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BANKING LAW 1 | ATTY.

ALEXANDER DY | SY 2010-2011 NOTES 1

BANKING LAW I

I. GENERAL CONCEPTS campaign undertaken by the corporation, the same had managed to induce
the public to open 59,463 savings deposit accounts.
A. CONCEPT OF BANKING
ISSUE
a. Definition: Banks shall refer to entities engaged in the lending of
Whether the corporation is engaged in banking
funds obtained in the form of deposits (Sec. 3.1, GBL)
RULING
b. Elements:
YES. It is clear that these transactions partake of the nature of banking, as
i. Engaged in lending of funds
the term is used in Section 2 of the General Banking Act. Indeed, a bank
ii. Obtained in the form of deposits
has been defined as:
iii. From the public, which shall mean 20 or more persons
... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347,
(Sec. 8.2, GBL)
348] founded to facilitate the borrowing, lending and safe-keeping
of money (Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243,
REPUBLIC v SECURITY CREDIT AND ACCEPTANCE CORPORATION, 19
255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of
SCRA 58 (1967)
exchange, and credits (State vs. Cornings Sav. Bank, 115 N.W. 937,
139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46).
DOCTRINE: A bank is a moneyed institute founded to facilitate the
borrowing, lending and safekeeping of money and to deal in notes, bills of
Moreover, it has been held that:
exchange and credits. An investment company, which lends out the money
An investment company which loans out the money of its customers,
of its customers, collects the interest and charges a commission to both
collects the interest and charges a commission to both lender and borrower,
lender and borrower, is a bank.
is a bank. (Western Investment Banking Co. vs. Murray, 56 P. 728, 730,
FACTS 731; 6 Ariz 215.)
This is a quo warranto proceeding, initiated by the Solicitor General, to ... any person engaged in the business carried on by banks of
dissolve the Security and Acceptance Corporation for allegedly engaging in deposit, of discount, or of circulation is doing a banking business,
banking operations without the authority required therefor by the General although but one of these functions is exercised. (MacLaren vs.
Banking Act (Republic Act No. 337). State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas.
826; 9 C.J.S. 30.)
Security Credit and Acceptance Corporation is a duly registered corporation
with the SEC. It’s articles of incorporation authorize it to o engage primarily Accordingly, defendant-corporation has violated the law by engaging in
in financing agricultural, commercial and industrial projects, and banking without securing the administrative authority required in Republic
secondarily, in buying and selling stocks and bonds of any corporation. Act No. 337.

The Superintend of Banks of the Central Bank of the Philippines thru its legal That the illegal transactions thus undertaken by defendant corporation
counsel rendered an opinion that Security Credit and Acceptance warrant its dissolution is apparent from the fact that the foregoing misuser
Corporation is a banking institution within the purview of Republic Act No. of the corporate funds and franchise affects the essence of its business, that
337. Central Bank advised the corporation to comply with the requirements it is willful and has been repeated 59,463 times, and that its continuance
of the General Banking Act. inflicts injury upon the public, owing to the number of persons affected
thereby.
Notwithstanding, the corporation, as well as the members of its Board of
Directors and the officers of the corporation, continued performing the CENTRAL BANK v MORFE, 20 SCRA 507 (1967)
functions and activities which had been declared to constitute illegal banking
operations; the corporation established 74 branches in principal cities and DOCTRINE: The law requiring compliance with certain requirements before
towns throughout the Philippines; that through a systematic and vigorous anybody can engage in banking obviously seeks to protect the public against
actual, as well as potential, injury.

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 2
FACTS expressly denied the right to vote or be voted for, their privileges and
First Mutual Savings and Loan Organization (Organization) is a registered benefits being limited to those, which the BoT may in its discretion,
non-stock corporation, whose main purpose is “to encourage x x x and determine from time to time. Thus, the membership of the “participating
implement savings and thrift among its members, and to extend financial members” is purely nominal in nature. This situation is fraught, precisely,
assistance in the form of loans” to them. with the very dangers or evils, which RA 337 seeks to forestall, by exacting
compliance with the requirements of said Act, before the transactions in
In 1962, the Central Bank Legal Department rendered an opinion finding the question could be undertaken.
Organization as a banking institution, falling within the purview of the
Central Bank Act. Hence, it applied for a search warrant with the Municipal BANAS v ASIA PACIFIC FINANCE CORPORATION, 343 SCRA 527
Court of Manila against the Organization, alleging that it was engaged in (2000)
illegal banking activities, “by receiving deposits of money for deposit,
disbursement, safekeeping or otherwise or transacts the business of a DOCTRINE: An investment company refers to any issuer, which is or holds
savings and mortgage bank and/or building and loan association x x x itself out as being engaged or proposes to engage primarily in the business
without having first complied with the provisions of RA 337. of investing, reinvesting or trading in securities. What is prohibited by law is
for investment companies to lend funds obtained from the public through
Judge Cancino issued the warrant applied for there being “good and receipts of deposit, which is a function of banking institutions.
sufficient reasons to believe” that the Organization has under its control the
articles/items subject of the offense complained of. On the same day, the FACTS
Organization commenced an action with the CFI of Manila against the Teodoro Banas issued a Promissory Note (P.N.), amounting to 390k payable
Municipal Court, the sheriff, the Manila Police Department and the Central in installments, in favor of C. G. Dizon Construction. Later, Dizon
Bank to annul the search warrant on the ground that it was issued with Construction endorsed the P.N to Asia Pacific Finance Corporation, an
GADLEJ. After due hearing, Judge Morfe (CFI Manila) issued an order in investment house. As security for the endorsement, Dizon Construction
favor of the Organization. made a Chattel Mortgage over 3 heavy equipment units. As additional
security, Cenen Dizon, president of Dizon Construction, executed a
Accordingly, the Bank moved for reconsideration but was denied and Continuing Undertaking, bounding himself to pay the obligation jointly and
commenced the present action. severally.

ISSUE At first, Dizon Construction complied with the installments. However, it


Whether the Organization is a banking institution within the purview of the defaulted in its payment of the remaining installments. Asia Pacific sued
Central Bank Act Banas and Dizon Construction for payment of the P.N.. Banas and Dizon
Construction argue that the transaction was never intended to be legal but a
RULING subterfuge to conceal the loan of 390k with usurious interest. They both
YES. The records suggested clearly that the transactions objected to by the claim that Asia Pacific proposed the scheme with them involved because
Central Bank constitute the general pattern of the business of the Asia Pacific could not engage in banking business.
Organization. Indeed, the main purpose thereof, according to its By-Laws, is
“to extend financial assistance, in the form of loans, to its members, with RTC ruled in favor of Asia Pacific. CA affirmed the decision.
funds deposited by them.
ISSUE
It is true that such funds are referred to as their “savings” and that the Whether the transaction violated banking laws, hence null and void
depositors thereof are designated as “members,” but, even a cursory
examination of said documents will readily show that anybody can be a RULING
depositor and thus be “participating member.” In other words, the NO, it did not violate banking laws.
Organization is open to the public for deposit accounts, and the funds so
raised may be lent by the Organization. An investment company refers to any issuer which is or holds itself out as
being engaged or proposes to engage primarily in the business of investing,
Moreover, the power to dispose of said funds is placed under the exclusive reinvesting or trading in securities. securities include commercial papers
authority of the “founding members,” and “participating members” are evidencing indebtedness of any person, financial or non-financial entity,

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 3
irrespective of maturity, issued, endorsed, sold, transferred or in any
manner conveyed to another with or without recourse, such as promissory The determination of whether a person or entity is performing
notes. The transaction between the two was a purchase of receivables at a banking or quasi-banking functions without Bangko Sentral
discount and not a loan. Such act is within the purview of the functions of an authority shall be decided by the Monetary Board. To resolve such
investment company. issue, the Monetary Board may, through the appropriate
supervising and examining department of the Bangko Sentral,
Moreover, Sec 2 of the General Banking Act provides, examine, inspect or investigate the books and records of such
person or entity. Upon issuance of this authority, such person or
Sec. 2. Only entities duly authorized by the Monetary Board of the
entity may commence to engage in banking operations or quasi-
Central Bank may engage in the lending of funds obtained from the
banking functions and shall continue to do so unless such authority
public through the receipt of deposits of any kind, and all entities
is sooner surrendered, revoked, suspended or annulled by the
regularly conducting such operations shall be considered as banking
institutions and shall be subject to the provisions of this Act, of the
Bangko Sentral in accordance with this Act or other special laws
Central Bank Act, and of other pertinent laws (Sec. 6, Par. 1-2, GBL)

What is prohibited by law is for investment companies to lend funds C. BANKS DISTINGUISHED FROM OTHER FINANCIAL
obtained from public through receipts of deposit. However, the funds INSTITUTIONS
obtained by Asia Pacific have not been shown to have been obtained from a. Investment Houses: Sec. 2-3, PD 129
the public through deposits. Thus, no banking laws were violated. Section 2. Scope. Any enterprise, which engages in the
underwriting of securities of other corporations, shall be
Upon further inspection of the 3 documents (Promissory Note / Chattel considered an "Investment House" and shall be subject to the
Mortgage / Continuing Undertaking) , the documents failed to prove the provisions of this Decree and of other pertinent laws.
theory that the transaction was a loan. Petitioners are still liable for the
unpaid balance of the P.N. Nothing in this Decree shall be understood to preclude other
enterprises from engaging in the mere buying and selling of
B. BANKING DISTINGUISHED FROM QUASI-BANKING short-term securities of other persons or enterprises.
a. Elements of Quasi-Banking: "Quasi-Banks" shall refer to
entities engaged in the borrowing of funds through the issuance, Section 3. Definitions. For the purpose of this Decree, unless the
endorsement or assignment with recourse or acceptance of context otherwise indicates, the following definition of terms are
deposit substitutes as defined in Section 95 of Republic Act No. hereby adopted:
7653 (hereafter the "New Central Bank Act") for purposes of (a) "Underwriting" is the act or process of guaranteeing the
relending or purchasing of receivables and other obligations distribution and sale of securities of any kind issued by
(Sec. 4, Par. 3, GBL) another corporation.
i. Borrowing of funds for borrower’s own account
ii. From 20 or more lenders at any one time (b) "Securities" are written evidences of ownership, interest,
iii. Through issuance, endorsement or assignment with recourse or participation, in an enterprise, or written evidences of
of acceptance of deposit substitutes (Sec. 95, NCBA) indebtedness of a person or enterprise. It includes, but is
iv. For purposes of relending or purchasing of receivables and not limited to the instruments enumerated in Section 2 of
other obligations the Securities Act (Commonwealth Act No. 83, as amended).

b. Requirement of Separate License: No person or entity shall b. Financing Companies: "Financing companies," hereinafter
engage in banking operations or quasi-banking functions without called companies, are corporations, or partnerships, except those
authority from the Bangko Sentral: Provided, however, That an regulated by the Central Bank of the Philippines, the Insurance
entity authorized by the Bangko Sentral to perform universal or Commissioner and the Cooperatives Administration Office, which
are primarily organized for the purpose of extending credit
commercial banking functions shall likewise have the authority to
facilities to consumers and to industrial, commercial, or
engage in quasi-banking functions.
agricultural enterprises, either by discounting or factoring

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 4
commercial papers on accounts receivable, or by buying and g. Pawnshops: "Pawnshop" shall refer to a person or entity
selling contracts, leases, chattel mortgages, or other evidences of engaged in the business of lending money on personal property
indebtedness, or by leasing of motor vehicles, heavy equipment delivered as security for loans and shall be synonymous, and may
and industrial machinery, business and office machine and be used interchangeably, with pawnbroker or pawnbrokerage
equipment, appliances and other movable property (Sec. 3(a), (Sec. 3, PD 114)
RA 5980, as amended by RA 8556)
FIRST PLANTERS PAWNSHOP, INC. v CIR, 560 SCRA 606 (2008)
c. Investment Companies: "Investment Company" means any
issuer which is or holds itself out as being engaged primarily, or DOCTRINE: A pawnshop's business and operations are governed by
proposes to engage primarily, in the business of investing, Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation Act and
reinvesting, or trading in securities(Sec. 4, RA 2629) Central Bank Circular No. 374 (Rules and Regulations for Pawnshops).
Section 3 of P.D. No. 114 defines pawnshop as “a person or entity engaged
d. Non-Stock Savings and Loans Associations: Non-stock in the business of lending money on personal property delivered as security
savings and loan association shall mean a non-stock, non-profit for loans and shall be synonymous, and may be used interchangeably, with
corporation engaged in the business of accumulating the savings pawnbroker or pawn brokerage.”
of its members and using such accumulations for loans to
members to service the needs of households by providing long That pawnshops are to be treated as non-bank financial intermediaries is
term financing for home building and development and for further bolstered by the fact that pawnshops are under the regulatory
personal finance (Sec. 3, RA 8367) supervision of the Bangko Sentral ng Pilipinas and covered by its Manual of
Regulations for Non-Bank Financial Institutions.
e. Cooperatives: A cooperative is a duly registered association of
persons, with a common bond of interest, who have voluntarily FACTS
joined together to achieve a lawful common social or economic In a Pre-Assessment Notice, petitioner was informed by the BIR that it has
end, making equitable contributions to the capital required and
an existing tax deficiency on its VAT and DST liabilities for the year
accepting a fair share of the risks and benefits of the undertaking
2000. The deficiency assessment was at P541,102.79 for VAT
in accordance with universally accepted cooperative principles
and P23,646.33 for DST. Petitioner protested the assessment for lack of
(Art. 3, RA 6938)
legal and factual bases. Petitioner subsequently received a Formal
Assessment Notice, directing payment of VAT deficiency in the amount
A cooperative bank is one organized by the majority shares of
of P541,102.79 and DST deficiency in the amount of P24,747.13, inclusive
which is owned and controlled by cooperatives primarily to
of surcharge and interest. Petitioner filed another protest but was denied.
provide financial and credit services to cooperatives. The term
Petitioner then filed a petition for review with the Court of Tax Appeals
"cooperative bank" shall include cooperative rural banks (Art.
(CTA) but it was denied. Petitioner later sought reconsideration from the
100, RA 6983)
CTA En Banc but was still denied thus this case.
f. Insurance Companies: The term "doing an insurance business"
First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-
or "transacting an insurance business", within the meaning of this
added and documentary stamp taxes imposed upon it by the Bureau of
Code, shall include (a) making or proposing to make, as insurer,
Internal Revenue (BIR) for the year 2000. The core of petitioner's argument
any insurance contract; (b) making or proposing to make, as
is that it is not a lending investor within the purview of Section 108(A) of
surety, any contract of suretyship as a vocation and not as
the National Internal Revenue Code (NIRC), as amended, and therefore not
merely incidental to any other legitimate business or activity of
subject to value-added tax (VAT). Petitioner also contends that a pawn
the surety; (c) doing any kind of business, including a
ticket is not subject to documentary stamp tax (DST) because it is not proof
reinsurance business, specifically recognized as constituting the
of the pledge transaction, and even assuming that it is so, still, it is not
doing of an insurance business within the meaning of this Code;
subject to tax since a documentary stamp tax is levied on the document
(d) doing or proposing to do any business in substance
issued and not on the transaction.
equivalent to any of the foregoing in a manner designed to evade
the provisions of this Code (Sec. 2, PD 612)

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 5
ISSUE petitioner is not liable for VAT during these tax years. But with the full
Whether Petitioner is liable for the assessed VAT and DST deficiency implementation of the VAT system on non-bank financial intermediaries
starting January 1, 2003, petitioner is liable for 10% VAT for said tax
RULING year. And beginning 2004 up to the present, by virtue of R.A. No. 9238,
The tax liability shall be based on the tax treatment of pawnshops. The petitioner is no longer liable for VAT but it is subject to percentage tax on
Court has ruled that they shall be treated as non-bank financial gross receipts from 0% to 5 %, as the case may be.
intermediaries and reasons as follows:
Regarding the liability on DST, the court ruled that petitioner is liable for
R.A. No. 337, as amended, or the General Banking Act characterizes the said tax. The Court has settled this issue in Michel J. Lhuillier Pawnshop,
terms banking institution and bank as synonymous and interchangeable and Inc. v. Commissioner of Internal Revenue, in which it was ruled that the
specifically include commercial banks, savings bank, mortgage banks, subject of DST is not limited to the document alone. Pledge, which is an
development banks, rural banks, stock savings and loan associations, and exercise of a privilege to transfer obligations, rights or properties incident
branches and agencies in the Philippines of foreign banks. R.A. No. 8791 or thereto, is also subject to DST.
the General Banking Law of 2000, meanwhile, provided that banks shall
refer to entities engaged in the lending of funds obtained in the form of In the instant case, there is no law specifically and expressly exempting
deposits. R.A. No. 8791 also included cooperative banks, Islamic banks and pledges entered into by pawnshops from the payment of DST. Section 199
other banks as determined by the Monetary Board of of the NIRC enumerated certain documents, which are not subject to stamp
the Bangko Sentral ng Pilipinas in the classification of banks. tax; but a pawnshop ticket is not one of them. Hence, petitioner’s nebulous
claim that it is not subject to DST is without merit.
Financial intermediaries, on the other hand, are defined as “persons or
entities whose principal functions include the lending, investing or D. NATURE OF BANKING BUSINESS
placement of funds or evidences of indebtedness or equity deposited with The State recognizes the vital role of banks in providing an
them, acquired by them, or otherwise coursed through them, either for their environment conducive to the sustained development of the national
own account or for the account of others.” economy and the fiduciary nature of banking that requires high
standards of integrity and performance. In furtherance thereof, the
It need not be elaborated that pawnshops are non-banks/banking State shall promote and maintain a stable and efficient banking and
institutions. Moreover, the nature of their business activities partakes that financial system that is globally competitive, dynamic and responsive
of a financial intermediary in that its principal function is lending. to the demands of a developing economy (Sec. 2, GBL)

A pawnshop's business and operations are governed by Presidential Decree a. Vital Role in Economy
(P.D.) No. 114 or the Pawnshop Regulation Act and Central Bank Circular
No. 374 (Rules and Regulations for Pawnshops). Section 3 of P.D. No. 114 SIMEX INTERNATIONAL (MANILA) INC. v CA, 183 SCRA 360 (1992)
defines pawnshop as “a person or entity engaged in the business of lending
money on personal property delivered as security for loans and shall be DOCTRINE: As a business affected with public interest and because of the
synonymous, and may be used interchangeably, with pawnbroker or pawn nature of its functions, the bank is under obligation to treat the accounts of
brokerage.” its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship.
That pawnshops are to be treated as non-bank financial intermediaries is
further bolstered by the fact that pawnshops are under the regulatory FACTS
supervision of theBangko Sentral ng Pilipinas and covered by its Manual of Simex was a food exporter that drew stock in the Philippines then sold it
Regulations for Non-Bank Financial Institutions. The Manual includes abroad. It deposited 100k in Traders Royal Bank , raising the balance to
pawnshops in the list of non-bank financial intermediaries, P190,380.74, then later issued checks that were suddenly dishonored –
California Manufacturing and others issued demand letters for the
Coming now to the issue at hand - Since petitioner is a non-bank financial dishonored check. Simex’s credit line was canceled because of the
intermediary, it is subject to 10% VAT for the tax years 1996 to dishonored check – Traders bank said the deposit of 100k was not credited,
2002; however, with the levy, assessment and collection of VAT from non- the error was rectified but Simex filed a case against the bank and
bank financial intermediaries being specifically deferred by law,[34] then demanded reparation for gross and wanton negligence: not met – complaint

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 6
for 1m moral and 500k exemplary damages + 25% atty. fees and costs – conservatorship was maintained.
CFI: moral and exemplary damages not called for, but nominal damages
20k plus 5k atty. fees – affirmed by CA Later on, PBP filed an action for damages against CB and MB. The suit
prayed for the lifting of the conservatorship and payment of damages
ISSUE allegedly suffered by PBP due to the malicious and untimely declaration of
Was there Gross negligence in not crediting the deposit? conservatorship. It also prayed for a preliminary injunction /TRO against the
RULING conservatorship. RTC granted the injunction.
YES. Banking system: indispensable institution in modern world; plays vital ISSUE
role in economic life of every civilized nation. – Trusted and active associate Whether the conservatorship was proper
– depositor expects bank to treat account with utmost fidelity, must record
each transaction accurately – Fiduciary nature of relationship – Traders was HELD
remiss in duty – 20k moral damages, 50k exemplary (by way of example or YES. It must be stressed in this connection that the banking business is
correction for the public good) properly subject to reasonable regulation under the police power of the state
because of its nature and relation to the fiscal affairs of the people and the
Subject to Reasonable Regulation by the State revenues of the state. 55 Banks are affected with public interest because
CENTRAL BANK OF THE PHILIPPINES v CA, 208 SCRA 652 (1992) they receive funds from the general public in the form of deposits. Due to
the nature of their transactions and functions, a fiduciary relationship is
DOCTRINE: It is the Government’s responsibility to see to it that the created between the banking institutions and their depositors. Therefore,
financial interests of those who deal with banks and banking institutions, as banks are under the obligation to treat with meticulous care and utmost
depositors or otherwise, are protected—this task is delegated to the Central fidelity the accounts of those who have reposed their trust and confidence in
Bank, which is authorized to administer monetary, banking and credit them.
system in the Philippines.
It is then Government's responsibility to see to it that the financial interests
FACTS of those who deal with banks and banking institutions, as depositors or
During the regular examination of the Producers Bank of the Philippines, otherwise, are protected. In this country, that task is delegated to the
Central Bank examiners stumbled upon some highly questionable loans Central Bank which, pursuant to its Charter, 57 is authorized to administer
which had been extended by the PBP management to several entities. Upon the monetary, banking and credit system of the Philippines. Under both the
further examination, it was discovered that these loans, totalling 1973 and 1987 Constitutions, the Central Bank is tasked with providing
approximately P300 million, were "fictitious" as they were extended, without policy direction in the areas of money, banking and credit; corollarily, it shall
collateral, to certain interests related to PBP owners themselves. Said loans have supervision over the operations of banks. 58 Under its charter, the CB
were deemed to be anomalous particularly because the total paid-in capital is further authorized to take the necessary steps against any banking
of PBP at that time was only P 140.544 million. This means that the entire institution if its continued operation would cause prejudice to its depositors,
paid-in capital of the bank, together with some P160 million of depositors' creditors and the general public as well. This power has been expressly
money, was utilized by PBP management to fund these unsecured loans. recognized by this Court. In Philippine Veterans Bank Employees Union-
NUBE vs. Philippine Veterans Bank, 59 this Court held that:
Several blind items about a family-owned bank in Binondo which granted . . . Unless adequate and determined efforts are taken by the
fictitious loans to its stockholders appeared in major newspapers. These government against distressed and mismanaged banks, public faith
news items triggered a bank-run in PBP which resulted in continuous over- in the banking system is certain to deteriorate to the prejudice of
drawings on the bank's demand deposit account with the Central Bank. the national economy itself, not to mention the losses suffered by
the bank depositors, creditors, and stockholders, who all deserve
The Monetary Board (MB), pursuant to its authority under Section 28-A of the protection of the government. The government cannot simply
R.A. No. 265 and by virtue of MB Board Resolution No. 164, placed PBP cross its arms while the assets of a bank are being depleted through
under conservatorship. mismanagement or irregularities. It is the duty of the Central Bank
in such an event to step in and salvage the remaining resources of
The Monetary Board gave PBP several opportunities to submit a viable the bank so that they may not continue to be dissipated or
rehabilitation plan in order to salvage the bank and lift the conservatorship. plundered by those entrusted with their management.
PBP failed to respond to the notices of the Monetary Board, hence the

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 7
Strikes and Lockouts or loss of employment status or payment by the locking-out employer of
The banking industry is hereby declared as indispensable to the national backwages, damages and other affirmative relief, even criminal prosecution
interest and, not withstanding the provisions of any law to the contrary, any against either or both of them.
strike or lockout involving banks, if unsettled after seven (7) calendar days
shall be reported by the Bangko Sentral to the Secretary of Labor who may The foregoing notwithstanding, the President of the Philippines shall not be
assume jurisdiction over the dispute or decide it or certify the same to the precluded from determining the industries that, in his opinion, are
National Labor Relations Commission for compulsory arbitration. However, indispensable to the national interest, and from intervening at any time and
the President of the Philippines may at any time intervene and assume assuming jurisdiction over any such labor dispute in order to settle or
jurisdiction over such labor dispute in order to settle or terminate the same terminate the same (Art. 263 (g), Labor Code)
(Sec. 22, GBL)
b. Fiduciary Nature of Banking Business
When, in his opinion, there exists a labor dispute causing or likely to cause a i. Degree of Diligence Required
strike or lockout in an industry indispensable to the national interest, the
Secretary of Labor and Employment may assume jurisdiction over the SIMEX INTERNATIONAL (MANILA) INC. v CA, 183 SCRA 360 (1992)
dispute and decide it or certify the same to the Commission for compulsory
arbitration. Such assumption or certification shall have the effect of DOCTRINE: As a business affected with public interest and because of the
automatically enjoining the intended or impending strike or lockout as nature of its functions, the bank is under obligation to treat the accounts of
specified in the assumption or certification order. If one has already taken its depositors with meticulous care, always having in mind the fiduciary
place at the time of assumption or certification, all striking or locked out nature of their relationship.
employees shall immediately return-to-work and the employer shall
immediately resume operations and readmit all workers under the same FACTS
terms and conditions prevailing before the strike or lockout. The Secretary Simex was a food exporter that drew stock in the Philippines then sold it
of Labor and Employment or the Commission may seek the assistance of abroad. It deposited 100k in Traders Royal Bank , raising the balance to
law enforcement agencies to ensure compliance with this provision as well P190,380.74, then later issued checks that were suddenly dishonored –
as with such orders as he may issue to enforce the same. California Manufacturing and others issued demand letters for the
dishonored check. Simex’s credit line was canceled because of the
In line with the national concern for and the highest respect accorded to the dishonored check – Traders bank said the deposit of 100k was not credited,
right of patients to life and health, strikes and lockouts in hospitals, clinics the error was rectified but Simex filed a case against the bank and
and similar medical institutions shall, to every extent possible, be avoided, demanded reparation for gross and wanton negligence: not met – complaint
and all serious efforts, not only by labor and management but government for 1m moral and 500k exemplary damages + 25% atty. fees and costs –
as well, be exhausted to substantially minimize, if not prevent, their adverse CFI: moral and exemplary damages not called for, but nominal damages
effects on such life and health, through the exercise, however legitimate, by 20k plus 5k atty. fees – affirmed by CA
labor of its right to strike and by management to lockout. In labor disputes
adversely affecting the continued operation of such hospitals, clinics or ISSUE
medical institutions, it shall be the duty of the striking union or locking-out Was there Gross negligence in not crediting the deposit?
employer to provide and maintain an effective skeletal workforce of medical
and other health personnel, whose movement and services shall be RULING
unhampered and unrestricted, as are necessary to insure the proper and YES. Banking system: indispensable institution in modern world; plays vital
adequate protection of the life and health of its patients, most especially role in economic life of every civilized nation. – Trusted and active associate
emergency cases, for the duration of the strike or lockout. In such cases, – depositor expects bank to treat account with utmost fidelity, must record
therefore, the Secretary of Labor and Employment may immediately each transaction accurately – Fiduciary nature of relationship – Traders was
assume, within twenty four (24) hours from knowledge of the occurrence of remiss in duty – 20k moral damages, 50k exemplary (by way of example or
such a strike or lockout, jurisdiction over the same or certify it to the correction for the public good)
Commission for compulsory arbitration. For this purpose, the contending
parties are strictly enjoined to comply with such orders, prohibitions and/or
injunctions as are issued by the Secretary of Labor and Employment or the
Commission, under pain of immediate disciplinary action, including dismissal

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 8
BANK OF THE PHILIPPINE ISLANDS v IAC, 206 SCRA 408 (1992) or of millions. The bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible. This has to be done if
DOCTRINE: The is no merit in the argument that a bank should not be the account is to reflect at any given time the amount of money the
considered negligent, much less held liable for damages on account of the depositor can dispose of as he sees fit, confident that the bank will deliver it
inadvertence of its bank employees for Article 1173 of the Civil Code only as and to whomever he directs. A blunder on the part of the bank, such as
requires it to exercise the diligence of a good father of the family. the dishonor of a check without good reason, can cause the depositor not a
little embarrassment if not also financial loss and perhaps even civil and
While the bank’s negligence may not have been attended with malice and criminal litigation."
bad faith, nevertheless, it caused serious anxiety, embarrassment and
humiliation to the depositors for which they are entitled to reasonable moral The bank is not expected to be infallible but it must bear the blame for not
damages. discovering the mistake of its teller despite the established procedure
requiring the papers and bank books to pass through a battery of bank
FACTS personnel whose duty it is to check and countercheck them for possible
The spouses Arthur and Vivienne Canlas opened a joint account in CBTC errors. Apparently, the officials and employees tasked to do that did not
Q.C. with an initial deposit of P2,250. Before that, Arthur Canlas had an perform their duties with due care, as may be gathered from the testimony
existing separate personal checking account there. of the bank's lone witness, Antonio Enciso, who casually declared that "the
approving officer does not have to see the account numbers and all those
When they opened this account, the "new accounts" teller of the bank pulled things. Those are very petty things for the approving manager to look into."
out from the bank's files the old signature card of Arthur Canlas for use as I Unfortunately, it was a "petty thing," like the incorrect account number that
D and reference. By mistake, she placed the old personal account number of the bank teller wrote on the initial deposit slip for the newly-opened joint
Arthur Canlas on the deposit slip for the new joint checking account of the current account of the Canlas spouses, that sparked this half-a-million-peso
spouses so that the initial deposit of P2,250 for the joint checking account damage suit against the bank.
was miscredited to Arthur's personal account. The spouses subsequently
deposited other amounts in their joint account. While the bank's negligence may not have been attended with malice and
bad faith, nevertheless, it caused serious anxiety, embarrassment and
When Vivienne Canlas issued a check for Pl,639.89 in April 1977 and humiliation to the private respondents for which they are entitled to recover
another check for P1,160.00 on June 1, 1977, one of the checks was reasonable moral damages.
dishonored by the bank for insufficient funds and a penalty of P20 was
deducted from the account in both instances. Thereafter, the spouses filed a ii. When Utmost Diligence Required
case for damages agaisnt the bank for serious anxiety, embarrassment and 1. In dealing with Accounts of Depositors
humiliation by reason of the dishonor of the checks. The RTC and the IAC
found that the bank had been seriously negligent and awarded damages to PHILIPPINE BANKING CORPORATION v CA, 419 SCRA 487 (2004)
the spouses Canlas.
DOCTRINE: Sec. 2 of RA 8791 (GBL) expressly imposes a fiduciary duty on
ISSUE the banks when it declares that the State recognizes the “fiduciary nature of
Whether the mistake of the teller can be considered as serious negligence banking that requires high standards of integrity and performance.”
entitling the spouses Canlas to an award of damages.
The fiduciary relationship means that the bank’s obligation to observe high
RULING standards of integrity and performance is deemed written into every deposit
YES. There is no merit in CBTC's argument that it was only required to agreement between a bank and its depositor.
exercise the diligence of a good father of family. The fiduciary nature of the
relationship between a bank and its depositors and the extent of diligence FACTS
expected of it in handling the accounts entrusted to its care is a great Florencio Pagsaligan, a close friend and officer of the bank, persuaded
responsibility. Leonilo Marcos to deposit money with Philippine Banking Corporation
(BANK). Marcos yielded and made a time deposit with the Bank on two
"In every case, the depositor expects the bank to treat his account with the occasions.
utmost fidelity, whether such account consists only of a few hundred pesos

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 9
Later, Marcos wanted to withdraw from the Bank to buy material for his produce the original copies of the promissory note and ledges, it failed to
construction business. However, the bank convinced him to keep his time treat Marcos’s account with meticulous care.
deposit and instead, open several domestic letters of credit. Trusting the
bank and Pagsaligan, he again yielded. Marcos executed 3 Trust Receipt Whether it was Pagsaligan who caused such fictitious loan agreement, it will
Agreements totaling 851k. He deposited 30% of the amount of Trust not excuse the bank from its obligation to return the correct amount to
Agreement as marginal deposit. He believed that the remaining 70% would Marcos. As stated before, a bank is liable for the wrongful acts of its officers
be credited from his time deposit and accumulated interest. done in the interest of the bank or in their dealings as bank representatives
but not for acts outside the scope of their authority.
However, the bank did not offset his time deposit due to an alleged
promissory note amount to 500k. The Bank demanded for the balance of the BANK OF THE PHILIPPINE ISLANDS v CASA MONTESSORI
Trust Agreement from him. Due to failure to pay, several penalties and INTERNATIONALE, 430 SCRA 261 (2004)
interest accumulated against Marcos. Marcos now files a complaint against
the Bank. DOCTRINE: Since the banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence of the public in
In their defense, the bank argues that the complaint was only an attempt to general, the highest degree of diligence is expected and high standards of
avoid liability under several trust receipt agreements that were subject of a integrity and performance are even required of it.
criminal complaint. FACTS
CASA Montessori International (CASA for brevity) opened a current account
The RTC ruled in favor of Marcos. The CA modified the decision only by with defendant BPI, with CASA’s President Ms. Ma. Carina C. Lebron as one
reducing the damages. of its authorized signatories.

ISSUE In 1991, after conducting an investigation, plaintiff discovered that nine (9)
Whether the Bank is liable for damages of its checks had been encashed by a certain Sonny D. Santos since 1990 in
the total amount of P782,000.00
RULING
YES, the bank is liable. It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt Branch
[was] a fictitious name used by third party defendant Leonardo T. Yabut
The bank is liable on the ground of offsetting Marcos’s time deposit with a who worked as external auditor of CASA. Third party defendant voluntarily
fictitious promissory note. The Bank failed to present the original copy of the admitted that he forged the signature of Ms. Lebron and encashed the
note. They only presented machine copies of the duplicate. But these copies checks. "The PNP Crime Laboratory conducted an examination of the nine
have no evidentiary value, contradicting the Best Evidence Rule. (9) checks and concluded that the handwritings thereon compared to the
standard signature of Ms. Lebron were not written by the latter
Sec 2 of the General Banking law of 2000 expressly imposes the fiduciary
duty of on banks. The fiduciary nature of banking requires high standards of On March 4, 1991, respondent filed the herein Complaint for Collection with
integrity and performance. Although the GBL only took effect in 2000, Damages against defendant bank praying that the latter be ordered to
jurisprudence has already imposed the same high standard of diligence from reinstate the amount of P782,500.007 in the current and savings accounts of
banks at the time the Bank transacted with Marcos. This fiduciary the plaintiff with interest at 6% per annum.
relationship means that the bank’s obligation to observe high standards of
integrity is deemed written into every deposit agreement between a bank CA apportioned the loss between BPI and CASA. The appellate court took
and its depositor. into account CASA’s contributory negligence that resulted in the undetected
forgery. It then ordered Leonardo T. Yabut to reimburse BPI half the total
The business of banking is imbued with public interest. The stability of amount claimed; and CASA, the other half. It also disallowed attorney’s fees
banks largely depends on the confidence of the people in the honesty and and moral and exemplary damages.
efficiency of banks. As its depositor, Marcos had the right to expect the bank
was accurately recording his transactions. He also had a right to withdraw ISSUE
the amount in his time deposit upon maturity. Due to the bank’s failure to Were any of the parties negligent and therefore precluded from setting up
forgery as a defense? Whether BPI is liable?

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 10
RULING with IBAA (later merged with PCI) and cleared by CB – proceeds
BPI is solely liable. (skipped the Negotiable Instruments part- it was never reached CIR – Ford forced to make 2nd payment to CIR which
established that there was indeed a forgery) xxx Having established the was received – check was a crossed check for ‘payee’s account only’
forgery of the drawer’s signature, BPI -- the drawee -- erred in making – Ford wrote separate demand letters to the banks - both banks
payments by virtue thereof. The forged signatures are wholly inoperative, refused to pay – NBI discovered that Godofredo Rivera, General
and CASA -- the drawer whose authorized signatures do not appear on the Ledger Accountant of Ford recalled the check, supposedly because
negotiable instruments -- cannot be held liable thereon. Neither is the latter there was a computation error – Rivera instructed PCI Bank to
precluded from setting up forgery as a real defense. replace the check with 2 manager’s checks – syndicate members
deposited MCs with Pacific Banking Corp. – Rivera could not be
We have repeatedly emphasized that, since the banking business is found, “fugitive from justice” –
impressed with public interest, of paramount importance thereto is - TC: Both banks liable, IBAA (PCI) should reimburse Citi – CA:
the trust and confidence of the public in general. Consequently, the only IBAA (PCI) liable
highest degree of diligence is expected, and high standards of
integrity and performance are even required, of it. By the nature of - Action #2: Ford drew Citibank checks in 1978 (P5.851m) and
its functions, a bank is "under obligation to treat the accounts of its 1979 (P6.311m) payable to CIR for percentage taxes – both crossed
depositors with meticulous care, always having in mind the fiduciary checks - never reached CIR – though receipts were issued,
nature of their relationship.” considered by BIR as “fake and spurious” – Ford paid BIR again –
Godofredo Rivera (the legend returns) as Ledger Accountant
BPI contends that it has a signature verification procedure, in which checks prepared the check - delivered it to Remberto Castro, pro-manager
are honored only when the signatures therein are verified to be the same of PCIB San Andres – Castro and Dulay, an assistant manager of the
with or similar to the specimen signatures on the signature cards. Meralco Branch of PCI, opened a account in the name of a fictitious
Nonetheless, it still failed to detect the eight instances of forgery. Its “Reynaldo Reyes” – deposited a worthless Bank of America check in
negligence consisted in the omission of that degree of diligence required78 of the same amount as the Ford check – replaced the worthless check
a bank. It cannot now feign ignorance, for very early on we have already with the Ford check for clearing – Reynaldo Reyes account was
ruled that a bank is "bound to know the signatures of its customers; credited with amount – same procedure with 2nd check – Castro
and if it pays a forged check, it must be considered as making the then distributed checks drawn from Reynaldo Reyes account to
payment out of its own funds, and cannot ordinarily charge the other conspirators – RTC held Citibank liable, absolved PCI – CA:
amount so paid to the account of the depositor whose name was affirmed
forged."79 In fact, BPI was the same bank involved when we issued this
ruling seventy years ago. ISSUE
Were the banks negligent?
2. In Selection and Supervision of Employees
RULING
PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK v CA, 350 YES. The direct perpetrators are fugitives – present parties must bear the
SCRA 446 (2001) burden of loss – although employees of Ford initiated the transactions, their
actions are not the proximate cause of encashing the checks – BoD of ford
DOCTRINE: Banks are expected to exercise the highest degree of diligence did not confirm Rivera’s recall of the check – PCI neglected to verify
in the selection and supervision of their employees. By the very nature of authority of Rivera – crossed check is a warning that it should be deposited
their work, the degree of responsibility, care and trustworthiness expected only in CIR’s account – PCI liable for 4.7m check – although no conscious
of their employees and officials is far greater than those of ordinary clerks participation, PCI is responsible frauds perpetrated by its officers – Citibank
and employees. should have scrutinized the checks: no clearing stamps, no initials – both
banks negligent in selection and supervision of their employees for 2nd and
FACTS 3rd check – equally liable for the loss – by very nature of banking business,
Ford Philippines instituted actions against Citibank (drawee bank) and PCI degree of responsibility, care and trustworthiness of bank employees is far
Bank (collecting bank) – greater than those of ordinary clerks and employees – banks are expected
- Action #1: Ford drew and issued a Citibank check for P4.7m in to exercise the highest degree of diligence in the selection and supervision
1977 in favor of the CIR for manufacturer’s sales tax – deposited of employees.

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3. To be Mortgagees in Good Faith
“Banks, indeed, should exercise more care and prudence in dealing
CRUZ v BANCOM FINANCE CORPORATION, 379 SCRA 490 (2002) even with registered lands, than private individuals, for their
business is one affected with public interest, keeping in trust money
DOCTRINE: Mortgagee-banks, unlike private individuals, are expected to belonging to their depositors, which they should guard against loss
exercise greater care and prudence in their dealings, including those by not committing any act of negligence which amounts to lack of
involving registered lands. A banking institution is expected to exercise due good faith by which they would be denied the protective mantle of
diligence before entering into a mortgage contract. The ascertainment of the the land registration statute, Act [No.] 496, extended only to
status or condition of a property offered to it as security for a loan must be purchasers for value and in good faith, as well as to mortgagees of
a standard and indispensable part of its operations. the same character and description.” (Citations omitted)

FACTS Recently, in Adriano v. Pangilinan, we said that the due diligence required of
Edilberto Cruz and Simplicio Cruz offered to sell their parcel of land to banks extended even to persons regularly engaged in the business of
Norma Sulit. In order to facilitate the sale, the Cruz’s executed a deed of lending money secured by real estate mortgages.
sale in favor of Candelaria Sanchez, but no consideration was paid. On the
same day Candelaria Sanchez conveyed the land to Norma Sulit. Unknown The evidence before us indicates that respondent bank was not a mortgagee
to the plaintiffs, Norma managed to obtain a loan from Bancom secured by in good faith. First, at the time the property was mortgaged to it, it failed to
a mortgage over the land now titled in her name. conduct an ocular inspection. Judicial notice is taken of the standard practice
for banks before they approve a loan: to send representatives to the
Norma defaulted on her obligations to the plaintiffs and later on also premises of the land offered as collateral and to investigate the ownership
defaulted on her payments with Bancom. The land was foreclosed and thereof. As correctly observed by the RTC, respondent, before constituting
auctioned, Bancom was the highest bidder. the mortgage over the subject property, should have taken into
consideration the following questions:
Cruz then filed for reconveyance of the land. While Bancom claimed priority “1) Was the price of P150,000.00 for a 33.9 hectare agricultural
right over Cruz, alleging it was a mortgagee in good faith. parcel of land not too cheap even in 1978?

ISSUE “2) Why did Candelaria Sanchez sell the property at the same price
Whether Bancom is a mortgagee in good faith of P150,000.00 to Norma Sulit on the same date, June 21, 1978
when she supposedly acquired it from the plaintiffs?
HELD
NO. As a general rule, every person dealing with registered land may safely “3) Being agricultural land, didn’t it occur to the intervenors that
rely on the correctness of the certificate of title and is no longer required to there would be tenants to be compensated or who might pose as
look behind the certificate in order to determine the actual owner. obstacles to the mortgagee’s exercise of acts of dominion?

Respondent, however, is not an ordinary mortgagee; it is a mortgagee- “4) In an area as big as that property, [why] did they not verify if
bank. As such, unlike private individuals, it is expected to exercise greater there were squatters?
care and prudence in its dealings, including those involving registered lands.
A banking institution is expected to exercise due diligence before entering “5) What benefits or prospects thereof could the ultimate owner
into a mortgage contract. The ascertainment of the status or condition of a expect out of the property?
property offered to it as security for a loan must be a standard and
indispensable part of its operations. “Verily, the foregoing circumstances should have been looked into,
for if either or both companies did, they could have discovered that
In Rural Bank of Compostela v. CA, we held that a bank that failed to possession of the land was neither with Candelaria nor with
observe due diligence was not a mortgagee in good faith. In the words of Norma.”[43]
the ponencia:
“x x x [T]he rule that persons dealing with registered lands can rely Respondent was clearly wanting in the observance of the necessary
solely on the certificate of title does not apply to banks. precautions to ascertain the flaws in the title of Sulit and to examine the

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
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condition of the property she sought to mortgage.[44] It should not have ISSUE
simply relied on the face of the Certificate of Title to the property, as its Whether there was Breach of contract in this case
ancillary function of investing funds required a greater degree of
diligence.[45] Considering the substantial loan involved at the time, it RULING
should have exercised more caution. NO. In this case, the parties agreed on a P3 million credit line. This sum
was completely released to petitioners who subsequently applied10 for an
OMENGAN v PHILIPPINE NATIONAL BANK, 512 SCRA 305 (2007) increase in their credit line. This was conditionally approved by PNBís credit
committee. For all intents and purposes, petitioners sought an additional
DOCTRINE: A mortgagee can rely on what appears on the certificate of title loan.
presented by the mortgagor and an innocent mortgagee is not expected to
conduct an exhaustive investigation on the history of the mortgagor’s title. The condition attached to the increase in credit line requiring petitioners to
This rule is strictly applied to banking institutions. acquire the conformity of Edgarís sisters was never acknowledged and
accepted by petitioners. Thus, as to the additional loan, no meeting of the
Banks should exercise more care and prudence in dealing even with minds actually occurred and no breach of contract could be attributed to
registered lands, than private individuals, as their business is one affected PNB. There was no perfected contract over the increase in credit line.
with public interest. Thus, the rule that persons dealing with registered
lands can rely solely on the certificate of title does NOT apply to banks. The business of a bank is one affected with public interest, for which reason
the bank should guard against loss due to negligence or bad faith. In
approving the loan of an applicant, the bank concerns itself with proper
FACTS information regarding its debtors. Any investigation previously conducted on
The PNB approved the Omengan's application for a revolving credit line of the property offered by petitioners as collateral did not preclude PNB from
P3 million. The loan was secured by two residential lots in the name of considering new information on the same property as security for a
Edgar Omengan. The first P2.5 million was released on three separate subsequent loan. The credit and property investigation for the original loan
dates. The release of the final half million was, however, withheld by of P3 million did not oblige PNB to grant and release any additional loan. At
Montalvo because of a letter allegedly sent by Edgarís sisters, praying that the time the original P3 million credit line was approved, the title to the
the last half million not be realeased since: property appeared to pertain exclusively to petitioners. By the time the
application for an increase was considered, however, PNB already had
"the property mortgaged, while in the name of Edgar Omengan, is reason to suspect petitionersí claim of exclusive ownership.
owned in co-ownership by all the children of the late Roberto and
Elnora Omengan. The lawyer who drafted the document registering Banks, indeed, should exercise more care and prudence in dealing even with
the subject property under Edgarís name can attest to this fact. We registered lands, than private individuals, as their business is one affected
had a prior understanding with Edgar in allowing him to make use of with public interest. Thus, this Court clarified that the rule that persons
the property as collateral, but he refuses to comply with such dealing with registered lands can rely solely on the certificate of title does
arrangement. Hence, this letter." not apply to banks.

Nevertheless, the half million was released. 4. In the custody of documents; Integrity of Records, Security
of Premises
Subsequently, the Omengans applied for an increase in credit line from 3 to
5 mil. This was approved subject to the condition that Edgarís sisters gave HEIRS OF EDUARDO MANLAPAT v CA, 459 SCRA412 (2005)
their conformity. But petitioners failed to secure the consent of Edgarís
sisters; hence, PNB put on hold the release of the additional P2 million. Still, DOCTRINE: A mortgagee-bank has no right to deliver to any stranger any
Edgar Omengan demanded the release of the P2 million. He claimed that property entrusted to it other than those contractually and legally entitled to
the condition for its release was not part of his credit line agreement with its possession. The act of a bank of allowing complete strangers to take
PNB because it was added without his consent. PNB denied his request. possession of the owner’s duplicate certificate even if the purpose is merely
for photocopying constitutes manifest negligence which would hold it liable
Thus the present complaint for breach of contract and damages. for damages under Article 1170 and other relevant provisions of the Civil
Code.

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FACTS
Lot 2204 was originally in possession of Jose Alvarez (Eduardo’s The issuance of the two TCT was valid. The Cruz’s heirs presented to the RD
grandfather). Eduardo Manalapat, Alvarez’s successor-in-interest, sold a the original owners duplicate of the OCT. aside from that, they presented
portion of it to Ricardo Cruz executing a Kasulatan and Sinumpaang the Kasulatan and Sinumpaang Salaysay where Manalapat acknowledge the
Salaysay to document it. In 1976, the lot became registered only under the sale in favor of Cruz. The manner of obtaining the OCT did not invalidate the
name of Eduardo Manalapat pursuant to a free patent. The sale of TCT.
Manalapat and Cruz was forgotten, as Cruz did not even know an OCT was
already issued to Manalapat. The bank is liable for damages. A mortgagee-bank has no right to deliver to
any stranger any property entrusted to it other than to those contractually
Leon Banaag, as atty-in-fact of Eduardo, executed a mortgage with Rural and legally entitled to its possession. Though they rightfully acknowledged
Bank of San Pascual for 100k with Lot 2204 as collateral. Banaag deposited the ownership of Cruz’s heirs, the bank lent the original OCT w/o prior
the owner’s duplicate OCT with the bank. investigation and did not even notified Manalapat’s heirs of the transaction.
The bank should not have lent the certificate even only for the purpose of
However, when the Cruz’s heirs learned of such sale, they wanted to secure photocopying it. Such act constitutes manifest negligence on the part of the
the OCT for presentation to the Register of Deeds and for issuance of a bank, which would necessarily hold it liable for damages under Art 1170 and
separate OCT. They urged to obtain the OCT from Manalapat’s heirs but other relevant provisions of the Civil Code. Thus, the bank is liable for 50k
were denied. Then, they went to the Rural Bank to photocopy the owner’s as nominal damages to Manalapat’s heirs.
duplicate OCT deposited with the bank. The Rural bank’s Manager, Jose
Salazar, allowed them to borrow the OCT for photocopying. Ultimately, the
heirs secured a TCT for a portion of the Lot. iii. Applicability to Commercial Transactions Outside of Core
Banking Functions
When Banaag went to the Rural bank to tender payment of the mortgage,
he learned of the actions of the Cruz’s heirs that led to the subdivision of the REYES v CA, 363 SCRA 51 (2001)
lot and the issuance of two separate titles.
DOCTRINE: The same higher degree of diligence is NOT expected to be
3 cases were filed with the trial court, all involving the issuance of the TCT. exerted by banks in commercial transactions that do not involve their
RTC ruled in favor of Manalapat. CA reversed and ruled in favor of Cruz and fiduciary relationship with their depositors.
Rural Bank.
FACTS
ISSUE In view of the 20th Asian Racing Conference then scheduled to be held in
1. Whether the cancellation of the OCT and the splitting into two September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc.
separate titles may be accorded legal recognition. (PRCI, for brevity) sent four (4) delegates to the said conference. Petitioner
2. Whether the bank is liable for letting the mortgaged document be Gregorio H. Reyes, as vice-president for finance, racing manager, treasurer,
borrowed by 3rd persons. and director of PRCI, sent Godofredo Reyes, the club's chief cashier, to the
respondent bank to apply for a foreign exchange demand draft in Australian
RULING dollars.
YES, the two separate titles are valid.
Godofredo went to respondent bank's Buendia Branch in Makati City to
The heirs of Cruz have sufficiently proven their claim of ownership over a apply for a demand draft in the amount One Thousand Six Hundred Ten
portion of Lot 2204. The fact that the Oct was not registered with their Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian
name is immaterial. Registration is not a requirement for validity of contract Racing Conference Secretariat of Sydney, Australia.
between parties. The principal purpose of registration is merely to notify
other persons that a transaction involving the property has been entered Godofredo asked if there could be a way for respondent bank to
into. The issuance of the OCT in favor of Manalapat does not disregard the accommodate PRCI's urgent need to remit Australian dollars to Sydney.
fact that the Cruz owned a portion of the land. The principle of Yasis of respondent bank then informed Godofredo of a roundabout way of
indefeasibility of a Torrens title does not apply where fraud attended the effecting the requested remittance to Sydney thus: the respondent bank
issuance of the title. would draw a demand draft against Westpac Bank in Sydney, Australia

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(Westpac-Sydney for brevity) and have the latter reimburse itself from the In Philippine Bank of Commerce v. Court of Appeals15 upholding a
U.S. dollar account of the respondent in Westpac Bank in New York, U.S.A. long standing doctrine, we ruled that the degree of diligence
(Westpac-New York for brevity). This arrangement has been customarily required of banks, is more than that of a good father of a
resorted to since the 1960's and the procedure has proven to be problem- family where the fiduciary nature of their relationship with their
free. PRCI and the petitioner Gregorio H. Reyes, acting through Godofredo, depositors is concerned. In other words banks are duty bound to
agreed to this arrangement or approach in order to effect the urgent treat the deposit accounts of their depositors with the highest
transfer of Australian dollars payable to the Secretariat of the 20th Asian degree of care. But the said ruling applies only to cases where banks
Racing Conference. act under their fiduciary capacity, that is, as depositary of the
deposits of their depositors. But the same higher degree of diligence
Petitioners later went to Austraila to attend the said racing conference. is not expected to be exerted by banks in commercial transactions
Geofredo, together with other delegates, went to the Hotel Regent Sydney that do not involve their fiduciary relationship with their depositors.
to register only to find out that their demand draft was dishonored. Shortly
after, his wife followed and met the same fate. They were greatly iv. Applicability to Government Financial Institutions
inconvenienced and embarassed of the incident. Although things eventually
went well, damage was already done. GSIS v SANTIAGO, 414 SCRA 563 (2003)
Due diligence required of banks extend even to persons, or institutions
As soon as the demand draft was dishonored, the respondent bank, thinking regularly engaged in the business of lending money secured by real estate
that the problem was with the reimbursement and without any idea that it mortgages, such as government financial institutions. These are likewise
was due to miscommunication, re-confirmed the authority of Westpac-New expected to exercise greater care and prudence in its dealings, including
York to debit its dollar account for the purpose of reimbursing Westpac- those involving registered land.
Sydney.Respondent bank also sent two (2) more cable messages to
Westpac-New York inquiring why the demand draft was not honored. v. Applicability to those Engaged in Lending Money Secured
by Real Estate Mortgages
It was later found out that the source of the problem was Westpac-Sydney’s
decoding error. (“7” was encoded as “1” in the SWIFT message) ADRIANO v PANGILINAN, 373 SCRA 544 (2002)
While it is true that a person dealing with registered lands need not go
They sued the respondent bank for damages for the said incident. beyond the certificate of title, it is likewise a well-settled rule that a
purchaser or mortgagee cannot close his eyes to facts which should put a
ISSUE reasonable man on his guard, and then claim that he acted in good faith
Whether the respondent bank is liable for damages under the belief that there was no defect in the title of the vendor or
mortgagor.
RULING
NO. There is no basis to hold the respondent bank liable for damages for vi. Liability for Negligence
the reason that it exerted every effort for the subject foreign exchange 1. Applicable Rules on Determination of Negligence
demand draft to be honored. It was in fact due to erroneous decoding on
the part of Westpac-Sydney of the Bank's SWIFT message which led to the PHILIPPINE BANK OF COMMERCE v CA, 269 SCRA 695 (1997)
problem.
DOCTRINE: Negligence is the omission to do something which a reasonable
Also, The peitioners were briefed by a representative of the respondent bank man, guided by those considerations which ordinarily regulate the conduct
regarding the porcedure thus they are estopped from the denying the said of human affairs, would do, or the doing of something which a prudent and
procedure. reasonable man would do. The seventy-eight (78)-year-old, yet still
relevant, case of Picart v. Smith, provides the test by which to determine
The petitioners contend that due to the fiduciary nature of the relationship the existence of negligence in a particular case which may be stated as
between the respondent bank and its clients, the respondent should have follows: Did the defendant in doing the alleged negligent act use that
exercised a higher degree of diligence than that expected of an ordinary reasonable care and caution which an ordinarily prudent person
prudent person in the handling of its affairs as in the case at bar. would have used in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard supposed to be

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 15
supplied by the imaginary conduct of the discreet paterfamilias of the the Solidbank passbook.
Roman law. The existence of negligence in a given case is not determined
by reference to the personal judgment of the actor in the situation before At the bank, Calapre gave the passbook to the teller and went out to do
him. The law considers what would be reckless, blameworthy, or negligent another errand. When Calapre returned and asked for the passbook, the
in the man of ordinary intelligence and prudence and determines liability by teller told (redundant teller-told) him that somebody got the passbook.
that. Calapre reported the incident to Macaraya.

FACTS Later on, it was discovered that an unauthorized withdrawal of P300,000.00


RMC had account in P; RMC gave funds to secretary to deposit in P!instead was made using the lost passbook. LC Diaz demanded from Solidbank the
of doing so, secretary deposited funds in name of her husband!modus return of the money. Solidbank solidly refused prompting LC Diaz to file a
operandi: wrote the name of husband and his account number on original recovery suit. RTC absolved Solidbank based on the rules on savings
deposit slip, then, on duplicate slip, left name blank but filled in husband’s account which gives presumption that the holder of the passbook is the
account number!when teller asked why, she said it was because the 2nd slip owner. CA held Solidbank liable based on negligence and culpa aquiliana.
would only be for personal records! when teller approved slip, she’d fill in
RMC under the name then change the account number!R filed action for ISSUE
recovery against P. Whether Solidbank is liable for the loss

ISSUE HELD
YES. The contract between the bank and its depositor is governed by the
RULING provisions of the Civil Code on simple loan.[17] Article 1980 of the Civil
1. Negligence = omission to do something that a reasonable man would do! Code expressly provides that “x x x savings x x x deposits of money in
here, teller negligent in stamping slips w/o asking for name to be put on the banks and similar institutions shall be governed by the provisions
duplicate!bank also negligent in not exercising proper supervision over the concerning simple loan.” There is a debtor-creditor relationship between
teller (since they didn’t know until they conducted an investigation that the the bank and its depositor. The bank is the debtor and the depositor is the
teller was doing that) creditor. The depositor lends the bank money and the bank agrees to pay
2. The negligence of the bank was the proximate cause!since even if the the depositor on demand. The savings deposit agreement between the
secretary filled out the slip wrong, she would never have gotten away with it bank and the depositor is the contract that determines the rights and
had the slips not been approved by the teller obligations of the parties.
3. Bank also liable under “last clear chance”
4. But, since RMC contributorily negligent, damages reduced The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (“RA 8791”),[18] which took
CONSOLIDATED BANK AND TRUST CORPORATION v CA, 410 SCRA effect on 13 June 2000, declares that the State recognizes the “fiduciary
562 (2003) nature of banking that requires high standards of integrity and
performance.”[19] This new provision in the general banking law,
DOCTRINE: In culpa contractual (negligence), once the plaintiff proves a introduced in 2000, is a statutory affirmation of Supreme Court decisions,
breach of contract, there is a presumption that the defendant was at fault or starting with the 1990 case of Simex International v. Court of Appeals,[20]
negligent. The Doctrine of Last Clear Chance is inapplicable in culpa holding that “the bank is under obligation to treat the accounts of its
contractual because neither the contributory negligence of one party (bank) depositors with meticulous care, always having in mind the fiduciary nature
nor its last chance to avoid the loss would exonerate the other party of their relationship.”[21]
(depositor) from liability. Such contributory negligence or last chance
merely serves to reduce the recovery of damages by the plaintiff but does This fiduciary relationship means that the bank’s obligation to observe “high
NOT exculpate the depositor from his breach of contract. standards of integrity and performance” is deemed written into every
deposit agreement between a bank and its depositor. The fiduciary nature of
FACTS banking requires banks to assume a degree of diligence higher than that of
LC Diaz, an accounting firm, through its cashier Macaraya, filled up a a good father of a family. Article 1172 of the Civil Code states that the
deposit slip and a savings deposit slip. Macaraya instructed the messenger, degree of diligence required of an obligor is that prescribed by law or
Calapre to deposit the money with Solidbank. Macaraya also gave Calapre contract, and absent such stipulation then the diligence of a good father of a

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 16
family.[22] Section 2 of RA 8791 prescribes the statutory diligence required Upon inquiry, the Bank of America acknowledged that it was due to an error
from banks – that banks must observe “high standards of integrity and and that for some reason, the check had been encoded with the wrong
performance” in servicing their depositors. Although RA 8791 took effect account number.
almost nine years after the unauthorized withdrawal of the P300,000 from
L.C. Diaz’s savings account, jurisprudence[23] at the time of the withdrawal Months after, Araneta issued 2 checks for $500 and $150 payable to cash
already imposed on banks the same high standard of diligence required and drawn against Bank of America. When these checks were presented for
under RA No. 8791. payment, they were again dishonored due to a closed account.

However, the fiduciary nature of a bank-depositor relationship does not The check of $500 was actually paid by the Bank of America to First National
convert the contract between the bank and its depositors from a simple loan City Bank. However, Bank of America claimed that such had been
to a trust agreement, whether express or implied. Failure by the bank to inadvertently made and returned the check to First National City Bank, with
pay the depositor is failure to pay a simple loan, and not a breach of the request that the amount be credited to Bank of America. In turn, First
trust.[24] The law simply imposes on the bank a higher standard of integrity National City Bank informed the depositor (Saldana) about the check’s
and performance in complying with its obligations under the contract of return. However, before Saldana even replied, Bank of America recalled the
simple loan, beyond those required of non-bank debtors under a similar check and honored it.
contract of simple loan.
Because of these incidents, Araneta, through counsel, sent a letter to the
The fiduciary nature of banking does not convert a simple loan into a trust Bank of America demanding damages in the sum of $20,000. Although it
agreement because banks do not accept deposits to enrich depositors but to admitted its responsibility for the inconvenience, the bank claimed that the
earn money for themselves. The law allows banks to offer the lowest damages sought were excessive and instead offered to ay $2,000.
possible interest rate to depositors while charging the highest possible
interest rate on their own borrowers. The interest spread or differential Thus, in 1962, Araneta filed a complaint against the Bank of America for the
belongs to the bank and not to the depositors who are not cestui que trust recovery of (1) actual damages, (2) moral damages, (3) temperate
of banks. If depositors are cestui que trust of banks, then the interest damages, (4) exemplary damages, and (5) attorney’s fees for an aggregate
spread or income belongs to the depositors, a situation that Congress total of $120,000.
certainly did not intend in enacting Section 2 of RA 8791.
The trial court awarded all the damages prayed for, but the Court of Appeals
2. Award of Actual, Moral, Compensatory or Temperate eliminated the award of compensatory and temperate damages, and
Damages reduced the amount of moral damages, exemplary damages, and attorney’s
fees.
ARANETA v BANK OF AMERICA, 40 SCRA 144 (1970)
ISSUE
DOCTRINE: The financial credit of a businessman is a prized and valuable Whether temperate and moral damages should be awarded to Araneta
asset, it being a significant part of the foundation of his business. Any
adverse reflection thereon constitutes some material loss to him. In the US, RULING
temperate damages are allowed. There were cases where from the nature of TEMPERATE DAMAGES: YES. The financial credit of a businessman is a
the case, definite proof of pecuniary loss cannot be offered, although the prized and valuable asset, it being a significant part of the foundation of his
court is convinced that there has been such loss. business. Any adverse reflection thereon constitutes some material loss to
him. The incidents obviously affected the credit of Araneta with Saldana and
FACTS with any other person who would come to know about the refusal of the
Leopoldo Araneta, a local merchant, issued a check for $500 payable to cash defendant to honor said checks.
and drawn against Bank of America (San Francisco branch). At that time, he
had a credit balance of $523.81 in his account. Unfortunately, when it was It cannot hardly be possible that a customer’s check can be wrongfully
received by the bank a day after, it was dishonored due to a closed account. refused payment without some impeachment of his credit, which must in
fact be an actual injury x x x.

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 17
In the US, temperate damages are allowed. There were cases where from
the nature of the case, definite proof of pecuniary loss cannot be offered, RTC dismissed the complaint. However, CA reversed the decision, making
although the court is convinced that there has been such loss. For instance, Prudential Bank liable for damages.
injury to one’s commercial credit or to the goodwill of the business firm is
often hard to show with certainty in terms of money. ISSUE
Whether Prudential bank is liable for damages
MORAL DAMAGES: YES. Under Art. 2217 of the Civil Code, “besmirched
reputation” is a ground upon which moral damages can be claimed, but the RULING
Court of Appeals did take this element into consideration. Quoting from its YES, the bank is liable.
decision, “ x x x the damages to his reputation as an established and well-
known international trader entitled him to recover moral damages x x x his It is the bank’s fault for misposting the initial check to another account and
wounded feelings and the mental anguish suffered by him cause his blood delayed the posting of the same to the Leticia’s account. Although the
pressure to rise beyond normal limits, x x x” mistake was not attended with malice and bad faith, there is still clear proof
of lack of supervision or due care and caution expected of a bank.
PRUDENTIAL BANK v CA, 328 SCRA 264 (2000)
The relationship between a bank and depositor is fiduciary in nature. The
DOCTRINE: The bank’s negligence was the result of a lack of due care and extent of diligence expected from the bank is with utmost fidelity. As a
caution required of managers and employees of a firm engaged in so business affected with public interest and due to its nature, a bank is under
sensitive and demanding business as banking. While the bank’s negligence obligation to treat the account of its depositors with meticulous care. It does
may not have been attended with malice and bad faith, nevertheless, it not matter whether the account consists of only a few hundred pesos or of
caused serious anxiety, embarrassment, and humiliation. Hence, the millions of pesos.
offended party is entitled to recover reasonable moral damages.
In this case, even if there was no malice, the fact still remain that Leticia
The law allows the grant of exemplary damages by way of example for the experienced serious anxiety, embarrassment and humiliation. Thus, she is
public good. The public relies on the banks’ sworn profession of diligence entitled to recover damages; 100k for moral, 20k for exemplary 30k for
and meticulousness in giving irreproachable service. This meticulousness atty’s fees.
must be maintained at all times by the banking sector.

FACTS CITYTRUST BANKING CORPORATION v VILLANUEVA, 361 SCRA 446


Leticia Tupasi-Valenzula opened a Savings Account and Current Account (2001)
with Prudential Bank. Initially, she deposited a check amounting to 35k on
June 1, 1988. DOCTRINE: Moral damages include physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral
As payment for purchasing jewelry, Leticia issued a check amounting to shock, social humiliation, and similar injury. Although incapable of pecuniary
11.5k in favor of Belen Legaspi. Belen then endorsed the check to Philip computation, moral damages may be recovered if they are the proximate
Lhuillier. When Philip deposited the check in his account, the check was result of the defendant’s wrongful act or omission.
dishonored due to insufficient funds. Leticia was surprised to learn of the
dishonor of the check. She inquired with Prudential Bank, showing her Requisites for the award of moral damages:
passbook indicating she had sufficient funds. However, Albert Angeles Reyes 1. There must be an injury, whether physical, mental, or psychological,
(OIC of her account) ignored the passbook, stating that the bank ledger was clearly sustained by the claimant
the best proof that she did not have enough funds. 2. There must be a culpable act or omission factually established
3. The wrongful act or omission of the defendant is the proximate
However, it was found out that the 35k check initially deposited by Leticia cause of the injury sustained by the claimant
was credited only on June 24, 1988, or after 23 days. The 11k check was 4. The award of damages is predicated on any of the cases stated in
redeposited and properly cleared only on June 27, 1988. Leticia filed a Art. 2219 of the Civil Code
complaint against Prudential Bank due to the incident for causing
embarrassment and humiliation. Art. 2219: Moral damages may be recovered in the following and

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 18
analogous cases:
After the incident, Respondent demanded that he be paid indemnity for the
1. A criminal offense resulting in physical injuries; alleged losses and damage suffered by him as a result of the repeated
2. Quasi-delicts causing physical injuries; dishonour of his well-funded check. The bank apologized but refused to pay
3. Seduction, abduction, rape, or other lascivious acts; such indemnity, so respondent filed a complaint against the bank claiming
4. Adultery or concubinage; P240,000 actual damages, P2M as moral damages and P500,000 for
5. Illegal or arbitrary detention or arrest; exemplary damages, attorney’s fees, litigation expenses and costs of the
6. Illegal search; suit.
7. Libel, slander or any other form of defamation;
8. Malicious prosecution; RTC did not grant any damages. CA partly reversed and granted a smaller
9. Acts mentioned in Article 309; amount as damages thus this case.
10. Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32,
34, and 35. ISSUE
Whether Villanueva is entitled to damages
The parents of the female seduced, abducted, raped, or abused, referred to
in No. 3 of this article, may also recover moral damages. RULING
NO. The issue whether respondent suffered actual or compensatory
The spouse, descendants, ascendants, and brothers and sisters may bring damages in the form of loss of profits is factual. Bothe CA and the RTC have
the action mentioned in No. 9 of this article, in the order named. ascertained that Villanueva was unable to prove his demand for
compensatory damages arising from loss. His evidence thereon was found
FACTS inadequate, uncorroborated, speculative, hearsay and not the best
Sometime in February, 1984, the respondent opened a savings and a evidence. Basic is the jurisprudential rule principle that in determining actual
current account with the petitioner bank. On May 21, 1986, respondent ran damages, the court cannot rely on mere assertions, speculations,
out of checks so he requested a new checkbook from one of the respondent conjectures or guesswork but must depend on competent proof and on the
bank’s customer service representative. He then filled up a checkbook best obtainable evidence of the actual amount of the loss. Actual damages
requisition slip with the obligatory particulars, except for his current account cannot be presumed but must be duly proved with reasonable certainty.
number which he could not remember. Respondent expressed his
predicament and the representative assured that the bank shall look into It may be true that Villanueva may have suffered some form of
the bank’s account records. Villanueva was thus later on issued a new inconvenience and discomfort as a result of the dishonour of his check.
checkbook. However, the same could not have been so grave or intolerable as he
attempts to portray or impress upon the Court. Furthermore, the alleged
On June 17, 1986, Respondent Villanueva issued a P50,000 check payable embarrassment or inconvenience caused to Villanueva as a result of the
to the order of Kingly Commodities Traders and Multi Resources, Inc. incident was timely and adequately contained, corrected, mitigated, if not
(hereafter Kingly) Respondent had sufficient funds in his account by the entirely eradicated. Villanueva, thus, failed to support his claim for
time the Kingly representative deposited his check. Despite this, the check damages. Also, respondent is not entitled to Attorney’s fees because there
was dishonoured for insufficient funds. Respondent notified the bank was no presence of bad faith.
regarding the matter and the bank representative told him that they will
look into the matter and instructed the former to advise Kingly to redeposit The SC did not see it fit to discuss whose negligence was the proximate
the check. The representative assured Villanueva that the check would be cause of the respondent’s injury because, in the first place, he did not
honoured after the sufficiency of the funds was ascertained. The check was sustain any compensable injury.
then re-deposited but was again dishonoured. Due to this, Villanueva prayed
to Kingly Commodities to give him until 5:30pm that same day to make (RTC, however, touched on this matter. RTC pointed out that Villanueva was
good his check. Respondent went to the bank to personally inquire on the the proximate cause, amongst others, for failure to state his account
matter. It was found out that respondent was issued a check under another number. The bank may have been negligent but its negligence was only
“Isagani Villanueva” with a different middle initial. Upon knowing this fact, contributory.)
the bank branch manager issued a managers check which the respondent
was able to give before the above-said deadline.

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 19
3. Reliance on Judgment of Other Banks accepted or approved by the Commission unless
accompanied by a favorable recommendation of the
METROBANK v CABLIZO, 510 SCRA 259 (2006) appropriate government agency to the effect that such
It owes the highest degree of fidelity to its client and should not therefore articles or amendment is in accordance with law.
lightly rely on the judgment of other banks on occasions where its clients’ (Corporation Code, BP 68)
money were involved, no matter how small or substantial the amount at
stake. Section 46. Adoption of by-laws. - Every corporation formed
under this Code must, within one (1) month after receipt of
4. Recovery Against Erring Employee official notice of the issuance of its certificate of incorporation by
the Securities and Exchange Commission, adopt a code of by-
PACIFIC BANKING CORPORATION v CA, 173 SCRA 102 (1989) laws for its government not inconsistent with this Code. For the
Article 2181 of the Civil Code merely gives the employer the right to adoption of by-laws by the corporation the affirmative vote of the
reimbursement from the employee for what is paid to the offended party. It stockholders representing at least a majority of the outstanding
does NOT make recovery from the employee a mandatory requirement. A capital stock, or of at least a majority of the members in case of
right to relief shall be recognized only when the party concerned asserts it non-stock corporations, shall be necessary. The by-laws shall be
through a proper pleading filed in court. signed by the stockholders or members voting for them and shall
be kept in the principal office of the corporation, subject to the
E. AUTHORITY TO OPERATE inspection of the stockholders or members during office hours. A
a. Incorporation copy thereof, duly certified to by a majority of the directors or
Section 17. Grounds when articles of incorporation or trustees countersigned by the secretary of the corporation, shall
amendment may be rejected or disapproved. - The Securities and be filed with the Securities and Exchange Commission which shall
Exchange Commission may reject the articles of incorporation or be attached to the original articles of incorporation.
disapprove any amendment thereto if the same is not in
compliance with the requirements of this Code: Provided, That Notwithstanding the provisions of the preceding paragraph, by-
the Commission shall give the incorporators a reasonable time laws may be adopted and filed prior to incorporation; in such
within which to correct or modify the objectionable portions of case, such by-laws shall be approved and signed by all the
the articles or amendment. The following are grounds for such incorporators and submitted to the Securities and Exchange
rejection or disapproval: Commission, together with the articles of incorporation.
1. That the articles of incorporation or any amendment
thereto is not substantially in accordance with the form In all cases, by-laws shall be effective only upon the issuance by
prescribed herein; the Securities and Exchange Commission of a certification that
2. That the purpose or purposes of the corporation are the by-laws are not inconsistent with this Code.
patently unconstitutional, illegal, immoral, or contrary to
government rules and regulations; The Securities and Exchange Commission shall not accept
3. That the Treasurer's Affidavit concerning the amount of for filing the by-laws or any amendment thereto of any
capital stock subscribed and/or paid is false; bank, banking institution, building and loan association,
4. That the percentage of ownership of the capital stock to trust company, insurance company, public utility,
be owned by citizens of the Philippines has not been educational institution or other special corporations
complied with as required by existing laws or the governed by special laws, unless accompanied by a
Constitution. certificate of the appropriate government agency to the
effect that such by-laws or amendments are in accordance
No articles of incorporation or amendment to articles of with law. (Corporation Code, BP 68)
incorporation of banks, banking and quasi-banking
institutions, building and loan associations, trust Section 14. The Securities and Exchange Commission shall not
companies and other financial intermediaries, insurance register the articles of incorporation of any bank, or any
companies, public utilities, educational institutions, and amendment thereto, unless accompanied by a certificate of
other corporations governed by special laws shall be authority issued by the Monetary Board, under its seal. Such

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 20
certificate shall not be issued unless the Monetary Board is word or words "bank", "banking", "banker", "quasi-bank",
satisfied from the evidence submitted to it: "quasi- banking", "quasi-banker", "savings and loan
14.1 That all requirements of existing laws and regulations to association", "trust corporation", "trust company" or words of
engage in the business for which the applicant is similar import or transact in any manner the business of any
proposed to be incorporated have been complied with; such bank, corporation or association (Sec. 64, GBL).
14.2. That the public interest and economic conditions, both
general and local, justify the authorization; and iv. Change in Name
14.3. That the amount of capital, the financing, organization,
direction and administration, as well as the integrity and v. Sanctions for Operating Without Authority: Persons or entities
responsibility of the organizers and administrators found to be performing banking or quasi-banking functions
reasonably assure the safety of deposits and the public without authority from the Bangko Sentral shall be subject to
interest. appropriate sanctions under the New Central Bank Act and
other applicable laws (Sec. 6, Par. 5, GBL).
The Securities and Exchange Commission shall not register the
by-laws of any bank, or any amendment thereto, unless Unless otherwise herein provided, the violation of any of the
accompanied by a certificate of authority from the Bangko provisions of this Act shall be subject to Sections 34, 35, 36
Sentral (GBL). and 37 of the New Central Bank Act. If the offender is a
director or officer of a bank, quasi-bank or trust entity, the
b. Operation: Monetary Board may also suspend or remove such director or
i. Authority Required: No person or entity shall engage in banking officer. If the violation is committed by a corporation, such
operations or quasi-banking functions without authority from corporation may be dissolved by quo warranto proceedings
the Bangko Sentral: Provided, however, That an entity instituted by the Solicitor General (Sec. 66, GBL).
authorized by the Bangko Sentral to perform universal or
commercial banking functions shall likewise have the authority REPUBLIC v SECURITY CREDIT AND ACCEPTANCE CORPORATION, 19
to engage in quasi-banking functions (Sec. 6, Par. 1, GBL) SCRA 58 (1967)

ii. MB Determination: The determination of whether a person or DOCTRINE: A corporation, which misused its corporate funds and franchise
entity is performing banking or quasi-banking functions without by engaging in illegal banking, may be dissolved. Its acts were willful, were
Bangko Sentral authority shall be decided by the Monetary repeated 59,643 times and the continuance of its illegal operations causes
Board. To resolve such issue, the Monetary Board may, through public injury owing to the number of persons affected thereby. A writ of quo
the appropriate supervising and examining department of the warranto for its dissolution is proper.
Bangko Sentral, examine, inspect or investigate the books and
records of such person or entity. Upon issuance of this FACTS
authority, such person or entity may commence to engage in This is a quo warranto proceeding, initiated by the Solicitor General, to
banking operations or quasi-banking functions and shall dissolve the Security and Acceptance Corporation for allegedly engaging in
continue to do so unless such authority is sooner surrendered, banking operations without the authority required therefor by the General
revoked, suspended or annulled by the Bangko Sentral in Banking Act (Republic Act No. 337).
accordance with this Act or other special laws (Sec. 6, Par. 2,
GBL) Security Credit and Acceptance Corporation is a duly registered corporation
with the SEC. It’s articles of incorporation authorize it to o engage primarily
iii. Unauthorized Advertisement/Business Representation: No in financing agricultural, commercial and industrial projects, and
person, association, or corporation unless duly authorized to secondarily, in buying and selling stocks and bonds of any corporation.
engage in the business of a bank, quasi-bank, trust entity, or
savings and loan association as defined in this Act, or other The Superintend of Banks of the Central Bank of the Philippines thru its legal
banking laws, shall advertise or hold itself out as being counsel rendered an opinion that Security Credit and Acceptance
engaged in the business of such bank, quasi-bank, trust entity, Corporation is a banking institution within the purview of Republic Act No.
or association, or use in connection with its business title, the 337. Central Bank advised the corporation to comply with the requirements

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 21
of the General Banking Act. 348] founded to facilitate the borrowing, lending and safe-keeping
of money (Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243,
Notwithstanding, the corporation, as well as the members of its Board of 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of
Directors and the officers of the corporation, continued performing the exchange, and credits (State vs. Cornings Sav. Bank, 115 N.W. 937,
functions and activities which had been declared to constitute illegal banking 139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46).
operations; the corporation established 74 branches in principal cities and
towns throughout the Philippines; that through a systematic and vigorous Moreover, it has been held that:
campaign undertaken by the corporation, the same had managed to induce An investment company which loans out the money of its customers,
the public to open 59,463 savings deposit accounts. collects the interest and charges a commission to both lender and borrower,
is a bank. (Western Investment Banking Co. vs. Murray, 56 P. 728, 730,
ISSUE 731; 6 Ariz 215.)
Whether the corporation is engaged in banking ... any person engaged in the business carried on by banks of
deposit, of discount, or of circulation is doing a banking business,
RULING although but one of these functions is exercised. (MacLaren vs.
YES. It is clear that these transactions partake of the nature of banking, as State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas.
the term is used in Section 2 of the General Banking Act. Indeed, a bank 826; 9 C.J.S. 30.)
has been defined as:
... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, Accordingly, defendant-corporation has violated the law by engaging in
banking without securing the administrative authority required in Republic savings and mortgage bank and/or building and loan association x x x
Act No. 337. without having first complied with the provisions of RA 337.

That the illegal transactions thus undertaken by defendant corporation Judge Cancino issued the warrant applied for there being “good and
warrant its dissolution is apparent from the fact that the foregoing sufficient reasons to believe” that the Organization has under its control the
misuser of the corporate funds and franchise affects the essence of its articles/items subject of the offense complained of. On the same day, the
business, that it is willful and has been repeated 59,463 times, and that Organization commenced an action with the CFI of Manila against the
its continuance inflicts injury upon the public, owing to the number of Municipal Court, the sheriff, the Manila Police Department and the Central
persons affected thereby. Bank to annul the search warrant on the ground that it was issued with
GADLEJ. After due hearing, Judge Morfe (CFI Manila) issued an order in
CENTRAL BANK v MORFE, 20 SCRA 507 (1967) favor of the Organization.

DOCTRINE: The law requiring compliance with certain requirements before Accordingly, the Bank moved for reconsideration but was denied and
anybody can engage in banking obviously seeks to protect the public against commenced the present action.
actual, as well as potential, injury.
ISSUE
FACTS Whether the Organization is a banking institution within the purview of the
First Mutual Savings and Loan Organization (Organization) is a registered Central Bank Act
non-stock corporation, whose main purpose is “to encourage x x x and
implement savings and thrift among its members, and to extend financial RULING
assistance in the form of loans” to them. YES. The records suggested clearly that the transactions objected to by the
Central Bank constitute the general pattern of the business of the
In 1962, the Central Bank Legal Department rendered an opinion finding the Organization. Indeed, the main purpose thereof, according to its By-Laws, is
Organization as a banking institution, falling within the purview of the “to extend financial assistance, in the form of loans, to its members, with
Central Bank Act. Hence, it applied for a search warrant with the Municipal funds deposited by them.
Court of Manila against the Organization, alleging that it was engaged in
illegal banking activities, “by receiving deposits of money for deposit, It is true that such funds are referred to as their “savings” and that the
disbursement, safekeeping or otherwise or transacts the business of a depositors thereof are designated as “members,” but, even a cursory
examination of said documents will readily show that anybody can be a

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depositor and thus be “participating member.” In other words, the pertinent laws and regulations of the Securities and Exchange
Organization is open to the public for deposit accounts, and the funds so Commission (SEC): Provided, That if the IH functions are
raised may be lent by the Organization. performed directly by the UB, such functions shall be undertaken
by a separate and distinct department or other similar unit in the
Moreover, the power to dispose of said funds is placed under the exclusive UB: Provided, further, That a UB cannot perform such functions
authority of the “founding members,” and “participating members” are both directly and indirectly through a subsidiary.
expressly denied the right to vote or be voted for, their privileges and
benefits being limited to those, which the BoT may in its discretion, i. Commercial Banks (KB) Powers
determine from time to time. Thus, the membership of the “participating Sec. 29, GBL: A commercial bank shall have, in addition to
members” is purely nominal in nature. This situation is fraught, precisely, the general powers incident to corporations, all such powers
with the very dangers or evils, which RA 337 seeks to forestall, by exacting as may be necessary to carry on the business of commercial
compliance with the requirements of said Act, before the transactions in banking such as accepting drafts and issuing letters of credit;
question could be undertaken. 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
II. CLASSIFICATION OF BANKS 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
A. Universal Banks (UB): Sec. 3.2 (a), GBL
the Monetary Board may promulgate. These rules may include
(a) Governing Law: General Banking Law
the determination of bonds and other debt securities eligible
for investment, the maturities and aggregate amount of such
(b) Powers
investment.
Sec. 23, GBL: A universal bank shall have the authority to
exercise, in addition to the powers authorized for a commercial
Sec. X101 (b)(2), MRB
bank in Section 29, the powers of an investment house as
In addition to the general powers incident to corporations and
provided in existing laws and the power to invest in non-allied
those provided in other laws, a KB shall have the authority to
enterprises as provided in this Act.
exercise all such powers as may be necessary to carry on the
business of commercial banking, such as accepting drafts and
Sec. X101 (b)(1), MRB and BSP Circular No. 271, Series of
issuing letters of credit; discounting and negotiating
2001
promissory notes, drafts, bills of exchange, and other
A UB shall have the authority to exercise, in addition to the
evidences of debt; accepting or creating demand deposits;
powers and services authorized for a KB as enumerated in Item
receiving other types of deposits and deposit substitutes;
“b(2)” and those provided by other laws, the following:
buying and selling foreign exchange and gold or silver bullion;
acquiring marketable bonds and other debt securities; and
(a) The powers of an investment house (IH) as provided
extending credit, subject to such rules as the Monetary Board
under existing laws;
may promulgate. These rules may include the determination
(b) The power to invest in non-allied enterprises;
of bonds and other debt securities eligible for investment, the
(c) The power to own up to one hundred percent (100%) of
maturities and aggregate amount of such investment.
the equity in a TB, an RB, a financial allied enterprise, or
a non- financial allied enterprise; and
It may also exercise or perform any or all of the following:
(d) In case of publicly-listed UBs, the power to own up to
(a) Invest in the equities of allied enterprises as provided
one hundred percent (100%) of the voting stock of only
in Sections 31 and 32 of R.A. No. 8791;
one (1) other UB or KB.
(b) Purchase, hold and convey real estate as specified
under Sections 51 and 52 of R.A. No. 8791;
A UB may perform the functions of an IH either directly or
(c) Receive in custody funds, documents and valuable
indirectly through a subsidiary IH; in either case, the underwriting
objects;
of equity securities and securities dealing shall be subject to
(d) Act as financial agent and buy and sell, by order of and

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 23
for the account of their customers, shares, evidences of participation in the form of debt or equity financing or
indebtedness and all types of securities; through the extension of financial or technical advice or
(e) Make collections and payments for the account of service;
others and perform such other services for their 9. Undertake or contract for researches, studies and
customers as are not incompatible with banking surveys on such matters as business and economic
business; conditions of various countries, the structure of
(f) Upon prior approval of the Monetary Board, act as financial markets, the institutional arrangements for
managing agent, adviser, consultant or administrator of mobilizing investments;10. Acquire, own, hold, lease or
investment management/ advisory/ consultancy obtain an interest in real and/or personal property as
accounts; may be necessary or appropriate to carry on its
(g) Rent out safety deposit boxes; and objectives and purposes;
(h) Engage in quasi-banking functions. 10. Design pension, profit-sharing and other employee
benefits plans; and
ii. Investment House powers 11. Such other activities or business ventures as are
Sec. 7, Investment Houses Law directly or indirectly related to the dealing in securities
In addition to the powers granted to corporations in general, and other commercial papers, unless otherwise
an Investment House is authorized to do the following: governed or prohibited by special laws, in which case
1. Arrange to distribute on a guaranteed basis securities the special law shall apply.
of other corporations and of the Government or its
instrumentalities; Nothing in this section shall preclude other enterprises not
2. Participate in a syndicate undertaking to purchase and covered by this Decree from engaging in the activities listed
sell, distribute or arrange to distribute on a guaranteed under subsections (3) to (11) of this section, except as may
basis securities of other corporations and of the otherwise be governed by special laws.
Government or its instrumentalities;
3. Arrange to distribute or participate in a syndicate SEC Omnibus Rules and Regulations for Investment
undertaking to purchase and sell on a best-efforts basis Houses and Universal Banks Registered as Underwriter
securities of other corporations and of the Government of Securities
or its instrumentalities; “Investment House” is any enterprise, which primarily
4. Participate as soliciting dealer or selling group member engages, whether regularly or on an isolated basis, in the
in tender offers, block sales, or exchange offering or underwriting of securities of another person or enterprise,
securities; deal in options, rights or warrants relating to including securities of the Government or its instrumentalities.
securities and such other powers which a dealer may
exercise under the Securities Act (Act No. 83, as “Underwriting of Securities” is the act or process of
amended); guaranteeing by an Investment House duly licensed under PD
5. Promote, sponsor, or otherwise assist and implement 129 or a Universal Bank registered as an Underwriter of
ventures, projects and programs that contribute to the Securities with the Commission, the distribution and sale of
economy's development; securities issued by another person or enterprise, including
6. Act as financial consultant, investment adviser, or securities of the Government or its instrumentalities. The
broker; distribution and sale may be on a public or private placement
7. Act as porfolio manager, and/or financial agent, but not basis: Provided, that nothing shall prevent an Investment
as trustee of a trust fund or trust property as provided House or Universal Bank registered as Underwriter of
for in Chapter VII of Republic Act No. 337, as Securities from entering into a contract with another entity to
amended; further distribute securities that it has underwritten.
8. Encourage companies to go public, and initiate and/or
promote, whenever warranted, the formation, merger, 1. Definition/Function of Investment House
consolidation, reorganization, or recapitalization of Sec. 3, Investment Houses Law
productive enterprises, by providing assistance or For the purpose of this Decree, unless the context

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 24
otherwise indicates, the following definition of terms are B. Commercial Banks (KB): Sec. 3.2 (b), GBL
hereby adopted: (a) Governing Law: General Banking Law

(a) "Underwriting" is the act or process of guaranteeing (b) Powers


the distribution and sale of securities of any kind Sec. 101 (b)(2), MRB and BSP Circular No. 271, Series of
issued by another corporation. 2001
In addition to the general powers incident to corporations and
(b) "Securities" are written evidences of ownership, those provided in other laws, a KB shall have the authority to
interest, or participation, in an enterprise, or written exercise all such powers as may be necessary to carry on the
evidences of indebtedness of a person or enterprise. business of commercial banking, such as accepting drafts and
It includes, but is not limited to the instruments issuing letters of credit; discounting and negotiating promissory
enumerated in Section 2 of the Securities Act notes, drafts, bills of exchange, and other evidences of debt;
(Commonwealth Act No. 83, as amended). accepting or creating demand deposits; receiving other types of
deposits and deposit substitutes; buying and selling foreign
Sec. 2 (a), IRR of Investment Houses Law exchange and gold or silver bullion; acquiring marketable bonds
“Investment House” is any enterprise, which primarily and other debt securities; and extending credit, subject to such
engages, whether regularly or on an isolated basis, in rules as the Monetary Board may promulgate. These rules may
the underwriting of securities of another person or include the determination of bonds and other debt securities
enterprise, including securities of the Government or its eligible for investment, the maturities and aggregate amount of
instrumentalities. such investment.

2. Limitations on UB’s exercise of investment house It may also exercise or perform any or all of the following:
powers (a) Invest in the equities of allied enterprises as provided in
Sec. X101 (b)(1), MRB Sections 31 and 32 of R.A. No. 8791;
…in either case, the underwriting of equity securities and (b) Purchase, hold and convey real estate as specified under
securities dealing shall be subject to pertinent laws and Sections 51 and 52 of R.A. No. 8791;
regulations of the Securities and Exchange Commission (c) Receive in custody funds, documents and valuable
(SEC): Provided, That if the IH functions are performed objects;
directly by the UB, such functions shall be undertaken (d) Act as financial agent and buy and sell, by order of and for
by a separate and distinct department or other similar the account of their customers, shares, evidences of
unit in the UB: Provided, further, That a UB cannot indebtedness and all types of securities;
perform such functions both directly and indirectly (e) Make collections and payments for the account of others
through a subsidiary. and perform such other services for their customers as are
not incompatible with banking business;
iii. To invest in equity of non-allied enterprises (f) Upon prior approval of the Monetary Board, act as
Sec. 27, GBL: The equity investment of a universal bank, or managing agent, adviser, consultant or administrator of
of its wholly or majority-owned subsidiaries, in a single non- investment management/ advisory/ consultancy accounts;
allied enterprise shall not exceed thirty-five percent (35%) of (g) Rent out safety deposit boxes; and
the total equity in that enterprise nor shall it exceed thirty-five (h) Engage in quasi-banking functions.
percent (35%) of the voting stock in that enterprise.
i. KB Powers
Sec. 1381, MRB: Only UBs may invest in the equity of an Sec. 29, GBL: A commercial bank shall have, in addition to
enterprise engaged in non-allied or non-related activities. 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

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 25
demand deposits; receiving other types of deposits and bank in another corporation engaged primarily in real estate
deposit substitutes; buying and selling foreign exchange and shall be considered as part of the bank's total investment in
gold or silver bullion; acquiring marketable bonds and other real estate, unless otherwise provided by the Monetary Board.
debt securities; and extending credit, subject to such rules as
the Monetary Board may promulgate. These rules may include Sec. 52, GBL: Notwithstanding the limitations of the
the determination of bonds and other debt securities eligible preceding Section, a bank may acquire, hold or convey real
for investment, the maturities and aggregate amount of such property under the following circumstances:
investment. 52.1. Such as shall be mortgaged to it in good faith by way
of security for debts;
1. Accepting drafts 52.2. Such as shall be conveyed to it in satisfaction of debts
2. Issuing letters of credit (L/Cs) previously contracted in the course of its dealings, or
3. Discounting and negotiating promissory notes (PNs), 52.3. Such as it shall purchase at sales under judgments,
drafts, bills of exchange, and other evidences of debt decrees, mortgages, or trust deeds held by it and such as it
4. Accepting or creating demand deposits shall purchase to secure debts due it.
5. Receiving other types of deposits and deposit substitutes
6. Buying and selling foreign exchange and gold or silver Any real property acquired or held under the circumstances
bullion enumerated in the above paragraph shall be disposed of by
7. Acquiring marketable bonds and other debt securities the bank within a period of five (5) years or as may be
8. Extending credit prescribed by the Monetary Board: Provided, however, That
the bank may, after said period, continue to hold the property
ii. Engage in quasi-banking functions for its own use, subject to the limitations of the preceding
Sec. 6, par. 1, GBL: No person or entity shall engage in Section.
banking operations or quasi-banking functions without
authority from the Bangko Sentral: Provided, however, That v. Other services
an entity authorized by the Bangko Sentral to perform Sec. 53, GBL: In addition to the operations specifically
universal or commercial banking functions shall likewise have authorized in this Act, a bank may perform the following
the authority to engage in quasi-banking functions. services:
53.1. Receive in custody funds, documents and valuable
iii. To invest in equity of allied enterprises objects;
Sec. 31, GBL: A commercial bank may own up to one 53.2. Act as financial agent and buy and sell, by order of
hundred percent (100%) of the equity of a thrift bank or a and for the account of their customers, shares, evidences of
rural bank. Where the equity investment of a commercial bank indebtedness and all types of securities;
is in other financial allied enterprises, including another 53.3. Make collections and payments for the account of
commercial bank, such investment shall remain a minority others and perform such other services for their customers
holding in that enterprise. as are not incompatible with banking business;
53.4 Upon prior approval of the Monetary Board, act as
Sec. 32, GBL: A commercial bank may own up to one managing agent, adviser, consultant or administrator of
hundred percent (100%) of the equity in a non-financial allied investment management/advisory/consultancy accounts;
enterprise. and
53.5. Rent out safety deposit boxes.
iv. To purchase, hold and convey real estate
Sec. 51, GBL: Any bank may acquire real estate as shall be The bank shall perform the services permitted under
necessary for its own use in the conduct of its business: Subsections 53.1, 53.2,53.3 and 53.4 as depositary or as an
Provided, however, That the total investment in such real agent. Accordingly, it shall keep the funds, securities and
estate and improvements thereof including bank equipment, other effects which it receives duly separate from the bank's
shall not exceed fifty percent (50%) of combined capital own assets and liabilities: The Monetary Board may regulate
accounts: Provided, further, That the equity investment of a the operations authorized by this Section in order to ensure

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 26
that such operations do not endanger the interests of the organization, ownership and capital requirements, powers,
depositors and other creditors of the bank. In case a bank or supervision and general conduct of business of Islamic banks shall
quasi-bark notifies the Bangko Sentral or publicly announces be governed by special laws. The provisions of this Act, however,
a bank holiday, or in any manner suspends the payment of insofar as they are not in conflict with the provisions of the Thrift
its deposit liabilities continuously for more than thirty (30) Banks Act, the Rural Banks Act, and the Cooperative Code shall
days, the Monetary Board may summarily and without need likewise apply to thrift banks, rural banks, and cooperative banks,
for prior hearing close such banking institution and place it respectively. However, for purposes of prescribing the minimum
under receivership of the Philippine Deposit Insurance ratio which the net worth of a thrift bank must bear to its total risk
Corporation. assets, the provisions of Section 33 of this Act shall govern.

1. Receive in custody funds, documents and valuable i. Organization, ownership, capital requirements, powers,
objects supervision, and general conduct of business
2. Act as financial agent and buy and sell, by order of and ii. Net worth to risk assets ratio
for the account of customers, shares, evidences of Sec. 71, par. 3: …However, for purposes of prescribing the
indebtedness and all types of securities minimum ratio which the net worth of a thrift bank must bear
3. Make collections and payments for the account of others to its total risk assets, the provisions of Section 33 of this Act
and perform such other services for their customers as shall govern.
are not incompatible with banking business
4. Upon prior MB approval, act as managing agent, Sec. 33, GBL: A bank other than a universal or commercial
adviser, consultant or administrator of investment and bank cannot accept or create demand deposits except upon
management/advisory/consultancy accounts prior approval of, and subject to such conditions and rules as
5. Rent out safety deposit boxes may be prescribed by the Monetary Board.

vi. To issue guarantees iii. Other matters—GBL suppletory application


Sec. 74, General Banking Act: No bank or banking
institution shall enter, directly or indirectly, into any contract (b) Declaration of Policy
of guaranty or suretyship, or shall guarantee the interest or Sec. 2, Thrift Banks Act
principal of any obligation of any person, co-partnership, It is hereby declared the policy of the State to:
association, corporation or other entity. The provisions of this a. Recognize the indispensable role of the private sector, to
section shall, however, not be held to apply to the borrowing encourage private enterprise, and to provide incentives to
of money by any such bank or institution through the needed investments;
rediscounting of its receivables, or otherwise, as may be (b) Promote economic development pursuant to the
permitted by law, nor to the granting or guaranteeing of socioeconomic program of the government, to expand
acceptance credits in the ordinary course of its business. Nor industrial and agricultural growth, to encourage the
shall the provisions of this section apply to the certification of establishment of more private thrift banks in order to
checks or to transactions involving the release of documents meet the needs for capital, personal and investment credit
attached to items received for collection, nor to any other or medium- and long-term loans for Filipino
transaction, which may properly be regarded as common entrepreneurs;
usage and accepted banking practice. (c) Encourage and assist the establishment of thrift bank
system which will promote agriculture and industry and at
C. Thrift Banks (TB): Sec. 3.2 (c), GBL the same time place within easy reach of the people the
(a) Governing Law medium-and long-term credit facilities at reasonable cost;
Sec. 71, par. 1 and 3, GBL: The organization, the ownership and (d) Encourage industry, frugality and the accumulation of
capital requirements, powers, supervision and general conduct of savings among the public, and the members and
business of thrift banks, rural banks and cooperative banks shall stockholders of thrift banks; and
be governed by the provisions of the Thrift Banks Act, the Rural (e) Regulate and supervise the activities of thrift banks in
Banks Act, and the Cooperative Code, respectively. The order to place their operations on a sound, stable and

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 27
efficient basis and to curtail or prevent acts or practices, guidelines as may be established by the Monetary Board;
which are prejudicial to the public interest. (f) Rediscount paper with the Philippine National Bank, the Land
Bank of the Philippines, the Development Bank of the
(c) Definition/Purpose: Sec. 3.2 (c), GBL Philippines, and other government-owned or -controlled
Sec. 3 (a), Thrift Banks Act corporations. Said institutions shall specify the nature of
"Thrift banks" shall include savings and mortgage banks, private paper deemed acceptable for rediscount, as well as
development banks, and stock savings and loans associations rediscounting rate to be charged by any of these
organized under existing laws, and any banking corporation that institutions; and
may be organized for the following purposes: (g) Issue mortgage and chattel mortgage certificates, buy and
(1) Accumulating the savings of depositors and investing sell them for its own account or for the account of others, or
them, together with capital loans secured by bonds, accept and receive them in payment or as amortization of its
mortgages in real estate and insured improvements loan.
thereon, chattel mortgage, bonds and other forms of
security or in loans for personal or household finance, Such mortgage and chattel mortgage certificates shall be
whether secured or unsecured, or in financing for issued exclusively in national currency and exclusively for
homebuilding and home development; in readily the financing of equipment loans, mortgage loans for the
marketable and debt securities; in commercial papers and acquisition of machinery and other fixed installations,
accounts receivables, drafts, bills of exchange, conservation, enlargement or improvement of productive
acceptances or notes arising out of commercial properties and real estate mortgage loans for: (1) the
transactions; and in such other investments and loans construction, acquisition, expansion or improvement of rural
which the Monetary Board may determine as necessary in and urban properties; (2) the refinancing of similar loans
the furtherance of national economic objectives; and mortgages; and (3) such other purposes as may be
(2) Providing short-term working capital, medium- and long- authorized by the Monetary Board.
term financing, to businesses engaged in agriculture,
services, industry and housing; and A thrift bank shall coordinate the amounts and maturities of
(3) Providing diversified financial and allied services for its its certificates with those of its loans, so as to ensure
chosen market and constituencies specially for small and adequate cash receipts for the payment of principal and
medium enterprises and individuals. interest at the time they become due. The bank shall accept
its own certificates at least at the actual price of issue, in
(d) Powers any prepayment of loans which mortgage or chattel
Sec. 10, Thrift Banks Act mortgage debtors may wish to make: Provided, That the
In addition to powers granted it by this Act and existing laws, any date of maturity of the certificates is not later than the date
thrift bank may: on which the payment would otherwise become due, in the
(a) Accept savings and time deposits; absence of the aforesaid prepayment;
(b) Open current or checking accounts: Provided, That the thrift
bank has net assets of at least Twenty million pesos (h) Purchase, hold and convey real estate under the same
(P20,000,000) subject to such guidelines as may be conditions as those governing commercial banks as specified
established by the Monetary Board; and shall be allowed to under Section 25 of Republic Act No. 337;
directly clear its demand deposit operations with the Bangko (i) Engage in quasi-banking and money market operations;
Sentral and the Philippine Clearing House Corporation; (j) Open domestic letters of credit;
(c) Act as correspondent for other financial institutions; (k) Extend credit facilities to private and government
(d) Act as collection agent for government entities, including but employees: Provided, That in the case of a borrower who is
not limited to, the Bureau of Internal Revenue, Social a permanent employee or wage earner, the treasurer,
Security System, and the Bureau of Customs; cashier or paymaster of the office employing him is
(e) Act as official depository of national agencies and of authorized, notwithstanding the provisions of any existing
municipal, city or provincial funds in the municipality, city or law, rules and regulations to the contrary, to make
province where the thrift bank is located, subject to such deductions from his salary, wage or income pursuant to the

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 28
terms of his loan, to remit deductions to the thrift bank With prior approval of the Monetary Board, and subject to
concerned, and collect such reasonable fee for his services; such guidelines as may be established by it, TBs may also
(l) Extend credit against the security of jewelry, precious stones perform the following services:
and articles of similar nature, subject to such rules and (l) Open current or checking accounts;
regulations as the Monetary Board may prescribe; and (m) Engage in trust, quasi-banking functions and money market
(m) Offer other banking services as provided in Section 72 of operations;
Republic Act No. 337 and Republic Act No. 6426, as (n) Act as collection agent for government entities, including but
amended. not limited to, the Bureau of Internal Revenue (BIR), Social
Security System (SSS) and the Bureau of Customs (BOC);
Thrift banks may perform the services under subsections (o) Act as official depository of national agencies and of
(b), (d), (e), (g) and (i) only upon prior approval of the municipal, city or provincial funds in the municipality, city or
Monetary Board. province where the TB is located;
(p) Issue mortgage and chattel mortgage certificates, buy and
Nothing in this Section shall be construed as precluding a sell them for its own account or for the account of others, or
thrift bank from performing, with prior approval of the accept and receive them in payment or as amortization of its
Monetary Board, commercial banking services, or from loan; and
operating under an expanded banking authority, nor from (q) Invest in the equity of allied undertakings.
exercising, whenever applicable and not inconsistent with
the provisions of this Act and Bangko Sentral regulations, D. Rural Banks (RB): Sec. 3.2 (d), GBL
and such other powers incident to a corporation. (a) Governing Law
Sec. 71, par. 1 and 3, GBL: The organization, the ownership and
Sec. 101 (b)(3), MRB and BSP Circular No. 271, Series of capital requirements, powers, supervision and general conduct of
2001 business of thrift banks, rural banks and cooperative banks shall
In addition to the powers provided in other laws, a TB may be governed by the provisions of the Thrift Banks Act, the Rural
perform any or all of the following services: Banks Act, and the Cooperative Code, respectively. The
(a) Grant loans, whether secured or unsecured; organization, ownership and capital requirements, powers,
(b) Invest in readily marketable bonds and other debt supervision and general conduct of business of Islamic banks shall
securities, commercial papers and accounts receivable, be governed by special laws. The provisions of this Act, however,
drafts, bills of exchange, acceptances or notes arising out of insofar as they are not in conflict with the provisions of the Thrift
commercial transactions; Banks Act, the Rural Banks Act, and the Cooperative Code shall
(c) Issue domestic letters of credit; likewise apply to thrift banks, rural banks, and cooperative banks,
(d) Extend credit facilities to private and government respectively. However, for purposes of prescribing the minimum
employees; ratio which the net worth of a thrift bank must bear to its total risk
(e) Extend credit against the security of jewelry, precious stones assets, the provisions of Section 33 of this Act shall govern.
and articles of similar nature, subject to such rules and
regulations as the Monetary Board may prescribe; i. Organization, ownership, capital requirements, powers,
(f) Accept savings and time deposits; supervision, and general conduct of business
(g) Rediscount paper with the Land Bank of the Philippines ii. Other matters—GBL of suppletory application
(LBP), Development Bank of the Philippines (DBP), and
other government-owned or-controlled corporations; (b) Declaration of Policy
(h) Accept foreign currency deposits as provided under R.A. No. Sec. 2, Rural Banks Act: The State hereby recognizes the need
6426, as amended; to promote comprehensive rural development with the end in view
(i) Act as correspondent for other financial institutions; of attaining acquitable distribution of opportunities, income and
(j) Purchase, hold and convey real estate as specified under wealth; a sustained increase in the amount of goods and services
Sections 51 and 52 of R.A. No. 8791; and produced by the nation of the benefit of the people; and in
(k) Offer other banking services as provided in Section 53 of expanding productivity as a key raising the quality of life for all,
R.A. No. 8791. especially the underprivileged.

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(a) Extend loans and advances primarily for the purpose of
Towards these ends, the State hereby encourages and assists in meeting the normal credit needs of farmers, fishermen
the establishment of rural banking system designed to make or farm families as well as cooperatives, merchants,
needed credit available and readily accessible in the rural areas on private and public employees;
reasonable terms (b) Accept savings and time deposits;
(c) Act as correspondent of other financial institutions;
(c) Powers (d) Rediscount paper with the LBP, DBP or any other bank,
Sec. 12, Rural Banks Act: In addition to the operations including its branches and agencies. Said banks shall
especially authorized in this Act, any rural bank may: specify the nature of paper deemed acceptable for
• Accept saving and time deposit; rediscount, as well as the rediscount rate to be charged
• Open current or checking accounts, provided the rural by any of these banks;
bank has net assets of at least Five million (e) Act as collection agent;
(P5,000,000) subject to such guidelines as may be (f) Offer other banking services as provided in Section 53
established by the Monetary Board: of R.A. No. 8791.
• Act as correspondent for other financial institutions; With prior approval of the Monetary Board, an RB may
• Act as a collection agent; perform any or all of the following services:
• Act as official depositary of municipal, city or provincial (g) Accept current or checking accounts: Provided, That
funds in the municipality, city or province where it is such RB has net assets of at least P5 million;
located, subject to such guidelines as may be (h) Accept NOW accounts;
established by the Monetary Board; (i) Act as trustee over estates or properties of farmers and
• Rediscount paper with the Philippine National Bank, the merchants;
Land Bank of the Philippines, the Development Bank of (j) Act as official depository of municipal, city or provincial
the Philippines, or any other banking institution, funds in the municipality, city or province where it is
including its branches and agencies. Said institution located;
shall specify the nature of paper deemed acceptable for (k) Sell domestic drafts; and
rediscount, as well as the rediscount rate to be charged (l) Invest in allied undertakings.
by any of these institutions;
• Offer other banking service as provided in Section 72 of E. Cooperative Banks (Coop Banks): Sec. 3.2 (e), GBL
Republic Act No. 337, as amended, and (a) Governing Law
• Extend financial assistance to public and private Sec. 71, par. 1 and 3, GBL: The organization, the ownership and
employees in accordance with the provisions of Section capital requirements, powers, supervision and general conduct of
5 of Republic Act No. 3779, as amended. business of thrift banks, rural banks and cooperative banks shall
be governed by the provisions of the Thrift Banks Act, the Rural
With written permission of the Monetary Board of the Central Banks Act, and the Cooperative Code, respectively. The
bank, any rural bank may act as trustee over estates or properties organization, ownership and capital requirements, powers,
of farmer and merchants. supervision and general conduct of business of Islamic banks shall
be governed by special laws. The provisions of this Act, however,
Nothing in this section shall be construed as precluding a rural insofar as they are not in conflict with the provisions of the Thrift
bank from performing, with prior approval of the Monetary Board, Banks Act, the Rural Banks Act, and the Cooperative Code shall
all the services authorized and mortgage banks, of for commercial likewise apply to thrift banks, rural banks, and cooperative banks,
banks, under an expanded banking authority as provided in respectively. However, for purposes of prescribing the minimum
Section 21-B of the same Act ratio which the net worth of a thrift bank must bear to its total risk
assets, the provisions of Section 33 of this Act shall govern.
Sec. 101 (b)(4), MRB and BSP Circular No. 271, Series of
2001 Art. 99, Cooperative Code: (1) The provisions of this Chapter
In addition to the powers provided in other laws, an RB may shall primarily govern cooperative banks registered under this
perform any or all of the following services: Code and the other provisions of this Code shall apply to them

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only insofar as they are not inconsistent with the provisions Authority: Provided, That the performance of any banking
contained in this Chapter. function shall be subject to prior approval by the Central
Bank of the Philippines.
(2) Cooperatives duly established and registered under the
provisions of this Code may organize among themselves a (d) Powers: same as RB
cooperative bank, which shall likewise be considered a cooperative Sec. 101 (b)(5), MRB and BSP Circular No. 271, Series of
registerable under the provision of this Code subject to the 2001
requirements of and requisite authorization from the Central Bank. A Coop Bank shall be organized primarily to provide financial and
credit services to cooperatives and may per- form any or all of the
i. Organization, ownership, capital requirements, powers, services offered by RBs.
supervision, and general conduct of business
ii. Other matters—GBL of suppletory application F. Islamic Banks (IB): Sec. 3.2 (f), GBL
(a) Governing Law
Sec. 71, par. 2, GBL: …The organization, ownership and capital
(b) Declaration of Policy requirements, powers, supervision and general conduct of
Art. 2, Cooperative Code: business of Islamic banks shall be governed by special laws.

(c) Definitions/Functions i. Organization, ownership, capital requirements, powers,


Art. 100, Cooperative Code supervision and general conduct of business
A cooperative bank is one organized by the majority shares of
which is owned and controlled by cooperatives primarily to provide (b) Purpose
financial and credit services to cooperatives. The term Sec. 3, Islamic Bank Charter: The primary purpose of the
"cooperative bank" shall include cooperative rural banks. Islamic Bank shall be to promote and accelerate the socio-
economic development of the Autonomous Region by performing
A cooperative bank may perform the following functions: banking, financing and investment operations and to establish and
(1) To carry on banking and credit services for the participate in agricultural, commercial and industrial ventures
cooperatives; based on the Islamic concept of banking.
(2) To receive financial aid or loans from the Government and
the Central Bank of the Philippines for and in behalf of the All business dealings and activities of the Islamic Bank shall be
cooperative banks and primary cooperatives and their subject to the basic principles and rulings of Islamic Shari'a within
federations engaged in business and to supervise the the purview of the aforementioned declared policy. Any zakat or
lending and collection of loans; "ithe" paid by the Islamic Bank on behalf of its shareholders and
(3) To mobilize savings of its members for the benefit of the depositors shall be its obligation to appropriate said zakat fund
cooperative movement; and to disburse it in legitimate channels to be ascertained first by
(4) To act as a balancing medium for the surplus funds of the Shari'a Advisory Council.
cooperatives and their federations;
(5) To discount bills and promissory notes issued and drawn by (c) Powers
cooperatives; Sec. 6, Islamic Bank Charter: The Al-Amanah Islamic
(6) To issue negotiable instruments to facilitate the activities of Investment Bank of the Philippines, upon its organization, shall be
cooperatives; a body corporate and shall have the power:
(7) To issue debentures subject to the approval of and under (1) To prescribe its bylaws and its operating policies;
conditions and guarantees to be prescribed by the (2) To adopt, alter and use a corporate seal;
Government; (3) To make contracts, to sue and be sued;
(8) To borrow money from banks and other financial (4) To borrow money; to own real or personal property and
institutions within the limit to be prescribed by the Central introduce improvements thereon, and to sell, mortgage or
Bank; and otherwise dispose of the same;
(9) To carry out all other functions as may be prescribed by the (5) To employ such officers and personnel, preferably from the

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qualified Muslim sector, as may be necessary to carry government-owned or controlled corporations, particularly
Islamic banking business; those doing business in the autonomous region;
(6) To establish such branches and agencies in provinces and (9) To issue investment participation certificates, muquaradah
cities in the Philippines, particularly where Muslims are (non-interest-bearing bonds), debentures, collaterals
predominantly located, and such correspondent offices in and/or the renewal or refinancing of the same, with the
other areas in the country or abroad as may be necessary approval of the Monetary Board of the Central Bank of the
to carry on its Islamic banking business, subject to the Philippines, to be used by the Bank in its financing
provisions of Section 2 hereof; operations for projects that will promote the economic
(7) To perform the following banking services: development primarily of the Autonomous Region;
(a) Open current or checking accounts; (10) To carry out financing and joint investment
(b) Open savings accounts for safekeeping or custody with operations by way of mudarabah partnership, musharaka
no participation in profit and losses except unless joint venture or by decreasing participation, murabaha
otherwise authorized by the account holders to be purchasing for others on a cost-plus financing
invested; arrangement, and to invest funds directly in various
(c) Accept investment account placements and invest the projects or through the use of funds whose owners desire
same for a term with the Islamic Bank's funds in to invest jointly with other resources available to the
Islamically permissible transactions on participation Islamic Bank on a joint mudarabah basis;
basis; (11) To invest in equities of the following allied
(d) Accept foreign currency deposits from banks, undertakings:
companies, organizations and individuals, including (a) Warehousing companies;
foreign governments; (b) Leasing companies;
(e) Buy and sell foreign exchange; (c) Storage companies;
(f) Act as correspondent of banks and institutions to (d) Safe deposit box companies;
handle remittances or any fund transfers; (e) Companies engaged in the management of mutual
(g) Accept drafts and issue letters of credit or letters of funds but not in the mutual funds themselves; and
guarantee, negotiate notes and bills of exchange and (f) Such other similar activities as the Monetary Board of
other evidence of indebtedness under the universally the Central Bank of the Philippines has declared or
accepted Islamic financial instruments; may declare as appropriate from time to time, subject
(h) Act as collection agent insofar as the payment orders, to existing limitations imposed by law;
bills of exchange or other commercial documents are (12) To exercise the powers granted under this Charter
exclusive of riba or interest prohibitions; and such incidental powers as may be necessary to carry
(i) Provide financing with or without collateral by way of on its business, and to exercise further the general powers
leasing, sale and leaseback, or cost plus profit sales mentioned in the Corporation Law and the General Banking
arrangement; Act, insofar as they are not inconsistent or incompatible
(j) Handle storage operations for goods or commodity with the provisions of this Charter.
financing secured by warehouse receipts presented to
the Bank; Sec. 101 (b)(6), MRB and BSP Circular No. 271, Series of
(k) Issue shares for the account of institutions and 2001
companies assisted by the Bank in meeting In addition to the general powers incident to corporations and
subscription calls or augmenting their capital and/or those provided in other laws, as well as in Circular No. 105
fund requirements as may be allowed by law; (Appendix 44), insofar as they are not inconsistent or incompatible
(l) Undertake various investments in all transactions with the provisions of R.A. No. 6848, an IB may perform any or all
allowed by Islamic Shari'a in such a way that shall not of the following services:
permit the haram (forbidden), nor forbid the halal
(permissible); (a) Open savings accounts for safekeeping or custody with no
(8) To act as an official government depository, or its participation in profit and losses except unless otherwise
branches, subdivisions and instrumentalities and of authorized by the account holders to be invested;

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(b) Accept investment account placements and invest the same i. Warehousing companies;
for a term with the IB’s funds in Islamically permissible ii. Leasing companies;
transactions on participation basis; iii. Storage companies;
(c) Accept foreign currency deposits from banks, companies, iv. Companies engaged in the management of mutual
organizations and individuals, including foreign funds but not in the mutual funds themselves; and
governments; v. Such other similar activities as the Monetary Board
(d) Buy and sell foreign exchange; has declared or may declare as appropriate from
(e) Act as correspondent of banks and institutions to handle time to time, subject to existing limitations imposed
remittances or any fund transfers; by law.
(f) Accept drafts and issue letters of credit or letters of
guarantee, negotiate notes and bills of exchange and other G. Other Classification of Banks: Sec. 3.2 (g), GBL
evidence of indebtedness under the universally accepted
Islamic financial instruments; (a) Land Bank of the Philippines
(g) Act as collection agent in so far as the payment orders, bills Code of Agrarian Reform of the Philippines
of exchange or other commercial documents are exclusive Section 74. Creation - To finance the acquisition by the Government of
of riba or interest prohibitions; landed estates for division and resale to small landholders, as well as the
(h) Provide financing with or without collateral by way of purchase of the landholding by the agricultural lessee from the landowner,
leasing, sale and leaseback, or cost plus profit sales there is hereby established a body corporate to be known as the "Land Bank
arrangement; of the Philippines", hereinafter called the "Bank", which shall have its
(i) Handle storage operations for goods or commodity principal place of business in Manila. The legal existence of the Bank shall be
financing secured by warehouse receipts presented to the for a period of fifty years counting from the date of the approval hereof. The
bank; Bank shall be subject to such rules and regulations as the Central Bank may
(j) Issue shares for the account of institutions and companies from time to time promulgate.
assisted by the bank in meeting subscription calls or
augmenting their capital and/or fund requirements as may Section 75. Powers in General - To carry out this main purpose, the Bank
be allowed by law; shall have the power:
(k) Undertake various investments in all transactions allowed (1) To prescribe, repeal, and alter its own by laws, to determine its
by the Islamic Shari’a in such a way that shall not permit operating policies, and to issue such rules and regulations as may
the haram (forbidden), nor forbid the halal (permissible); be necessary to achieve the main purpose for the creation of the
(l) Act as an official government depository, or its branches, Bank;
subdivisions and instrumentalities and of government- (2) To adopt, alter and use a corporate seal;
owned or -controlled corporations, particularly those doing (3) To acquire and own real and personal property and to sell, mortgage
business in the autonomous region; or otherwise dispose of the same;
(m) Issue investment participation certificates, muquaradah (4) To sue and be sued, make contracts, and borrow money from both
(non-interest- bearing bonds), debentures, collaterals and/ local and foreign sources. Such loans shall be subject to approval by
or the renewal and refinancing of the same, with the the President of the Philippines and shall be fully guaranteed by the
approval of the Monetary Board to be used by the IB in its Government of the Philippines;
financing operations for projects that will promote the (5) Upon recommendation of the Committee on Investments, to hold,
economic development primarily of the Autonomous own, purchase, acquire, sell or otherwise invest, or reinvest in
Region; stocks, bonds or other securities capable of giving the Bank a
(n) Carry out financing and joint investment operations by way reasonably assured income sufficient to support its financing
of mudarabh purchasing for others on a cost-plus financing activities and give its private stockholders a fair return on their
arrangement, and invest funds directly in various projects holdings: Provided, however, That pending the organization of the
or through the use of funds whose owners desire to invest Committee on Investments, the Bank may exercise the powers
jointly with other resources available to the IB on a joint herein provided without the recommendation of said Committee on
mudarabh basis; and Investments: Provided, further, That in case of the dissolution of the
(o) Invest in equities of the following allied undertakings: Land Bank all unsold public lands transferred to it which may be

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allocated to the Government of the Philippines in the course of amount equivalent to the difference between the Bank's earnings available
liquidation of the business of the Bank shall revert to the for dividends and that necessary to pay the guaranteed rate shall be paid by
Department of Agriculture and Natural Resources; and the Bank out of its own assets but the Government shall, on the same day
(6) To provide, free of charge, investment counselling and technical that the Bank makes such payment, reimburse the latter in full, for which
services to landowners whose lands have been acquired by the Land purpose such amounts as may be necessary to enable the Government to
Bank. For this purpose, the Land Bank may contract the services of make such reimbursements are hereby appropriated out of any moneys in
private consultants. the National Treasury not otherwise appropriated. The Bank shall give
sufficient notice to the Budget Commissioner and the President of the
Section 76. Issuance of Bonds - The Land Bank shall, upon Philippines in the event that it is not able to pay the guaranteed rate of
recommendation by the Board of Trustees and approval of the Monetary return on any fiscal period. The guaranteed rate of return on these shares
Board of the Central Bank, issue bonds, debentures and other evidences of shall not preclude the holders thereof from participating at a percentage
indebtedness at such terms, rates and conditions as the Bank may higher than six per centum should the earnings of the Bank for the
determine up to an aggregate amount not exceeding, at any one time, five corresponding fiscal period exceed the guaranteed rate of return. The Board
times its unimpaired capital and surplus. Such bonds and other obligations of Trustees shall declare and distribute dividends within three months after
shall be secured by the assets of the Bank and shall be fully tax exempt the close of each fiscal year at the guaranteed rate unless a higher rate of
both as to principal and income. Said income shall be paid to the bondholder return in justified by the Bank's earnings after making reasonable allowance
every six (6) months from the date of issue. These bonds and other for administration, contingencies and growth, in which case dividends shall
obligations shall be fully negotiable and unconditionally guaranteed by the be declared and distributed at a higher rate. The capital gains derived from
Government of the Republic of the Philippines and shall be redeemable at the sale or transfer of such shares and all income derived therefrom in the
the option of the Bank at or prior to maturity, which in no case shall exceed form of dividends shall be fully exempt from taxes.
twenty-five years. These negotiable instruments of indebtedness shall be
mortgageable in accordance with established banking procedures and Section 78. Special Guaranty Fund - In the event that the Bank shall be
practices to government institutions not to exceed sixty per centum of their unable to pay the bonds, debentures, and other obligations issued by it, a
face value to enable the holders of such bonds to make use of them in fixed amount thereof shall be paid from a special guaranty fund to be set up
investments in productive enterprises. They shall also be accepted as by the Government, to guarantee the obligation of the Land Bank, and
payments for reparation equipment and materials. established in accordance with this Section, and thereupon, to the extent of
the amounts so paid, the Government of the Republic of the Philippines shall
The Board of Trustees shall have the power to prescribe rules and succeed to all the rights of the holders of such bonds, debentures or other
regulations for the registration of the bonds issued by the Bank at the obligations: Provided, however, That for the next four years after the
request of the holders thereof. establishment of the Bank, the payment to the special guaranty fund should
not exceed one million pesos per year, after which period, the Government
Section 77. Issuance of Preferred Shares of Stock to Finance Acquisition of shall pay into the guaranty fund the sum of five hundred thousand pesos
Landed Estates - The Land Bank shall issue, from time to time, preferred each year until the cumulative total of such guaranty fund is no less than
shares of stock in such quantities not exceeding six hundred million pesos twenty percent of the outstanding net obligation of the Land Bank at the
worth of preferred shares as may be necessary to pay the owners of landed end of any single calendar year.
estates in accordance with Sections eighty and eighty-one of this Code. The
amount of shares that the Bank may issue shall not exceed the aggregate The guaranty fund shall be administered by the Central Bank of the
amount need to pay for acquired estates in the proportions prescribed in Philippines in the manner most consistent with its charter. For the purpose
said Section eighty of this Code. The Board of Trustees shall include as a of such fund, there shall be appropriated annually the sum of one million
necessary part of the by-laws that it shall issue under Section seventy-five pesos out of any moneys in the National Treasury not otherwise
of this Code, such formula as it deems adequate for determining the net appropriated, until the total amount of twenty million pesos shall have been
asset value of its holdings as a guide and basis for the issuance of preferred attained.
shares. The shares of stock issued under the authority of this provision shall
be guaranteed a rate of return of six per centum per annum. In the event Section 79. Receiving Payments and Time Deposits - The Bank, under the
that the earnings of the Bank for any single fiscal year are not sufficient to supervision of the Monetary Board and subject to the provisions of the
enable the Bank, after making reasonable allowance for administration, General Banking Act, shall receive savings and time deposits from the small
contingencies and growth, to declare dividends at the guaranteed rate, the landholders in whose favor public lands or landed estates acquired by the

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Land Authority have been sold and, for this purpose, establish, and maintain amounts as is necessary to cover the losses which shall include among other
branches and offices in such areas as may be necessary to service such things loss of earnings occasioned by the limitation of the resale cost herein
deposits. The Monetary Board shall supervise and authorize the Bank to provided such that said amount together with the administrative expenses
receive savings and time deposits from the public in areas where facilities mentioned in Section ninety hereof shall not exceed in the aggregate the
for such a service do not exist or cannot be adequately provided by other equivalent of two and one-half per centum of its assets limited therein.
deposit institutions.
Section 82. Government Shares - All shares of stock in the Bank
Section 80. Making Payment to Owners of Landed Estates - The Land bank subscribed or owned by the Government shall not be entitled to participate
shall make payments in the form herein prescribed to the owners of land in the income earned by the Bank from its investments and other
acquired by the Land Authority for division and resale under this Code. Such operations, whether in the form of cash or stock dividends or otherwise.
payment shall be made in the following manner: ten per centum in cash and Amounts expended for the administration of the Bank shall not be deemed
the remaining balance in six percent, tax-free, redeemable bonds issued by as a participation of the Government in income.
the Bank in accordance with Section seventy-six, unless the landowner
desires to be paid in shares of stock issued by the Land Bank in accordance Section 83. Preferred Shares - All preferred shares of stock issued under
with Section seventy-seven in an amount not exceeding thirty per centum of Section seventy-seven of this Code shall be entitled to the income earned by
the purchase price. the Bank on its investments and other operations and shall have a limited
right to elect annually one member of the Board of Trustees and one
In the event there is an existing lien on encumbrance on the land in favor of member of the Committee on Investments: Provided, That the holders of
any Government institution at the time of acquisition by the Land Bank, the such preferred shares of stock shall not bring derivative suits against the
bonds and/or shares, in that order, shall be accepted as substitute Bank. Such preferred shares shall be fully transferable: Provided, further,
collaterals to secure the indebtedness. That upon the liquidation of the Bank, the redemption of such preferred
shares shall be given priority and shall be guaranteed at par value.
The profits accruing from payment shall be exempt from the tax on capital
gains. Section 84. Voting of Shares - The voting power of all the shares of stock
of the Land Bank owned or controlled by the Government shall be vested in
Section 81. Capital - The authorized capital stock of the Bank shall be one the President of the Philippines or in such person or persons as he may from
billion five hundred million pesos divided into ninety million shares with a time to time designate.
par value of ten pesos each, which shall be fully subscribed by the
Government and sixty million preferred shares with a par value of ten pesos Section 85. Use of Bonds - The bonds issued by the Land Bank may be
each which shall be issued in accordance with the provisions of Sections used by the holder thereof and shall be accepted in the amount of their face
seventy-seven and eighty-three of this Code. Of the total capital subscribed value as any of the following:
by the Government, two hundred million pesos shall be paid by the (1) Payment for agricultural lands or other real properties purchased
Government within one year from the approval of this Code, and one from the Government;
hundred million pesos every year thereafter for two years for which purpose (2) Payment for the purchase of shares of stock of all or substantially all
the amount of two hundred million pesos is hereby appropriated upon the of the assets of the following Government owned or controlled
effectivity of this Code, and one hundred million pesos every year for the corporations: The National Development Company; Cebu Portland
next two years thereafter, out of the funds in the National Treasury not Cement Company; National Shipyards and Steel Corporation; Manila
otherwise appropriated for the purpose: Provided, That if there are not Gas Corporation; and the Manila Hotel Company.
enough funds in the National Treasury for the appropriation herein made,
the Secretary of Finance, with the approval of the President of the Upon offer by the bondholder, the corporation owned or controlled by
Philippines, shall issue bonds or other evidence of indebtedness to be the Government shall, through its Board of Directors, negotiate with
negotiated either locally or abroad in such amount as may be necessary to such bondholder with respect to the price and other terms and
cover any deficiency in the amount above-appropriated but not exceeding conditions of the sale. In case there are various bondholders making
four hundred million pesos, the proceeds of which are hereby appropriated: the offer, the one willing to purchase under terms and conditions
Provided, further, That the bonds to be issued locally shall not be supported most favorable to the corporation shall be preferred. If no price is
by the Central Bank: Provided, finally, That there is automatically acceptable to the corporation, the same shall be determined by a
appropriated out of the unappropriated funds in the National Treasury such Committee of Appraisers composed of three members, one to be

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 35
appointed by the corporation, another by the bondholder making the and supervision of the business of the Bank in all matters which are not by
highest or only offer, and the third by the two members so chosen. this Code or by the by-laws of the Bank specifically reserved to be done by
The expenses of appraisal shall be borne equally by the corporation the Board of Trustees. He shall be assisted by an Executive Vice-Chairman
and the successful purchaser. and one or more vice-chairman who shall be chosen and may be removed
by the Board of Trustees. The salaries of the Vice-Chairmen shall be fixed by
Should the Government offer for sale to the public any or all of the the Board of Trustees with the approval of the President of the Philippines.
shares of stock or the assets of any of the Government owned or
controlled corporations enumerated herein, the bidder who offers to Section 88. Qualifications of Members - No person shall be appointed
pay in bonds of the Land Bank shall be preferred provided that the Chairman or member of the Board unless he is a man of accepted integrity,
various bids be equal in every respect except in the medium of probity, training and experience in the field of banking and finance, at least
payment. thirty-five years of age and possessed of demonstrated administrative skill
and ability.
(3) Surety or performance bonds in all cases where the Government may
require or accept real property as bonds; and Section 89. Committee on Investments - There shall be a Committee on
(4) Payment for, reparations goods. Investments composed of three members; the member of the Board of
Trustees elected by the holders of preferred shares as Chairman, one
Section 86. Board of Trustees - The affairs and business of the Bank shall member to be appointed by the President of the Philippines from among the
be directed, its powers exercised and its property managed and preserved government members of the Board of Trustees, and another member to be
by a Board of Trustees. Such Board shall be composed of one Chairman and selected by the holders of preferred shares under Section eighty-three of
four members, one of whom shall be the head of the Land Authority who this Code. The Committee on Investments shall recommend to the Board of
shall be an ex-officio member of such Board and another to be elected by Trustees the corporations or entities from which the Land Bank shall
the holders of preferred shares. The Chairman and two members of the purchase shares of stock.
Board of Trustees shall serve on full-time basis with the Bank. With the
exception of the head of the Land Authority and the member elected by the The Land Bank shall not invest in any corporation, partnership or company
holders of preferred shares, the Chairman and all members of the Board wherein any member of the Board of Trustees or of the Committee on
shall be appointed by the President with the consent of the Commission on Investments or his spouse, direct descendant or ascendant has substantial
Appointments for a term of seven years, except that the first Chairman and pecuniary interest or has participation in the management or control of the
members to be appointed under this Code shall serve for a period of three, enterprise except with the unanimous vote of the members of the Board of
five and seven years, such terms to be specified in their respective Trustees and of the Committee on Investments, excluding the member
appointments. Thereafter the Chairman and members, with the exception of interested, in a joint meeting held for that purpose where full and fair
the ex-officio member, appointed after such initial appointment shall serve information of the extent of such interest or participation has been
for a term of seven years including any Chairman or member who is adequately disclosed in writing and recorded in the minutes of the meeting:
appointed in place of one who resigns or is removed or otherwise vacates Provided, That such interested member shall not in any manner participate
his position before the expiration of his seven-year term. The Chairman and in the deliberations and shall refrain from exerting any pressure or influence
the two full-time members of the Board shall act as the heads of such whatever on any official or member of the Bank whose functions bear on or
operating departments as may be set up by the Board under the authority relate to the investment of the funds of the Bank in the enterprise:
granted by Section eighty-seven of this Code. The Chairman shall have Provided, further, That the total investment in any single corporation,
authority, exerciseable at his discretion, to determine from time to time the partnership, company, or association shall not exceed five per centum of the
organizational divisions to be headed by each member serving full time and total investible funds.
to make the corresponding shifts in designations pursuant thereto. The
compensation of the Chairman and the members of the Board of Trustees Section 90. Personnel; Cost of Administration - The Administrative
serving full time shall be twenty-four thousand and eighteen thousand expenses of the Bank during any single fiscal year shall not in any case
pesos, respectively. The other members of the Board shall receive a per exceed two and one-half per centum of its total assets. The Board of
diem of one hundred pesos for each session of the Board that they attend. Trustees shall provide for an organization and staff of officers and
employees necessary to carry out the functions of the Bank, fix their
Section 87. The Chairman and Vice-Chairman - The Chairman of the Board compensation, and appoint and remove such officers and employees for
shall be the chief executive officer of the Bank. He shall have direct control cause. The Bank officers and employees shall be subject to the rules and

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regulations issued by the Civil Service Commission but shall not fall under (3) Any act or performance tending to prejudice or impair the
the Wage and Position Classification Office. The Board of Trustees shall substantial rights of the stockholders.
recommend to the Civil Service Commission rules and regulations for the
recruitment, appointment, compensation, administration, conduct, Conviction of the Chairman or a member for a crime carrying with it a
promotion and removal of all Bank officers and employees under a strict penalty greater than arresto mayor shall cause the removal of such
merit system and prepare and conduct examinations under the supervision Chairman or member without the necessity of Presidential action.
of said Commission.
The Chairman or member may, in any of the above cases, be civilly liable
Section 91. Legal counsel - The Secretary of Justice shall be ex-officio legal for any damage that may have been suffered by the stockholders.
adviser of the Bank. Any provision of law to the contrary notwithstanding,
the Land Bank shall have its own Legal Department, the chief and members Section 96. Transfer of Claims and Liabilities - The assets of the former
of which shall be appointed by the Board of Trustees. The composition, Land Tenure Administration and the National Resettlement and
budget and operating expenses of the Office of the Legal Counsel and the Rehabilitation Administration in the form of claims and receivables arising
salaries and traveling expenses of its officers and employees shall be fixed from the sale or transfer of private and public lands, agricultural equipment,
by the Board of Trustees and paid by the Bank. machinery, tools and work animals, but excluding advances made for
subsistence, to small landholders shall, after an exhaustive evaluation to
Section 92. Auditor - The Auditor General shall be the ex-officio auditor of determine their true asset value, be irrevocably transferred to the Bank
the Bank and shall appoint a representative, who shall be the auditor in under such arrangements as the Land Authority and the Bank shall agree
charge of the auditing office of the Bank. The Auditor General shall, upon upon. Thereafter, the Bank shall have authority and jurisdiction to
the recommendation of the auditor of the Bank, appoint or remove the administer the claims, to collect and make adjustments on the same and,
personnel of the auditing office. The compensation, budget and operating generally, to do all other acts properly pertaining to the administration of
expenses of the auditing office and the salaries and traveling expenses of claims held by a financial institution. The Land Authority, upon request of
the officers and employees thereof shall be fixed by the Board of Trustees the Bank, shall assist the latter in the collection of such claims. The Land
and paid by the Bank notwithstanding any provision of law to the contrary. Authority shall be entitled to collect from the Bank no more than the actual
cost of such collection services as it may extend. The claims transferred
Section 93. Report on Condition of Bank - The representative of the Auditor under this Section shall not be considered as part of the Government's
General shall make a quarterly report on the condition of the Bank to the subscription to the capital of the Bank.
President of the Philippines, to the Senate through its President, to the
House of Representatives through its Speaker, to the Secretary of Finance, Section 97. Regulation - The Bank shall not be subject to the laws, rules
to the Auditor General and to the Board of Trustees of the Bank. The report and regulations governing banks and other financial institutions of whatever
shall contain, among other things, a statement of the resources and type except with respect to the receipt of savings and time deposits in
liabilities including earnings and expenses, the amount of capital stock, accordance with Section seventy-nine of this Code, in which case the legal
surplus, reserve and profits, as well as losses, bad debts, and suspended reserve and other requirements prescribed by the Central Bank for such
and overdue paper carried in the books as assets of the Bank, and a deposits shall apply. The Bank shall be operated as an autonomous body
plantilla of the Bank. and shall be under the supervision of the Central Bank.

Section 94. Auditing Rules and Regulations - The Auditor General shall, Section 98. Tax Exemption - The operations, as well as holdings,
with respect to the Bank, formulate improved and progressive auditing rules equipment, property, income and earnings of the Bank from whatever
and regulations designed to expedite the operations of the Bank and sources shall be fully exempt from taxation.
prevent the occurrence of delays and bottlenecks in its work.
Section 99. Organization of Bank - The Bank shall be organized within one
Section 95. Removal of Members - The President of the Philippines may, at year from the date that this Code takes effect.
any time, remove the Chairman or any member of the Board appointed by
him if the interest of the Bank so requires, for any of the following causes: Section 100. Penalty for Violation of the Provisions of this Chapter - Any
(1) Mismanagement, grave abuse of discretion, infidelity in the conduct trustee, officer, employee or agent of the Bank who violates or permits the
of fiduciary relations, or gross neglect in the performance of duties; violation of any of the provisions of this Chapter, or any person aiding or
(2) Dishonesty, corruption, or any act involving moral turpitude; and abetting the violations of any of the provisions of this Chapter, shall be

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punished by a fine not to exceed ten thousand pesos or by imprisonment of Banking Act; and
not more than five years, or both such fine and imprisonment at the (g) To adopt, amend, or charge its By-laws; to adopt, alter and use a
discretion of the Court. seal; to make contracts; to sue and be sued; and to exercise the
general powers of a corporation mentioned in the Corporation Code
(b) Development Bank of the Philippines of the Philippines, and of a thrift bank under the General Banking
Revised Charter of DBP Act, insofar as such powers are not inconsistent or incompatible with
Sec. 2. Name, Purpose and Domicile. The Development Bank of the the provisions of this Charter.
Philippines, hereinafter called the Bank, operating under the provisions of
Republic Act No. 85, as amended, shall henceforth operate under the Unless otherwise provided in this Charter, the exercise of the above-
provisions of this 1986 Revised Charter. The Bank shall be a body corporate mentioned powers on banking shall be subject to applicable law, as well as
and shall exist for a period of fifty years. regulations promulgated by the Central Bank of the Philippines.

The primary purpose of the Bank shall be to provide banking services Sec. 4. Loans and other Investments. Loans and other investments of the
principally to service the medium and long term needs of agricultural and Bank shall be subject to the same limits and ceilings applicable to thrift
industrial enterprises, particularly in the country-side and preferably for banks under existing provisions of law and regulations promulgated by the
small and medium scale enterprises; Provided, however, that the pursuit of Monetary Board, including but not limited to prescribed limits and ceilings;
these objectives shall be undertaken within the context of a financially Provided, that loans and investments existing as of the date of the
viable and stable banking institutions; Provided, further that the Bank shall effectivity of this Charter and which loans and investments would exceed
continue to be classified as a development Bank, Provided, finally, that the prescribed limits as a result of the implementation of its rehabilitation
unless otherwise provided herein, the Bank may perform all other functions program, as well as those investment authorized under Section 6 hereof
of a thrift bank. which are in excess of the prescribed limits shall be reduced within five
years in accordance with such program of reduction as may be approved by
The Bank's principal office and place of business shall be in the National the Monetary Board. The period of reduction may be extended up to another
Capital Region, also known as Metro Manila. It may open and maintain five years by the President of the Philippines upon recommendation by the
branches, agencies or other offices at such places in the Philippines as its Monetary Board.
Board of Directors may deem advisable, with the prior approval of the
Monetary Board of the Central Bank of the Philippines. Sec. 5. Issuance of Bonds. The Bank may issue all kinds of bonds,
debentures, and securities, and/or the renewal or refunding thereof
Sec. 3. Corporate Powers. The Development Bank of the Philippines shall (hereinafter called "Bonds"), within and/or outside the Philippines, at such
have the power. terms, rates, and conditions as the Board of Directors of the Bank may
(a) To accept such deposits as are allowed thrift banks under existing determine, subject to compliance with the provisions of applicable law, and
law and Central Bank regulations, including but not limited to rules and regulations promulgated by the Monetary Board.
demand, savings, and time deposits.
(b) To grant loans for the establishment, development or expression of The Bank shall provide for appropriate reserves for the redemption or
any agricultural or industrial enterprise; retirement of the bonds. These bonds and other obligations shall be
(c) To accept and manage trust funds and properties and carry on the redeemable at the option of the Bank at or before maturity and in such
business of a trust corporation; manner as may be stipulated therein and shall bear such rate of interest as
(d) To act as official government depository with authority to maintain may be fixed by the Bank.
deposits of the government, its subdivisions, branches, and
instrumentalities, and of government-owned or controlled Such obligations shall be secured by the assets of the Bank, including the
corporations, subject to such rules and regulations as the Monetary stocks, bonds, debentures, and other securities purchased or held by it
Board may prescribe; under the provisions of this Charter. These bonds and debentures may be
(e) To acquire, assign, or otherwise dispose of marketable securities long-term, medium, or short-term, with fixed interest rate or floating
and other debt instruments which are essential to the effective interest rate.
conduct of its general banking activities;
(f) To enter into such contracts of guaranty on suretyship as are Sec. 6. Private Development Banks, Other Thrift Banks and Rural Banks.
generally allowed domestic banking institutions under the General The Bank may assist private development banks and other privately owned

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banks in the thrift bank category, as well as rural banks, through general
credit accommodations including but not limited to conduit lending and Except for the Chairman and the Vice Chairman of the Board, no officer or
rediscounting operations, and extension of technical and managerial employee of the Bank may be appointed as a member of the Board of
assistance; Provided, That the Bank may likewise make equity investments Directors of the Bank; nor shall any director, officer, or employee of any
in private development banks and other private owned banks in the thrift other bank be eligible as a member of the Board of Directors of the Bank.
bank category, as well as rural banks, if such investment is in connection
with the privatization of certain branches of the Bank; Provided, further, Unless otherwise set by the Board and approved by the President of the
That the extent of such equity investment may, with the prior approval of Philippines, members of the Board shall be paid a per diem of one thousand
the Monetary Board, exceed the ceilings prescribed in Section 4 hereof; and, pesos for each meeting of the Board of Directors actually attended:
Provided, finally, That after five years from effectivity of this Charter, any Provided, that the total amount of per diems for every single months shall
equity investment shall not exceed thirty (30%) per cent of the equity in not exceed the sum of Five Thousand Pesos.
any such bank nor shall its total equity investments exceed the prescribed
aggregate ceiling on such investments. Sec. 9. Powers and Duties of the Board of Directors. The Board of Directors
shall have, among others, the following duties, powers and authority:
Sec. 7. Authorized Capital Stock Par value. The capital stock of the Bank (a) To formulate policies necessary to carry out effectively the
shall be Five Billion Pesos to be divided into Fifty Million common shares provisions of this Charter and to prescribe, amend, and repeal by-
with par value of P100 per share. These are available for subscription by the laws, rules and regulations for the effective operation of the Bank,
National Government. Upon the effectivity of this Charter, the National and the manner in which the general business of the Bank may be
Government shall subscribe to Twenty-Five Million common shares of stock conducted and the powers granted by law to the Bank exercised;
worth Two Billion Five Hundred Million which shall be deemed paid for by the (b) To approve loans, to fix rates of interest on loans and to prescribe
Government with the net asset values of the Bank remaining after the such terms and conditions for loans and credits as may be deemed
transfer of assets and liabilities as provided in Section 30 hereof. necessary, consistent with the provisions of this Charter; Provided,
that the Board may delegate the authority to approve loans to such
Sec. 8. Board of Directors Composition Tenure Per Diems. The affairs and officers as may be deemed necessary;
business of the Bank shall be directed and its properties managed and (c) To adopt an annual budget for the effective operation and
preserved and its corporate powers exercised, unless otherwise provided in administration of the Bank;
this Charter, by a Board of Directors consisting of nine members, to be (d) To create and establish a "Provident Fund" which shall consist of
appointed by the President of the Philippines. The term of office of the contributions, made both by the Bank and its officers or employees,
Chairman, Vice-Chairman, and the members of the Board of Directors shall to a common fund for the payment of benefits to such officers or
be for a period of one year or until such time as their successors are employees, or their heirs, under such terms and conditions as the
appointed. Board of Directors may fix;
(e) To compromise or release, in whole or in part, any claim or settled
The Chairman and the Vice Chairman of the Board shall be appointed by the liability to the Bank regardless of the amount involved, under such
President of the Philippines. The Vice Chairman of the Board shall assist the terms and conditions it may impose to protect the interests of the
Chairman and act in his stead in case of absence or incapacity. In case of Bank. This authority to compromise shall extend to claims against
incapacity or absence of both the chairman and vice-chairman, the Board of the Bank; and
Directors shall designate a temporary chairman from among its members. (f) To appoint, promote or remove officers from the rank of Vice
President or its equivalent, and other more senior officer positions,
No person shall be elected director of the Bank unless he is a natural-born excluding the Chairman and the Vice Chairman.
citizen of the Philippines, not less than thirty-five years of age, of good
moral character and has attained proficiency, expertise and recognized Sec. 10. Chairman and Chief Executive Officer. The Chairman shall be the
competence in one or more of the following: banking, finance, economics, Chief Executive Officer of the Bank and, as such, shall, on behalf of the
law, agriculture, business management, public utility or government Board, have the direction and control of the business affairs and properties
administration. of the Bank in all matters which are not by this Charter or by the By-Laws of
the Bank specifically reserved to be done by the Board or other officers of
At least four of the members of the Board shall come from the private the Bank. For this purpose, he shall, among other powers and duties,
sector. execute, carry out, and administer the policies, measures, orders, and

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resolutions approved by the Board; direct and supervise the operation and enforcement of court writs and processes in cases involving the Bank. The
administration of the Bank; and exercise such other powers and perform special sheriff of the Bank shall make a report to the proper court after any
such other functions or duties as may be directed or assigned to him by law action taken by him, which shall treat such action as if it were an act of its
or by the Board from time to time. own sheriffs in all respects.

Particularly, he shall have the power and duty: Sec. 13. Other Officers and Employments. The Board of Directors shall
(a) To sign and execute all contracts concluded by the Bank and enter provided for an organization and staff of officers and employees of the Bank
into all necessary obligations required or permitted by this Charter, and upon recommendation of the Chairman of the Board, fix their
upon proper authorization by the Board; and sign all notes, remunerations and other emoluments.
securities certificates, and other major documents of the Bank; No Officer or employee of the Bank subject to Civil Service Law shall be
(b) To exercise, as Chief Executive Officer of the Bank, the powers of dismissed except as provided by law.
control and supervision over decisions and actions of subordinate
officers and all other powers that may be granted by the Board; Sec. 14. Exemption from Attachment. The provisions of any law to the
(c) To report to the Board the main facts concerning the operations of contrary notwithstanding, securities on loans and/or other accommodation
the Bank and to recommend changes in policies which he may deem granted by the Bank or its predecessors-in-interest shall not be subject to
advisable; attachment, execution or any other court process, nor shall they be included
(d) To submit an annual report to the President of the Philippines on the in the property of insolvent persons or institutions, unless all debts and
result of the operations of the Bank; obligations of the debtor to the Bank and its predecessors-in-interest have
(e) To recommend to the Board the appointment, promotion, or been previously paid, including accrued interest, penalties, collection
removal of all officers of the Bank, with the rank of at least vice- expenses, and other charges, subject to the provisions of paragraph (e) of
president or its equivalent; Section 9 of this Charter.
(f) To appoint, promote or remove employees and officers below the
rank of vice-president or its equivalent; Provided, that promotions, Sec. 15. Officer to Conduct Sale. In case of sale of mortgaged properties
transfers, assignments or reassignments of officers and personnel of under the provisions of existing laws or of this Charter, such sale shall be
the Bank are personnel actions deemed made in the interest of the conducted under the direction of the sheriff of the Province or any special
service and not disciplinary, any provision of the Civil Service Law to sheriff of the Bank, or of a municipal judge or notary public of the City or
contrary notwithstanding; and Municipality where the sale is to be made, who shall be entitled to collect
(g) As required by circumstances, to delegate any of his powers, duties the fees provided for in the Rules of the Court with respect to sale of
or functions to any officer or director of the Bank, with the approval properties under execution.
of the Board.
Sec. 16. Right of Redemption. Any mortgagor of the Bank whose real
Sec. 11. Vice Chairman and Chief Operating Officer. The Vice Chairman property has been extrajudicially sold at public auction shall, within one (1)
shall be the Chief Operating Officer of the Bank and shall assume and year counted from the date of registration of the certificate of sale, have the
exercise such specific duties and responsibilities as may be delegated to him right to redeem the real property by paying to the Bank all of the latter's
by the Chairman. claims against him, as determined by the Bank.

Sec. 12. Legal Matters and Cases. The Bank shall have its own Legal The Bank may take possession of the foreclosed property during the
Department, the head of which shall be appointed by the Board of Directors redemption period. When the Bank takes possession during such period, it
of the Bank upon recommendation of the Chairman. shall be entitled to the fruits of the property with no obligation to account
for them, the same being considered compensation for the interest that
In appropriate cases, the Bank may avail also of the legal services of any would otherwise accrue on the account. Neither shall the Bank be obliged to
government legal office authorized to render such services to government- post a bond for the purpose of such possession.
owned or controlled corporations.
Sec. 17. Inhibition from Board Meeting of Member with Personal Interest.
The Bank may, upon the recommendation of its Chief Legal Counsel, Whenever any member attending a meeting of the Board of Directors has a
deputize any member of its legal staff to act as special sheriff in foreclosure direct personal interest in the discussion or resolution of any given matter,
cases, in the sale or attachment of the debtor's properties and in the or any of his relatives within the second civil degree or consanguinity or

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second civil degree of affinity has such an interest, said member shall not Sec. 21. Examination of the Bank. The Bank shall be subject to supervision
participate in the discussion or resolution of the matter and must retire from and examination by the appropriate department of the Central Bank of the
the meeting during the deliberation thereon. The minutes of the meeting, Philippines.
which shall note the subject matter, when resolve, the fact that a member
had a personal interest in it, and the withdrawal of the member concerned, Sec. 22. Prohibition on Officers and Employees of the Bank. Except as
may be made available to the public. required by law, or upon order of a court of competent jurisdiction, or the
express order of the President of the Philippines or written permission of the
For this purpose, the member of the Board shall, at the beginning of their client, no officer or employee of the Bank shall reveal to, nor allow to be
respective terms, disclose to the board any and all interests they may have examined, inquired or looked into, by any third person, government official,
in any corporation, partnership. or association and shall, thereafter, bureau or office any information relative to details of individual accounts or
disclosed to the Board, any charges thereto. specific banking transactions: Provided, that in respect to deposits or
whatever nature, the provisions of existing law shall apply.
Sec. 18. Prohibition on Persons with Personal Interest. No member of the
Board, officer, attorney, agent, or employee of the Bank shall in any This prohibition shall not apply to the exchange of confidential credit
manner, directly participate in the deliberation upon or the determination of information among government financial institutions or among banks, in
any question affecting his direct personal interest or the personal interests accordance with established banking practices or as may be allowed by law.
of his relatives within the second civil degree of consanguinity or second civil
degree of affinity, or of any corporation, partnership, or association in which Sec. 23. Exaction of Fee, Commission, Gift or Charge. No authorized fee,
he has a direct interest. Any person violating the provisions of this section commission, gift, or charge of any kind shall be exacted, demanded, or paid,
shall be summarily removed from office and shall upon conviction be for obtaining loans from the Bank, and any officer, employee, or agent of
punished with a not less than one thousand pesos nor more than ten the Bank found guilty of exacting, demanding, or receiving any fee services
thousand pesos or with imprisonment of not less than one year nor more in obtaining a loan, shall be punished by a fine of not less than one
than five years, or by both fine and imprisonment at the discretion of the thousand nor more than twenty thousand pesos, imprisonment for not less
court. than one year nor more than ten years, and perpetual disqualification from
public office.
Sec. 19. Borrowing by Directors, Officer and Employees Restriction and
Limitation. No director or officer or employees of the Bank or any Sec. 24. Penal Provisions of General Banking Act. The penal provisions of
corporation, partnership, or company wherein any member of the Board of Section 87-A of the General Banking Act shall be applicable to officers,
Directors, officer or employee, and/or their respective immediate family is a employees and borrowers of the Bank.
controlling shareholder, or wherein he is a director or officer shall, either
directly or indirectly, for himself or as representative or agent of others, Sec. 25. General Penal Provisions. Any officer or employee of the Bank who
borrow any of the deposits of funds from the bank, nor shall he become a violates, or permits any of the officers, employees or agents of said Banks
guarantor, or in any manner be an obligator for money borrowed from the or any other person to violate, any of the provision of this Chapter not
bank or loaned by it: Provided, That this prohibition on loans to directors, specifically punished in the preceding section and any person violating any
officers and employees shall not include loans allowed in the form of fringe provision of this Charter or aiding and abetting the violation thereof, shall be
benefits granted in accordance with rules and regulations as may be punished with a fine not less than one thousand nor more than ten thousand
prescribed by the Monetary Board of the Central Bank. pesos and with imprisonment not less than one year nor more than five
years.
Sec. 20. Rules and Regulations on Conflict of Interest. The foregoing
provisions notwithstanding and in addition thereto, the Board of Directors is Sec. 26. Other Liability of Guilty Officer or Employee. Any member of the
hereby authorized to issue rules and regulations for the purposes of Board of Directors or officer or employee of the Bank who willfully violates
determining and resolving conflict of interest questions, which rules shall, in any of the provisions of this Charter shall in, addition to the criminal and
particular, include the requirement on all officers and employees of the Bank administrative liability resulting from such act, be held liable for any loss or
to disclose any shareholdings they, or their relatives within the second civil injury suffered by the Bank as a result of such violation.
degree of consanguinity or second civil degree of affinity, may have in any
corporation, partnership, or company in excess of 2% of the equity of said Sec. 27. Liability of Directors, Officers or Partners of Offending Corporation
corporation, partnership, or company. or Partnership. If the violation of the provisions of this Charter is committed

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by a corporation or partnership, the directors, officers or partners hereof such orders, rules and regulations as may be necessary to implement the
who participated in the violation shall be criminally liable for such violation. provisions of this Charter including those relative to the financial aspects, if
any, and to the reorganization of the Bank as hereinabove authorized which
Sec. 28. Applicability of Banking Laws. The provisions of Republic Act No. will involve the determination and adoption of (1) the new internal structure
265, as amended, and Republic Act No. 337, as amended, insofar as of the Bank as reorganized down to the divisional section or lowest
applicable and not in conflict with any provision of this Charter, shall apply organizational levels, including such appropriate units as may be needed to
to the Bank. handle caretaking activities such as the disposition of certain assets and the
collection of certain accounts; (2) a new staffing pattern including
TRANSITORY PROVISIONS appropriate salary rates, and (3) the initial operating budget.
Sec. 29. Preparatory Work. Upon the effectivity of this Charter, the Board of
Directors and management of the Bank shall undertake the appropriate In the implementation of the reorganization of the Bank, as authorized
steps to establish its current financial condition for the purpose of under the preceding section, qualified personnel of the Bank may be
determining its net asset values and the book value of shares thereof. The appointed to appropriate positions in the new staffing pattern thereof and
shares of stock held by the Government of the Philippines in the Bank are those not so appointed are deemed separated from the service. No
deemed cancelled and exchange for common voting shares of the Bank. preferential or priority rights shall be given to or enjoyed by any officer or
personnel of the Bank for appointment to any position in the new staffing
Sec. 30. Transfer of Assets and Liabilities of the Development Bank of the pattern nor shall any officer or personnel be considered as having prior or
Philippines. The Bank shall transfer to the National Government such of its vested rights with respect to retention in the Bank or in any position as may
assets and liabilities as may be necessary to rehabilitate the bank and to have been created in its new staffing pattern, even if he should be the
start its operations under the Revised Charter on a viable basis, as incumbent of a similar position thereon.
determined by the appropriate authorities, such assets to include but need
not be limited to its acquired assets and non-performing accounts and such Pending the completion of the personnel actions above provided and the
liabilities to include real as well as contingent liabilities. The National issuance of the appropriate implementing orders, all present remaining
Government is hereby authorized to accept the same under terms and incumbents of position in the Bank shall continue to exercise their usual
conditions as may be mutually acceptable to the Bank and the National functions, duties and responsibilities.
Government.
Sec. 34. Separation Benefits. All those who shall retire from the service or
Sec. 31. Maintenance, Care and Preservation of Assets Transferred to the are separated therefrom on account of the reorganization of the Bank under
National Government. The Bank is hereby authorized to enter into an the provisions of this Charter shall be entitled to all gratuities and benefits
agreement with the National Government as transferee of assets from the provided for under existing laws and/or supplementary retirement plans
Bank as hereinabove provided, either as an interim arrangement or adopted by and effective in the Bank: Provided, that any separation benefits
otherwise and under such terms and conditions as may be necessary to and incentives which may be granted by the Bank subsequent to June 1,
preserve and/or to maintain and/or to dispose of such assets transferred to 1986, which may be in addition to those provided under existing laws and
the National Government. previous retirement programs of the Bank prior to the said date, for those
personnel referred to in this section shall be funded by the National
Sec. 32. Authority to Reorganize. In view of the new scope of operations of Government; Provided, further, that, any supplementary retirement plan
the Bank, a reorganization of the Bank and a reduction in force are hereby adopted by the Bank after the effectivity of this Chapter shall require the
authorized to achieve simplicity and economy in operations, including prior approval of the Minister of Finance.
adopting a new staffing pattern to suit the reduced operations envisioned.
The formulation of the program of reorganization shall be completed within Sec. 35. Banking Operations under 1986 Revised Charter, Government
six months after the approval of this Charter, and the full implementation of Laws. The banking operations of the Bank shall be governed by the
the reorganization program within thirty months thereafter. provisions of the 1986 Revised Charter beginning on January 2, 1987 on
such subsequent date as may be determined by the President of the
Sec. 33. Implementing Details; Organization and Staffing of the Bank. Upon Philippines upon the recommendation of the Minister of Finance.
the effectivity of this Charter, the Board of Directors of the Bank shall be
constituted and its Chairman appointed. The Chairman is hereby authorized,
subject to the approval of the Board of Directors as appropriate, to issue

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 42
(c) Philippine Veterans Bank the sale of such bonds and/or certificates of indebtedness are to be used in
Philippine Veterans Bank Act its lending operations for the industrial and agricultural development of the
country.
Section 1. Name Domicile and place of business. There is hereby created a
bank to be known as the Philippine Veterans Bank, which shall be commonly The Board of Directors shall determine the interest rates, maturities, and
called the Veterans Bank. Its principal domicile and place of business shall other requirements of said obligations;
be in the City of Manila but branches or agencies may be established in the
provinces and cities as the Board of Directors may decide. (h) To contract any obligation, or enter into any agreement essential to the
proper management of its corporate powers and to carry out its aims and
CORPORATE POWERS purposes;

Section 2. Corporate powers and duties. The said Veterans Bank shall be a (i) To appoint and dismiss its officers and employees;
body corporate and shall have the power:
(j) To grant loans to cooperative associations to facilitate production, the
(a) To prescribe is by-laws; marketing of crops, and the acquisition of essential commodities: Provided,
That preference should be given to such cooperative associations which are
(b) To adopt and use a seal; owned or controlled by the veterans, their widows, orphans or compulsory
heirs;
(c) To sue and be sued;
(k) To grant loans to government employees and employees of government-
(d) To carry on a trust business is accordance with the provisions of laws owned or controlled corporations, and to employees of private corporations
governing trust corporations; or entities for the purpose of enabling said employee to buy shares of stocks
in corporations or industries engaged in the development and/or expansion
(e) To grant long-term loans and advances preferably to veterans, their of agriculture and industries: Provided, That the yearly amortization of such
widows, orphans or compulsory heirs against security and real estate and/or loans shall not exceed ten per cent (10%) of the total annual salaries and
other acceptable assets including backpay certificates issued by the National wages of the employees: Provided, further, That such loan shall be payable
Treasurer pursuant to Republic Act No. 304 and Republic Act No. 897 at the in full within a period of not exceeding five years and that preference be
discretion of the Board of Directors for the establishment, rehabilitation or given to employees who are veterans;
expansion of agriculture, industrial, and other productive enterprises:
Provided, That the aggregate of such loans shall not exceed the sum total of (l) To exercise the powers granted in this Act and such incidental owners as
the paid-up capital and unimpaired surplus, long-term indebtedness and may be necessary to carry on and engage in the business of general
thirty per cent of the total deposits: Provided, further, That notarial services banking;
in connection with loan applications of not more than one thousand pesos
(P1,000.00) shall be furnished by the Bank free of charge and in case where (m) To exercise the general powers mentioned in the Corporation Law and
the Veterans Bank has no lawyers, notarial services shall be performed by the General Banking Act, insofar as they are not inconsistent or
the justice of the peace and other government notaries public, free of incompatible with the provisions of this Act.
charge;
Section 3. Authorized capital stock Par value.
(f) To invest in stocks other than shares of stock in mining companies,
government guaranteed bonds, and secured collaterals having maturities of (a) The capital stock of the Veterans shall be one hundred million pesos
not more than thirty (30) years: Provided, That the priorities in the grant of (P100,000,000.00) divided into five hundred ten thousand (510,000)
loans for secured collaterals having maturities of not more than thirty years common shares and four hundred ninety thousand (490,000) preferred
shall be in accordance with the rules and regulations established by the shares with a par value of one hundred (P100.00) pesos each.
Central Bank;
(b) At least fifty-one per cent (51%) of the capital stock of the Veterans
(g) With the approval of the President of the Philippines, to issue bonds and Bank shall be divided into common shares which shall be fully subscribed by
other certificates of indebtedness against its credits secured by real estate the government of the Republic of the Philippines for and in behalf of the
but not in excess of ninety per cent of the value thereof. The proceeds from veterans, their widows, orphans or compulsory heirs as defined and

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determined under Section 4, subsection (e) of this Act, and shall be initially Section 4. Determination of veterans entitled to benefit from this Act.
paid from the Veterans Trust Fund provided for in Section 2, subsection (d)
of Republic Act Numbered Seventeen hundred and eighty-nine as amended, (a) The term "veteran or veterans" shall include any person or persons who
and from or out of earnings, dividends, or profits from the operations of the served in the regularly constituted air, land, or naval services or arms, or in
Veterans Bank; and for the payment of said subscription, all the available such non-regularly organized military units in the Philippines during World
cash deposits with the Philippine National Bank and/or any other banks to War II, and whose services with such units are duly recognized by the
the credit of the Veterans Trust Fund shall be transferred immediately to the Republic of the Philippines or by the Government of the United States:
Veterans Bank: Provided, That after the approval of this Act and Provided, That for the purposes of this Act, the term "veteran or veterans"
notwithstanding the provisions of any existing law and/or executive orders, also include the widow, orphan or a compulsory heir of a deceased veteran,
rules and regulations to the contrary, every and all additional cash as determined by existing laws;
payments on account of the said Veterans' Trust Fund shall be remitted and
paid directly and exclusively to the said Veterans' Bank to be applied as (b) The term "organized or acknowledged veterans organizations" as used in
additional paid-up payments of the aforesaid common shares subscription: this Act shall mean a veterans organization duly recognized or
Provided, further, That nothing shall be transferred to, or received by, the acknowledged as such by the Philippine Veterans Administration which shall
said Veterans' Bank representing any portion of the proceeds of the keep an official roster of such veterans organizations;
aforesaid Veterans' Trust Fund except cash payments only of the peso
equivalent thereof at the prevailing rate of exchange: And provided, finally, (c) On the basis of the acknowledged or duly established official records and
That within five years from the organization of the Bank all shares of stock data from the Treasury of the Philippines and any other record or evidence
equivalent to fifty-one per cent subscription of the capital stock held by the admissible under the rules of evidence, such as the records of the Philippine
government of the Republic of the Philippines for and in behalf of the Veterans Administration and of the Armed Forces of the Philippines, the
veterans, their widows, orphans or compulsory heirs shall be transferred to Philippine Veterans Administration shall determine immediately after the
and in the name of the veterans who shall thereafter vote said common approval of this Act, who and how many are the veterans of the Philippines
shares. The shares shall be divided equally among the veterans at the rate of World War II and their widows, orphans or compulsory heirs as
of one share of one hundred pesos for each veteran or fraction thereof. The determined by existing laws who are entitled to the benefits of this Act. The
balance of about forty-nine (49%) per cent shall be divided into preferred decision of the Philippine Veterans Administration on the matter shall be
shares which shall be opened for subscription by any recognized veteran, final, unless appeal for review, within fifteen days from notice thereof, is
widow, orphans or compulsory heirs of said veteran at the rate of one (1) made to the President of the Philippines or to the Supreme Court whose
preferred share per veteran: Provided, That in case of failure of any decision shall be final. The appeal shall be perfected in the same manner as
particular veteran to subscribe for any preferred share of stock so offered to in other proceedings and it may be prosecuted by the interested party or by
him as herein provided, within thirty (30) days from the date of receipt of the head of any acknowledged veterans organization;
notice, said share of stock shall be available for subscription to other
veterans in accordance with such rules or regulations as may be (d) The reckoning day for determining the status and number of such
promulgated by the Board of Directors. Any share of stock corresponding to veterans, their widows, orphans or compulsory heirs shall be the date of
the capital stock subscribed and paid by the Republic of the Philippines in approval of this Act;
the manner aforementioned, shall be issued in the name of the Republic of
(e) The share of each beneficiary, war veteran or widow, orphan or
the Philippines, in trust for the benefit of veterans, their widows, orphans or
compulsory heir of a deceased veteran, in the distribution of the benefits
compulsory heirs as determined in this Act, and any share of stock
accruing to the Republic of the Philippines, will be equal regardless of rank
subscribed and paid by individual veteran shall be issued in the name of the
and services rendered: Provided, That in the case of orphan or orphans of a
individual veteran, his widow, orphan or compulsory heir. The sale or
deceased veteran, they shall be counted as one unit only and the share of
transfer of a share or stock of a veteran, widow, orphan or compulsory heir
all of them regardless of their number will be the same or equal to that of a
of a veteran to a party not a veteran, widow, orphan or compulsory heir of a
surviving war veteran or surviving widow;
veteran shall not be allowed under any circumstances. Any share may be
sold or transferred to the Bank which shall issue the same to the
(f) Notice of the decision of the Philippine Veterans Administration on the
stockholders who are veterans, their widows, orphans or compulsory heirs:
question of who are entitled to participate in the benefits accruing to the
Provided, That no veterans, widow, orphan or compulsory heir shall be
Veterans Trust Fund shall immediately be served on the interested parties,
issued a total of more than twenty shares.
either directly on thru the organization to which they belong in writing and

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by registered mail. In addition, the Philippine Veterans Administration shall (d) Generally, to make advances or discount paper for agricultural,
publish for three consecutive weeks a notice in two newspapers of general manufacturing, industrial or commercial purposes: Provided, That loans,
circulation in the Philippines to the effect that the Philippine Veterans discounts, or advances made under this section shall have maturities of not
Administration has already completed its work of determining the number exceeding one year, renewable from year to year, in the discretion of the
and the identity of those entitled to participate in the trust fund and advising Board of Directors:
any party interested who has not received yet the notice of the decision
served upon him that he may verify his inclusion or exclusion from the (e) The aggregate amount of loans for any single industry shall at no time
official register in the Philippine Veterans Administration. This Office shall exceed twenty per cent of the Banks lending capacity;
keep a complete list and official register of those included and excluded from
the enjoyment of the benefit, which list shall be available for inspection The total liabilities to the bank of any person, or of any company,
during office hours. The official registry book shall constitute an irrevocable corporation, or firm for money borrowed, including in the liabilities of the
public record, certified true copies of which may be released by the company or firm, the liabilities of the several members thereof, shall at no
custodian of records for official purpose only. time exceed fifteen per centum of the unimpaired capital and surplus of the
Bank. But the discount of bills of exchange drawn in good faith against
BANKING OPERATION IN GENERAL actually existing values owned by the person negotiating the same shall not
be considered as money borrowed, and in addition to the fifteen per centum
Section 5. Loans, investigation and liabilities. The Veterans Bank is hereby of the unimpaired capital and surplus of the Bank, hereinbefore provided
authorized: for, the total liabilities of any borrower, may amount to a further fifteen per
centum of the unimpaired capital and surplus of the Bank provided such
(a) To grant loans for the establishment, rehabilitation, expansion or additional liabilities are secured by shipping documents, warehouse receipts
development of any agricultural, commercial or industrial enterprise, or or other similar documents transferring or securing title covering readily
personal service including public utilities, under such rules and regulations marketable, nonperishable stocks, when such staples are fully covered by
as may be prescribed by the Board of Directors and that preference be given insurance and when such staples have a market value equal to at least one
to applicants who are veterans; hundred twenty-five per centum of such additional liabilities.

(b) To make loans on, or to discount notes and/or receipts secured by, The Bank shall not make any loan upon the security of the stock of any
harvested and stored crops: Provided, That no loans on the security of such other corporation if the aggregate market value of all such stocks as
harvested and stored crops shall exceed eighty per cent of the market value collateral exceeds an amount equal to ten per centum of the unimpaired
thereof on the date of the loans: Provided, further, That the crops so capital stock and surplus of the Bank. The term "loan" whenever used in this
mortgaged shall be insured by the mortgagor for the benefit of the Veterans Act shall include overdrafts and the limitations contained in this section shall
Bank for their entire market value at the discretion of the Board of apply to any loan of any kind whenever secured wholly or party by real
Directors: Provided, furthermore, That if owing to any circumstances the estate mortgage.
value of the crops given as security shall diminish, the mortgagor shall
furnish the Veterans Bank with additional security or refund such part of the BOARD OF DIRECTORS COMPOSITION AND ORGANIZATION
loan as the Bank may deem necessary: Provided, finally, That such loans
shall be granted for a period of not to exceed one year, subject to Section 6. Qualifications and per diems of the Board of Directors.
extension, in the discretion of the Board of Directors;
(a) Within the first five years from the organization of the Veterans Bank or
(c) To make loans to agriculturists in installments, on standing crops of the until the transfer of the common shares of its capital stock to the veterans
natural products of the Philippines such as palay, copra, sugar, tobacco, as provided in Section three of this Act, the affairs and business of the
corn, abaca and maguey, of not exceeding seventy per centum of the Veterans Bank shall be directed and its property managed, controlled and
estimated value of such crops: Provided, however, That before granting preserved, unless otherwise provided in this Act, by a Board of Directors
such loans, the Veterans Bank may require additional security in the nature consisting of eleven (11) members to be composed of three ex-officio
of mortgage on landed estate duly registered in the name of the debtor, or members to wit: the Philippine Veterans Administrator, the President of the
chattel mortgage including those upon livestock, machineries and Veterans Federation of the Philippines, and the Secretary of National
agricultural implements or personal bonds with sufficient surety or sureties Defense, and the remaining members who shall be veterans of good
satisfactory to the bank; standing with formal business training and/or experience in banking and

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finance, shall, upon the recommendation of the Supreme Council of the THE EXECUTIVE OFFICERS
Veterans Federation of the Philippines, be appointed by the President of the
Philippines with the consent of the Commission on Appointments. The Section 8. President and Vice-Presidents Appointment and removal
Supreme Council of the Veterans Federation of the Philippines shall submit Salaries. The chief executive of the Bank shall be the President who shall be
to the President of the Philippines a list of sixteen veterans from which list chosen by the Board of Directors and, during the first five years of
the President shall choose eight who shall hold office for one year and until Transition already mentioned, with the advice and consent of the President
their successors are duly appointed and qualified. After the transfer of the of the Philippines. He shall be assisted by an Executive Vice-President and
common shares of the capital stock of the Veterans Bank to the veterans as such number of Vice-Presidents who shall be elected and may be removed
provided for in Section three of this Act, the members of the Board of by the Board of Directors. The President and the Executive Vice-President
Directors shall be elected annually by the stockholders in the manner shall possess practical experience in banking or finance as executives for at
prescribed by the Corporation Law: Provided, That no director, officer, or least five years. The salaries of the President and the Executive Vice-
employee of any bank shall be eligible as member of the Board of Directors President shall be fixed by the Board of Directors but, in no case, shall it be
of the Veterans Bank: Provided, further, That no member of the Supreme more than thirty thousand (P30,000.00) pesos and twenty-five thousand
Council of the Veterans Federation of the Philippines who participated in the (P25,000.00) pesos yearly, respectively.
election of a member of the Board of Directors other than the Federation
President who is an ex officio member can be appointed to the Board unless THE PRESIDENT POWERS AND DUTIES
he first resigns as a member of the Supreme Council. The members of the
Board shall receive a per diem allowance of fifty pesos (P50.00) for every Section 9. Duties and powers of the President. The President of the Bank
meeting of the Board actually attended by them. shall among others, execute and administer the policies, measures, orders,
and resolutions approved by the Board of Directors, and direct and
(b) The Board of Directors, shall upon a majority vote of all its members, supervise the operation and administration of the Bank.
elect its Chairman, Vice-Chairman, and Secretary which Secretary may or
may not be a member of the Board, at such a time and place as shall be Particularly, he shall have the power and duty:
provided for in its By-Laws. Pending the election of its Chairman, the
President of the Veterans Bank shall preside over the Board of Directors. (a) To make loans on commercial paper for such period of time not to
exceed four months, in sums not exceeding ten thousand pesos
POWER AND AUTHORITY OF THE BOARD OF DIRECTORS (P10,000.00) to anyone person, company, corporations, or firm, but he is
required to submit a report on such loans to the Board of Directors at its
Section 7. The Board of Directors shall succeeding session: Provided, That the total amount of such loans shall not
exceed five (5%) per cent of the paid-up capital and surplus;
(a) Formulate policies necessary to carry out effectively the provisions of
this Act and adopt such By-Laws rules and regulations for the effective (b) To make, with the advice and consent of the Board of Directors, all
operation of the Bank in conformity with this Act and other existing laws; contracts on behalf of the said Bank and to enter into all necessary
obligations that this Act requires or permits:
(b) Determine the organization of the Bank by creating the necessary
departments or offices as are essential for the efficient operation of the (c) To report weekly to the Board of Directors the main facts concerning the
Bank; operations of the Bank during the preceding week and to suggest changes in
rates of discount of interest, exchange, or policy which to him may seem
(c) Subject to prior approval of the Monetary Board, establish branches or best;
agencies in other countries; and,
(d) To exercise such other powers and perform such other duties as may be
(d) That during the first five years of transition; mentioned in Section three directed by the Board of Directors from time to time.
(a) of this Act, with the authorization of the proper Department Secretary
first had, the Board of Directors may appoint as agents of the Bank the LEGAL DEPARTMENT
provincial or municipal treasurers, who shall receive such additional
compensation as the Board may determine. Section 10. Legal Counsel. The Veterans Bank shall have its own legal
department, the chief and members of which shall be appointed by the
Board of Directors.

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AUDITING DEPARTMENT Section 14. Inspection by Department of Supervision and Examination of
the Central Bank. The Veterans Bank shall be subject to inspection by the
Section 11. Bank Auditor Reports. The Veterans Bank shall have its own Department of Supervision and Examination of the Central Bank in
auditing department, the chief of which shall be appointed by the Board of accordance with Republic Act Numbered Two hundred sixty-five and
Directors from among recognized veterans of good standing who are Republic Act Numbered Three hundred thirty-seven.
certified public accountants and with actual experience in the work of a
comptroller. The auditor may not be removed except for cause and neither Section 15. Prohibition against owing stock in or incurring indebtedness to
may his salary be reduced during his term of office. All other employees of the Bank. The Secretary of Finance. the Governor of the Central Bank, all
the auditing department shall be appointed by the auditor with the advice other members of the Monetary Board, and the Chief of the Auditing
and consent of the Board of Directors. Unless otherwise prescribed by the Department of the Veterans Bank are hereby prohibited from owing stock in
Board of Directors, the auditor of the Veterans Bank shall have the rank and the Veterans Bank, or from becoming indebted to said Bank, directly or
pay of a Vice-President and shall receive a salary of eighteen thousand indirectly.
pesos (P18,000.00) per annum. The auditor, with the approval of the Board
of Directors, shall fix the salaries of the employees of the auditing PROHIBITED LOANS
department.
Section 16. Loans to officers, directors, and employees; restriction and
The auditor shall make an annual report of the condition of the Bank to the limitation. The Veterans Bank shall not directly or indirectly, grant loans to
Board of Directors, to the President of the Veterans Federation of the any director, officer, employee, or agent of the Bank, and no loans shall be
Philippines, and to the Administrator of the Philippine Veterans granted to a corporation, partnership, or company wherein any member of
Administration. The report shall contain among other things a statement of the Board of Directors is a shareholder, agent or employee in any matter,
the resources and liabilities, including earnings and expenses, the amount of except by the unanimous vote of the members of the Board present,
capital stock, dividends paid, surplus reserved, and undivided profits, as well excluding the member interested: Provided, That the total liabilities to the
as the losses, bad debts and suspend and overdue papers carried in the Bank of any corporation wherein any member of the Board of Directors of
Bank's assets as of the day in which the statements are compiled. the Veterans Bank is a shareholder, agent or employee in any manner, shall
at no time exceed five (5%) per centum of the surplus and paid-up capital
APPOINTMENTS, REMOVAL AND SALARIES OF THE OTHER OFFICERS of the Bank.
AND EMPLOYEES OF THE VETERANS
ACQUISITION AND DISPOSAL OF REAL ESTATE
Section 12. Appointments, removal and salaries of other officers and
employees. All other officers and employees of the Bank shall be appointed Section 17. The Veterans Bank is hereby authorized to purchase and own
and removed by the Board of Directors upon recommendation of the such real estate as may be necessary for the purpose of carrying on its
President of the Bank: Provided, however, That all other circumstances business. It is also authorized to hold such real estate as it may find
being equal, preference shall be given to veterans, or their widows, orphans necessary to acquire in the collection of debts due to the said Bank or to its
or compulsory heirs in the appointment of said personnel. Said officers and branches, but real estate acquired in the collection of debts shall be sold by
employees shall have duties and compensation which shall be fixed by the the Bank within five (5) years after the date of its acquisition.
President with the approval of the Board of Directors.
REDEMPTION OF MORTGAGED PROPERTY
Section 13. Fidelity bond of officers and employees. The Board of Directors
may require any officer and employees of the Bank and its branches, before Section 18. Right of redemption of property foreclosed. The mortgagor
entering upon the performance of their duties, to furnish a fidelity bond for shall have the right, within one year after the sale of the real estate as a
the benefit of the Bank, in the form and amount prescribed by the Board of result of the foreclosure of a mortgage, to redeem the property by paying
Directors. For this purpose, and for this purpose only, all officers and the amount fixed by the court in the order of execution, with interest
employees of whom a bond, is required shall be deemed public officers and thereon at the rate specified in the mortgaged, and all the costs and other
employees, respectively, and the provisions of the Public Bonding Law, judicial expenses incurred by the Bank by reason of the execution and sale,
Chapter Fifteen of the Administrative Code and related legislations are and for the custody of said property.
hereby made applicable to them.
Section 19. Right to demand additional securities; disposal of same
Advanced maturity of credits Right to collect deficiency. If, from any cause

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 47
whatsoever, any of the securities specified for the loans provided for in this (a) Twenty (20%) per cent of such net profit shall accrue to the reserve
Act or accepted by said Bank as security for loans or discounts should account: Provided, That should the accumulated reserves equal to or in
decline or depreciate in market value in part or as a whole, or upon non- excess of the authorized capital of the Bank, the twenty per cent herein
performance of any promise made to secure the loan or discount, or bill of authorized to be accumulated shall be distributed under the subsection
exchange, notes, and checks, the said Bank may demand additional immediately following:
securities or may forthwith declare any such obligation due and payable and
upon three days' notice, demand, sell, assign, transfer, and deliver the (b) From the remaining eighty (80%) per cent of the net profit shall be
whole of said securities or any part thereof, or any substitute therefor, or deducted the guaranteed earning of the preferred shares of stock owned by
any addition thereto, or any other securities given unto or left in the individual veterans, their widows, orphans or compulsory heirs: Provided,
possession of, or hereafter given unto or left in the possession of the said That the share in the net profits corresponding to the Republic of the
Bank for safekeeping or otherwise, at any broker's board or at public or Philippines shall first be applied in payment of its capital stock subscription,
private sale, at the option of said Bank, and at such sale, if public, the said until said shares shall have been fully paid. Thereafter, twenty per centum
Bank may itself purchase the whole or any part of the property sold, free of the net profits after deducting the guaranteed earnings of the preferred
from any right of redemption on the part of the mortgagor or pledgor. In shares shall be paid in cash to the Board of Trustees as hereinafter provided
case of sale for any cause, after deducting all costs, or expenses of any kind in Section 23 hereof for disposition and shall be available for 'grants-in-aid'
for collection, sale or delivery, the said Bank may apply the residue of the to veterans, their widows, orphans, or compulsory heirs, for educational,
proceeds of the sale so made, to pay the said Bank, as its President shall social, charitable, and rehabilitation purposes, to organization doing service
deem proper whether then due or not due, making proper rebate for for the cause of the veterans, and for such other purposes beneficial to the
interest or liabilities not then due, returning the overplus, if any, to the veterans.
mortgagor or pledgor, who shall remain liable to and pay to said Bank any
deficiency arising upon such sale or sales. The remaining profits shall be paid as dividends on common shares held by
the individual veterans as provided in Section three of this Act.
Section 20. Action to collect balance of indebtedness. If the proceeds of the
sale of securities held as collateral for loans by said Bank do not cover the Section 23. Board of Trustees of World War II. There is hereby created a
full amount of the loan, together with the interest and other charges Board of Trustees for the veterans of World War II to be known as "The
thereon, the Bank may proceed against the debtor for the difference, but Board of Trustees of the Veterans of World War II", consisting of eleven (11)
any amount exceeding the full indebtedness to the Bank shall be paid to the members to be selected from among the veterans of World War II by the
debtor. Supreme Council of the Veterans Federation of the Philippines organized
pursuant to Republic Act Numbered Twenty-six hundred and forty.
PROHIBITED REMUNERATION
The Board of Trustees shall be organized within ninety (90) days after the
Section 21. Prohibition against charging fees in securing loans Penalties for approval of this Act. Immediately after its organization the members of the
violation. No fee, charge or commission in any form shall be exacted, Board of Trustees shall elect from among themselves a Chairman and a
demanded, or paid, for obtaining loans, directly or indirectly, by any Vice-Chairman. The members of the Board of Trustees shall serve without
director, officer, employee, or agent of the Veterans Bank. Any director, compensation other than actual and necessary expenses incurred either in
officer, employee or agent so exacting, demanding or receiving any fee for attendance upon meetings of the Board or upon other official business
his service or for the use of his influence in obtaining a loan shall be authorized by resolution thereof, but a vote of the majority of all the
punished as hereinafter provided for, for the violation of this Act. members shall be necessary to authorize the disposal of the funds held by
the Board.
NET PROFIT
The Board shall appoint a secretary and such necessary other officials and
Section 22. Allocation of net Profits. At the close of each calendar year, the employees and fix their compensations.
Bank shall determine the net result of its operations, in the calculation of
which, adequate allowances shall be made for probable losses, and the net
profit arrived thereat shall be distributed as follows:

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 48
LEGAL EXISTENCE certification by the Monetary Board pursuant to Section ten of Republic Act
Numbered Three hundred thirty-seven.
Section 24. Term of legal existence. The legal existence of the Bank under
this Act shall be for a period of fifty (50) years, from and after the date of The by-laws, duly certified by the Monetary Board as aforesaid, shall be
the approval of this Act. signed by the stockholders voting for them and shall be kept in the principal
office of the Bank, subject to the inspection of the stockholders during office
Section 25. Prohibition against the use of the word "Veterans" Penalty for hours, and a copy thereof, duly certified by a majority of the directors and
violation. All banks other than the Veterans Bank, and such other banks now countersigned by the Bank secretary, shall be filed and registered with the
licensed to do business in the Philippines whose names already include the Securities and Exchange Commissioner.
word "veterans" are prohibited from using the word "veterans" as a portion
of their names or titles. Any party violating this provision shall be subject to An Act of Rehabilitate the PVB
a fine of not less than one hundred (P100.00) pesos for each day during Section 1. Declaration of Policy. – In order to give meaning and realization
which said violation is committed or repeated. to the constitutional mandate to provide immediate and adequate care,
benefits and other forms of assistance to war veterans and veterans of
PENALTIES military campaigns, their surviving spouses and orphans, it is hereby
declared the policy of the Government to provide the necessary mechanisms
Section 26. Penalties for violation of the provisions of this Act. Any to rehabilitate the Philippine Veterans Bank, hereinafter known as the
director, officer, employee, or agent of the Bank who violates or permits the Veterans Bank, a bank owned by the Filipino veterans of World War II and
violation of any of the provisions of this Act, or any person aiding or deeply imbued and impressed with public interest.
abetting the violation of any provision of this Act, shall be punished by a fine
not exceeding ten thousand (P10,000.00) pesos or imprisonment of not Section 2. Settlement of Liabilities. – The National Government deposit of
more than five (5) years, or both, in the discretion of the court. One billion four hundred eighty-nine million pesos (P1,489,000,000.00) with
the Veterans Bank is hereby restructured into a seven-year promissory note
VETERANS BANK A GOVERNMENT DEPOSITORY of the said bank, carrying an interest rate of four percent (4%) per annum
effective on the date of actual operation: Provided, That only the interest
Section 27. Veterans Bank authorized to receive deposit of government shall be paid in the first three (3) years: Provided, further, That repayment
funds as a Government Depository. The Secretary of Finance, the National of the principal shall be divided into four (4) equal amortizations: Provided,
Treasurer and his authorized representatives, city and municipal treasurers finally, that the said promissory note shall be exempted from the reserve
as well as official custodians of public funds or those belonging to equipment rule of commercial banks.1awphi1©
government-owned or controlled corporations are hereby authorized if they
so desire to make and actually maintain deposits of any government or The accrued interests due to the National Government deposits up to and
corporate funds with the Veterans Bank, which is hereby declared to be a during the time of the Veterans Bank's closure in 1985 and the tax liabilities
government depository. incurred by the Veterans Bank also up to and during the time of the
Veterans Bank's closure are hereby condoned and extinguished.
GENERAL PROVISIONS
The obligations of the Veterans Bank with the Central Bank of the
Section 28. Articles of incorporation. This Act, upon its approval, shall be Philippines and the Philippine Deposit Insurance Corporation are hereby
deemed and accepted to all legal intents and purposes as the statutory restructured in the same manner governing National Government deposits
articles of incorporation or Charter of the Philippine Veterans' Bank; and provided in the first paragraph of this section.
that, notwithstanding the provisions of any existing law to the contrary, said
Bank shall be deemed registered and duly authorized to do business and With respect to deposits of local government units and other private
operate as a commercial bank as of the date of approval of this Act. deposits with the Veterans Bank, the terms and conditions for the retention
or withdrawal thereof shall be negotiated individually but may carry more
Section 29. By-laws. Within one month after the approval of this Act, the favorable terms in favor of the Veterans Bank.
by-laws of the Philippine Veterans' Bank for its organizational, functional
and operational government and procedures shall be adopted by the Section 3. Operations and Changes in the Capital Structure of the Veterans
affirmative vote of the stockholders representing a majority of all the Bank and other Amendments. – The operations and changes in the capital
subscribed capital stock entitled to vote, whether paid or unpaid, subject to

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structure of the Veterans Bank, as well as other amendments to its articles (c) Exercise management oversight and liaison with Central Bank officers for
of incorporation and bylaws as prescribed under Republic Act No. 3518, shall a period which shall not exceed three (3) months reckoned from the date of
be in accordance with the Corporation Code, the General Banking Act, and approval by the Monetary Board to reopen the Veterans Bank; and
other related laws.1awphi1©
(d) Submit to the Monetary Board of the Central Bank other
Section 4. Repeal of Amendatory Presidential Decrees. – Presidential recommendations for the successful reopening and operations of the
Decree Nos. 236, 1637, 919 and 1906 which are inconsistent with this Act Veterans Bank.
are hereby repealed, thus restoring the full force and legal effect of Republic
Act No. 3518. Section 8. Transitory Provisions. – Without requiring new capital infusion
either from the Government or from outside investigators, the Filipino
Section 5. Reopening of the Veterans Bank and Its Branches. – Pursuant to veterans of World War II who are real owners-stockholders of the Veterans
and within ninety (90) days from the effectivity of this Act, the Central Bank Bank shall cause the said bank to have at least Seven hundred fifty million
is hereby authorized to reopen within the period of three (3) years from the pesos (P750,000,000.00) in total unimpaired capital accounts prior to
date of the reopening of the head office with no branch licensing cost to the reopening pursuant to this Act as a commercial bank.
said bank.
It is hereby provided that the Board of Trustees of the Veterans of World
Section 6. Veterans Bank as a Government Depository. – The Secretary of War II (BTVWW II) created under Republic Act No. 3518 is hereby
Finance, the National Treasurer and his authorized representatives, city and designated as trustee of all issued but undelivered shares of stock.
municipal treasurers, as well as custodians of public funds or those
belonging to government-owned or controlled corporations, are hereby (d) Philippine National Bank
authorized if they so desire to make and actually maintain deposits, of any Revised Charter of PNB
government of corporate funds with the Veterans Bank, which is hereby SEC.2. Name; Place of Business; Branches; Agencies and Other Offices- The
declared to be a government depository. Philippine National Bank (hereinafter referred to as the "Bank"), a bank
created under Act No. 2612, as amended, and operating under the
Section 7. Rehabilitation Committee. – To facilitate the implementation of provisions of Presidential Decree No. 694, as amended, shall henceforth
the provisions of this Act, there is hereby created a rehabilitation committee operate under the provisions of this 1986 Revised Charter.
which shall have a term of three (3) months from the date of the approval
of this Act composed of the following: the Executive Secretary, as Chairman, The Bank's principal office and place of business shall be in the National
and the Administrator of the Philippine Veterans Affairs Office, the President Capital Region, also known as Metro Manila. It may open and maintain other
of the Veterans Foundation of the Philippines, a representative from the branches, agencies or other offices at such places in the Philippines or
executive board of the Veterans Federation of the Philippines and a abroad as its Board of Directors may deem advisable, with the prior
representative from the Board of Trustees of the Veterans of World War II approval of the Monetary Board of the Central Bank of the Philippines.
or their respective representatives, as members.
SEC. 3. Corporate Powers and Purposes- The Bank shall be a body
Specifically, the committee shall: corporate and shall have the following powers and purposes:

(a) Prepare, finance and submit a viable rehabilitation plan to the Monetary (a) To perform commercial banking, as well as expanded
Board of the Central Bank; commercial banking functions; and, within the context of a
financially viable and stable baking institution, to provide banking
(b) Select and organize an initial manning force headed by a management services for the development of agriculture and small and medium
team to be composed of competent, experienced and professional managers scale commercial and industrial enterprises particularly in the in the
who must possess all qualifications and none of the disqualifications countryside, as provided in Section 4; to provide banking services to
provided under Central Bank rules and regulations. The management team the National Government, other government entities and local
shall be staffed by a trained work force: Provided, That preference shall be governments; and to engage in international banking activities,
given to the veterans and their dependents, other qualifications being equal; particularly in the promotion of exports;

b) To accept foreign deposits and operate a foreign currency deposit


unit as established under Republic Act No. 6426, as amended;

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(c) To accept and administer trusts and to carry on a general trust The Board of Directors shall have authority to convert such number of
business; unissued common voting shares into preferred non-voting shares to be
issued for sale or subscription, with such features, terms, and restrictions as
(d) To act as official government depository with authority to it may determine.
maintain deposits of the government, its branches, subdivisions and
instrumentalities, and of government owned or controlled The issue and offering for sale of additional shares to private investors
corporations, subject to the provisions of Section 6 hereof and such which will result in more than one-third of the common voting shares being
rules and regulations as the Monetary Board may prescribe; and eligible for acquisition by such investors shall require prior approval of the
President of the Philippines; provided, that, where the sale of shares will
(e) To adopt, amend or change its By-laws; to adopt, alter and use result in a majority ownership by the private sector, the prior approval of
a seal, to make contracts; to sue and be sued; and to exercise the the President shall also be required.
general powers of a corporation as provided in the Corporation Code
of the Philippines and the powers of a bank of its category under the SEC. 6. Change in Ownership of the Majority of the Voting Equity of the
General Banking Act. Bank. -- When the ownership of the majority of the issued common voting
shares passes to private investors, the stockholders shall cause the adoption
The exercise of the above-mentioned powers on banking shall be subject to and registration with the Securities and Exchange Commission of the
applicable law, as well as regulations promulgated by the Central Bank of appropriate Articles of Incorporation and revised by-laws within three (3)
the Philippines. months from such transfer of ownership. Upon the issuance of the certificate
of incorporation under the provisions of the Corporation Code, this Charter
SEC. 4. Granting of Loans; Exposure Ceilings and Limits on Equity shall cease to have force and effect, and shall be deemed repealed. Any
Investments. -- In the exercise of its lending authority, the Bank shall give special privileges granted to the Bank such as the authority to act as official
preference to loans for agricultural and small-and medium-scale commercial government depository, or restrictions imposed upon the Bank, shall be
and industrial enterprises, particularly in the countryside. withdrawn, and the Bank shall thereafter be considered a privately
organized bank subject to the laws and regulations generally applicable to
Unless otherwise provided in this Charter, loans and other credit private banks. The Bank shall likewise cease to be a government owned or
accommodations granted by the Bank shall be subject to the appropriate controlled corporation subject to the coverage of service-wide agencies such
applicable loan limits to any single borrower as provided for under Republic as the Commission on Audit and the Civil Service Commission.
Act No. 337, as amended.
The fact of the change of the nature of the Bank from a government-owned
The aggregate amount of loans, guarantees and contingent accounts, to and controlled financial institution to a privately-owned entity shall be given
Government agencies and entities including government owned and publicity.
controlled corporations shall at no time exceed the deposits and book value
of the shareholdings of the Government, including government agencies and SEC. 7. National Government Subscription. -- Upon the effectivity of this
entities, government owned or controlled corporations plus twenty percent Charter, the National Government shall subscribe to Twenty-Five Million
(20%) of such total. common shares of stock worth Two Billion Five Hundred Million Pesos which
shall be deemed paid for by the Government with the net asset values of
The authority of the Bank to invest in equities of allied undertakings, the Bank remaining after the transfer of assets and liabilities as provided in
financial or non-financial, as well as in non-allied undertakings, shall be Section 29 hereof.
governed by the provisions of Republic Act No. 337, as amended.
SEC. 8. Who may Vote Government-Owned Stock. -- The voting rights of all
SEC. 5. Authorized Capital Stock; Par Value; Sale of Shares. -- The the stock of the Bank owned and controlled by the National Government
authorized capital stock of the Bank shall be Ten Billion Pesos to be divided shall be vested in the President of the Philippines, or in such person or
into One Hundred Million common shares with par value of P100 per share persons as the President may from time to time designate.
which are available for subscription by the National Government. The
common shares may be offered for sale to or subscription by private; SEC. 9. Board of Directors; Composition; Tenure; Per Diems. -- The affairs
investors; Provided, That, the investment of private investors shall be and business of the Bank shall be directed and its properties managed and
subject to the applicable provisions of the General Banking Act. preserved and its corporate powers exercised, unless otherwise provided in

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this Charter, by a Board of Directors consisting of nine members, duly SEC. 11. Powers of the Board of Directors. -- The Board of Directors shall
elected as herein provided for a term of one year or until their successors have, among others, the following duties, powers and authority:
are duly elected and qualified.
(a) To formulate policies necessary to carry out effectively the
The Chairman of the Board shall be appointed by the President of the provisions of this Charter;
Philippines from among members of the Board: Provided, That the position
of Chairman of the Board and President of the Bank shall not be held by the (b) To adopt, amend or change the by-laws as well as such rules
same person. and regulations as may be necessary for the effective operation of
the Bank, in conformity with this Charter and existing laws;
The Chairman shall preside at meetings of the Board and of the
stockholders. (c) To prescribe such terms and conditions to govern the granting of
loans and credits, consistent with the provisions of this Charter;
The President of the Bank shall be vice-chairman of the Board and, as such
shall assist the chairman and act in his stead in case of absence or (d) To adopt an annual budget for the effective operation and
incapacity. In case of incapacity or absence of both the chairman and vice- administration of the Bank;
chairman, the Board of Directors shall designate a temporary chairman from
among its members. (e) To create, establish and operate a "Self-Insurance System" in
order to effect possible damage or loss of cash-in-transit that the
Unless otherwise set by the Board and approved by the President of the Bank may suffer on account of cash and check remittances to its
Philippines, members of the Board shall be paid a per diem of one thousand branches and agencies and vice-versa, as well as those that may
pesos for each meeting of the Board of Directors actually attended: arise from irregular encashment or negotiation of checks, drafts,
Provided, That the total amount of per diems for every single month shall telegraphic transfers and similar instruments, or losses arising from
not exceed the sum of Five Thousand Pesos. other forms of fraud;

SEC. 10. Election and Qualification of Members of the Board of Directors. -- (f) To create and establish a Provident Fund which shall consist of
Annually on the first Tuesday after the first Monday in March, the contributions made both by the Bank and its officers or employees
stockholders shall meet to elect the members of the Board of Directors for to a common fund for the payment of benefits to such officer or
the current year. Each stockholder or proxy will be entitled to as many votes employee or his heirs under such terms and conditions as the Board
as he may have shares of stock registered in his name on the thirty-first of of Directors may fix;
January last preceding and held by him at the time of the election multiplied
by the number of directors to be elected. In the election of the members of (g) To compromise or release, in whole or in part, any claim,
the Board, stockholders shall have the right of cumulative voting as liability, or demand for or against the Bank, regardless of the
recognized by law. amount involved, under such terms and conditions as it may impose
to protect the interests of the Bank
No person shall be elected director of the Bank unless he is a natural-born
citizen of the Philippines, not less than thirty-five years of age, of good (h) To determine the procedure and requirements for the acquisition
moral character and has attained proficiency, expertise and recognized of properties necessary for the business of the Bank and
competence in one or more of the following: banking, finance, economics,
law, agriculture, business management, public utility or government (i) To dispose of properties of the Bank, whether used in the
administration. conduct of its business or acquired as a result of its banking
operations, by public bidding or private negotiations as provided in
At least four of the elective members of the Board shall not concurrently Sec. 21 of this Charter.
hold appointive or elective positions in the National Government, any
government-owned or controlled corporation, or in any local government. The Board shall meet as frequently as necessary and the presence of five
members shall constitute a quorum.
No director, officer on employee of any other bank shall be eligible as a
member of the Board of Directors of the Bank. SEC. 12. President of the Bank. - The Chief Executive Officer of the Bank
shall be the President who shall be elected by the Board of Directors from

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among themselves with the advise and consent of the President of the SEC. 14. Bank Auditor. -- The Commission on Audit shall be ex-officio
Philippines. No person shall be appointed President of the Bank unless he is auditor of the Bank and shall designate a representative to the Bank.
at least forty years of age, of good moral character and reputation, with at
least ten years previous experience in banking, and has a reputed SEC. 15. Other Officers and Employees. - The Board of Directors shall
proficiency, expertise and recognized competence in banking or financial provide for an organization and staff of officers and employees of the Bank
management. and upon recommendation of the President of the Bank, fix their
remunerations and other emoluments.
The President of the Bank shall, among other powers and duties, execute
and administer the policies, measures, order and resolutions approved by No officer or employee of the Bank subject to the Civil Service Law shall be
the Board of Directors, and direct and supervise the operations and dismissed or suspended except as provided by law.
administration of the Bank. Particularly, he shall have the power and duty:
SEC. 16. Examination of the Bank. -- The Bank shall be subject to
(a) To execute all contracts and to enter into all authorized supervision and examination by the appropriate department of the Central
transactions in behalf of the Bank; Bank of the Philippines.

(b) To exercise, as Chief Executive Officer, the power of supervision SEC. 17. Inhibition from Board Meeting of Member with Personal Interest. --
and control over decisions or actions of subordinate officers and all Whenever any member attending a meeting of the Board of Directors has a
other powers that may be granted by the Board. persona interest directly or indirectly, in the discussion or resolution of any
given matter, said member shall not participate in the discussion or
(c) To recommend to the Board the appointment, promotion, or resolution of the matter and must retire from the meeting during the
removal of all officers of the Bank with the rank of at least Vice deliberation thereon. The minutes of the meeting which shall not the subject
President or its equivalent; matter, when resolved, the fact that a member had a personal interest in it,
and the withdrawal of the members concerned, may be made available to
(d) To appoint, promote or remove employees and officers below the public.
the rank of Vice President;
SEC. 18. Prohibition on Officers and Employees of the Bank. -- Excepts as
(e) To transfer, assign or reassign officers and personnel of the required by law, or upon order of a court of competent jurisdiction, or
Bank in the interest of the service; express order of the President of the Philippines or writ of permission of the
client, no officer or employee of the Bank shall reveal to, nor allow, to be
(f) To report periodically to the Board of Directors on the operations examined, inquired or looked into by any relative to details of individual
of the Bank; accounts or specific banking transactions: Provided, that in respect to
deposits of whatever nature, the provisions of existing laws shall apply.
(g) To submit annually a report on the result of the operations of
the Bank to the President of the Philippines and to private This prohibition shall not apply to the exchange of confidential credit
shareholders in the Bank, if any; and information among government financial institutions or among banks, in
accordance with established banking practices or as may be allowed by law.
(h) To delegate any of his powers, duties or functions to unto any
official of the Bank, with the approval of the Board of Directors. SEC. 19. Borrowings by Directors, Officers and Employees - Restrictions and
Limitations. -- No director of officer or employee of the Bank or any
SEC. 13. Legal Matters and Cases. -- The Bank shall have its own Legal corporation, partnership, or company wherein any member of the Board of
Department, the head of which shall be appointed by the Board of Directors Directors, officer or employee, and/or their respective relatives within the
of the Bank upon recommendation of the President of the Bank. second degree of consanguinity or affinity, is a director, officer, or
controlling shareholder, shall either directly or indirectly, for himself or as
The Bank may, subject to court approval, deputize any member of its legal representative or agent of others, borrow any of the deposits of funds from
staff to act as Special Sheriff in the enforcement of court writs and the Bank, nor shall he become a guarantor, indorser, or surety for loans
processes in cases involving the Bank. from the Bank to others, or in any manner be an obligor for money
borrowed from the Bank or loaned by it: Provided, That this provision on

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loans to directors, officers and employees shall not include loans allowed in used for the declaration of Dividends corresponding to the shares of the
the form of fringe benefits granted in accordance with rules and regulations Government and the private stockholders. Dividends may either be in the
as may be prescribed by the Monetary Board of the Central Bank. form of cash or stock as the Board of Directors shall determine.

The Bank shall not grant, directly or indirectly, any loans or credit SEC. 24. Payment of Cash Dividends Corresponding to Government-Owned
accommodations to the head or to any officer or personnel directly Shares. -- Cash Dividends corresponding to the shares of the National
exercising supervisory or regulatory authority over the activities of the Bank Government shall first be set aside and used for the purpose of retiring the
such as those of the Central Bank of the Philippines or of the Commission on government securities which may have been issued by the Minister of
Audit. Finance for additional Government subscriptions to the unissued shares of
the capital stock of the Bank prior to the effectivity of this Charter.
SEC. 20. Prohibited Interest or Fees with Reference to Obtaining Loans. -- Thereafter, cash dividends corresponding to the Government-owned shares
No Director, officer or employee of the Bank shall, except as provided in the shall be paid unto the Treasury of the Philippines to become part of the
preceding Section, directly or indirectly, have any pecuniary interest in any general funds.
loan from the Bank. Neither shall he charge, exact, demand or receive any
fee, charge or commission in any form for his service or the use of his SEC. 25. Term of Legal Existence. -- The legal existence of the Bank shall
influence in obtaining a loan. Any violation of this Section shall be punished be for a period of fifty years, counted from the date the Bank operates
as hereinafter provided in Section 27 of this Charter. under the provisions of this Charter.

SEC. 21. Disposal of Real Estate and Other Properties in the Collection of SEC. 26. Applicability of Banking Laws. - The provisions of Republic Acts No.
Debts. -- Real and other properties acquired by the Bank in the collection of 265, as amended, and No. 337, as amended, insofar as applicable and not
debts, receivables or investments by way of foreclosure or other means in conflict with any provisions of this Charter shall apply to the Bank.
shall be sold or otherwise disposed of in accordance with the policies and
guidelines adopted by the Board of Directors within five years after date of SEC. 27. Penalties for Violation of the Provisions of this Charter. -- Any
their acquisition. director, officer or employee of the Bank who violates or knowingly permits
the violation and any person aiding or abetting any violations of any of the
SEC. 22. Rights of Redemption of Foreclosed Property - Right of Possession provisions of this Charter, shall be punished by a fine not to exceed ten
During Redemption Period. - Within one year from the registration of the thousand pesos or by imprisonment or not more than five years or both
foreclosure sale of real property, the mortgagor shall have the right to such fine and imprisonment.
redeem the property by paying the principal, interests, charges,
commissions and all claims of whatever nature of the Bank outstanding and TRANSITORY PROVISIONS
due as of the date of the sale including all the costs and other expenses
incurred by reason of the foreclosure sale and custody of the property, as SEC. 28. Preparatory Work. -- Upon the effectivity of this Executive Order,
well as charges and accrued interest. the Board of Directors and management of the Bank shall undertake the
appropriate steps to establish its current financial condition for the purpose
The Bank may take possession of the foreclosed property during the of determining its net asset values and the book value of shares thereof.
redemption period. When the Bank takes possession during such period, it
shall be entitled to the fruits of the property with no obligation to account All shares of stock held by the Government of the Philippines in the Bank
for them, the same being considered compensation for the interest that are deemed cancelled and exchanged for Twenty Five Million common
would otherwise accrue on the account. Neither shall the Bank be obliged to shares of stock subscribed and paid-in by the Government, pursuant to
post a bond for the purpose of such possession. Section 7 hereof.

SEC. 23. Allocation of Current Net Profits. -- At the close of the calendar The ratio of the shareholdings of the Government of the Philippines to the
year, the Bank shall determine the net results of its operations in the shareholdings of the private shareholders before the effectivity of this
calculation of which adequate allowances shall be made for probable losses. Charter shall be maintained.
Of the net profits arrived at, at least fifty percent (50%) shall be set aside
and accumulated in the earned surplus account. The remaining current net Private shareholders of the Bank, including holders of Common "A" shares,
profits may after an examination of the financial condition of the Bank be shall exchange their shares for such number of shares of stock of the Bank
computed on the basis of the ratio of the common shares held by the

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Government immediately prior to the effectivity of this Charter to the new implement the provisions of this Charter, including those relative to the
shares of stock subscribed and paid-in by the Government pursuant to financial aspects, if any, and to the reorganization of the Bank as
Section 7 hereof. hereinabove authorized under Section 33 which will involve the
determination and adoption of (1) the new internal structure of the Bank as
SEC. 29. Transfer of Assets and Liabilities of the Philippine National Bank. -- reorganized down to the divisional, section or lowest organizational levels,
The Bank shall transfer to the National Government such of its assets and including such appropriate units as may be needed to handle caretaking
liabilities as may be necessary to rehabilitate the Bank and to start its activities such the disposition of certain assets and the collection of certain
operations under the Revised Charter on a viable basis, as determined by accounts; (2) a new staffing pattern including appropriate salary rates; and
the appropriate authorities, such assets to include but not necessarily be (3) the initial operating budget.
limited to its acquired assets and non-performing accounts, and such
liabilities to include real as well as contingent liabilities. The National In the implementation of the reorganization of the Bank as authorized under
Government is hereby authorized to accept the same under terms and Section 33, and in appointments to appropriate positions in the new staffing
conditions as may be mutually acceptable to the Bank and the National pattern of the Bank, no personnel of the Bank shall have vested rights to
Government. any position in the new staffing pattern or to be otherwise retained in the
Bank even if he should be the incumbent of the same or similar position in
SEC. 31. Banking Operations under the 1986 Revised Charters; Governing the new staffing pattern.
Laws. -- The Banking operations of the Bank shall be governed by the
provisions of this Charter beginning on January 1, 1987, or on such SEC. 35. Recall of External Personnel in the Bank. -- Effective on the date
subsequent date as may be determine by the President of the Philippines the Bank commences to operate in accordance with this Charter, all
upon the recommendation of the Minister of Finance. representatives and/or personnel of other government offices, Commission
and government corporations assigned to or on detail with the bank are
SEC. 32. Loans and Other Investments, and Liabilities is Excess of considered recalled to their respective offices and/or units. New
Prescribed Limits. -- Loans and other investments as well as liabilities designations to the Bank shall be made by the respective government
existing as of the date of the effectivity of this Revised Charter which as a offices or Commissions conformably with the mandate of law and the
result of the assets and liabilities transfer under Section 29 hereof will requirements of the Bank.
exceed the limits prescribed under the provisions of this Act, the General
Banking Act or Central Bank regulations shall not be subject to such SEC. 36. Separation Benefits. -- All those who are separated from the Bank
prescribed limits but shall be reduced within a period of two years unless a as a result of its reorganization in pursuance of Section 33 hereof shall be
longer period is prescribed by the Monetary Board, and once reduced, shall entitled to all gratuities and benefits provided for under existing laws and/or
not be increased beyond the prescribed limits. supplementary retirement plans adopted by and effective in the Bank.

SEC. 33. Authority to Reorganize. -- In view of reduced operations SEC. 37. No legal action or suit brought by or on behalf of any aggrieved
contemplated under this Charter in pursuance of the national policy officer or personnel of the Bank in connection with any matter treated in
expressed in the "whereas" clauses hereof, a reorganization of the Bank and these Transitory Provisions shall be received in any court unless the verified
a reduction in force are hereby authorized to achieve greater efficiency and complaint shows on its face that the cause has first been submitted to, and
economy in operations, including the adoption. The program or adversely resolved by, the Civil Service Commission.
reorganization shall begin immediately after the approval of this Order, and
shall be completed within six months and shall be fully implemented within PNB v. Velasco, 564 SCRA 512 (2008)
eighteen months thereafter.
H. Foreign Banks
SEC. 34. Implementing Details; Organization and Staffing of the Bank. -- (a) Entry of Foreign Banks
Upon the effectivity of this Charter, the incumbent Board of Directors and i. Modes of Entry
President of the Bank shall continue in office unless or until replaced by the 1. By acquiring, purchasing or owning up to 60% of the
President of the Philippines, provided that the provisions of Section 10 of voting stock of an existing domestic bank
this Charter shall be observed. The President of the Bank is hereby 2. By investing in up to 60% of a new banking subsidiary
authorized, subject to the approval of the Board of Directors as appropriate, incorporated under the laws of the Philippines
to issue such orders, rules and regulations as may be necessary to 3. By establishing branches with full banking authority

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 55
Sec. 2, Foreign Banks Liberalization Act In the exercise of this authority, the Monetary Board shall
The Monetary Board may authorize foreign banks to operate in adopt such measures as may be necessary to: (i) ensure that
the Philippine banking system through any of the following at all times the control of seventy percent (70%) of the
modes of entry: (i) by acquiring, purchasing or owning up to resources or assets of the entire banking system is held by
sixty percent (60%) of the voting stock of an existing bank; domestic banks which are at least majority-owned by
(ii) by investing in up to sixty percent (60%) of the voting Filipinos; (ii) prevent a dominant market position by one bank
stock of a new banking subsidiary incorporated under the laws or the concentration of economic power in one or more
of the Philippines; or (iii) by establishing branches with full financial institutions, or in corporations, participations,
banking authority: Provided, That a foreign bank may avail partnerships, groups or individuals with related interests; and
itself of only one (1) mode of entry: Provided, further, That a (iii) secure the listing in the Philippine Stock Exchange of the
foreign bank or a Philippine corporation may own up to a sixty shares of stocks of banking corporations established under
percent (60%) of the voting stock of only one (1) domestic Section 2(i) and (ii) of this Act: Provided, That said banking
bank or new banking subsidiary. corporations shall establish stock option plans for their officers
and employees as the resources or assets of these
ii. Subject to MB Approval, Guidelines corporations may allow in the best business judgment of their
Sec. 2, Foreign Banks Liberalization Act respective boards of directors, pursuant to the Corporation
The Monetary Board may authorize foreign banks to operate in Code of the Philippines.
the Philippine banking system through any of the following
modes of entry: (i) by acquiring, purchasing or owning up to To qualify to establish a branch or a subsidiary, the foreign
sixty percent (60%) of the voting stock of an existing bank; bank applicant must be widely-owned and publicly-listed in its
(ii) by investing in up to sixty percent (60%) of the voting country of origin, unless the foreign bank applicant is owned
stock of a new banking subsidiary incorporated under the laws by the government of its country of origin.
of the Philippines; or (iii) by establishing branches with full
banking authority: Provided, That a foreign bank may avail iii. Limitation on Availment of Mode of Entry
itself of only one (1) mode of entry: Provided, further, That a Sec. 2, Foreign Banks Liberalization Act
foreign bank or a Philippine corporation may own up to a sixty The Monetary Board may authorize foreign banks to operate in
percent (60%) of the voting stock of only one (1) domestic the Philippine banking system through any of the following
bank or new banking subsidiary. modes of entry: (i) by acquiring, purchasing or owning up to
sixty percent (60%) of the voting stock of an existing bank;
Sec. 3, Foreign Banks Liberalization Act (ii) by investing in up to sixty percent (60%) of the voting
In approving entry applications of foreign banks, the Monetary stock of a new banking subsidiary incorporated under the laws
Board shall: (i) ensure geographic representation and of the Philippines; or (iii) by establishing branches with full
complementation; (ii) consider strategic trade and investment banking authority: Provided, That a foreign bank may avail
relationships between the Philippines and the country of itself of only one (1) mode of entry: Provided, further, That a
incorporation of the foreign bank; (iii) study the demonstrated foreign bank or a Philippine corporation may own up to a sixty
capacity, global reputation for financial innovations and percent (60%) of the voting stock of only one (1) domestic
stability in a competitive environment of the applicant; (iv) bank or new banking subsidiary.
see to it that reciprocity rights are enjoyed by Philippine banks
in the applicant's country; and (v) consider willingness to fully Subsec. X121.10, MRB
share their technology. chan robles virtual law library a. As a general rule, a foreign bank which has been authorized
to operate in the Philippines through any one of the allowable
Only those among the top one hundred fifty (150) foreign modes of entry may change to another mode by giving up the
banks in the world or the top five (5) banks in their country of first mode it availed of.
origin as of the date of application shall be allowed entry in
accordance with Section 2 (ii) and (iii) hereof. b. A foreign bank which pursuant to Items “a” and “b” of
Subsec. X121.1, has established or acquired a banking
subsidiary may sell its stockholdings therein and may apply for

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 56
authority to establish a branch subject to the provisions of v. Equal Treatment
Subsec. X121.9c and to the following conditions: Sec. 73, par. 4, GBL: Any right, privilege or incentive
granted to a foreign bank under this Section shall be equally
(i) That the disposition/sale of its stockholdings in the enjoyed by and extended under the same conditions to banks
subsidiary is done within five (5) years from June 5, organized under the laws of the Republic of the Philippines.
1994;
(ii) That the foreign bank qualifies under the provisions Sec. 8, Foreign Banks Liberalization Act
of Subsec. X121.2b; and Foreign banks authorized to operate under Section 2 of this
(iii) That the limit of ten (10) foreign banks establishing Act, shall perform the same functions, enjoy the same
branches as a mode of entry has not yet been privileges, and be subject to the same limitations imposed
reached. upon a Philippine bank of the same category. These limits
include, among others, the single borrower's limit and capital
c. Foreign banks with existing branches in the Philippines, as to risk asset ratio as well as the capitalization required for
well as those that may be allowed to establish branches under expanded commercial banking activities under the General
R.A. No. 7721, may incorporate under Philippine laws, in Banking Act and other related laws of the Philippines.
which case said foreign banks may own up to sixty percent
(60%) of the voting stock of the new bank. The basis for computing the ratio shall be the capital of the
foreign bank branch in the Philippines.

iv. Limitation of Foreign Penetration The foreign banks shall guarantee the observance of the rights
Sec. 73, par. 3, GBL: In the exercise of the authority, the of their employees under the Constitution.
Monetary Board shall adopt measures as may be necessary to
ensure that at all times the control of seventy percent (70%) Any right, privilege or incentive granted to foreign banks or
of the resources or assets of the entire banking system is held their subsidiaries or affiliates under this Act, shall be equally
by banks which are at least majority-owned by Filipinos. enjoyed by and extended under the same conditions to
Philippine banks. Philippine corporations whose shares of
Sec. 3, par. 3, Foreign Banks Liberalization Act stocks are listed in the Philippine Stock Exchange or are of
In the exercise of this authority, the Monetary Board shall long standing for at least ten (10) years shall have the right to
adopt such measures as may be necessary to: (i) ensure that acquire, purchase or own up to sixty percent (60%) of the
at all times the control of seventy percent (70%) of the voting stock of a domestic bank.
resources or assets of the entire banking system is held by
domestic banks which are at least majority-owned by (b) Rules on Acquisition of Voting Stock in Existing Domestic
Filipinos; (ii) prevent a dominant market position by one bank Bank
or the concentration of economic power in one or more i. Extent of Acquisition
financial institutions, or in corporations, participations, Sec. 2, Foreign Banks Liberalization Act
partnerships, groups or individuals with related interests; and The Monetary Board may authorize foreign banks to operate in
(iii) secure the listing in the Philippine Stock Exchange of the the Philippine banking system through any of the following
shares of stocks of banking corporations established under modes of entry: (i) by acquiring, purchasing or owning up to
Section 2(i) and (ii) of this Act: Provided, That said banking sixty percent (60%) of the voting stock of an existing bank;
corporations shall establish stock option plans for their officers (ii) by investing in up to sixty percent (60%) of the voting
and employees as the resources or assets of these stock of a new banking subsidiary incorporated under the laws
corporations may allow in the best business judgment of their of the Philippines; or (iii) by establishing branches with full
respective boards of directors, pursuant to the Corporation banking authority: Provided, That a foreign bank may avail
Code of the Philippines. itself of only one (1) mode of entry: Provided, further, That a
foreign bank or a Philippine corporation may own up to a sixty
percent (60%) of the voting stock of only one (1) domestic
bank or new banking subsidiary.

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 57
ii. Further acquisition of voting stock imply a continuity of commercial dealings or arrangements,
Sec. 73, par. 1, GBL: Within seven (7) years from the and contemplate to that extent the performance of acts or
effectivity of this act and subject to guidelines issued pursuant works, or the exercise of some of the functions normally
to the Foreign Banks Liberalization Act, the Monetary Board incident to, and in progressive prosecution of, commercial gain
may authorize a foreign bank to acquire up to one hundred or of the purpose and object of the business organization:
percent (100%) of the voting stock of only one (1) bank Provided, however, That the phrase "doing business: shall not
organized under the laws of the Republic of the Philippines. be deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do
Sec. 73, par. 2, GBL: Within the same period, the Monetary business, and/or the exercise of rights as such investor; nor
Board may authorize any foreign bank, which prior to the having a nominee director or officer to represent its interests
effectivity of this Act availed itself of the privilege to acquire in such corporation; nor appointing a representative or
up to sixty percent (60%) of the voting stock of a bank under distributor domiciled in the Philippines which transacts
the Foreign Banks Liberalization Act and the Thrift Banks Act, business in its own name and for its own account;
to further acquire voting shares such bank to the extent
necessary for it to own one hundred percent (100%) of the (c) Rules on Acquisition of Voting Stock in New Domestic Bank
voting stock thereof. i. Extent of Acquisition
Sec. 2, Foreign Banks Liberalization Act
iii. Listing in PSE The Monetary Board may authorize foreign banks to operate in
Sec. 3, par. 3, Foreign Banks Liberalization Act the Philippine banking system through any of the following
In the exercise of this authority, the Monetary Board shall modes of entry: (i) by acquiring, purchasing or owning up to
adopt such measures as may be necessary to: (i) ensure that sixty percent (60%) of the voting stock of an existing bank;
at all times the control of seventy percent (70%) of the (ii) by investing in up to sixty percent (60%) of the voting
resources or assets of the entire banking system is held by stock of a new banking subsidiary incorporated under the laws
domestic banks which are at least majority-owned by of the Philippines; or (iii) by establishing branches with full
Filipinos; (ii) prevent a dominant market position by one bank banking authority: Provided, That a foreign bank may avail
or the concentration of economic power in one or more itself of only one (1) mode of entry: Provided, further, That a
financial institutions, or in corporations, participations, foreign bank or a Philippine corporation may own up to a sixty
partnerships, groups or individuals with related interests; and percent (60%) of the voting stock of only one (1) domestic
(iii) secure the listing in the Philippine Stock Exchange of the bank or new banking subsidiary.
shares of stocks of banking corporations established under
Section 2(i) and (ii) of this Act: Provided, That said banking ii. Qualifications
corporations shall establish stock option plans for their officers Sec. 3, par. 2, Foreign Banks Liberalization Act
and employees as the resources or assets of these Only those among the top one hundred fifty (150) foreign
corporations may allow in the best business judgment of their banks in the world or the top five (5) banks in their country of
respective boards of directors, pursuant to the Corporation origin as of the date of application shall be allowed entry in
Code of the Philippines. accordance with Section 2 (ii) and (iii) hereof.

iv. License to Do Business Sec. 3, par. 4, Foreign Banks Liberalization Act


Sec. 3(d), Foreign Investments Act of 1991 To qualify to establish a branch or a subsidiary, the foreign
The praise "doing business" shall include soliciting orders, bank applicant must be widely-owned and publicly-listed in its
service contracts, opening offices, whether called "liaison" country of origin, unless the foreign bank applicant is owned
offices or branches; appointing representatives or distributors by the government of its country of origin.
domiciled in the Philippines or who in any calendar year stay
in the country for a period or periods totalling one hundred Sec. 4(i), Foreign Banks Liberalization Act
eighty (180) days or more; participating in the management, For Locally Incorporated Subsidiaries. — The minimum capital
supervision or control of any domestic business, firm, entity or required for locally incorporated subsidiaries of foreign banks
corporation in the Philippines; and any other act or acts that

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 58
shall be equal to that prescribed by the Monetary Board for (d) Rules on Establishing Branches
domestic banks of the same category. i. Governing Laws
1. Creation, formation, organization or dissolution of
iii. Listing in PSE corporations; fixing of relations, liabilities,
Sec. 3, par. 3, Foreign Banks Liberalization Act responsibilities, or duties of stockholders, members,
In the exercise of this authority, the Monetary Board shall directors or officers of corporations to each other and
adopt such measures as may be necessary to: (i) ensure that the corporation
at all times the control of seventy percent (70%) of the
resources or assets of the entire banking system is held by Sec. 77, GBL: In all matters not specifically covered by
domestic banks which are at least majority-owned by special provisions applicable only to a foreign bank or its
Filipinos; (ii) prevent a dominant market position by one bank branches and other offices in the Philippines any foreign
or the concentration of economic power in one or more bank licensed to do business in the Philippines shall be
financial institutions, or in corporations, participations, bound by the provisions of this Act, all other laws, rules
partnerships, groups or individuals with related interests; and and regulations applicable to banks organized under the
(iii) secure the listing in the Philippine Stock Exchange of the laws of the Philippines of the same class, except those
shares of stocks of banking corporations established under that provide for the creation, formation, organization or
Section 2(i) and (ii) of this Act: Provided, That said banking dissolution of corporations or for the fixing of the
corporations shall establish stock option plans for their officers relations, liabilities, responsibilities, or duties of
and employees as the resources or assets of these stockholders, members, directors or officers of
corporations may allow in the best business judgment of their corporations to each other or to the corporation.
respective boards of directors, pursuant to the Corporation
Code of the Philippines. 2. Entry into the Philippines through establishment of
branches
iv. License to Do Business Sec. 72, par. 1, GBL: The entry of foreign banks in the
Sec. 3(d), Foreign Investments Act of 1991 Philippines through the establishment of branches shall
The praise "doing business" shall include soliciting orders, be governed by the provisions of the Foreign Banks
service contracts, opening offices, whether called "liaison" Liberalization Act.
offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay 3. Conduct of offshore banking business
in the country for a period or periods totalling one hundred Sec. 72, par. 2, GBL: The conduct of offshore banking
eighty (180) days or more; participating in the management, business in the Philippines shall be governed by the
supervision or control of any domestic business, firm, entity or provisions of the Presidential Decree No. 1034,
corporation in the Philippines; and any other act or acts that otherwise known as the "Offshore Banking System
imply a continuity of commercial dealings or arrangements, Decree."
and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally 4. All other matters
incident to, and in progressive prosecution of, commercial gain Sec. 77, GBL: In all matters not specifically covered by
or of the purpose and object of the business organization: special provisions applicable only to a foreign bank or its
Provided, however, That the phrase "doing business: shall not branches and other offices in the Philippines any foreign
be deemed to include mere investment as a shareholder by a bank licensed to do business in the Philippines shall be
foreign entity in domestic corporations duly registered to do bound by the provisions of this Act, all other laws, rules
business, and/or the exercise of rights as such investor; nor and regulations applicable to banks organized under the
having a nominee director or officer to represent its interests laws of the Philippines of the same class, except those
in such corporation; nor appointing a representative or that provide for the creation, formation, organization or
distributor domiciled in the Philippines which transacts dissolution of corporations or for the fixing of the
business in its own name and for its own account; relations, liabilities, responsibilities, or duties of

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 59
stockholders, members, directors or officers of Philippine currency: Provided, finally, That the Monetary Board
corporations to each other or to the corporation. shall monitor the effective use of the "net due to"
funds.Whenever there results "net due from head office"
ii. Qualifications outside the Philippines, this shall be deducted from the capital
Sec. 3, par. 2, Foreign Banks Liberalization Act accounts for purposes of determining the required capital
Only those among the top one hundred fifty (150) foreign ratios.
banks in the world or the top five (5) banks in their country of
origin as of the date of application shall be allowed entry in iii. Time limitation on entry
accordance with Section 2 (ii) and (iii) hereof. Sec. 6, Foreign Banks Liberalization Act
Foreign banks shall be allowed entry under Section 2 (iii)
Sec. 3, par. 4, Foreign Banks Liberalization Act within five (5) years from the effectivity of this Act. During
To qualify to establish a branch or a subsidiary, the foreign this period, six (6) new foreign banks shall be allowed entry
bank applicant must be widely-owned and publicly-listed in its under Section 2(iii) upon the approval of the Monetary
country of origin, unless the foreign bank applicant is owned Board. An additional four (4) foreign banks may be allowed
by the government of its country of origin. entry on recommendation of the Monetary Board, subject to
compliance with Sections 2, 3, 4, and 5 of this Act, upon
Sec. 4(ii), Foreign Banks Liberalization Act approval of the President as the national interest may require.
Foreign banks seeking entry pursuant to Section 2 (iii) of this
Act shall permanently assign capital of not less than the U.S. iv. Treatment of Multiple Branches
dollar equivalent of Two hundred ten million pesos Sec. 74, GBL: In the case of a foreign bank which has more
(P210,000,000.00) at the exchange rate on the date of the than one (1) branch in the Philippines, all such branches shall
effectivity of this Act, as ascertained by the Monetary Board. be treated as one (1) unit for the purpose of this Act, and all
The permanently assigned capital shall be inwardly remitted references to the Philippine branches of foreign banks shall be
and converted into Philippine currency. The foreign bank shall held to refer to such units.
be entitled to three (3) branches. chan robles virtual law
library. Citibank, N.A. v. Sabeniano, 514 SCRA 441 (2007)
FACTS
The foreign bank may open three (3) additional branches in
Sabeniano was a client of Citibank, where she had several deposits and
locations designated by the Monetary Board by inwardly
market placements, as well as outstanding loans with an aggregate amount
remitting and converting into Philippine currency as
of P1.92M. However, when she failed to repay these, Citibank used her
permanently assigned capital, the U.S. dollar equivalent of
deposits and money market placements to off-set and liquidate her
Thirty-five million pesos (P35,000,000.00) per additional
outstanding loans, a large amount coming from Citibank-Geneva.
branch at the exchange rate on the date of the effectivity of
this Act, as ascertained by the Monetary Board. The total
Sabeniano denied having any outstanding loans with Citibank and
number of branches for each new foreign bank entrant shall
demanded that she recover her deposits and money market placements.
not exceed six (6).
She instituted a complaint for "Accounting, Sum of Money and Damages"
For purposes of meeting the prescribed capital ratios, the term against Citibank with RTC of Makati, which declared the setoff illegal, null
"capital" shall include permanently assigned capital plus "net and void and that Sabeniano is still indebted to Citibank (P1.07M).
due to head office, branches and subsidiaries and offices
outside the Philippines" in the ratio prescribed by law or as ISSUE
may be prescribed by the Monetary Board: Provided, That in Whether it was proper for Citibank to offset Sabeniano's outstanding loan
all cases, the permanently assigned capital and fifteen percent balance with her dollar deposits in Citibank-Geneva
(15%) of "net due to" required to comply with prescribed
capital ratios shall be inwardly remitted and converted to RULING
Philippine currency: Provided, further, That amounts invested NO. Without the Declaration of Pledge, petitioner Citibank had no authority
in productive enterprises or utilized by Philippine companies to demand the remittance of respondent’s dollar accounts with Citibank-
for export activities, shall not be subject to conversion into Geneva and to apply them to her outstanding loans. It cannot effect legal

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 60
compensation under Article 1278 of the Civil Code since, petitioner Citibank Section 25 of the United States Federal Reserve Act states that –
itself admitted that Citibank-Geneva is a distinct and separate entity. As for
Every national banking association operating foreign branches shall
the dollar accounts, respondent was the creditor and Citibank-Geneva is the
conduct the accounts of each foreign branch independently of the
debtor; and as for the outstanding loans, petitioner Citibank was the
accounts of other foreign branches established by it and of its home
creditor and respondent was the debtor. The parties in these transactions
office, and shall at the end of each fiscal period transfer to its
were evidently not the principal creditor of each other.
general ledger the profit or loss accrued at each branch as a
It is true that the afore-quoted Section 20 of the General Banking Law of separate item.
2000 expressly states that the bank and its branches shall be treated as one
unit. It should be pointed out, however, that the said provision applies to a
v. Head Office Guarantee
universal9 or commercial bank, duly established and organized as a
Sec. 75, GBL: In order to provide effective protection of the
Philippine corporation in accordance with Section 8 of the same statute,11
interests of the depositors and other creditors of Philippine
and authorized to establish branches within or outside the Philippines.
branches of a foreign bank, the head office of such branches
The General Banking Law of 2000, however, does not make the same shall fully guarantee the prompt payment of all liabilities of its
categorical statement as regards to foreign banks and their branches in the Philippine branch. (69) Residents and citizens of the
Philippines. What Section 74 of the said law provides is that in case of a Philippines who are creditors of a branch in the Philippines of a
foreign bank with several branches in the country, all such branches shall be foreign bank shall have preferential rights to the assets of
treated as one unit. As to the relations between the local branches of a such branch in accordance with the existing laws.
foreign bank and its head office, Section 75 of the General Banking Law of
2000 and Section 5 of the Foreign Banks Liberalization Law provide for a Sec. 5, Foreign Banks Liberalization Act
"Home Office Guarantee," in which the head office of the foreign bank shall The head office of foreign bank branches shall guarantee
guarantee prompt payment of all liabilities of its Philippine branches. While prompt payment of all liabilities of its Philippine branches.
the Home Office Guarantee is in accord with the principle that these local
branches, together with its head office, constitute but one legal entity, it
does not necessarily support the view that said principle is true and vi. License to Do Business
applicable in all circumstances. Sec. 133, Corporation Code
No foreign corporation transacting business in the Philippines
The Home Office Guarantee is included in Philippine statutes clearly for the
without a license, or its successors or assigns, shall be
protection of the interests of the depositors and other creditors of the local
permitted to maintain or intervene in any action, suit or
branches of a foreign bank. Since the head office of the bank is located in
proceeding in any court or administrative agency of the
another country or state, such a guarantee is necessary so as to bring the
Philippines; but such corporation may be sued or proceeded
head office within Philippine jurisdiction, and to hold the same answerable
against before Philippine courts or administrative tribunals on
for the liabilities of its Philippine branches. Hence, the principle of the
any valid cause of action recognized under Philippine laws.
singular identity of that the local branches and the head office of a foreign
bank are more often invoked by the clients in order to establish the
Hang Lung Bank, Ltd. v. Saulog, 201 SCRA 137 (1991)
accountability of the head office for the liabilities of its local branches. It is
FACTS
under such attendant circumstances in which the American authorities and
Hang Lung Bank, Ltd., which was not doing business in the Philippines,
jurisprudence presented by petitioners in their Motion for Partial
entered into a guarantee agreement with Cordova Chin San in Hongkong
Reconsideration were rendered.
whereby the latter agreed to pay on demand all sums of money which may
Now the question that remains to be answered is whether the foreign bank be due the bank from Worlder Enterprises to the extent of HK $250,000.
can use the principle for a reverse purpose, in order to extend the liability of Worlder Defaulted, HLB sued for collection, and the HK Supreme Court
a client to the foreign bank’s Philippine branch to its head office, as well as rendered judgment against Cordova and Worlder.
to its branches in other countries. Thus, if a client obtains a loan from the
foreign bank’s Philippine branch, does it absolutely and automatically make HLB then filed a case for enforcement and recognition of the HK judgment,
the client a debtor, not just of the Philippine branch, but also of the head since Cordova was a Philippine resident. Cordova Chin San filed a motion to
office and all other branches of the foreign bank around the world? This dismiss on the basis of lack of capacity to sue, grounded on Section 14 of
Court rules in the negative. the General Banking Act: "No foreign bank or banking corporation formed,

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 61
organized or existing under any laws other than those of the Republic of the proceedings against the bank and of notices affecting the bank
Philippines, shall be permitted to transact business in the Philippines, or may be made, and to file with the Securities and Exchange
maintain by itself any suit for the recovery of any debt, claims or demands Commission a duly authenticated nomination of such agent. In
whatsoever until after it shall have obtained, upon order of the Monetary the absence of the agent or head or should there be no person
Board, a license for that purpose." authorized by the bank upon whom service of summons,
processes and all legal notices may be made, service of
The motion to dismiss was granted. Hence, this petition for certiorari. summons, processes and legal notices may be made upon the
Bangko Sentral Deputy Governor In-Charge of the supervising
ISSUE and examining departments and such service shall be as
Can HLB, a foreign bank not doing business in the Philippines, sue in the effective as if made upon the bank or its duly authorized agent
Philippines without a license? or head. In case of service for the bank upon the Bangko
Sentral Deputy Governor In-charge of the supervising and
RULING examining departments, the said deputy Governor shill
YES, they can. The court looked at both Section 69 of the Old Corporation register and transmit by mail to the president or the secretary
Law and Section 133 of the Corp Code which says "No foreign corporation of the bank at its head or principal office a copy, duly certified
transacting business in the Philippines without a license, or its successors or by him, of the summons, process, or notice. The sending of
assigns, shall be permitted to maintain or intervene in any action, suit or such copy of the summons, process, or notice shall be a
proceeding in any court or administrative agency of the Philippines." The necessary part of the services and shall complete the service.
provision in the General Banking Act and the corporation Code mean the The registry receipt of mailing shall be prima facie evidence of
same thing: it is not the lack of the prescribed license (to do business in the the transmission of the summons, process or notice. All costs
Philippines) but doing business without license, which bars a foreign necessarily incurred by the said Deputy Governor for the
corporation from access to our courts. making and mailing and sending of a copy of the summons,
process, or notice to the president or the secretary of the bank
Thusly, like any corporation, a bank not doing business in the Philippines at its head or principal office shall be paid in advance by the
need not possess a SEC license to sue before our courts. party at whose instance the service is made.

Since petitioner foreign banking corporation was not doing business in the Sec. 12, Rule 14, Rules of CivPro: When the defendant is a
Philippines, it may not be denied the privilege of pursuing its claims against foreign private juridical entity which has transacted business
private respondent for a contract which was entered into and consummated in the Philippines, service may be made on its resident agent
outside the Philippines. Otherwise we will be hampering the growth and designated in accordance with law for that purpose, or, if
development of business relations between Filipino citizens and foreign there be no such agent, on the government official designated
nationals. Worse, we will be allowing the law to serve as a protective shield by law to that effect, or on any of its officers or agents within
for unscrupulous Filipino citizens who have business relationships abroad. the Philippines.

vii. Summons and Legal Processes viii. Revocation of License


Sec. 76, GBL: Summons and legal process served upon the Sec. 78, GBL: The Monetary Board may revoke the license to
Philippine agent or head of any foreign bank designated to transact business in the Philippines of, any foreign bank, if it
accept service thereof shall give jurisdiction to the courts over finds that the foreign bank is insolvent or in imminent danger
such bank, and service of notices on such agent or head shall thereof or that its continuance in business will involve
be as binding upon the bank which he represents as if made probable loss to those transacting business with it. After the
upon the bank itself. Should the authority of such agent or revocation of its license, it shall be unlawful for any such
head to accept service of summons and legal processes for the foreign banks to transact business in the Philippines unless its
bank or notice to it be revoked, or should such agent or head license is renewed or reissued. After the revocation of such
become mentally incompetent or otherwise unable to accept license, the Bangko Sentral shall take the necessary action to
service while exercising such authority, it shall be the duty of protect the creditors of such foreign bank and the public. The
the bank to name and designate promptly another agent or provisions of the New Central Bank Act on sanctions and
head upon whom service of summons and processes in legal penalties shall likewise be applicable.

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 62
(e) Offshore Banking Units (OBUs) 5. "Resident" shall mean —
Sec. 1(a), Offshore Banking System Decree
a. an individual citizen of the Philippines residing therein; or
"Offshore Banking" shall refer to the conduct of banking
transactions in foreign currencies involving the receipt of funds b. an individual who is not a citizen of the Philippines but is permanently
from external sources and the utilization of such funds as provided residing therein; or
in this Decree.
c. a corporation or other juridical person organized under the laws of the
Sec. 1(b), Offshore Banking System Decree Philippines; or
"Offshore Banking Unit" shall mean a branch, subsidiary or affiliate d. a branch, subsidiary, affiliate, extension office or any other unit of
of a foreign banking corporation which is duly authorized by the corporations or juridical persons which are organized under the laws of any
Central Bank of the Philippines to transact offshore banking country and operating in the Philippines.
business in the Philippines.
6. "Non-resident" shall mean an individual, corporation or other juridical
Chapter 1, Part 3, BSP Circular No. 1389 person not included in the above definition of "resident".
SECTION 45. Definition of Terms. — As used in this Chapter, the 7. "Foreign currency deposit unit" or "FCDU" shall refer to that unit of a local
following terms shall have the meaning indicated unless the context clearly bank or of a local branch of a foreign bank authorized by the Central Bank
indicates otherwise: to engage in foreign currency-denominated transactions, pursuant to the
1. "Offshore Banking" shall refer to the conduct of banking transactions in provisions of R.A. 6426, as amended. "Local bank" shall refer to a thrift
foreign currencies involving the receipt of funds principally from external bank or a commercial bank organized under the laws of the Republic of the
sources and, as allowed in this Circular, from internal sources and utilization Philippines. "Local branch of a foreign bank" shall refer to a branch of a
of such funds, as provided herein. foreign bank doing business in the Philippines, pursuant to the provisions of
R.A. No. 337, as amended.
2. "Offshore Banking Unit" or "OBU" shall refer to a branch, subsidiary or
affiliate of a foreign banking corporation which is duly authorized by the 8. "Acceptable foreign exchange" comprise those foreign currencies which
Central Bank of the Philippines to transact offshore banking business in the are acceptable to and exchangeable at the Central Bank and which form
Philippines. part of the international reserves of the country.

3. "Net office funds" shall refer to the net credit balance of the "Due to Head SECTION 46. Approvals Required. — A foreign bank may operate an
Office (HO)/Branches/Parent Company Account" after deducting the "Due offshore banking unit (OBU) in the Philippines, after issuance to it of a
from HO/Branches/Parent Company Account", as shown in the following Certificate of Authority to operate by the Monetary Board and registration
computation: with the Securities and Exchange Commission.

Due to HO/Branches/Parent Company SECTION 47. Criteria for Selection. — The following factors shall serve
Remittances/Advances/Deposits to OBU by as basis for the issuance of certificate of authority to operate an offshore
HO/Branches/Parent Company xxxxx banking unit: (1) liquidity and solvency positions; (2) networth and
resources base; (3) managerial and international banking expertise of
Unremitted earnings of OBU xxxxx applicant bank (4) contribution to the Philippine economy; and (5) other
Total $xxxxx relevant factors, such as participation in the equity of local commercial
banks and appropriate geographic representations.
Less: Due from HO/Branches/Parent Company
Remittances/Advances/ Deposits of OBU with its SECTION 48. Pre-Operation Requirements. — Upon advice from the
HO/Branches/Parent Company xxxxx Central Bank, a qualified bank shall submit a sworn undertaking of its head
office, or parent company, through any of its duly authorized officers,
Net Office Funds $xxxxx supported by an appropriate resolution of its board of directors, to the effect
that it shall:
4. "Deposits" shall refer to funds in foreign currencies which are accepted
and held by an OBU in the regular course of business, with the obligation to 1. on demand, provide the necessary currencies to cover liquidity needs that
return an equivalent amount to the owner thereof, with or without interest. may arise or other shortfall that its OBU may incur.

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 63
2. manage the operations of its OBU soundly and with prudence. Bank approval.
3. train continually a specific number of Filipinos in international banking SECTION 52. Transactions with Residents which are not Banks. — An
and foreign exchange trading with a view to reducing the number of OBU may engage in the following transactions with residents which are not
expatriates; banks:
4. provide and maintain in its offshore banking unit at all times net office 1. Deal in foreign currency instruments.
funds in the minimum amount of US$1 million.
2. Extend foreign currency loans and advances, subject to existing
5. start operations of its OBU within one hundred eighty (180) days from regulations on foreign borrowings.
receipt of its certificate of authority to operate such unit.
3. Open letters of credit (L/Cs) for importations of resident-borrowers
6. comply with applicable local laws relating to labor and employment. provided such importations shall be funded by a Central Bank-approved OBU
foreign currency loan to the resident borrower involved.
7. submit before start of operations, other documents as may be required
by the Central Bank such as certification or similar documents showing that 4. Negotiate inward (export) Letters of Credit (L/Cs) and handle other
it is duly authorized by the proper Government entity of its country to export transactions (including documents against acceptance [D/A] and
engage in offshore banking business in the Philippines. documents against payments ([D/P] and open account arrangements [O/A])
coursed thru their worldwide network of branches and correspondents
SECTION 49. Annual Fee. — Upon issuance of a certificate of authority to
subject to the following conditions:
operate an OBU in the Philippines, and yearly thereafter, the authorized
bank shall pay the Central Bank a fee of not less than US$20,000.00. a. OBUs shall bring in foreign exchange sourced outside of the Trade Facility
which shall be sold to the domestic banking system; and
SECTION 50. Transactions with Non-Residents and/or with OBUs. —
An OBU may freely engage in all normal banking transactions with non- b. OBUs' share in the total export L/C negotiation business shall be limited
residents and/or with other OBUs, involving any currency other than the to ½ of the growth (incremental) element in the country's total annual
Philippine peso. export. This limit shall be observed yearly until this equals 10 percent of
total exports. Exports not covered by L/Cs, i.e., done thru documents
SECTION 51. Transactions with Foreign Currency Deposit Units
against acceptance/open account arrangements shall be considered subject
(FCDUs). — Subject to Central Bank regulations, an OBU may engage in
to this overall limit;
the following transactions with local banks incorporated or registered in the
Philippines as FCDU(s) in any currency other than the Philippine peso: 5. Provide full foreign exchange service for all foreign currency non-trade
remittances and trade remittances resulting from or related to their own
1. Accept time, demand and call deposits or issue negotiable certificates of
negotiations of export L/Cs.
time deposits.
6. Render financial, advisory and related services.
2. Borrow with maturities not exceeding 360 days.
7. Refinance trust receipts without prior Central Bank approval arising from
3. Deposit.
import transactions of Philippine residents in U.S. dollars or in other
4. Extend loans and advances. acceptable foreign currencies. The refinancing shall be evidenced by bankers
acceptances.
5. Deal in foreign currency instruments.
SECTION 53. Peso Deposits. — OBUs may open and maintain peso
6. Discount bills, acceptances, and negotiable certificates of deposits. deposit accounts with domestic agent banks exclusively for the following
7. Engage in foreign exchange trading. purposes:

8. Engage in such other transactions as are authorized under this section 1. To meet administrative and other operating expenses, such as salaries,
between OBUs and resident banks authorized to accept foreign currency rentals and the like.
deposits under the provisions of R.A. No. 6426, as amended. Interbank 2. To pay the peso equivalent of foreign exchange sold by beneficiaries of
short-term transactions of not exceeding 360 days such as credit lines of inward remittances of Filipino overseas workers or of Filipino or
Philippine banks with correspondent banks, interbank call loans and multinational companies, coursed through the OBUs' correspondent banks
interbank loans for general liquidity purposes shall not require prior Central abroad.

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 64
3. To pay to the designated beneficiaries in the Philippines the peso i. Qualification
equivalent of foreign exchange inward remittances other than remittances Sec. 2, Offshore Banking System Decree
related to trade. Subject to such regulatory guidelines as the Monetary Board
may prescribe, only banks which are organized under any law
4. To pay the peso equivalent of foreign exchange sold by beneficiaries of
other than those of the Republic of the Philippines their
export L/Cs negotiated with the OBUs.
branches, subsidiaries or affiliates, shall be qualified to
The peso deposit accounts shall be funded exclusively by inward remittances operate offshore banking units in the Philippines. However,
of foreign exchange eligible to form part of the Philippine international local branches of foreign banks already authorized to accept
reserves. foreign currency deposits under the provisions of R.A. No.
6426 may opt to apply for authority to operate an offshore
OBUs may also sell inward remittances of foreign exchange for pesos to the banking unit under the provisions of this Decree: Provided,
Central Bank through the Treasury Department, for credit to the demand that, upon their receipt of a corresponding certificate of
deposit account of the designated commercial bank for account of the OBU. authority to operate as an offshore banking unit, the license to
SECTION 54. Financial Assistance to Officers/Employees. — OBUs transact business under the provisions of R.A. No. 6426 shall
may extend financial assistance (real estate, car, personal loans, etc.) in be deemed automatically withdrawn.
local or foreign currency to their Filipino officers and employees as part of
their fringe benefit program. ii. Certificate of Authority to Operate
Sec. 3, Offshore Banking System Decree
They may likewise grant foreign currency loans to their expatriate officers
The Monetary Board of the Central Bank of the Philippines is
without need of Central Bank approval.
hereby authorized to issue certificates of authority to operate
SECTION 55. Secrecy of Deposits. — The provisions of R.A. No. 6426 offshore banking units: Provided, however, that, in issuing
(Foreign Currency Deposit Act), as amended, shall apply to deposits in such certificates, the Monetary Board shall take into
OBUs; Provided, however, that numbered deposit accounts shall not be consideration the applicant's liquidity and solvency position,
used. networth and resources, management, international banking
expertise, contribution to the Philippine economy, and other
SECTION 56. Exemption from Certain Laws. — The provisions of Act No.
relevant factors such as participation in equity of local
2655 (Usury Law) as amended, R.A. No. 529 (Uniform Currency Law) as
commercial banks and appropriate geographic representation.
amended, and R.A. No. 3591 (Deposit Insurance Law) as amended, shall
not apply to transactions and/or deposits in OBUs in the Philippines. The Central Bank of the Philippines is hereby authorized to
collect a fee of not less than US$ 20,000.00 upon issuing any
SECTION 57. Accounting and Reporting. — OBUs shall maintain an
certificate of authority to operate and annually thereafter on
accounting system in accordance with guidelines prescribed by the Central
the anniversary date of such certificate.
Bank. Periodically or as required, existing reports shall continue to be
submitted in the prescribed forms to the Central Bank. iii. Head Office Guarantee
Sec. 4, Offshore Banking System Decree
SECTION 58. Supervision. — The operations and activities of offshore
No application to operate as an offshore banking unit under
banking units shall be conducted under the supervision of the Central Bank
the provisions of this Decree shall be considered unless the
of the Philippines.
applicant shall have first submitted to the Central Bank of the
SECTION 59. Taxes, Customs Duties. — Transactions of OBUs in the Philippines a sworn undertaking of its head office or parent or
Philippines shall be subject to such taxes as are prescribed in Presidential holding company, duly supported by an appropriate resolution
Decree No. 1034, as implemented by regulations of the Bureau of Internal of its board of directors, that, among other things: (a) it will,
Revenue. on demand, provide the necessary specified currencies to
cover liquidity needs that may arise or other shortfall that is
SECTION 60. Revocation/Suspension. — The Monetary Board, by the offshore banking unit may incur; (b) the operations of its
recommendation of the Governor, may revoke or suspend the authority of offshore banking unit shall be managed soundly and with
an Offshore Banking Unit to operate in the Philippines for violation of P. D. prudence; (c) it will train and continually educate a specific
No. 1034 or these regulations. number of Filipinos in international banking and foreign
exchange trading with a view to reducing the number of

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 65
expatriates; (d) it will provide and maintain in its offshore When Serrano presented the TD certificates for encashment to Overseas
banking unit net office funds in the minimum amount of US$ Bank of Manila, none was honored by said bank.
1,000,000.00 and (e) it will start operations of its offshore
banking unit within 180 days from receipt of its certificate of Serrano alleged that the Central Bank failed to strictly supervise the acts of
authority to operate such unit. Overseas Bank of Manila and protect the interests of its depositors by virtue
of the constructive trust created when Central Bank required the bank to
iv. Effects of Certain Laws increase its collaterals for its overdrafts and emergency loans, said
Sec. 8, Offshore Banking System Decree collaterals allegedly acquired through the use of depositors money.
The provisions of Act No. 2566 (Usury Law), Republic Act No.
529, as amended (Uniform Currency Law), and Republic Act Hence, Serrano prayed for Central Bank’s solidary liability with Overseas
No. 3591, as amended (Deposit Insurance Law), shall not Bank of Manila to him for the P350,000 TDs made, among others.
apply to transactions and/or deposits in offshore banking units
in the Philippines: Provided, however, that the provisions of ISSUE
R.A. No. 1405 (Secrecy of Bank Deposits Law) shall apply to Whether Central Bank should be held solidarily liable
deposits in offshore banking units.
RULING
NO. Serrano’s claims of mandamus and prohibition are not proper as there
III. DEPOSIT FUNCTION is no shown clear abuse of discretion by the Central Bank in its exercise of
supervision over the bank. If there was, the proper party to invoke in this
A. Nature of Deposit case was Overseas Bank of Manila, not the Central Bank.
a. Deposits as Simple Loans
Furthermore, both parties overlooked one fundamental principle in the
ART. 1953, NCC: A person who receives a loan of money or any other
nature of bank deposits when Serrano claimed that there should be created
fungible thing acquires the ownership thereof, and is bound to pay to
a constructive trust in his favor when Overseas Bank of Manila increased its
the creditor an equal amount of the same kind and quality.
collaterals in favor of Central Bank for its overdrafts and emergency loans,
ART. 1980, NCC: Fixed, savings, and current deposits of money in since these collaterals were acquired by the use of depositors’ money.
banks and similar institutions shall be governed by the provisions
concerning simple loan. Bank deposits are in the nature of irregular deposits. They are really loans
because they earn interest. All kinds of bank deposits, whether fixed,
SERRANO v. CENTRAL BANK, 96 SCRA 96 (1980) savings, or current are to be treated as loans and are to be covered by the
DOCTRINE: Bank deposits are in the nature of irregular deposits. They are law on loans. Current and savings deposits are loans to a bank because it
really loans because they earn interest. All kinds of bank deposits, whether can use the same. Serrano, in making TDs that earn interests with the bank,
fixed, savings, or current are to be treated as loans and are to be covered was in reality its creditor. Failure of the bank to honor the TD is failure to
by the law on loans. Current and savings deposits are loans to a bank pay its obligation as debtor and not a breach of trust arising from a
because it can use the same. depositary’s failure to return the subject matter of the deposit.

FACTS
Manuel Serrano made a time deposit (TD) for 1 year with 6% interest of b. Bank as Debtor
P150,000 with the Overseas Bank of Manila, while Concepcion Maneja made i. Deposit is voluntary agreement; “Know Your Customer”
a similar deposit for 1 year with 6.5% interest of P200,000 with the same standards
bank.
SEC. X262.1, MRB: All banking institutions are required to set
When Concepcion Maneja married Felixberto Serrano (presumably the a minimum of three (3) specimen signatures to be
brother of Manuel Serrano), she assigned and conveyed to Manuel her TD of simultaneously required from each of their depositors and to
P200,000. update the specimen signatures of their depositors every five
(5) years or sooner, at the discretion of the bank. Banks may,

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 66
at their option, require their depositors to submit ID photos out that when private respondent David invested his money on nine. and
together with the specimen signatures. savings deposits with the aforesaid bank, the contract that was perfected
was a contract of simple loan or mutuum and not a contract of deposit.
ii. Ownership of money deposited Thus, Article 1980 of the New Civil Code provides that:
Article 1980. Fixed, savings, and current deposits of-money in banks
GUINGONA, JR. v. CITY FISCAL OF MANILA, 128 SCRA 577 (1984)
and similar institutions shall be governed by the provisions
DOCTRINE: The relationship between the depositor and the bank is that of concerning simple loan.
creditor and debtor. Consequently, the ownership of the amount deposited
was transmitted to the Bank upon the perfection of the contract and it can Hence, the relationship between the private respondent and the Nation
make use of the amount deposited for its banking operations, such as to Savings and Loan Association is that of creditor and debtor; consequently,
pay interests on deposits and to pay withdrawals. the ownership of the amount deposited was transmitted to the Bank upon
the perfection of the contract and it can make use of the amount deposited
FACTS for its banking operations, such as to pay interests on deposits and to pay
From March 20, 1979 to March, 1981, David invested with the Nation withdrawals. While the Bank has the obligation to return the amount
Savings and Loan Association, (hereinafter called NSLA) the sum of deposited, it has, however, no obligation to return or deliver the same
P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits money that was deposited. And, the failure of the Bank to return the
(jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit, amount deposited will not constitute estafa through misappropriation
US$15,000.00 under a receipt and guarantee of payment and US$50,000.00 punishable under Article 315, par. l(b) of the Revised Penal Code, but it will
under a receipt dated June 8, 1980 (au jointly with Denise Kuhne), that only give rise to civil liability over which the public respondents have no-
David was induced into making the aforestated investments by Robert jurisdiction.
Marshall an Australian national who was allegedly a close associate of
petitioner Guingona Jr., then NSLA President, petitioner Martin, then NSLA BPI FAMILY BANK v. FRANCO, 538 SCRA 184 (2007)
Executive Vice-President of NSLA and petitioner Santos, then NSLA General
Manager; that on March 21, 1981 N LA was placed under receivership by DOCTRINE: Money bears no earmarks of peculiar ownership. Its primary
the Central Bank, so that David filed claims therewith for his investments function is to pass from hand to hand as a medium of exchange, without
and those of his sister; that on July 22, 1981 David received a report from other evidence of its title. Money, which passed through various transactions
the Central Bank that only P305,821.92 of those investments were entered in the general course of banking business, even if of traceable origin, bears
in the records of NSLA; that, therefore, the respondents in I.S. No. 81- no earmarks of peculiar ownership.
31938 misappropriated the balance of the investments, at the same time
FACTS
violating Central Bank Circular No. 364 and related Central Bank regulations
In 1989, Tevesteco Arrastre-Stevedoring Co. (Tevesteco) opened a savings
on foreign exchange transactions; that after demands, petitioner Guingona
and current account with BPI-FB. Soon thereafter, First Metro Investment
Jr. paid only P200,000.00, thereby reducing the amounts misappropriated to
Corporation (FMIC) opened a time deposit account with the same branch of
P959,078.14 and US$75,000.00.
BPI-FB with a deposit of P100M to mature 1 year after. Subsequently,
Franco opened savings (P500K), current (P500K) and time deposit (P1M)
Guingona, Martin and Santos were charged with estafa before the City Fiscal
accounts with BPI-FB. The funding of Franco’s checks was part of the P80M
of Manila. The herein petitioners (Guingona et al) contend that the Fiscal
debited by BPI-FB from FMIC’s TD account and credited to Tevesteco’s
has no authority to conduct a preliminary investigation and to prosecute
current account pursuant to an Authority to Debit signed by FMIC’s officers.
them because the acts alleged by David was only civil in nature and not
This, however, was found to be forged, as declared by Antonio Ong, one of
criminal.
the alleged signatories.
ISSUE
Although Tevesteco already made some withdrawals from the P80M credited
Whether the charges against Guingona (estafa and violation of CB Circular
to its account, BPI-FB debited Franco’s savings and current accounts for the
No. 364 and related regulations regarding foreign exchange transactions) is
amounts remaining therein. His accounts were also garnished pursuant to
within the jurisdiction of the City Fiscal?
an Order of Attachment issued by the RTC Makati. Due to this, his checks
drawn against the current account were dishonored (stamped with “Account
RULING
under garnishment”). However, when Franco issued the checks, neither was
Fiscal has no jurisdiction over the subject matter. It must be pointed
he furnished a Notice of Garnishment nor impleaded in the case instituted

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 67
by BPI-FB to recover the amount. It was only about a year after that he was multi-million peso scam Franco was allegedly involved in. To grant that right
impleaded in the case. Thus, he filed a Motion to Discharge Attachment, would open floodgates of public distrust in the banking industry.
which was granted. But this cannot be complied since the amount had
already been debited due to the forgery.
iii. Payment to proper party-depositor
As to his savings account, it appears that he agreed to an arrangement
where P400K from his savings account was temporarily transferred to FULTON IRON WORKS CO. v. CHINA BANKING CORP., 55 PHIL. 208
Quiaoit’s savings account, subject to immediate return upon issuance of a (1930)
certificate of deposit which Quiaoit needed for his Taiwan visa application. DOCTRINE: A depositor is presumed to be the owner of funds standing in
his name in a bank deposit, and where a bank is not chargeable with notice
FMIC filed a complaint against BPI-FB to recover the P80M debited from its that the money deposited therein is the property of another person, it is
account, infra, where BPI-FB was found liable to FMIC due to its failure to justified in paying out the money to the depositor, or upon his order, and in
exercise the degree of diligence required of banks in treating the accounts of so doing cannot be held liable to any other person as the true owner.
its depositors with meticulous care.
FACTS
Franco filed a suit against BPI-FB to cease freezing his accounts and to Fulton Iron Works Co. (Fulton) sold to Binalbagan Estate Inc.(Binalbagan)
release the deposits therein. The lower court ruled in favor of Franco, which machinery for a sugar mill. As payment, Binalbagan executed 3 notes
the CA affirmed with modification. amounting to 80,000 dollars.

ISSUE The notes were never paid at maturity because Binalbagan suspended
Who has a better right to the deposits in Franco’s account—Franco or BPI- payments in favor of its other creditor. As a result, Fulton employed the
FB? services of a law firm, which S. C. Schwarzkopf was a member then, for the
collection of the payment. The firm was subsequently dissolved and
HELD Schwarzkopf was alone in handling the case. He opened a personal account
BPI-FB. The deposit in Franco’s accounts consists of money, which is (ACCOUNT 1) in China Banking Corp and deposited a modest amount.
generic and fungible. The quality of being fungible depends upon the
possibility of the property, because of its nature or the will of the parties, Later on, Binalbagan Estate’s financial condition began to improve. It
being substituted by others of the same kind, not having a distinct executed a check amounting to 10,000 to Schwarzkopf as part payment of
individuality. the original transaction. Schwarzkopf deposited the check in a new account
(ACCOUNT 2) in China Bank. But was subsequently withdrawn and used for
It bears emphasizing that money bears no earmarks of peculiar ownership, individual purposes. Binalbagan again executed a check amounting to
and this characteristic is manifest in the case which involves money in a 61,000 and delivered it to Schwarzkopf in favor of Fultan. He deposited it in
banking transaction gone awry. It primary function is to pass from hand to a new account again in China Bank entitled “Schwarzkopf, Atty-in-fact,
hand as a medium of exchange, without other evidence of its title. Money, Fulton Iron Works” (ACCOUNT 3).
which passed through various transactions in the general course of banking
business,, even if traceable origin, is no exception. When Schwarzkopf’s ACCOUNT 2 was overdrawn, he transferred the money
There is no doubt that BPI-FB owns the deposited money in the accounts of from ACCOUNT 2 to settle the discrepancy. Ultimately, he remitted only
Franco, but not as a legal consequence of its unauthorized transfer of FMIC’s 30,000 to Fulton.
deposits to Tevesteco’s account. BPI-FB conveniently forgets that the
deposit of money in banks is governed by the NCC provision on simple loan Fulton now argues that the both Schwarzkopf and China bank is liable for
or mutuum. As there is a creditor-debtor relationship between a depositor the amount misappropriated. (Schwarzkopf was already convicted of estafa
and a bank, BPI-FB ultimately acquired ownership of Franco’s deposits, but in a criminal case and made civilly liable, so this case is simply against
such ownership is coupled with a corresponding obligation to pay him an China Bank.)
equal amount on demand. ISSUE
Whether the bank is liable for the amount misappropriated by Schwarzkopf.
BPI-FB does not have the right to unilaterally freeze the accounts of Franco
based on its mere suspicion that the funds therein were proceeds of the

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 68
RULING
Party. The Bank is only liable for compensating the overdraft of ACCOUNT 2 In the meantime, a case for the settlement of Velasco's estate was filed
with ACCOUNT 3. But the Bank is not liable for the whole amount of wherein the whole balance in the joint account of Velasco and Lim was
misappropriation by Schwarzkopf specifically for withdrawals in ACCOUNT 2. claimed as part of Velasco's estate. The intestate court granted the urgent
motion of the heirs of Velasco to withdraw the deposit under the joint
Bank accounts and commercial papers can have earmarks. And earmarks account.
give notice that the money/credit rightfully belongs to some other person
then the one having control of the account. ACCOUNT 3 clearly indicates In 1980, CBTC merged with BPI.
that the account was for his client Fulton, as indicated in the name. Thus,
the bank cannot offset the overdraft of the personal account of Schwarzkopf In 1987, BPI filed a complaint against Lim and Eastern demanding payment
from the Account in favor of Fulton. For this transaction, the Bank is liable. of the promissory note for P73,000.00. Lim and Eastern, in turn, filed a
However, the bank cannot be held liable for the money drawn by counterclaim against BPI for the return of the balance in the disputed
Schwarzkopf from Account 2 for individual purposes. There was no proof account subject of the Holdout Agreement. The Court of Appeals rendered a
that the bank had any knowledge of the misappropriation of the money, as decision stating:
there was no indication the account was also for Fulton. Thus, there was no
duty for the bank to intervene especially from the first few deposits. 1) On the claim: It was the duty of BPI to debit the account of the
defendants under the promissory note to set off the loan even though the
The specialized function of bank is to serve as a place of deposit for money, same has no fixed maturity.
to keep it safely while on deposit, and to pay it out, upon demand to the
person who effected the deposit or upon his order. A bank is not a guardian 2) On the counterclaim: The settlement of Velasco's estate had nothing to
of trust funds deposited with it in the sense that it must see to their proper do with the claim of the defendants for the return of the balance of their
application nor is it its business to pry into the uses to which moneys on account with BPI as they were not privy to that case, and that the
deposit in its vault are being put; and so long as it serves its function and defendants, as depositors of CBTC/BPI, are the latter's creditors; hence, BPI
pays the money out in good faith to the person who deposited it, or upon should have protected the defendants' interest in the case when the said
his order, without knowledge or notice that it is in fact assisting in the account was claimed by Velasco's estate. It then ordered BPI to pay
misappropriation of the fund, the bank will be protected. defendants the amount of representing the outstanding balance in the bank
account of defendants.
Thus, the mere act of a bank in entering a trust fund to the personal
account of the fiduciary, knowing it to be a trust fund, will not make the ISSUES
bank liable in case of the subsequent misappropriation of the money by the 1) Whether BPI was duty-bound to debit the account of the defendants to
fiduciary set off the loan because of the Holdout Agreement, and
2) Whether the counterclaim for the amount in the joint account can be
BPI v. CA, 232 SCRA 302 (1994) awarded despite the same being given to the heirs of Velasco already.
DOCTRINE: A bank is under no duty or obligation to make the application.
RULING
To apply the deposit to the payment of the loan is a privilege, a right to set-
1) NO. It is clear from the Holdout Agreement that BPI had every right to
off which the bank has the option to exercise.
demand that Eastern and Lim settle their liability under the promissory note.
FACTS It cannot be compelled to retain and apply the deposit in Lim and Velasco's
Benigno Lim had 2 accounts at CBTC (BPI's predecessor): One jointly with joint account to the payment of the note. What the agreement conferred on
Eastern Plywood Corporation, of which he was an officer, and another joint CBTC was a power, not a duty. Generally, a bank is under no duty or
checking account with Mariano Velasco. Subsequently, Velasco died in April obligation to make the application. To apply the deposit to the payment of a
1977. loan is a privilege, a right of set-off which the bank has the option to
exercise.
In August 1977, Eastply and Lim obtained a loan from CBTC for P73,000
evidenced by a promissory note and secured by a Holdout Agreement giving 2) YES. In Serrano vs. Central Bank of the Philippines it was held that bank
CBTC the power to take funds from the joint account with Velasco (approx deposits are in the nature of irregular deposits; they are really loans
P331,000) and apply the same as payment for the loan. because they earn interest. The relationship then between a depositor and a

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bank is one of creditor and debtor. The deposit under the questioned time deposits. In the judgment rendered in that case on December 13, 1972
account was an ordinary bank deposit; hence, it was payable on demand of the Fidelity Savings Bank was ordered to pay the Elizes spouses the sum of
the depositor. P50,584 plus accumulated interest.

BPI cannot be relieved of its duty to pay Eastern simply because it already In another case, assigned to Branch XXX of the Court of First Instance of
allowed the heirs of Velasco to withdraw the whole balance of the account. Manila, the spouses Augusta A. Padilla and Adelaida Padilla secured on April
The petitioner should not have allowed such withdrawal because it had 14, 1972 a judgment against the Fidelity Savings Bank for the sums of
admitted in the Holdout Agreement the unceertain ownership of the money P80,000 as the balance of their time deposits, plus interests, P70,000 as
deposited in the account. moral and exemplary damages and P9,600 as attorney's fees (Civil Case No.
84200 where the action was filed on September 6, 1971).
Moreover, the order of the court in the intestate case merely authorized the
heirs of Velasco to withdraw the account. BPI was not specifically ordered to The Central Bank appealed to SC by certiorari. It contends that the final
release the account to the said heirs; hence, it was under no judicial judgments secured by the Elizes and Padilla spouses do not enjoy any
compulsion to do so. The authorization given to the heirs of Velasco cannot preference because (a) they were rendered after the Fidelity Savings Bank
be construed as a final determination or adjudication that the account was declared insolvent and (b) under the charter of the Central Bank and
belonged to Velasco. We have ruled that when the ownership of a particular the General Banking Law, no final judgment can be validly obtained against
property is disputed, the determination by a probate court of whether that an insolvent bank.
property is included in the estate of a deceased is merely provisional in
character and cannot be the subject of execution. The lower court, in justifying the award for damages to the spouses,
reasoned out that, because such actions are not suspended, judgments
Because the ownership of the deposit remained undetermined, BPI, as the against insolvent banks could be considered as preferred credits under
debtor with respect thereto, had no right to pay to persons other than those article 2244(14)(b) of the Civil Code. It further noted that, in contrast with
in whose favor the obligation was constituted or whose right or authority to the Central Act, section 18 of the Insolvency Law provides that upon the
receive payment is indisputable. The payment of the money deposited with issuance by the court of an order declaring a person insolvent "all civil
BPI that will extinguish its obligation to the creditor-depositor is payment to proceedings against the said insolvent shall be stayed."
the person of the creditor or to one authorized by him or by the law to
receive it. Payment made by the debtor to the wrong party does not On the other hand, the Central Bank argues that after the Monetary Board
extinguish the obligation as to the creditor who is without fault or has declared that a bank is insolvent and has ordered it to cease operations,
negligence, even if the debtor acted in utmost good faith and by mistake as the Board becomes the trustee of its assets "for the equal benefit of all the
to the person of the creditor, or through error induced by fraud of a third creditors, including the depositors". The Central Bank cites the ruling that
person. The payment then by BPI to the heirs of Velasco, even if done in "the assets of an insolvent banking institution are held in trust for the equal
good faith, did not extinguish its obligation to the true depositor, Eastern. benefit of all creditors, and after its insolvency, one cannot obtain an
advantage or a preference over another by an attachment, execution or
otherwise"
iv. Whether or not preferred credits
ISSUE
CENTRAL BANK v. MORFE, 63 SCRA 114 (1975)
1) Whether deposits are deemed as preferred credits and if not, 2) may
FACTS they be elevated to the level of preferred credits by acquiring a court
Monetary Board found the Fidelity Savings Bank to be insolvent. The Board judgment?
directed the Superintendent of Banks to take charge of its assets, forbade it
to do business and instructed the Central Bank Legal Counsel to take legal RULING
actions. NO to both. It should be noted that fixed, savings, and current deposits of
money in banks and similar institutions are not true deposits. They are
Prior to the institution of the liquidation proceeding but after the declaration considered simple loans and, as such, are not preferred credits.
of insolvency, or, specifically, the spouses Job Elizes and Marcela P. Elizes
filed a complaint in the Court of First Instance of Manila against the Fidelity Evidently, one purpose in prohibiting the insolvent bank from doing business
Savings Bank for the recovery of the sum of P50, 584 as the balance of their is to prevent some depositors from having an undue or fraudulent

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 70
preference over other creditors and depositors. v. Bank’s right to compensation
GULLAS v. PNB, 62 PHIL. 519 (1935)
That purpose would be nullified if, as in this case, after the bank is declared
insolvent, suits by some depositors could be maintained and judgments DOCTRINE: A bank has the right of set off of the deposit in its hands for
would be rendered for the payment of their deposits and then such the payment of any indebtedness to it on the part of the depositor.
judgments would be considered preferred credits under article 2244 (14) (b)
of the Civil Code. FACTS (Version 1)
The treasurer of the US for the US Veterans Bureau issued a treasurer
A contrary rule or practice would be productive of injustice, mischief and warrant in the amount of $361, which was indorsed by Paulino Gullas and
confusion. To recognize such judgments as entitled to priority would mean Pedro Lopez, payable to Francisco Bacos. PNB encashed the warrant, but
that depositors in insolvent banks, after learning that the bank is insolvent was dishonored by the Insular Treasurer. Gullas had $509 in his bank
as shown by the fact that it can no longer pay withdrawals or that it has account, which was sequestered by the bank. At the time the notice of
closed its doors or has been enjoined by the Monetary Board from doing dishonor was sent, he was still in Manila and did not receive the notice. Due
business, would rush to the courts to secure judgments for the payment of to such event, he was not able to pay the fees for his insurance for
their deposits. insufficient balance, and he was greatly humiliated by such event.

ISSUE
In such an eventuality, the courts would be swamped with suits of that
Whether PNB has the right to apply Gullas’s deposit against his debt to the
character. Some of the judgments would be default judgments. Depositors
bank
armed with such judgments would pester the liquidation court with claims
for preference on the basis of article 2244(14)(b). Less alert depositors
RULING
would be prejudiced. That inequitable situation could not have been
NO. According to the NCC, compensation shall take place upon the
contemplated by the framers of section 29.
existence of two persons being a creditor and debtor to each other. Gullas,
being a depositor of the bank, is considered a creditor of the bank and the
The general principle of equity that the assets of an insolvent are to be
bank being the debtor. Under the Negotiable Instruments Law, when a
distributed ratably among general creditors applies with full force to the
check has been dishonored, a general indorser becomes liable to the
distribution of the assets of a bank. A general depositor of a bank is merely
amount of the check upon the knowledge of the dishonor. Gullas, being a
a general creditor, and, as such, is not entitled to any preference or priority
general indorser, became a debtor to the bank for the dishonor of the check,
over other general creditors
upon knowledge of the dishonor, and the bank becomes the creditor.
Compensation should have taken place, except that Gullas DID NOT have
Considering that the deposits in question, in their inception, were
knowledge of the dishonor. Such action became prejudicial to Gullas, and he
not preferred credits, it does not seem logical and just that they
may therefore claim from the bank any damages sustained by him from
should be raised to the category of preferred credits simply because
such event. However, since no actual damages was proved, nominal
the depositors, taking advantage of the long interval between the
damages in the amount of $250 is awarded to him.
declaration of insolvency and the filing of the petition for judicial
assistance and supervision, were able to secure judgments for the
payment of their time deposits. FACTS (Version 2)
• Attorney Paulino Gullas has a current account with PNB.
The circumstance that the Fidelity Savings Bank, having stopped operations • On August 2, 1933, the Treasurer of the United States for the United
since February 19, 1969, was forbidden to do business (and that ban would States Veterans Bureau issued a Warrant in the amount of $361,
include the payment of time deposits) implies that suits for the payment of payable to the order of Francisco Sabectoria Bacos. Paulino Gullas and
such deposits were prohibited. What was directly prohibited should not be Pedro Lopez signed as endorsers of this check.
encompassed indirectly. • The warrant was cashed by PNB but the Insular Treasurer dishonored
the warrant. At that time the outstanding balance of Gullas on the
books of the bank was P509. Against this balance Gullas had issued
certain cheeks which could not be paid when the money was
sequestered.
• On August 20, 1933, Gullas left his Cebu residence for Manila.

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• When PNB learned of the dishonor of the warrant, it sent notices by 2. Gullas is entitled to nominal damages.
mail to Atty. Gullas. However, the notices could not be delivered to • PNB did not enforce the remedy properly.
Gullas because he was in Manila. In its letter dated Aug. 21, 1933, o PNB made use of the money in Gullas’ account to make
PNB informed Gullas and Lopez that the United States Treasury good for the treasury warrant even prior to the mailing of
warrant No. 20175 in the name of Francisco Sabectoria Bacos for the notice of dishonor and without waiting for any action by
$361 or P722, the payment for which had been received has been Gullas.
returned by its Manila office with the notation that the payment of his o It has been held that a depositor who has funds sufficient to
check has been stopped by the Insular Treasurer. PNB stated that meet payment of a check drawn by him in favor of a third
because of this, it applied the outstanding balances in their current party, has a right of action against the bank for its refusal to
accounts (Gullas - P509). pay such a check in the absence of notice to him that the
• When Gullas returned to Cebu on August 31, 1933, he received the bank has applied the funds so deposited in extinguishment
notice of dishonor and he immediately paid the unpaid balance of the of past due claims held against him.
United States Treasury warrant. o As to an indorser, notice should actually have been given
• Because of this incident, (1) checks that Gullas issued, including one him in order that he might protect his interests.
for his insurance, were not paid because of lack of funds standing to
his credit in the bank; (2) periodicals in the vicinity gave prominence • PNB’s action was prejudicial to Gullas.
to the news to the great mortification of Gullas. o PNB is not primarily liable for the alleged libelous articles
• CFI: PNB should return the sum of P5098 to Gullas, with legal interest against Gullas. The same same remark could be made
and costs. Gullas is entitled to damages in the amount of P10K more relative to the loss of business which Gullas claims but which
or less. could not be traced definitely to this occurrence. Also Gullas
had been reimbursed.
ISSUES o On the other hand, it was not agreeable for one to draw
(1) WON PNB has the right to apply a deposit to the debt of depositor to the checks in all good faith, then, leave for Manila, and on
bank return find that those checks had not been cashed because
(2) What amount of damages, if any, should be awarded to Gullas of the action taken by the bank.
o Gullas should be awarded nominal damages worth P250
RULING because of the premature action of the bank against which
1. PNB has the right to apply the deposit. Gullas had no means of protection.
• Art. 1195 Civil Code provides that compensation shall take place when
two persons are reciprocally creditor and debtor of each other. It has
REPUBLIC v. CA, 65 SCRA 186 (1975)
been held that the relation existing between a depositor and a bank is
that of creditor and debtor. DOCTRINE: Since the relation between a depositor and a bank is that of a
• Sec. 66 Negotiable Instruments Law provides that the general creditor and debtor, the depositor has the right to apply his deposits/credit
indorser of negotiable instrument engages that if he be dishonored with the bank against the loans he had obtained from his deposits.
and the necessary proceedings of dishonor be duly taken, he will pay
the amount thereof to the holder. It has been held that notice of FACTS
dishonor is in order to charge all indorser and that the right of action Shortly after the liberation of the Philippines in 1945, all the assets
against him does not accrue until the notice is given. belonging to the enemy government, were confiscated by the Government
• As a general rule, a bank has a right of set off of the deposits in its of the United States. The assets located in the Philippines were
hands for the payment of any indebtedness to it on the part of a subsequently turned over to the Philippines by agreement between the two
depositor. Governments. Among these assets are 20 promissory notes secured by a
• [In Louisiana, a bank has no right, without an order from or special chattel mortgage executed by Cuaycong in favor of the Bank of Taiwan.
assent of the depositor to retain out of his deposit an amount
sufficient to meet his indebtedness. This rule is based on the theory of Based on the Ballyntine schedule, the money value of these promissory
confidential contracts arising from irregular deposits, e. g., the deposit notes adds up to P4,986, and, including the stipulated interest accumulated
of money with a banker.] up to September 30, 1961, the total indebtedness amounts to P14,654.17.

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The Republic then filed suit against Cuaycong to recover the value of the 20 drawn by the Court of Appeals as to the existence and extent of such
promissory notes executed by Cuaycong in favour of the Bank of Taiwan. deposit cannot be flawed. The fact is clear that all the proceeds derived from
the sale or confiscation of the sugar stocks belonging to the planters in
Based on the findings of the trial court which were adopted by the Court of Negros Occidental were retained as deposits by the Bank of Taiwan and
Appeals, it would appear that during the Japanese occupation of Negros made part of the "Farmers Rehabilitation Fund." Planters like Cuaycong were
Occidental, the military administration commandeered all available stocks of allowed to borrow money from the Fund but only to the extent of their
sugar in that province, including those belonging to Cuaycong; that no deposits with the Bank of Taiwan or, as the military directive adverted to
record of the precise amount of sugar taken from Cuaycong has survived states, "Within the limit of the proceeds of sugar sale of each planter." The
the war but Cuaycong claimed that the same was valued at P10,242.60; and conclusion is logical and inevitable that the sums covered by the promissory
that Cuaycong's stocks of sugar were mortgaged at the time with the notes drawn by Cuaycong were well within the size of his then existing
Philippine National Bank (the PNB, at the beginning of the Japanese deposit.
occupation, was taken over by the Bank of Taiwan) to guarantee payment of And since the relation between a depositor in a bank and the bank is
a likewise undetermined amount of crop loan(s) granted prior to the that of creditor and debtor, 3 Cuaycong has every right to apply his
outbreak of the war. credit with the Bank of Taiwan against the loans he had obtained
from his deposit. All the elements necessary for a set-off are present, and
the stocks of sugar belonging to Cuaycong were sold by the Victories under the law then obtaining, 4 compensation takes place ipso jure from the
Planters' Association, acting as agent for the Bank of Taiwan, to the Mitsui day all the necessary requisites concur, without need of any conscious intent
Bussan Kaisha of Japan. The proceeds of this sale were, in effect, retained on the part of the parties.
by the Bank of Taiwan to constitute a deposit of Cuaycong and made part of
the so-called "Farmers Rehabilitation Fund" mentioned in the military Moreover, the Court is satisfied with the explanation proffered by
directive. The Fund allowed the planters to borrow money therefrom, Cuaycong that, under the abnormal conditions then prevailing, the
against their respective deposits, in order to finance new plantings of sugar only way by which he could utilize the proceeds from the sale of the
cane and cotton in their haciendas. The twenty promissory notes subject of stocks of sugar seized from him was for him to make use of the loans
the present action by the Government were executed by Cuaycong between made available by the very agency that arbitrarily retained the said
April 16, 1943 and March 25, 1944 under the above-mentioned financing proceeds. In ultimate effect, it was as though Cuaycong had merely
scheme. withdrawn his deposits with the Bank of Taiwan.

Upon the foregoing facts, the Court of Appeals held, among others, that (a) BPI v. CA, 512 SCRA 620 (2007)
the right of action of the Government against Cuaycong has already
DOCTRINE: A bank generally has the right of set-off over the deposits
prescribed, and (b) Cuaycong's indebtedness to the Bank of Taiwan may be
therein for the payment of any withdrawals on the part of a depositor—the
considered set off against the proceeds of the sale of his sugar retained by
right of a collecting bank to debit a client’s account for the value of a
the same bank. The Government disputes these rulings.
dishonored check that has previously been credited has fairly been
established by jurisprudence.
ISSUE
Whether the government may still collect on the promissory notes against FACTS
Cuaycong Julio Templonuevo demanded from BPI payment of P267,000 (approx.)
representing the aggregate amount of 3 checks, payable to him, but
RULING: NO. deposited with Annabelle Salazar’s BPI account without his knowledge and
1. On the matter of prescription, the SC held that the statute of limitations corresponding indorsement.
does not operate against the Government as to bar it from collecting the
sums owing to the Bank of Taiwan during the last war for, in recovering Accepting Templonuevo’s claim as a valid one, BPI froze the account of AA
these loans, the Government is merely acting "in the exercise of its Salazar Construction and Engineering Services (ASCES), instead of
sovereign functions to protect the interests of the State over a public Annabelle Salazar’s, where the checks were deposited, as this was already
property." closed due to insufficiency of funds.
2. The Court of Appeals is correct in allowing a set-off of Cuaycong's
indebtedness to the Bank of Taiwan against his money-deposit with the Salazar was advised to settle this with Templonuevo, but no settlement was
same bank. No record of Cuaycong's deposit is available but the inference arrived at. Hence, BPI decided to debit the amount of P267,000 (approx.)

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from her account and paid this, in turn, to Templonuevo by means of a vi. No breach of trust; Mandamus not a remedy
cashier’s check.
LUCMAN v. MALAWI, 511 SCRA 268 (2006)
Bank deposits are in the nature of irregular deposits—they are really loans
Hence, Salazar instituted an action against BPI for the recovery of the sum
because they earn interest. All kinds of bank deposits are to be treated as
of P267,000. The RTC rendered a decision in favor of Salazar, which the CA
loans and are to be covered by the law on loans. Mandamus does NOT lie to
affirmed on the ground that Salazar and Templonuevo had previously
enforce the performance of contractual obligations.
agreed that the checks payable to JRT Construction and Trading actually
belonged to Salazar and would be deposited to her account, with
Templonuevo acquiescing to the arrangement. c. Bank’s Duty of Utmost Care

ISSUE SEC. 2, GBL: The State recognizes the vital role of banks in
Whether it was proper for BPI to withdraw unilaterally from the depositor’s providing an environment conducive to the sustained development
account the amount it had previously paid upon certain unendorsed order of the national economy and the fiduciary nature of banking that
instruments deposited by the depositor to another account that she closed requires high standards of integrity and performance. In furtherance
thereof, the State shall promote and maintain a stable and efficient
HELD banking and financial system that is globally competitive, dynamic
NO. Although as the collecting bank, BPI had the right to debit Salazar’s and responsive to the demands of a developing economy.
account for the value of the checks it previously credited in her favor, it was
improper for it to do so. It is of no moment that the account debited by BPI CONSOLIDATED BANK AND TRUST COMPANY v. CA, 410 SCRA 562
was different from the original account to which the proceeds of the check (2003)
were credited because both admittedly belonged to Salazar, the former DOCTRINE: The fiduciary relationship means that the bank’s obligation to
being the account of the sole proprietorship which had no separate and observe “high standards of integrity and performance” is deemed written
distinct personality form her, and that the latter being her personal account. into every deposit agreement between a bank and its depositors. It requires
banks to assume a degree of diligence higher than that of a good father of a
As business affected with public interest, and because of the nature of their family.
functions, banks are under obligation to treat the accounts of their
depositors with meticulous care, always having in mind the fiduciary nature FACTS
of their relationship. In this regard, BPI was clearly remiss in its duty to (Similar with the earlier case where the messenger left the passbook in the
Salazar as its depositor. bank)

Despite the obvious lack of indorsement on the checks, BPI permitted the ISSUE
encashment of these checks three times on 3 separate occasions. This Who should bear the loss, Consolidated Bank or L.C. Diaz?
negates BPI’s contention that it merely made a mistake in crediting the
value of the checks to Salazar’s account and instead bolsters the conclusion RULING
of the CA that BPI recognized Salazar’s claim of ownership of checks and Both will share in the losses- 60% to Consolidated Bank, 40% to L.C. Diaz.
acted deliberately in paying the same, contrary to ordinary banking policy The Bank was made liable because of its duty to its depositors.
and practice.
This fiduciary relationship means that the bank’s obligation to observe “high
Although the Court ordered the return of the amount of the checks to standards of integrity and performance” is deemed written into every
Templonuevo, it affirmed CA’s award of damages to Salazar. This would deposit agreement between a bank and its depositor. The fiduciary nature of
have been avoided had BPI adhered to the standard of diligence expected of banking requires banks to assume a degree of diligence higher than that of
one engaged in the banking business. A depositor has the right to recover a good father of a family.
reasonable moral damages even if the bank’s negligence may not have been
attended with malice or bad faith, if the former suffered mental anguish, The fiduciary nature of banking does not convert a simple loan into a trust
serious anxiety, embarrassment, and humiliation. agreement because banks do not accept deposits to enrich depositors but to
earn money for themselves. The law allows banks to offer the lowest
possible interest rate to depositors while charging the highest possible

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interest rate on their own borrowers. The interest spread or differential however, That a check which has been cleared and credited to the
belongs to the bank and not to the depositors who are not cestui que trust account of the creditor shall be equivalent to a delivery to the
of banks. If depositors are cestui que trust of banks, then the interest creditor of cash in an amount equal to the amount credited to his
spread or income belongs to the depositors, a situation that Congress account.
certainly did not intend in enacting Section 2 of RA 8791.
SEC. X201, MRB: Banks may accept or create demand deposits
subject to withdrawal by check.
Solidbank’s tellers must exercise a high degree of diligence in insuring that
they return the passbook only to the depositor or his authorized A UB/KB may accept or create demand deposits subject to
representative. The tellers know, or should know, that the rules on savings withdrawal by check, without prior authority from the BSP.
account provide that any person in possession of the passbook is
presumptively its owner. If the tellers give the passbook to the wrong A TB/RB/Coop Bank may accept or create demand deposits upon
person, they would be clothing that person presumptive ownership of the prior authority of the BSP.
passbook, facilitating unauthorized withdrawals by that person. For failing SEC. X202, MRB: The following regulations shall govern temporary
to return the passbook to Calapre, the authorized representative of L.C. over-drawings and drawings against uncollected deposits (DAUDs).
Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high
degree of diligence in safeguarding the passbook, and in insuring its return a. Temporary over-drawings. Temporary over-drawings against
to the party authorized to receive the same. current account shall not be allowed, unless caused by normal
bank charges and other fees incidental to handling such
In culpa contractual, once the plaintiff proves a breach of contract, there is accounts. Banks which violate these regulations shall be subject
a presumption that the defendant was at fault or negligent. The burden is to a fine of one-tenth of one percent (1/10 of 1%) per day of
on the defendant to prove that he was not at fault or negligent. In contrast, violation, computed on the basis of the amount of overdrawing
in culpa aquiliana the plaintiff has the burden of proving that the defendant or fines in amounts as may be determined by the Monetary
was negligent. In the present case, L.C. Diaz has established that Solidbank Board, but not to exceed P30,000 a day for each violation,
breached its contractual obligation to return the passbook only to the whichever is lower.
authorized representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the Technical over-drawings arising from “force posting” in-clearing
passbook to Calapre. The burden was on Solidbank to prove that there was checks shall be debited by banks under “Returned Checks and
no negligence on its part or its employees. Other Cash Items Not in Process of Collection” which is part of
“Other Assets” in the Statement of Condition. Items to be
lodged under this account shall consist only of in-clearing checks
B. Kinds of Deposit which may result in “technical overdrawn” accounts and shall be
a. Demand Deposits immediately reversed the following day.
SEC. 58, NCBA: For purposes of this Act, the term "demand
The checks lodged under “Returned Checks, etc.” shall either be
deposits" means all those liabilities of the Bangko Sentral and of
returned or honored the following day before clearing. The items
other banks, which are denominated in Philippine currency and are
to be used as cover for the honored checks should only consist
subject to payment in legal tender upon demand by the presentation
of any of the following:
of checks.
(1) Cash
SEC. 59, NCBA: Only banks duly authorized to do so may accept (2) Cashier’s, Manager’s or Certified Checks
funds or create liabilities payable in pesos upon demand by the (3) Bank Drafts
presentation of checks, and such operations shall be subject to the (4) Postal Money Orders
control of the Monetary Board in accordance with the powers (5) Treasury Warrants
granted it with respect thereto under this Act. (6) Duly funded “On us” Checks
(7) Fund transfers/credit memos within the same bank
SEC. 60, NCBA: Checks representing demand deposits do not have
representing proceeds of loans granted under existing
legal tender power and their acceptance in the payment of debts,
regulations.
both public and private, is at the option of the creditor: Provided,

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 75
Peso demand deposit accounts maintained by foreign integrated Metro Manila area served by the PCHC and the BSP
correspondent banks with commercial banks shall not be Regional Clearing Centers (RCCs). (The settlement of interbank
subject to the above-mentioned regulations: Provided, That: transactions vis-à-vis covering reserve requirement/deficiency of
(a) The maintenance of non-resident correspondent bank’s peso banks’ DDA is shown in Appendix 39.)
checking accounts and overdrawings therefrom are covered by (a) AM Returned COCI Clearing - The AM returned COCI clearing in
reciprocal arrangement; the integrated Metro Manila local exchange shall be conducted from
(b) Temporary overdrawings are covered within fifteen (15) 7:30 AM to 10:00 AM on the banking day immediately following the
days from the date overdrawings are incurred; and original date of presentation of the COCI to PCHC.
(c) Such accounts are credited only through foreign exchange
inward remittance. The AM returned COCI clearing window for local exchanges in the
BSP RCCs shall be conducted from 8:00 AM to 9:30 AM on the
b. Drawings against uncollected deposits. DAUDs shall be
banking day immediately following the original date of presentation
prohibited except when the drawings are made against
of the COCI to the RCC.
uncollected deposits representing
manager’s/cashier’s/treasurer’s checks, treasury warrants,
Returned COCI in the AM clearing windows shall be given value on
postal money orders and duly funded “on us” checks, which
the same date as the date of original presentation of the COCI to
may be permitted at the discretion of each bank.
PCHC and RCC. The amount of debits and credits on the date of
SEC. X203, MRB: To complement the provisions of Batas Pambansa original presentation shall be reversed to the extent of the amount
Blg. 22, (An Act Penalizing the Making or Drawing and Issuance of a Check of credits and debits arising from the returned COCI. The process
Without Sufficient Funds or Credit), the following regulations shall govern: restores the balances of the demand deposits of banks with the BSP
a. The drawee bank shall stamp, write or print on a dishonored check to their position prior to the settlement of the clearing results
or on a paper attached thereto the date the check is presented for affected by the COCI later returned due to insufficient funds or
payment and the reason for the refusal to pay the same to the holder credit.
thereof.
b. Where the reason for the dishonor of a check is stamped, written or (b) PM Returned COCI Clearing - The PM returned COCI clearing
printed on a paper attached to the checks, the drawee bank shall window shall coincide with the afternoon regular clearing. Other
indicate the pertinent details, such as the names of the drawer, the dishonored COCI not returned in the morning clearing session shall
payee and the drawee bank, the date and amount of the check, the be presented by the drawee bank to the negotiating bank in the
check number and the date of dishonor. afternoon regular clearing. Such returned COCI shall be given value
c. The drawee bank shall use only the remark or notation “Drawn on the date the returned COCI was presented to PCHC for the
Against Insufficient Funds”, “No Funds”, or “Insufficient Funds” integrated Metro Manila area and to BSP RCCs.
stamped, written, or printed on, or attached to the check dishonored
or returned byreason of insufficiency of funds or credit. Return of Dishonored COCI - A COCI dishonored by reason of
d. Notwithstanding receipt of an order to stop payment, the drawee insufficiency of funds or credit shall be returned by the drawee bank
bank shall likewise stamp, write, or print on, or attach to the check to the negotiating bank not later than the next clearing for returned
any of the remarks or notations mentioned in Item “c” hereof COCI.
indicating that there were no sufficient funds in or credit with such
bank for the payment in full of such check, if such be the fact. The (2) For Out-of-town Exchanges
bank shall also indicate receipt of a stop payment order. For out-of-town exchanges, a COCI so dishonored shall be returned
e. A check and other clearing item (COCI) dishonored by reason of by the drawee bank to the negotiating bank within the period
insufficiency of funds or credit shall be returned by the drawee bank specified in the clearing Circular Letters issued by BSP.
to the negotiating bank not later than the next clearing for returned
COCI. (3) COCI not coursed through the Clearing System
A COCI dishonored by reason of insufficiency of funds or credit
(1) For Local Exchanges which was not coursed through the clearing system shall be
There shall be two (2) separate clearing windows for COCIs returned returned by the drawee bank to the holder or the negotiating bank,
due to insufficient funds or credit in the local exchanges in the as the case may be, not later than the business day following the

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 76
date the COCI is presented for payment with the drawee bank. by Ong and Ma. Theresa David, Senior Manager of FMIC, BPI FB transferred
P80 million from FMIC’s current account to the savings account of Tevesteco
The negotiating bank shall, in turn, return a COCI dishonored by Arrastre – Stevedoring, Inc.
reason of insufficiency of funds or credit to the holder not later than
the business day following its receipt of the dishonored COCI from FMIC denied having authorized the transfer of its funds to Tevesteco,
the drawee bank. claiming that the signatures of Ong and David were falsified. To recover
immediately its deposit, FMIC, on September 12, 1989, issued BPI FB check
SEC. X204, MRB: The following officers and employees of banks are no. 129077 for P86,057,646.72 payable to itself and drawn on its deposit
prohibited from maintaining demand deposits or current accounts with with BPI FB SFDM branch. But upon presentation for payment on September
the banking office in which they are assigned: 13, 1989, BPI FB dishonored the check as it was "drawn against insufficient
a. All officers; funds" (DAIF).
b. Employees of the bank’s cash department/cash units; and
c. Other employees who have direct and immediate FMIC filed with the RTC a civil case against BPI FB. RTC ruled in favor of
responsibility in the handling of transactions and/or records FMIC, ordering BPI to pay P80M + interest at legal rate. CA modified
pertaining to demand deposits or current accounts. amount to P65M + interest at 17%

The above-mentioned prohibition shall include the spouses and ISSUE


relatives within the second degree of consanguinity and affinity of the Is it a Time Deposit or interest-bearing current account?
officers and employees covered by the prohibition, and the business
interests of such officers and employees, their spouses and relatives HELD
within the second degree of consanguinity and affinity, in single Time Deposit. The parties did not intend the deposit to be treated as a
proprietorships, or partnerships or corporations in which such officers demand deposit but rather as an interest-earning time deposit not
and employees, individually or as a group, own or control at least a withdrawable any time. Both agreed that the deposit of P100 million was
majority of the capital of the partnership or the outstanding non-withdrawable for one year upon payment in advance of the
subscribed capital stock (voting and non-voting) of the corporation. 17% per annum interest.

BPI FAMILY SAVINGS BANK v. FIRST METRO INVESTMENT CORP, Ordinarily, a time deposit is defined as "one the payment of which cannot
429 SCRA 30 (2004) legally be required within such a specified number of days." In contrast,
demand deposits are "all those liabilities of the Bangko Sentral and of
DOCTRINE: Demand Deposits are “all those liabilities of the Bangko Sentral
other banks which are denominated in Philippine currency and are subject
and of other banks which are denominated in the Philippine currecncy and
to payment in legal tender upon demand by the presentation of
are subject to payment in legal tender upon demand by the presentation of
(depositor’s) checks."4 While it may be true that barely one month and
depositor’s checks. Under CB Circular No. 22 (Series of 1994), “demand
seven days from the date of deposit, respondent FMIC demanded the
deposits shall not be subject to any interest rate ceiling.” This, in effect, is
withdrawal of P86,057,646.72 through the issuance of a check payable to
an open authority to pay interest on demand deposits, such interest not
itself, the same was made as a result of the fraudulent and unauthorized
being subject to any rate ceiling.
transfer by petitioner BPI FB of its P80 million deposit to Tevesteco’s savings
FACTS account. Certainly, such was a normal reaction of respondent as a depositor
FMIC, through its Executive Vice President Antonio Ong, opened a current to petitioner’s failure in its fiduciary duty to treat its account with the
account and deposited a METROBANK check P100 million with BPI Family highest degree of care. Under this circumstance, the withdrawal of deposit
Bank* (BPI FB). BPI FB, guaranteed the payment of P14,667,687.01 by respondent FMIC before the one-year maturity date did not change the
representing 17% per annum interest of P100 million deposited by FMIC. nature of its time deposit to one of demand deposit.
The latter, in turn, assured BPI FB that it will maintain its deposit of P100
million for a period of one year on condition that the interest of 17% per i. For UB and KB
annum is paid in advance. Subsequently, BPI FB paid FMIC 17% interest or
SEC. 33, GBL: A bank other than a universal or commercial
P14,667,687.01 upon clearance of the latter’s check deposit.
bank cannot accept or create demand deposits except upon
However, on August 29, 1989, on the basis of an Authority to Debit signed

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 77
prior approval of, and subject to such conditions and rules as
may be prescribed by the Monetary Board. d. Applicant bank shall institute and maintain the following minimum
safeguards:
ii. For TB
(1) All deposit solicitors shall be initially bonded for at least
SEC. 10 (B), THRIFT BANKS ACT: Open current or checking P1,000 subject to the increase thereof to approximate their
accounts: Provided, That the thrift bank has net assets of at daily collections;
least Twenty million pesos (P20,000,000) subject to such (2) Deposit solicitors shall be provided with proper identification
guidelines as may be established by the Monetary Board; and cards with photograph and signature of each respective
shall be allowed to directly clear its demand deposit operations solicitor, certified to by the appropriate officer of the bank. Said
with the Bangko Sentral and the Philippine Clearing House identification cards shall be worn by each solicitor at all times at
Corporation; the upper breast of his outer garment when soliciting deposits;
(3) Adequate insurance coverage for funds in transit
iii. For RB/Coop Bank (representing deposits collected outside banking premises) shall
SEC. 12 (B), RURAL BANKS ACT: In addition to the operations be secured by applicant bank from insurance companies not
especially authorized in this Act, any rural bank may: included in the list of companies blacklisted by the Insurance
Commissioner;
xxx (4) Deposit slips shall be in booklet form, pre-numbered,
Open current or checking accounts, provided the rural bank has intriplicate copies and in three (3) colors - the original to be
net assets of at least Five million (P5,000,000) subject to such issued to the depositor, the second copy to be used for posting
guidelines as may be established by the Monetary Board; reference, and the third copy to be retained in the booklet;
(5) All collections shall be turned over to the cashier at the end
iv. For Islamic Banks of each day accompanied by a Collection Summary Report to be
SEC. 6, PAR. 7 (A), ISLAMIC BANK CHARTER: To perform accomplished in duplicate which shall contain the following
the following banks services: minimum information:
(a) Date of the report
xxx (b) Names and addresses of the depositors
(c) Deposit slip numbers
Open current or checking accounts;
(d) Amounts of deposit
b. Savings Deposits (e) Savings account and passbook numbers
(f) Name and signature of solicitor rendering the report
SEC. X213, MRB: Banks may be authorized by the BSP to solicit
(6) Depositors shall always be required to accomplish a
and accept deposits outside their bank premises, subject to the
Signature Card when opening an account, which card shall be
following conditions:
used always as reference in checking the
genuineness/authenticity of signatures affixed on withdrawal
a. The financial condition of the bank applying for authority to solicit
slips or authorizations for withdrawal;
and collect savings deposits outside its bank premises is sound and
(7) Deposits/withdrawals shall be recorded by the bookkeeper
the operations and the quality of the management thereof could
or any ledger clerk, except any bank solicitor, in the depositor’s
reasonably assure the safety of the funds which may be entrusted to
ledger cards and passbooks on the same day that such
its deposit collectors and/or solicitors;
deposits/withdrawals are accepted. Passbooks shall be returned
to the depositors not later than the following business day;
b. The proposed area where applicant bank intends to solicit shall be
(8) At the end of each month, depositors shall be advised in
clearly defined;
writing of the balances of their deposits with the bank, the
advise slips of which shall never be handcarried by the solicitors
c. Solicitation of deposits shall only be confined within a locality
themselves; and
where there are no other banks in operation, or where it can be
(9) Places of assignments of bank solicitors shall be rotated at
clearly established that the deposit potentials of the said locality are
least quarterly.
still untapped; and

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 78
SEC. X214, MRB: Banks are prohibited from issuing/accepting
withdrawal slips or any other similar instruments designed to effect A depositor of a savings deposit-FSD is required to keep the money with the
withdrawals of savings deposits without requiring the depositors bank for at least thirty (30) days in order to yield a higher interest rate.
concerned to present their passbooks and accomplishing the Otherwise, the deposit earns interest pertaining only to a regular savings
necessary withdrawal slips, except for banks authorized by the BSP deposit. The same feature is present in a time deposit. A depositor is
to adopt the no passbook withdrawal system: Provided, That banks allowed to withdraw his time deposit even before its maturity subject to
which are already adopting the no passbook withdrawal system shall bank charges on its pre-termination and the depositor loses his entitlement
be given six (6) months from effectivity of this Manual of to earn the interest rate corresponding to the time deposit. Instead, he
Regulations (MOR) to seek approval from the BSP. earns interest pertaining only to a regular savings deposit. (Question) Sino
superhero mahilig mag promise?) In both cases, the deposit may be
withdrawn anytime but the depositor gets to earn a lower rate of interest.
The provisions of Sec. X202b shall also apply to withdrawals from
The only difference lies on the evidence of deposit, a savings deposit-FSD is
savings deposits.
evidenced by a passbook, while a time deposit is evidenced by a certificate
INTERNATIONAL EXCHANGE BANK v. CIR, 520 SCRA 688 (2007) of time deposit." In order for a depositor to earn the agreed higher interest
rate in a SA-FSD, the amount of deposit must be maintained for a fixed
DOCTRINE: A Fixed Savings Deposit (FSD), like a time deposit, provides for period. Thus, SA-FSD is a deposit account with a fixed term. Withdrawal
a higher interest rate when the deposit is not withdrawn within the required before the expiration of said fixed term results in the reduction of the
fixed period, otherwise, it earns interest pertaining to a regular savings interest rate. Having a fixed term and reduction of interest rate in case of
deposit. pre-termination are essentially the features of a time deposit. Ultimately,
FACTS the Bank’s SA-FSD and time deposit are substantially the same
International Exchange Bank served a Letter of Authority by the
Commissioner of Internal Revenue, directing the examination of the bank’s It bears emphasis that DST is levied on the exercise by persons of certain
book of accounts and other account records. The CIR found that it was liable privileges conferred by law for the creation, revision, or termination of
for tax deficiencies, mostly Documentary Stamp Tax (DST). The Bank specific legal relationships through the execution of specific instruments. It
protested the assessment, arguing that there is no law imposing DST on is an excise upon the privilege, opportunity or facility offered at exchanges
Savings Account-Fixed Savings Deposit. for the transaction of the business.

CTA Division decided that the bank was not liable for the whole assessment While tax avoidance schemes and arrangements are not prohibited, tax laws
but still liable for the DST. CTA En Banc affirmed. cannot be circumvented in order to evade payment of just taxes. (Answer:
eh di si Peksman!)To claim that time deposits evidenced by passbooks
ISSUE should not be subject to DST is a clear evasion of the rule on equality and
Whether a Savings Account-Fixed Savings Deposit evidenced by a passbook uniformity in taxation that requires the imposition of DST on documents
is subject to Documentary Stamp Tax evidencing transactions of the same kind, in this particular case, on all
RULING certificates of deposits drawing interest.
YES, it is subject to DST.
Section 180 of the Tax Code provides DST shall be imposed on In addition, further amendments to Section 180 includes provisions with the
“…certificates of deposits drawing interest, or orders for the payment purpose to eliminate precisely the scheme used by banks of issuing
of any sum of money otherwise than at sight or on demand…” a passbook passbooks to "cloak" its time deposits as regular savings deposits.
representing an interest earning deposit account issued by a bank qualifies
as a certificate of deposit drawing interest. CHINA BANKING CORP. v. CIR, 602 SCRA 316 (2009)
A certificate of deposit is a written acknowledgment by a bank or banker of
A document to be deemed a certificate of deposit requires no specific form the receipt of a sum of money on deposit which the bank or banker
as long as there is some written memorandum that the bank accepted a promises to pay to the depositor, to the order of the depositor, or to some
deposit of a sum of money from a depositor. What is important and other person or his order, whereby the relation of debtor and creditor
controlling is the nature or meaning conveyed by the passbook and not the between the bank and the depositor is created.
particular label or nomenclature attached to it, inasmuch as substance, not
form, is paramount.

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 79
c. Negotiable Order of Withdrawal (NOW) Accounts The provision of Sec. X202 shall also apply for withdrawals on NOW
accounts.
SEC. X223, MRB: Negotiable Order of Withdrawal (NOW) accounts
are interest-bearing deposit accounts that combine the payable on
PEOPLE v. REYES, 454 SCRA 635 (2005)
demand feature of checks and investment feature of savings
accounts. DOCTRINE: NOW Accounts are defined as interest-bearing deposit accounts
that combine the payable on demand feature of checks and the investment
A UB/KB may offer NOW accounts without prior authority of the
feature of savings accounts.
Monetary Board.
FACTS
A TB/RB/Coop Bank may accept NOW accounts upon prior approval
Aloma Reyes and her daughter Tricha (at large) were convicted for ESTAFA.
of the Monetary Board.
Private complainant Jules Alabastro bases his complaint on one subject
SEC. X224, MRB: The following rules shall be observed in servicing check (for P280,000); each time a check issued by the Reyes's (a total of 5
NOW accounts: or 6) bounced, he would return it, and it would be replaced by them with
a. Prior to or simultaneous with the opening of a NOW account, cash, except this last one, which they refused to replace with cash.
the bank shall inform the depositor of its terms and conditions.
b. The bank shall be responsible for the proper identification of Complainant claims that the transactions between himself and the Reyes's
its depositors; it shall require, among other things, two (2) involved the rediscounting of checks. Defendant claims that she issued the
specimen signatures and such other pertinent information. instruments as payment for loans she obtained from Alabastro with respect
c. Deposits shall be covered by deposit slips in duplicate duly to her and her daughter's softdrinks business, which eventually went under.
validated and initialed by the teller receiving the deposit. A copy
of the deposit slip shall be furnished the depositor. She allegedly issued 16 instruments, one for P6k and the rest for P13k, to
d. NOW accounts shall be kept and maintained separately from pay for the (232k) obligation. These would come from a NOW (Negotiable
the regular savings deposits. Order of Withdrawal) Account, described as "a savings account where the
e. Blank NOW forms shall be pre-numbered and shall be drawer may issue instrument payable only to a specific payee. A NOW check
controlled as in the case of unissued blank checks. cannot be issued payable to “BEARER.” Hence, it cannot be further
f. A bank statement shall be sent to each depositor at the end negotiated.
of each month for confirmation of balances.
g. Banks must use the form prescribed by present rules for On appeal to the SC, she raises the following issues: 1) whether the nature
NOW accounts. of a NOW instrument is a "check" within the meaning of Art. 315 of the
Revised Penal Code, since the NOW check is drawn against the savings, not
Nothing herein shall be construed as precluding a TB, RB or Coop the current account, of appellant, and it is payable only to a specific person
Bank from applying for authority to accept both demand deposits or the “payee” and is not valid when made payable to “bearer” or to
and NOW accounts. “cash.and 2) whether her and her daughter's liability should be merely civil,
since the check was issued in payment of a pre-existing obligation.
SEC. X225, MRB: The order of withdrawal form shall have a size of
three (3) inches by seven (7) inches, and shall be printed on ISSUE
security/check paper. It shall contain as a minimum the features of 1) Whether the nature of a NOW instrument is a "check" within the meaning
the proforma order of withdrawal shown in Appendix 11. of Art. 315 of the Revised Penal Code, and
2) Whether the Reyes's liability should be merely civil, since the check was
SEC. X226, MRB: Any NOW which may be deposited with a bank issued in payment of a pre-existing obligation.
other than the drawee bank may be cleared through the PCHC in
Manila and the Regional Clearing Units in regional clearing centers RULING
designated by the BSP in accordance with the clearing procedures. 1) NO. Section X223 of the Manual of Regulations for Banks defines
Nothing in this Section shall prevent direct settlement between the Negotiable Order of Withdrawal (NOW) Accounts as "interest-bearing
parties concerned. deposit accounts that combine the payable on demand feature of checks and
the investment feature of savings accounts."

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 80
The fact that a NOW check shall be payable only to a specific person, and
not valid when made payable to “BEARER” or to “CASH” or when indorsed However, on August 29, 1989, on the basis of an Authority to Debit signed
by the payee to another person, is inconsequential. The same restriction is by Ong and Ma. Theresa David, Senior Manager of FMIC, BPI FB transferred
produced when a check is crossed: only the payee named in the check may P80 million from FMIC’s current account to the savings account of Tevesteco
deposit it in his bank account. If a third person accepts a cross check and Arrastre – Stevedoring, Inc.
pays cash for its value despite the warning of the crossing, he cannot be
considered in good faith and thus not a holder in due course. The purpose of FMIC denied having authorized the transfer of its funds to Tevesteco,
the crossing is to ensure that the check will be encashed by the rightful claiming that the signatures of Ong and David were falsified. To recover
payee only. Yet, despite the restriction on the negotiability of cross checks, immediately its deposit, FMIC, on September 12, 1989, issued BPI FB check
we held that they are negotiable instruments. no. 129077 for P86,057,646.72 payable to itself and drawn on its deposit
with BPI FB SFDM branch. But upon presentation for payment on September
2) YES. Conviction Reversed. A careful examination of the records 13, 1989, BPI FB dishonored the check as it was "drawn against insufficient
establishes that appellant issued him the subject check in payment of a pre- funds" (DAIF).
existing obligation. It puzzles the Court that after the NOW check dated
August 31, 1997 bounced on September 3, 1997 for the reason “ACCOUNT FMIC filed with the RTC a civil case against BPI FB. RTC ruled in favor of
CLOSED,” private complainant would still discount appellant’s checks in FMIC, ordering BPI to pay P80M + interest at legal rate. CA modified
succession. It baffles us more that private complainant would discount a amount to P65M + interest at 17%
P280,000.00-check in February 1998 despite knowledge of the closure of
appellant’s NOW Account. ISSUE
Is it a Time Deposit or interest-bearing current account?
In the case at bar, private complainant knew that appellant did not only
have insufficient funds; he knew her NOW Account was closed at the time HELD
he allegedly discounted the subject check. There is no estafa through Time Deposit. The parties did not intend the deposit to be treated as a
bouncing checks when it is shown that private complainant knew that the demand deposit but rather as an interest-earning time deposit not
drawer did not have sufficient funds in the bank at the time the check was withdrawable any time. Both agreed that the deposit of P100 million was
issued to him. Such knowledge negates the element of deceit and non-withdrawable for one year upon payment in advance of the
constitutes a defense in estafa through bouncing checks. 17% per annum interest.

Ordinarily, a time deposit is defined as "one the payment of which cannot


d. Time Deposits legally be required within such a specified number of days." In contrast,
demand deposits are "all those liabilities of the Bangko Sentral and of
SEC. X231, MRB: Time deposits shall be issued for a specific period other banks which are denominated in Philippine currency and are subject
of term. to payment in legal tender upon demand by the presentation of
BPI FAMILY SAVINGS BANK v. FIRST METRO INVESTMENT CORP., (depositor’s) checks."4 While it may be true that barely one month and
429 SCRA 30 (2004) seven days from the date of deposit, respondent FMIC demanded the
withdrawal of P86,057,646.72 through the issuance of a check payable to
DOCTRINE: A Time Deposit is defined as “one the payment of which cannot itself, the same was made as a result of the fraudulent and unauthorized
legally be required within such a specified number of days. transfer by petitioner BPI FB of its P80 million deposit to Tevesteco’s savings
FACTS account. Certainly, such was a normal reaction of respondent as a depositor
FMIC, through its Executive Vice President Antonio Ong, opened a current to petitioner’s failure in its fiduciary duty to treat its account with the
account and deposited a METROBANK check P100 million with BPI Family highest degree of care. Under this circumstance, the withdrawal of deposit
Bank* (BPI FB). BPI FB, guaranteed the payment of P14,667,687.01 by respondent FMIC before the one-year maturity date did not change the
representing 17% per annum interest of P100 million deposited by FMIC. nature of its time deposit to one of demand deposit.
The latter, in turn, assured BPI FB that it will maintain its deposit of P100
million for a period of one year on condition that the interest of 17% per
annum is paid in advance. Subsequently, BPI FB paid FMIC 17% interest or
P14,667,687.01 upon clearance of the latter’s check deposit.

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 81
INTERNATIONAL EXCHANGE BANK v. CIR, 520 SCRA 688 (2007) rate in a SA-FSD, the amount of deposit must be maintained for a fixed
period. Thus, SA-FSD is a deposit account with a fixed term. Withdrawal
DOCTRINE: Having a fixed term and the reduction of interest rate in case
before the expiration of said fixed term results in the reduction of the
of pre-termination are essential features of a time deposit.
interest rate. Having a fixed term and reduction of interest rate in case of
FACTS pre-termination are essentially the features of a time deposit. Ultimately,
International Exchange Bank served a Letter of Authority by the the Bank’s SA-FSD and time deposit are substantially the same
Commissioner of Internal Revenue, directing the examination of the bank’s
book of accounts and other account records. The CIR found that it was liable It bears emphasis that DST is levied on the exercise by persons of certain
for tax deficiencies, mostly Documentary Stamp Tax (DST). The Bank privileges conferred by law for the creation, revision, or termination of
protested the assessment, arguing that there is no law imposing DST on specific legal relationships through the execution of specific instruments. It
Savings Account-Fixed Savings Deposit. is an excise upon the privilege, opportunity or facility offered at exchanges
for the transaction of the business.
CTA Division decided that the bank was not liable for the whole assessment
but still liable for the DST. CTA En Banc affirmed. While tax avoidance schemes and arrangements are not prohibited, tax laws
cannot be circumvented in order to evade payment of just taxes. (Answer:
ISSUE eh di si Peksman!)To claim that time deposits evidenced by passbooks
Whether a Savings Account-Fixed Savings Deposit evidenced by a passbook should not be subject to DST is a clear evasion of the rule on equality and
is subject to Documentary Stamp Tax uniformity in taxation that requires the imposition of DST on documents
evidencing transactions of the same kind, in this particular case, on all
RULING certificates of deposits drawing interest.
YES, it is subject to DST.
Section 180 of the Tax Code provides DST shall be imposed on In addition, further amendments to Section 180 includes provisions with the
“…certificates of deposits drawing interest, or orders for the payment purpose to eliminate precisely the scheme used by banks of issuing
of any sum of money otherwise than at sight or on demand…” a passbook passbooks to "cloak" its time deposits as regular savings deposits.
representing an interest earning deposit account issued by a bank qualifies
as a certificate of deposit drawing interest.
e. Foreign Currency Deposits
A document to be deemed a certificate of deposit requires no specific form SEC. 2, FCDA: Any person, natural or juridical, may, in accordance
as long as there is some written memorandum that the bank accepted a with the provisions of this Act, deposit with such Philippine banks in
deposit of a sum of money from a depositor. What is important and good standing, as may, upon application, be designated by the
controlling is the nature or meaning conveyed by the passbook and not the Central Bank for the purpose, foreign currencies which are
particular label or nomenclature attached to it, inasmuch as substance, not acceptable as part of the international reserve, except those which
form, is paramount. are required by the Central Bank to be surrendered in accordance
with the provisions of Republic Act Numbered two hundred sixty-five
A depositor of a savings deposit-FSD is required to keep the money with the (Now Rep. Act No. 7653).
bank for at least thirty (30) days in order to yield a higher interest rate.
SEC. 3, FCDA: The banks designated by the Central Bank under
Otherwise, the deposit earns interest pertaining only to a regular savings
Section two hereof shall have the authority:
deposit. The same feature is present in a time deposit. A depositor is
(1) To accept deposits and to accept foreign currencies in
allowed to withdraw his time deposit even before its maturity subject to
trust Provided, That numbered accounts for recording and
bank charges on its pre-termination and the depositor loses his entitlement
servicing of said deposits shall be allowed;
to earn the interest rate corresponding to the time deposit. Instead, he
(2) To issue certificates to evidence such deposits;
earns interest pertaining only to a regular savings deposit. (Question) Sino
(3) To discount said certificates;
superhero mahilig mag promise?) In both cases, the deposit may be
(4) To accept said deposits as collateral for loans subject to
withdrawn anytime but the depositor gets to earn a lower rate of interest.
such rules and regulations as may be promulgated by the
The only difference lies on the evidence of deposit, a savings deposit-FSD is
Central Bank from time to time; and
evidenced by a passbook, while a time deposit is evidenced by a certificate
(5) To pay interest in foreign currency on such deposits.
of time deposit." In order for a depositor to earn the agreed higher interest

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 82
f. Money Market Placements recover the proceeds of her first money market placement. Allied filed a
third party complaint against Metrobank and Santos. In turn, Metrobank
ALLIED BANKING CORP. v. LIM SIO WAN, 549 SCRA 504 (2008)
filed a fourth party complaint against FCC. FCC for its part filed a fifth party
DOCTRINE: A Money Market is a market dealing in standardized short-term complaint against Producers Bank. Lim Sio Wan thereafter filed an amended
credit instruments (involving large amounts) where lenders and borrowers complaint to include Metrobank as a party-defendant, along with Allied.
do not deal directly with each other by through a middle man or dealer in
MTC made Allied solely liable
open market—in a money market transaction, the investor is a lender who
loans his money to a borrower through a middleman or dealer. RTC modified the decision as follows:
FACTS Allied Banking Corporation to pay sixty (60%) percent and defendant-
appellee Metropolitan Bank and Trust Company forty (40%) of the amount
Respondent Lim Sio Wan deposited with petitioner Allied Banking
of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until
Corporation (Allied) at its Quintin Paredes Branch in Manila a money market
fully paid. The moral damages, attorney's fees and costs of suit shall
placement of PhP 1,152,597.35 for a term of 31 days to mature on
likewise be paid in 60-40 ratio.
December 15, 1983,
ISSUES
On December 5, 1983, a person claiming to be Lim Sio Wan called up
Cristina So, an officer of Allied, and instructed the latter to pre-terminate 1) Kind of deposit present in the case (relevant to the banking)
Lim Sio Wan's money market placement, to issue a manager's check
2) Who are liable? (Main issue of the case- not relevant to banking)
representing the proceeds of the placement, and to give the check to one
Deborah Dee Santos who would pick up the check. Lim Sio Wan described RULING
the appearance of Santos so that So could easily identify her.
(Relevant)
Later, Santos arrived at the bank and signed the application form for a
manager's check to be issued. The bank issued a Manager's Check for PhP 1) Money Market Placement. The Court discusses is as follows:
1,158,648.49, representing the proceeds of Lim Sio Wan's money market Thus, we have ruled in a line of cases that a bank deposit is in the nature of
placement in the name of Lim Sio Wan, as payee. The check was cross- a simple loan or mutuum. More succinctly, in Citibank, N.A. (Formerly First
checked "For Payee's Account Only" and given to Santos. National City Bank) v. Sabeniano, this Court ruled that a money market
Thereafter, the manager's check was deposited in the account of Filipinas placement is a simple loan or mutuum.[43] Further, we defined a money
Cement Corporation (FCC) at respondent Metropolitan Bank and Trust Co. market in Cebu International Finance Corporation v. Court of Appeals, as
(Metrobank), with the forged signature of Lim Sio Wan as indorser. follows:

the Allied check was deposited with Metrobank in the account of FCC as [A] money market is a market dealing in standardized short-term credit
Producers Bank's payment of its obligation to FCC. instruments (involving large amounts) where lenders and borrowers do not
deal directly with each other but through a middle man or dealer in open
Metrobank stamped a guaranty on the check, which reads: "All prior market. In a money market transaction, the investor is a lender who loans
endorsements and/or lack of endorsement guaranteed." his money to a borrower through a middleman or dealer.
The check was sent to Allied through the PCHC. Upon the presentment of In the case at bar, the money market transaction between the petitioner
the check, Allied funded the check even without checking the authenticity of and the private respondent is in the nature of a loan.
Lim Sio Wan's purported indorsement. Thus, the amount on the face of the
check was credited to the account of FCC and as a result Producers Bank’s Lim Sio Wan, as creditor of the bank for her money market placement, is
obligation to the former was extinguished. entitled to payment upon her request, or upon maturity of the placement, or
until the bank is released from its obligation as debtor. Until any such event,
On December 14, 1983, upon the maturity date of the first money market the obligation of Allied to Lim Sio Wan remains unextinguished.
placement, Lim Sio Wan went to Allied to withdraw it. She was then
informed that the placement had been pre-terminated upon her instructions. Since there was no effective payment of Lim Sio Wan's money market
Allied refused to pay Lim Sio Wan, claiming that the latter had authorized placement, the bank still has an obligation to pay her at six percent (6%)
the pre-termination of the placement and its subsequent release to Santos interest from March 16, 1984 until the payment thereof.
Consequently, Lim Sio Wan filed with the RTC a Complaint against Allied to

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 83
2) (Not important but will mention the summary of it anyway) Allied and (3) Women shall have equal rights to act as incorporators
Metrobank liable in 60-40 ratio. Producer’s Bank shall reimburse the amount and enter into insurance contracts; and
paid by both Allied and Metrobank. Allied Bank is liable as negligent drawee (4) Married women shall have rights equal to those of
bank who issued the manager’s check to Santos. MetroBank is liable as the married men in applying for passport, secure visas and
negligent collecting bank who certified the authenticity of the signatures. other travel documents, without need to secure the consent
Producers bank liable because it was unjustly enriched the amount was paid of their spouses.
to FCC, which extinguished the obligation of the former to the latter.
In all other similar contractual relations, women shall enjoy equal
rights and shall have the capacity to act, which shall in every
C. Capacity of Depositors respect be equal to those of men under similar circumstances.
a. Minors
c. Corporations
SEC. 1, PD 734: Minors who are at least seven years of age, are
able to read and write, have sufficient discretion, and are not SEC. 23, CORPORATION CODE: Unless otherwise provided in this
otherwise disqualified by any other incapacity, are hereby vested Code, the corporate powers of all corporations formed under this
with special capacity and power, in their own right and in their own Code shall be exercised, all business conducted and all property of
names, to make savings or time deposits with and withdraw the such corporations controlled and held by the board of directors or
same as well as receive interests thereon from banking institutions, trustees to be elected from among the holders of stocks, or where
without the assistance of their parents or guardians, the provisions there is no stock, from among the members of the corporation, who
of existing laws and regulations to the contrary notwithstanding. shall hold office for one (1) year until their successors are elected
Parents may nevertheless deposit for their minor children and and qualified.
guardians for their wards. Every director must own at least one (1) share of the capital stock
SEC. 22, THRIFT BANKS ACT: Minors in their own rights and in of the corporation of which he is a director, which share shall stand
their own names may make deposits and withdraw the same, and in his name on the books of the corporation. Any director who
may receive dividends and interest: Provided, however, That, if any ceases to be the owner of at least one (1) share of the capital stock
guardian shall give notice in writing to any thrift bank not to make of the corporation of which he is a director shall thereby cease to be
payments of deposits, dividends, or interest to the minor of whom a director. Trustees of non-stock corporations must be members
he is the guardian, then such payment shall be made only to the thereof. a majority of the directors or trustees of all corporations
guardian. organized under this Code must be residents of the Philippines.

b. Married Women
SEC. 5, RA 7192: Women of legal age, regardless of civil status, d. Bank Officers and Employees
shall have the capacity to act and enter into contracts which shall in SEC. X204, MRB: : The following officers and employees of banks
every respect be equal to that of men under similar circumstances. are prohibited from maintaining demand deposits or current
accounts with the banking office in which they are assigned:
In all contractual situations where married men have the capacity to a. All officers;
act, married women shall have equal rights. b. Employees of the bank’s cash department/cash units; and
c. Other employees who have direct and immediate
To this end: responsibility in the handling of transactions and/or records
(1) Women shall have the capacity to borrow and obtain pertaining to demand deposits or current accounts.
loans and execute security and credit arrangement under
the same conditions as men; The above-mentioned prohibition shall include the spouses and
(2) Women shall have equal access to all government and relatives within the second degree of consanguinity and affinity of
private sector programs granting agricultural credit, loans the officers and employees covered by the prohibition, and the
and non-material resources and shall enjoy equal treatment business interests of such officers and employees, their spouses and
in agrarian reform and land resettlement programs; relatives within the second degree of consanguinity and affinity, in

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 84
single proprietorships, or partnerships or corporations in which such ART. 379, NCC: The employment of pen names or stage names
officers and employees, individually or as a group, own or control at is permitted, provided it is done in good faith and there is no
least a majority of the capital of the partnership or the outstanding injury to third persons. Pen names and stage names cannot be
subscribed capital stock (voting and non-voting) of the corporation. usurped.

ART. 380, NCC: Except as provided in the preceding article, no


D. OPENING OF DEPOSIT ACCOUNTS person shall use different names and surnames.
1. Know Your Customer Standards
SUBSEC. X262.1, MRB: Specimen signatures, ID photos. All c. Exception: NUMBERED ACCOUNTS
banking institutions are required to set a minimum of three (3) SEC. 9 (A), AMLA: Prevention of Money Laundering; Customer
specimen signatures to be simultaneously required from each of Identification Requirements and Record Keeping. –
their depositors and to update the specimen signatures of their (a) Customer Identification, - Covered institutions shall establish
depositors every five (5) years or sooner, at the discretion of the and record the true identity of its clients based on official
bank. Banks may, at their option, require their depositors to submit documents. They shall maintain a system of verifying the true
ID photos together with the specimen signatures. identity of their clients and, in case of corporate clients, require
a system of verifying their legal existence and organizational
2. Prohibitions structure, as well as the authority and identification of all
a. Anonymous Accounts/Fictitious Names persons purporting to act on their behalf.
SEC. 9 (A), AMLA: Prevention of Money Laundering; Customer
Identification Requirements and Record Keeping. – The provisions of existing laws to the contrary notwithstanding,
(a) Customer Identification, - Covered institutions shall establish anonymous accounts, accounts under fictitious names, and all
and record the true identity of its clients based on official other similar accounts shall be absolutely prohibited. Peso and
documents. They shall maintain a system of verifying the true foreign currency non-checking numbered accounts shall be
identity of their clients and, in case of corporate clients, require allowed. The BSP may conduct annual testing solely limited to
a system of verifying their legal existence and organizational the determination of the existence and true identity of the
structure, as well as the authority and identification of all owners of such accounts.
persons purporting to act on their behalf.
SEC. 3 (1), FDCA: Authority of banks to accept foreign
The provisions of existing laws to the contrary notwithstanding, currency deposits. – The banks designated by the Central Bank
anonymous accounts, accounts under fictitious names, and all under Section two hereof shall have the authority:
other similar accounts shall be absolutely prohibited. Peso and (1) To accept deposits and to accept foreign currencies in trust
foreign currency non-checking numbered accounts shall be Provided, That numbered accounts for recording and servicing of
allowed. The BSP may conduct annual testing solely limited to said deposits shall be allowed.
the determination of the existence and true identity of the
owners of such accounts. 3. Joint Accounts
ART. 485, NCC: The share of the co-owners, in the benefits as well
b. Pseudonyms as in the charges, shall be proportional to their respective interests.
ART. 178, RPC: Using fictitious name and concealing true Any stipulation in a contract to the contrary shall be void.
name. — The penalty of arresto mayor and a fine not to exceed
500 pesos shall be imposed upon any person who shall publicly The portions belonging to the co-owners in the co-ownership shall
use a fictitious name for the purpose of concealing a crime, be presumed equal, unless the contrary is proved.
evading the execution of a judgment or causing damage.
ART. 1207, NCC: The concurrence of two or more creditors or of
Any person who conceals his true name and other personal two or more debtors in one and the same obligation does not imply
circumstances shall be punished by arresto menor or a fine not that each one of the former has a right to demand, or that each one
to exceed 200 pesos. of the latter is bound to render, entire compliance with the
prestation. There is a solidary liability only when the obligation

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 85
expressly so states, or when the law or the nature of the obligation RTC dismissed the case. CA affirmed.
requires solidarity.
ISSUE
ART. 1208, NCC: If from the law, or the nature or the wording of Whether LDB is liable for damages suffered by Firestone, due to its allegedly
the obligations to which the preceding article refers the contrary belated notice of non-payment of the subject withdrawal slip?
does not appear, the credit or debt shall be presumed to be divided RULING
into as many shares as there are creditors or debtors, the credits or NO. At the outset, we note that petitioner admits that the withdrawal slips
debts being considered distinct from one another, subject to the in question were non-negotiable. Hence, the rules governing the giving of
Rules of Court governing the multiplicity of suits. immediate notice of dishonor of negotiable instruments do not apply in this
case. Petitioner itself concedes this point. Thus, respondent bank was under
E. ADMINISTRATION OF DEPOSIT ACCOUNTS no obligation to give immediate notice that it would not make payment on
1. Deposit of Funds the subject withdrawal slips. Citibank should have known that withdrawal
a. Delivery Required slips were not negotiable instruments. It could not expect these slips to be
ART. 1934, NCC: An accepted promise to deliver something by treated as checks by other entities. Payment or notice of dishonor from
way of commodatum or simple loan is binding upon parties, but respondent bank could not be expected immediately, in contrast to the
the commodatum or simple loan itself shall not be perfected situation involving checks.
until the delivery of the object of the contract.
A bank is under obligation to treat the accounts of its depositors with
b. Acceptability of Withdrawal Slips as Deposits meticulous care, whether such account consists only of a few hundred pesos
Cases or of millions of pesos. The fact that the other withdrawal slips were
Firestone Tire & Rubber Co. of the Phil. v CA honored and paid by respondent bank was no license for Citibank to
DOCTRINE: A bank is under the obligation to treat the accounts of its presume that subsequent slips would be honored and paid immediately. By
depositors with meticulous care, whether such account consists only of a doing so, it failed in its fiduciary duty to treat the accounts of its clients with
few hundred pesos or millions of pesos. The fact that the other withdrawal the highest degree of care.
slips were honored and paid by the other bank was no license for the bank
to presume that subsequent slips would be honored and paid immediately. In the ordinary and usual course of banking operations, current account
By doing so, it failed in its fiduciary duty to treat the accounts of its clients deposits are accepted by the bank on the basis of deposit slips prepared and
with the highest degree of care. signed by the depositor, or the latter's agent or representative, who
indicates therein the current account number to which the deposit is to be
FACTS credited, the name of the depositor or current account holder, the date of
Fojas-Arca is one of the client depositors of Luzon Development Bank (LDB). the deposit, and the amount of the deposit either in cash or in check.
Fojas-Arca has an arrangement with LDB, where the latter authorized and
allowed withdrawal of its funds through special deposit slips, which are The withdrawal slips deposited with petitioner's current account with
supplied by LDB to Fojas-Arca. Citibank were not checks, as petitioner admits. Citibank was not bound to
accept the withdrawal slips as a valid mode of deposit. But having
In January to May 1978, Fojas-Arca purchased on credit from Firestone erroneously accepted them as such, Citibank — and petitioner as account-
amounting to P4M. In payment, Fojas-Arca delivered to Firestone six (6) holder — must bear the risks attendant to the acceptance of these
special withdrawal slips drawn upon defendant. These were deposited by instruments. Petitioner and Citibank could not now shift the risk and hold
Firestone with its current account with Citibank. All of them were honored private respondent liable for their admitted mistake.
and paid by LDB. Relying on the same arrangement, Firestone extended
other purchases on credit to Fojas-Arca. c. Acceptability of Checks Without Indorsement of Payee
Cases
In December 1978, Firestone was informed by Citibank that several special PNB v Rodriguez
withdrawal slips were dishonored for “NO ARRANGEMENT.” Citibank debited DOCTRINE: A bank that regularly processes checks that are neither
the amount from Firestone’s account. Firestone then filed an action for payable to the customer nor duly indorsed by the payee is apparently
damages against LDB alleging that it suffered pecuniary losses. grossly negligent in its operations.

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 86
In a checking transaction, the drawee bank has the duty to verify the duty to them as depositors.
genuineness of the signature of the drawer and to pay the check strictly in
accordance with the drawer’s instructions, i.e., to the named payee in the PNB argued that the spouses did not intend to give the checks to the
check. invidual payees, only to PEMSLA, hence, the payees were fictitious, thus the
checks became bearer instruments based on the Negotiable Instruments
FACTS law. The checks could be negotiated with just delivery.
Respondent spouses erlando and norma Rodriguez were clients of petitioner
PNB, Cebu City. They maintained savings and demand/checking accounts. RTC rendered in favour of the spouses, CA reversed stating that the spouses
The spouses were engaged in the informal lending business. They had a really intended the checks to go PEMSLA, not the payees, hence, the payees
discounting arrangement with Philnabank Employees Savings and Loan were fictitious, thus converting the check into a bearer intrument, thus they
Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA did not require indorsement for negotiation. Spouses filed and Motion for
was likewise a client of PNB. Reconsideration, and the CA reversed itself due to the argument of the
spouses that the checks, on their face, were payable to order, hence, PNB
PEMSLA regularly granted loans to its members, spouses Rodriguez would breached their contract of deposit.
rediscount the postdated checks issued to members whenever the
association was short of funds. As was customary, the spouses would ISSUE
replace the postdated checks with their own checks issued in the name of Are the checks payable to order or to bearer?
the members.
HELD: Payable to order.
It was PEMSLA’s policy not to approve applications for loans of members
with outstanding debts. To subvert this policy, some PEMSLA officers As a rule, when the payee is fictitious or not intended to be the true
devised a scheme to obtain additional loans despite their outstanding loan recipient of the proceeds, the check is considered as a bearer instrument
accounts. They took out loans in the names of unknowing members, without based on Sections 8 and 9 of the NIL. The drawee bank is then absolved
the knowledge or consent of the latter. The PEMSLA checks issued for these from liability and the drawer bears the loss. However, there is a commercial
loans were then given to the Rodriguez spoues for rediscounting. The bad faith exception to the fictitious-payee rule. A showing of commercial bad
officers carried this out by forging the indorsement of the named payees in faith on the part of the drawee bank, or any trasnferee of the check for that
the checks. In return, the spouses issued their personal checks (Rodriguez matter, will work to strip it of this defense.
checks) in the name of the members and delivered the checks to an officer
of PEMSLA. The PEMSLA checks, on the other hand, were despited by the For the fictitious-payee rule to be available as a defense, PNB must show
spouses to their account. that the makers did not intend for the named payees to be part of the
transaction involving the checks. At most, the bank’s thesis shows that the
Meanwhile, the Rodriguez checks were despotied directly by PEMSLA to its payees did not have knowledge of the existence of the checks. This lack of
savings account without any indorsement from the named payees. This was knowledge on the part of the payees, however, was not tantamount to a
an irregular procedure made possible through the treasurer of PEMSLA who lack of intention on the part of respondents-spouses that the payees would
was also a bank teller in the PNB branch of Cebu. This because the usual not receive the checks’ proceeds. Considering that the respondents were
practice for the two. transacting with PEMSLA and not the individual payees, it is understandable
that they relied on the finformation given by the officers of PEMSLA that the
For the period of November 1998 and February 1999, sixty-nine (69) payees would be receiving the checks.
checks, in the amount of 2.345 million pesos were issued payable to 47
individual payees. PNB got wind of the scheme and closed the current Verily, the subject checks are presumed order instruments. PNB failed to
account of PEMSLA which led the checks deposited by the Rodriguez from present sufficient evidence to defeat the claim of respondent spouses that
PEMSLA into their account to bounce. the named payees were the intended recipients of the check proceeds. Thus
PNB was remiss as the drawee bank
The checks from the Rodriguezes to PEMSLA though were still debited from
the account of the spouses, hence, they went to court to have PNB return 2. Withdrawal of Funds
the money debited from their account stating that PNB credited the checks a. From Current Accounts
to PEMSLA even if they were without indorsements, thus breaching their i. When funds insufficient

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 87
Cases insufficient to pay off the checks. This would lead to dishonoring of the
Moran v CA checks. There is a presumption in law that the ordinary course of business
DOCTRINE: A bank is under no obligation to make part payment on a (clearing and withdrawing) has ben followed. Where the spouses failed to
check, up to only the amount of the drawer's funds, where the check is show that the checks underwent a different process of clearing, it is
drawn for an amount larger than what the drawer has on deposit. Such a presumed that the acts of clearing underwent the same process. Also, there
practice of paying checks in part has never existed. Upon partial payment, is no obligation with the bank to release amount in the savings account,
the check holder could not be called upon to surrender the check, and the when the balance being collected is higher. They cannot partially honor a
bank would be without a voucher affording a certain means of showing the check, being insufficient to pay the whole amount. Neither can they transfer
payment. The rule is based on commercial convenience, and any rule that from the other savings account the balance to pay off the check, since
would work such manifest inconvenience should not be recognized. A check authority is needed to be able to transfer such amount. The bank had no
is intended not only to transfer a right to the amount named in it, but to obligation to settle the spouses account with Petrophil, but they still tried to
serve the further purpose of affording evidence for the bank of the payment in order that they would not have stained relations with the spouses.
of such amount when the check is taken up.
Villanueva v Nite
FACTS DOCTRINE: If a bank refuses to pay a check (notwithstanding the
Spouses Moran are the owners of the Wack-Wack Petron Gasoline. They buy sufficiency of funds), the payee-holder cannot sue the bank—the payee
fuel and other related products from Petrophil on a cash on delivery basis. should instead sue the drawer who might in turn sue the bank. Sec. 189 is
They maintain three accounts with Citytrust, one current account allowed to sound law based on logic and established legal principles—no privity of
have zero balance, and two savings account. One of the savings account contract exists between the drawee-bank and the payee.
was allowed to have automatic transfer of funds whenever the current
account was insufficient to pay withdrawals, and the other needs FACTS
authorization to transfer funds. On December 12, 1983, Librada Moran Nite borrowed P409k from Villanueva secured by an Asian Bank check for
issued a check for P50,576 payable to Petrophil. On the next day, she issued P325k dated February 8, 1994.The date was later changed to June 8, 1994
another check for 56,090, payable to the same corporation. On December with the consent and concurrence of Villanueva. The check was, however,
14, 1983, the checks were deposited to PNB, which presented both for dishonored due to a material alteration when Villanueva deposited the check
clearing. On this day, the current account had zero balance, while the on due date. On August 24, 1994, Nite remitted P235k to petitioner as
savings account covered by the automatic transfer only had P26,104.30, partial payment of the loan, through a representative, since she was out of
both accounts being insufficient to pay the issued checks. (The other the country. The balance of P174k was now due on or before December 8,
savings account, where authorization is needed only had P43,268.39.) On 1994.
December 15, 1983, George Moran deposited some funds which were
supposed to be used to pay the earlier transaction. However, Librada On August 30, 1994, however, petitioner filed an action for a sum of money
informed George that Petrophil refused to deliver their orders, and that the and damages against Asian Bank for the full amount of the dishonored
checks issued were dishonored due to insufficiency of funds. The branch check. The RTC ruled in his favor. Pursuant thereto, Asian Bank issued a
manager tried to fix the problem by bringing a manager's check to be P325k check to Villanueva. When respondent later on went to Asian Bank to
signed by the spouses to pay off the balance with Petrophil. The bank also withdraw money from her account, she was unable to do so because the
tried to apologize to Petrophil, stating in the the letter that it committed trial court had ordered Asian Bank to pay petitioner the value of
"operational error". 6 months later, the spouses demanded that the bank respondent’s ABC check.
pay them P1M for moral damages, which the bank refused to pay. They filed
a case, which the RTC dismissed, and affirmed by the CA. She went to the CA and filed a petition for annulment of judgment (Rule
47), which was granted on the ground of extrinsic fraud. The CA found that
ISSUE 6 days after receipt of the partial payment of P235k and agreeing that the
Whether the spouses had sufficient funds when the bank dishonored the balance of P174k shall be paid on or before December 8, 1994, Villanueva
check filed his complaint against Asian Bank for the full amount of the dishonored
check without impleading Nite. The apparent haste by which he filed his
RULING complaint and his failure to implead Nite showed his intent to prevent her
NO. When PNB presented the check for collection, the current account had from opposing his action.
zero balance, while the savings account had P26,104.30, which is

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 88
Thus this petition for certiorari. with the bank. This check was issued to him by Willy Cheng from Tarlac and
was duly entered into his bank record.
ISSUE
1) Whether the CA was correct to annul judgment despite the fact that Upon advice and instructions by the bank that the check was already
Nite was not a party to the original collection case; cleared, Tan withdrew P240,000 on the same day, and on the next day, he
2) Whether Villanueva could properly sue the bank for non payment of deposited P50,000 (account thereafter has approx. P108,000) because he
the check in the first place. issued several checks amounting to approx. P75,000.

RULING Unfortunately, his suppliers and business partners went back to him alleging
1) YES. A petition for annulment of judgment can be properly filed by a that the checks he issued bounced for insufficiency of funds. Thereafter, he,
person not a party to the case. In this case, there was no speedy or through his lawyer, informed the bank to take steps regarding the matter
adequate remedy available to Marlyn Nite because she was not a party to for he has adequate funds to pay the amount of the checks issued. But the
the collection proceedings. Extrinsic fraud existed in this case since such bank did not bother or offer any apology regarding the incident. Thus, Tan
refers to acts committed by a party to keep the other away from the courts, instituted a complaint for damages against the bank.
as where there is a false promise of a compromise.
The RTC ruled in favor of Tan on the ground that he was not informed about
In fact, the RTC had no jurisdiction in this case. The contract of loan was the debiting of the P101,000 from his existing balance and that the bank
between Villanueva and Nite; as debtor, Nite was an indispensible party to merely allowed him to use the fund prior to clearing merely for
the case, and any judgment rendered without impleading such a party is accommodation because it considered him as one of its valued clients.
void. Hence, it held that the bank manager was negligent in handling the
particular check account of Tan. On appeal, the CA affirmed the RTC’s
2) NO. Sec 185 of the Negotiable Instruments Law provides: "A check is a decision.
bill of exchange drawn on a bank payable on demand. Except as herein
otherwise provided, the provisions of this Act applicable to a bill of exchange ISSUE
payable on demand apply to a check." Furthermore, Sec. 189. provides: "A 1) Whether the bank, as collecting bank, has the right to debit the
check of itself does not operate as an assignment of any part of the funds to account of Tan for a check deposit, which was dishonored by the
the credit of the drawer with the bank, and the bank is not liable to the drawee bank
holder, unless and until it accepts or certifies the check." 2) Whether the bank properly exercised its right to debit/setoff

If a bank refuses to pay a check (notwithstanding the sufficiency of funds), RULING


the payee-holder cannot sue the bank. The payee should instead sue the 1. YES. A bank generally has the right to setoff over the deposits therein
drawer who might in turn sue the bank. No privity of contract exists for the payment of any withdrawals on the part of the depositor. The
between the drawee-bank and the payee. There was no such privity of right of a collecting bank to debit a client’s account for the value of a
contract between Asian Bank and Villanueva. dishonored check that has previously been credited has fairly been
established by jurisprudence.
ii. Prior to clearing
Cases 2. NO. The degree of diligence required of banks is more than that of a
Associated Bank v Tan good father of a family where the fiduciary nature of their relationship
DOCTRINE: Although a collecting bank has the right to debit a client’s with their depositors is concerned. By the nature of its functions, a bank
account for the value of a dishonored check that has previously been is under obligation to treat the accounts of its depositors with
credited, it should nevertheless exercise such right with the highest degree meticulous care.
of diligence, as it is a business impressed with public interest.
It is undisputed that purportedly as an act of accommodation to a
FACTS valued client, the bank allowed the withdrawal of the face value of the
Vicente Tan is a businessman and regular depositor-creditor of the deposited check prior to its clearing. That act certainly disregarded the
Associated Bank. In 1990, he deposited a postdated UCPB check (P101,000) clearance requirement of the banking system. Such a practice is
unusual, because a check is not legal tender or money, and its value can

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BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 89
properly be transferred to a depositor’s account only after the check has RULING
been cleared by the drawee bank. YES. The crossing of one of the subject checks should have put TRB on
guard; it was duty bound to ascertain the indorser’s title to the check. TRB
Reasonable business practice and prudence dictates that the bank should have known the effects of a crossed check: (a) the check may not be
should NOT have advised and authorized Tan’s withdrawal of P240,000 encashed but only deposited in the bank; (b) the check may be negotiated
as this amount was over and above his outstanding cleared balance of only once to one who has an account with the bank; (c) the act of crossing
around P197,000. the check serves as a warning to the holder that the heck has been issued
for a definite purpose so that he must inquire if he has received the check
When the bank came to know of the checks’ dishonor, it should have pursuant to that purpose.
immediately and duly informed Tan of the debiting of his account. Notice
was proper and ought to be expected. As a valued client, Tan deserved By encashing in favor of unknown persons checks which were on their face
nothing less than an official notice of the precarious condition of his payable to the BIR. A government agency which can only act through its
account. agents, TRB did so in at its peril and must suffer the consequences of the
unauthorized endorsement. TRB cannot exculpate itself from liability by
iii. When check crossed claiming that RPN was itself negligent.
Cases
Traders Royal Bank v Radio Philippine Network Inc. iv. In contrast with manager’s check
DOCTRINE: The crossing of a check should put a bank on guard. It was Cases
duty bound to ascertain the indorser’s title to the check or the nature of his Equitable PCI Bank v Ong
possession. Its effects are that (a) the check may not be encashed but only DOCTRINE: A manager’s check is an order of the bank to pay, drawn upon
deposited in the bank; (b) the check may be negotiated only once to one itself, committing in effect its total resources, integrity and honor behind its
who has an account with a bank; and (c) the act of crossing the check issuance, and by its peculiar character and general use in commerce, a
serves as a warning to the holder that the check has been issued for a manager’s check is regarded substantially to be as good as the money it
definite purpose so that he must inquire if he has received the check represents.
pursuant to that purpose, otherwise, he is not a holder in due course.
FACTS
FACTS Warliza Sarande deposited a check of 225k in her account at Philippine
On April 1985, the BIR assessed Radio Philippines Network (RPN) for their Commercial International Bank (Davao City). She inquired about the status
tax obligations for the taxable years 1978 to 1983. of the check and the bank said it has been cleared.

Mrs. Vera, RPN’s comptroller, purchased from Trader’s Royal Bank (TRB) Relying on the assurance of the clearance, she issued two checks. One of
three manager’s checks to be used as payment for their tax liabilities. The those check was issued to Rowena Ong, amounting to 180k due to a
checks issued were made payable to the order of BIR and one of the checks business transaction. On the same day, Ong claimed the check the amount
was also crossed. Mrs. Vera personally received the checks and was of the check from PCI Bank. Instead of encashing it, Ong requested to
supposed to deliver the same to BIR in payment of RPN’s tax liabilities. convert the proceeds into a manager’s check.

Shortly thereafter, RPN was assessed again by BIR for their tax liabilities for The next day, Ong deposited the check in her account in Equitable PCI Bank
the years 1972-1978. As RPN learned the three manager’s checks never (Davao City). a few days later, she received a notice that PCI Bank has
reached BIR and was supposedly deposited and withdrawn by three stopped the payment of her check on the ground of irregular issuance.
unknown individuals in Security Bank (SB). Despite several demands to PCI Bank for the payment of the check, there
was no positive result. Thus, Ong filed a case against PCI Bank.
RPN sent letters to TRB and SB demanding that the amounts covered by the
checks be reimbursed or credited to their account. The two banks refused. PCI Bank argues that it did nothing wrong because the account against
which the check was drawn (Sarande) was already closed. The bank also
ISSUE said that it gave notice to Sarande and Ong about the return of the check.
Whether TRB is liable for the wrongful payment of a check made payable to
BIR. The Trial Court ruled in favor of Ong. The Court of Appeals affirmed the

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
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decision. development of the national economy and the fiduciary nature of
banking that requires high standards of integrity and performance.
ISSUE In furtherance thereof, the State shall promote and maintain a
1. Whether Ong was not a holder in due course and whether there was stable and efficient banking and financial system that is globally
a lack of consideration in issuing the manager’s check, ultimately competitive, dynamic and responsive to the demands of a
absolving PCI from liability. developing economy.
2. Whether PCI Bank exercised the requisite degree of diligence
required of it. In this case, PCI bank distinctly admitted that the check deposited by
Sarande was inadvertently send by the PCI bank through the “local
RULING clearing” when it should have been sent through “inter-regional” clearing
(1) The argument of PCI Bank is out of synch because, by operation of law, check since the check was drawn in General Santos City. It also admitted
it assumed the liabilities of an acceptor under the Negotiable Instruments the mistake in assuring Sarande that the check has been cleared upon her
Law (NIL) inquiry, because they were not aware that it was inadvertently sent in the
“local clearing”. Both uncontested admissions prove that PCI failed to
A manager's check is an order of the bank to pay, drawn upon itself, exercise the highest degree of care required of it under the law.
committing in effect its total resources, integrity and honor behind its
issuance. By its peculiar character and general use in commerce, a *Non-banking issue: Summary Judgment
manager's check is regarded substantially to be as good as the money it the summary judgment of the trial court is proper because the facts as
represents. Said check stands on the same footing as a certified check. As pleaded appear uncontested, all that is required is a judgment of the court.
stated in Sec 187 of the NIL, when the manager’s check is certified by the This is evident when PCI bank admitted it committed an error in clearing the
bank on which it was drawn, the certification is equivalent to an check of Sarande.
acceptance.
*Non-banking issue: Award of Moral and Exemplary Damages.
Jurisprudence adds that a manager's check is one drawn by the bank's The bank is liable for moral damages because Ong suffered embarrassment
manager upon the bank itself. It is similar to a cashier's check both as to and humiliation arising from the dishonor of the check. The bank is also
effect and use. A cashier's check is a check of the bank's cashier on his own liable for exemplary damages because of failure to guard against injury
or another check. In effect, it is a bill of exchange drawn by the cashier of a attributable to negligence or bad faith, considering the banking system plays
bank upon the bank itself, and accepted in advance by the act of its a vital role in the economic life.
issuance. It is really the bank's own check and may be treated as a
promissory note with the bank as a maker. The check becomes the primary b. From Savings Accounts
obligation of the bank which issues it and constitutes its written promise to Cases
pay upon demand. The mere issuance of it is considered an acceptance BPI v CA (2000)
thereof. DOCTRINE: The requirement of presentation of the passbook when
withdrawing an amount cannot be given mere lip service even though the
By accepting the check issued by Sarande to Ong and issuing in turn a person making the withdrawal is authorized by the depositor to do so.
manager’s check in exchange thereof, PCI Bank assumed the liabilities of an
acceptor under the Negotiable Instruments Law. By operation of law under FACTS
Section 62 of the NIL, the Bank admits the existence of the drawer, Private respondent deposited in Foreign Currency Deposit Unit (FCDU)
genuineness of his signature, capacity to draw the instrument and the Savings Account which he maintained in petitioner bank's Buendia Avenue
existence of the payee and his capacity to indorse. Thus, the argument that Extension Branch, Continental Bank Manager's Check payable to "cash" in
Ong is not a holder in due course and failure of consideration for the the amount of $2,500.00 and duly endorsed by private respondent. It
issuance of the Manager’s check is untenable. appears that the check belonged to a certain Henry who went to the office
of private respondent and requested him to deposit the check in his dollar
(2) NO, it did not exercise the standard of diligence required from it. account by way of accommodation and for the purpose of clearing the same.
In Section 2 of the General Banking Law states that Private respondent acceded, and agreed to deliver to Chan a signed blank
• SEC. 2. Declaration of Policy. – The State recognizes the vital role of withdrawal slip, with the understanding that as soon as the check is cleared,
banks in providing an environment conducive to the sustained both of them would go to the bank to withdraw the amount of the check

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 91
upon private respondent's presentation to the bank of his passbook. Considering petitioner's clear admission that the withdrawal slip was a blank
one except for private respondent's signature, the unavoidable conclusion is
Using the blank withdrawal slip given by private respondent to Chan, one that the typewritten name of "Ruben C. Gayon, Jr." was intercalated and
Ruben Gayon, Jr, petitioner’s employee was able to withdraw the amount of thereafter it was signed by Gayon or whoever was allowed by petitioner to
$2,541.67 from FCDU Savings Account. Notably, the withdrawal slip shows withdraw the amount.
that the amount was payable to” Ramon A. de Guzman and Agnes C. de
Guzman” and was duly initialed by the branch assistant manager. The In allowing the withdrawal, petitioner likewise overlooked another rule that
withdrawal was made even before the amount of the check was credited in is printed in the passbook. Thus:
the account of the private respondent and without the presentation of the
passbook of the respondent. 2. All deposits will be received as current funds and will be repaid in the
same manner; provided, however, that deposits of drafts, checks, money
Thereafter, petitioner bank received communication from the Wells Fargo orders, etc. will be accented as subject to collection only and credited to the
Bank International of New York that the said check deposited by private account only upon receipt of the notice of final payment. xxx
respondent was a counterfeit check because it was "not of the type or style
of checks issued by Continental Bank International." In depositing the check in his name, private respondent did not
become the outright owner of the amount stated therein. Under the
Now the petitioner is asking the private respondent, through his son (who is above rule, by depositing the check with petitioner, private
employed by the petitioner bank), to return the amount of 2,500. The respondent was, in a way, merely designating petitioner as the
private respondent, in his letter to the petitioner, refused to do so stating collecting bank. This is in consonance with the rule that a negotiable
that he is not primarily liable. Because of this, petitioner was constrained to instrument, such as a check, whether a manager's check or ordinary
file a suit to collect the said balance. check, is not legal tender. As such, after receiving the deposit, under
its own rules, petitioner shall credit the amount in private
ISSUE respondent's account or infuse value thereon only after the drawee
Whether petitioner was grossly negligent in allowing the withdrawal bank shall have paid the amount of the check or the check has been
cleared for deposit.
RULING
YES. Petitioner anchors its argument on the fact that the respondent as an A bank is under obligation to treat the accounts of its depositors "with
indorser guaranteed the validity of the check and the signatures therein and meticulous care, always having in mind the fiduciary nature of their
that the private respondent signed a blank withdrawal slip bearing only 2 of relationship."27 As such, in dealing with its depositors, a bank should
his signatures and payee de Guzmans therein. exercise its functions not only with the diligence of a good father of a family
but it should do so with the highest degree of care. Petitioner herein failed
To hold private respondent liable for the amount of the check he deposited to do this, and in fact, violated its own rules by allowing the withdrawal of
by the strict application of the law and without considering the attending an amount that is definitely over and above the aggregate amount of
circumstances in the case would result in an injustice and in the erosion of private respondent's dollar deposits that had yet to be cleared. In so doing,
the public trust in the banking system petitioner assumed the risk of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer the resulting damage.
Under the rules issued by the petitioner in the private respondent’s
passbook, to be able to withdraw from the savings account deposit under c. From Time Deposits
the Philippine foreign currency deposit system, two requisites must be Cases
presented to petitioner bank by the person withdrawing an amount: (a) a Far East Bank and Trust Company v Querimit
duly filled-up withdrawal slip, and (b) the depositor's passbook. Moreover, DOCTRINE: A bank acts at its peril when it pays deposits evidenced by a
the withdrawal slip contains a boxed warning that states: "This receipt must certificate of deposit, without its production and surrender after proper
be signed and presented with the corresponding foreign currency savings indorsement.
passbook by the depositor in person. Despite the fact that private
respondent’s passbook was not presented at the time of the withdrawal, the FACTS
petitioner still allowed the said withdrawal in violation of their rules. In 1986, Estrella Querimit opened a dollar saving account with FEBTC
Harrison Plaza Branch. She was issued for certificates of deposit, each

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 92
representing $15,000.00 or a total of $60,000.00. The certificates were to In this case, the certificates of deposit were clearly marked payable to
mature in 60 days, payable to bearer at 4.5% interest per annum. The "bearer," which means, to "[t]he person in possession of an instrument,
certificates bore the word “accrued” which meant that if they were not document of title or security payable to bearer or indorsed in
presented for encashment or pre-terminated, the money deposited with blank."Petitioner should not have paid respondent's husband or any third
accrued interest would be rolled-over by the bank and annual interest would party without requiring the surrender of the certificates of deposit.
accumulate automatically.
Petitioner claims that it did not demand the surrender of the subject
In 1993, after her husband died, Querimit went to FEBTC to withdraw her certificates of deposit since respondent's husband, Dominador Querimit, was
deposit but she was told that her husband had withdrawn the money in one of the bank's senior managers. But even long after respondent's
deposit. FEBTC produced documents showing that the deposits have been husband had allegedly been paid respondent's deposit and before his
paid to Querimit’s husband. However Querimit insisted that she was or her retirement from service, the FEBTC never required him to deliver the
husband have not been paid as evidenced by the Cerificates of Deposit certificates of deposit in question. Moreover, the accommodation given to
which are still in her possession. She sent a demand letter but FEBTC respondent's husband was made in violation of the bank's policies and
refused to pay. So she filed a collection suit. procedures.

RTC and CA both ruled for Querimit. Petitioner FEBTC thus failed to exercise that degree of diligence required by
the nature of its business. Because the business of banks is impressed with
ISSUE public interest, the degree of diligence required of banks is more than that
Whether the subject certificates of deposit have already been paid? of a good father of the family or of an ordinary business firm. The fiduciary
nature of their relationship with their depositors requires them to treat the
RULING accounts of their clients with the highest degree of care. A bank is under
NO. Petitioner bank failed to prove that it had already paid Estrella obligation to treat the accounts of its depositors with meticulous care
Querimit, the bearer and lawful holder of the subject certificates of deposit. whether such accounts consist only of a few hundred pesos or of millions of
The finding of the trial court on this point, as affirmed by the Court of pesos. Responsibility arising from negligence in the performance of every
Appeals, is that petitioner did not pay either respondent Estrella or her kind of obligation is demandable. Petitioner failed to prove payment of the
husband the amounts evidenced by the subject certificates of deposit. subject certificates of deposit issued to the respondent and, therefore,
remains liable for the value of the dollar deposits indicated thereon with
A certificate of deposit is defined as a written acknowledgment by a bank or accrued interest.
banker of the receipt of a sum of money on deposit which the bank or
banker promises to pay to the depositor, to the order of the depositor, or to d. From Foreign Currency Deposits
some other person or his order, whereby the relation of debtor and creditor SEC. 5, FCDA: Withdrawability and transferability of deposits. –
between the bank and the depositor is created. The principles governing There shall be no restriction on the withdrawal by the depositor
other types of bank deposits are applicable to certificates of deposit, as are of his deposit or on the transferability of the same abroad
the rules governing promissory notes when they contain an unconditional except those arising from the contract between the depositor
promise to pay a sum certain of money absolutely. The principle that and the bank.
payment, in order to discharge a debt, must be made to someone
authorized to receive it is applicable to the payment of certificates of e. If Deceased Depositor
deposit. Thus, a bank will be protected in making payment to the holder of a i. Tax Clearance Required
certificate indorsed by the payee, unless it has notice of the invalidity of the SEC. 97, NIRC: Payment of Tax Antecedent to the Transfer
indorsement or the holder's want of title. A bank acts at its peril when it of Shares, Bonds or Rights. - There shall not be transferred
pays deposits evidenced by a certificate of deposit, without its production to any new owner in the books of any corporation, sociedad
and surrender after proper indorsement. As a rule, one who pleads payment anonima, partnership, business, or industry organized or
has the burden of proving it. Even where the plaintiff must allege non- established in the Philippines any share, obligation, bond or
payment, the general rule is that the burden rests on the defendant to right by way of gift inter vivos or mortis causa, legacy or
prove payment, rather than on the plaintiff to prove payment. The debtor inheritance, unless a certification from the Commissioner that
has the burden of showing with legal certainty that the obligation has been the taxes fixed in this Title and due thereon have been paid is
discharged by payment. shown.

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If a bank has knowledge of the death of a person, who RTC: upheld the validity of this agreement and granted the motion of Vitug
maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said CA: held that the survivorship agreement constitutes a conveyance mortis
deposit account, unless the Commissioner has certified that causa which “did not comply with the formalities of a valid will as prescribed
the taxes imposed thereon by this Title have been paid: by Article 805 of the CC, and evne assuming that it was a mere donation
Provided, however, That the administrator of the estate or inter vivos, it is a prohibited donation under the provisions of Article 133 of
any one (1) of the heirs of the decedent may, upon the Civil Code
authorization by the Commissioner, withdraw an amount not
exceeding Twenty thousand pesos (P20,000) without the said ISSUE
certification. For this purpose, all withdrawal slips shall Whether the survivorship agreement is void (No)
contain a statement to the effect that all of the joint
depositors are still living at the time of withdrawal by any one HELD
of the joint depositors and such statement shall be under The agreement didn’t modify the conjugal funds of the spouse.
oath by the said depositors.
Spouses are not prohibited by law to invest conjugal property, say by way of
ii. Survivorship Agreements a joint and several bank account, or an “and/or” account.
Cases
Vitug v CA When the spouses Vitug opened the savings account, they merely put what
DOCTRINE: Survivorship agreements are permitted by the Civil Code. The rightfully belonged to them in a money-making venture. They did not
validity of the contract seems debatable by reason of its “survivor-take-all” dispose of it in favor of the other, which would have arguably been
feature. But in reality, the contract imposed a mere obligation with a term sanctionable as a prohibited donation. And since the funds were conjugal, it
being death. However, if it be shown that such an agreement is a mere cannot be said that one spouse could have pressured the other in placing his
cloak to hide an inofficious donation, it may be assailed and annulled on or her deposits in the money pool.
such ground.
The agreement was in the nature of an aleatory contract. In reality what is
FACTS involved here is a contract with a term the fulfillment of which depends on
• On January 13, 1985, Romarico G. Vitug filed a motion asking for either the happening of an event which is (1) “uncertain,” (2) “which is to
authority from the probate court to sell certain shares of stock and occur at an indeterminate time.”
real properties belonging to the estate to cover allegedly his
advances to the estate in the sum of P667,731.66, plus interests A survivorship agreement, the sale of a sweepstake ticket, a transaction
which he claimed were personal funds. stipulating on the value of currency, and insurance have been held to fall
• He claimed that the advances were spent for the payment of estate under the first category, while a contract for life annuity or pension under
tax and other increments thereto. He withdrew the sums of Article 2021, et sequential, has been categorized under the second. In
P518,834.27 and P90,749.99 from savings account No. 35342-038 either case, the element of risk is present, In the case at bar, the risk was
of the Bank of America, Makati, Metro Manila. the death of one party and survivorship of the other.
• Rowena Corona opposed the motion, on the ground that the funds
withdrawn from savings account No. 35342-038 were conjugal Warning of the Court But although the survivorship agreement is per se not
partnership properties and part of the estate. She also sought his contrary to law its operation or effect may be violative of the law. For
ouster for failure to include the sums in question for inventory and instance, if it be shown in a given case that such agreement is a mere cloak
for “concealment of funds belonging to the estate.” to hide and inofficious donation, to transfer property in fraud of creditors, or
• Vitug insists that the said funds are his exclusive property having to defeat the legitime of a forced heir, it may be assailed and annulled upon
acquired the same through a survivorship agreement executed with such grounds. No such vice has been imputed and established against the
his late wife and the bank on June 19, 1970. The agreement agreement involved in this case
provides at the instance of the death of himself or his wife, the
amount in the account shall be the sole property of the survivor or
survivors and shall be payable to and collectible or withdrawable by
such survivor or survivors.

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3. Booking of Deposits § X261.5 Booking of deposits after regular banking hours. Deposits,
SEC. X261, MRB: Booking of Deposits and Withdrawals. The whether cash or non-cash, received after the close of the regular
following regulations shall govern the booking of deposits and banking hours shall be treated as contingent accounts on the day of
withdrawals of banks. receipt and shall be booked as deposits the following banking day.

§ X261.1 Clearing cut-off time. As a general rule, all deposits and § X261.6 Other records required. For record and control purposes,
withdrawals during regular banking hours shall be credited or banks shall prepare a daily abstract of deposit transactions treated
debited to deposit liability accounts on the date of receipt or as contingent accounts.
payment thereof: Provided, however, That a bank may set a
clearing cut-off time for its head office not earlier than two (2) hours § X261.7 Notice required. Banks shall post at a conspicuous place
before the start of clearing at the BSP, and not earlier than three near each teller’s window a notice to depositors indicating their
and one-half (3-1/2) hours before the start of clearing for all its selected clearing cut-off time and a statement to the effect that
branches, agencies and extension offices doing business in the non-cash items deposited after said cut-off time shall be treated as
Philippines, after which time, deposits received shall be booked as transactions for the next banking day.
hereinafter provided: Provided, further, That banks which are
located in areas where there are no BSP regional/clearing 4. Interest on Deposits
arrangements may set a clearing cut-off time not earlier than two SEC. X242, MRB: Interest on Deposits/Deposit Substitutes.
(2) hours before the start of their local clearing after which time, Demand, savings, NOW accounts, time deposits and deposit
deposits received shall be booked likewise as hereinafter provided. substitutes shall not be subject to interest ceilings.

§ X261.2 Definitions. As used in this Section, the following terms § X242.1 Time of payment of interest on time deposits/deposit
shall have the following meanings: substitutes. Interest or yield on time deposit/deposit substitute may
a. Regular banking hours shall refer to the banking hours be paid at maturity or upon withdrawal or in advance: Provided,
reported to the BSP pursuant to Sec. X156, including the however, That interest or yield paid in advance shall not exceed the
extended banking hours reported for servicing deposits and interest for one (1) year.
withdrawals; and
b. Clearing cut-off time shall mean the bank’s closing time for § X242.2 Treatment of matured time deposits/deposit substitutes
the acceptance of deposits in the form of checks, bills and a. A time deposit not withdrawn or renewed on its due date shall be
other demand items for clearing on the day of their receipt. treated as a savings deposit and shall earn interest from maturity to
the date of actual withdrawal or renewal at a rate applicable to
§ X261.3 Booking of cash deposits. Cash deposits received after the savings deposits.
selected clearing cut-off time until the close of the regular banking
hours shall be booked as deposits on the day of receipt. b. A deposit substitute instrument not withdrawn or renewed on its
maturity date shall from said date become payable on demand and
§ X261.4 Booking of non-cash deposits. Deposits of checks including shall earn an interest or yield from maturity to actual withdrawal or
“on us” checks, manager’s/cashier’s/ treasurer’s checks and demand renewal at a rate applicable to a deposit substitute with a maturity
drafts, which are drawn against the depository bank and all its of fifteen (15) days.
offices, as well as treasury warrants and postal money orders,
received after the selected clearing cut-off time until the close of the Banks performing quasi-banking functions shall continue to consider
regular banking hours, may, at the option of the bank, be booked as matured and unwithdrawn deposit substitutes as such and subject
deposits on the day of receipt. to reserves.

Other non-cash deposits received after the selected clearing cut-off Cases
time shall be treated as contingent accounts on the day of receipt Citibank, NA v Cabamongan
and shall be booked as deposits the following banking day. DOCTRINE: In a loan or forbearance of money, the interest due should be
that stipulated in writing and in the absence thereof, the rate shall be 12%
per annum counted from the time of demand.

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
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FACTS 5. Closing of Account
On August 16, 1993, spouses Cabamongan opened a joint foreign currency
time deposit for their sons Lito and Luis Jr. in the amount of $55,216.69 for Cases
a term of 182 days at 2.5625% (from August 16, 1993 to February Far East Bank and Trust Company v Pacilan, Jr.
14,1994). On November 10, 1993, a person claiming to be Carmelita DOCTRINE: No malice or bad faith could be imputed on a bank for closing
Cabamongan (the wife) pre-terminated the foreign currency account, for the account of a depositor for frequently drawing checks against insufficient
which she presented a Bank of America card, passport, an ATM, and funds. Neither is there malice or bad faith, but only negligence, when the
Mabuhay card. Yeye San Pedro processed the pre-termination. The person bank accepted a deposit made by the depositor the day following the closure
executed a notarize release and waiver document for failure to surrender of his account.
the original Certificate of Deposit. The release and waiver document was not
notarized, but the money was released. The person left an ID card, for FACTS: Pacilan had a current account with FEBTC. He was in the practice of
which San Pedro called the spouses residence. Upon calling, she was told issuing several postdated checks against the account. One day in March
that the spouses was in the US, and that she couldn't have pre-terminated 1988, he issued a postdated check for P680. It was dishonored (on April 4)
the account. On September 16, 1994, the spouses demanded that the for insufficiency of funds. The next day, he deposited P800. Subsequently,
amount withdrawn be returned, plus interest, which the bank refused. The he called FEBTC to inquire about the dishonor and was informed that his
spouses filed a complaint, where the RTC ruled in favor of them. The CA account was closed on the ground that it was "IMPROPERLY HANDLED". The
affirmed but ruled that the interest of 12% should run only at the time of reason given by the bank was that on the evening of April 4, as a result of
demand. his practice of issuing postdated checks, Pacilan's account had an overdraft
of P428. Thus his account was closed.
ISSUE
Whether interest should be 2.5625%, 6%, or 12% He sued the bank for moral and exemplary damages. He claimed that the
bank closure was unjustified. His account was closed on the evening of April
RULING 4; but if FEBTC had followed normal banking procedure, it had until the
12%. The bank argues that the interest should be 2.5625%, or the interest close of April 5 to honor the check or return it. He claimed that the closure
which was agreed upon. In arguendo that they were negligent, it should be of his account was done with undue haste. Further, the closure of his
6% since the funds did not constitute a loan. The facts show that the bank account has exposed him to criminal prosecution for BP22. He claimed that
employees were negligent when they released the funds upon showing that he was a cashier of Prudential Bank just across the street, that the closure
(1) failure to produce the original certificate of deposit, and in lieu of it, a of the account was patently malicious, and that it had caused him
notarized release and waiver document; (2) there was discrepancy with the humiliation, wounded feelings, insurmountable worries and sleepless nights.
signature; (3) the picture of the depositors did not match the person
withdrawing the funds. However, the Court ruled that under Article 1980 of In response, the bank claimed that Pacilan had overdrawn his account close
the Civil Code, bank deposits are considered as simple loan. The relationship to 200 times in the past 2 years. The bank's Rules and Regulations
between a bank and a depositor are really a debtor-creditor relationship, Governing the Establishment and Operation of Regular Demand Deposits
where deposits are treated as loan by the bank from its depositors. As ruled provide that ìthe Bank reserves the right to close an account if the depositor
in Eastern Shipping Lines v CA, a loan should have an interest that is frequently draws checks against insufficient funds and/or uncollected
stipulated, and in absence, should be 12% per annum from the time of depositsî and that ìthe Bank reserves the right at any time to return checks
demand. of the depositor which are drawn against insufficient funds or for any
reason.î They also alleged that Pacilan had used a signature different from
***Therefore, the interest would be 2.5625% per annum from August 16, the specimen on several occasions.
1993 to February 14, 1994, the same rate from February 14, 1994 to
September 16, 1994, and 12% per annum from September 16, 1994 up to RTC and CA found for Pacilan. They found that according to the bank's rules,
the present date of the case. any uncleared check could actually have been subjected to a P10 charge per
check, and could actually have been sent back for clearing one more time.
Further, in previous instances, FEBTC notified the respondent when he
incurred an overdraft and he would then deposit sufficient funds the
following day to cover the overdraft. Petitioner bank thus acted unjustifiably
when it immediately closed the respondentís account on April 4 and

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 96
deprived him of the opportunity to reclear his check or deposit sufficient otherwise, as prescribed by law.
funds therefor the following day. It also caused him humiliation and tainted
his credit standing. They found the bank liable for damages for violation of (2) Any evidence obtained in violation of this or the preceding section
Art. 19 of the Civil Code. shall be inadmissible for any purpose in any proceeding.

ISSUE ART. III, SEC. 7 (CONSTITUTION): The right of the people to


Whether the bank properly exercised their right to close Pacilan's account. information on matters of public concern shall be recognized. Access
to official records, and to documents and papers pertaining to official
acts, transactions, or decisions, as well as to government research
RULING data used as basis for policy development, shall be afforded the
YES. REVERSED. Petitioner bank has the right to close the account. The citizen, subject to such limitations as may be provided by law.
Bank Rules also state that: "...the depositor is NOT ENTITLED, AS A MATTER
OF RIGHT, TO OVERDRAW on this deposit and the bank reserves the right at ART. II, SEC. 28 (CONSTITUTION): Subject to reasonable
any time to return checks of the depositor which are drawn against conditions prescribed by law, the State adopts and implements a
insufficient funds or for any other reason." policy of full public disclosure of all its transactions involving public
interest.
There was no right of the petitioner that was violated. The fact that
petitioner constantly overdrew his account and used signatures not on file Cases
was sufficient ground to close the account; therefore, there was no bad REPUBLIC v. EUGENIO, 545 SCRA 384 (2008)
faith. He had improperly handled his account hundreds of time. The DOCTRINE: There is a right to privacy governing bank accounts in the
depositor is bound by the terms and conditions of the agreement with the Philippines, as expressed in Sec. 2, RA 1405 (Bank Secrecy Act of 1995).
bank. Exceptions provided for in Sec. 2 (may be examined by any person,
government official, bureau or office), are as follows:
Neither the fact that petitioner bank accepted the deposit made by the • Upon written permission of the depositor
respondent the day following the closure of his account constitutes bad faith • In cases of impeachment
or malice on the part of petitioner bank. The same could be characterized • Examination of bank accounts is upon order of a competent court in
as simple negligence by its personnel. Said act, by itself, is not constitutive cases of bribery or dereliction of duty of public officials
of bad faith. No legal right was established nor bad faith proved by Pacilan. • Money deposited or invested is the subject matter of litigation
Damnum Absque Injuria.
FACTS
F. SECRECY OF BANK DEPOSITS (This case stemmed from the case of Agan v PIATCO)
After the promulgation of the Agan case, a series of investigation was
1. General Rules conducted by the Ombudsman, the Compliance and Investigation Staff, and
a. Rationale Anti-Money Laundering Council (AMLC). AMLC issued a resolution
ART. III, SEC. 2 (CONSTITUTION): The right of the people to be authorizing the Executive Director of AMLC to examine the bank accounts of
secure in their persons, houses, papers, and effects against Pantaleon Alvarez, Cheng Yong,Wilfredo Trinidad, Alfredo Liongson and their
unreasonable searches and seizures of whatever nature and for any related web accounts. Under the authority of such resolution, AMLC filed an
purpose shall be inviolable, and no search warrant or warrant of arrest application to inquire into or examine the deposits or investments of
shall issue except upon probable cause to be determined personally by Alvarez, Cheng Yong, Trinidad and Liongson with the Makati RTC, which the
the judge after examination under oath or affirmation of the court granted. Months later, Special Prosecutor Dennis Villa-Ignacio
complainant and the witnesses he may produce, and particularly requested AMLC to investigate the accounts of Alvarez, PIATCO and all
describing the place to be searched and the persons or things to be accounts related to the annulled contract. AMLC issued another resolution,
seized. authorizing the executive director to inquire into the bank accounts named
in the letter. AMLC filed the same application, this time to the Manila RTC,
ART. III, SEC. 3 (CONSTITUTION): (1) The privacy of which was raffled to Judge Antonio Eugenio Jr. The court likewise granted
communication and correspondence shall be inviolable except upon such ex parte application. Alvarez filed an Urgent Motion to Stay of
lawful order of the court, or when public safety or order requires Enforcement of Order, which the Manila RTC granted. The Republic filed a

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 97
motion for reconsideration which was granted. Alvarez then filed an Urgent b. Applicable Law
Motion and Manifestation, stating that AMLC was about to implement the Cases
Manila RTC bank inquiry even though he intends to appeal such order. The INTENGAN v. CA, 377 SCRA 63 (2002)
Manila RTC refrained AMLC from implementing such order against Alvarez. DOCTRINE: Where the accounts in question are US dollar deposits, the
Alvarez then filed an Urgent Ex Parte Motion for Clarification, alleging that applicable law is RA 6426 (FCDA), not RA 1405 (Bank Secrecy Law). Under
AMLC likewise cannot implement such order against the others stated in the the applicable law, the only exception to the secrecy of foreign currency
order. Manila RTC issued an order, stating that the ex parte application deposits is upon the written permission of the depositor.
cannot be implemented in its totality (first of four rulings contested in this
case). FACTS
In 1993, Citibank filed a complaint for violation of Sec. 31, in relation to
Lilia Cheng, wife of Cheng Yong filed a Petition for Certiorari, TRO and Sec. 144 of the Corporation Code against its 2 officers, Santos and Genuino.
preliminary injunction against the orders of Makati and Manila RTC stating It was alleged in the affidavit executed by its VP Vic Lim that Santos and
grave abuse of discretion that AMLA can only inquire to bank accounts after Genuino managed or caused existing bank clients/depositors to divert their
the creation of the Anti-Money Laundering Act (AMLA), and not prior to its money from Citibank NA to products offered by other companies (Torrance
promulgation. The CA issued a TRO, granting such petition (second of four Development Corporation and Global Pacific Corporation) that were yielding
rulings contested in this case). higher interest rates. In return, Santos and Genuino derived substantial
financial gains. It was also determined that the bank clients accommodated
With relation to the Urgent Motion for Clarification, the Manila RTC issued an by Santos and Genuino include Intengan, Neri and Brawner, who have long
order reiterated that bank inquiry order it issued cannot be implemented by standing accounts with Citibank NA in savings/dollar deposits and/or in trust
the AMLC until the appeal (of Alvarez of the order granting the ex parte accounts and/or money placements.
application) is finally resolved (third of four rulings contested in this case).
The CA issued a writ of preliminary injunction with regard to the petition As evidence, Lim annexed bank records, including dollar deposits of
filed by Lilia Cheng (last ruling contested in this case) Intengan, Neri and Brawner, to establish the deception practiced by Santos
and Genuino.
ISSUE
Whether a bank inquiry order issued in accordance with section 10 AMLA In turn, Global Consumer Banking Group of Citibank’s VP/Business Manager
may be stayed with injunction Reyes admitted to having authorized Lim to state the names of the clients
involved and to attach said bank records.

RULING Intengan, Neri and Brawner filed their respective motions for the exclusion
YES. There is a right to privacy governing bank accounts in the Philippines, and physical withdrawal of their bank records, which was initially dismissed
expressed in RA 1405 known as Bank Secrecy Act of 1955. Section 2 of such by 2nd Asst. Provincial Prosecutor Ubana, Sr. However, Provincial Prosecutor
law states that all deposits of whatever nature with banks or banking Castro directed the filing of informations against Rajkotwala, Ferguson,
institutions in the Philippines including investments in bonds issued by the Reyes and Lim for alleged violation of the Bank Secrecy Law. On appeal
Government of the Philippines, its political subdivisions and its before the DOJ, this was reversed.
instrumentalities, are herby considered as of an absolutely confidential
nature and may not be examined, inquired, or looked into by any person. ISSUE
Although there may have been subsequent laws that would add to the Whether the Bank Secrecy Law, RA 1405 applies in this case
exceptions, the Bank Secrecy Act remains as the general rule.
HELD
However, there are exceptions, such as (1) written permission of he NO. The accounts in question are US dollar deposits. Consequently, the
depositors; (2) in cases of impeachment; (3) upon order of competent applicable law is RA 6426 known as the Foreign Currency Deposit Act of the
courts in cases of bribery or dereliction of duty of public officials; (4) money Philippines, and not RA 1405 (Bank Secrecy Law).
deposited is the subject matter of litigation. Subsequent laws adding to the
exception are the Anti-Graft and Corrupt Practices Act, the Ombudsman Act, Under Sec. 8 of RA 6426, there is only a single exception to the secrecy of
and the Anti-Money Laundering Act**. foreign currency deposits, that is, disclosure is allowed only upon the written
permission of the depositor. Incidentally, the acts of the Citibank officials

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 98
complained of happened before the enactment of RA 9160, Anti-Money Estrada filed a Motion to Quash alleging that the documents were by R.A.
Laundering Act of 2001. No. 1405 (The Secrecy of Bank Deposits Law). He further claimed that the
specific identification of documents in the questioned subpoenas, including
A case for violation of RA 6426 should have been the proper case brought details on dates and amounts, could only have been made possible by an
against the bank’s officials. Lim and Reyes admitted that they had disclosed earlier illegal disclosure thereof by the EIB and the Philippine Deposit
details of petitioners’ dollar deposits without the latter’s written permission. Insurance Corporation (PDIC). The disclosure being illegal, petitioner
It does not matter if that such disclosure was necessary to establish the concluded, the prosecution in the case may not be allowed to make use of
bank’s case against Santos and Genuino. Lim’s act of disclosing details of the information.
petitioners’ bank records regarding their foreign currency deposits, with the
authority of Reyes, would appear to belong to the species of criminal acts ISSUE
punishable under special laws—malum prohibitum. Whether the “extremely-detailed” information contained in the Special
Prosecution Panel’s requests for subpoena was obtained through a prior
a. Applicability of Exclusionary Rule illegal disclosure of petitioner’s bank accounts, in violation of the “fruit of
ART. III, SEC. 2 (CONSTITUTION): The right of the people to be the poisonous tree” doctrine
secure in their persons, houses, papers, and effects against
unreasonable searches and seizures of whatever nature and for any HELD
purpose shall be inviolable, and no search warrant or warrant of arrest NO. The court first held that the bank documents were not covered by RA
shall issue except upon probable cause to be determined personally by 1405, hence not fruits of illegal disclosure.
the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly Petitioner’s attempt to make the exclusionary rule applicable to the instant
describing the place to be searched and the persons or things to be case fails. R.A. 1405, it bears noting, nowhere provides that an unlawful
seized. examination of bank accounts shall render the evidence obtained therefrom
inadmissible in evidence. Section 5 of R.A. 1405 only states that “[a]ny
ART. III, SEC. 3 (CONSTITUTION): (1) The privacy of violation of this law will subject the offender upon conviction, to an
communication and correspondence shall be inviolable except upon imprisonment of not more than five years or a fine of not more than twenty
lawful order of the court, or when public safety or order requires thousand pesos or both, in the discretion of the court.”
otherwise, as prescribed by law.
Even assuming arguendo, however, that the exclusionary rule applies in
(2) Any evidence obtained in violation of this or the preceding section principle to cases involving R.A. 1405, the Court finds no reason to apply
shall be inadmissible for any purpose in any proceeding. the same in this particular case.

Cases Clearly, the “fruit of the poisonous tree” doctrine1[13] presupposes a violation
EJERCITO v. SANDIGANBAYAN, 509 SCRA 190 (2006) of law. If there was no violation of R.A. 1405 in the instant case, then there
DOCTRINE: RA 1405 nowhere provides that an unlawful examination of would be no “poisonous tree” to begin with, and, thus, no reason to apply
bank accounts shall render the evidence obtained therefrom inadmissible in the doctrine.
evidence. Sec. 5 only states that “any violation of this law will subject the
offender upon conviction, to an imprisonment of not more than 5 years or The investigation conducted by the Ombudsman were legal as credited by
fine of not more than P20,000 or both, in the discretion of the court.” the Sandiganbayan. The documents were released pursuant to a letter
request sent to the officers of EIB and were not obtained through illegal
FACTS means.
This case arose from the plunder charges against former president Joseph
Ejercito Estrada. The Special Prosecution Panel filed before the In fine, the subpoenas issued by the Ombudsman in this case were legal,
Sandiganbayan a request for issuance of subpoenas directing the President hence, invocation of the “fruit of the poisonous tree” doctrine is misplaced.
of Export and Industry Bank (EIB) or his/her authorized representative to
produce a number of documents allegedly part of the Jose Velarde account.
The Sandiganbayan granted the requests and subpoenas were issued.

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2. Rules for Peso Deposits who controls it during his lifetime, after which the balance is payable to a
a. Coverage prenominated beneficiary. It may be invested by the bank.
SEC. 2, LAW ON SECRECY OF BANK DEPOSITS: All deposits of
whatever nature with banks or banking institutions in the Philippines ISSUES:
including investments in bonds issued by the Government of the 1) Whether a trust account is a deposit, and
Philippines, its political subdivisions and its instrumentalities, are 2) Whether a plunder charge falls under the exceptions under Section 2
hereby considered as of an absolutely confidential nature and may not
be examined, inquired or looked into by any person, government RULING
official, bureau or office, except upon written permission of the 1) YES, it is a deposit. The contention of the Sandiganbayan that trust
depositor, or in cases of impeachment, or upon order of a competent accounts are not covered by the term “deposits,” as used in R.A. 1405, by
court in cases of bribery or dereliction of duty of public officials, or in the mere fact that they do not entail a creditor-debtor relationship between
cases where the money deposited or invested is the subject matter of the trustor and the bank, does not lie. If the money deposited under an
the litigation. account may be used by banks for authorized loans to third persons, then
such account, regardless of whether it creates a creditor-debtor relationship
Cases between the depositor and the bank, falls under the category of accounts
EJERCITO v. SANDIGANBAYAN, 509 SCRA 190 (2006) which the law precisely seeks to protect for the purpose of boosting the
DOCTRINE: The term “deposits” used therein is to be understood broadly economic development of the country.
and not limited only to accounts, which give rise to a creditor-debtor
relationship between the depositor and the bank. If the money deposited 2) YES, it falls under the exceptions. The protection afforded by the law is
under an account may be used by banks for authorized loans to third not absolute, there being recognized exceptions thereto, as above-quoted
persons, then such accounts, regardless of whether it creates a creditor- Section 2 provides. Two exceptions apply here: (1) the examination of
debtor relationship between the depositor and the bank, falls under the bank accounts is upon order of a competent court in cases of bribery or
category of accounts which the law precisely seeks to protect for the dereliction of duty of public officials, and (2) the money deposited or
purpose of boosting the economic development of the country. invested is the subject matter of the litigation.

FACTS Cases of unexplained wealth are similar to cases of bribery or dereliction of


In the ombudsman case PP v. Estrada, the Sandiganbayan issued a duty and no reason is seen why these two classes of cases cannot be
subpoena duces tecum for Trust Account no 858, a savings account, certain excepted from the rule making bank deposits confidential. The crime of
specified documents, as well as all accounts pertaining to one "Jose bribery and the overt acts constitutive of plunder are crimes committed by
Velarde". ERAP filed motions to quash alleging that the trust account which public officers, and in either case the noble idea that “a public office is a
was allegedly his was a "deposit" within the meaning of sec. 2 of RA 1405, public trust and any person who enters upon its discharge does so with the
and therefore protected; and that since he was charged with plunder, not full knowledge that his life, so far as relevant to his duty, is open to public
bribery or dereliction of duty, his case does not fall under any of the scrutiny” applies with equal force.
exceptions under sec.2. These motions to quash were denied. were denied.
Thus this petition for certiorari. Plunder being thus analogous to bribery, the exception to R.A. 1405
applicable in cases of bribery must also apply to cases of plunder.
"Section 2. 1 All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by the b. Prohibitions
Government of the Philippines, its political subdivisions and its SEC. 2, LAW ON SECRECY OF BANK DEPOSITS: All deposits of
instrumentalities, are hereby considered as of an absolutely confidential whatever nature with banks or banking institutions in the Philippines
nature and may not be examined, inquired or looked into by any person, including investments in bonds issued by the Government of the
government official, bureau or office, except upon written permission of the Philippines, its political subdivisions and its instrumentalities, are
depositor, or in cases of impeachment, or upon order of a competent court hereby considered as of an absolutely confidential nature and may not
in cases of bribery or dereliction of duty of public officials, or in cases where be examined, inquired or looked into by any person, government
the money deposited or invested is the subject matter of the litigation." official, bureau or office, except upon written permission of the
depositor, or in cases of impeachment, or upon order of a competent
Note: Trust Account: a savings account deposited in the name of a trustee court in cases of bribery or dereliction of duty of public officials, or in

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 100
cases where the money deposited or invested is the subject matter of the bank, or in the maximum amount permitted by law,
the litigation. whichever is lower, shall be required by the lending bank
to waive the secrecy of his deposits of whatever nature
SEC. 3, LAW ON SECRECY OF BANK DEPOSITS: It shall be in all banks in the Philippines. Any information obtained
unlawful for any official or employee of a banking institution to from an examination of his deposits shall be held strictly
disclose to any person other than those mentioned in Section two confidential and may be used by the examiners only in
hereof any information concerning said deposits. connection with their supervisory and examination
responsibility or by the Bangko Sentral in an appropriate
SEC. 55.1 (B), GBL: No director, officer, employee, or agent of any legal action it has initiated involving the deposit account.
bank shall, without order of a court of competent jurisdiction, disclose
to any unauthorized person any information relative to the funds or SEC. X337, MRB: Waiver of Secrecy of Deposit
properties in the custody of the bank belonging to private individuals, Any director, officer or stockholder who, together with
corporations, or any other entity: Provided, That with respect to bank his related interest, contracts a loan or any form of
deposits, the provisions of existing laws shall prevail; financial accommodation from:
a. his bank; or
SEC. 55.4, GBL: Consistent with the provisions of Republic Act No. b. from a bank
1405, otherwise known as the Banks Secrecy Law, no bank shall (1) which is a subsidiary of a bank holding company of
employ casual or nonregular personnel or too lengthy probationary which both his bank and the lending bank are
personnel in the conduct of its business involving bank deposits. subsidiaries; or

c. Exceptions (2) in which a controlling proportion of the shares is


i. Under the Law on Secrecy of Bank Deposits owned by the same interest that owns a controlling
SEC. 2, LAW ON SECRECY OF BANK DEPOSITS: All deposits of proportion of the shares of his bank, in excess of five
whatever nature with banks or banking institutions in the percent (5%) of the capital and surplus of the bank, or
Philippines including investments in bonds issued by the in the maximum amount permitted by law, whichever is
Government of the Philippines, its political subdivisions and its lower, shall be required by the lending bank to waive the
instrumentalities, are hereby considered as of an absolutely secrecy of his deposits of whatever nature in all banks in
confidential nature and may not be examined, inquired or looked the Philippines. Any information obtained from an
into by any person, government official, bureau or office, except examination of his deposits shall be held strictly
upon written permission of the depositor, or in cases of confidential and may be used by the examiners only in
impeachment, or upon order of a competent court in cases of connection with their supervisory and examination
bribery or dereliction of duty of public officials, or in cases where responsibility or by the BSP in an appropriate legal
the money deposited or invested is the subject matter of the action it has initiated involving the deposit account.
litigation.
b. For loans secured by hold-out or assignment of CTDs
1. Upon written permission of the depositor or inventor: SEC. X315 (F), MRB: Loans Secured by Certificates of
a. DOSRI loans Time Deposit. The following rules shall govern the grant
SEC. 26, NCBA: Bank Deposits and Investments. - of loans secured by hold- out on and/or assignment of
Any director, officer or stockholder who, together with CTDs issued by the lending bank, as well as its branches
his related interest, contracts a loan or any form of or subsidiaries abroad:
financial accommodation from: (1) his bank; or (2) from The loan documents shall include a waiver on the part of
a bank (a) which is a subsidiary of a bank holding the depositor of his rights under existing law to the
company of which both his bank and the lending bank confidentiality of his deposits.
are subsidiaries or (b) in which a controlling proportion
of the shares is owned by the same interest that owns a 2. In cases of impeachment
controlling proportion of the shares of his bank, in 3. Upon the order of a competent court in cases of bribery or
excess of five percent (5%) of the capital and surplus of dereliction of duty of public officials

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4. In cases where the money deposited or invested is the subject 2 of the Bank Secrecy Law by providing an additional exception to the rule
of litigation against the disclosure of bank deposits.

ii. Under the Anti-Graft and Corrupt Practices Act BANCO FILIPINO SAVINGS AND MORTGAGE BANK v. PURISIMA, 161
SEC. 8, RA 3019: Dismissal due to unexplained wealth. If in SCRA 576 (1988)
accordance with the provisions of Republic Act Numbered One DOCTRINE: By enacting Sec. 8 of RA 3019, Congress intended to provide
thousand three hundred seventy-nine, a public official has been an additional ground for the examination of bank deposits for without such
found to have acquired during his incumbency, whether in his provision, the prosecutors would be hampered if not altogether frustrated in
name or in the name of other persons, an amount of property the prosecution of those charged with having acquired unexplained wealth
and/or money manifestly out of proportion to his salary and to his while in public office.
other lawful income, that fact shall be a ground for dismissal or
removal. Properties in the name of the spouse and unmarried FACTS
children of such public official may be taken into consideration, The Tanodbayan issued a subpoenaduces tecum to the Banco Filipino
when their acquisition through legitimate means cannot be Savings & Mortgage Bank, commanding its representative to appear at a
satisfactorily shown. Bank deposits shall be taken into specified time at the Office of the Tanodbayan and furnish the latter with
consideration in the enforcement of this section, notwithstanding duly certified copies of the records in all its branches and extension offices,
any provision of law to the contrary. of the loans, savings and time deposits and other banking transactions,
dating back to 1969, appearing in the names of Caturla, his wife, Purita
Cases Caturla, their children — Manuel, Jr., Marilyn and Michael — and/or Pedro
PNB v. GANCAYAO, 15 SCRA 91 (1965) Escuyos.
DOCTRINE: Sec. 8 of RA 3019 directs in mandatory terms that bank
deposits shall be taken into consideration in the enforcement of this section, Caturla moved to quash the subpoena duces tecum arguing that compliance
notwithstanding any provision of law to the contrary. therewith would result in a violation of Sections 2 and 3 of the Law on
Secrecy of Bank Deposits. Then Tanodbayan Vicente Ericta not only denied
FACTS the motion for lack of merit, and directed compliance with
Prosecutor Gancayao required PNB to produce the records of the bank the subpoena, but also expanded its scope through a second subpoena
deposits of Jimenez, the former administrator of the Agricultural Credit and duces tecum, this time requiring production by Banco Filipino of the bank
Cooperative Administration. Jimenez was under investigation for records in all its branches and extension offices, of Siargao Agro-Industrial
unexplained wealth. PNB refused to produce the records of the bank Corporation, Pedro Escuyos or his wife, Emeterio Escuyos, Purita Caturla,
deposits for fear of prosecution under RA 1405 (Bank Secrecy Law). Lucia Escuyos or her husband, Romeo Escuyos, Emerson Escuyos, Fraterno
Gancayao on the other hand relied on the provisions of RA 3019 (Anti Graft Caturla, Amparo Montilla, Cesar Caturla, Manuel Caturla or his children,
and Corrupt Practices Act), stating Manuel Jr., Marilyn and Michael, LTD Pub/Restaurant, and Jose Buo or his
wife, Evelyn. Two other subpoena of substantially the same tenor as the
Sec. 8. Dismissal due to unexplained wealth. – xx xx xx Bank second were released by the Tanodbayan's Office. The last required
deposits shall be taken into consideration in the enforcement of this obedience under sanction of contempt.
section, notwithstanding any provision of law to the contrary.
The Banco Filipino Savings & Mortgage Bank, hereafter referred to simply as
ISSUE BF Bank, took over from Caturla in the effort to nullify the subpoenae. It
Whether RA 3019 prevails over RA 1405? filed a complaint for declaratory relief with the Court of First Instance of
Manila, which was assigned by raffle to the sala of respondent Judge Fidel
RULING Purisima. BF Bank prayed for a judicial declaration as to whether its
YES. Anti Graft and Corrupt Practices Act prevails over the Bank Secrecy compliance with the subpoenae duces tecum would constitute an
Law. The anti graft law directs in mandatory terms that bank deposits “shall infringement of the provisions of Sections 2 and 3 of R.A. No. 1405 in
be taken into consideration in the enforcement of this section, relation to Section 8 of R.A. No. 3019. It also asked that pending final
notwithstanding any provision of law to the contrary.” The only conclusion resolution of the question, the Tanodbayan be provisionally restrained from
possible is that Section 8 of the Anti Graft Law is intended to amend Section exacting compliance with the subpoenae.

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Respondent Judge Purisima issued an Order denying for lack of merit the fact shall be a ground for dismissal or removal. Properties in the
application by BF Bank for a preliminary injunction and/or restraining order. name of the spouse and unmarried children of such public official
It further argues that subpoenae in question are in the nature of "fishing may be taken into consideration, when their acquisition through
expeditions" or "general warrants" since they authorize indiscriminate legitimate means cannot be satisfactorily shown. Bank deposits shall
inquiry into bank records; that, assuming that such an inquiry is allowed as be taken into consideration in the enforcement of this section,
regards public officials under investigation for a violation of the Anti-Graft & notwithstanding any prohibition of law to the contrary.
Corrupt Practices Act, it is constitutionally impermissible with respect to
private individuals or public officials not under investigation on a charge of The only conclusion possible is that section 8 of the Anti-Graft Law is
violating said Act; and that while prosecution of offenses should not, as a intended to amend section 2 of Republic Act No. 1405 by providing an
rule, be enjoined, there are recognized exceptions to the principle one of additional exception to the rule against the disclosure of bank desposits.
which is here present, i.e. to avoid multiplicity of suits, similar subpoenae
having been directed to other banks as well. The inquiry into illegally acquired property — or property NOT
"legitimately acquired" — extends to cases where such property is
ISSUE concealed by being held by or recorded in the name of other
Whether the "Law on Secrecy of Bank Deposits" precludes production by persons. This proposition is made clear by R.A. No. 3019 which quite
subpoena duces tecum of bank records of transactions by or in the names of categorically states that the term, "legitimately acquired property of
the wife, children and friends of a special agent of the Bureau of Customs, a public officer or employee shall not include .. property unlawfully
accused before the Tanodbayan of having allegedly acquired property acquired by the respondent, but its ownership is concealed by its
manifestly out of proportion to his salary and other lawful income, in being recorded in the name of, or held by, respondent's spouse,
violation of the "Anti-Graft and Corrupt Practices Act. ascendants, descendants, relatives or any other persons.

RULING To sustain the petitioner's theory, and restrict the inquiry only to property
The provisions of R.A. No. 1405 subject of BF's declaratory action, read as held by or in the name of the government official or employee, or his spouse
follows: and unmarried children is unwarranted in the light of the provisions of the
Sec. 2. All deposits of whatever nature with banks or banking statutes in question, and would make available to persons in government
institutions in the Philippines including investments in bonds issued who illegally acquire property an easy and fool-proof means of evading
by the Government of the Philippines, its political subdivisions and investigation and prosecution; all they would have to do would be to simply
its instrumentalities, are hereby considered as of an absolutely place the property in the possession or name of persons other than their
confidential nature and may not be examined, inquired or looked spouse and unmarried children. This is an absurdity that we will not ascribe
into by any person, government official, bureau or office, except to the lawmakers.
upon written permission of the depositor, or in cases of
impeachment, or upon order of a competent court in cases of
bribery or dereliction of duty of public officials, or in cases where the iii. Under the Ombudsman Act
money deposited or invested is the subject matter of litigation. SEC. 15 (8), RA 6770: Powers, Functions and Duties. — The
Office of the Ombudsman shall have the following powers,
Sec. 3. It shall be unlawful for any official or employee of a banking functions and duties:
institution to disclose to any person other than those mentioned in Administer oaths, issue subpoena and subpoena duces tecum, and
Section two hereof any information concerning said deposits take testimony in any investigation or inquiry, including the power
to examine and have access to bank accounts and records;
The other provision involved in the declaratory action is Section 8 of R.A.
No. 3019. It reads: Cases
Sec. 8. Dismissal due to unexplained wealth. — If in accordance MARQUEZ v. DESIERTO, 359 SCRA 772 (1991)
with the provisions of Republic Act Numbered One thousand three DOCTRINE: Before an in camera inspection by the Ombudsman may be
hundred seventy-nine, a public official has been found to have allowed, there must be a pending case before a court of competent
acquired during his incumbency, whether in his name or in the name jurisdiction. Further, the account must be clearly identified, the inspection
of other persons, an amount of property and/or money manifestly limited to the subject matter of the pending case before the court of
out of proportion to this salary and to his other lawful income, that competent jurisdiction. The bank personnel and the account holder must be

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notified to be present during the inspection, and such inspection may cover reconsideration.
only the account identified in the pending case.
Grounds used by the lower court: No great or irreparable injury to restrain
FACTS respondent The Ombudsman would have to file to the RTC for the indirect
Petitioner is being held in indirect contempt for not allowing in camera contempt charge Petitioner failed to show prima facie evidence that the
inspection of the accounts related to an investigation being done by the subject matter of the investigation is outside the jurisdiction of Respondent.
Ombudsman relating to pay-offs for the PEA-AMARRI scandal. Petitioner
hopes to nullify order for the in camera investigation and to hold her in Reconsideration was likewise denied.
contempt.
A motion to cite Petitioner in contempt was filed with the Office of the
Petitioner is the branch manager of Union Bank, Julio Vargas Branch. She Ombudsman. Petitioner asserted that such was premature since there was a
received an Order from the Respondent to produce several bank documents pending case in the lower court, but eventually she was held in contempt
for inspection in camera relative to a pending investigation before
Respondent (Ombudsman Desierto). ISSUE
(Ombudsman act) whether petitioner may be cited for indirect contempt for
Respondent’s case is the Fact Finding and Intelligence Bureau (FFIB) vs. her failure to produce the documents requested by the Ombudsman. And
Amado Lagdameo – relative to the JVA between PEA and AMARI. The Order whether the order of the Ombudsman to have an in camera inspection of
emphasized Respondent’s power to issue subpoena and subpoena duces the questioned account is allowed as an exception to the law on secrecy of
tecum and contempt power under RA 6770 aka the Ombudsman Act of bank deposits (R. A. No. 1405).
1989. The Act is a later legislation to RA 1405 aka Secrecy of Bank Deposits
law; hence amending some provisions of the latter. RULING
NO, she may not be held in contempt or may the Ombudsman have an in
• Order’s objective: to trail the managers checks purchased by Trivinio camera inspection.
respondent in the pending case)
Examination of the secrecy of bank deposits law (R. A. No. 1405) would
Trivinio purchased 51 managers checks worth P272.1M from Traders Royal reveal the following exceptions:
Bank, UN Ave. 11 of these checks, P70.6M, were deposited to an account 1. Where the depositor consents in writing;
handled by Petitioner’s branch 2. Impeachment case;
3. By court order in bribery or dereliction of duty cases against public
Though Union Bank’s lawyer told Petitioner to comply with the Order, she officials;
had some difficulty making her ask for some time extensions. She said the 4. Deposit is subject of litigation;
accounts cannot be easily identified and despite diligent efforts and from the 5. Sec. 8, R. A. No. 3019, in cases of unexplained wealth as held in the
account numbers presented, she cannot identify these accounts since the case of PNB vs. Gancayco
checks were issued in cash or bearer o Surmised that the account has been
dormant since it is not covered by the new account number generated by The order of the Ombudsman to produce for in camera inspection the
the Union Bank system o Hence, she has to verify from the Interbank subject accounts with the Union Bank of the Philippines, Julia Vargas
records archives for the whereabouts of the account Branch, is based on a pending investigation at the Office of the Ombudsman
against Amado Lagdameo, et. al. for violation of R. A. No. 3019, Sec. 3 (e)
After two extensions, Respondent issued the controversial order and (g) relative to the Joint Venture Agreement between the Public Estates
threatening to hold Petitioner in indirect contempt for causing Authority and AMARI.
delays in the investigation.
We rule that before an in camera inspection may be allowed, there
Petitioner and Union Bank filed for declaratory relief in the RTC of must be a pending case before a court of competent jurisdiction.
Makati to clarify their rights and duties, seeing complying with the Further, the account must be clearly identified, the inspection limited to the
Order may conflict or violate the Secrecy of Bank Deposits law. subject matter of the pending case before the court of competent
jurisdiction. The bank personnel and the account holder must be notified to
Lower Court Denied the Petition, but Petitioner sought be present during the inspection, and such inspection may cover only the

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account identified in the pending case. percentage, kickbacks or any other form of pecuniary benefit from
any person and/or entity in connection with any government
In Union Bank of the Philippines v. Court of Appeals, we held that “Section 2 contract or project or by reason of the office or position of the
of the Law on Secrecy of Bank Deposits, as amended, declares bank public officer concerned;
deposits to be “absolutely confidential” except:
3) By the illegal or fraudulent conveyance or disposition of assets
(1) In an examination made in the course of a special or general belonging to the National Government or any of its subdivisions,
examination of a bank that is specifically authorized by the Monetary Board agencies or instrumentalities or government-owned or -controlled
after being satisfied that there is reasonable ground to believe that a bank corporations and their subsidiaries;
fraud or serious irregularity has been or is being committed and that it is
necessary to look into the deposit to establish such fraud or irregularity, 4) By obtaining, receiving or accepting directly or indirectly any
shares of stock, equity or any other form of interest or participation
(2) In an examination made by an independent auditor hired by the including promise of future employment in any business enterprise
bank to conduct its regular audit provided that the examination is or undertaking;
for audit purposes only and the results thereof shall be for the
exclusive use of the bank, 5) By establishing agricultural, industrial or commercial monopolies
or other combinations and/or implementation of decrees and orders
(3) Upon written permission of the depositor, intended to benefit particular persons or special interests; or

(4) In cases of impeachment, 6) By taking undue advantage of official position, authority,


relationship, connection or influence to unjustly enrich himself or
(5) Upon order of a competent court in cases of bribery or dereliction of themselves at the expense and to the damage and prejudice of the
duty of public officials, or Filipino people and the Republic of the Philippines.

(6) In cases where the money deposited or invested is the subject matter of SEC. 4, RA 7080: Rule of Evidence - For purposes of
the litigation” establishing the crime of plunder, it shall not be necessary to prove
each and every criminal act done by the accused in furtherance of
In the case at bar, there is yet no pending litigation before any court the scheme or conspiracy to amass, accumulate or acquire ill-
of competent authority. What is existing is an investigation by the gotten wealth, it being sufficient to establish beyond reasonable
office of the Ombudsman. In short, what the Office of the Ombudsman doubt a pattern of overt or criminal acts indicative of the overall
would wish to do is to fish for additional evidence to formally charge Amado unlawful scheme or conspiracy.
Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending
case in court, which would warrant the opening of the bank account for Cases
inspection. EJERCITO v SANDIGANBAYAN, 509 SCRA 190 (2006)
DOCTRINE: The plunder case under the Sandiganbayan necessarily
iv. Under the Plunder Law involves an inquiry into the whereabouts of the amount purportedly
SEC. 1 (D), RA 7080: Ill-gotten wealth means any asset, acquired illegally by Erap, and the subject matter of the litigation cannot be
property, business enterprise or material possession of any person limited to bank accounts under his name alone, but must include those
within the purview of Section Two (2) hereof, acquired by him accounts to which the money purportedly acquired illegally or a portion
directly or indirectly through dummies, nominees, agents, thereof was alleged to have been transferred. A public office is a public
subordinates and/or business associates by any combination or trust.
series of the following means or similar schemes:
FACTS
1) Through misappropriation, conversion, misuse, or malversation In the criminal case of People v. Estrada for plunder, the Special Prosecution
of public funds or raids on the public treasury; Panel filed a request for issuance of Subpeona Duces Tecum for directing
the President of Export and Industry Bank (EIB) to produce the following
2) By receiving, directly or indirectly, any commission, gift, share, documents from the following: (1) Trust Account 858 (2) Savings Account

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
BANKING LAW 1 | ATTY. ALEXANDER DY | SY 2010-2011 NOTES 105
0116-17345-9 (3) Urban Bank Manager’s Check. (4) Account of Jose "deposits." Moreover, it is clear from the immediately quoted provision that
Velarde. The Sandiganbayan granted the requests and the subpoena were the law applies not only to money which is deposited but also to those which
issued. are invested. This further shows that the law was not intended to apply only
to "deposits" in the strict sense of the word. Otherwise, there would have
Ejercito contested the issuance of the subpoenas. He opposed such motion been no need to add the phrase "or invested."
on the ground of Bank Secrecy Laws (RA 1405). He filed a motion to quash
and urgent motion to quash to such request for subpoena. Sandiganbayan, (2) Ejercito’s Account is excepted from the protection of RA 1405.
however, denied all his motion to quash. The protection given by RA 1405 not absolute. Two exceptions apply (1) the
examination of bank accounts is upon order of a competent court in cases of
ISSUE bribery or dereliction of duty of public officials, and (2) the money deposited
(1) W/N Ejercito’s Trust Account is covered by the term “deposit” as or invested is the subject matter of the litigation.
used in RA 1405.
(2) W/N Ejercito’s Trust Account is excepted from the protection of RA Cases of unexplained wealth are similar to cases of bribery or dereliction of
1405. duty and no reason is seen why these two classes of cases cannot be
(3) the request for subpoena was obtained through a prior illegal excepted from the rule making bank deposits confidential. The policy as to
disclosure of bank accounts, in violation of “fruit of the poisonous one cannot be different from the policy as to the other. This policy
tree” doctrine. expresses the notion that a public office is a public trust and any person
who enters upon its discharge does so with the full knowledge that his life,
RULING so far as relevant to his duty, is open to public scrutiny. Thus, cases for
(1) Ejercito’s Account is within the coverage of the term “deposit. plunder involve unexplained wealth.
RA 1405 Bank Secrecy Law
• SECTION 1. It is hereby declared to be the policy of the Government to Cases for plunder involve unexplained wealth, as provided in Section 2 of
give encouragement to the people to deposit their money in banking the Plunder Law.
institutions and to discourage private hoarding so that the same • Section 2 of R.A. No. 7080 - Definition of the Crime of Plunder; Penalties.
may be properly utilized by banks in authorized loans to assist in the — Any public officer who, by himself or in connivance with members
economic development of the country. (Underscoring supplied) of his family, relatives by affinity or consanguinity, business
• SECTION 2. All deposits of whatever nature with banks or banking associates, subordinates or other persons, amasses, accumulates or
institutions in the Philippines including investments in bonds issued acquires ill-gotten wealth through a combination or series of overt
by the Government of the Philippines, its political subdivisions and or criminal acts
its instrumentalities, are hereby considered as of an absolutely
confidential nature and may not be examined, inquired or looked In addition, the crime of plunder is similar with bribery since it is one of the
into by any person, government official, bureau or office, except acts for committing plunder.
upon written permission of the depositor, or in cases of • Section 1(d) of RA 7080
impeachment, or upon order of a competent court in cases of • d) "Ill-gotten wealth" means any asset, property, business enterprise or
bribery or dereliction of duty of public officials, or in cases where the material possession of any person within the purview of Section Two
money deposited or invested is the subject matter of the litigation. (2) hereof, acquired by him directly or indirectly through dummies,
nominees, agents, subordinates and or business associates by any
If the money deposited under an account may be used by banks for combination or series of the following means or similar schemes.
authorized loans to third persons, then such account, regardless of whether • 1) Through misappropriation, conversion, misuse, or malversation of
it creates a creditor-debtor relationship between the depositor and the bank, public funds or raids on the public treasury;
falls under the category of accounts which the law precisely seeks to • 2) By receiving, directly or indirectly, any commission, gift, share,
protect. Trust Account No. 858 is, without doubt, one such account. The percentage, kickbacks or any other form of pecuniary benefit from
Trust Agreement between Ejercito and Urban Bank provides that the trust any person and/or entity in connection with any government
account covers "deposit, placement or investment of funds" by Urban Bank contract or project or by reason of the office or position of the public
for and in behalf of petitioner. officer concerned

The phrase "of whatever nature" proscribes any restrictive interpretation of The crime of bribery and the overt acts constitutive of plunder are crimes

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committed by public officers, and in either case the noble idea that "a public particular deposit or investment with any banking institution or
office is a public trust and any person who enters upon its discharge does so non- bank financial institution upon order of any competent court in
with the full knowledge that his life, so far as relevant to his duty, is open to cases of violation of this Act when it has been established that
public scrutiny" applies with equal force. there is probable cause that the deposits or investments involved
are in any way related to a money laundering offense: Provided,
Plunder being thus analogous to bribery, the exception to R.A. 1405 That this provision shall not apply to deposits and investments
applicable in cases of bribery must also apply to cases of plunder. made prior to the effectivity of this Act.

In addition, the money deposited in Ejercito’s Account is said to form part of Cases
the subject matter of the plunder case. Making it again excluded from the REPUBLIC v. EUGENIO, 545 SCRA 384 (2008)
protection of the Bank Secrecy Law. DOCTRINE: Even if bank inquiry order may be availed of without need of a
pre-exisitng case under the AMLA, it does not follow that such order may be
(3) The “fruit of the poisonous tree” doctrine is misplaced. availed of ex parte.
He relies on Marquez v. Desierto, where the court held for an inspection of
the bank account is allowed, there must be a pending case because of FACTS
competent jurisdiction against Ejercito. Having no case filed during the (This case stemmed from the case of Agan v PIATCO)
investigation of the Ombudsman, the information were illegally acquired. After the promulgation of the Agan case, a series of investigation was
conducted by the Ombudsman, the Compliance and Investigation Staff, and
However, R.A. 1405, it bears noting, nowhere provides that an unlawful Anti-Money Laundering Council (AMLC). AMLC issued a resolution
examination of bank accounts shall render the evidence obtained therefrom authorizing the Executive Director of AMLC to examine the bank accounts of
inadmissible in evidence. Section 5 of R.A. 1405 only states that "any Pantaleon Alvarez, Cheng Yong,Wilfredo Trinidad, Alfredo Liongson and their
violation of this law will subject the offender upon conviction, to an related web accounts. Under the authority of such resolution, AMLC filed an
imprisonment of not more than five years or a fine of not more than twenty application to inquire into or examine the deposits or investments of
thousand pesos or both, in the discretion of the court." Alvarez, Cheng Yong, Trinidad and Liongson with the Makati RTC, which the
court granted. Months later, Special Prosecutor Dennis Villa-Ignacio
Even if the exclusionary rule applies to RA 1405, it is inapplicable to this requested AMLC to investigate the accounts of Alvarez, PIATCO and all
case. accounts related to the annulled contract. AMLC issued another resolution,
authorizing the executive director to inquire into the bank accounts named
The "fruit of the poisonous tree" doctrine presupposes a violation of law. If in the letter. AMLC filed the same application, this time to the Manila RTC,
there was no violation of R.A. 1405 in the instant case, then there would be which was raffled to Judge Antonio Eugenio Jr. The court likewise granted
no "poisonous tree" to begin with, and, thus, no reason to apply the such ex parte application. Alvarez filed an Urgent Motion to Stay of
doctrine. Enforcement of Order, which the Manila RTC granted. The Republic filed a
motion for reconsideration which was granted. Alvarez then filed an Urgent
Despite the Marquez v. Desierto, the examination of accounts by the Motion and Manifestation, stating that AMLC was about to implement the
Ombudsman, conducted before a case was filed with a court of competent Manila RTC bank inquiry even though he intends to appeal such order. The
jurisdiction, was lawful. For the Ombudsman issued the subpoenas bearing Manila RTC refrained AMLC from implementing such order against Alvarez.
on the bank accounts of petitioner about four months before Marquez was Alvarez then filed an Urgent Ex Parte Motion for Clarification, alleging that
promulgated on June 27, 2001. The doctrine in Marquez would have no AMLC likewise cannot implement such order against the others stated in the
retroactive effect. In addition, the recent filing case for plunder empowers order. Manila RTC issued an order, stating that the ex parte application
the Ombudsman to investigate such accounts. Thus, the subpoenas were cannot be implemented in its totality (first of four rulings contested in this
legal and the invocation of the exclusionary doctrine is misplaced. case).

v. Under the AMLA Lilia Cheng, wife of Cheng Yong filed a Petition for Certiorari, TRO and
SEC. 11, AMLA: Authority to Inquire into Bank Deposits. - preliminary injunction against the orders of Makati and Manila RTC stating
Notwithstanding the provisions of Republic Act No. 1405, as grave abuse of discretion that AMLA can only inquire to bank accounts after
amended; Republic Act No. 6426, as amended; Republic Act No. the creation of the Anti-Money Laundering Act (AMLA), and not prior to its
8791, and other laws, the AMLC may inquire into or examine any promulgation. The CA issued a TRO, granting such petition (second of four

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
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rulings contested in this case). by an independent auditor hired by the bank to conduct its regular audit
provided that the examination is for audit purposes only and the results
With relation to the Urgent Motion for Clarification, the Manila RTC issued an thereof shall be for the exclusive use of the bank.
order reiterated that bank inquiry order it issued cannot be implemented by
the AMLC until the appeal (of Alvarez of the order granting the ex parte FACTS
application) is finally resolved (third of four rulings contested in this case). Petitioner is being held in indirect contempt for not allowing in camera
The CA issued a writ of preliminary injunction with regard to the petition inspection of the accounts related to an investigation being done by the
filed by Lilia Cheng (last ruling contested in this case) Ombudsman relating to pay-offs for the PEA-AMARRI scandal. Petitioner
hopes to nullify order for the in camera investigation and to hold her in
ISSUE contempt.
Whether a bank inquiry order issued in accordance with section 10 AMLA
may be stayed with injunction Petitioner is the branch manager of Union Bank, Julio Vargas Branch. She
received an Order from the Respondent to produce several bank documents
RULING for inspection in camera relative to a pending investigation before
YES. Under this section, the AMLC is authorized to inquire into a bank Respondent (Ombudsman Desierto).
account upon establishing probable cause where the deposits are related to
kidnapping for ransom, violation of the Dangerous Drugs Act, hijacking, Respondent’s case is the Fact Finding and Intelligence Bureau (FFIB) vs.
destructive arson and murder. The exception does not dispense the Bank Amado Lagdameo – relative to the JVA between PEA and AMARI. The Order
Secrecy Act to all deposits, except for cases related to the enumerations emphasized Respondent’s power to issue subpoena and subpoena duces
above. (Take note that the application done by AMLC has no connection with tecum and contempt power under RA 6770 aka the Ombudsman Act of
any of the following enumerations above) 1989. The Act is a later legislation to RA 1405 aka Secrecy of Bank Deposits
law; hence amending some provisions of the latter.
Since the application of AMLC has nothing to do with any of the provided
enumerations under Section 11, it must prove that there is probable cause • Order’s objective: to trail the managers checks purchased by Trivinio
with the case, in order to inquire into the bank accounts. Probable cause respondent in the pending case)
may only be decided by the courts (Art III, Sec 2 of Constitution). Section
10 contains the application for ex parte, but it is connected to freezing of Trivinio purchased 51 managers checks worth P272.1M from Traders Royal
accounts. This must be done ex parte, since notifying the accused my cause Bank, UN Ave. 11 of these checks, P70.6M, were deposited to an account
him to disburse the account before the order freezing the account is issued. handled by Petitioner’s branch
Section 11 does not contain the application for ex parte, for the fact that
there is nothing wrong with the accused knowing that his accounts are being Though Union Bank’s lawyer told Petitioner to comply with the Order, she
checked. It is immaterial for the accused to know that his accounts are had some difficulty making her ask for some time extensions. She said the
being checked, since he cannot hide the bank records to prove that the accounts cannot be easily identified and despite diligent efforts and from the
accounts are linked to the crime imputed against him. Hence, using the ex account numbers presented, she cannot identify these accounts since the
parte application found in section 10 in inquiring into bank accounts (section checks were issued in cash or bearer o Surmised that the account has been
11) may be stayed with injunction. dormant since it is not covered by the new account number generated by
the Union Bank system o Hence, she has to verify from the Interbank
1. Upon order of competent court records archives for the whereabouts of the account
2. BSP inquiry or examination
After two extensions, Respondent issued the controversial order
vi. Independent Auditor threatening to hold Petitioner in indirect contempt for causing
DOJ OPINION NO. 243, SERIES OF 1957 delays in the investigation.

Cases Petitioner and Union Bank filed for declaratory relief in the RTC of
MARQUEZ v. DESIERTO, 359 SCRA 772 (2001) Makati to clarify their rights and duties, seeing complying with the
DOCTRINE: Sec. 2 of Bank Secrecy Law provides for exceptions to the Order may conflict or violate the Secrecy of Bank Deposits law.
confidentiality rule of bank deposits, one of which is in an examination made

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Lower Court Denied the Petition, but Petitioner sought (4) In cases of impeachment,
reconsideration.
(5) Upon order of a competent court in cases of bribery or dereliction of
Grounds used by the lower court: No great or irreparable injury to restrain duty of public officials, or
respondent The Ombudsman would have to file to the RTC for the indirect
contempt charge Petitioner failed to show prima facie evidence that the (6) In cases where the money deposited or invested is the subject matter of
subject matter of the investigation is outside the jurisdiction of Respondent. the litigation”

Reconsideration was likewise denied. In the case at bar, there is yet no pending litigation before any court
of competent authority. What is existing is an investigation by the
A motion to cite Petitioner in contempt was filed with the Office of the office of the Ombudsman. In short, what the Office of the Ombudsman
Ombudsman. Petitioner asserted that such was premature since there was a would wish to do is to fish for additional evidence to formally charge Amado
pending case in the lower court, but eventually she was held in contempt Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending
case in court, which would warrant the opening of the bank account for
ISSUE inspection.
Whether the order of the Ombudsman to have an in camera inspection of
the questioned account is allowed as an exception to the law on secrecy of vii. Under the PDIC Charter
bank deposits (R. A. No. 1405). SEC. 8, PAR. 8, PDIC CHARTER: The Corporation as a corporate
body shall have the power To conduct examination of banks with
RULING prior approval of the Monetary Board: Provided, That no
NO, she may not be held in contempt or may the Ombudsman have an in examination can be conducted within twelve (12) months from the
camera inspection. last examination date: Provided, however, That the Corporation
may, in coordination with the Bangko Sentral, conduct a special
We rule that before an in camera inspection may be allowed, there examination as the Board of Directors, by an affirmative vote of a
must be a pending case before a court of competent jurisdiction. majority of all of its members, if there is a threatened or impending
Further, the account must be clearly identified, the inspection limited to the closure of a bank; Provided, further, That, notwithstanding the
subject matter of the pending case before the court of competent provisions of Republic Act No. 1405, as amended, Republic Act No.
jurisdiction. The bank personnel and the account holder must be notified to 6426, as amended, Republic Act No. 8791, and other laws, the
be present during the inspection, and such inspection may cover only the Corporation and/or the Bangko Sentral, may inquire into or
account identified in the pending case. examine deposit accounts and all information related thereto in
case there is a finding of unsafe or unsound banking practice;
In Union Bank of the Philippines v. Court of Appeals, we held that “Section 2 Provided, finally, That to avoid overlapping of efforts, the
of the Law on Secrecy of Bank Deposits, as amended, declares bank examination shall maximize the efficient use of the relevant
deposits to be “absolutely confidential” except: reports, information, and findings of the Bangko Sentral, which it
shall make available to the Corporation; (As amended by R.A.
(1) In an examination made in the course of a special or general 9302, 12 August 2004, R.A. 9576,29 April 2009)
examination of a bank that is specifically authorized by the Monetary Board
after being satisfied that there is reasonable ground to believe that a bank viii. Under the Human Security Act
fraud or serious irregularity has been or is being committed and that it is SEC. 27. Judicial Authorization Required to Examine Bank
necessary to look into the deposit to establish such fraud or irregularity, Deposits, Accounts, and Records. – The provisions of Republic
Act No. 1405 as amended, to the contrary notwithstanding, the
(2) In an examination made by an independent auditor hired by the justices of the Court of Appeals designated as a special court to
bank to conduct its regular audit provided that the examination is handle anti-terrorism cases after satisfying themselves of the
for audit purposes only and the results thereof shall be for the existence of probable cause in a hearing called for that purpose
exclusive use of the bank, that (1) a person charged with or suspected of the crime of
terrorism or conspiracy to commit terrorism, (2) of a judicially
(3) Upon written permission of the depositor, declared and outlawed terrorist organization, association, or group

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of persons, and (3) of a member of such judicially declared and and records have been examined, frozen, sequestered and seized
outlawed organization, association, or group of persons, may by law enforcement authorities has the right to be informed of the
authorize in writing any police or law enforcement officer and the acts done by the law enforcement authorities in the premises or to
members of his/her team duly authorized in writing by the anti- challenge, if he or she intends to do so, the legality of the
terrorism council to: (a) examine, or cause the examination of, the interference. The written order of the authorizing division of the
deposits, placements, trust accounts, assets and records in a bank Court of Appeals designated to handle cases involving terrorism
or financial institution; and (b) gather or cause the gathering of shall specify: (a) the identity of the said: (1) person charged with
any relevant information about such deposits, placements, trust or suspected of the crime of terrorism or conspiracy to commit
accounts, assets, and records from a bank or financial institution. terrorism, (2) judicially declared and outlawed terrorist
the bank or financial institution concerned shall not refuse to allow organization, association, or group of persons, and (3) member of
such examination or to provide the desired information, when so such judicially declared and outlawed organization, association, or
ordered by and served with the written order of the Court of group of persons, as the case may be, whose deposits, placements,
Appeals. trust accounts, assets, and records are to be examined or the
information to be gathered; (b) the identity of the bank or financial
SEC. 28. Application to Examine Bank Deposits, Accounts, and institution where such deposits, placements, trust accounts, assets,
Records. – The written order of the Court of Appeals authorizing and records are held and maintained; (c) the identity of the
the examination of bank deposits, placements, trust accounts, persons who will conduct the said examination and the gathering of
assets, and records: (1) of a person charged with or suspected of the desired information; and, (d) the length of time the
the crime of terrorism or conspiracy to commit terrorism, (2) of authorization shall be carried out.
any judicially declared and outlawed terrorist organization,
association, or group of persons, or (3) of any member of such SEC. 30. Effective Period of Court Authorization to Examine and
organization, association, or group of persons in a bank or financial Obtain Information on Bank Deposits, Accounts, and Records. –
institution, and the gathering of any relevant information about the The authorization issued or granted by the authorizing division of
same from said bank or financial institution, shall only be granted the Court of Appeals to examine or cause the examination of and to
by the authorizing division of the Court of Appeals upon an ex parte freeze bank deposits, placements, trust accounts, assets, and
application to that effect of a police or of a law enforcement official records, or to gather information about the same, shall be effective
who has been duly authorized in writing to file such ex parte for the length of time specified in the written order of the
application by the Anti-Terrorism Council created in Section 53 of authorizing division of the Court of Appeals, which shall not exceed
this Act to file such ex parte application, and upon examination a period of thirty (30) days from the date of receipt of the written
under oath or affirmation of the applicant and the witnesses he order of the authorizing division of the Court of Appeals by the
may produce to establish the facts that will justify the need and applicant police or law enforcement official.
urgency of examining and freezing the bank deposits, placements, The authorizing division of the Court of Appeals may extend or
trust accounts, assets, and records: (1) of the person charged with renew the said authorization for another period, which shall not
or suspected of the crime of terrorism or conspiracy to commit exceed thirty (30) days renewable to another thirty (30) days from
terrorism, (2) of a judicially declared and outlawed terrorist the expiration of the original period, provided that the authorizing
organization, association or group of persons, or (3) of any division of the Court of Appeals is satisfied that such extension or
member of such organization, association, or group of persons. renewal is in the public interest, and provided further that the
application for extension or renewal, which must be filed by the
SEC. 29. Classification and Contents of the Court Order Authorizing original applicant, has been duly authorized in writing by the Anti-
the Examination of Bank Deposits, Accounts, and Records. – The Terrorism Council.
written order granted by the authorizing division of the Court of
Appeals as well as its order, if any, to extend or renew the same, In case of death of the original applicant or in case he is physically
the original ex parte application of the applicant, including his ex disabled to file the application for extension or renewal, the one
parte application to extend or renew, if any, and the written next in rank to the original applicant among the members of the
authorizations of the Anti Terrorism Council, shall be deemed and team named in the original written order of the authorizing division
are hereby declared as classified information: Provided, That the of the Court of Appeals shall file the application for extension or
person whose bank deposits, placements, trust accounts, assets, renewal: Provided, That, without prejudice to the liability of the

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police or law enforcement personnel under Section 19 hereof, the institution where such deposits, placements, trust accounts, assets,
applicant police or law enforcement official shall have thirty (30) and records are held and maintained; (c) the number of bank
days after the termination of the period granted by the Court of deposits, placements, trust accounts, assets, and records
Appeals as provided in the preceding paragraphs within which to discovered, examined, and frozen; (d) the outstanding balances of
file the appropriate case before the Public Prosecutor’s Office each of such deposits, placements, trust accounts, assets; (e) all
for any violation of this Act. information, data, excerpts, summaries, notes, memoranda,
working sheets, reports, documents, records examined and placed
If no case is filed within the thirty (30)-day period, the applicant in the sealed envelope or sealed package deposited with the
police or law enforcement official shall immediately notify in writing authorizing division of the Court of Appeals; (f) the date of the
the person subject of the bank examination and freezing of bank original written authorization granted by the Anti-Terrorism Council
deposits, placements, trust accounts, assets and records. The to the applicant to file the ex parte application to conduct the
penalty of ten (10) years and one day to twelve (12) years of examination of the said bank deposits, placements, trust accounts,
imprisonment shall be imposed upon the applicant police or law assets and records, as well as the date of any extension or renewal
enforcement official who fails to notify in writing the person subject of the original written authorization granted by the authorizing
of the bank examination and freezing of bank deposits, placements, division of the Court of Appeals; and (g) that the items enumerated
trust accounts, assets and records. were all that were found in the bank or financial institution
examined at the time of the completion of the examination.
Any person, law enforcement official or judicial authority who
violates his duty to notify in writing as defined above shall suffer The joint affidavit shall also certify under oath that no duplicates or
the penalty of six (6) years and one day to eight (8) years of copies of the information, data, excerpts, summaries, notes,
imprisonment. memoranda, working sheets, reports, and documents acquired
from the examination of the bank deposits, placements, trust
SEC. 31. Custody of Bank Data and Information Obtained after accounts, assets and records have been made, or, if made, that all
Examination of Deposits, Placements, Trust Accounts, Assets and such duplicates and copies are placed in the sealed envelope or
Records. – All information, data, excerpts, summaries, notes, sealed package deposited with the authorizing division of the Court
memoranda, working sheets, reports, and other documents of Appeals.
obtained from the examination of the bank deposits, placements,
trust accounts, assets and records of: (1) a person charged with or It shall be unlawful for any person, police officer or custodian of the
suspected of the crime of terrorism or the crime of conspiracy to bank data and information obtained after examination of deposits,
commit terrorism, (2) a judicially declared and outlawed terrorist placements, trust accounts, assets and records to copy, to remove,
organization, association, or group of persons, or (3) a member of delete, expunge, incinerate, shred or destroy in any manner the
any such organization, association, or group of persons shall, items enumerated above in whole or in part under any pretext
within forty-eight (48) hours after the expiration of the period fixed whatsoever.
in the written order of the authorizing division of the Court of
Appeals or within forty-eight (48) hours after the expiration of the Any person who copies, removes, deletes, expunges incinerates,
extension or renewal granted by the authorizing division of the shreds or destroys the items enumerated above shall suffer a
Court of Appeals, be deposited with the authorizing division of the penalty of not less than six (6) years and one day to twelve (12)
Court of Appeals in a sealed envelope or sealed package, as the years of imprisonment.
case may be, and shall be accompanied by a joint affidavit of the
applicant police or law enforcement official and the persons who SEC. 33. Disposition of Bank Materials. – The sealed envelope or
actually conducted the examination of said bank deposits, sealed package and the contents thereof, which are deposited with
placements, trust accounts, assets and records. the authorizing division of the Court of Appeals, shall be deemed
and are hereby declared classified information, and the sealed
SEC. 32. Contents of Joint Affidavit. – The joint affidavit shall envelope or sealed package shall not be opened and its contents
state: (a) the identifying marks, numbers, or symbols of the shall not be divulged, revealed, read, or used as evidence unless
deposits, placements, trust accounts, assets, and records authorized in a written order of the authorizing division of the Court
examined; (b) the identity and address of the bank or financial of Appeals, which written order shall be granted only upon a

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written application of the Department of Justice filed before the suffer the penalty of ten (10) years and one day to twelve (12)
authorizing division of the Court of Appeals and only upon a years of imprisonment.
showing that the Department of Justice has been duly authorized in
writing by the Anti-Terrorism Council to file the application, with In addition to the liability attaching to the offender for the
notice in writing to the party concerned not later than three (3) commission of any other offense, the penalty of ten (10) years and
days before the scheduled opening, to open, reveal, divulge, and one day to twelve (12) years of imprisonment shall be imposed
use the contents of the sealed envelope or sealed package as upon any police or law enforcement personnel, who maliciously
evidence. obtained an authority from the Court of Appeals to examine the
deposits, placements, trust accounts, assets, or records in a bank
Any person, law enforcement official or judicial authority who or financial institution of: (1) a person charged with or suspected of
violates his duty to notify in writing as defined above shall suffer the crime of terrorism or conspiracy to commit terrorism, (2) a
the penalty of six (6) years and one day to eight (8) years of judicially declared and outlawed terrorist organization, association,
imprisonment. or group of persons, or (3) a member of such organization,
association, or group of persons: Provided, That notwithstanding
SEC. 34. Application to Open Deposited Bank Materials. – The Section 33 of this Act, the party aggrieved by such authorization
written application, with notice in writing to the party concerned shall upon motion duly filed be allowed access to the sealed
not later than three (3) days of the scheduled opening, to open the envelope or sealed package and the contents thereof as evidence
sealed envelope or sealed package shall clearly state the purpose for the prosecution of any police or law enforcement personnel who
and reason: (a) for opening the sealed envelope or sealed package; maliciously procured said authorization.
(b) for revealing and disclosing its classified contents; and, (c) for
using the classified information, data, excerpts, summaries, notes, SEC. 37. Penalty of Bank Officials and Employees Defying a Court
memoranda, working sheets, reports, and documents as evidence. Authorization. – An employee, official, or a member of the board
of directors of a bank or financial institution, who refuses to allow
SEC. 35. Evidentiary Value of Deposited Bank Materials. – Any the examination of the deposits, placements, trust accounts,
information, data, excerpts, summaries, notes, memoranda, work assets, and records of: (1) a person charged with or suspected of
sheets, reports, or documents acquired from the examination of the crime of terrorism or the crime of conspiracy to commit
the bank deposits, placements, trust accounts, assets and records terrorism, (2) a judicially declared and outlawed terrorist
of: (1) a person charged or suspected of the crime of terrorism or organization, association, or group of persons, or (3) a member of
the crime of conspiracy to commit terrorism, (2) a judicially such judicially declared and outlawed organization, association, or
declared and outlawed terrorist organization, association, or group group of persons in said bank or financial institution, when duly
of persons, or (3) a member of such organization, association, or served with the written order of the authorizing division of the
group of persons, which have been secured in violation of the Court of Appeals, shall be guilty of an offense and shall suffer the
provisions of this Act, shall absolutely not be admissible and usable penalty of ten (10) years and one day to twelve (12) years of
as evidence against anybody in any judicial, quasi-judicial, imprisonment.
legislative, or administrative investigation, inquiry, proceeding, or
hearing. SEC. 38. Penalty for False or Untruthful Statement or
Misrepresentation of Material Fact in Joint Affidavits. – Any false
SEC. 36. Penalty for Unauthorized or Malicious Examination of a or untruthful statement or misrepresentation of material fact in the
Bank or a Financial Institution. – Any person, police or law joint affidavits required respectively in Section 12 and Section 32 of
enforcement personnel who examines the deposits, placements, this Act shall constitute a criminal offense and the affiants shall
trust accounts, assets, or records in a bank or financial institution suffer individually the penalty of ten (10) years and one day to
of: (1) a person charged with or suspected of the crime of twelve (12) years of imprisonment.
terrorism or the crime of conspiracy to commit terrorism, (2) a
judicially declared and outlawed terrorist organization, association, SEC. 39. Seizure and Sequestration. – The deposits and their
or group of persons, or (3) a member of such organization, outstanding balances, placements, trust accounts, assets, and
association, or group of persons, without being authorized to do so records in any bank or financial institution, moneys, businesses,
by the Court of Appeals, shall be guilty of an offense and shall transportation and communication equipment, supplies and other

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implements, and property of whatever kind and nature belonging: arraignment or his case is dismissed before his arraignment by a
(1) to any person suspected of or charged before a competent competent court, the seizure, sequestration and freezing of his
Regional Trial Court for the crime of terrorism or the crime of bank deposits, placements, trust accounts, assets and records shall
conspiracy to commit terrorism; (2) to a judicially declared and forthwith be deemed lifted by the investigating body or by the
outlawed organization, association, or group of persons; or (3) to a competent court, as the case may be, and his bank deposits,
member of such organization, association, or group of persons shall placements, trust accounts, assets and records shall be deemed
be seized, sequestered, and frozen in order to prevent their use, released from such seizure, sequestration and freezing, and shall
transfer, or conveyance for purposes that are inimical to the safety be restored to him without any delay by the bank or financial
and security of the people or injurious to the interest of the State. institution concerned without any further action on his part. The
filing of any appeal on motion for reconsideration shall not state
The accused or a person suspected of may withdraw such sums as the release of said funds from seizure, sequestration and freezing.
may be reasonably needed by the monthly needs of his family
including the services of his or her counsel and his or her If the person charged with the crime of terrorism or conspiracy to
family’s medical needs upon approval of the court. He or she commit terrorism is convicted by a final judgment of a competent
may also use any of his property that is under seizure or trial court, his seized, sequestered and frozen bank deposits,
sequestration or frozen because of his or her indictment as a placements, trust accounts, assets and records shall be
terrorist upon permission of the court for any legitimate reason. automatically forfeited in favor of the government.

Any person who unjustifiably refuses to follow the order of the Upon his or her acquittal or the dismissal of the charges against
proper division of the Court of Appeals to allow the person accused him or her, the amount of Five Hundred Thousand Pesos
of the crime of terrorism or of the crime of conspiracy to commit (P500,000.00) a day for the period in which his properties, assets
terrorism to withdraw such sums from sequestered or frozen or funds were seized shall be paid to him on the concept of
deposits, placements, trust accounts, assets and records as may be liquidated damages. The amount shall be taken from the
necessary for the regular sustenance of his or her family or to use appropriations of the police or law enforcement agency that caused
any of his or her property that has been seized, sequestered or the filing of the enumerated charges against him or her.
frozen for legitimate purposes while his or her case is pending shall
suffer the penalty of ten (10) years and one day to twelve (12) SEC. 42. Penalty for Unjustified Refusal to Restore or Delay in
years of imprisonment. Restoring Seized, Sequestered and Frozen Bank Deposits,
Placements, Trust Accounts, Assets and Records. – Any person
SEC. 40. Nature of Seized, Sequestered and Frozen Bank Deposits, who unjustifiably refuses to restore or delays the restoration of
Placements, Trust Accounts, Assets and Records. – The seized, seized, sequestered and frozen bank deposits, placements, trust
sequestered and frozen bank deposits, placements, trust accounts, accounts, assets and records of a person suspected of or charged
assets and records belonging to a person suspected of or charged with the crime of terrorism or conspiracy to commit terrorism after
with the crime of terrorism or conspiracy to commit terrorism shall such suspected person has been found innocent by the
be deemed as property held in trust by the bank or financial investigating body or after the case against such charged person
institution for such person and the government during the has been dismissed or after he is acquitted by a competent court
pendency of the investigation of the person suspected of or during shall suffer the penalty of ten (10) years and one day to twelve
the pendency of the trial of the person charged with any of the said (12) years of imprisonment.
crimes, as the case may be and their use or disposition while the
case is pending shall be subject to the approval of the court before SEC. 43. Penalty for the Loss, Misuse, Diversion or Dissipation of
which the case or cases are pending. Seized, Sequestered and Frozen Bank Deposits, Placements, Trust
Accounts, Assets and Records. – Any person who is responsible
SEC. 41. Disposition of the Seized, Sequestered and Frozen Bank for the loss, misuse, diversion, or dissipation of the whole or any
Deposits, Placements, Trust Accounts, Assets and Record. – If part of the seized, sequestered and frozen bank deposits,
the person suspected of or charged with the crime of terrorism or placements, trust accounts, assets and records of a person
conspiracy to commit terrorism is found, after his investigation, to suspected of or charged with the crime of terrorism or conspiracy
be innocent by the investigating body, or is acquitted, after his

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to commit terrorism shall suffer the penalty of ten (10) years and "(b) The amount and the date of the outstanding unclaimed
one day to twelve (12) years of imprisonment. balance and whether the same is in money or in security, and if the
latter, the nature of the same;
ix. Under the NIRC
SEC. 6 (F), NIRC: Authority of the Commissioner to inquire into "(c) The date when the person in whose favor the unclaimed
Bank Deposit Accounts. - Notwithstanding any contrary provision of balance stands died, if known, or the date when he made his last
Republic Act No. 1405 and other general or special laws, the deposit or withdrawal; and
Commissioner is hereby authorized to inquire into the bank
deposits of: "(d) The interest due on such unclaimed balance, if any, and the
amount thereof.
(1) a decedent to determine his gross estate; and
"A copy of the above sworn statement shall be posted in a
(2) any taxpayer who has filed an application for compromise of his conspicuous place in the premises of the bank, building and loan
tax liability under Sec. 204 (A) (2) of this Code by reason of association, or trust corporation concerned for at least sixty days
financial incapacity to pay his tax liability. from the date of filing thereof: Provided, That immediately before
filing the above sworn statement, the bank, building and loan
In case a taxpayer files an application to compromise the payment association, and trust corporation shall communicate with the
of his tax liabilities on his claim that his financial position person in whose favor the unclaimed balance stands at his last
demonstrates a clear inability to pay the tax assessed, his known place of residence or post office address.
application shall not be considered unless and until he waives in
writing his privilege under Republic Act No. 1405 or under other "It shall be the duty of the Treasurer of the Philippines to inform
general or special laws, and such waiver shall constitute the the Solicitor General from time to time the existence of unclaimed
authority of the Commissioner to inquire into the bank deposits of balances held by banks, building and loan associations, and trust
the taxpayer. corporations.

1. Upon inquiry by the CIR for the purpose of determining the DOJ OPINION NO. 104, SERIES OF 1975
net estate of a deceased depositor
2. In case a taxpayer files an application to compromise his tax xi. Under the Rules of Court
liabilities on the ground of financial incapacity (waiver 1. Garnishment
required) SEC. 9 (C), RULE 39: Garnishment of debts and credits. -
The officer may levy on debts due the judgment obligor and
other credits, including bank deposits, financial interests,
x. Under the Unclaimed Balances Law royalties, commissions and other personal property not
SEC. 2, ACT NO. 3936: Immediately after the taking effect of this capable of manual delivery in the posssession or control of
Act and within the month of January of every odd year, all banks, third parties. Levy shall be made by serving notice upon the
building and loan associations, and trust corporations shall forward person owing such debts or having in his possession or control
to the Treasurer of the Philippines a statement, under oath, of their such credits to which the judgment obligor is entitled. The
respective managing officers, of all credits and deposits held by garnishment shall cover only such amount as will satisfy the
them in favor of persons known to be dead, or who have not made judgment and all lawful fees. The garnishee shall make a
further deposits or withdrawals during the preceding ten years or written report to the court within five (5) days from service of
more, arranged in alphabetical order according to the names of the notice of garnishment stating whether or not the judgment
creditors and depositors, and showing: obligor has sufficient funds or credits to satisfy the amount of
the judgment. If not, the report shall state how much funds or
"(a) The names and last known place of residence or post office credits the garnishee holds for the judgment obligor. The
addresses of the persons in whose favor such unclaimed balances garnished amount in cash, or certified bank check issued in
stand; the name of the judgment obligee, shall be delivered directly
to the judgment obligee within ten (10) working days from

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service of notice on said garnishing requiring such delivery, issued by it, so that the bank would hold the same intact and not allow any
except the lawful fees which shall be paid directly to the court. withdrawal until further order.
In the event there are two or more garnishees holding
deposits or credits sufficient to satisfy the judgment, the It is clear from the discussion of the conference committee report of the 2
judgment obligor, if available, shall have the right to indicate houses of Congress that the prohibition against examination of or inquiry
the garnishee or garnishees who shall be required to deliver into a bank deposit under RA 1405 does NOT preclude its being garnished to
the amount due; otherwise, the choice shall be made by the insure satisfaction of a judgment. There is no real inquiry in this case, and if
judgment obligee. The executing sheriff shall observe the the existence of the bank account is disclosed, the disclosure is purely
same procedure under paragraph (a) with respect to delivery incidental to the execution process.
of payment to the judgment obligee.
2. Preliminary Attachment
Cases SEC. 10, RULE 57: Examination of party whose property is
CHINA BANKING CORPORATION v. ORTEGA, 49 SCRA 356 (1973) attached and persons indebted to him or controlling his
DOCTRINE: Garnishment of bank deposit judgment debtor is not violative property; delivery of property to sheriff.
of RA 1405. The Court merely required the cashier of the bank to inform the
court whether or not the defendant had a deposit in said bank only for Any person owing debts to the party whose property is
purposes of the garnishment issued by it, so that the bank would hold the attached or having in his possession or under his control any
same intact and not allow any withdrawal until further order. credit or other personal property belonging to such party, may
be required to attend before the court in which the action is
FACTS pending, or before a commissioner appointed by the court,
In 1968, Acaban filed a complaint against Bautista Logging Co., Inc., B & B and be examine on oath respecting the same. The party
Forest Development Corporation and Marino Bautista for the collection of whose property is attached may also be required to attend for
sum of money. RTC declared the defendants in default for failure to file their the purpose of giving information respecting his property, and
responsive pleadings within the reglementary period. may be examined on oath. The court may, after such
examination, order personal property capable of manual
To satisfy the judgment, Acaban sought the garnishment of the bank delivery belonging to him, in the possession of the person so
deposit of B & B Forest Development Corporation with China Banking required to attend before the court, to be delivered to the
Corporation. Accordingly, a notice of garnishment was issued and served on clerk of the court or sheriff on such terms as may be just,
the bank’s cashier, Tan Kim Liong. having reference to any lien thereon or claim against the
same, to await the judgment in the action.
In reply, Tan Kim Liong invoked the provisions of the Bank Secrecy Law
prohibiting the disclosure of any information relative to bank deposits. d. Penalty for Violation
RTC, in denying Acaban’s motion to cite Tan Kim Liong in contempt, SEC. 5, LAW ON SECRECY OF BANK DEPOSITS: Any violation of
nevertheless ordered the latter to inform the court whether or not there is a this law will subject offender upon conviction, to an imprisonment of
deposit with China Banking Corporation of B & B Forest Development not more than five years or a fine of not more than twenty thousand
Corporation, and if any, to hold the same intact and not to allow any pesos or both, in the discretion of the court.
withdrawal until further orders.
3. Rules for Foreign Currency Deposits
ISSUE a. Coverage
Whether there was a violation of the provisions of the Bank Secrecy Law SEC. 8, FCDA: Secrecy of foreign currency deposits. – All foreign
prohibiting the disclosure of any information relative to bank deposits currency deposits authorized under this Act, as amended by PD No.
1035, as well as foreign currency deposits authorized under PD No.
HELD 1034, are hereby declared as and considered of an absolutely
NO. The lower court did not order an examination of or inquiry into the confidential nature and, except upon the written permission of the
deposit of B&B Forest Development Corporation. It merely required Tan Kim depositor, in no instance shall foreign currency deposits be examined,
Liong to inform the court of the existence of B&B Forest Development inquired or looked into by any person, government official, bureau or
Corporation’s deposit in said bank only for the purpose of the garnishment office whether judicial or administrative or legislative, or any other

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entity whether public or private; Provided, however, That said foreign Deposit Act be made applicable to a foreign transient?
currency deposits shall be exempt from attachment, garnishment, or
any other order or process of any court, legislative body, government RULING
agency or any administrative body whatsoever. (As amended by PD NO. If Karen's sad fate had happened to anybody's own kin, it would be
No. 1035, and further amended by PD No. 1246, prom. Nov. 21, difficult for him to fathom how the incentive for foreign currency deposit
1977.) could be more important than his child's rights to said award of damages; in
this case, the victim's claim for damages from this alien who had the gall to
Cases wrong a child of tender years of a country where he is a mere visitor. This
SALVACION v. CENTRAL BANK, 278 SCRA 27 (1997) further illustrates the flaw in the questioned provisions.
DOCTRINE: Sec. 113 of CB Circular No. 960, which exempts from
garnishment, attachment or any other order or process of any court, It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time
legislative body, government agency or any administrative body whatsoever when the country's economy was in a shambles; when foreign investments
foreign currency deposits, is NOT applicable to a foreign transient, but only were minimal and presumably, this was the reason why said statute was
to foreign lenders and investors to the development of the Foreign Currency enacted. But the realities of the present times show that the country has
Deposit System and Offshore Banking System in the Philippines. recovered economically; and even if not, the questioned law still denies
those entitled to due process of law for being unreasonable and oppressive.
FACTS The intention of the questioned law may be good when enacted. The law
On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed failed to anticipate the iniquitous effects producing outright injustice and
and lured petitioner Karen Salvacion, then 12 years old to go with him to his inequality such as the case before us.
apartment. Therein, Greg Bartelli detained Karen Salvacion for four days, or
up to February 7, 1989 and was able to rape the child. Greg was eventually b. Prohibition
apprehended but he escaped from detention. SEC. 8, FCDA: Secrecy of foreign currency deposits. – All foreign
currency deposits authorized under this Act, as amended by PD No.
The Deputy Sheriff of Makati served a Notice of Garnishment on China 1035, as well as foreign currency deposits authorized under PD No.
Banking Corporation. In a letter dated March 13, 1989 to the Deputy Sheriff 1034, are hereby declared as and considered of an absolutely
of Makati, China Banking Corporation invoked Republic Act No. 1405 as its confidential nature and, except upon the written permission of the
answer to the notice of garnishment served on it. On March 15, 1989, depositor, in no instance shall foreign currency deposits be examined,
Deputy Sheriff of Makati Armando de Guzman sent his reply to China inquired or looked into by any person, government official, bureau or
Banking Corporation saying that the garnishment did not violate the secrecy office whether judicial or administrative or legislative, or any other
of bank deposits since the disclosure is merely incidental to a garnishment entity whether public or private; Provided, however, That said foreign
properly and legally made by virtue of a court order which has placed the currency deposits shall be exempt from attachment, garnishment, or
subject deposits in custodia legis. In answer to this letter of the Deputy any other order or process of any court, legislative body, government
Sheriff of Makati, China Banking Corporation, in a letter dated March 20, agency or any administrative body whatsoever. (As amended by PD
1989, invoked Section 113 of Central Bank Circular No. 960 to the effect No. 1035, and further amended by PD No. 1246, prom. Nov. 21,
that the dollar deposits of defendant Greg Bartelli are exempt from 1977.)
attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body, c. Exceptions
whatsoever. i. Upon written consent of the depositor
SEC. 8, FCDA: Secrecy of foreign currency deposits. – All foreign
After hearing the case ex-parte, the court rendered judgment in favor of currency deposits authorized under this Act, as amended by PD No.
petitioners on March 29, 1990. 1035, as well as foreign currency deposits authorized under PD No.
But China Bank still refuses to garnish the foreign denominated deposits of 1034, are hereby declared as and considered of an absolutely
Greg. confidential nature and, except upon the written permission of the
depositor, in no instance shall foreign currency deposits be
ISSUE examined, inquired or looked into by any person, government
Should Section 113 of Central Bank Circular No. 960 and Section 8 of R.A. official, bureau or office whether judicial or administrative or
6426, as amended by P.D. 1246, otherwise known as the Foreign Currency legislative, or any other entity whether public or private; Provided,

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however, That said foreign currency deposits shall be exempt from expressed by the words, is to alter the statute, to legislate and not to
attachment, garnishment, or any other order or process of any interpret, and judicial legislation should be avoided.”
court, legislative body, government agency or any administrative
body whatsoever. (As amended by PD No. 1035, and further ISSUE
amended by PD No. 1246, prom. Nov. 21, 1977.) Whether petitioner China Bank is correct in its submission that the Citibank
dollar checks with both Jose Gotianuy and/or Mary Margaret Dee as payees,
Cases deposited with China Bank, may not be looked into under the law on secrecy
CHINA BANKING CORP. v. CA, 511 SCRA 110 (2006) of foreign currency deposits. As a corollary issue, sought to be resolved is
DOCTRINE: The only exception to the secrecy of foreign currency deposits whether Jose Gotianuy may be considered a depositor who is entitled to
is in the case of a written permission of the depositor. seek an inquiry over the said deposits.

FACTS RULING
A Complaint for recovery of sums of money and annulment of sales of real As amended by Presidential Decree No. 1246, the law reads:
properties and shares of stocks was filed by Jose "Joseph" Gotianuy against SEC. 8. Secrecy of Foreign Currency Deposits. – All foreign currency
his son-in-law, George Dee, and his daughter, Mary Margaret Dee, before deposits authorized under this Act, as amended by Presidential Decree No.
the RTC. 1035, as well as foreign currency deposits authorized under Presidential
Decree No. 1034, are hereby declared as and considered of an absolutely
Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among confidential nature and, except upon the written permission of the
his other properties, US dollar deposits with Citibank N.A. amounting to not depositor, in no instance shall such foreign currency deposits be examined,
less than P35,000,000.00 and US$864,000.00. Mary Margaret Dee received inquired or looked into by any person, government official, bureau or office
these amounts from Citibank N.A. through checks which she allegedly whether judicial or administrative or legislative or any other entity whether
deposited at China Banking Corporation (China Bank). He likewise accused public or private: Provided, however, that said foreign currency deposits
his son-in-law, George Dee, husband of his daughter, Mary Margaret, of shall be exempt from attachment, garnishment, or any other order or
transferring his real properties and shares of stock in George Dee's name process of any court, legislative body, government agency or any
without any consideration. Jose Gotianuy, died during the pendency of the administrative body whatsoever. (As amended by PD No. 1035, and further
case before the trial court.1 He was substituted by his daughter, Elizabeth amended by PD No. 1246, prom. Nov. 21, 1977) (Emphasis supplied.)
Gotianuy Lo. The latter presented the US Dollar checks withdrawn by Mary
Margaret Dee from his US dollar placement with Citibank Under the above provision, the law provides that all foreign currency
deposits authorized under Republic Act No. 6426, as amended by Sec. 8,
The lower court issued a subpoena ad testificandum requiring MS. ISABEL Presidential Decree No. 1246, Presidential Decree No. 1035, as well as
YAP and CRISTOTA LABIOS of China Banking Corporation, Cebu Main foreign currency deposits authorized under Presidential Decree No. 1034 are
Branch, corner Magallanes and D. Jakosalem Sts., Cebu City, to appear in considered absolutely confidential in nature and may not be inquired into.
person and to testify with regards to Citibank Checks and other matters There is only one exception to the secrecy of foreign currency
material and relevant to the issues of this case deposits, that is, disclosure is allowed upon the written permission
of the depositor. The following facts are established: (1) Jose Gotianuy
The petitioner moved for reconsideration and contends (amongst others) and Mary Margaret Dee are co-payees of various Citibank checks; (2) Mary
that the absolute confidentiality under the law covers even the name of the Margaret Dee withdrew these checks from Citibank; (3) Mary Margaret Dee
depositor and is beyond the compulsive process of the courts. admitted in her Answer to the Request for Admissions by the Adverse Party
sent to her by Jose Gotianuy that she withdrew the funds from Citibank
The CA ruled against the petitioner for the reason amongst others that. upon the instruction of her father Jose Gotianuy and that the funds belonged
“The contention of petitioner that the [prescription] on absolute exclusively to the latter; (4) these checks were endorsed by Mary Margaret
confidentiality under the law in question covers even the name of the Dee at the dorsal portion; and (5) Jose Gotianuy discovered that these
depositor and is beyond the compulsive process of the courts is palpably checks were deposited with China Bank as shown by the stamp of China
untenable as the law protects only the deposits itself but not the name of Bank at the dorsal side of the checks.
the depositor. To uphold the theory of petitioner CBC is reading into the
statute "something that is not within the manifest intention of the legislature Thus, with this, there is no issue as to the source of the funds
as gathered from the statute itself, for to depart from the meaning

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As the owner of the funds unlawfully taken and which are undisputably now iii. Under the PDIC Charter
deposited with China Bank, Jose Gotianuy has the right to inquire into the SEC. 8, PAR. 8, PDIC CHARTER: The Corporation as a corporate
said deposits. body shall have the power To conduct examination of banks with
prior approval of the Monetary Board: Provided, That no
A depositor, in cases of bank deposits, is one who pays money into the bank examination can be conducted within twelve (12) months from the
in the usual course of business, to be placed to his credit and subject to his last examination date: Provided, however, That the Corporation
check or the beneficiary of the funds held by the bank as trustee. may, in coordination with the Bangko Sentral, conduct a special
examination as the Board of Directors, by an affirmative vote of a
Furthermore, it is indubitable that the Citibank checks were drawn against majority of all of its members, if there is a threatened or impending
the foreign currency account with Citibank, NA. The monies subject of said closure of a bank; Provided, further, That, notwithstanding the
checks originally came from the late Jose Gotianuy, the owner of the provisions of Republic Act No. 1405, as amended, Republic Act No.
account. Thus, he also has legal rights and interests in the CBC account 6426, as amended, Republic Act No. 8791, and other laws, the
where said monies were deposited. More importantly, the Citibank checks Corporation and/or the Bangko Sentral, may inquire into or
readily demonstrate that the late Jose Gotianuy is one of the payees of said examine deposit accounts and all information related thereto in
checks. Being a co-payee thereof, then he or his estate can be considered case there is a finding of unsafe or unsound banking practice;
as a co-depositor of said checks. Ergo, since the late Jose Gotianuy is a co- Provided, finally, That to avoid overlapping of efforts, the
depositor of the CBC account, then his request for the assailed examination shall maximize the efficient use of the relevant
subpoena is tantamount to an express permission of a depositor for reports, information, and findings of the Bangko Sentral, which it
the disclosure of the name of the account holder. The April 16, 1999 shall make available to the Corporation; (As amended by R.A.
Order perforce must be sustained. 9302, 12 August 2004, R.A. 9576,29 April 2009)

One more point. It must be remembered that in the complaint of Jose d. Penalty for Violation
Gotianuy, he alleged that his US dollar deposits with Citibank were illegally SEC. 10, FCDA: Penal provisions. – Any willful violation of this Act or
taken from him. On the other hand, China Bank employee Cristuta Labios any regulation duly promulgated by the Monetary Board pursuant
testified that Mary Margaret Dee came to China Bank and deposited the hereto shall subject the offender upon conviction to an imprisonment
money of Jose Gotianuy in Citibank US dollar checks to the dollar account of of not less than one year nor more than five years or a fine of not less
her sister Adrienne Chu. This fortifies our conclusion that an inquiry into the than five thousand pesos nor more than twenty-five thousand pesos,
said deposit at China Bank is justified. At the very least, Jose Gotianuy as or both such fine and imprisonment at the discretion of the court.
the owner of these funds is entitled to a hearing on the whereabouts of
these funds.
4. Rules for Deposits in Specific Banks and Financial Institutions
ii. Under the AMLA a. Under the GBL
1. Upon order of a competent court SEC. 55.1 (B), GBL: No director, officer, employee, or agent of any
2. BSP inquiry or examination bank shall, without order of a court of competent jurisdiction, disclose
to any unauthorized person any information relative to the funds or
SEC. 11, AMLA: Authority to Inquire into Bank Deposits. - properties in the custody of the bank belonging to private individuals,
Notwithstanding the provisions of Republic Act No. 1405, as corporations, or any other entity: Provided, That with respect to bank
amended; Republic Act No. 6426, as amended; Republic Act No. deposits, the provisions of existing laws shall prevail;
8791, and other laws, the AMLC may inquire into or examine any
particular deposit or investment with any banking institution or b. Islamic Banks
non- bank financial institution upon order of any competent court in SEC. 33, ISLAMIC BANK CHARTER: Confidential Information. -
cases of violation of this Act when it has been established that Banking transactions relating to all deposits of whatever nature are
there is probable cause that the deposits or investments involved confidential and may not be examined, inquired or looked into by any
are in any way related to a money laundering offense: Provided, person, government official, bureau or office except as provided in the
That this provision shall not apply to deposits and investments preceding section, or upon written permission by the depositor, or in
made prior to the effectivity of this Act. cases where the money deposited or the transaction concerned is the
subject of a court order.

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It shall be unlawful for any official or employee of the Islamic Bank or or dereliction of duty of public officials, or in cases where the money
any person as may be designated by the Board of Director to examine deposited or invested is the subject matter of litigation.
or audit the books of the Bank to disclose or reveal to any person any
confidential information except under the circumstances mentioned in It shall be unlawful for any official or employee of an Association to
the preceding paragraph. disclose to any person any information concerning said deposits,
except in the cases mentioned in the preceding paragraph of this
SEC. 45, ISLAMIC BANK CHARTER: Penalties for Violation. - Any section. Any official or employee of an Association who violates this
director, officer, employee, auditor, or agent of the Islamic Bank who section shall be punished under Republic Act No. 1405, as amended.
violates or permits the violation of any provision of this Act shall be
punished by a fine not exceeding Ten thousand pesos (P10,000.00) or G. GARNISHMENT
an imprisonment of not more than five (5) years, or both at the
discretion of the court. 1. Procedure
SEC. 9 (C), RULE 39 OF RULES OF COURT: Garnishment of debts and
c. Rural Banks credits. - The officer may levy on debts due the judgment obligor and
SEC. 26 (A) (2), RURAL BANKS ACT: Without prejudice to any other credits, including bank deposits, financial interests, royalties,
prosecution under any law which may have been violated, a fine of not commissions and other personal property not capable of manual delivery
more than Ten thousand pesos (P10,000), or imprisonment for not in the posssession or control of third parties. Levy shall be made by
less than six (6) months but more than ten (10) years, or both, at the serving notice upon the person owing such debts or having in his
discretion of the court, shall be imposed upon. possession or control such credits to which the judgment obligor is
(a) Any officer, employee, or agent of a rural bank who shall: entitled. The garnishment shall cover only such amount as will satisfy
(2) Without order of a court of competent jurisdiction, the judgment and all lawful fees. The garnishee shall make a written
disclose any information relative to the funds or properties report to the court within five (5) days from service of the notice of
in the custody of the bank belonging to private individuals, garnishment stating whether or not the judgment obligor has sufficient
corporations, or any other entity; funds or credits to satisfy the amount of the judgment. If not, the report
shall state how much funds or credits the garnishee holds for the
d. Thrift Banks judgment obligor. The garnished amount in cash, or certified bank check
SEC. 21 (A) (2), THRIFT BANKS ACT: Prohibited Acts. — Without issued in the name of the judgment obligee, shall be delivered directly
prejudice to any prosecution under any law which may have been to the judgment obligee within ten (10) working days from service of
violated, a fine of not more than Ten thousand pesos (P10,000) or notice on said garnishing requiring such delivery, except the lawful fees
imprisonment for not less than six (6) months but not more than ten which shall be paid directly to the court. In the event there are two or
(10) years, or both, at the discretion of the court, shall be imposed more garnishees holding deposits or credits sufficient to satisfy the
upon: judgment, the judgment obligor, if available, shall have the right to
(a) Any officer, employee, or agent of a thrift bank who shall: indicate the garnishee or garnishees who shall be required to deliver the
(2) Without order of a court of competent jurisdiction, amount due; otherwise, the choice shall be made by the judgment
disclose any information relative to the funds or properties obligee. The executing sheriff shall observe the same procedure under
in the custody of the bank belonging to private individuals, paragraph (a) with respect to delivery of payment to the judgment
corporations, or any other entity; obligee.

e. Non-Stock Savings and Loan Association 2. Exempt Deposits


SEC. 6, REVISED NON-STOCK SAVINGS AND LOANS a. Foreign Currency Deposits
ASSOCIATION ACT OF 1997: Prohibition against inquiry into or SEC. 8, FCDA: Secrecy of foreign currency deposits. – All foreign
disclosure of deposits. — All deposits of whatever nature with an currency deposits authorized under this Act, as amended by PD No.
Association in the Philippines are hereby considered as of an 1035, as well as foreign currency deposits authorized under PD No.
absolutely confidential nature and may not be examined, inquired or 1034, are hereby declared as and considered of an absolutely
looked into by any person, government official, bureau or office, confidential nature and, except upon the written permission of the
except upon written permission of the depositor, or in cases of depositor, in no instance shall foreign currency deposits be examined,
impeachment, or upon order of a competent court in cases of bribery inquired or looked into by any person, government official, bureau or

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office whether judicial or administrative or legislative, or any other (i) So much of the salaries, wages, or earnings of the judgment
entity whether public or private; Provided, however, That said foreign obligor of his personal services within the four months preceding the
currency deposits shall be exempt from attachment, garnishment, or levy as are necessary for the support of his family;
any other order or process of any court, legislative body, government
agency or any administrative body whatsoever. (As amended by PD (j) Lettered gravestones;
No. 1035, and further amended by PD No. 1246, prom. Nov. 21,
1977.) (k) Monies benefits, privileges, or annuities accruing or in any manner
growing out of any life insurance;
b. Under the Rules of Court
SEC. 13, RULE 39 OF RULES OF COURT: Property exempt from (l) The right to receive legal support, or money or property obtained
execution. as such support, or any pension or gratuity from the Government;

Except as otherwise expressly provided by law, the following property, (m) Properties specially exempt by law.
and no other, shall be exempt from execution:
But no article or species of property mentioned in his section shall be
(a) The judgment obligor's family home as provided by law, or the exempt from executio issued upon a judgment recovered for its price
homestead in which he resides, and land necessarily used in or upon a judgment of foreclosure of a mortgage thereon.
connection therewith;
3. No violation of Law on Secrecy of Bank Deposits
(b) Ordinary tools and implements personally used by him in hs trade, Cases
employment, or livelihood; CHINA BANKING v. ORTEGA, 49 SCRA 356 (1973)
The prohibition against examination of or inquiry into a bank deposit
(c) Three horses, or three cows, or three carabaos, or other beasts of under Republic Act 1405 does not preclude its being garnished to insure
burden such as the judgment obligor may select necessarily used by satisfaction of a judgment. Indeed there is no real inquiry in such a
him in his ordinary occupation; case, and if the existence of the deposit is disclosed the disclosure is
purely incidental to the execution process. It is hard to conceive that it
(d) His necessary clothing and articles for ordinary personal use, was ever within the intention of Congress to enable debtors to evade
excluding jewelry; payment of their just debts, even if ordered by the Court, through the
expedient of converting their assets into cash and depositing the same
(e) Household furniture and utensils necessary for housekeeping, and in a bank.
used for that purpose by the judgment obligor and his family, such as
the judgment obligor may select, of a value not exceeding one PCI BANK v. CA, 193 SCRA 452 (1991)
hundred thousand pesos; It is clear from the discussion of the conference committee report on
Senate Bill No. 351 and House Bill No. 3977, which later became
(f) Provisions for individual or family use sufficient for four months; Republic Act 1405, that the prohibition against examination of or inquiry
into a bank deposit under Republic Act 1405 does not preclude its being
(g) The professional libraries and equipment of judges, lawyers, garnished to insure satisfaction of a judgment. Indeed there is no real
physicians, pharmacists, dentists, engineers, surveyors, clergymen, inquiry in such a case, and if existence of the deposit is disclosed the
teachers, and other professionals, not exceeding three hundred disclosure is purely incidental to the execution process. It is hard to
thousand pesos in value; conceive that it was ever within the intention of Congress to enable
debtors to evade payment of their just debts, even if ordered by the
(h) One fishing boat and accessories not exceeding the total value of Court, through the expedient of converting their assets into cash and
one hundred thousand pesos owned by a fisherman and by the lawful depositing the same in a bank.
use of which he earns his livelihood;

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4. Liability for Release amount in check to the sheriff, the RCBC did not thereby make any
Cases payment, for the law mandates that delivery of a check does not produce
RCBC v. DE CASTRO. 168 SCRA 49 (1988) the effect of payment until it has been cashed. [Article 1249, Civil Code.]
FACTS
In connection with a civil case between Badoc Planters Inc(BADOC) vs. Moreover, by virtue of the order of garnishment, the same was placed in
Philippine Virginia Tobacco Administration (PVTA) et al, an action for custodia legis and therefore, from that time on, RCBC was holding the funds
recovery of unpaid tobacco deliveries, the Judge issued a partial order, subject to the orders of the court a quo. That the sheriff, upon delivery of
directing PVTA to pay plaintiff BADOC. the check to him by RCBC encashed it and turned over the proceeds thereof
to the plaintiff was no longer the concern of RCBC as the responsibility over
BADOC filed a motion to for a writ of execution, which was granted on the the garnished funds passed to the court. Thus, no breach of trust or
same day. The sheriff then issued a Notice of Garnishment addressed to dereliction of duty can be attributed to RCBC in delivering its depositor's
RCBC asking if PVTA had any proterty in the possession RCBC. to which funds pursuant to a court order, which was merely in the exercise of its
RCBC replied in the affirmative. PVTA was notified by RCBC of such notice. power of control over such funds.

Later on the Judge issued and order directing RCBC to ""to deliver in check The bank had no choice but to comply with the order demanding delivery of
the amount garnished to the Sheriff and the Sheriff in turn is ordered to the garnished amount in check. The very tenor of the order called for
cash the check and deliver the amount to BADOC". RCBC complied with the immediate compliance therewith. On the other hand, the bank cannot be
order, the check was issued, delivered to the Sheriff, and subsequently held liable for the subsequent encashment of the check as this was upon
encashed. order of the court in the exercise of its power of control over the funds
placed in custodia legis by virtue of the garnishment.
PVTA however filed an MR assailing the execution. The court granted the
MR, invalidated the execution, and ordered RCBC and BADOC to jointly and H. DEPOSIT INSURANCE
severally restore the account of PVTA.
1. Coverage
ISSUE SEC. 5, PDIC CHARTER: The deposit liabilities of any bank or banking
Whether RCBC is liable to restore the account of PVTA institution, which is engaged in the business of receiving deposits as
herein defined on the effective date of this Act, or which thereafter may
HELD engage in the business of receiving deposits, shall be insured with the
NO. RCBC merely obeyed a mandatory directive from the respondent Judge, Corporation. (As amended by R.A. 6037, 04 August 1969; renumbered
ordering it "to deliver in check the amount garnished to the Sheriff and the from Sec. 4 by R.A. 9302, 12 August 2004)
Sheriff is in turn ordered to cash the check and deliver the amount to
BADOC." SEC. 9, FCDA: Deposit insurance coverage. – The deposits under this
Act shall be insured under the provisions of Republic Act No. 3591, as
As to the allegation by PVTA that RCBC was negligent in prematurely amended (Philippine Deposit Insurance Corporation), as well as its
releasing its funds. The court held that the contention by PVTA was without implementing rules and regulations: Provided, That insurance payment
merit since RCBC was expressly ordered by the court to deliver and encash shall be in the same currency in which the insured deposits are
the check. RCBC had already filed a reply to the Notice of Garnishment denominated.
stating that it had in its custody funds belonging to the PVTA. Also, RCBC
promptly notified PVTA of the existence of the Notice of Garnishment. 2. Amount Insured
SEC. 4 (G), PDIC CHARTER: The term “insured deposit” means the
It is important to stress, at this juncture, that there was nothing irregular in amount due to any bona fide depositor for legitimate deposits in an
the delivery of the funds of PVTA by check to the sheriff, whose custody is insured bank net of any obligation of the depositor to the insured bank
equivalent to the custody of the court, he being a court officer. The order of as of the date of closure, but not to exceed Five Hundred Thousand
the court was composed of two parts, requiring: 1) RCBC to deliver in check Pesos (P500,000.00).2 Such net amount shall be determined according
the amount garnished to the designated sheriff and 2) the sheriff in turn to to such regulations as the Board of Directors may prescribe. In
cash the check and deliver the amount to the plaintiffs representative determining such amount due to any depositor, there shall be added
and/or counsel on record. It must be noted that in delivering the garnished together all deposits in the bank maintained in the same right and

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capacity for his benefit either in his own name or in the name of others. competent jurisdiction before paying such claim: Provided, further, That
A joint account regardless of whether the conjunction "and," "or," failure to settle the claim, within six (6) months from the date of filing of
"and/or" is used, shall be insured separately from any individually- claim for insured deposit, where such failure was due to grave abuse of
owned deposit account: Provided, That (1) If the account is held jointly discretion, gross negligence, bad faith, or malice, shall, upon conviction,
by two or more natural persons, or by two or more juridical persons or subject the directors, officers or employees of the Corporation
entities, the maximum insured deposit shall be divided into as many responsible for the delay, to imprisonment from six (6) months to one
equal shares as there are individuals, juridical persons or entities, unless (1) year: Provided, furthermore, That the period shall not apply if the
a different sharing is stipulated in the document of deposit, and (2) if validity of the claim requires the resolution of issues of facts and or law
the account is held by a juridical person or entity jointly with one or by another office, body or agency including the case mentioned in the
more natural persons, the maximum insured deposit shall be presumed first proviso or by Corporation together with such other office, body or
to belong entirely to such juridical person or entity: Provided, further, agency."
That the aggregate of the interest of each co-owner over several joint
accounts, whether owned by the same or different combinations of SEC. 10 (D), PDIC CHARTER: The Corporation, upon payment of any
individuals, juridical persons or entities, shall likewise be subject to the depositor as provided for in subsection (c) of this Section3, shall be
maximum insured deposit of Five Hundred Thousand Pesos subrogated to all rights of the depositor against the closed bank to the
(P500,000.00): Provided, furthermore, That the provisions of any law to extent of such payment. Such subrogation shall include the right on the
the contrary notwithstanding, no owner/holder of any negotiable part of the Corporation to receive the same dividends and payments
certificate of deposit shall be recognized as a depositor entitled to the from the proceeds of the assets of such closed bank and recoveries on
rights provided in this Act unless his name is registered as owner/holder account of stockholders’ liability as would have been payable to the
thereof in the books of the issuing bank: Provided, finally, That, in case depositor on a claim for the insured deposits but, such depositor shall
of a condition that threatens the monetary and financial stability of the retain his claim for any uninsured portion of his deposit. All payments by
banking system that may have systemic consequences, as defined in the Corporation of insured deposits in closed banks partake of the
section 17 hereof, as determined by the Monetary Board, the maximum nature of public funds, and as such, must be considered a preferred
deposit insurance cover may be adjusted in such amount, for such a credit similar to taxes due to the National Government in the order of
period, and/or for such deposit products, as may be determined by a preference under Article 2244 of the New Civil Code: Provided, further,
unanimous vote of the Board of Directors in a meeting called for the That this preference shall be likewise effective upon liquidation
purpose and chaired by the Secretary of Finance, subject to the proceedings already commenced and pending as of the approval of this
approval of the President of the Philippines. (As amended by R.A. 9302, Act, where no distribution of assets has been made. (As amended by
12 August 2004; R.A. 9576, 2009) P.D. 1940, 27 June 1984; R.A. 7400, 13 April 1992; renumbered from
Sec. 10(d) by R.A. 9302, 12 August 2004)
3. Rules on Payment
SEC. 10 (B), PDIC CHARTER: REPEALED ALREADY. For purposes of 4. Liability of PDIC
this Act an insured bank shall be deemed to have been closed on Cases
account of insolvency when ordered closed by the Monetary Board of the PDIC v. CA
Central Bank of the Philippines pursuant to Section 29 of R.A. 265, as FACTS
amended. Rosa Aquero (and 8 others) invested in money market placements with the
Premiere Financing Corporation (Premiere) in the sum of P10,000.00 each
SEC. 10 (C), PDIC CHARTER: Whenever an insured bank shall have for which they were issued by the PFC corresponding promissory notes and
been closed by the Monetary Board pursuant to Section 30 of R.A. 7653, checks. Their lawyer, on the same day, went to PFC to encash, but they
payment of the insured deposits on such closed bank shall be made by were referred to Regent savings Bank (Regent). Instead of paying these,
the Corporation as soon as possible either (1) by cash or (2) by making Regent, in an agreement with the lawyer, issued 13 Certificates of Time
available to each depositor a transferred deposit in another insured bank Deposit (CTD), each stating that "that the same certifies that the bearer
in an amount equal to insured deposit of such depositor: Provided, thereof has deposited with the RSB the sum of P10,000.00; that the
however, That the Corporation, in its discretion, may require proof of certificate shall bear 14% interest per annum; that the certificate is
claims to be filed before paying the insured deposits, and that in any INSURED up to P15,000.00 with the PDIC".
case where the Corporation is not satisfied as to the viability of a claim
for an insured deposit, it may require final determination of a court of Regent was not able to pay on maturity. In fact, the Central bank liquidated

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
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Regent. When Aquero et al filed a claim with the PDIC, it was rejected since Philippines to be used as the National Assembly may direct.
the check (125k) that Premiere had issued in consideration for the CTDs had
bounced;and said check was not replaced by the Premiere, resulting in the "Banks", "building and loan associations" and "trust corporations",
cancellation of the certificates as indebtedness or liabilities of Regent. within the meaning of this Act, shall refer to institutions defined under
Section two, thirty-nine and fifty-six, respectively, of Republic Act
Thus this collection case against PDIC. Numbered Three Hundred Thirty Seven, otherwise known as the General
Banking Act, as amended, whether organized under special charters or
ISSUES not.
1) Are the CTDs negotiable instrument, and does it matter?
2) Does the fact that the CTDs state that the same were insured by the 2. Report to Treasurer; Notice, Posting, Publication
PDIC make PDIC liable? SEC. 2, UNCLAIMED BALANCES LAW: Immediately after the taking
3) Were the CTDs issued for consideration, and if not, what is the effect of this Act and within the month of January of every odd year, all
consequence? banks, building and loan associations, and trust corporations shall
forward to the Treasurer of the Philippines a statement, under oath, of
HELD their respective managing officers, of all credits and deposits held by
1) It doesn't matter. Whether the CTDs in question are negotiable or not is them in favor of persons known to be dead, or who have not made
immaterial in the present case. The Philippine Deposit Insurance further deposits or withdrawals during the preceding ten years or more,
Corporation was created by law and, as such, is governed primarily by the arranged in alphabetical order according to the names of creditors and
provisions of the special law creating it. The liability of the PDIC for insured depositors, and showing:
deposits therefore is statutory and such liability rests upon the existence of
deposits with the insured bank, not on the negotiability or non-negotiability "(a) The names and last known place of residence or post office
of the certificates evidencing these deposits. addresses of the persons in whose favor such unclaimed balances stand;

2) NO. the deposit liability of PDIC is determined by the provisions of the "(b) The amount and the date of the outstanding unclaimed balance and
law that created it, RA 3519, and statements in the certificates that the whether the same is in money or in security, and if the latter, the nature
same are insured by PDIC are not binding upon the latter. of the same;

3) NO consideration. PDIC not liable. In order that a claim for deposit "(c) The date when the person in whose favor the unclaimed balance
insurance with the PDIC may prosper, the law requires that a corresponding stands died, if known, or the date when he made his last deposit or
deposit be placed in the insured bank. The problem is that Regent did not withdrawal; and
receive anything in consideration for the CTDs it issued, since the check
representing the vale of the CTDs (issued by Premiere) bounced; therefore "(d) The interest due on such unclaimed balance, if any, and the amount
no deposit ever came into existence. Accordingly, there is nothing here for thereof.
PDIC to insure.
"A copy of the above sworn statement shall be posted in a conspicuous
I. UNCLAIMED BALANCES place in the premises of the bank, building and loan association, or trust
corporation concerned for at least sixty days from the date of filing
1. Definition thereof: Provided, That immediately before filing the above sworn
SEC. 1, UNCLAIMED BALANCES LAW: "Unclaimed balances", within statement, the bank, building and loan association, and trust
the meaning of this Act, shall include credits or deposits of money, corporation shall communicate with the person in whose favor the
bullion, security or other evidence of indebtedness of any kind, and unclaimed balance stands at his last known place of residence or post
interest thereon with banks, buildings and loan associations, and trust office address.
corporations, as hereinafter defined, in favor of any person known to be
dead or who has not made further deposits or withdrawals during the "It shall be the duty of the Treasurer of the Philippines to inform the
preceding ten years or more. Such unclaimed balances, together with Solicitor General from time to time the existence of unclaimed balances
the increase and proceeds thereof, shall be deposited with the Treasurer held by banks, building and loan associations, and trust corporations.
of the Philippines to the credit of the Government of the Republic of the

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Cases of unclaimed balances would only result in additional and unnecessary
Republic v. CA, 345 SCRA 63 (2000) expense to the government.
FACTS
On December 28, 1988, a complaint for escheat filed by petitioner, Republic The court however issued an order that if petitioner fails to comply with the
of the Philippines, with the Regional Trial Court of Davao City against publication of unclaimed balances as already ordered, the petition shall be
several banks which had branches within the jurisdiction of the said court. dismissed.

The complaint alleged that pursuant to Act No. 3936 as amended by P.D. Petitioner filed with the Court of Appeals a petition for mandamus and
679, the respective managers of the defendant banks submitted to the certiorari, which was also dismissed.
Treasurer of the Republic of the Philippines separate statements prepared
under oath which listed all deposits and credits held by them in favor of ISSUE
depositors or creditors either known to be dead, have not been heard from, (1) Whether or not respondent RTC judge committed grave abuse of
or have not made depositors or withdrawals for ten years or more since discretion tantamount to lack of jurisdiction in ordering the publication of
December 31, 1970. the list of unclaimed balances listed under annexes “A” to “P” of the
complaint.
The complaint prayed that after due notice to the defendant banks, and
after hearing, judgment be rendered declaring that the deposits, credits and HELD
unpaid balances in question be escheated to petitioner, commanding The petition is without merit.
defendant banks to forthwith deposit the same with the Treasurer of the The publication of the list of unclaimed balances is intended to safeguard the
Philippines. right of the depositors, their heirs and successors to due process. This was
made clear by the lower court in its assailed Order, to wit:
The lower court issued an order directing petitioner to show cause why the
complaint should not be dismissed for failure to state a cause of action. Moreover, how would other persons who may have an interest in
According to the order, the complaint contained no allegation that defendant any of the unclaimed balances know what this case is all about and
banks have complied with two of the conditions in Section 2 of Act No. whether they have an interest in this case if the amended complaint
3936, compliance with the requirements being necessary for the complaint and list of unclaimed balances are not published? Such other
to prosper persons may be heirs of the bank depositors named in the list of
unclaimed balances.
Petitioner submitted amended complaint prayed that judgment be rendered xxx
ordering that the amount of P97,263.38, deposited with the defendant
banks by depositors who are known to be dead or have not made further The fact that the government is in a tight financial situation is not a
deposits or withdrawals during the preceding ten years or more be justification for this Court to dispense with the elementary rule of due
escheated in favor of the Republic of the Philippines. process.

The trial court found the amendment sufficient and issued an order requiring As declared by the trial court in its Order dated August 1, 1989, the
petitioner to publish a notice in the Mindanao Forum Standard once a week dismissal of the petition for escheat is without prejudice. In other words,
for two consecutive weeks, containing the summons, notice to the public, the State can refile the said petition, notwithstanding the lapse of time.
the amended petition incorporated in the summons and the list of unclaimed Prescription of action does not run against the government.
balances. The notice was estimated to occupy 27 pages of the said
newspaper at an estimated cost of P50,000.00. WHEREFORE, the petition is DENIED. The decision of the Court of Appeals
dated August 14, 1990 is AFFIRMED.
On July 11, 1989, petitioner submitted a manifestation to the lower court
praying that the publication of the list of the unclaimed balances be SO ORDERED.
dispensed with. Petitioner posited that under Section 3, Act No. 3936, only
the following are required to be published: (1) summons to respondent 3. Escheat Proceedings
banks; and (2) notice to all persons other than those named defendants SEC. 3, UNCLAIMED BALANCES LAW: Whenever the Solicitor General
therein. Petitioner submitted that to require it to publish the names and list shall be informed of such unclaimed balances, he shall commence an

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
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action or actions in the name of the People of the Republic of the full and complete jurisdiction in the Republic of the Philippines over the
Philippines in the Court of First Instance of the province or city where said unclaimed balances and over the persons having or claiming any
the bank, building and loan association or trust corporation is located, in interest in the said unclaimed balances, or any of them, and shall have
which shall be joined as parties the bank, building and loan association full and complete jurisdiction to hear and determine the issues herein,
or trust corporation and all such creditors or depositors. All or any of and render the appropriate judgment thereon.
such creditors or depositors or banks, building and loan association or
trust corporations may be included in one action. Service of process in 4. Effects of Compliance/Non-Compliance
such action or actions shall be made by delivery of a copy of the SEC. 4, UNCLAIMED BALANCES LAW: If the president, cashier or
complaint and summons to the president, cashier, or managing officer managing officer of the bank, building and loan association, or trust
of each defendant bank, building and loan association or trust corporation neglects or refuses to make and file the sworn statement
corporation and by publication of a copy of such summons in a required by this action, such bank, building and loan association, or
newspaper of general circulation, either in English, in Filipino, or in a trust corporation shall pay to the Government the sum of five hundred
local dialect, published in the locality where the bank, building and loan pesos a month for each month or fraction thereof during which such
association or trust corporation is situated, if there be any, and in case default shall continue.
there is none, in the City of Manila, at such time as the court may order.
Upon the trial, the court must hear all parties who have appeared SEC. 5, UNCLAIMED BALANCES LAW: Any bank, building and loan
therein, and if it be determined that such unclaimed balances in any association or trust corporation which shall make any deposit with the
defendant bank, building and loan association or trust corporation are Treasurer of the Philippines in conformity with the provisions of this Act
unclaimed as hereinbefore stated, then the court shall render judgment shall not thereafter be liable to any person for the same and any action
in favor of the Government of the Republic of the Philippines, declaring which may be brought by any person against in any bank, building and
that said unclaimed balances have escheated to the Government of the loan association, or trust corporation for unclaimed balances so
Republic of the Philippines and commanding said bank, building and loan deposited with the Treasurer of the Philippines shall be defended by the
association or trust corporation to forthwith deposit the same with the Solicitor General without cost to such bank, building and loan
Treasurer of the Philippines to credit of the Government of the Republic association or trust corporation."
of the Philippines to be used as the National Assembly may direct.
J. ANTI-MONEY LAUNDERING ACT
"At the time of issuing summons in the action above provided for, the
clerk of court shall also issue a notice signed by him, giving the title and 1. Declared Policy
number of said action, and referring to the complaint therein, and SEC. 2, AMLA: Declaration of Policy. - It is hereby declared the
directed to all persons, other than those named as defendants therein, policy of the State to protect and preserve the integrity and
claiming any interest in any unclaimed balance mentioned in said confidentiality of bank accounts and to ensure that the Philippines shall
complaint, and requiring them to appear within sixty days after the not be used as a money laundering site for the proceeds of any unlawful
publication or first publication, if there are several, of such summons, activity. Consistent with its foreign policy, the State shall extend
and show cause, if they have any, why the unclaimed balances involved cooperation in transnational investigations and prosecutions of persons
in said action should not be deposited with the Treasurer of the involved in money laundering activities wherever committed.
Philippines as in this Act provided and notifying them that if they do not
appear and show cause, the Government of the Republic of the 2. Covered Transactions
Philippines will apply to the court for the relief demanded in the SEC. 3 (B), AMLA: "Covered transaction" is a single, series, or
complaint. A copy of said notice shall be attached to, and published with combination of transactions involving a total amount in excess of Four
the copy of, said summons required to be published as above, and at million Philippine pesos (Php4,000,000.00) or an equivalent amount in
the end of the copy of such notice so published, there shall be a foreign currency based on the prevailing exchange rate within five (5)
statement of the date of publication, or first publication, if there are consecutive banking days except those between a covered institution
several, of said summons and notice. Any person interested may appear and a person who, at the time of the transaction was a properly
in said action and become a party thereto. Upon the publication or the identified client and the amount is commensurate with the business or
completion of the publication, if there are several, of the summons and financial capacity of the client; or those with an underlying legal or trade
notice, and the service of the summons on the defendant banks, obligation, purpose, origin or economic justification.
building and loan associations or trust corporations, the court shall have

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It likewise refers to a single, series or combination or pattern of as the authority and identification of all persons purporting to act on
unusually large and complex transactions in excess of Four million their behalf.
Philippine pesos (Php4,000,000.00) especially cash deposits and
investments having no credible purpose or origin, underlying trade The provisions of existing laws to the contrary notwithstanding,
obligation or contract. anonymous accounts, accounts under fictitious names, and all other
similar accounts shall be absolutely prohibited. Peso and foreign
3. Suspicious Transactions currency non-checking numbered accounts shall be allowed. The
SEC. 3 (B-1), AMLA: SEC. 3 (B), AMLA: "Covered transaction" is a BSP may conduct annual testing solely limited to the determination
single, series, or combination of transactions involving a total amount in of the existence and true identity of the owners of such accounts.
excess of Four million Philippine pesos (Php4,000,000.00) or an
equivalent amount in foreign currency based on the prevailing exchange 2. Record Keeping. -All records of all transactions of covered
rate within five (5) consecutive banking days except those between a institutions shall be maintained and safely stored for five (5) years
covered institution and a person who, at the time of the transaction was from the date of transactions. With respect to closed accounts, the
a properly identified client and the amount is commensurate with the records on customer identification, account files and business
business or financial capacity of the client; or those with an underlying correspondence, shall be preserved and safely stored for at least
legal or trade obligation, purpose, origin or economic justification. five (5) years from the dates when they were closed.

4. Covered Institutions 3. Reporting of Covered Transactions. - Covered institutions shall


SEC. 3 (A), AMLA: "Covered Institution" refers to: report to the AMLC all covered transactions within five (5) working
1. banks, non-banks, quasi-banks, trust entities, and all other days from occurrence thereof, unless the Supervising Authority
institutions and their subsidiaries and affiliates supervised or concerned prescribes a longer period not exceeding ten (10)
regulated by the Bangko Sentral ng Pilipinas (BSP); working days.

2. insurance companies and all other institutions supervised or When reporting covered transactions to the AMLC, covered institutions
regulated by the Insurance Commission; and and their officers, employees, representatives, agents, advisors,
consultants or associates shall not be deemed to have violated Republic
3. securities dealers, brokers, salesmen, investment houses and other Act No. 1405, as amended; Republic Act No. 6426, as amended;
similar entities managing securities or rendering services as Republic Act No. 8791 and other similar laws, but are prohibited from
investment agent, advisor, or consultant, (ii) mutual funds, close communicating, directly or indirectly, in any manner or by any means,
and investment companies, common trust funds, pre-need to any person the fact that a covered transaction report was made, the
companies and other similar entities, (iii) foreign exchange contents thereof, or any other information in relation thereto. In case of
corporations, money changers, money payment, remittance, and violation thereof, the concerned officer, employee, representative,
transfer companies and other similar entities, and (iv) other entities agent, advisor, consultant or associate of the covered institution, shall
administering or otherwise dealing in currency, commodities or be criminally liable. However, no administrative, criminal or civil
financial derivatives based thereon, valuable objects, cash proceedings, shall lie against any person for having made a covered
substitutes and other similar monetary instruments or property transaction report in the regular performance of his duties and in good
supervised or regulated by Securities and Exchange Commission. faith, whether or not such reporting results in any criminal prosecution
under this Act or any other Philippine law.
5. Obligations of Covered Institutions
SEC. 9, AMLA: Prevention of Money Laundering; Customer When reporting covered transactions to the AMLC, covered institutions
Identification Requirements and Record Keeping. - and their officers, employees, representatives, agents, advisors,
consultants or associates are prohibited from communicating, directly or
1. Customer Identification. - Covered institutions shall establish and indirectly, in any manner or by any means, to any person, entity, the
record the true identity of its clients based on official documents. media, the fact that a covered transaction report was made, the
They shall maintain a system of verifying the true identity of their contents thereof, or any other information in relation thereto. Neither
clients and, in case of corporate clients, require a system of may such reporting be published or aired in any manner or form by the
verifying their legal existence and organizational structure, as well mass media, electronic mail, or other similar devices. In case of

ANTONIO, PAENG | DELOS SANTOS, CHRISTIAN | FRAGANTE, FRANCIS| HIPOLITO, NIKKI | MARTINEZ, ENZO | PEREZ, ALEX | ROSALES, VIC | SIA, EMAN
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violation thereof, the concerned officer, employee, representative, f. Jueteng and Masiao punished as illegal gambling under Presidential
agent, advisor, consultant or associate of the covered institution, or Decree No.1602;
media shall be held criminally liable. g. Piracy on the high seas under the Revised Renal Code, as amended
and Presidential Decree No.532;
a. Customer Identification h. Qualified theft under Article 310 of the Revised Penal Code, as
b. Record Keeping amended; (9) Swindling under Article 315 of the Revised Penal Code,
c. Reporting of Covered and Suspicious Transactions to AMLC as amended;
i. Smuggling under Republic Act Nos. 455 and 1937;
6. Money-Laundering Crime j. Violations under Republic Act No.8792, otherwise known as the
SEC. 4, AMLA: Money Laundering Offense. - Money laundering is a Electronic Commerce Act of 2000;
crime whereby the proceeds of an unlawful activity are transacted, k. Hijacking and other violations under Republic Act No.6235; destructive
thereby making them appear to have originated from legitimate arson and murder, as defined under the Revised Penal Code, as
sources. It is committed by the following: amended, including those perpetrated by terrorists against non-
1. Any person knowing that any monetary instrument or property combatant persons and similar targets;
represents. involves, or relates to the proceeds of any unlawful l. Fraudulent practices and other violations under Republic Act No.8799.
activity, transacts or attempts to transact said monetary instrument otherwise known as the Securities Regulation Code of 2000;
or property. m. Felonies or offenses of a similar nature that are punishable under the
2. Any person-knowing that any monetary instrument or property penal laws of other countries.
involves the proceeds of any unlawful activity, performs or fails to
perform any act as a result of which he facilitates the offense of 8. Jurisdiction
money laundering referred to in paragraph (a) above. SEC. 5, AMLA: Jurisdiction of Money Laundering Cases. - The
3. Any person knowing that any monetary instrument or property is regional trial courts shall have jurisdiction to try all cases on money
required under this Act to be disclosed and filed with the Anti-Money laundering. Those committed by public officers arid private persons who
Laundering Council (AMLC), fails to do so. are in conspiracy with such public officers shall be under the jurisdiction
of the Sandiganbayan.
a. Transacting or attempting to transact, with monetary instrument or
property, knowing it represents, involves, or related to proceeds of 9. Prosecution
any Unlawful Activity SEC. 6, AMLA: Prosecution of Money Laundering. –
b. Facilitating money-laundering referred to in Item (a) above, by failing
to perform an act 1. Any person may be charged with and convicted of both the offense
c. Failing to disclose and file report with AMLC of any monetary of money laundering and the unlawful activity as herein defined.
instrument or property as required under AMLA 2. Any proceeding relating to the unlawful activity shall be given
precedence over the prosecution of any offense or violation under
7. Unlawful Activities this Act without prejudice to the freezing and other remedies
SEC. 3 (i), AMLA: "Unlawful activity" refers to any act or omission or provided.
series or combination thereof involving or having relation to the
following: 10. Prohibition against Political Harassment
a. Kidnapping for ransom under Article 267 of Act No.3815, otherwise SEC. 16, AMLA: Prohibitions Against Political Harassment. - This
known as the Revised Penal Code, as amended; Act shall not be used for political prosecution or harassment or as an
b. Sections 3,4,5,7,8 and 9 of Article Two of Republic Act No.6425, as instrument to hamper competition in trade and commerce.
amended, otherwise known as the Dangerous Drugs Act of 1972;
c. Section 3 paragraphs B,C,E,G,H and I of Republic Act No.3019, as No case for money laundering may be filed against and no assets shall
amended; otherwise known as the Anti-Graft and Corrupt Practices be frozen, attached or forfeited to the prejudice of a candidate for an
Act; electoral office during an election period.
d. Plunder under Republic Act No.7080, as amended;
e. Robbery and extortion under Articles 294,295,296,299,300,301 and
302 of the Revised Penal Code, as amended;

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11. Penalties and Other Consequences the same or purposely fails to testify shall suffer the same penalties
a. Penalties prescribed herein.
SEC. 14, AMLA: Penal Provisions. -
4. Breach of Confidentiality. The punishment of imprisonment ranging
1. Penalties for the Crime of Money Laundering. The penalty of from three (3) to eight (8) years and a fine of not less than Five
imprisonment ranging from seven (7) to fourteen (14) years and a hundred thousand Philippine pesos (Php 500,000.00) but not more
fine of not less than Three million Philippine pesos (Php , than One million Philippine pesos (Php 1,000,000.00), shall be
3,000,000.00) but not more than twice the value of the monetary imposed on a person convicted for a violation under Section 9 (c).
instrument or property involved in the offense, shall be imposed
upon a person convicted under Section 4(a) of this Act. The penalty (i) Money Laundering
of imprisonment from four (4) to seven (7) years and a fine of not (ii) Failure to Keep Records
less than One million five hundred thousand Philippine pesos (Php (iii) Malicious Reporting
1,500,000.00) but not more than Three million Philippine pesos (Php (iv) Breach of Confidentiality
3,000,000.00), shall be imposed upon a person convicted under
Section 4(b) of this Act. The penalty of imprisonment from six (6) b. Civil Forfeiture
months to four (4) years or a fine of not less than One hundred SEC. 12, AMLA: Forfeiture Provisions. –
thousand Philippine pesos (Php 100,000.00) but not more than Five
hundred thousand Philippine pesos (Php 500,000.00), or both, shall 1. Civil Forfeiture. - When there is a covered transaction report made,
be imposed on a person convicted under Section 4(c) of this Act. and the court has, in a petition filed for the purpose ordered seizure
of any monetary instrument or property, in whole or in part, directly
2. Penalties for Failure to Keep Records. The penalty of imprisonment or indirectly, related to said report, the Revised Rules of Court on
from six (6) months to one (1) year or a fine of not less than One civil forfeiture shall apply.
hundred thousand Philippine pesos (Php100,000.00) but not more
than Five hundred thousand Philippine pesos (Php500,000.00), or 2. Claim on Forfeited Assets. - Where the court has issued an order of
both, shall be imposed on a person convicted under Section 9(b) of forfeiture of the monetary instrument or property in a criminal
this Act. prosecution for any money laundering offense defined under Section
4 of this Act, the offender or any other person claiming an interest
3. Malicious Reporting. Any person who, with malice, or in bad faith, therein may apply, by verified petition, for a declaration that the
report or files a completely unwarranted or false information relative same legitimately belongs to him and for segregation or exclusion of
to money laundering transaction against any person shall be subject the monetary instrument or property corresponding thereto. The
to a penalty of six (6) months to four (4) years imprisonment and a verified petition shall be filed with the court which rendered the
fine of not less than One hundred thousand Philippine pesos (Php judgement of conviction and order of forfeiture, within fifteen (15)
100,000.00) but not more than Five hundred thousand Philippine days from the date of the order or forfeiture, in default of which the
pesos (Php500,000.00), at the discretion of the court: Provided, said order shall become final and executory. This provision shall
That the offender is not entitled to avail the benefits of the Probation apply in both civil and criminal forfeiture.
Law. If the offender is a corporation, association, partnership or any
juridical per- son, the penalty shall be imposed upon the responsible 3. Payment in Lieu of Forfeiture. - Where the court has issued an order
officers, as the case may be, who participated in the commission of of forfeiture of the monetary instrument or property subject of a
the crime or who shall have knowingly permitted or failed to prevent money laundering offense defined under Section 4, and said order
its commission. If the offender is a juridical person, the court may cannot be enforced because any particular monetary instrument or
suspend or revoke its license. If the offender is an alien, he shall, in property cannot, with due diligence, be located, or it has been
addition to the penalties herein prescribed, be deported without substantially altered, destroyed, diminished in value or otherwise
further proceedings after serving the penalties herein prescribed. If rendered worthless by any act or omission, directly or indirectly,
the offender is a public official or employee, he shall, in addition to attributable to the offender, or it has been concealed, removed,
the penalties prescribed herein, suffer perpetual or temporary converted or otherwise transferred to prevent the same from being
absolute disqualification from office, as the case may be. Any public found or to avoid forfeiture thereof, or it is located outside the
official or employee who is called upon to testify and refuses to do Philippines or has been placed or brought outside the jurisdiction of

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the court, or it has been commingled with other monetary relating to an unlawful activity or to a money laundering offense are located.
instruments or property belonging to either the offender himself or a Pasig City, where the account sought to be forfeited in this case is situated,
third person or entity, thereby rendering the same difficult to is within the National Capital Judicial Region (NCJR). Clearly, the complaint
identify or be segregated for purposes of forfeiture, the court may, for civil forfeiture of the account may be filed in any RTC of the NCJR. Since
instead of enforcing the order of forfeiture of the monetary the RTC Manila is one of the RTCs of the NCJR, it was a proper venue of the
instrument or property or part thereof or interest therein, Republic’s complaint for civil forfeiture of Glasgow’s account.
accordingly order the convicted offender to pay an amount equal to
the value of said monetary instrument or property. This provision (2) NO, it was sufficient in form and substance.
shall apply in both civil and criminal forfeiture. In a motion to dismiss for failure to state a cause of action, the focus is on
the sufficiency, not the veracity, of the material allegations. The
Cases determination is confined to the four corners of the complaint and nowhere
Republic v. Glasgow Credit and Collection Services, 542 SCRA 384 else. The test of the sufficiency of the facts alleged in the complaint is
(2008) whether or not, admitting the facts alleged, the court could render a valid
FACTS judgment upon the same in accordance with the prayer of the complaint.
Republic filed a complaint for civil forfeiture of assets against the bank
deposits of Glasgow in Citystate Savings Bank (CSB). This is pursuant to the Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture
Anti-Money Laundering Act (RA 9160). The court issued summons and provides:
several alias summons. However, all the summons to Glasgow was left Sec. 4. Contents of the petition for civil forfeiture. - The petition for
unserved as it could not be found at its last known address. civil forfeiture shall be verified and contain the following allegations:
(a) The name and address of the respondent;
Glasgow now files a motion to dismiss on the ground that the court has no (b) A description with reasonable particularity of the monetary
jurisdiction over its person due to lack of summons served, the complaint instrument, property, or proceeds, and their location; and
was premature and there was failure to prosecute by the Republic. The RTC (c) The acts or omissions prohibited by and the specific provisions of
dismissed the case on the grounds of improper venue, insufficiency in form the Anti-Money Laundering Act, as amended, which are alleged to
and substance and failure to prosecute. be the grounds relied upon for the forfeiture of the monetary
instrument, property, or proceeds; and
ISSUE (d) The reliefs prayed for.
Whether the complaint for Civil Forfeiture was correctly dismissed on the
grounds of (1) improper venue (2) insufficiency in form and substance and Here, the verified complaint of the Republic contained the following
(3) failure to prosecute. allegations:
(a) the name and address of the primary defendant therein,
RULING Glasgow;
(1) NO, the trial court was the proper venue. (b) a description of the proceeds of Glasgow’s unlawful activities
The Rules of Procedure in Cases of Civil Forfeiture applies to this case. with particularity, as well as the location thereof, account no. CA-
Sec. 3. Venue of cases cognizable by the regional trial court. – A 005-10-000121-5 in the amount of P21,301,430.28 maintained with
petition for civil forfeiture shall be filed in any regional trial court of CSBI;
the judicial region where the monetary instrument, property or (c) the acts prohibited by and the specific provisions of RA 9160, as
proceeds representing, involving, or relating to an unlawful activity amended, constituting the grounds for the forfeiture of the said
or to a money laundering offense are located; provided, however, proceeds. In particular, suspicious transaction reports showed that
that where all or any portion of the monetary instrument, property Glasgow engaged in unlawful activities of estafa and violation of the
or proceeds is located outside the Philippines, the petition may be Securities Regulation Code (under Section 3(i)(9) and (13), RA
filed in the regional trial court in Manila or of the judicial region 9160, as amended); the proceeds of the unlawful activities were
where any portion of the monetary instrument, property, or transacted and deposited with CSBI in account no. CA-005-10-
proceeds is located, at the option of the petitioner. 000121-5 thereby making them appear to have originated from
legitimate sources; as such, Glasgow engaged in money laundering
The venue of civil forfeiture cases is any RTC of the judicial region where the (under Section 4, RA 9160, as amended); and the AMLC subjected
monetary instrument, property or proceeds representing, involving, or the account to freeze order and

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(d) the reliefs prayed for, namely, the issuance of a TRO or writ of regardless of the absence, pendency or outcome of a criminal prosecution
preliminary injunction and the forfeiture of the account in favor of for the unlawful activity or for money laundering, an action for civil
the government as well as other reliefs just and equitable under the forfeiture may be separately and independently prosecuted and resolved.
premises.
(3) NO, there was no failure to prosecute on the part of the Republic.
The form and substance of the Republic’s complaint substantially conformed Immediately after the complaint was filed, the trial court ordered the
with Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture. process server to serve summons to Glasgow. The subpoena to Glasgow
In relation thereto, Rule 12.2 of the Revised Implementing Rules and was, however, returned unserved as Glasgow "could no longer be found at
Regulations of RA 9160 states the following: its given address" and had moved out of the building. Republic then filed a
RULE 12 motion for issuance of alias summons and leave of court to serve summons
Forfeiture Provisions by publication. The court archived the case for failure to cause service of
xxx xxx xxx alias summons, still, the Republic motioned the case to be reinstated.
Rule 12.2. When Civil Forfeiture May be Applied. – When there is a Meanwhile, the Republic continued to exert efforts to obtain information
SUSPICIOUS TRANSACTION REPORT OR A COVERED TRANSACTION from other government agencies on the whereabouts or current status of
REPORT DEEMED SUSPICIOUS AFTER INVESTIGATION BY THE respondent Glasgow. Its efforts, however, proved futile. The alias summons
AMLC, and the court has, in a petition filed for the purpose, ordered was again unserved. It was then that Glasgow filed the motion to dismiss.
the seizure of any monetary instrument or property, in whole or in
part, directly or indirectly, related to said report, the Revised Rules Given these circumstances, how could the Republic be faulted for failure to
of Court on civil forfeiture shall apply. prosecute the complaint for civil forfeiture? While there was admittedly a
delay in the proceeding, it could not be entirely or primarily ascribed to the
RA 9160, as amended, and its implementing rules and regulations lay down Republic. That Glasgow’s whereabouts could not be ascertained was not only
two conditions when applying for civil forfeiture: beyond the Republic’s control, it was also attributable to Glasgow which left
its principal office address without informing the Securities and Exchange
(1) when there is a suspicious transaction report or a covered transaction Commission or any official regulatory body of its new address. Moreover, as
report deemed suspicious after investigation by the AMLC (Anti-Money early as October 8, 2003, the Republic was already seeking leave of court to
Laundering Council) serve summons by publication.

(2) the court has, in a petition filed for the purpose, ordered the seizure of ADDINTIONAL RULING: the service of summons may be made by
any monetary instrument or property, in whole or in part, directly or publication in cases of civil forfeiture as they are proceedings in rem. The
indirectly, related to said report. Rules of Procedure in Cases of Civil Forfeiture also allows summons by
publication in cases where the whereabouts of the owner are unknown and
Since account of Glasgow in CSB was (1) covered by several suspicious cannot be ascertained by diligent inquiry.
transaction reports and (2) placed under the control of the trial court upon
the issuance of the writ of preliminary injunction, the conditions provided in 12. Freezing of Accounts
RA 9160 were satisfied. Hence, the Republic, represented by the AMCL, SEC. 10, AMLA: Authority to Freeze. - Upon determination that
properly instituted the complaint for civil forfeiture. probable cause .exists that any deposit or similar account is in any way
related to an unlawful activity, the AMLC may issue a freeze order,
Whether or not there is truth in the allegation that account of Glasgow which shall be effective immediately, on the account for a period not
contains the proceeds of unlawful activities is an evidentiary matter that exceeding fifteen (15) days. Notice to the depositor that his account has
may be proven during trial. The complaint, however, did not even have to been frozen shall be issued simultaneously with the issuance of the
show or allege that Glasgow had been implicated in a conviction for, or the freeze order. The depositor shall have seventy-two (72) hours upon
commission of, the unlawful activities of estafa and violation of the receipt of the notice to explain why the freeze order should be lifted.
Securities Regulation Code. The AMLC has seventy-two (72) hours to dispose of the depositor's
explanation. If it fails to act within seventy-two (72) hours from receipt
A criminal conviction for an unlawful activity is not a prerequisite for the of the depositor’s explanation, the freeze order shall automatically be
institution of a civil forfeiture proceeding. Stated otherwise, a finding of guilt dissolved. The fifteen (15)-day freeze order of the AMLC may be
for an unlawful activity is not an essential element of civil forfeiture. Thus, extended upon order of the court, provided that the fifteen (15)-day

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period shall be tolled pending the court's decision to extend the period. The CA issued a writ of preliminary injunction with regard to the petition
filed by Lilia Cheng (last ruling contested in this case)
No court shall issue a temporary restraining order or writ of injunction
against any freeze order issued by the AMLC except the Court of ISSUE
Appeals or the Supreme Court. Whether a bank inquiry order issued in accordance with section 10 AMLA
may be stayed with injunction
Cases
Republic v. Eugenio RULING
FACTS YES . Under this section, the AMLC may file an application ex parte, with
(This case stemmed from the case of Agan v PIATCO) the CA, and upon determination of probable cause, they may issue a freeze
After the promulgation of the Agan case, a series of investigation was order effective immediately. This is to prevent funds that is related to any
conducted by the Ombudsman, the Compliance and Investigation Staff, and money-laundering from being misused while the case is being tried. It is ex
Anti-Money Laundering Council (AMLC). AMLC issued a resolution parte because the fact of freezing the account must be kept secret from the
authorizing the Executive Director of AMLC to examine the bank accounts of owner, else the funds may just be moved elsewhere before the freeze order
Pantaleon Alvarez, Cheng Yong,Wilfredo Trinidad, Alfredo Liongson and their may be issued.
related web accounts. Under the authority of such resolution, AMLC filed an
application to inquire into or examine the deposits or investments of Since the application of AMLC has nothing to do with any of the provided
Alvarez, Cheng Yong, Trinidad and Liongson with the Makati RTC, which the enumerations under Section 11, it must prove that there is probable cause
court granted. Months later, Special Prosecutor Dennis Villa-Ignacio with the case, in order to inquire into the bank accounts. Probable cause
requested AMLC to investigate the accounts of Alvarez, PIATCO and all may only be decided by the courts (Art III, Sec 2 of Constitution). Section
accounts related to the annulled contract. AMLC issued another resolution, 10 contains the application for ex parte, but it is connected to freezing of
authorizing the executive director to inquire into the bank accounts named accounts. This must be done ex parte, since notifying the accused my cause
in the letter. AMLC filed the same application, this time to the Manila RTC, him to disburse the account before the order freezing the account is issued.
which was raffled to Judge Antonio Eugenio Jr. The court likewise granted Section 11 does not contain the application for ex parte, for the fact that
such ex parte application. Alvarez filed an Urgent Motion to Stay of there is nothing wrong with the accused knowing that his accounts are being
Enforcement of Order, which the Manila RTC granted. The Republic filed a checked. It is immaterial for the accused to know that his accounts are
motion for reconsideration which was granted. Alvarez then filed an Urgent being checked, since he cannot hide the bank records to prove that the
Motion and Manifestation, stating that AMLC was about to implement the accounts are linked to the crime imputed against him. Hence, using the ex
Manila RTC bank inquiry even though he intends to appeal such order. The parte application found in section 10 in inquiring into bank accounts (section
Manila RTC refrained AMLC from implementing such order against Alvarez. 11) may be stayed with injunction.
Alvarez then filed an Urgent Ex Parte Motion for Clarification, alleging that
AMLC likewise cannot implement such order against the others stated in the 13. Examination of Accounts
order. Manila RTC issued an order, stating that the ex parte application SEC. 11, AMLA: Authority to Inquire into Bank Deposits. -
cannot be implemented in its totality (first of four rulings contested in this Notwithstanding the provisions of Republic Act No. 1405, as amended;
case). Republic Act No. 6426, as amended; Republic Act No. 8791, and other
laws, the AMLC may inquire into or examine any particular deposit or
Lilia Cheng, wife of Cheng Yong filed a Petition for Certiorari, TRO and investment with any banking institution or non- bank financial institution
preliminary injunction against the orders of Makati and Manila RTC stating upon order of any competent court in cases of violation of this Act when
grave abuse of discretion that AMLA can only inquire to bank accounts after it has been established that there is probable cause that the deposits or
the creation of the Anti-Money Laundering Act (AMLA), and not prior to its investments involved are in any way related to a money laundering
promulgation. The CA issued a TRO, granting such petition (second of four offense: Provided, That this provision shall not apply to deposits and
rulings contested in this case). investments made prior to the effectivity of this Act.

With relation to the Urgent Motion for Clarification, the Manila RTC issued an 14. AMLC; Composition and Powers
order reiterated that bank inquiry order it issued cannot be implemented by SEC. 7, AMLA: Creation of Anti-Money Laundering Council
the AMLC until the appeal (of Alvarez of the order granting the ex parte (AMLC). – The Anti-Money Laundering Council is hereby created and
application) is finally resolved (third of four rulings contested in this case). shall be composed of the Governor of the Bangko Sentral ng Pilipinas as

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chairman, the Commissioner of the Insurance Commission and the 15. Mutual Assistance among States
Chairman of the Securities and Exchange Commission as members. The SEC. 13, AMLA: Mutual Assistance among States. –
AMLC shall act unanimously in the discharge of its functions as defined 1. Request for assistance from a Foreign State. - Where a foreign State
hereunder: makes a request for assistance in the investigation or prosecution of
a money laundering offense, the AMLC may execute the request or
1. to require and receive covered transaction reports from covered refuse to execute the same and inform the foreign State of any valid
institutions; reason for not executing the request or for delaying the execution
thereof. The principles of mutuality and reciprocity shall, for this
2. to issue orders addressed to the appropriate Supervising Authority purpose, be at all times recognized.
or the covered institution to determine the true identity of the owner
of any monetary instrument or property subject of a covered 2. Power of the AMLC to Act on a Request for Assistance from a
transaction report or request for assistance from a foreign State, or Foreign State. - The AMLC may execute a request for assistance
believed by the Council, on the basis of substantial evidence to be in from a foreign State by: (1) tracking down, freezing, restraining and
whole or in part, wherever located, representing, involving. or seizing assets alleged to be proceeds of any unlawful activity under
related to, directly or indirectly, in any manner or by any means. the the procedures laid down in this Act; (2) giving information needed
proceeds of an unlawful activity; by the foreign State within the procedures laid down in this Act; and
(3) applying for an order of forfeiture of any monetary instrument or
3. to institute civil forfeiture proceedings and all other remedial property in the court: Provided, That the court shall not issue such
proceedings through the Office of the Solicitor General; an order unless the application is accompanied by an authenticated
p copy of the order of a court in the requesting State ordering the
4. to cause the filing of complaints with the Department of Justice or forfeiture of said monetary instrument or property of a person who
the Ombudsman for the prosecution of money laundering offenses; has been convicted of a money laundering offense in the requesting
State, and a certification of an affidavit of a competent officer of the
5. to initiate investigations of covered transactions, money laundering requesting State stating that the conviction and the order of
activities and other violations of this Act; forfeiture are final and then no further appeal lies in respect or
either.
6. to freeze any monetary instrument or property alleged to be
proceed of any unlawful activity; 3. Obtaining Assistance from Foreign States. -The AMLC may make a
request to any foreign State for assistance in (1) tracking down,
7. to implement such measures as may be necessary and justified freezing, re- straining and seizing assets alleged to be proceeds of
under this Act to counteract money laundering; any unlawful activity; (2) obtaining information that it needs relating
8. to receive and take action in respect of, any request from foreign to any covered transaction, money laundering offense or any other
states for assistance in their own anti-money laundering operations matter directly or indirectly, related thereto; (3) to the extent
provided in this Act; allowed by the law of the Foreign State, applying with the proper
court therein for an order to enter any premises belonging to or in
9. to develop educational programs on the pernicious effects of money the possession or control of, any or all of the persons named in said
laundering, the methods and techniques used in money laundering, request, and/or search any or all such persons named therein
the viable means of preventing money laundering and the effective and/or remove any document, material or object named in said
ways of prosecuting and punishing offenders; and request: Provided, That the documents accompanying the request in
support of the application have been duly authenticated in
10. to enlist the assistance of any branch, department, bureau, office, accordance with the applicable jaw or regulation of the foreign
agency or instrumentality of the government, including government- State; and (4) applying for an order of forfeiture of any monetary
owned and -controlled corporations, in undertaking any and all anti- instrument or property in the proper court in the foreign State:
money laundering operations, which may include the use of its Provided, That the request is accompanied by an authenticated copy
personnel, facilities and resources for the more resolute prevention, of the order of the regional trial court ordering the forfeiture of said
detection and investigation of money laundering offenses and monetary instrument or property of a convicted offender and an
prosecution of offenders. affidavit of the clerk of court stating that the conviction and the

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order of forfeiture are final and that no further appeal lies in respect IV. LOAN FUNCTION
of either.
A. Basic Concepts
4. Limitations on Request for Mutual Assistance. – The AMLC may
1. Grant, Purpose and Requirement of Loans
refuse to comply with any request for assistance where the action
sought by the request contravenes any provision of the Constitution
a. Grant of Loans
or the execution of a request is likely to prejudice the national
SEC. 39, GBL: A bank shall grant loans and other credit
interest of the Philippines unless therein is a treaty between the
accommodations only in amounts and for the periods of time
Philippines and the requesting State relating to the provision of
essential for the effective completion of the operations to be
assistance in relation to money laundering offenses.
financed. Such grant of loans and other credit
accommodations shall be consistent with safe and sound
5. Requirements for Requests for Mutual Assistance from Foreign
banking practices.
States. - A request for mutual assistance from a foreign State must
(1) confirm that an investigation or prosecution is being conducted
b. Purpose of Loans
in respect of a money launderer named therein or that he has been
SEC. 39, GBL: The purpose of all loans and other credit
convicted of any money laundering offense; (2) state the grounds
accommodations shall be stated in the application and in the
on which any person is being investigated or prosecuted for money
contract between the bank and the borrower. If the bank
laundering or the details of his conviction; (3) gives sufficient
finds that the proceeds of the loan or other credit
particulars as to the identity of said person; (4) give particulars
accommodation have been employed, without its approval,
sufficient to identify any covered institution believed to have any
for purposes other than those agreed upon with the bank, it
information, document, material or object which may be of
shall have the right to terminate the loan or other credit
assistance to the investigation or prosecution; (5) ask from the
accommodation and demand immediate repayment of the
covered institution concerned any information, document, material
obligation.
or object which may be of assistance to the investigation or
prosecution; (6) specify the manner in which and to whom said
c. Requirement of Loans
information, document, material or object detained pursuant to said
SEC. 40, GBL: Before granting a loan or other credit
request, is to be produced; (7) give all the particulars necessary for
accommodation, a bank must ascertain that the debtor is
the issuance by the court in the requested State of the writs, orders
capable of fulfilling his commitments to the bank.
or processes needed by the requesting State; and (8) contain such
other information as may assist in the execution of the request.
Toward this end, a bank may demand from its credit
6. Authentication of Documents. - For purposes of this Section, a
applicants a statement of their assets and liabilities and of
document is authenticated if the same is signed or certified by a
their income and expenditures and such information as may
judge, magistrate or equivalent officer in or of, the requesting State,
be prescribed by law or by rules and regulations of the
and authenticated by the oath or affirmation of a witness or sealed
Monetary Board to enable the bank to properly evaluate the
with an official or public seal of a minister, secretary of State, or
credit application which includes the corresponding financial
officer in or of, the government of the requesting State, or of the
statements submitted for taxation purposes to the Bureau of
person administering the government or a department of the