dismissal and it becomes
final and executor, then permanent disqualification.
This applies to Criminal cases with imprisonment of more than
6 years. This applies to administrative sanctions imposed by the
Monetary Board. Applies to cases like BP 22, Estafa, Theft,
Qualified Theft.
Who is an independent director?
An independent director is a director who is not an officer, not a
related party to the officers and the directors and the principal
stockholders of a bank. So this independent directors are
independent of the management and independent of the
controlling stockholders of a bank. So they are expected to
balance out the inherent conflict of interests between a director
who is also the owner of the bank.
How long will he serve as an independent director?
Independent directors can serve for 9 cummulative years, not
necessarily consecutive, but after that, perpetual barred from
being an independent director based SSC Memorandum
Circular 4-2016.
Bank Branches
- Apply for approval from the Monetary Board.
Take note of the provision on Cross-Selling on the 2nd
paragraph of Sec. 20
SECTION 20. Bank Branches. — Universal or commercial
banks may open branches or other offices within or outside
the Philippines upon prior approval of the Bangko Sentral.
Branching by all other banks shall be governed by pertinent
laws.
A bank may, subject to prior approval of the Monetary Board,
use any or all of its branches as outlets for the presentation
and/or sale of the financial products of its allied undertaking
or of its investment house units.
A bank authorized to establish branches or other offices shall
be responsible for all business conducted in such branches
and offices to the same extent and in the same manner as
though such business had all been conducted in the head
office. A bank and its branches and offices shall be treated as
one unit. (6-B; 27)
Cross-selling is the presentation and sale of financial product of
the allied undertaking or the investment unit of a bank in the
bank premises.
GR: Not allowed.
EXC: Sec. 375 of the Revised Insurance Code which says that,
to engage in Bank Assurance meaning undertaking or selling
insurance products in bank premises. To engage in bank
assurance arrangement, the bank is not required to have equity
ownership in the company. So the Insurance company need not
be an allied undertaking of the bank.
So for example, a bank owns an investment bank unit, your
investment bank unit cannot sell in the bank premises. You are
only allowed if there is prior Monetary Board approval. Cross-
selling activities are allowed in the allied undertakings of a bank
but you must get Monetary Board approval.
BASIC FUNCTIONS OF BANKS
A. Deposit (PDIC 9576)
The term “deposit” means the unpaid balance of money or
its equivalent received by a bank in the usual course of
business and for which it has given or is obliged to give
credit to a commercial, checking, savings, time or thrift
account, or issued in accordance with BangkoSentral rules
and regulations and other applicable laws, together with
such other obligations of a bank, which, consistent with
banking usage and practices, the Board of Directors shall
determine and prescribe by regulations to be deposit
liabilities of the bank: Provided, That any obligation of a bank
which is payable at the office of the bank located outside of the
Philippines shall not be a deposit for any of the purposes of this
Act or included as part of the total deposits or of insured deposit:
Provided, further, That, subject to the approval of the Board of
Directors, any insured bank which is incorporated under the laws
of the Philippines which maintains a branch outside the
Philippines may elect to include for insurance its deposit
obligations payable only at such branch.”
 It’s money which the bank derives from the public and
for which the bank is obliged to give credit to a times
savings or demand deposit account or any other
deposit liabilities of the bank.
Consolidated Bank & Trust Corporation v. CA
In your Civil Code, you have a Contract of Deposit. The Deposit
in a bank is a contract of loan or mutuum and the relationship
between the depositor and the bank is one of creditor-debtor.
Does the fiduciary relationship of banking convert this
relationship to one of trust? No. Even if the bank mishandles
the account of the client, there can be no breach of trust.
Because while there is a fiduciary relationship between the
bank and its client, the contract between them is that of a
creditor-debtor. It is a loan contract.
The bank receives your cash, not for the purpose of safe-
keeping but rather it receives it for the purpose of lending it. So
in this case, the SC says, there can be no breach of trust
because this is a contract of loan. However, the bank is bound
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by the fiduciary nature of its obligation to its client and the SC
found that the bank was remiss to its duties to uphold the
highest degree of integrity and diligence. Bank was still held
liable but not for breach of trust.
While the banking business is fiduciary in nature and banks are
required to act with the highest degree of integrity and
diligence, the contract is still a loan contract.
Guingona v. City Fiscal
Even if banking is fiduciary in nature, it does not revert the
contract to one of trust. The contract remains as a contract of
loan and therefore any breach by the bank (e.g. failure to pay)
only a civil liability arises and not a criminal liability.
When you deposit money in the bank ownership is transferred
to the latter. The bank can use the money however it sees fit,
ordinarily the bank will use that money and lend it to whoever
applies for a loan. And then when you demand for that money
back, the bank is not obliged to return to you your money but
rather to pay you money equivalent in value to what you have
deposited, not the same exact bills that you have deposited but
just the same value or the equivalent amount of the money that
you deposited.
Hence, the bank cannot be held liable for estafa if it cannot pay
the depositor. Because failure to pay a loan does that constitute
a criminal offense. There is only a civil obligation.
Consequently, the city fiscal of Manila have no jurisdiction over
this case, since the depositor has no right to file estafa. His right
is only to sue for the return of his money in a civil case.
To be held liable under Art. 315b (estafa) of the RPC, it should
involve a contract of deposit.
Contract of deposit v. Deposit in the bank
In a contract of deposit where the purpose is safekeeping, you
cannot use the property given to you and at the end of the term
you have to return that exact same thing.
In a deposit in the bank which in reality is a contract of loan,
when the money is lent to you the moment that the debtor
receives it the debtor gets the ownership of that money. And
you cannot dictate on the debtor how to use the money
because its now his. There’s a transfer of ownership from the
depositor (creditor) to the bank (debtor)
Associated Bank v. Tan
One consequence of deposit being a loan contract is that a
bank has a right to set-off or compensation. However in
accordance with the fiduciary nature of banking, the manner of
set-off would require the bank to inform the depositor
beforehand of its act of setting-off the amount on the account.
It is not disputed that the bank has the right of set-off since this
a contact of simple loan. Because for that check which was
already withdrawn before it was cleared in essence the bank
advanced the amount to Tan, the bank now becomes the
creditor and the Tan becomes the debtor. And since both
amounts are due and demandable, the bank had the right for
legal compensation and set-off.
In an ordinary set-off, you don’t need to inform the other party
that you’re setting off. It takes place by operation of law. But in
this case the bank needs to inform the depositor because of the
fiduciary nature of banking. It requires that the bank should
have informed the depositor that it was setting-off the account
so that the depositor would know and would not be issuing
checks which would bounce for insufficient funds.
The damages imposed by the court on the bank is not by
reason of the set-off but because of the manner of set-off which
according to SC, violates the fiduciary nature of banking which
requires the highest integrity and diligence in dealing with the
accounts of the clients.
Since the bank already advanced the amount to Tan even
before the check was cleared, can the bank be held for
estoppel?
Ordinarily the bank shouldn’t be allowed to tell you that the
check has cleared when in fact it has not yet been cleared. But
it cannot be held in estoppel also because the money that it has
to pay Tan, does not come from the bank, it comes from other
depositors. So Tan can’t be enriched at the expense of other
depositors. However, the bank can be held liable for breach of
its fiduciary duty.
Then Tan withdrew the amount the P57, 000. So now the bank
becomes a debtor for P57, 000. Then he made another deposit,
the P107, 000, the bank owes him P107, 000. So for the P107,
000, you have Tan as the creditor and the bank as debtor.
Now, when this check bounced, what happened?
Because Tan already withdrew this amount, it turns out it’s not
funded so in effect, the bank advanced to him that amount.
The bank advanced it because he already got the money.
So when the bank advanced it to him, what relationship
was formed with Tan and the bank for this amount?
There is a debtor-creditor relationship with Tan as the debtor
and the bank as the creditor because the bank advanced this
amount to him when Tan withdrew it.
So now you have two different contracts of loan:
FIRST: Tan’s deposit where he is the CREDITOR and the bank
as DEBTOR
SECOND: Tan is the DEBTOR because he withdrew the
amount advanced by the bank and the bank as CREDITOR
because the bank advanced that amount to him since the check
was not funded.
So now you have a situation, where two persons are debtors
and creditors of each other. Does the bank have the right to
compensate or set-off?
Yes. Because you can have compensation when two persons
are creditors and debtors of each other and the amounts are
already due.
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Do those requirements for compensation apply in this
case?
Yes, according to the Supreme Court, it cannot be denied that
the bank has a right of set-off.
Why does the bank have the right of set-off?
Because the relationship of the bank and the depositor is that of
a CREDITOR-DEBTOR relationship. But for those checks
which were already withdrawn before it was cleared, the bank
now becomes the CREDITOR and the depositor as the
DEBTOR. So now they are both creditors and debtors of each
other and since the amounts are already due, the bank had a
right to legal compensation or set-off.
So it is not disputed. The bank has a RIGHT TO SET-OFF. But
was the bank held liable for damages?
YES, not because it set-off the amount but because of
MANNER OF THE SET-OFF since the bank did not even
inform the depositor that it had deducted from his account, the
P101, 000. In an ordinary set-off, it is legal compensation but
you need to inform the depositor. In fact, it takes place by
operation of law.
But in this case, why do you need to inform the depositor?
It is because of the fiduciary nature of banking. According to the
SC, the bank has a right to set-off because this is a loan
agreement. There is creditor-debtor relationship but the
fiduciary nature of banking requires that the banks should have
informed the depositor that it was setting off the amount so that
the depositor would know and will not issue checks will bounce
for insufficient amount. Due to the fiduciary nature of banking,
So the damages imposed by the court on the bank is not by
reason of the set-off, because this is allowed, there is no
question to that. It is because of the manner of set-off.
Can the bank be held in estoppel?
It cannot be held in estoppel. Ordinarily, the bank should not be
allowed to do that, they should not tell you that the check has
cleared when it has not yet been cleared. The bank should not
be allowed but it cannot be held in estoppel because remember
if you hold the bank in estoppel, the money it has to pay you
does not come from the bank, it comes from the other
depositors. So you cannot enrich at the expense of other
depositors so the bank cannot be held in estoppel. But the bank
can be held liable for breach of the fiduciary duty.
CENTRAL BANK v. MORFE
Why do you say the bank should not be held liable? Liable
for what?
If the bank is declared insolvent, it should not be held liable for
the amount claimed by the depositors because they are
considered general depositors wherein they are treated just like
the other depositors. When the bank is declared insolvent, it
means that their assets are not sufficient to cover their
liabilities.
So you’re saying that the bank is not supposed to pay the
depositors anymore?
They are supposed to pay the depositors but as to the excess
of their available funds because there are rules governing the
liquidation of a bank and priorities should be considered.
What are those priorities?
One is for the expenses of liquidation, second, is for those fully-
secured creditors, and if all those debts are satisfied by the
funds of the bank then the excess funds would be distributed to
the depositors as to the amount of their claims.
What happens when there is insolvency? What is the state
of a company in an insolvency?
The liabilities are more than your assets.
Situation: Let’s say you have assets of 8 billion pesos and your
liability is 10 billion pesos. So the assets here are not enough to
cover or pay the liabilities.
So, now what did the spouses do?
They filed a case in the Court of First Instance holding the bank
liable for their deposits.
What happened to that case?
The judgment of the court was in their favor.
What happens to that judgment? What happens if you have
a judgment credit? Why were they so insistent?
Because it is now a preferred credit.
What is a PREFERRED CREDIT?
A preferred credit is one which gets priority in the disposition of
the assets of an insolvent company.
So in our situation above, if out of these 10B liability, you have
5M preferred credits, what happens is that this 5M credit gets
paid first.
So 8B – 5B = 3B (asset leftover)
This 3B left will be used to pay the 5B leftover credit.
Another example, let’s make it 6 and 4 para dililibog.
So if your preferred credit is 6B, you get to be paid first. That is
the rule and among those preferred credits listed in the Civil
Code, is your judgment credit. They get to be paid first then
whatever is left of the assets of the insolvent company, that’s
the one that will be distributed pro-rata to the ordinary creditors.
So now, the bank was declared insolvent, the spouses got a
brilliant advice from their lawyer, thought that rather than
sharing with the other creditors pro-rata for what is left behind
with the assets, let’s change our credit from ordinary to
preferred. How do you change it? You get a judgment credit. If
we get a judgment credit, we will not be sharing with the
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ordinary creditors but with the preferred. We get to be paid first.

That was their brilliant idea. TYPES OF ACCOUNTS AND DEPOSITS
So, did the SC allow the conversion of the depositor’s
credit? A. As to DEPOSITORS
1. Individual Accounts
No, because it will open the floodgates to litigation because all One person opens an account
the depositors knowing that the bank has been declared
insolvent will now go to court and file a case to change their Q: A deposit is a loan contract. Who can open accounts?
credit from ordinary to preferred. SC said that cannot be
allowed because your credit when it started was an ordinary A: Qualifications
credit, you cannot be allowed to convert it into a preferred credit
just because you filed a case while the proceeding for I. Legal age
insolvency was still pending. II.Legal capacity to enter into contracts –
this is needed because deposit is a
Are you allowed to file a case in case there is insolvency? contract of loan
 Not disqualified by law
SC said yes, you are still allowed to file a case in two instances:
 Minors
1. If the bank disputes your claim - if the bank does not
acknowledge your claim, then you can file a case to Exception: PD 734 provides that minors can deposit in their
prove that you had a deposit with the bank. own name with the bank provided:

Was that the case here? –No, because at the first instant, the  they are at least 7 years of age
bank already acknowledged that they are depositors of this  able to read and write
amount. So there was no reason to file a case.  have sufficient discretion
 not otherwise disqualified by any other incapacity
2. If there is a dispute as to the amount of the deposit  They can only enter into savings deposit and time
– so if for example you are saying that your credit is 5M deposit. So, they cannot enter into demand
but the bank says “no, it’s only 1M,” then you can now deposits or any other accounts.
file a case in court.
 Insane/demented
But if in the first instance, the bank acknowledges, then you
 With civil interdiction
cannot file a case and you cannot just file a case to convert an
 Deaf-mutes who cannot read or
ordinary credit to a preferred credit. This leads us to the
write
conclusion that even if banking is fiduciary in nature requiring
the highest degree of integrity and diligence in the performance
2. Joint Accounts
of their duties, still the credit of the depositors are only
a. And/Or account – all or any of the depositors
considered ordinary credit or general credit. They are not
to sign for any transaction (only one needed)
preferred credits. So the preferred credits will be paid first, and
b. And- all parties signing for any transaction
the depositors will only share in what is leftover of the assets of
the bank. Just because the relationship of the depositor and
3. Corporate Accounts
bank is fiduciary in nature does not mean your credit is
Accounts entered into by corporations,
preferred. So, if your credit is ordinary, you cannot just file a
partnership, associations; by juridical
case to change it to preferred credit.
persons
Take Note: “Considering that the deposits in question in their
inception were not preferred credits, it does not seem logical B. As to DEPOSITS
and just that they should be raised to the category of preferred
credit simply because the depositors taking advantage of the 1. Savings account
long interval between the declaration of insolvency and the filing Interest bearing; most common type usually evidenced by a
of a petition for judicial assistance and supervision were able to passbook. You have to go to the bank/ATM machines to
securejudgment for the payment of their time deposits.” withdraw

So at the start they have ordinary credits and you cannot just
convert them to preferred by filing a case during the interval of
the declaration of the insolvency until the case for insolvency is
filed in court. Even if there is a fiduciary nature in the
relationship between a bank and a creditor, the credit is still an
ordinary and not a preferred credit.
2. Time certificate of deposits (Time deposits)
Account with a fixed term
3. Demand deposit
Those under checking accounts.
Normally not interest bearing or very low interest rates because
when you maintain a demand deposit from a bank, there is no
certainty as when you will withdraw the money. So, the bank
will be forced to keep a certain amount of money to make sure
that when you withdraw it, they can provide you. In other words,

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when the bank is required to keep the money, it cannot use the Situation #1.1: If Mr. A also has joint account with Mr. B in X
money for any other purposes- it cannot lend or invest the Bank
money. So, the money does not earn for the bank and in turn, it Has a P300,000 joint account with B.
will not earn for you. Has a P400,000 joint account with B.
Has a P800,000 joint account with B.
Limitations:
Q: How much is Mr. A going to get in the insolvency of
 Minors are not allowed to have demand deposits Bank X?
 GBL Sec 33. Demand deposit accounts are only A: For the joint accounts,
allowed for universal and commercial banks. Any
other bank license (rural/thrift) needs to apply in the Total Deposit Share of Mr. Insured amount
BSP that they may be able to accept demand deposit A (the joint depositors will
accounts. share the INSURED
AMOUNT)
4. Negotiable order of Withdrawal Account (NOW) P300,000 P150,000 P150,000
Basically, a combination of savings and demand deposit since the total deposit is
account. They have savings aspect in the sense that they are below P500,000
interest bearing. Likewise have demand deposit aspect in the P400,000 P200,000 P200,000
sense that they can be withdrawn anytime by the issuance of a since the total deposit is
check. below P500,000
P800,000 P400,000 P250,000*
5. Long term negotiable certificates of deposit since the total deposit is
Work like bonds in the sense that the banks issue certificates above P500,000, they divide
but really, they are bank deposits for a fixed long period time for among themselves the
around 5 years which cannot be withdrawn until period agreed insured amount only
upon. Usually high interest bearing. TOTAL: P600,000
TOTAL INSURED AMOUNT
IINSURED DEPOSITS CLAIMABLE BY MR A: P500,000**

Section 4 (g) of RA 3591 as amended by Section 3 of RA *Rationale:

9576. “Insured deposit” means the amount due to any bona fide
depositor for legitimate deposits in an insured bank net of any
obligation of the depositor to the insured bank as of date of
closure, but not to exceed Five hundred thousand pesos
(P500,000.00)
 refer to the amount deposited in the bank which upon
insolvency of the bank which the deposit was made.
 Insurer: Philippine Deposit Insurance Corporation
(PDIC).
 Coverage: P500,000 per DEPOSITOR
Wrong to say per account because a
depositor may have many accounts but he
can only have one coverage.
Situation #1: Mr. A has money deposited in X Bank.
In Manila, P300,000. In Cebu, P400,000. Mindanao, P80,000.
Q: How much is the total deposit?
A: P1.5 M
Q: How much is the total insurance?
A: Only P500,00. Because again, it is not per account but per
depositor of the same bank, wherever the deposit may be.
If he also has another account in Y bank and Y bank as well
goes insolvent.
Q: How much is the total insurance?
A: X Bank, P500,000. Y Bank, another P500,000. Insurance is
separate per bank. So: per bank, per depositor.
Section 4 (g) of RA 3591 [PDIC Charter] as amended by
Section 3 of RA 9576. Provided, that If the account is held
jointly by two or more natural persons, or by two or more
juridical persons or entities, the maximum insured deposit
shall be divided into as many equal shares as there are
individuals, juridical persons or entities, unless a different
sharing is stipulated in the document of deposit.
Thus, if joint account exceeds P500,000, the maximum insured
deposit shall be dived equally among the depositors. Thus, the
P800,000 account is subjected to the P500,000 maximum
insured deposit which is divided equally between A and B.
**Rationale:
Section 4 (g) of RA 3591 [PDIC Charter] as amended by
Section 3 of RA 9576. That the aggregate of the interests of
each co-owner over several joint accounts, whether owned by
the same or different combinations of individuals, juridical
persons or entities, shall likewise be subject to the maximum
insured deposit of Five hundred thousand pesos (P500,000.00).
The total insured deposits of all joint accounts of a depositor is
again subjected to the P500,000 limit. Thus, although the actual
total insured deposits of Mr. A for his joint accounts is
P600,000, he can only claim P500,000.
Q: But how much insured deposits can Mr. A get from X
Bank in total?
A: P1M.
Section 4 (g) of RA 3591 [PDIC Charter] as amended by
Section 3 of RA 9576. A joint account regardless of whether
the conjunction 'and', 'or', 'and/or' is used, shall be insured
separately from any individually-owned deposit account.
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For individual deposits – P500,000. For joint deposits –
P500,000. Total of P1M.
Q: In the same situation, how much does B get for the joint
accounts?
A: Also P500,000 (P600,000 subjected to maximum insured
deposit).
Situation #2 (On the joint deposits):
If A has P300,000 joint account with B.
P400,000 joint account with C.
And P800,000 joint account with D.
Q: Does he get a separate maximum of P500,000 for each
joint account since they are with different co-depositors?
A: No. ALL the joint accounts of a depositor (regardless of
whoever are his co-depositors) will be aggregated and
subjected to only ONE maximum insured deposit of P500,000.
Mr. X still only gets P500,000 for his joint deposits in this case.
Again, emphasis on PER DEPOSITOR.
SUMMARY OF IMPORTANT POINTS:
 Maximum of P500,000 per DEPOSITOR, in the same
bank, regardless of the number of accounts from
different branches.
 INDIVIDUAL accounts have separate insurance from
JOINT accounts.
 If JOINT account exceeds P500,000, the maximum
insured deposit will be equally divided between the co-
depositors.
 ALL THE JOINT ACCOUNTS (with same or different
co-depositors) of a depositor will be aggregated and
subjected to the maximum insured deposit of
P500,000.
Q: Is it better to have individual accounts and several joint
accounts to have more claimable insured deposits?
A: Yes, it would be better to have an individual account and
joint account since they have separate insured deposits. But it
will not help to have many joint accounts regardless if with
different partners because at the end of the day, they will be
aggregated and subjected to the maximum insured deposit.
What are the laws governing secrecy of bank deposit?
a. RA 1405 – Bank Secrecy Law
b. RA 6426 – Foreign Secrecy Deposit Act
Distinguish Bank Secrecy Law and Foreign Secrecy
Deposit Act:
Bank Secrecy Law – applies to peso deposits in the Philippines
Foreign Secrecy Deposit Act – applies only to foreign currency
denominated deposit accounts
GSIS v. CA
What happens if the account is the subject matter of litigation?
It falls under the exception of the absolute confidentiality nature
of bank deposits. As an exception, the courts may ask the bank
to reveal the banking information of a depositor. So, for bank
accounts which are the subject of litigation, under RA 1405, it
states that this is an exception to the Bank Confidentiality Rule.
The courts may look into these types of deposits.
Apparently, the parties are arguing that there is a conflict
between RA 1405 and RA 6426. The issue in this case is which
law should prevail because there is an apparent conflict
between the two laws?
There is no conflict in the laws. In this case, since the Bank
Secrecy Law only applies to domestic currency deposits and
Foreign Secrecy Deposit Act only apply to foreign currency
deposits.
What is the relationship between these two laws?
Their relationship is the inherent nature of bank deposits to be
absolutely confidential.
The rule is RA 6426 is a special law which applies only to
foreign currency denominated deposit accounts. All other
deposit accounts fall under the ambit of RA 1405 which is the
general law on the secrecy of bank deposits.
So the SC said there is no conflict between these two laws,
because a general law does not nullify a special law and a
special law does not nullify general law. So these two laws can
be interpreted in harmony. In this case, it is the special law that
should be applied so there is only exception applicable which is
the written permission from the depositor, which is Domsat.
The exception under RA 1405 does not apply to foreign
currency deposits, because under RA 6426 there is only one
exception which is the written permission from the depositor.
Intengan v. CA
The SC since the case was filed under RA 1405 invoking the
exception again that the subject matter of the case is the
subject matter of the litigation.
Citibank argued that this is subject matter of litigation so we
have the right to disclose the details of your deposit. But the
complaints were saying, no this is not subject matter of
litigation. They were arguing whether or not this case is an
exception to RA 1405.
The SC said that this case should have been studied carefully
by all concerned.
“The finest legal minds in the country — from the parties'
respective counsel, the Provincial Prosecutor, the Department
of Justice, the Solicitor General, and the Court of Appeals — all
appear to have overlooked a single fact which dictates the
outcome of the entire controversy. A circumspect review of the
record shows us the reason. 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.”
The deposits are foreign currency deposits, you apply RA 6426.
So the SC was being bitchy in this case. (lol)
Applying RA 6426, it looks like there is a violation because
there is only one exception under such and it is the written
permission from the depositor which was not obtained.
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BANK SECRECY LAW (RA 1405)
Purpose: to encourage depositors to deposit in the banks and
discourage private holding of money.
General Rule: Sec. 2 provides for the secrecy of bank
deposits. It covers all deposits of whatever nature with banks
and other banking institutions.
Trust accounts are also covered, although technically they are
not the same as deposits because there is no transfer of
ownership. It still covered by the term “of whatever nature”
And looking at the last exception it states that “money deposited
or invested is the subject matter of litigation.” Section 2 does
not only cover deposits, but also investments in banking and
other banking institutions.
How does the Bank Secrecy work?
It maintains the absolute confidentiality of bank accounts and
should not be disclosed unless it falls under the four exceptions.
Exceptions:
a. It must be with the written permission of the depositor
b. In cases of impeachment
c. Upon order of competent in cases of bribery or dereliction
of duty of public officials
d. If the money deposited or invested is the subject matter of
litigation
What is required in order to invoke the last exception under RA
1405, that the money deposited or invested is the subject
matter of the investigation?
BSB Group v. Sally Go
What determines whether or not the deposit is the subject
matter of litigation?
In determining whether it is a subject matter of litigation, you
look only in the information or complaint.
In this case, it was not because it is a case of qualified theft
rather, if you look at the information there is no factual
allegation that Ms. Go took the checks and deposited it in her
bank account. So now when you want to look in the bank
account, you are not basing it on the facts based on the
complaint, rather you are looking for evidence and that does not
make the bank account subject of litigation.
If your purpose to look into the bank account is to look for
evidence that does not make it subject matter of litigation, in
order to become a subject matter of litigation there must be a
factual allegation that that bank account has been used for
whatever purpose. So that bank account must be alleged in the
complaint or information. Unfortunately, that did not happen in
this case.
The information or complaint did not make any mention of the
bank account that means that the bank account cannot be
subject of litigation that being the case, the exception does not
apply. Hence, we go back to the general rule that bank
accounts are absolutely confidential.
In order to be a subject matter of litigation, there must be a
factual allegation involving that bank account. You have to
identify the bank account, because how can you know that that
is the subject matter of litigation. It has to be specific. It has to
be specific that it is capable of being identified.
To determine whether a bank account is the subject matter
of litigation.
It should be based from the indictment that charges respondent
with the offense and not based on evidence sought by the
prosecutor.
PNB v. Gancayco
Principle: Unexplained wealth under RA 3019 being analogous
to bribery and dereliction of duty is an additional exception to
RA 1405
Discussion: Technically speaking unexplained wealth is not
expressly provided as part of the four exceptions under RA.
1405 (Bank Secrecy Law).
The case filed against Mr. Gimenez is a violation of Sec. 8 of
RA 3019 (Anti-graft and Corrupt Practices Act) which is the
dismissal due to unexplained wealth. The said section provides
that "bank deposits shall be taken into consideration in the
enforcement of this section, notwithstanding any provision of
law to the contrary."
Notice that in laws providing for additional exception, it always
specifically says “notwithstanding the provision of RA 1405”.
However, that’s not the case here. But SC held that Sec 8
amends RA 1405 to include unexplained wealth as among the
exceptions in the confidentiality of bank deposits.
In was held that unexplained wealth is analogous or similar to
bribery and dereliction of duty. Consequently then we can apply
the exception for bribery and dereliction of duty under RA 1405
to cases of unexplained wealth.
Other bank secrecy law
R.A. 6426 “Foreign Currency Deposit Act of the Philippines”
Section 8. Secrecy of foreign currency deposits. – All
foreign currency deposits authorized under this Act, as
amended by PD No. 1035, as well as foreign currency deposits
authorized under PD No. 1034, are hereby declared as and
considered of an absolutely confidential nature and, except
upon the written permission of the depositor, in no instance
shall foreign currency deposits be examined, inquired or looked
into by any person, government official, bureau or office
whether judicial or administrative or legislative, or any other
entity whether public or private; Provided, however, That said
foreign currency deposits shall be exempt from attachment,
garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body
whatsoever.
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General Rule: foreign currency deposits are absolutely
confidential in nature and may not be looked into.
Exception: If there is written consent from the depositor.
EXEMPTIONS TO THE BANK SECRECY LAWS
1. Anti-Money Laundering Act of 2001 (RA 9160)
- it expressly provides that its an exception on both
Bank Secrecy Law (RA 1405) & Foreign Currency
Deposits (RA 6426)
-this act provides for two exceptions found
under Sec. 9 and Sec. 11
Section 9. (c) When reporting covered transactions to the
AMLC, covered institutions and their officers, employees,
representatives, agents, advisors, consultants or
associates shall not be deemed to have violated
Republic Act No. 1405, as amended; Republic Act No.
6426, as amended
The transactions should fall under suspicious transactions &
covered transactions.
Covered transactions
These are transactions which are more than 500k in one
banking day.
Suspicious transactions
These are transactions with covered institutions, regardless of
the amounts involved, where any of the following circumstances
exist:
a. there is no underlying legal or trade obligation, purpose or
economic justification
Example: one day a person makes a deposit for the bank
with 300k, the bank will have to inquire into the purpose of
that deposit. If there’s no justification for that deposit, the
bank may consider that as a suspicious transaction.
b. The client is not properly identified.
Example: IDs of the depositor don’t match
c. the amount involved is not commensurate with the
business or financial capacity of the client
Example: Client state in his bank application that he’s
engaged in a sari-sari store business but he deposit 150k a
day
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
Example: A client deposit 300k today and 300k tomorrow,
so it looks like he deliberately deposited it in half so that it
won’t be covered with the 500k limit in covered
transactions. It now becomes a suspicious transaction and
still be subject to the reporting requirement
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
Example: Everyday you deposit 20k, then on the 10th day
you deposited 400k. That’s a deviation from your normal
transactions in the bank.
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
g. any transaction that is similar or analogous to any of the
foregoing."
TN: It doesn’t make the transaction illegal. It just triggers a
reporting requirement. It just gives rise to an obligation to report
on the part of the bank or the covered institution.
RA 9160, amended by RA 9194. Section 3. (b-1)
'Suspicious transaction' are transactions with covered institutions,
regardless of the amounts involved, where any of the following
circumstances exist:
1. there is no underlying legal or trade obligation, purpose or
economic justification;
2. the client is not properly identified;
3. the amount involved is not commensurate with the business or
financial capacity of the client;
4. taking into account all known circumstances, it may be perceiv
ed that the client's transaction is structured in
order to avoid being the subject of reporting requirements
under the Act;
5. any circumstance
relating to the transaction which is observed to deviate
from the profile of the client and/or the client's past transactions
with the covered institution; CAaDTH
6. 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 SEIDAC
7. any transaction that is similar or analogous to any
of the foregoing
SUSPICIOUS TRANSACTIONS
Regardless of amount:
1. Transaction has no purpose or economic justification
2. Client is not properly identified
 Unable to present IDs that match
3. Amount involved is not commensurate to the business
or financial capacity of the client
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 In your bank application, you state you are engaged in
a Sari-Sari store business but your deposits are
P450,000/day. This raises the doubt that maybe, other
things are being sold in your sari-sari store as the
amount is not commensurate.
4. Taking into account all known circumstances, it may
be perceived that the client's transaction is structured
to avoid being the subject of reporting requirements
under this act
 You are automatically covered under the reporting
requirement if covered transaction, if more than
P500,000.
 Let’s say you deposit P300,000 today and P300,000
tomorrow. It looks like the deposit was divided to as
not to be over P500,000 and be a covered transaction
 In this case, your transaction is deemed a suspicious
transaction
5. Deviation from the usual past transaction with the
covered institution
 Every day you deposit P20,000 then suddenly you
deposited P400,000. That is a deviation from the usual
transactions with the bank and is deemed suspicious
transaction.
6. Any transaction related to an unlawful activity or
offense
 “Unlawful offense” here is defined by RA9160. It does
not mean all unlawful offenses there is
7. Any other transactions analogous to the foregoing
If you have a suspicious transaction, it is not immediately a
violation of the depositor of the AMLA. All that the transaction
triggers is a reporting requirement on the part of the covered
person. If you are reported under a suspicious transaction,
AMLC will investigate.
In covered transactions, you are likewise not immediately a
violator of AMLA. It just triggers a reporting requirement on the
covered persons under Sec 9.
Section 9. (c) When reporting covered transactions to the
AMLC, covered institutions and their officers, employees,
representatives, agents, advisors, consultants or associates
shall not be deemed to have violated Republic Act No. 1405,
as amended; Republic Act No. 6426, as amended.
 Since bank deposits are supposedly confidential in
nature, the fact of reporting to the AMLC is actually a
violation of the Bank Secrecy Law.
 But Sec 9 of AMLA expressly provides an exception for
both RA 1405 (Peso accounts) and RA 6426 (foreign
accounts). Thus, the reporting of the covered persons is
not deemed a violation of Bank Secrecy law.
SEC. 11. Authority to Inquire into Bank Deposits. –
Notwithstanding the provisions of Republic Act No. 1405, as
amended; Republic Act No. 6426, as amended; Republic Act
No. 8791; and other laws, the AMLC may inquire into or
examine any particular deposit or investment, including related
accounts, with any banking institution or non-bank financial
institution upon order of any competent court based on an ex
parte application in cases of violations of this Act, when it has
been established that there is probable cause that the deposits
or investments, including related accounts involved, are related
to an unlawful activity as defined in Section 3(i) hereof or a
money laundering offense under Section 4 hereof; except that
no court order shall be required in cases involving activities
defined in Section 3(i)(1), (2), and (12) hereof, and felonies or
offenses of a nature similar to those mentioned in Section
3(i)(1), (2), and (12), which are Punishable under the penal laws
of other countries, and terrorism and conspiracy to commit
terrorism as defined and penalized under Republic Act No.
9372." "The Court of Appeals shall act on the application to
inquire into or examine any deposit or investment with any
banking institution or non-bank financial institution within twenty-
four (24) hours from filing of the application."
Basis for AMLC can look into bank deposits:
 Probable cause that deposits are related to an
unlawful activity, as defined under AMLA
 In case of money laundering offense
Republic v. Eugenio
Facts: Several investigations were conducted by the
Ombudsman concerning the award of NAIA Airport 3 to
PIATCO. Among the persons investigated was Pantaleon
Alvarez, a chairman of the PBAC Technical Committee NAIA-
IPT3 Project and Cheng Yong. Investigation revealed that
Alvarez maintained 8 bank accounts with 6 different banks. To
fully inquire into such deposits, AMLC filed for issuance of a
bank inquiry order. The RTC issued orders ex-parte. Upon
motion by Alvarez, the orders were lifted, refraining AMLC to
inquire. Lilia Cheng who is the wife of Cheng Yong with whom
she jointly owns a bank account filed a TRO and argued that
ex-parte bank inquiry orders violated her right. Moreover, she
argued that under the AMLA, such order can only be granted in
connection with violations of the AMLA and that the AMLA can
not apply to bank accounts opened and transactions entered
into prior to the effectivity of the AMLA.
Ruling: The AMLA also provides exceptions to the Bank
Secrecy Act. Under Section 11, the AMLC may inquire into a
bank account upon order of any competent court in cases
of violation of the AMLA, it having been established that there
is probable cause that the deposits or investments are related
to unlawful activities as defined in Section 3(i) of the law, or a
money laundering offense under Section 4 thereof. There is
also no need for the AMLC to obtain a court order before it
could inquire into such accounts. Further, a bank inquiry
order may not be availed of ex parte.
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Discussion:
 2 issues of the AMLA (1) The interpretation of the
phrase “in cases of violation of this Act” (2) Can the
AMLC file ex-parte
 The contention of the persons being investigated is
that the phrase “in cases of violation of this Act” means
that before the AMLC can look into the deposit
accounts, there has to be first an actual case filed for
violation of the AMLA. They took the term literally.
 The SC said the contention is wrong since what it
simply means is ‘in the event of’ or in the event
there are violations of the AMLA and it is NOT
required for there to be actual cases pending for
violation of the AMLA. So you don’t need to file a case
to look into the bank deposits.
 On the second issue of ex-parte, meaning on
application of one party and the other party will not be
allowed to contest. In this case the SC said that you
compare Section 10 and Section 11. Section 10
expressly provides that it is an ex-parte application for
a freeze order. But the phrase is NOT repeated on
Section 11 and so obviously, the intention of
Congress is for it to be NOT ex-parte. So it’s not
allowed. You cannot do it ex-parte.
 Upon learning of the decision in the case of Eugenio,
Congress amended Section 11.
At present, it is not automatic that AMLC can look into
accounts. It must follow a procedure:
1. AMLC files an ex-parte application
ex parte means that there is an application without the need of
notifying the other party. No more need to notify the depositor
because obviously if he finds out, accounts will be withdrawn
while the application is still pending.
2. Application is filed to the Court of Appeals.
3. CA will then issue an order allowing AMLC to look
into bank account
Just take note that Section 9 and Section 11 are exceptions to
the Secrecy of Bank Deposits covering Philippine and foreign
currency deposits.
HUMAN SECURITIES ACT (RA 9372)
SEC. 27. Judicial Authorization Required to Examine Bank
Deposits, Accounts, and Records. - The provisions of
Republic Act No. 1405 as amended, to the contrary
notwithstanding, the justices of the Court of Appeals
designated as a special court to handle anti-terrorism cases
after satisfying themselves of the existence of probable cause
in a hearing called for that purpose that: (1) a person charged
with or suspected of the crime of terrorism or, conspiracy to
commit terrorism, (2) of a judicially declared and outlawed
terrorist organization, association, or group of persons; and (3)
of a member of such judicially declared and outlawed
organization, association, or group of persons, may authorize
in writing any police or law enforcement officer and the
members of his/her team duly authorized in writing by the anti-
terrorism council to:
(a) examine, or cause the examination of, the
deposits, placements, trust accounts, assets and
records in a bank or financial institution; and
(b) gather or cause the gathering of any relevant
information about such deposits, placements, trust
accounts, assets, and records from a bank or financial
institution. The bank or financial institution concerned,
shall not refuse to allow such examination or to
provide the desired information, when so, ordered by
and served with the written order of the Court of
Appeals.
 But the exception in this law is for Philippine Deposits
ONLY- because it only mentions R.A. 1405 and no
mention of R.A. 6426.
 If it’s a foreign currency deposit, you cannot use the
Human Security Act to look into the deposit.
PROCEDURE:
 Police or any officer authorized by the Anti-terrorism
council goes to the CA acting as a special court
handling anti-terrorism cases for an application
 CA determines if there is PROBABLE CAUSE on any
of the ff:
1. a person charged with or suspected of the crime of
terrorism or, conspiracy to commit terrorism,
2. of a judicially declared and outlawed terrorist
organization, association, or group of persons; and
3. of a member of such judicially declared and
outlawed organization, association, or group of
persons
 If CA finds probable cause, it issues a court order
 Order is issued to the police or any law enforcement
officer authorized by the Anti-Terrorism council,
giving them authority to look into the accounts
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IMPORTANT NOTE:
Domestic accounts can be foreign or peso denominated;
domestic means deposit is IN the Philippines. Thus, domestic
accounts fall under RA 1405 and RA 6426. If deposit is not
domestic, it is not covered by Philippine laws because it means
the deposit was made in another country.
When we are talking about Bank Secrecy, do no use “domestic”
because all deposits under Bank Secrecy laws are domestic
accounts. Be precise in the terms and use “Peso” or “foreign
denominated” bank account.
TERRORISM FINANCING PREVENTION AND
SUPPRESSION ACT(RA 10168)
Section 10. Authority to Investigate Financing of Terrorism.
The AMLC, either upon its own initiative or at the request of the
ATC, is hereby authorized to investigate: (a) any property or
funds that are in any way related to financing of terrorism or
acts of terrorism; (b) property or funds of any person or persons
in relation to whom there is probable cause to believe that such
person or persons are committing or attempting or conspiring to
commit, or participating in or facilitating the financing of
terrorism or acts of terrorism as defined herein.
The AMLC may also enlist the assistance of any branch,
department, bureau, office, agency or instrumentality of the
government, including government-owned and -controlled
corporations in undertaking measures to counter the financing
of terrorism, which may include the use of its personnel,
facilities and resources.
For purposes of this section and notwithstanding the provisions
of Republic Act No. 1405, otherwise known as the "Law on
Secrecy of Bank Deposits", as amended; Republic Act No.
6426, otherwise known as the "Foreign Currency Deposit Act of
the Philippines", as amended; Republic Act No. 8791, otherwise
known as "The General Banking Law of 2000” and other laws,
the AMLC is hereby authorized to inquire into or examine
deposits and investments with any banking institution or non-
bank financial institution and their subsidiaries and affiliates
without a court order.
 Anti-Money Laundering Council is authorized to look
into bank deposits
 Exception applies to both peso and foreign currency
accounts
 Instances:
(a) any property or funds that are in any way related to
financing of terrorism or acts of terrorism;
(b) property or funds of any person or persons in relation to
whom there is probable cause to believe that such person or
persons are committing or attempting or conspiring to commit,
or participating in or facilitating the financing of terrorism or acts
of terrorism as defined herein
 Without need for court order
NIRC, as amended by RA 10021
SEC. 6. Power of the Commissioner to Make assessments
and Prescribe additional Requirements for Tax
Administration and Enforcement. (F) Authority of the
Commissioner to inquire into Bank Deposit Accounts. -
Notwithstanding any contrary provision of Republic Act
No. 1405 and othergeneral or special laws, the
Commissioner is hereby authorized to inquire into the bank
deposits of:
(1) a decedent to determine his gross estate; and
(2) any taxpayer who has filed an application for
compromise of his tax liability under Sec. 204 (A) (2) of this
Code by reason of financial incapacity to pay his tax
liability.
In case a taxpayer files an application to compromise the
payment of his tax liabilities on his claim that his financial
position demonstrates a clear inability to pay the tax
assessed, his application shall not be considered unless
and until he waives in writing his privilege under Republic
Act No. 1405 or under other general or special laws, and
such waiver shall constitute the authority of the
Commissioner to inquire into the bank deposits of the
taxpayer.
(3) A specific taxpayer or taxpayers subject of a request for
the supply of tax information from a foreign tax authority
pursuant to an international convention or agreement on
tax matters to which the Philippines is a signatory or a party
of: Provided, That the information obtained from the banks
and other financial institutions may be used by the Bureau
of Internal Revenue for tax assessment, verification, audit
and enforcement purposes.
SINGLE BORROWER’S LIMIT (SEC.35)
Banks cannot let a borrower borrow all its assets. So the bank
is required by law to not keep its eggs in a single basket. Why?
Because if all your eggs are in a single basket that means that if
the basket falls, everything’s broken. So you have to spread the
risk. That is the purpose of a Single Borrower’s Limit. It requires
that banks should spread their risk of borrowers defaulting on
their loan.
So there is a limit as to how much a bank can grant as a
loan to its borrowers and what would that be?
The law says 20% of the net worth of the bank. Net worth
meaning your total assets minus your total liabilities. So, it must
not exceed 20% of the total net worth of the bank but the BSP
has changed this criteria, instead of 20%, under the MORB
Sec. 303, the Single Borrower’s Limit is now 25%.
In determining the ceiling, you do not only include your own
liability but you also include even your indirect liability, like for
those loans which you are a co-maker or you are an indorser or
a guarantor or even the loans of corporations that you control or
you are a part of. In determining your loan credit, all of that will
be included. Take note that the basis for the loan is 5% is not
just based on your actual liability but on the total credit
commitment of the bank. What does that mean?
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Situation: So for example, you borrowed money from the
bank(10M) and then your neighbor also borrowed from the
bank, you acted as a co-maker or guarantor, let’s say (5M), that
is not your debt, right? Now you also have a business, you have
a revolving credit worth (10M) but in reality you availed of (1M).
In determining whether your credit exceeded your SBL, take
note that the law does not say your actual credit but the total
credit commitment of the bank.
So, how much is the total credit commitment of the bank
now?
A: 25M even if the two (5M and 10M) are not direct loans.
So in determining whether you have reached the SBL, you
look at the total credit commitment. Again what is an SBL?
It is basically a limitation as to how much loan a bank can grant
a certain person. It should not exceed 25% of the total net worth
of the bank.
What is the purpose?
To spread the risk of defaults in granting loans.
Single Borrower’s Limit – is the limit based on the total credit
commitment of a bank to its borrower such that the total credit
commitment should not exceed 25% of the total net worth of the
bank. It is a mode to which the bank are required to spread the
risk of defaults in granting loans.
There are exceptions or you can increase the SBL. Under Sec.
35.2, there can be additional 10% of the net worth, there is an
increase in the SBL so there is a total of 35%. Provided that
additional 10% should be secured by negotiable documents of
title.
Negotiable Documents of Title v. Negotiable Instruments
Negotiable Documents of Title – covers goods such as Bill of
Lading, Warehouse Receipts, etc.
Negotiable Instruments – a promise to pay money. These are
your Promissory Notes or Bills of Exchange.
So you have Negotiable Documents of Title (NDT) which should
cover negotiable goods and fully covered by insurance. That
will allow you 10% SBL. The purpose of NDT is for example, I
have 1,000 sacks of rice that I want to sell, if there is no
document of title and I will sell the rice, then I have to bring it
everywhere with me. But if you have a document of title, you
can store the rice in a warehouse, ask the warehouseman to
issue a Warehouse Receipt and when you want to sell the rice,
you just sell the Warehouse Receipt. Then that Warehouse
Receipt is the proof that the buyer is now the new owner of the
rice without having to carry the rice and cart it around with you.
If you have a Negotiable Document of Title covering non-
perishable goods which are covered by insurance that would
entitle you to additional 10% SBL.
But there are also certain loans that are not included in the
SBL. So if you have this loan, they will not include it in
determining whether you already exceed in the SBL. That is
Sec. 35.5of the GBL.
35.5. 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;
(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;
(d) loans, credit accommodations and acceptances under
letters of credit to the extent covered by margin deposits; and
(e) other loans and credit accommodations, which the
Monetary Board may from time to time, specify as non-risk
items.
So, what are exempt from SBL?
Those which are secured or the collateral which are considered
as non-risk items.
What are some non-risk items? (Sec. 35.5, GBL)
1. Loans and credit accommodations secured by obligations
of the BSP or the Philippine government
2. Loans and other credit accommodations fully guaranteed
by the government as to payment or interest
Because if it is guaranteed by the Philippine government, the
assumption is that the government never goes bankrupt. The
assumption is that the government will continue to be a going
concern, so there is no risk to the bank because if you cannot
pay, the government will pay. Whereas if another person
guaranteed for you, it is not sure if that person will not go
bankrupt. If you asked another person to guarantee for you,
part of your SBL. But if it is the government who guarantees,
not part of the SBL (non-risk)
3. Loans and Credit Accommodations covered by
assignment of deposits maintained in the lending bank
and held in the Philippines
Let’s say you borrowed 10M from the bank and the bank
agreed to loan you 10M but what will be your collateral? So,
you said “I will deposit 10M in my account with you (bank)” So
you have a deposit with the bank, 10M so the bank will lend me
10M. In which case your loan is guaranteed by assignment of
deposits maintained in the lending bank. So you actually assign
this deposit to the bank.
Situation:
If a person wants to buy something abroad from a supplier and
such supplier will not send me the item without payment, one
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way to complete the transaction is an application of a Letter of
Credit. In this situation, the bank via the correspondent of the
bank in the US will advance the payment upon the presentation
of the shipping document of the supplier. In a sense, the person
is taking a loan from the bank. But what if the bank would ask
for a guarantee? Then the person can assign to such bank to
use the 10M deposit that the person will deposit. The bank will
basically deduct from the amount that the person owes. Now,
this debt you have is not subject to SBL because there is an
ASSIGNMENT OF DEPOSIT.
What is the difference of ASSIGNMENT OF DEPOSIT from a
REVOLVING CREDIT?
Revolving credit is separate. Let’s say you have a 10M
revolving credit, you used 6M and then you paid 6M, you don’t
have to open another credit line. It’s automatic that you open
another 10M.
4. Loans, credit accommodations and acceptances under
letters of credit to the extent covered by margin
deposits
This one requires assignment to the bank. Although it’s not an
assignment but more of a maintenance of a deposit until you
are able to pay the loan. If the good are available, the bank
would deduct from the deposit. Margin deposit is a deposit that I
will keep in the bank until I fully pay the amount. But then,
automatic cause there’s already cash in the bank that is a non-
risk collateral – not part of the SBL.
Can we loan up to a 100%?
Yes, because it is not part of your SBL. If you look at it, the
bank is assured of payment because there’s cash inside.
Anyways, it is guaranteed by the government so it’s a non-risky
loan.
Can the bank can also refuse even if it is guaranteed by the
government?
Of course, it is not automatic. Remember the safe and sound
banking practices, the bank will look into the application. It is
not automatic.
5. Other loans or credit accommodations which the
Monetary Board may from time to time, specify as non-
risk items.
GENERAL PRINCIPLES OF LOAN TRANSACTIONS
a.) The amount and the term of the loan to be granted should
be in accordance with the purpose of the loan
b.) the loan must be given in accordance with safe and sound
banking practices.
c.) bank must also make sure that the borrower is financially
capable of fulfilling the obligation
How does the bank insure that the loans are granted in
accordance with the 2nd and 3rd guidelines?
 The bank could ask for securities or collaterals to
guaranty the loan.
GBL provide guidelines as to the securities that the bank may
require form its clients in case of loan transactions.
SECTION 37. Loans and Other Credit
Accommodations Against Real Estate. — Except as
the Monetary Board may otherwise prescribe, loans and
other credit accommodations against real estate shall not
exceed seventy-five percent (75%) of the appraised value
of the respective real estate security, plus sixty percent
(60%) of the appraised value of the insured
improvements, and such loans may be made to the owner
of the real estate or to his assignees
SECTION 38. Loans and Other Credit
Accommodations on Security of Chattels and
Intangible Properties. — Except as the Monetary Board
may otherwise prescribe, loans and other credit
accommodations on security of chattels and intangible
properties, such as, but not limited to, patents,
trademarks, trade names, and copyrights shall not exceed
seventy-five percent (75%) of the appraised value of the
security, and such loans and other credit
accommodations may be made to the title-holder of the
chattels and intangible properties or his assignees. (78a)
If a loan is secured by real estate, it cannot exceed 75% of the
appraised value of the security property. Plus the 60% of the
appraised value of the insured improvements.
TN: GBL requires that the improvement MUST BE INSURED,
for it to be allowed as security by the bank. Consequently, if the
improvement is not insured it cannot be used as a collateral.
Central Bank v. CA
The bank did not release the balance of the full amount of the
approved loan because according to the bank, the assessed
value of the collateral given was overvalued by the client. When
they realized that the value of the collateral was less than that
declared of the client. They did not release the balance of the
loan since there is a maximum amount of 75% loan to be based
on the appraised value of the property.
Discussion: The 75% limit under Sec.37 should be the
appraised value AS DETERMINED BY THE BANK and not as
declared by the borrower.
It is the bank’s obligation to determine the real value of the
property, safe and sound banking practice requires that they do
their OWN VALUATION. They must investigate the existence
and valuation of the properties offered as loan securities. The
mere reliance of the bank officials and employees on their
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customer’s representation regarding the collateral being offered
as loan security is a patent non performance of this
responsibility. Since the bank did not do their own appraisal
means that they’re at fault why the property was overvalued
and they cannot use that as a reason not to release the loan.
In your credit transactions, are you allowed to have more
than one mortgage in the same property?
Yes, it is allowed.
What do you call the second mortgage?
It is called the JUNIOR ENCUMBRANCE. This is allowed for
real property. Not just one mortgage for one property but you
can have several as long as the value of the property is still
sufficient to cover the total amount of the loans.
Is this allowed for banks?
Yes, as provided under Art X311.1 of the MORB.
X311.1 Loans secured by junior mortgage on real
estate.Banks may also grant loans on the security of junior
mortgages on real estate: Provided, that for such loans to be
considered as adequately secured under Sections 37 and 38
of R.A. No. 8791, the sum total of the loans tobe granted and
the outstanding balance of the loan granted on the senior
mortgage shall not, at any time, exceed the loan value of
subject real estate security based on the appraisal of the real
estate by the junior mortgagee.
A certified latest statement of account showing the outstanding
balance of the loan including interest and arrearages, from the
senior mortgagee shall be presented to the bank.
In case several loans are granted on the security of the same
property, the total amount of the loans shall not, at any time,
exceed the total loan value of the said property.
For REAL ESTATE mortgage the bank is allowed to be a junior
mortgagee. Provided that the sum total of the loan covered by
the senior mortgage and loan to be granted does not exceed
the loan able amount which is the 75% ceiling.
What about for loans which do not exist yet? Can the REM
secure future loans?
Yes, the real estate mortgage can cover future loans.
What do you call that provision in the REM where the
estate is used to secure future loans?
Dragnet or Blanket Mortgage Clause
Republic Planters Bank (Maybank) v. Spouses Sarmiento
In the case, which part in the provisions of the REM was
the dragnet clause?
“Secured the payment of the same and those that may
hereafter be obtained.”
“As well as those that the mortgagee may extend to the
mortgagor including interests and expenses and any other
obligation owing to the mortgagee.”
Based on those terms, what now is a blanket mortgage
clause?
A blanket mortgage clause is a stipulation in a mortgage
contract which provides that the property will serve as collateral
not just for the present loan but also for future loans that may
be granted by the bank to the borrower. It is a provision that
subsumes all the obligations of a borrower to the bank whether
past, present or future obligations.
Is it allowed based on this case? What did the SC say?
Yes, blanket mortgage clauses are valid provisions because it
serves as a convenience and accommodation by the bank to
the borrower such that if the borrower will secure another loan
from the bank, the borrower need not enter into another
mortgage contract because if he enters into another mortgage
contract, he will have to pay the taxes, fees to register the
mortgage. It is expensive that every time you borrow, you will
need to have another mortgage agreement.
According to the SC, you don’t have to prepare another set of
documents, it is easier, less expensive and faster. You do not
have to apply for a new mortgage.
Basically the SC said, the blanket mortgage clause is for the
convenience and for the accommodation of the borrower by the
bank. It is for the benefit of the borrower.
In this case, is the blanket mortgage clause sufficient to
cover all the promissory notes?
Yes, because the second promissory note which was done
through a sole proprietorship by the husband, Vivencio, the SC
ruled that since a sole proprietorship does not have a separate
and distinct juridical personality from the sole proprietor, then
the loan for the export advances would be deemed as a loan by
Vivencio.
So, how much was the total obligation of the Sarmientos to
the bank? Approximately?
So the total of the obligations of the Sarmientos to the bank is
more than 1M. They tendered 312, 000. It is not sufficient
because it is not just the 100, 000 PN it includes the advances.
They included the advances because there was a valid blanket
mortgage clause in the REM agreement.
So, going back, the bank has to ensure that the total loans do
not exceed 75%.
Junior Encumbrances are generally allowed as long as you
don’t go above the 75%. In the MORB, it’s 60% of the face
value of the real estate. But for junior encumbrances, the BSP
deleted that in the MORB. The MORB will issue a new one.
Prudential Bank v. Alviar
In the Sarmiento case, we learned that the blanket mortgage
clause is a valid provision because according to the SC, it
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works for the benefit of the borrower for the convenience and
accommodation by the borrower.
But in this case, we learned that this blanket mortgage clause
provision is subject to limitations. It is not absolute.
We have the loan made by Donalco Trading Inc. but it is not
covered by the blanket mortgage clause because it is a
corporation and has a separate juridical personality from those
of the spouses. This means that the loan made by Donalco
Trading Inc. is its own obligation and not by the spouses even if
the shareholders and officers of the corporation.
Remember the veil of corporate fiction, so the shareholders and
officers of a corporation are not the same persons as that
corporation.
Can a blanket mortgage clause secure a loan which was not
obtained by the debtor? It cannot. Even if the second loan is
made a corporation owned and operated by the debtors.
What about the third PN?
No, it is not covered because it was covered by another security
that was used to obtain it.
When we say that a subsequent loan which was covered by
another security is no longer covered by the blanket
mortgage clause, what is that rule?
RELIANCE ON SECURITY TEST. It is called a reliance on
security test because as explained by the SC, when you have a
blanket mortgage clause, this clause is basically a continuing
offer made by the borrower to the bank. But if the bank chooses
to use another security for the subsequent loans, it means that
the bank did not rely on your offer of the first security. So, there
is no reliance on the first security.
So under the reliance on security test, if a subsequent loan is
being covered or is required to be covered by another security,
to the extent that that subsequent loan was covered by the
second security, it cannot be covered by the blanket mortgage
clause.
Is this rule absolute? No, the exception to this rule is if there is
an excess amount of loan which is not covered by the second
security, then that excess is covered by the blanket mortgage
clause.
So in the case of Alviar, before it will foreclose the property, it
has to make sure that there is no leftover amount because if
there is no leftover amount, there is no reason to foreclose the
mortgage because the second loan is not covered by the
blanket mortgage clause.
RELIANCE ON SECURITY TEST
The security specifically executed for subsequent loans must
first be exhausted before the mortgage property under a blanket
mortgage can be resorted to.
 A blanket mortgage clause is a continuing offer on the
part of the mortgagor to use such security for all other
subsequent obligations with a bank.
 But if the bank demand another security on a
subsequent loan, it means the bank did not rely on the
first security with dragnet clause. So, to the extent that
that subsequent loan is covered by a security, it cannot
be covered by the blanket mortgage clause.
 But if there is an excess from the subsequent obligation
not covered by the primary security, that will go back to
the blanket mortgage clause because as to that excess,
there is reliance on the first security.
In this case, the SC said the bank has to determine if there is
an excess before it can foreclose the property under the
dragnet clause. If there was no excess, there is no reason for
the bank to foreclose because the entire loan was covered by
its primary security, and no part of it was covered by the blanket
mortgage.
Two limitations on the blanket mortgage clause:
It cannot cover a loan
1. If the loan was not made by the debtor under the first
mortgage with dragnet clause
2. If the loan is already covered by a second security
based on the Reliance on Security test, unless there is
an excess.
SC intimated in this case that for subsequent loans to be
covered by a dragnet clause, the document must expressly
make reference to the dragnet clause. How do we interpret
this?
This was merely an obiter in the case. This is a very strict
interpretation but this is only applied on the principle of justice.
But In most of the cases, SC applies the principle that allows
dragnet clauses to be a continuing security in all the
subsequent obligations even if it is without reference to the
dragnet clause.
LOANS AND OTHER CREDIT ACCOMODATIONS ON
SECURITY OF CHATTELS AND INTANGIBLE PROPERTIES
MORB X312.Loans and Other Credit Accommodations
Secured By Chattels and Intangible Properties. Loans and
other credit accommodations on the 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 unencumbered chattels
and intangible properties or his assignees: Provided, That in the
case of intangible properties, appraisal thereof shall be
conducted by an independent appraiser acceptable to the BSP.
 If secured by chattels, the loan should not be more
than 75% of the appraised value of the security
 Junior encumbrances are NOT allowed. The GBL
does not provide for it but the MORB provides that the
chattel must be unencumbered and in effect, it is
saying that junior encumbrances are not allowed
because as soon as a chattel is encumbered, it has no
more loan able value.
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 PREPAYMENT OF LOANS AND OTHER CREDIT
UNSECURED LOANS OR OTHER CREDIT
ACCOMODATIONS
SECTION 41. Unsecured Loans or Other Credit
Accommodations. — The Monetary Board is hereby
authorized to issue such regulations as it may deem necessary
with respect to unsecured loans or other credit
accommodations that may be granted by banks
 The bank can grant loans with NO COLLATERALS,
subject the regulations the Monetary Board may
provide.
AMORTIZATION ON LOANS AND OTHER CREDIT
ACCOMODATIONS
SECTION 44. Amortization on Loans and Other Credit
Accommodations. — The amortization schedule of bank loans
and other credit accommodations shall be adapted to the nature
of the operations to be financed. In case of loans and other
credit accommodations with maturities of more than five (5)
years, provisions must be made for periodic amortization
payments, but such payments must be made at least annually:
Provided, however, That when the borrowed funds are to be
used for purposes which do not initially produce revenues
adequate for regular amortization payments therefrom, the bank
may permit the initial amortization payment to be deferred until
such time as said revenues are sufficient for such purpose, but
in no case shall the initial amortization date be later than five (5)
years from the date on which the loan or other credit
accommodation is granted. In case of loans and other credit
accommodations to 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.
General Rule: Payments are supposed to be made adapting to
the nature of the loan
Ex. Loan for a sari-sari store wherein you can immediately get
revenues, these short-term loans can be payable monthly, it
won’t make sense if it is made payable for a 30 year. If loan for
creation of a power plant worth P30M, you cannot expect these
long term loans to be payable immediately within one year.
Specific rules:
Maturity of loan is more than 5 years: payments on an
annual basis
Operations financed by bank loans which do not
immediately result in revenues: GBL allows deferred
payments but the first payment shall not be later than 5 years
from the granting of loan.
ACCOMODATIONS
SECTION 45. Prepayment of Loans and Other Credit
Accommodations.— A borrower may at any time prior to the
agreed maturity date prepay, in whole or in part, the unpaid
balance of any bank loan and other credit accommodation,
subject to such reasonable terms and conditions as may be
agreed upon between the bank and its borrower.
 In GBL, you can compel the creditor to accept
payment prior to the agreed date.. Subject to the
agreement of the parties.
Usual scenario in bank loans is that they allow prepayment but
you pay an additional penalty because the bank losses income
from interest it is supposed to earn.
FORECLOSURE OF REAL ESTATE MORTGAGE
SECTION 47. Foreclosure of Real Estate Mortgage. — In the
event of foreclosure, whether judicially or extrajudicially, of any
mortgage on real estate which is security for any loan or other
credit accommodation granted, the mortgagor or debtor whose
real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale
of the real estate, to redeem the property by paying the
amount due under the mortgage deed, with interest thereon at
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. 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.
Notwithstanding Act 3135, juridical persons whose property is
being sold pursuant to an extrajudicial foreclosure, shall have
the right to redeem the property in accordance with this
provision until, but not after, the registration of the certificate of
foreclosure sale with the applicable Register of Deeds which in
no case shall be more than three (3) months after foreclosure,
whichever is earlier. Owners of property that has been sold in a
foreclosure sale prior to the effectivity of this Act shall retain
their redemption rights until their expiration.
EXTRAJUDICIAL
 File petition with the clerk of court. After publishing, there is
a public auction by the sheriff. No actual hearing.
General Rule: Act 3135 Real Estate Mortgage law applies.
1 year redemption period from registration of sale, regardless if
debtor is natural or juridical person.
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 BUT If the creditor is a bank, Rules of Court do not apply. Basically, White Marketing is the assignee of the mortgage. So,
The GBL applies. redemption period has expired.
Natural person: 1 year after sale redemption period
According to the SC, the assignee acquires the rights of the
Juridical person: until the registration of sale in RD but not assignor. Since the assignor is a bank, the assignee will acquire
more than 3 months from the time of foreclosure., whichever the rights of the bank under Sec. 47. The redemption period
earlier. applies even if White Marketing is not a bank because it was an
assignee of the credit of the bank. If somebody purchases a
JUDICIAL loan from the bank, that purchaser or that assignee will acquire
 File a case in court. There will be notice, hearing and the all the rights of the bank even the rights under Sec. 47.
court will issue a judgment.
 General Rule: Rules of Court applies. The SC also discussed the basis why there is a difference
There is equity of redemption (not right of redemption) – 90 between the redemption period in case of juridical and natural
days from the time of order of foreclosure. person. We have to go back to the nature of the property being
mortgaged. If the mortgagor is a natural person, what is
No actual sale yet. It is from the time of order. ordinarily being mortgaged would be the residential properties
which may be used by his family. Whereas, if the mortgagor is a
 BUT If the creditor is a bank, Rules of Court do not juridical entity, definitely that is not a residential property, that
apply. The GBL applies. would be an industrial or commercial property. We have to have
separate rules. If you have a residential property mortgaged by
1 year after sale to redeem property regardless if natural or a natural person, you should give them more time to redeem
juridical person. because that is their residence, their person property. Whereas
in industrial or commercial properties, it would not be to the
NON BANK BANK CREDITOR– GBL benefit of the economy of these properties will stagnate for 1
CREDITOR applies year. You cannot use it for one year because you wouldn’t
Act 3135 Real Natural know if it will be redeemed or not. You cannot make
Estate Mortgage person 1 year after improvements. You cannot assign it or sell it because no one
EXTRA debtor sale would want to buy it because it might be redeemed. “The
JUDICIAL Right of Juridical Until shorter term is deemed necessary to reduce the period of
Redemption: 1 person registration of uncertainty in the ownership of these kinds of properties and
year redemption debtor sale in RD, but enable mortgagee-banks to dispose sooner of these acquired
period from not more than assets.”
registration of 3 months from
sale That is why the SC allows the assignee to acquire the rights of
time of
the bank under Sec. 47 because if I were an assignee I will not
foreclosure,
buy if I have to wait for 1 year before I could consolidate the
whichever
title, I will have to wait before the bank consolidates. That is not
earlier.
good for the economy. What the SC says is that even if you
Rules of Court assign the property, the purpose of the law is still there. So you
Right to redemption 1 year allow the shortened redemption period because this is the
JUDICIAL Equity of after sale purpose of the GBL. You would not want any uncertainty in the
redemption: ownership of these commercial or industrial properties. It is
90 days from the detrimental to the economy if you allow such uncertainty.
order of
foreclosure According to the SC, this is one of the frameworks of a safe and
sound banking system, to ensure the solvency and liquidity of
banks. However, this rule is applicable only to extrajudicial
TIP: If you are presented with a problem, identify first the foreclosures. Banks will always protect itself so most
foreclosures will always be extrajudicial.
creditor. If creditor is any other creditor: ROC for judicial; REM
law for extrajudicial. But if bank: GBL all the way.
Which personality matters under Sec 47? The question
raised is that, what if the borrower is a juridical person but
Why do you think there is a difference in the rules?
the mortgagor (owner of the property) is a natural person?
White Marketing v Grandwood Which do you follow?

Grand Wood applied for redemption after the registration of the
Certificate of Sale. Remember, under Sec 47, if you’ve already
registered the Certificate of Sale, the redemption period
expires. The period is terminated of redemption is done extra-
judicially and your borrower is a juridical person. The RTC said
that you apply Sec 47 because the initial mortgage was with a
bank, Metrobank, which assigned the mortgaged until
eventually it was acquired by White Marketing Development.
First sentence second paragraph: “juridical persons whose
property is being sold”
The juridical person is the mortgagor. So you apply the second
paragraph if you mortgagor is a juridical person, the owner of
the property whose property is being sold. The personality of
the debtor does not matter in the 2 nd paragraph; it is the
personality of the mortgagor which matters. A juridical person
whose property is being sold, it doesn’t say the juridical person
who is a debtor. In order to apply the second paragraph, the
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juridical person must be mortgagor, not necessarily the debtor
because again we go back to the purpose of the law. If it is a
juridical person owning the property that means the property
must be industrial or commercial in nature.
How do you compute the three-month period?
CIR v UCPB
Public Auction: December 31, 2001
Issuance of the Certificate of Sale: March 1, 2002
Registration: June 18, 2002
When you have the Certificate of Sale, What you need to do
next is to register it. Remember class, if you mortgagor is a
juridical person there are two date that you need to take a look
at. One is the date of the registration of the sale, and the other
is the three month period after foreclosure.
Basically you pay the taxes 10 days (CWT) and 5 days (DST)
after the end of the month of the transaction. If your transaction
is January, your tax payment dates are Feb 5, Feb10.
When was the transaction?
So the parties agree that the tax accrues at the lapse of the
redemption period. That is the transaction date because that’s
the time that ownership is consolidated in the buyer at the
foreclosure. So that the moment when the redemption period
lapses, that means that the buyer becomes the absolute owner
of the property. So that expiry date is the transaction date. All
parties agree, CIR and UCPB agrees that the expiration of the
redemption period is the transaction date.
What is the expiry date?
The date of the registration sale but not more than 3 months
from the time of foreclosure.
Important: Please refer to Sec. 47
So the date of registration is a given. So when you registered
the sale, that’s the date of registration.
What about the 3 months?
3 months from the date of foreclosure.
When is the foreclosure?
According to the BIR, foreclosure is on the date of the actual
public auction. According to UCPB, the foreclosure is on the
date of the issuance of the certificate of sale.
If we follow the CIR, when did the redemption period
expire?
You count 3 months from December 31. So the redemption
period expired March 31. So the taxes should have been paid
April 5 and April 10. Because it’s 5 days,10 days from the end
of the month of the transaction. So the payment of the taxes in
July, according to the CIR was already considered late
payment. It should have been paid on April because the
redemption period expired on March 31 because redemption
period is date of registration but not more than 3 months from
the date of foreclosure.
But according to UCPB, what is the date of foreclosure?
Should have been March 1, when the certificate of sale was
issued. So if March 1 is the foreclosure date, the expiration
ends on June 1, 2002. So expiration period was on June 18 or
June 1, whichever is earlier. If June 1 is your redemption
period, when do you pay taxes? 5 days and 10 days on the end
of the month. So it should have been paid July 5 and July 10.
So which one was correct?
So foreclosure under the 2nd paragraph of Sec. 47 actually
means not the date of the public auction but the date of the
issuance of the certificate of sale. That’s the date when you
start counting the 3 months.
Spouses Rodolfo and Marcelina Guevarra v. The
Commoner Lending Corp.
So the contention of Spouses Rodolfo is that they should only
pay the purchase price during the auction. So this follows the
rule under the Rules of Court which you also apply for
extrajudicial foreclosure. The redemption price is the price paid
upon the public auction. For the redemption amount, you have
two rules: The rules of court or the GBL. So under the Rules of
Court, it says you pay the amount you pay in the public auction.
Under Sec. 47 of the GBL, the composition of the redemption
price is one, the principal and interest due under the mortgage
deed and the costs and expenses of the sale.
Under the GBL, it does not matter what you pay during the
auction. What matters is the amount stated under the mortgage,
this is the redemption price. In this case, the SC said, that in
cases of lending institutions there are already previous rulings
that for lending institutions, you also apply the GBL. So for
lending or credit institutions, apply the GBL. If there is an
amount in a promissory note, separate from the mortgage deed
as in this case, that is not allowed as your redemption price
because the law says redemption price is the price stated in the
mortgage deed.
TN: If the creditor is a bank or a lending institution, you follow
Sec. 47 as to the composition of the redemption price.
DO NOT FORGET THESE RULES:
Sec. 47, if your creditor is a bank and lending and credit
institutions, follow Sec. 47, not the REM law.
Redemption Period: If natural, always 1 year. If juridical
person and it’s an extrajudicial foreclosure, the time of
registration but not more than 3 months.
Redemption Price: Mortgage amount, interests due under
the mortgage and costs and expenses.
If the bank is the initial creditor and assigns the case to an
assignee, the assignee acquires the rights of the bank
under Sec. 47.
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DOSRI
Are banks allowed to deal with their officers or directors?
Generally, it is allowed but it has limitations.
What is the overriding principle when banks transact with
their DOSRI (Directors, Officers, Shareholders and Related
Interest)?
 “Arms-Length Transaction.” It should be upon terms no
less favorable to the bank than those offered to third
parties. The terms it grants to its DOSRI should be the
same terms it grants to third parties. It should not be less
favorable to the bank just because it is dealing with its
DOSRI.
When dealing with its DOSRI, the bank should treat these
DOSRI the same as it would treat third parties.
Aside from that the law also imposes certain procedure in cases
of DOSRI dealings. So we know it is not prohibited for DOSRI
to transact with banks. In fact, sometimes it is more favorable to
the bank because the bank already knows the DOSRI, it
doesn’t have to conduct character investigation because it has
been dealing with its people for the longest time. DOSRIs are
not prohibited from transacting with the bank but in case of such
transaction, the terms should be in an arms-length basis and
they should follow the procedure laid out in the law.
PROCEDURE IN DEALING WITH DOSRI
 Sec. 36 of the GBL.
1. Approval/Procedural requirement
There should be a written approval of the majority of the
directors of the bank excluding the director concerned.
Take note, it is not a majority of a quorum. But here in Sec. 36,
it says majority of ALL the directors of the bank.
Example: Bank has 7 directors, ordinarily, for there to have a
valid meeting, you need to have a quorum. But if you are talking
about approvals in dealings of banks with its DOSRI, you don’t
look at the number of directors present but look at the total
number of directors. So, it should be 4 out of 7. Also, if one of
the 4 is the director that you are dealing with, that is NOT
allowed because it has to exclude the DOSRI you are dealing
with.
2. Reportorial requirement
Once you have the approval, then the bank should report the
transaction to the BSP.
3. Ceiling requirement(under the MORB)
Per DOSRI, it should not exceed their unencumbered deposit
and book value of their paid-in capital contribution to the bank.
Example: DOSRI has deposit of 10M unencumbered (not used
as collateral loan with the bank or in any other bank) plus paid-
in capital of 20M. So the total amount of the bank can lend to
the DOSRI is 30M.
So these 3 procedures are the procedural requirements in order
to allow DOSRI dealings with the bank.
Go v. BSP
Go was the president and CEO of Orient Bank and he borrowed
money from the bank without the written approval of the other
Directors. So a case for violation of the General Banking Act
(the old law) was filed against him. The contention of Go was
that he should not be held liable since anyway, his loan to the
bank was within the limit imposed b y the bank. He said that the
limit imposed under the bank is an exception to the approval
requirement set by the GBA. According to the SC, each of the
requirements are separate requirements and violation of any of
the 3 are separate offenses. The limitation under the second
paragraph of the then GBA is not an exception to the limit.
INVESTMENTS
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.
(25a)
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. (25a)
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Example: Bank is junior encumbrancer and it pays off the
primary debtor. So it can acquire the security.
What happens if acquisition falls under Sec. 52?
If the acquisition falls under Sec. 52, it’s not part of the limit
under Sec. 51. You don’t include it in computing the limit. Now
beyond the 5 year period, if these properties are not yet
disposed by the bank, then it will be part of the computation for
the ceiling.
So these properties under Sec. 52 are ROPA (Real and Other
Properties Acquired). So for the first 5 years from the time of
the acquisition, they do not form part of your real estate limit.
But after the 5 year limit, it’s also included in the computation of
the ceiling.
Union Bank of the Philippines v. Spouses Tiu
Spouses Tiu had a loan but they were not able to pay it so they
had to restructure the loan. And part the restruction was that
they had to give certain properties to the bank as part of the
payment of the loan. Eventually, they failed to pay so the
properties were foreclosed but they were allowed to live in the
property through a contract of lease with the bank. So now the
bank was conveyed title and the spouses are now questioning
the validity of the dacion.
They said that the bank was already violating the banking law
when they were allowed to lease the properties. Because
according to them, Sec. 52 mandates that the bank has to
dispose properties that they acquire within 5 years. And so from
the act of entering a contract of lease with a period of two
years, it showed that the bank had no intention of disposing of
that property for at least 2 years which, according to the
spouses, is a violation of Sec. 52
According to the SC, during the 5 year period, when the bank
acquires the property for the first 5 years, the bank can do
whatever it wants with the property. It’s not required to dispose
the property within the 5 year period. The question of whether
the bank did dispose of the property will only come in after the
lapse of the 5 year period. And even then, the Bank is not
prohibited from holding the property but it’s just now the
property will be part of the ROPA and that’ll be used to compute
the ceiling.
According to the SC, there was nothing wrong with the 2 year
contract of lease between the Bank and spouses.
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. (25a)
As a general rule, banks are only allowed to acquire real
property for its own use as a part of its branch offices etc.
Banks are not allowed to acquire properties that it will not use,
so it’s only for its own use. Again, all of that is subject to the
50%.
“Any bank may acquire real estate as shall be necessary for its
own use in the conduct of its business.”
- So that is the only reason why banks should acquire
real properties.
“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.”
- Even if the real estate is used for your office, it’s part
of the ceiling requirement.
PROHIBITIONS
1. Prohibition to Act as Insurer
SECTION 54. Prohibition to Act as Insurer. — A bank shall
not directly engage in insurance business as the insurer.
xxx
The bank cannot act as an insurer. Cross selling meaning,
selling of the financial products of its related entities within bank
premises. But that insurance is not a product of the bank
because banks are not allowed to act as insurers, but UBs are
allowed to own shares in insurance companies. Under the new
Insurance Code, banks are now allowed to do bancassurance.
Bancassurance is the selling insurance products in bank
premises even if the bank does not own equity interest in the
insurer. So now, any bank can have an insurance sales person
inside their offices. However, still the same, as before, these
insurance products are not products of the bank. It can never
be products of a bank, because banks are not allowed to
directly engage in insurance business.
2. Prohibited Transactions
SECTION 55. Prohibited Transactions. —
55.1. No director, officer, employee, or agent of any bank
shall —
(a) Make false entries in any bank report or statement or
participate in any fraudulent transaction, thereby affecting
the financial interest of, or causing damage to, the bank or
any person;
xxx
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xxx 55.4. Consistent with the provisions of Republic Act No.

1405, otherwise known as the Banks Secrecy Law, no bank
(b) Without order of a court of competent jurisdiction,
shall employ casual or nonregular personnel or too lengthy
disclose to any unauthorized person any information
probationary personnel in the conduct of its business
relative to the funds or properties in the custody of the
involving bank deposits. of the bank.
bank belonging to private individuals, corporations, or any
other entity: Provided, That with respect to bank deposits,
the provisions of existing laws shall prevail;
UNIVERSAL BANK
xxx

 Powers of a Universal Bank are all powers of a

- These are funds or properties other than deposit
because deposits are covered by the Bank Secrecy
Law. So any other property within the custody of the
bank is still subject to confidentiality under Sec 55.1
(b).
xxx
(c) Accept gifts, fees or commissions or any other form of
remuneration in connection with the approval of a loan or
other credit accommodation from said bank;
xxx
- Sometimes, if you work for a bank, especially if you
are in the loan approval, there are a lot of gifts given,
but you are not allowed to receive directly or indirectly.
commercial bank and the powers of an investment house
and it can invest in non-allied enterprise.
What do you mean when we say investment house?
An entity which undertakes or is allowed to undertake
underwriting functions or to act as an underwriter.
What is an underwriter?
An underwriter is an entity which undertakes and guarantees to
sell the securities of an issuer. We will learn later that under the
Securities Regulation Code, an issuer who wants to sell his
shares or his securities to the public cannot do so if he does not
have an underwriter. The selling has to be done through an
underwriter, you cannot sell directly to the public.
Only a Universal Bank can do that, a Commercial Bank cannot.

xxx

(d) Overvalue or aid in overvaluing any security for the

purpose of influencing in any way the actions of the bank or
any bank; or

(e) Outsource inherent banking functions.

xxx

What are the inherent banking functions?

 Deposit and Loans.

You cannot outsource the approval of loans. Or you cannot

outsource deposit or withdrawal transactions because those are
inherent banking functions.

You are not allowed to outsource these inherent banking

functions. So you are not allowed to hire agency employees to
be your tellers, etc. In fact, you know in your Labor Code that
no bank shall employ casual or non-regular personnel or too
lengthy probationary personnel in the conduct of its business
involving bank deposits (55.4 or the GBL).

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LIMITATIONS
SECTION 23. Powers of a Universal Bank. — A universal
bank shall have the authority to exercise, in addition to the
powers authorized for a commercial bank in Section 29, the
powers of an investment house as provided in existing laws
and the power to invest in non-allied enterprises as provided
in this Act.
SECTION 24. Equity Investments of a Universal Bank. —
A universal bank may, subject to the conditions stated in the
succeeding paragraph, invest in the equities of allied and non-
allied enterprises as may be determined by the Monetary
Board. Allied enterprises may either be financial or non-
financial.
Except as the Monetary Board may otherwise prescribe:
24.1. The total investment in equities of allied and non-allied
enterprises shall not exceed fifty percent (50%) of the net
worth of the bank; and
24.2. The equity investment in any one enterprise, whether
allied or non-allied, shall not exceed twenty-five percent
(25%) of the net worth of the bank.
As used in this Act, "net worth" shall mean the total of the
unimpaired paid-in capital including paid-in surplus, retained
earnings and undivided profit, net of valuation reserves and
other adjustments as may be required by the Bangko Sentral.
The acquisition of such equity or equities is subject to the
prior approval of the Monetary Board which shall promulgate
appropriate guidelines to govern such investments.
SECTION 25. Equity Investments of a Universal Bank in
Financial Allied Enterprises. — A universal bank can own
up to one hundred percent (100%) of the equity in a thrift
bank, a rural bank or a financial allied enterprise.
A publicly-listed universal or commercial bank may own up to
one hundred percent (100%) of the voting stock of only one
other universal or commercial bank. (21-B; 21-Ca)
SECTION 26. Equity Investments of a Universal Bank in
Non-Financial Allied Enterprises. — A universal bank may
own up to one hundred percent (100%) of the equity in a non-
financial allied enterprise. (21-Ba)
SECTION 27. Equity Investments of a Universal Bank in
Non-Allied Enterprises. — The equity investment of a
universal bank, or of its wholly or majority-owned subsidiaries,
in a single non-allied enterprise shall not exceed thirty-five
percent (35%) of the total equity in that enterprise nor shall it
exceed thirty-five percent (35%) of the voting stock in that
enterprise. (21-B)
SECTION 28. Equity Investments in Quasi-Banks. — To
promote competitive conditions in financial markets, the
1. Investor Limitation – internal limitations when you base it
on the net worth of the bank, that is an investor limitation
because that is based on the investor itself, the bank
a. Aggregate investment: Total investment in AE and
NAE does not exceed 50% of the net worth of the
bank
b. Single enterprise AE or NAE: not exceed 25% of net
worth of the bank
 Basis: sec 24.1 and sec 24.2
2. Investee Limitation – external limitations
a. Allied enterprise
i. Financial allied enterprise
 100% of the equity in a thrift bank, a rural
bank or other financial allied enterprise
(sec 25)
 Another UB/KB
1. Publicly-listed: 100% of the voting
stock
2. Not publicly-listed: 49% minority
interest
ii. Non-financial allied enterprise - 100% of the
equity (sec 26)
b. Non-allied enterprise
 Not exceeding 35% of the total equity in that
enterprise nor shall it exceed 35% of the voting
stock in that enterprise
 Equity is different from voting stock. Equity is
the total capital which can be voting or non-
voting
COMMERCIAL BANKS
SECTION 29. Powers of a Commercial Bank. — A
commercial bank shall have, in addition to the general powers
incident to corporations, all such powers as may be necessary
to carry on the business of commercial banking, such as
accepting drafts and issuing letters of credit; discounting and
negotiating promissory notes, drafts, bills of exchange, and
other evidences of debt; accepting or creating demand
deposits; receiving other types of deposits and deposit
substitutes; buying and selling foreign exchange and gold or
silver bullion; acquiring marketable bonds and other debt
securities; and extending credit, subject to such rules as the
Monetary Board may promulgate. These rules may include the
determination of bonds and other debt securities eligible for
investment, the maturities and aggregate amount of such
investment. (21a)
SECTION 30. Equity Investments of a Commercial Bank. —
A commercial bank may, subject to the conditions stated in the
succeeding paragraphs, invest only in the equities of allied
enterprises as may be determined by the Monetary Board.
Allied enterprises may either be financial or non-financial.
Except as the Monetary Board may otherwise prescribe:
30.1. The total investment in equities of allied enterprises shall
not exceed thirty-five percent (35%) of the net worth of the
bank; and
30.2. The equity investment in any one enterprise shall not
exceed twenty-five percent (25%) of the net worth of the bank.
The acquisition of such equity or equities is subject to the prior
approval of the Monetary Board which shall promulgate
appropriate guidelines to govern such investments. (21A-a; 21-
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Ca)
SECTION 31. Equity Investments of a Commercial Bank in
Financial Allied Enterprises. — A commercial bank may own
up to one hundred percent (100%) of the equity of a thrift bank
or a rural bank.
Where the equity investment of a commercial bank is in other
financial allied enterprises, including another commercial bank,
such investment shall remain a minority holding in that
enterprise. (21-Aa; 21-Ca)
SECTION 32. Equity Investments of a Commercial Bank in
Non-Financial Allied Enterprises. — A commercial bank may
own up to one hundred percent (100%) of the equity in a
nonfinancialallied enterprise.
 CB can only invest in allied enterprises, divided into
financial allied enterprises and non-financial allied
enterprises
 So, a CB cannot invest in a mining company, agriculture or
manufacturing company; only to related enterprises
LIMITATIONS (ONLY ALLIED ENTERPRISES)
1. Investor Limitation
a. Aggregate investment: total investment in equities of
allied enterprises shall not exceed 35% of the net
worth of the bank
b. Single enterprise: not exceed 25% of the net worth of
the bank
2. Investee Limitation
a. Financial Allied Enterprise
i. Thrift bank or rural bank: 100% of the equity
ii. Other financial allied enterprise: 49% of the
equity; minority interest (MORB, 378)
 So this is different from the limit in UB
because TB, RB and other FAE have the
same limit for UB of 100%
iii. Another UB/KB
 Publicly-listed: 100% of the voting stock
 Not publicly-listed: 49% minority interest
Can a commercial bank own a universal bank wholly?
Yes. If the commercial bank is publicly listed, PROVIDED, it
does not exceed 25% of the worth of the commercial bank
(investor limitation).
b. Non-financial Allied Enterprise
 100% of the equity in a non financial allied
enterprise (Sec. 32)
Note: Summary of rules for limitations is at the last page
 you, he can go against you for breach of your
QUASI BANKS
GBL Section 4. For the purposes of this Act, "quasi-banks"
shall refer to entities engaged in the borrowing of funds through
the issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes as defined in Section 95
of Republic Act No. 7653 (NCBA for purposes of relending or
purchasing of receivables and other obligations.
 Any person or entity who wants to engage in quasi-banking
function has to get an authority or secure a license from
the Bangko Sentral. Take note that the Bangko Sentral is
different from the Monetary Board in the sense that the
monetary board is the governing body.
Except: Universal Banks and Commercial Banks, not required
because once you have a UB or KB license, that automatically
includes quasi-banking license.
What differentiates a bank from a quasi-bank?
Both can do lending of funds. But quasi-banks cannot accept
deposits (cash), only deposit substitutes.
 Banks can accept deposits (cash), and they do not have to
issue anything in return. The bank does not issue a
promissory notes after receiving a deposit. If you go to a
quasi-bank, you cannot just deposit your money, it has to be
through a debt-instrument. The quasi-bank will have to issue
you a debt instrument stating that it owes you money.
What is a deposit substitute?
Sec 95, NCBA. The term “deposit substitutes” is defined as an
alternative form of obtaining funds from the public, other than
deposits, through issuance, endorsement, or acceptance of
debt instruments for the borrower’s own account, for the
purpose of relending or purchasing of receivables and other
obligations.
ESSENTIAL ELEMENTS of a Quasi-banking activity
1. Borrow funds for their own account
- this means under their own name and not acting as a
representative of another person.
2. From the public
- Public means at least 20 or more lenders.
3. Mode of borrowing is through the issuance,
endorsement or acceptance of any alternative debt
instrument, other than deposits. (Deposit Substitute)
-the issuance of deposit substitute for a Quasi-bank it
must be WITH RECOURSE. It means if the person
primarily liable does not pay the person to whom you
sold the promissory note then it has a recourse against
warranty.
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TN: If it’s an assignment WITHOUT RECOURSE meaning you
cannot go after the issuer, assignor, indorser. Then it is not a
quasi-banking activity.
4. For the purpose of relending or purchasing of
receivables or other obligations.
- it should be for the purpose of relending, not for
financing their own.
TN: Universal and Commercial banks can engage in quasi-
banking functions even without specific license. It is inherent.
But any other entity will have to apply for a quasi banking
license to the Banko Sentral.
FOREIGN BANKS
Banks can be owned by non-bank entities and bank entities. If
it’s the latter and the stockholder is a foreign bank, the law is
not the General Banking Law, but the Foreign Bank
Liberalization Act (R.A. 10641).
The past Foreign Bank Liberalization Act, only allowed up to
60%. But for now under R.A. 10641 it says it can own up to
100%.
How can a foreign bank do business in the Philippines?
Sec. 2 of R.A. 10641
Modes of Entry – The Monetary Board may authorize
foreign banks to operate in the Philippine banking system
through any of the following:
(i) by acquiring, purchasing or owning up to one
hundred percent (100%) of the voting stock of an
existing bank;
(ii) 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
Categorically,
(iii) there are twobranches
by establishing ways: with full banking
authority
1. (i) and (ii) is thru a SUBSIDIARY
- if the foreign bank, owns a subsidiary. It can own up to
100%, but being organized in the Philippines then the
subsidiary is subject to the GBL rules on domestic banks.
So the provisions of the GBL those are applicable to the
subsidiary of a foreign bank. This is because that
subsidiary is organized in the Philippines which means it
had to go through all the requirements that a Filipino bank
goes through.
-if its thru a subsidiary, then its called a foreign owned
bank, technically it’s a domestic bank because its
organized here in the Philippines. It is subject to all rules
and regulations same as an ordinary domestic bank that is
owned by Filipinos. But the only difference is that its 100%
owned by a foreigner.
2. (iii) is through a BRANCH
- the second way is if the foreign bank does not want to
organize a bank here in the Philippines, in which case it’ll
just open a branch. Being merely an extension of the
personality of its parent company, the provisions of the
GBL does not apply to it.
If its thru a branch, its called a foreign bank.
- Except for those provisions which are special rules
applied to Foreign Banks (Chapter 8 of GBL )
Differentiate from a foreign owned bank (subsidiary) as
against a foreign bank (branch)
A subsidiary is when the entity owns another bank which is
incorporated in the Philippines or owns another bank which is
established and organized in the Philippines. Hence, being a
corporation here in the Philippines has a personality recognized
by Filipino. It’s a juridical person. Its personality is different from
the personality of its parent company.
A branch on the other hand is merely an extension of the
personality of its parent company organized outside the
Philippines. Hence, it has no personality different from its parent
company. It is not a juridical person recognized under Philippine
law.
IMPT: Again the first two modes (thru a subsidiary) create a
domestic bank. Only the 3rd mode (thru a branch) is strictly a
foreign bank.
Special Rules for foreign banks (Chapter 8 of GBL)
Sec. 74. Local Branches of Foreign Banks- in the case
of a foreign bank which has more than one (1) branch in
the Philippines, all such branches shall be treated as one
(1) unit for the purpose of this Act, and all references to
the Philippine branches of foreign banks shall be held refer
to such units.
Sec. 75 Head Office Guarantee- In order to provide
effective protection of the interests of the depositors and
other creditors of Philippine branches of a foreign bank,
the head office of such branches shall fully guarantee the
prompt payment of all liabilities of its Philippine branch.
Residents and citizens of the Philippines who are creditors
of a branch in the Philippines of a foreign bank shall have
preferential rights to the assets of such branch in
accordance with existing laws.
1. “One Unit Rule” (Sec. 74)
- In the case of more than one local branch of a foreign bank
in the Philippines, then all such branches shall be treated
as one unit.
- Sec. 20 provides for a “one unit rule” for domestic banks.
But the difference is with domestic banks, its head office is
treated as one unit with the branches. Whereas, here in
Sec.74 for foreign banks only the branches within the
Philippines are considered as one unit. The foreign bank
branches are not one unit with their head office.
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2. Head office guaranty (Sec. 75)
- It says the head office has to guarantee al the obligations
of its branches in the Philippines.
- Since the branches are not considered as one unit with the
head office which is outside of the Philippines, hence GBL
provides for this guaranty.
Citibank v. Sebeniano
The One-unit rule does not apply in the case. Since under Sec.
74, it says the One-unit rule is only for all branches IN THE
PHILIPPINES. It does not apply to branches AROUND THE
WORLD.
For the head office guaranty, SC said the law should only be for
the benefit of the depositors here in the Philippines. It cannot
turn that around and make it for the benefit of the bank, they
cannot argue that now they’re one unit and they can
compensate from the deposits all over the world. Technically
foreign banks are allowed to compensate, but their
compensation should only be the deposits within the
Philippines.
NEW CENTRAL BANK ACT
The New Central Bank Act created the BangkoSentral ng
Pilipinas. Before that, we had the Central Bank Act which
created the Central Bank. With the effectivity of the NCBA, the
Central Bank’s assets and liabilities were transferred to
BangkoSentral ng Pilipinas. The BangkoSentral ng Pilipinas is
governed by the Monetary Board.
Composition
The Monetary Board has 7 members, one of whom is the
Governor. The previous Governor who just retired was
AmandoTetangco Jr. and now he was replaced by Nestor
Espenilla.
7 BASIC FUNCTIONS OF BSP
1. Financial Supervision
Financial Supervision - BSP supervises the operations of
banks and exercises regulatory powers over banking
institutions performing quasi-banking functions.
All the provisions of the NCBA pertains to the supervisory
powers of the BSP over banks, So the BSP has the power to
audit the books of banks, examine their transactions, and they
can compel to take prompt corrective actions such as
compelling the shareholders of banks to put in additional capital
to the bank, etc. That is all part and parcel of BSP’s supervisory
authority over banks.
The BSP does not just regulate banks like it does with the other
financial companies and non-bank financial institutions. It
supervises banks which mean it can control the operations of
banks so you can see a statement to that effect in Sec. 3 of the
NCBA, the last sentence.
Section 3. Responsibility and Primary Objective. –
The BangkoSentral 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 BangkoSentral 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.
It’s not just that, BSP also exercises control over pawnshops,
lending/financing companies and money exchange institutions.
These are governed by the BSP.
2. Liquidity Management
Liquidity Management - BSP formulates and implements
monetary policy aimed at influencing money supply consistent
with its primary objective to maintain price stability.
One of the basic functions of banks is to be the monetary
transmission wheel. The banks can help the BSP control the
flow of money into the economy. Banks are the tools and BSP
is the one controlling the banks. Among the functions of the
BSP is to promote policies in order to ensure that there is price
stability and there is monetary stability.
They can impose interest rates through the issuance of treasury
bonds and treasury bills. These bonds have their own interest
rates. When the BSP sets the rates of these bills, banks are
also forced to revise their interest rates because for example
BSP will issue T-bills at interest rate of 3% per annum and
banks are paying 1% per annum. If you have money, you will
just buy the treasury bills because in that way your money
earns more. So banks in that way are forced to compete with
the bills and bonds issued by the BSP. Aside from that, the BSP
can also buy back the bills. So if it thinks there’s too little money
going around, that becomes deflation because no one is
spending. The BSP can also buy back these bonds.
This type of operation of the BSP is part of its liquidity
management and we call it as an OPEN MARKET
OPERATION.
As part of its basic functions for liquidity management, the BSP
formulates and implements monetary policy aimed at
influencing money supply consistent with its primary objective to
maintain price stability.
How does the BSP manage liquidity?
Through Open Market Operations – monetary policy
instrument or tool that the BSP employs among others to
regulate the supply of money in the economy to influence the
timing, cost and availability of money and credit as well as other
financial factors for the purpose stabilizing the price level.
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Sec. 90 of the NCBA allows BSP to engage in Open Market
Operations.
Through the issuance of treasury bills and security bonds, the
BSP is able to influence the interest rates of banks and it is able
to control the amount of money circulating within the economy.
3. Lender of Last Resort
Sec. 82 of the NCBA provides the BSP lends money to banks.
It can lend money through commercial credits, production
credits and other credits and advances. There are also special
credit operations of the BSP under Sec. 83 of the NCBA.
Section 83. Loans for Liquidity Purposes. - The
BangkoSentral 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.
So if a bank is having trouble paying its debts, but its assets are
assets are sufficient to pay for its liabilities but it’s just that their
assets are non-cash. They are not insolvent but they are having
liquidity problems so it takes long to convert their assets to
cash. In order to help the banks, the BSP can lend money to
banks for liquidity purposes.
The BSP can also lend emergency loans and advances in
cases of national or local emergencies or imminent financial
panic.
Section 84. Emergency Loans and Advances. –“In periods
of national and/or local emergency or of imminent financial
panic which directly threaten monetary and banking stability,
the Monetary Board may, by a vote of at least five (5) of its
members, authorize the BangkoSentral 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..”
Example: The earthquake in Ormoc, if the banks run out of
money because of that emergency, the BSP can lend the banks
money under Sec. 84.
Banks can borrow money in the ordinary course of business or
ordinary credit operations. Banks can also borrow money from
the BSP if they are experiencing liquidity problems. So those
are the instances and those are the rules of the BSP as a
lender of last resort. The bank cannot go anywhere else, always
BSP. But only banks are allowed to borrow money from the
BSP and no one else.
4. Currency Issuance
This is the most important function of the BSP. It is the BSP
which is mandated to issue the currency in the Philippines.
Section 50. Exclusive Issue Power. - The BangkoSentral
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
BangkoSentral notes without prior authority from the
BangkoSentral.
The Monetary Board may issue such regulations as it may
deem advisable in order to prevent the circulation of
foreign currency or of currency substitutes as well as to
prevent the reproduction of facsimiles of BangkoSentral
notes.
The BangkoSentral shall have the authority to investigate,
make arrests, conduct searches and seizures in
accordance with law, for the purpose of maintaining the
integrity of the currency.
Violation of this provision or any regulation issued by the
BangkoSentral 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.
The BSP can only issue such currencies which do not exceed
the assets of the BSP. So, the amount of money circulating in
the economy depends on the amount of assets of BSP. BSP is
not allowed to issue currencies which are not funded by its own
assets. The BSP is the primary debtor of all our currencies.
BSP is liable for our currencies and they cannot issue coins and
notes more than the assets that they possess. Actually the BSP
has more assets than their capital. Assets are not just capital,
capital + liabilities are also assets. It is included there the debts
of Philippines. Primary liability for currency of peso is the BSP
guaranteed by the government of the Philippines. Notes and
coins issued by the BSP are guaranteed by government.
What are the QUALITIES of currency that the BSP has to
ensure?
 Currency should be backed up by sufficient
assets of the BSP.
They should be backed up by the assets of the BSP because
these are the liabilities of the BSP and it has to be guaranteed
by the Philippine government.
o Currency should be in legal tender.
Legal tender – that form of payment which the creditor is
compelled to accept and extinguishes and obligation.
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So if you pay a chicken, the creditor cannot be compelled to
accept and will not extinguish your obligation. But if you pay in
cash, your creditor cannot refuse payment because cash is
legal tender and extinguishes and obligation.
o Currency should be interconvertible.
Which is more valuable, a 1000 peso bill or 10 P100 bills?
Same value.
Section 55. Interconvertibility of Currency.- The
BangkoSentral shall exchange, on demand and without
charge, Philippine currency of any denomination for
Philippine notes and coins of any other denomination
requested. If for any reason the BangkoSentral is
temporarily unable to provide notes or coins of the
denominations requested, it shall meet its obligations by
delivering notes and coins of the denominations which
most nearly approximate those requested.
Interconvertibility – can exchange any coin or any note with
any other note or coin of other denomination. It means that
money is always equal in value.
You cannot go to the bank and say, “Can Ipasinsilyo my P1000
and the bank will say okay, pasinsilyo P1000 and I’ll just give
you P900.” It cannot do that because money is interconvertible.
If I give you P1000, you give me the 10 P100 bills, you cannot
deduct anything. You are not allowed to charge any piece for
the conversion.
5. Management of Foreign Currency Reserves
Section 70. Purchases and Sales of Foreign
Exchange. –“The BangkoSentral may buy and sell foreign
notes and coins, and documents and instruments of types
customarily employed for the international transfer of
funds. The BangkoSentral may engage in future exchange
operations..”
Section 65. International Reserves. –“In order to
maintain the international stability and convertibility of the
Philippine peso, the BangkoSentral shall maintain
international reserves adequate to meet any foreseeable
net demands on the BangkoSentral for foreign
currencies..”
What is the difference between INTERCONVERTIBILITY
and CONVERTIBILITY?
Convertibility – from peso, change it to another currency or
from another currency, change to peso.
Interconvertibility – change from one denomination of peso to
another denomination of peso. (internal)
In order to allow the convertibility of the peso, the BSP
manages our foreign currency reserves because if we do not
have foreign currency reserves, no one will want to convert their
money to peso and no one will be allowed to convert peso into
their own currency. Example if we do not have dollar reserves,
why would Americans allow us to buy dollar for peso if we
cannot pay them in dollars. In order to maintain the international
stability and the convertibility of the peso, the BSP manages our
foreign currency reserves and purchases foreign currency
reserves.
6. Determines Foreign Exchange Rate Policy
In the same vein, the BSP also determines our exchange rate
policy, but currently we are only using Open Market Policy
which we can find in Sec. 74 of the NCBA. We are using open
market because our currency rate is influenced by supply and
demand.
Section 74. Exchange Rates. –“The Monetary Board
shall determine the exchange rate policy of the country.
The Monetary Board shall determine the rates at which the
BangkoSentral shall buy and sell spot exchange, and shall
establish deviation limits from the effective exchange rate
or rates as it may deem proper. The BangkoSentral shall
not collect any additional commissions or charges of any
sort, other than actual telegraphic or cable costs incurred
by it.
The Monetary Board shall similarly determine the rates for
other types of foreign exchange transactions by the
BangkoSentral, including purchases and sales of foreign
notes and coins, but the margins between the effective
exchange rates and the rates thus established may not
exceed the corresponding margins for spot exchange
transactions by more than the additional costs or
expenses involved in each type of transactions.
7. Banker/financial advisor and official depositary of the
government
The BSP acts as banker/financial advisor and official depositary
of the government.
All national agencies and departments, LGUs are required to
deposit their funds to the BSP and those deposits are part of
the assets of the BSP.
Those are the 7 basic functions of the BSP and remember that
because the “lender of last resort” came out in the bar exam.
The BSP under Tetangco was a leader in creating laws that will
enhance the financial health of the country.
o SPV Law (Special Purpose Vehicle Law)
This law was created to address the problems of banks
with its ROPA (Real and Other Properties Acquired). The
Congress created a law to allow special purpose vehicles
to purchase these real and other properties, tax-free, in
order to free the banks from the burden of non-liquid
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assets. It was the BSP which helped Congress under
Tetangco.
o PERA Law (Personal Equity Retirement Account Law)
It is supposed to be a 401(k) retirement savings plan just
like in the USA but when its IRR was passed, there were
problems with the BIR because the PERA Law gives very
generous tax incentives. So the BIR refused to issue the
tax IRR. We’re stuck with the non-functioning PERA Law.
The BSP really advises the government, the legislative
department on what laws are necessary in order to maintain the
financial health of the country. It was very active during the time
of Tetangco.
As part of the regulatory and supervisory powers of the BSP
over banks, we know that BSP can actually control the
operations of banks. If it thinks that the bank is getting into
trouble, the BSP through its yearly audit can require or impose
prompt corrective action against the bank. So it can require to
sell off its non-performing loans, non-liquid assets, it can require
its stockholders of the bank to put in additional capital.
But if after prompt corrective action, the bank still persists in
endangering the public, the BSP has other methods.
One of these methods is the appointment of a conservator.
CONSERVATORSHIP
Sec. 29 of 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 the Monetary Board may
appoint a conservator with such powers as the Monetary
Board shall deem necessary to take charge of the
assets, liabilities, and the management thereof,
reorganize the management, collect all monies and
debts due said institution, and exercise all powers
necessary to restore its viability. The conservator shall
report and be responsible to the Monetary Board and shall
have the power to overrule or revoke the actions of the
previous management and board of directors of the bank
or quasi-bank.
The conservator should be competent and knowledgeable
in bank operations and management. The
conservatorship shall not exceed one (1) year.
Requisites for Declaration of Conservatorship:
1. There must be a report submitted by the Supervising
or Examining Dept (SED) of the BSP.
2. Finding made by the MB that the bank is unable
(involuntary) or unwilling (intentionally) to maintain a
condition of its liquidity deemed adequate to protect
the interest of depositors and creditors.
- In conservatorship, it is always that the assets of the
banks are still greater that its liabilities. The bank is still
solvent. Its just that they cannot pay their liabilities as
they become due. Because their current liabilities
would be greater than their current/liquid assets.
Example: Bank has 1 Billion assets, but only 300M are
current/liquid assets. However, the bank’s current liabilities are
400M. The bank is still solvent, its assets are sufficient to pay
off all of its liabilities. But it cannot pay its liabilities as they
become due because it lacks cash or current assets. Hence,
the bank is experiencing liquidity problems.
Discussion: If a bank is experiencing liquidity problems, its not
automatic that the BSP will declare it under conservatorship.
Being a lender of last resort, the BSP can lend money to the
bank in order to fix its liquidity problems. Or it can compel the
stockholders of the bank to put in new cash around 100M just
sufficient to pay off their current liabilities.
But if it finds through the report of the SED that the bank cannot
pay or will not maintain a position of liquidity that is sufficient to
protect its depositors are creditors. Then the BSP through the
monetary board can place the bank under conservatorship.
3. The BSP will send an order/notice regarding its
conservatorship to the Board of Directors (BOD) of the
bank in order to inform them. (Sec.30)
What happens once the BSP has placed a bank under
conservatorship?
The Banko Sentral will be appointing a conservator and he will
have functions as provided for under sec. 29:
a. Take charge of all assets, liabilities and the
management of the bank
It takes the place of the directors and the management of the
bank.
b. Reorganize the management
It can fire people that the conservator feels are not doing their
work.
c. Collect all monies and debts due to the said institution
If there are unpaid subscriptions from the stockholders, the
conservator can call on those subscriptions to compel the
stockholders to pay.
d. Exercise all powers necessary for the viability of the
bank
e. Power to revoke or overrule the actions of the previous
management and BOD of the bank or quasi-bank - if there
are contracts entered into by the previous management of the
bank, the conservator can cancel those contracts. However,
power to overrule the contracts entered by the bank is limited in
scope only to contracts that are defective, recissible,
unenforceable.
First Philippine Bank v. CA
Under Sec. 29 of NCBA, it says that the conservator has the
power to overrule or revoke the actions of previous
management and BOD of the bank or quasi-bank. By itself, it
seems to be a very encompassing power, to whatever actions
of previous management the conservator can overrule or
revoke.
But in this case we learned that its limited in its scope. SC said
Congress cannot even repudiate a valid contract, how much
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more can the conservator. Congress cannot give a power which
it does not possess, so this authority of conservator to revoke
actions or contract is only limited to those contracts which are
revocable or annullable. Hence those void, recissible, voidable
contracts. But contracts which are already perfected and valid,
it cannot be revoked by the conservator. This power under sec.
29 should be construed in accordance with the constitution.
Grounds for Pre-termination:
1. The monetary board finds that the bank is already
liquid enough and can continue operations.
2. The bank cannot continue its operations without
resulting to probable loss to its depositors and
creditors so it would now proceed to receivership.
TN: Main purpose of a conservatorship is to return the viability
of the bank.
RECEIVERSHIP
Requisites for receivership (Sec. 30)
1. There must be a report submitted by the Supervising
or Examining Dept (SED) of the BSP.
2. Finding by the Monetary Board that any of the grounds
for receivership exist.
3. The MB may summarily and without need of prior
hearing forbid the institution from doing business in the
Philippines.
4. Furnish a copy of its order of closure to the BOD of the
bank.
6 Grounds in Declaring Receivership
SEC. 30 of NCBA
Proceedings in Receivership and Liquidation- Whenever,
upon report of the head of the supervising or examining
dept, the Monetary Board finds that a bank or quasi-bank:
(i) 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;
(ii) has insufficient realizable assets, as determined by
the Bangko Sentral, to meet its liabilities;
(iii) cannot continue in business without involving
probable losses to its depositors or creditors;
(iv) has willfully violated a cease and desist order
under Section 37 that has become final, involving
acts or transactions which amount to fraud or a
dissipation of the assets of the institution;
a. EQUITY TEST Sec. 30 (i)
- When it cannot pay its liabilities as they become due in
the ordinary course of business. They have sufficient
assets but they don’t have enough current assets.
-Applies to both receivership and convervatorship.
b. BALANCE SHEET/ INSOLVENCY TEST Sec. 30 (ii)
- The bank is insolvent. Its liabilities are more than its
assets, which can be found in the balance sheet.
c. PROBABLE LOSSES Sec. 30 (iii)
- Remember in Sec. 29 when after the end of
conservatorship if it is found that the bank cannot continue
its business without involving probable losses to its
depositors and creditors, we go to receivership. So that
ground is here in sec. 30.
d. VIOLATION OF CEASE & DESIST ORDER Sec.30 (iv)
- has willfully violated a cease and desist order under
Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the
assets of the institution.
SEC. 36 of NCBA
Proceedings Upon Violation of This Act and Other Banking
Laws, Rules, Regulations, Orders or Instructions -
xxx…Whenever a bank or quasi-bank persists in carrying on
its business in an unlawful or unsafe manner, the Board
may, without prejudice to the penalties provided in the
preceding paragraph of this section and the administrative
sanctions provided in Section 37 of this Act, take action
under Section 30 of this Act…xxx
e. UNLAWFUL OR UNSAFE MANNER (Sec. 36)
If the bank continues to operate in an unsafe or unlawful
manner, the BSP can take action under sec. 30 of the
NCBA which is actually the placing of banks under
receivership.
SEC. 53 of GBL
Other banking services- xxx…In case a bank or quasi-
bank notifies the Bangko Sentral or publicly announces a
bank holiday, or in any manner suspends the payment of
its deposit liabilities continuously for more than thirty (30)
days, the Monetary Board may summarily and without
need for prior hearing close such banking institution and
place it under receivership of the Philippine Deposit
Insurance Corporation…xxx
f. BANK HOLIDAY (Sec. 53)
- a bank holiday is when it closes its branches or in any
manner suspends the payment of its deposit liabilities
continuously for more than 30 days then the Monetary
Board can summarily without need for prior hearing close
that banking institution and place it under receivership.
TN: There is no requirement that a bank has to undergo
conservatorship before it can go to receivership.
Differentiate placing a bank under conservatorship and
placing a bank under receivership
When the bank is under conservatorship and you want to
restore the viability of the bank, you don’t stop the operations of
the bank. You continue its operations. You continue operating
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the bank but this time you replace your management and BOD
with the conservator. The role of the conservator is to
reorganize the bank and to insure that the bank will continue in
its viability.
When the bank is under receivership, you don’t continue the
operations of the bank. You stop the operations of the bank to
further prevent any bleeding out of the assets of the bank, you
close the bank. That is the implication of a receivership.
Throughout the process is there an opportunity for the
bank to be heard?
In receivership, the BSP can directly close the bank without
prior notice and hearing. The notice and hearing will come
AFTER the bank closure.
RBSM v. Monetary Board
Examination – extensive and in depth analysis, analyze the
facts and then you make a finding
Report – you only give the facts without analysis
What the law requires is only a report made by the SED of the
BSP to place a bank under receivership. A report is basically a
statement of information or facts. No explanation, no analysis
required.
According to the SC, the BSP did not violate due process for
failing to examine the bank before declaring it under
receivership because examination is no longer required. What
is required is that the Monetary Board’s order should be based
on a report by the SED of the BSP.
Banco Filipino v. Monetary Board
Balance sheet test, the second ground under Sec. 30, when
your realizable assets are not sufficient to pay your liabilities,
then the bank is considered as insolvent.
In order to determine if a bank is solvent, you use the balance
sheet test and you just compare total assets and the total
liabilities. If a bank’s assets is more than the liabilities solvent
not a ground for receivership. If assets is less than the liabilities
then the bank is insolvent, hence a ground for receivership.
In the RBSM case, we learned that the basis for the declaration
of receivership is only a report, not an examination. In Banco
Filipino, we learned that in insolvency, as a ground for
receivership, we only look at the balance sheet test. The
balance sheet is the one that is accounted for using GAAP
(Generally Accepted Accounting Principles). It is a simplistic
view you compare assets as against the liabilities. Don’t deduct
anything. No deduction on the total assets. If assets is more
than the liabilities, not a ground and if assets is more than the
liabilities, then the bank is insolvent and that is one of the
grounds for receivership.
PROCEDURE IN DECLARING RECEIVERSHIP
Rural Bank of Buhi v. Court of Appeals
Take note that this is one of the cases that is based on the old
law, so there is a requirement for examination, examination as
a basis for the report that is not required now which we learned
in RBSM.
We have a report, based on the report finding of the Monetary
Board that any of the grounds for receivership exists. Upon that
finding, there is an order by the Monetary Board prohibiting the
bank from doing business in the Philippines. Upon the issuance
of that order, the bank immediately closes. After that, give the
bank a chance to be heard. Now, you have a hearing. You can
actually question but only after. This is that we call as the
“Close now, Hear later” scheme.
It is not necessary that the bank will be given notice and
hearing before they can be closed, because it will only be more
detrimental to the bank and to the public. It will only cause
panic, hysteria and mass withdrawals all the more that the bank
will be in trouble.
This power of the Banko Sentral to close a bank summarily
without notice and hearing is an exercise of police power of
the State. Due process does not require that there has to be
prior notice, notice and hearing can be subsequent to
the enforcement of the order to close. So “Close now,
Hear later”, that is the principle under Sec. 30 of the NCBA.
Central Bank v. CA
1. Reiteration of the principle of “close now, hear later”.
2. The one who can bring a case to question the BSP is
the Receiver because according to the BSP, all the
assets and management of the closed bank is repose
to the receiver. It is only the receiver who can file a
case for and in behalf of the bank.
But who can question the order of Receivership or the
validity of the appointment of the Receivership?
 The stockholders who own majority of the shares.
It’s absurd for the Receiver to be able to question the very order
that appointed him. The Board of Directors don’t have the
power either because if they did, they will always file a case to
protect themselves but covering up the fraud they conducted.
Again, so in order to declare Receivership, the SED needs to
make a report. On the basis of the report, the MB will make a
finding if any of the ground for Receivership exists. Once
there’s a finding based on the report, the BSP can now order
the closure of the bank. So upon issuance of that order, the
bank and its operations are terminated. This is in the exercise
of police power. But anyways, there will still be a hearing after
such closure so due process is not violated. So the one who
can question the validity of the Receivership is only the
stockholder owning majority of the shares.
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So assuming that the order has been put in place, what Philippine Veteran’s Bank v. Vega
happens?
You cannot Liquidate if your still have plans in rehabilitating the
The receiver based on Sec. 30 will gather and take charge of all bank. The SC halted the liquidation proceeding since there was
the assets and liabilities of the institution, administer the same already a law passed for the rehabilitation of the bank.
for the benefit of its creditors, and exercise the general powers
of a receiver under the Revised Rules of Court.

What’s the limitation of the power of the Receiver?

 Administrative in nature. The receiver cannot do any

act that involves the transfer or disposition of any
asset of the institution. The properties of the bank are
deemed to be in custodia legis. The Receiver will
administer the assets but cannot dispose.

Abacus v. Manila Banking Corporation

So there was a lease contract entered into after the deliberation

of receivership. And the lease contract had an exclusive option
to purchase. The assignee of that lease contract wanted to
enforce that provision but the BSP denied this. As in the case of
Villanueva v. CA, if the bank is declared in receivership, the
properties become in custodia legis and you cannot dispose
that anymore. In this case, the buyer insisted that the Receiver,
Mr. Santos had approve of the transaction. This does not
matter, the SC said that the powers of the Receiver is limited to
administration so it had no power to dispose.

Duration of Receivership

 90 days

At the end of the 90 days, the bank will either be Rehabilitated

or Liquidation. In Liquidation, you need to file a case in court to
liquidate a bank. If you file a case in court under Sec. 30, there
are two steps that will happen: (1) The Receiver turned
Liquidator will file a case in court and the latter will determine
the liabilities and assets. If there are claims that haven’t been
submitted, then you file it in court. Then the Liquidation court
will have to determine the validity of your claim and if it’s valid,
then you will have a share in the assets. If it’s not valid, then
you cannot be part of the liquidation but subject to an appeal to
the CA.

Pacific Banking v. CA

So basically a Liquidation proceeding is a special proceeding.

You can appeal the interlocutory order of the court since that’s
still not a final order. The final order of the court is the
disposition of the assets. In the meantime before the final order,
as to you, the one with a denied claim, that’s already final so
you can appeal. But since it’s a special proceeding, it’s not an
ordinary appeal but you file a Record on Appeal which has a
period of 30 days.

After everything is final, the Liquidation court will now do the

Liquidation plan which will be submitted by the Liquidator. It
contains a list of the assets, liabilities and creditors. The ones
with a priority in claim will be paid first and whatever is left first
will be paid to the general creditors. The Liquidation plan will be
approved by the RTC then go to the Liquidation court to show
that you’re done.

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INTERNATIONAL BUSINESS LAW of Atty. Gaviola | EH404 SY 2017-2018

SUMMARY OF LIMITATIONS

UNIVERSAL COMMERCIAL
BANK BANK

INVESTOR Aggregate total investment limit Up to 50% Up to 35%

LIMITATION of net worth of net worth
Single enterprise investment limit Up to 25% Up to 25%
of net worth of net worth
Thrift bank or Rural bank 100% 100%
of equity of equity
Other financial allied 100% 49% minority
FINANCIAL enterprise of equity of equity.
ALLIED ALLIED 100% 100%
Publicly
INTERPRISE ENTERPRISE
listed of voting stock of voting stock
INVESTEE
Another investor
LIMITATION
UB/CB
Not 49% 49%
publicly minority minority
listed interest interest
investor

NON- FINANCIAL ALLIED 100% 100%

of equity of equity
NON-ALLIED INTERPRISE Two conditions
must concur: Commercial
(a) up to banks cannot
35%of total invest in non-
equity AND allied interprise
(b) up to 35%of
voting stock

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