Banking Law, Central Bank Act, SRC, Foreign Investment, Letters of Credit

General Banking Law, New Central Bank Act, SRC, Foreign Investment Act, Letters of Credit, Trust Receipts,
IPL
(Moot Court, 2013-2014)
RA 337: GENERAL BANKING ACT
BANKS- engaged in the lending of funds obtained in the form of deposits

-entities engaged in the lending of funds obtained in the forms of deposits from the public.
Fiduciary nature of banking:
SECTION 2.Declaration of Policy. — The State recognizes the vital role of banks in providing an environment conducive to the
sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity
and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial
system that is globally competitive, dynamic and responsive to the demands of a developing economy.
Role of banks in the economy:

a. Money
b. Payment system
c. Financial intermediation
FINANCIAL INTERMEDIATION - conduits between supplier of funds and users of funds

- Financial intermediaries are persons or entities whose principal functions include the lending, investing, or placement
of funds on evidences of indebtedness or equity deposited with them, acquired by them or otherwise coursed
through them, either for their own account or for the account of others
2 basic functions:
1. Lending
2. Deposits
- Must secure authority to engage in banking
Westmont Bank v. dela Rosa-Ramos
It must be remembered that public interest is intimately carved into the banking industry because the primordial concern here is
the trust and confidence of the public. This fiduciary nature of every bank's relationship with its clients/depositors impels it to
exercise the highest degree of care, definitely more than that of a reasonable man or a good father of a family. It is, therefore,
required to treat the accounts and deposits of these individuals with meticulous care. The rationale behind this is well-expressed
in Sandejas v. Ignacio,
The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of
every civilized society — banks have attained a ubiquitous presence among the people, who have come to regard them with
respect and even gratitude and most of all, confidence, and it is for this reason, banks should guard against injury attributable
to negligence or bad faith on its part.
Considering that banks can only act through their officers and employees, the fiduciary obligation laid down for these
institutions necessarily extends to their employees. Thus, banks must ensure that their employees observe the same high level of
integrity and performance for it is only through this that banks may meet and comply with their own fiduciary duty. It has been
repeatedly held that "a bank's liability as an obligor is not merely vicarious, but primary" since they are expected to observe an
equally high degree of diligence, not only in the selection, but also in the supervision of its employees. Thus, even if it is their
employees who are negligent, the bank's responsibility to its client remains paramount making its liability to the same to be a
direct one.
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General Banking Law, New Central Bank Act, SRC, Foreign Investment Act, Letters of Credit, Trust Receipts, IPL
(Moot Court, 2013-2014)
Equitable PCI vs. Arcelito Tan (2010)
The diligence required of banks, therefore, is more than that of a good father of a family. In every case, the depositor expects
the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos 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 the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident
that the bank will deliver it as and to whomever he directs. From the foregoing, it is clear that petitioner bank did not exercise
the degree of diligence that it ought to have exercised in dealing with its client.
In its memorandum filed before the RTC, petitioner submits that respondent caused confusion on the true date of the check by
writing the date of the check as 5/3/0/92. If, indeed, petitioner was confused on whether the check was dated May 3 or May 30
because of the "/" which allegedly separated the number "3" from the "0," petitioner should have required respondent drawer
to countersign the said "/" in order to ascertain the true intent of the drawer before honoring the check. As a matter of
practice, bank tellers would not receive nor honor such checks which they believe to be unclear, without the counter-signature
of its drawer. Petitioner should have exercised the highest degree of diligence required of it by ascertaining from the
respondent the accuracy of the entries therein, in order to settle the confusion, instead of proceeding to honor and receive the
check. Evidently, the bank's negligence was the result of lack of due care required of its managers and employees in handling
the accounts of its clients. Petitioner was negligent in the selection and supervision of its employees.
CENTRAL BANK OF THE PHILIPPINES, petitioner, vs. CITYTRUST BANKING CORPORATION,respondent. (2009)
Petitioner's teller Iluminada did not verify Flores' signature on the flimsy excuse that Flores had had previous transactions with
it for a number of years. That circumstance did not excuse the teller from focusing attention to or at least glancing at Flores as
he was signing, and to satisfy herself that the signature he had just affixed matched that of his specimen signature. Had she
done that, she would have readily been put on notice that Flores was affixing, not his but a fictitious signature.
Citytrust's failure to timely examine its account, cancel the checks and notify petitioner of their alleged loss/theft should
mitigate petitioner's liability, in accordance with Article 2179 of the Civil Code which provides that if the plaintiff's negligence
was only contributory, the immediate and proximate cause of the injury being the defendant's lack of due care, the plaintiff
may recover damages, but the courts shall mitigate the damages to be awarded. For had Citytrust timely discovered the
loss/theft and/or subsequent encashment, their proceeds or part thereof could have been recovered. c
Tan vs. CA GR 108555, 20 December 1994 First Division, Kapunan (J)
Facts: Ramon Tan, a businessman from Puerto Princesa, secured a Cashier’s Check from Philippine Commercial Industrial Bank
(PCIBank) amounting to P30,000 payable to his order, to avoid carrying cash while in route to Manila. He deposited the check in
his account in Rizal Commercial Banking Corporation (RCBC) in its Binondo Branch.
RCBC sent the check for clearing to the Central Bank which was returned for having been “missent” or “misrouted.” RCBC
debited Tan’s account without informing him. Relying on common knowledge that a cashier’s check was as good as cash, and a
month after depositing the check, he issued two personal checks in the name of Go Lak and MS Development Trading
Corporation. Both checks bounced due to “insufficiency of funds.” Tan filed a suit for damages against RCBC.
Issue: Whether a cashier’s check is as good as cash, so as to have funded the two checks subsequently drawn.
Held: An ordinary check is not a mere undertaking to pay an amount of money. There is an element of certainty or assurance
that it will be paid upon presentation; that is why it is perceived as a convenient substitute for currency in commercial and
financial transactions. Herein, what is involved is more than an ordinary check, but a cashier’s check. A cashier’s check is a
primary obligation of the issuing bank and accepted in advance by its mere issuance. By its very nature, a cashier’s check is a
bank’s order to pay what is drawn upon itself, committing in effect its total resources, integrity and honor beyond the check.
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Herein, PCIB by issuing the check created an unconditional credit in favor of any collecting bank. Reliance on the layman’s
perception that a cashier’s check is as good as cash is not entirely misplaced, as it is rooted in practice, tradition and principle.
What if the depositor is negligent which resulted into a loss?
Depositors have no knowledge with respect to technicalities in the banking industry. Even, there is a patent error on the part of
the depositor banks can still be held liable if its employees are also negligent because depositors are not expected to know the
internal rules and procedures of a bank. So, banks should exercise greater caution because of the important roles and the
fiduciary nature of their business.
Definition and Classification of Banks
*came out in the 2010 bar worth 10 points
SECTION 3.Definition and Classification of Banks. —

3.1."Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits. (2a)
3.2. Banks shall be classified into:
(a)Universal banks;
(b)Commercial banks;
(c)Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock savings and loan associations, and (iii) Private
development banks, as defined in Republic Act No. 7906 (hereafter the "Thrift Banks Act");
(d)Rural banks, as defined in Republic Act No. 7353 (hereafter the "Rural Banks Act");
(e)Cooperative banks, as defined in Republic Act No. 6938 (hereafter the "Cooperative Code");
(f)Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al Amanah Islamic Investment Bank of
the Philippines"; and
(g)Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas. (6-Aa)
Universal banks - Banks that have authority to exercise, in addition to the powers of commercial banks, the powers of an
investment house and the powers to invest in non-allied enterprises
Commercial banks – ordinary banks governed by the GBL which have a lower capitalization requirement than universal banks
and can exercise neither the powers of an investment house nor invest in non-allied enterprises
Thrift bank - those that are engaged in (i) Savings and mortgage banks, (ii) Stock savings and loan associations, and (iii) Private
development banks, as defined in the Republic Act No. 7906.
Rural bank - caters to those in the countryside, in the rural areas. Its primary function is to extend loans, credit to farmers,
fisher folks etc.
Cooperative banks - caters to cooperatives. It extends loans and assistance to cooperatives
Islamic banks - caters to our Muslim brothers and sisters
Ownership, Organization, Incorporation and Authority to engage in banking and quasi-banking functions:
SECTION 6.Authority to Engage in Banking and Quasi-Banking Functions. — No person or entity shall engage in banking
operations or quasi-banking functions without authority from the Bangko Sentral: Provided,however, That an entity authorized
by the Bangko Sentral to perform universal or commercial banking functions shall likewise have the authority to engage in
quasi-banking functions.
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The determination of whether a person or entity is performing banking or quasi-banking functions without Bangko Sentral
authority shall be decided by the Monetary Board. To resolve such issue, the Monetary Board may, through the appropriate
supervising and examining department of the Bangko Sentral, examine, inspect or investigate the books and records of such
person or entity. Upon issuance of this authority, such person or entity may commence to engage in banking operations or
quasi-banking functions and shall continue to do so unless such authority is sooner surrendered, revoked, suspended or annulled
by the Bangko Sentral in accordance with this Act or other special laws.
The department head and the examiners of the appropriate supervising and examining department are hereby authorized to
administer oaths to any such person, employee, officer, or director of any such entity and to compel the presentation or
production of such books, documents, papers or records that are reasonably necessary to ascertain the facts relative to the true
functions and operations of such person or entity. Failure or refusal to comply with the required presentation or production of
such books, documents, papers or records within a reasonable time shall subject the persons responsible therefor to the penal
sanctions provided under the New Central Bank Act.
Persons or entities found to be performing banking or quasi-banking functions without authority from the Bangko Sentral shall
be subject to appropriate sanctions under the New Central Bank Act and other applicable laws. (4a)
SECTION 8.Organization. — The Monetary Board may authorize the organization of a bank or quasi-bank subject to the
following conditions:
8.1.That the entity is a stock corporation (7);
8.2.That its funds are obtained from the public, which shall mean twenty (20) or more persons (2-Da); and
8.3.That the minimum capital requirements prescribed by the Monetary Board for each category of banks are satisfied. (n)
No new commercial bank shall be established within three (3) years from the effectivity of this Act. In the exercise of the
authority granted herein, the Monetary Board shall take into consideration their capability in terms of their financial resources
and technical expertise and integrity. The bank licensing process shall incorporate an assessment of the bank's ownership
structure, directors and senior management, its operating plan and internal controls as well as its projected financial condition
and capital base.
SECTION 9.Issuance of Stocks. — The Monetary Board may prescribe rules and regulations on the types of stock a bank may
issue, including the terms thereof and rights appurtenant thereto to determine compliance with laws and regulations governing
capital and equity structure of banks: Provided, That banks shall issue par value stocks only.
SECTION 10.Treasury Stocks. — No bank shall purchase or acquire shares of its own capital stock or accept its own shares as a
security for a loan, except when authorized by the Monetary Board: Provided, That in every case the stock so purchased or
acquired shall, within six (6) months from the time of its purchase or acquisition, be sold or disposed of at a public or private
sale. (24a) cdphil
SECTION 11.Foreign Stockholdings. — Foreign individuals and non-bank corporations may own or control up to forty percent
(40%) of the voting stock of a domestic bank. This rule shall apply to Filipinos and domestic non-bank corporations. (12a; 12-Aa)
The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the individual stockholders in
that bank. The citizenship of the corporation which is a stockholder in a bank shall follow the citizenship of the controlling
stockholders of the corporation, irrespective of the place of incorporation. (n)
SECTION 12.Stockholdings of Family Groups or Related Interests. — Stockholdings of individuals related to each other within the
fourth degree of consanguinity or affinity, legitimate or common-law, shall be considered family groups or related interests and
must be fully disclosed in all transactions by such an individual with the bank. (12-Da)
SECTION 13.Corporate Stockholdings. — Two or more corporations owned or controlled by the same family group or same
group of persons shall be considered related interests and must be fully disclosed in all transactions by such corporations or
related groups of persons with the bank. (12-Ba)
SECTION 14.Certificate of Authority to Register. — The Securities and Exchange Commission shall not register the articles of
incorporation of any bank, or any amendment thereto, unless accompanied by a certificate of authority issued by the Monetary
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Board, under its seal. Such certificate shall not be issued unless the Monetary Board is satisfied from the evidence submitted to
it:
14.1.That all requirements of existing laws and regulations to engage in the business for which the applicant is proposed to be
incorporated have been complied with;
14.2.That the public interest and economic conditions, both general and local, justify the authorization; and
14.3.That the amount of capital, the financing, organization, direction and administration, as well as the integrity and
responsibility of the organizers and administrators reasonably assure the safety of deposits and the public interest. (9)
The Securities and Exchange Commission shall not register the by-laws of any bank, or any amendment thereto, unless
accompanied by a certificate of authority from the Bangko Sentral. (10)
OPERATIONS OF BANKS
SECTION 15.Board of Directors. — The provisions of the Corporation Code to the contrary notwithstanding, there shall be at
least five (5), and a maximum of fifteen (15) members of the board of directors of a bank, two (2) of whom shall be independent
directors. An "independent director" shall mean a person other than an officer or employee of the bank, its subsidiaries or
affiliates or related interests. (n)
Non-Filipino citizens may become members of the board of directors of a bank to the extent of the foreign participation in the
equity of said bank. (Sec. 7, RA 7721)
The meetings of the board of directors may be conducted through modern technologies such as, but not limited to,
teleconferencing and video-conferencing. (n)
SECTION 16.Fit and Proper Rule. — To maintain the quality of bank management and afford better protection to depositors and
the public in general, the Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and disqualify those found unfit.
After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank director
or officer who commits or omits an act which render him unfit for the position.
In determining whether an individual is fit and proper to hold the position of a director or officer of a bank, regard shall be given
to his integrity, experience, education, training, and competence. (9-Aa)
SECTION 17.Directors of Merged or Consolidated Banks. — In the case of a bank merger or consolidation, the number of
directors shall not exceed twenty-one (21). (13a)
SECTION 18.Compensation and Other Benefits of Directors and Officers. — To protect the funds of depositors and creditors, the
Monetary Board may regulate the payment by the bank to its directors and officers of compensation, allowance, fees, bonuses,
stock options, profit sharing and fringe benefits only in exceptional cases and when the circumstances warrant, such as but not
limited to the following:
18.1.When a bank is under comptrollership or conservatorship; or
18.2.When a bank is found by the Monetary Board to be conducting business in an unsafe or unsound manner; or
18.3.When a bank is found by the Monetary Board to be in an unsatisfactory financial condition. (n) cda
SECTION 19.Prohibition on Public Officials. — Except as otherwise provided in the Rural Banks Act, no appointive or elective
public official, whether full-time or part-time shall at the same time serve as officer of any private bank, save in cases where
such service is incident to financial assistance provided by the government or a government-owned or controlled corporation to
the bank or unless otherwise provided under existing laws. (13)
BANK BRANCHES
SECTION 20.Bank Branches. — Universal or commercial banks may open branches or other offices within or outside the
Philippines upon prior approval of the Bangko Sentral.
Branching by all other banks shall be governed by pertinent laws.
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A bank may, subject to prior approval of the Monetary Board, use any or all of its branches as outlets for the presentation
and/or sale of the financial products of its allied undertaking or of its investment house units.
A bank authorized to establish branches or other offices shall be responsible for all business conducted in such branches and
offices to the same extent and in the same manner as though such business had all been conducted in the head office. A bank
and its branches and offices shall be treated as one unit. (6-B; 27)
Sec. 375, New Insurance Code. The term bancassurance shall mean the presentation and sale to bank customers by an insurance
company of its insurance products within the premises of the head office of such bank duly licensed by the BSP or any of its
branches under such rules and regulations which the Commissioner and the BSP may promulgate. To engage in bancassurance
arrangement, a bank is not required to have equity ownership of the insurance company. No insurance company shall enter into
a bancassurance arrangement unless it possesses all the requirements as may be prescribed by the Commissioner and the BSP.
No insurance product under this section, whether life or non-life, shall be issued or delivered unless in the form previously
approved by the commissioner.
BANKING DAYS AND HOURS
SECTION 21.Banking Days and Hours. — Unless otherwise authorized by the Bangko Sentral in the interest of the banking public,
all banks including their branches and offices shall transact business on all working days for at least six (6) hours a day. In
addition, banks or any of their branches or offices may open for business on Saturdays, Sundays or holidays for at least three (3)
hours a day: Provided, That banks which opt to open on days other than working days shall report to the Bangko Sentral the
additional days during which they or their branches or offices shall transact business.
For purposes of this Section, working days shall mean Mondays to Fridays, except if such days are holidays. (6-Ca)
DEPOSIT FUNCTION
THE CONSOLIDATED BANK and TRUST CORPORATION vs. COURT OF APPEALS and L.C. DIAZ and COMPANY, CPA’s
G.R. No. 138569, Sep 11, 2003.
FACTS:
Petitioner Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C.
Diaz and Company, CPA’s, is a professional partnership engaged in the practice of accounting.
In March 1976, L.C. Diaz opened a savings account with Solidbank. On 14 August 1991, L.C. Diaz through its cashier, Mercedes
Macaraya, filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the
messenger of L.C. Diaz, Ismael Calapre, to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank
passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged the
receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit
slips with the words “DUPLICATE” and “SAVING TELLER 6 SOLIDBANK HEAD OFFICE.” Since the transaction took time and
Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to
Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that “somebody got the
passbook.” Calapre went back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya and Calapre went to
Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the words “DUPLICATE” and “SAVING
TELLER 6 SOLIDBANK HEAD OFFICE” on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller
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No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When
Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the
passbook. Calapre was then standing beside Macaraya.
The following day L.C. Diaz learned of the unauthorized withdrawal the day before (14 August 1991) of P300,000 from its
savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz
and Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the
P300,000.
L.C. Diaz demanded from Solidbank the return of its money. Solidbank refused. L.C. Diaz filed a Complaint for Recovery of a Sum
of Money against Solidbank. The trial court absolved Solidbank. L.C. Diaz appealed to the CA. CA reversed the decision of the
trial court. CA denied the motion for reconsideration of Solidbank. But it modified its decision by deleting the award of
exemplary damages and attorney’s fees. Hence this petition.
ISSUE:
WON petitioner Solidbank is liable.
RULING:
Yes. Solidbank is liable for breach of contract due to negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. Article 1980 of
the Civil Code expressly provides that “x x x savings x x x deposits of money in banks and similar institutions shall be governed
by the provisions concerning simple loan.” There is a debtor-creditor relationship between the bank and its depositor. The bank
is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor
on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. The bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.
This fiduciary relationship means that the bank’s obligation to observe “high standards of integrity and performance” is deemed
written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to
assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree
of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good
father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from banks – that banks must observe “high
standards of integrity and performance” in servicing their depositors.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its
depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is
failure to pay a simple loan, and not a breach of trust. The law simply imposes on the bank a higher standard of integrity and
performance in complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors
under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to
enrich depositors but to earn money for themselves.
Solidbank’s Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that “responsibility arising from negligence in the performance of every kind of
obligation is demandable.” For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is
liable to its depositor.
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1. Calapre left the passbook with Solidbank because the “transaction took time” and he had to go to Allied Bank for
another transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the
deposit when Calapre left Solidbank. When the passbook is in the possession of Solidbank’s tellers during
withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the
passbook.
2. Solidbank’s tellers must exercise a high degree of diligence in insuring that they return the passbook only to the
depositor or his authorized representative. For failing to return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in
safeguarding the passbook, and in insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or
negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the
plaintiff has the burden of proving that the defendant was negligent. In the present case, L.C. Diaz has established that
Solidbank breached its contractual obligation to return the passbook only to the 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 passbook to Calapre. The burden
was on Solidbank to prove that there was no negligence on its part or its employees. But Solidbank failed to discharge its
burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left the passbook and who was
supposed to return the passbook to him. Solidbank also failed to adduce in evidence its standard procedure in verifying the
identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in
the present case.
Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility.
The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in
culpa contractual, unlike in culpa aquiliana. The bank must not only exercise “high standards of integrity and performance,” it
must also insure that its employees do likewise because this is the only way to insure that the bank will comply with its fiduciary
duty
Proximate Cause of the Unauthorized Withdrawal

Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury and without which the result would not have occurred. Proximate cause is determined by the facts of each
case upon mixed considerations of logic, common sense, policy and precedent.
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the passbook
while it was processing the deposit. After completion of the transaction, Solidbank had the contractual obligation to return the
passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because
it gave the passbook to another person.
Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the
proximate cause of the unauthorized withdrawal was Solidbank’s negligence in not returning the passbook to Calapre.
Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later
than that of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the
last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss. The antecedent negligence of the plaintiff
does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last fair
chance to prevent the impending harm by the exercise of due diligence.
We do not apply the doctrine of last clear chance to the present case. This is a case of culpa contractual, where neither the
contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability.
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Such contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the
plaintiff but does not exculpate the defendant from his breach of contract.
Mitigated Damages
Under Article 1172, “liability (for culpa contractual) may be regulated by the courts, according to the circumstances.” This
means that if the defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff
was guilty of contributory negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of
contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor.
Thus, the liability of Solidbank should be reduced.
In PBC v. CA where the Court held the depositor guilty of contributory negligence, we allocated the damages between the
depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the
actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual damages.
TEOFISTO GUINGONA, JR., ANTONIO MARTIN, and TERESITA SANTOS v. CITY FISCAL FLAMINIANO, ASST. CITY FISCAL LOTA
and CLEMENT DAVID (1984)
Facts:
David invested several deposits with the Nation Savings and Loan Association [NSLA]. He said that he was induced into making
said investments by an Australian national who was a close associate of the petitioners [NSLA officials]. On March 1981, NSLA
was placed under receivership by the Central Bank, so David filed claims for his and his sister’s investments.
On June 1981, Guingona and Martin, upon David’s request, assumed the bank’s obligation to David by executing a joint
promissory note. On July 1981, David received a report that only a portion of his investments was entered in the NSLA records.
On December 1981, David charged petitioners with estafa and violation of Central Bank Circular No. 364 and related regulations
on foreign exchange transactions.
Petitioners moved to dismiss the charges against them for lack of jurisdiction because David's claims allegedly comprised a
purely civil obligation, but the motion was denied.
Held:
When David invested his money on time and savings deposits with NSLA, the contract that was perfected was a contract of
simple loan or mutuum and not a contract of deposit. The relationship between David and NSLA is that of creditor and debtor.
While the Bank has the obligation to return the amount deposited, it has no obligation to return or deliver the same money that
was deposited. NSLA’s failure to return the amount deposited will not constitute estafa through misappropriation, but it will
only give rise to civil liability over which the public respondents have no jurisdiction.
Considering that petitioners’ liability is purely civil in nature and that there is no clear showing that they engaged in foreign
exchange transactions, public respondents acted without jurisdiction when they investigated the charges against the
petitioners. Public respondents should be restrained from further proceeding with the criminal case for to allow the case to
continue would work great injustice to petitioners and would render meaningless the proper administration of justice.
Even granting that NSLA’s failure to pay the time and savings deposits would constitute a violation of RPC 315, paragraph 1(b),
any incipient criminal liability was deemed avoided. When NSLA was placed under receivership, Guingona and Martin assumed
the obligation to David, thereby resulting in the novation of the original contractual obligation. The original trust relation
between NSLA and David was converted into an ordinary debtor-creditor relation between the petitioners and David. While it is
true that novation does not extinguish criminal liability, it may prevent the rise of criminal liability as long as it occurs prior to
the filing of the criminal information in court.
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ASSOCIATED BANK (Now WESTMONT BANK), petitioner, vs. VICENTE HENRY TAN, respondent. (2004)
A bank generally has a right of setoff over the deposits therein for the payment of any withdrawals on the part of a
depositor. The right of a collecting bank to debit a client's account for the value of a dishonored check that has previously been
credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed,
savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple
loan."
The liability of petitioner in this case ultimately revolves around the issue of whether it properly exercised its right of setoff.
Did petitioner treat respondent's account with the highest degree of care? From all indications, it did not.
It is undisputed — nay, even admitted — that purportedly as an act of accommodation to a valued client, petitioner allowed the
withdrawal of the face value of the deposited check prior to its clearing. That act certainly disregarded the clearance
requirement of the banking system. Such a practice is unusual, because a check is not legal tender or money; and its value can
properly be transferred to a depositor's account only after the check has been cleared by the drawee bank.
Under ordinary banking practice, after receiving a check deposit, a bank either immediately credit the amount to a depositor's
account; or infuse value to that account only after the drawee bank shall have paid such amount. Before the check shall have
been cleared for deposit, the collecting bank can only "assume" at its own risk — as herein petitioner did — that the check
would be cleared and paid out.
Central Bank vs. Morfe (1975)
1.BANKS: CLAIMS AND CREDITS AGAINST AN INSOLVENT BANK; JUDGMENT OBTAINED AFTER DECLARATION OF INSOLVENCY
NOT A PREFERRED CLAIM. — Article 2244 (14)(b) of the Civil Code on preferred credits does not apply to judgments for the
payment of the deposits in an insolvent savings bank which obtained after the declaration of insolvency.
2.ID.; ID.; ID.; RATIONALE. — A contrary rule on practice would be productive of injustice, mischief and confusion. To recognize
such judgments as entitled to priority would mean that depositors in insolvent banks, after learning that the bank is insolvent as
shown by the fact that it can no longer pay withdrawals or that it has closed its doors or has been enjoined by the Monetary
Board from doing business, would rush to the courts to secure judgments for the payment of their deposits. In such eventuality,
the courts would be swamped with suits of that character. Some of the judgments would be default judgment. Depositors
armed with such judgments would pester the liquidation court with claims for preference on the basis of Article 2244 (14)(b) of
the Civil Code. Less alert depositors would be prejudiced. That inequitable situation could not have been contemplated by the
framers of section 29 of the General Banking Law on the proceedings upon insolvency.
3.ID.; ID.; ASSETS OF INSOLVENT BANK HELD IN TRUST FOR THE EQUAL BENEFIT OF ALL CREDITORS. — "The general principle of
equality that the assets of an insolvent are to be distributed ratably among general creditors applies with full force to the
distribution of the assets of a bank. A general depositor of a bank is merely a general creditor, and, as such, is not entitled to
any preference or priority over other general creditors. The assets of a bank in process of liquidation are held in trust for the
equal benefit of all creditors, and one cannot be permitted to obtain an advantage or preference over, another by an
attachment, execution or otherwise.
4.ID.; ID.; EFFECT OF JUDGMENT OBTAINED BY A CREDITOR.— The effect of a judgment obtained against it by a creditor is only
to fix the amount of debt. He can acquire no lien which will give him any preference or advantage over other general creditors.
WHO CAN DEPOSIT
PRESIDENTIAL DECREE No. 734 June 25, 1975
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AUTHORIZING MINORS TO DEPOSIT WITH AND WITHDRAW FROM BANKS

Section 1. Minors who are at least seven years of age, are able to read and write, have sufficient discretion, and are not
otherwise disqualified by any other incapacity, are hereby vested with special capacity and power, in their own right and in their
own names, to make savings or time deposits with and withdraw the same as well as receive interests thereon from banking
institutions, without the assistance of their parents or guardians, the provisions of existing laws and regulations to the contrary
notwithstanding. Parents may nevertheless deposit for their minor children and guardians for their wards.
Types of accounts
1. Joint Accounts
a.) And Account – Needs the signature of both depositors.
b.) And/Or Account – Any one of the depositors may sign.
2. Individual Accounts
Types of deposits
1. Demand Deposits - refer to the obligation of the bank to issue money on demand upon the presentation of checks.
Normally non-interest bearing
2. Savings Deposits - refer to the account wherein the depositor is not allowed to withdraw without presenting a
withdrawal slip. Interest-bearing
3. Now Accounts - is a combination of both, because it is withdrawable on demand but it is the nature of a savings
deposit because it is interest-bearing.
4. Time Deposits - interest-bearing but with a fixed and long-term maturity date.
5. Long-term negotiable certificates of deposits - are negotiable but has a minimum maturity date of five (5) years
Secrecy of Bank Deposits

RA1405 or An Act Prohibiting Disclosure or Inquiry into Deposits.
RA 1405 Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in
bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as
of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official,
bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent
court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject
matter of the litigation.
Amendment to Sec. 6 of NIRC
[REPUBLIC ACT NO. 10168]

AN ACT DEFINING THE CRIME OF FINANCING OF TERRORISM, PROVIDING PENALTIES THEREFOR AND FOR OTHER PURPOSES
July 25, 2011
SEC. 10. Authority to Investigate Financing of Terrorism. – The AMLC, either upon its own initiative or at the request of the ATC,
is hereby authorized to investigate: (a) any property or funds that are in any way related to financing of terrorism or acts of
terrorism; (b) property or funds of any person or persons in relation to whom there is probable cause to believe that such person
or persons are committing or attempting or conspiring to commit, or participating in or facilitating the financing of terrorism or
acts of terrorism as defined herein.
The AMLC may also enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the
government, including government-owned and -controlled corporations in undertaking measures to counter the financing of
terrorism, which may include the use of its personnel, facilities and resources.
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For purposes of this section and notwithstanding the provisions of Republic Act No. 1405, otherwise known as the “Law on
Secrecy of Bank Deposits”, as amended; Republic Act No. 6426, otherwise known as the “Foreign Currency Deposit Act of the
Philippines”, as amended; Republic Act No. 8791, otherwise known as “The General Banking Law of 2000″ and other laws,
the AMLC is hereby authorized to inquire into or examine deposits and investments with any banking institution or non-bank
financial institution and their subsidiaries and affiliates without a court order.
RA9372 Human Securities Act - This allows the Justice of the Court of Appeals to issue an order to the police officer to examine
bank records of those who are suspected of terrorist acts.
Section 8 of the RA3019 or the Anti Graft and Corrupt Practices Act, Section 8 as “Dismissal due to unexplained wealth” is also
one of the exceptions because SC said it is similar to bribery or dereliction of duty of public officials, they are analogous cases.
Section 11 of RA9160 (Anti Money Laundering Act) also provides exceptions to the bank secrecy law.
Covered transactions are also exceptions to the bank secrecy law. Covered transactions are those in excess of P500,000
per banking day.
The reporting requirement also applies to suspicious transactions. If the source of your income is not clear, it will be
considered a suspicious transaction.
Republic vs. Eugenio
FACTS: After the Agan v. PIATCO ruling, a series of investigations concerning the award of the NAIA 3 contracts to PIATCO were
undertaken by the Ombudsman and the Compliance and Investigation Staff (“CIS”) of the Anti-Money Laundering Council
(“AMLC”). The OSG wrote AMLC requesting AMLC’s assistance “
In obtaining more evidence to completely reveal the financial trail of corruption surrounding the NAIA 3 Project,” and also
noting that the Republic was presently defending itself in two international arbitration cases.
The CIS conducted an intelligence database search on the financial transactions of certain individuals involved in the award,
including Alvarez (Chairman of the Pre-Qualification Bids and Awards Technical Committee). By this time, Alvarez had already
been charged by the Ombudsman with violation of Section 3(J) of the Anti Graft and Corrupt Practices Act.
Sec. 3. Corrupt practices of public officers.

- In addition to acts or omissions of public officers already penalized by existing law, the following shall constitute corrupt
practices of any public officer and are hereby declared to be unlawful:(j) Knowingly approving or granting any license, permit,
privilege or benefit in favor of any person not qualified for or not legally entitled to such license, permit, privilege or advantage,
or of a mere representative or dummy of one who is not so qualified or entitled.
(e) Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits,
advantage or preference in the discharge of his official administrative or judicial functions through manifest partiality, evident
bad faith or gross inexcusable negligence. This provision shall apply to officers and employees of offices or government
corporations charged with the grant of licenses or permits or other concessions.
The search revealed that Alvarez maintained 8 bank accounts with 6 different banks. The AMLC issued a resolution authorizing
its Executive Director to sign and verify an application to inquire into the deposits or investments of Alvarez et al. and to
authorize the AMLC Secretariat to conduct an inquiry once the RTC grants the application. The rationale for the resolution was
founded on the findings of the CIS that amounts were transferred from a Hong Kong bank account to bank accounts in the
Philippines maintained by respondents. The Resolution also noted that by awarding the contract to PIATCO (despite its lack of
financial capacity) Alvarez violated Section 3(E) of the Anti Graft and Corrupt Practices Act.
Alvarez alleged that he fortuitously learned of the bank inquiry order, which was issued following an ex parte application, and
he argued that nothing in the Anti-Money Laundering Act (“AMLA”) authorized the AMLC to seek the authority to inquire into
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bank accounts ex parte. After several motions, manifestations, orders and resolutions the case went up to the SC. Alvarez et
al.’s position:
The AMLA, being a substantive penal statute, has no retroactive effect and the bank inquiry order could not apply to deposits or
investments opened prior to the effectivity of the AMLA (17 October 2001). The subject bank accounts, opened in 1989 to 1990,
could not be the subject of the bank inquiry order without violating the constitutional prohibition against ex post facto laws.
ISSUE: Whether or not the proscription against ex post facto laws applies to Section 11 of the AMLA (a provision which does not
provide a penal sanction but merely authorizes the inspection of suspect accounts and deposits).
HELD:
YES. It is clear that no person may be prosecuted under the penal provisions of the AMLA for acts committed prior to the
enactment of the law (17 October 2001).With respect to the AUTHORITY TO INSPECT, it should be noted that an ex post facto
law is one that (among others) deprives a person accused of a crime of some lawful protection to which he has become
entitled, such as the protection of a former conviction or acquittal, or a proclamation of amnesty. PRIOR to the AMLA:
(1) The fact that bank accounts were involved in activities later on enumerated in the law did not, by itself, remove such
accounts from the shelter of absolute confidentiality.
(2) In order that bank accounts could be examined, there was need to secure either the written permission of the depositor OR
a court order authorizing such examination, assuming that they were involved in cases of bribery or dereliction of duty of public
officials, or in a case where the money deposited or invested was itself the subject matter of the litigation.
Please read the original for the other issues aside from Art. 3,§22.4
Section 11. Authority to inquire into Bank Deposits.

Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act
No.8791, and other laws, the AMLC may inquire into or examine any particular deposit or investment with any banking
institution or non-bank financial institution upon order of any competent court in cases of violation of this Act when it has been
established that there is probable cause that the deposits or investments involved are in any way related to a money laundering
offense: Provided, That this provision shall not apply to deposits and investments made prior to the effectivity of this Act.
The passage of the AMLA stripped another layer off the rule on absolute confidentiality that provided a measure of lawful
protection to the account holder. The application of the bank inquiry order as a means of inquiring into transactions entered
into prior to the passage of the AMLA would be constitutionally infirm, offensive as to the ex post facto clause. Nevertheless,
the argument that the prohibition against ex post facto laws goes as far as to prohibit any inquiry into deposits in bank accounts
opened prior to the effectivity of the AMLA even if the transactions were entered into when the law had already taken effect
cannot be sustained. This argument will create a loophole in the AMLA that would result to further money laundering. It is hard
to presume that Congress intended to enact a self-defeating law in the first place, and the courts are inhibited from such a
construction by the cardinal rule that “a law should be interpreted with a view to upholding rather than destroying it.”
SECTION 54.Prohibition to Act as Insurer. — A bank shall not directly engage in insurance business as the insurer. (73)
SECTION 20. Bank Branches. — Universal or commercial banks may open branches or other offices within or outside the
Philippines upon prior approval of the Bangko Sentral.
Branching by all other banks shall be governed by pertinent laws.
A bank may, subject to prior approval of the Monetary Board, use any or all of its branches as outlets for the presentation
and/or sale of the financial products of its allied undertaking or of its investment house units.
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A bank authorized to establish branches or other offices shall be responsible for all business conducted in such branches and
offices to the same extent and in the same manner as though such business had all been conducted in the head office. A bank
and its branches and offices shall be treated as one unit. (6-B; 27)
Section 54 vs. Section 20

- Section 54 prohibits banks from being insurers. Section 20 allows a bank to sell its insurance products of its allied
enterprises within its premises.
SECTION 55.Prohibited Transactions. —

55.1.No director, officer, employee, or agent of any bank shall — (a) Make false entries in any bank report or statement or
participate in any fraudulent transaction, thereby affecting the financial interest of, or causing damage to, the bank or any
person;
(b)Without order of a court of competent jurisdiction, disclose to any unauthorized person any information relative to the funds
or properties in the custody of the bank belonging to private individuals, corporations, or any other entity: Provided, That with
respect to bank deposits, the provisions of existing laws shall prevail;
(c)Accept gifts, fees or commissions or any other form of remuneration in connection with the approval of a loan or other credit
accommodation from said bank;
(d)Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any bank; or
(e)Outsource inherent banking functions.
Allowed:
- Outsourcing accounting and IT services but subject to prior Monetary Board approval.
- Janitorial services are allowed even without MB approval.
SECTION 56.Conducting Business in an Unsafe or Unsound Manner. — In determining whether a particular act or omission,
which is not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or trust entities, may be deemed
as conducting business in an unsafe or unsound manner for purposes of this Section, the Monetary Board shall consider any of
the following circumstances:
56.1.The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety,
stability, liquidity or solvency of the institution;
56.2.The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's depositors,
creditors, investors, stockholders or to the Bangko Sentral or to the public in general;
56.3.The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage or preference to the
bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident
bad faith or gross inexcusable negligence; or
56.4.The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the bank,
quasi-bank or trust entity, whether or not the director or officer profited or will profit thereby. cdtai
Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or unsound manner, the Monetary
Board may, without prejudice to the administrative sanctions provided in Section 37 of the New Central Bank Act, take action
under Section 30 of the same Act and/or immediately exclude the erring bank from clearing, the provisions of law to the
contrary notwithstanding. (n)
Unsafe and unsound manner – any action or lack of action which is contrary to generally accepted standards of operation
SECTION 57.Prohibition on Dividend Declaration. — No bank or quasi-bank shall declare dividends greater than its accumulated
net profits then on hand, deducting therefrom its losses and bad debts. Neither shall the bank nor quasi-bank declare
dividends, if at the time of declaration:
57.1Its clearing account with the Bangko Sentral is overdrawn; or
57.2It is deficient in the required liquidity floor for government deposits for five (5) or more consecutive days; or
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57.3It does not comply with the liquidity standards/ratios prescribed by the Bangko Sentral for purposes of determining funds
available for dividend declaration; or
57.4It has committed a major violation as may be determined by the Bangko Sentral. (84a)
Liquidity floor – bank is required to maintain deposits at certain levels (required for banks holding government deposits)
SECTION 51.Ceiling on Investments in Certain Assets. — Any bank may acquire real estate as shall be necessary for its own use
in the conduct of its business: Provided, however, That the total investment in such real estate and improvements thereof,
including bank equipment, shall not exceed fifty percent (50%) of combined capital accounts: Provided, further, That the equity
investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the bank's total
investment in real estate, unless otherwise provided by the Monetary Board. (25a)
SECTION 52.Acquisition of Real Estate by Way of Satisfaction of Claims. — Notwithstanding the limitations of the preceding
Section, a bank may acquire, hold or convey real property under the following circumstances:
52.1.Such as shall be mortgaged to it in good faith by way of security for debts;
52.2.Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or
52.3.Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall
purchase to secure debts due it.
Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the
bank within a period of five (5) years or as may be prescribed by the Monetary Board: Provided,however, That the bank may,
after said period, continue to hold the property for its own use, subject to the limitations of the preceding Section. (25a)
Union Bank vs. Tiu

There is no legal impediment for a bank to lease the properties it has received in satisfaction of debts within the five-year
period. But it must dispose it after five years.
In entering in the lease contract does not necessarily mean that the Bank has no intention of disposing the subject properties
because anyway the bank has 5 years to dispose such property. SC said that Section 52.2 contemplates a dacion en pago.
Underwriting – commercial bank cannot undertake, only universal bank.
Quasi-banks - shall refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with
recourse or acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653 (hereafter the "New Central
Bank Act") for purposes of relending or purchasing of receivables and other obligations. (2-Da) (Sec.4, GBL)
Elements of quasi-banking:
1. Borrowing for borrower’s own account - the borrower borrows as a principal
2. Borrowing from the public – 20 or more persons
(SECTION 8, GBL) Organization. — The Monetary Board may authorize the organization of a bank or quasi-bank
subject to the following conditions:
xxxx
8.2.That its funds are obtained from the public, which shall mean twenty (20) or more persons
3. Issuance of debt instruments other than deposits
4. For the purpose of relending or purchasing receivables and other obligations
As distinguished from banks:

- A quasi-bank deals with deposit substitutes, banks deal with deposits and lending
Borrowing by a quasi-bank has to be ‘with recourse’, otherwise, it will be set out from a quasi-banking activity.
It must have authority from the MB except when it is already registered as a universal or commercial bank.
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PROHIBITED TRANSACTIONS
- Several transactions which a bank cannot engage in
- Banks are prohibited to act as insurer. Differentiate it with section 20 which allows banks to sell insurance products of its allied
enterprises or financial products
SECTION 54: does not allow a bank itself to become an insurer..

- What is prohibited is INSURER independent
SECTION 55.1 E: prohibits a bank from outsourcing banking functions
- transactions dealing with deposits and loans are inherent banking functions
- outsourcing - you get third person to do it. Outsourcing is not allowed for inherent banking functions
- with or without court approval, it cannot be outsourced
**janitorial can be outsourced even without monetary board approval
“BANK IS NOT ALLOWED TO CONDUCT BUSINESS IN AN UNSAFE AND UNSOUND MANNER”

- No definition what is unsafe and unsound
BUT BANGKO CENTRAL DEFINED THIS AS: Any action or lack of action which is contrary to generally accepted standards of
prudent operation
POSSIBLE CONSEQUENCES: abnormal risk or loss

- Any act which does not violate the law or regulations of BSP
- Can cause damage to the bank, to shareholders and public
- Not an act in violation of law
- Imposes a risk on the bank, shareholders and the public
SECTION 57: prohibition on dividend declaration
1. If withdrawn
2. Deficient with the prescribed liquidity floor
- Minimum cash and assets of the bank can never go below that floor
- Required only when the bank is a depository for government agencies
- If bank is deficient in its liquidity floor for 5 or more days not allowed to declared dividends
INVESTMENTS OF A BANK IN REAL ESTATE

Under section 51: it cannot exceed 50% of the combined capital accounts of the bank. There’s a maximum that can be invested
in real estate
Section 52: allows a bank to hold on to certain real estate property in 3 instances:
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or
52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall
purchase to secure debts due it.
Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the
bank within a period of five (5) years or as may be prescribed by the Monetary Board: Provided, however, That the bank may,
after said period, continue to hold the property for its own use, subject to the limitations of the preceding Section. (25a)
POWERS OF COMMERCIAL BANK

COMMERCIAL BANK- has the general powers of a corporation
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How much can the bank invest in allied enterprise?

1. Based on the net worth of the bank
= total investments in equities of allied enterprise shall not exceed the net worth of the bank
Investment in any one allied enterprise should not exceed the net worth of the bank
35% s the aggregate limit for all enterprises
25% is the single limit or the investment in single allied enterprise
2nd limitation
**if financial allied enterprise is a thrift bank or rural bank – IT CAN INVEST IN 100% EQUITY
**if other financial allied enterprises other than thrift bank and rural bank—IT CAN INVEST ONLY IN MINORITY—it will not
exceed 49% of the equity in that final allied enterprise
So you have to look at two things:

1. The investment
2. And equity of the bank in thrift/rural bank.
- if OTHER FINANCIAL ALLIED ENTERPRISES: not exceeding 49% -commercial bank

- Can invest up to 100% of equity if NON FINANCIAL ALLIED ENTERPRISES
POWERS OF A UNIVERSAL BANK

- Engaged in INVESTMENT POWERS
INVESTMENTS LIMITS OF A UNIVERSAL BANK:

- Based on net worth of the bank
- Total equities of the bank whether allied or non-allied shall not exceed 50% of the net worth of the universal bank
ALLIED OR NON.ALLIED- shall not exceed limitation of the bank
OTHER TYPE OF LIMITATION BASED ON INVESTEE
1. Thrift Bank /Rural Bank and other financial enterprises - 100% of the equity can be acquired by a universal bank
2. Another universal bank and a commercial bank - can universal bank invest in them? YES BUT ONLY THE MINORITY
SHAREHOLDING OR 49%
Exception: UNDER SECTION 25: A publicly-listed universal or commercial bank may own up to one hundred percent (100%) of
the voting stock of only one other universal or commercial bank.
Only the investor- is publicly listed
Only universal and commercial bank are authorized to engage in QUASI-BANKING
FOREIGN BANKS
AN ACT LIBERALIZING THE ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS IN THE PHILIPPINES AND FOR OTHER
PURPOSES
Republic Act No. 7721 (18 May 1994)
Sec. 2. Modes of Entry. — The Monetary Board may authorize foreign banks to operate in the Philippine banking system through
any of the following modes of entry: (i) by acquiring, purchasing or owning up to sixty percent (60%) of the voting stock of an
existing bank; (ii) by investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary incorporated under
the laws of the Philippines; or (iii) by establishing branches with full banking authority: Provided, That a foreign bank may avail
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.
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Mode of entry:
1. Establishing a branch
Subsidiary – incorporate in the Phil, new juridical entity is created
Branch – without incorporating. It is governed by foreign law. Phil law will govern only with respect to its operations
2. Invest in a subsidiary – up to 60% of the voting stock of the subsidiary except Sec. 73 of GBL
Sec.73 – valid only up to seven years. After that period, go back to the 60% limitation.
SECTION 73.Acquisition of Voting Stock in a Domestic Bank. — Within seven (7) years from the effectivity of this Act and subject
to guidelines issued pursuant to the Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank to
acquire up to one hundred percent (100%) of the voting stock of only one (1) bank organized under the laws of the Republic
of the Philippines.
xxxx
Citibank vs. Sabeniano

It is true that the afore-quoted Section 20 of the General Banking Law of 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 universal 9 or commercial
bank, duly established and organized as a Philippine corporation in accordance with Section 8 of the same statute, 11 and
authorized to establish branches within or outside the Philippines.
The General Banking Law of 2000, however, does not make the same categorical statement as regards to foreign banks and
their branches in the Philippines. What Section 74 of the said law provides is that in case of a foreign bank with several
branches in the country, all such branches shall be treated as one unit. As to the relations between the local branches of a
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 "Home Office Guarantee," in which the head office of the foreign bank shall guarantee prompt
payment of all liabilities of its Philippine branches. While 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 applicable in all circumstances.
The Home Office Guarantee is included in Philippine statutes clearly for the protection of the interests of the depositors and
other creditors of the local branches of a foreign bank. 12 Since the head office of the bank is located in another country or
state, such a guarantee is necessary so as to bring the head office within Philippine jurisdiction, and to hold the same
answerable for the liabilities of its Philippine branches. Hence, the principle of the 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 accountability of the head
office for the liabilities of its local branches. It is under such attendant circumstances in which the American authorities and
jurisprudence presented by petitioners in their Motion for Partial Reconsideration were rendered.
Now the question that remains to be answered is whether the foreign bank can use the principle for a reverse purpose, in order
to extend the liability of a client to the foreign bank's Philippine branch to its head office, as well as 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
the client a debtor, not just of the Philippine branch, but also of the head office and all other branches of the foreign bank
around the world? This Court rules in the negative.
Unlike Philippine statutes, the American legislation explicitly defines the relations among foreign branches of an American bank.
Section 25 of the United States Federal Reserve Act 13 states that —
Every national banking association operating foreign branches shall conduct the accounts of each foreign branch independently
of the accounts of other foreign branches established by it and of its home office, and shall at the end of each fiscal period
transfer to its general ledger the profit or loss accrued at each branch as a separate item.
Suffice it to say for present analysis, branches or agencies of an international bank have been held to be independent entities
for a variety of purposes (a) deposits payable only at branch where made; (b) checks need be honored only when drawn on
branch where deposited; (c) subpoena duces tecum on foreign bank's record barred; (d) a foreign branch separate for
collection of forwarded paper; Thus in law there is nothing innately unitary about the organization of international banking
institutions.
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(Moot Court, 2013-2014)
Going back to the instant Petition, although this Court concedes that all the Philippine branches of petitioner Citibank should be
treated as one unit with its head office, it cannot be persuaded to declare that these Philippine branches are likewise a single
unit with the Geneva branch. It would be stretching the principle way beyond its intended purpose.
REPUBLIC ACT NO. 7653 NEW CENTRAL BANK ACT
SECTION 1.Declaration of Policy. — The State shall maintain a central monetary authority that shall function and operate as an
independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and
credit. In line with this policy, and considering its unique functions and responsibilities, the central monetary authority
established under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative autonomy.
Fiscal autonomy – manifested by BSP’s authority to impose fees, penalties, and to retain a portion of these, power to create its
own budget without approval of Congress
Administrative autonomy – independence in operations without intervention of the executive branch
SECTION 3.Responsibility and Primary Objective. — The Bangko Sentral shall provide policy directions in the areas of money,
banking, and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as provided in
this Act and other pertinent laws over the operations of finance companies and non-bank financial institutions performing quasi-
banking functions, hereafter referred to as quasi-banks, and institutions performing similar functions.
The primary objective of the Bangko Sentral is to maintain price ability conducive to a balanced and sustainable growth of the
economy. It shall also promote and maintain monetary stability and the convertibility of the peso.
Price stability – deals with the purchasing power of peso (which should be stable, not erratic)
- Has reference to inflation rate
- It is internal, that is, peso to goods
Monetary stability – external
- Deals with value of peso in relation to international currencies
Covertibility of peso – ability to convert peso to other currencies or to goods. Example, you can exchange your 1thou bill with
the bank to peso coins
Convertibility – external (other currencies)

Interconvertibility – internal (peso to peso)
SECTION 5, GBL, Policy Direction; Ratios, Ceilings and Limitations. — The Bangko Sentral shall provide policy direction in the
areas of money, banking and credit. (n)
For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or other forms of regulation on the different
types of accounts and practices of banks and quasi-banks which shall, to the extent feasible, conform to internationally
accepted standards, including those of the Bank for International Settlements (BIS). The Monetary Board may exempt particular
categories of transactions from such ratios, ceilings and limitations, but not limited to exceptional cases or to enable a bank or
quasi-bank under rehabilitation or during a merger or consolidation to continue in business with safety to its creditors,
depositors and the general public. (2-Ca)
SECTION 4, GBL. Supervisory Powers. — The operations and activities of banks shall be subject to supervision of the Bangko
Sentral. "Supervision" shall include the following:
4.1.The issuance of rules of conduct or the establishment of standards of operation for uniform application to all institutions or
functions covered, taking into consideration the distinctive character of the operations of institutions and the substantive
similarities of specific functions to which such rules, modes or standards are to be applied; cdtai
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(Moot Court, 2013-2014)
4.2.The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as
determined by the Monetary Board;
4.3.Overseeing to ascertain that laws and regulations are complied with;
4.4.Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether
an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found by or
discovered by an audit shall be immediately addressed;
4.5.Inquiring into the solvency and liquidity of the institution (2-D); or
4.6.Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision over the operations of and exercise regulatory powers over quasi-banks, trust
entities and other financial institutions which under special laws are subject to Bangko Sentral supervision. (2-Ca)
- This supervisions includes the power to audit.
SECTION 2.Creation of the Bangko Sentral. — There is hereby established an independent central monetary authority, which
shall be a body corporate known as the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko Sentral.
The capital of the Bangko Sentral shall be Fifty billion pesos (P50,000,000,000), to be fully subscribed by the Government of the
Republic, hereafter referred to as the Government, Ten billion pesos (P10,000,000,000) of which shall be fully paid for by the
Government upon the effectivity of this Act and the balance to be paid for within a period of two (2) years from the effectivity of
this Act in such manner and form as the Government, through the Secretary of Finance and Secretary of Budget and
Management, may thereafter determine.
Monetary Board
SECTION 6.Composition of the Monetary Board. — The powers and functions of the Bangko Sentral shall be exercised by
the Bangko Sentral Monetary Board, hereafter referred to as the Monetary Board, composed of seven (7) members appointed
by the President of the Philippines for a term of six (6) years.
SECTION 7.Vacancies. — Any vacancy in the Monetary Board created by the death, resignation, or removal of any member shall
be filled by the appointment of a new member to complete the unexpired period of the term of the member concerned.
SECTION 8.Qualifications. — The members of the Monetary Board must be natural-born citizens of the Philippines, at least
thirty-five (35) years of age, with the exception of the Governor who should at least be forty (40) years of age, of good moral
character, of unquestionable integrity, of known probity and patriotism, and with recognized competence in social and
economic disciplines. cda
SECTION 9.Disqualifications. — In addition to the disqualifications imposed by Republic Act No. 6713, a member of the
Monetary Board is disqualified from being a director, officer, employee, consultant, lawyer, agent or stockholder of any bank,
quasi-bank or any other institution which is subject to supervision or examination by the Bangko Sentral, in which case such
member shall resign from, and divest himself of any and all interests in such institution before assumption of office as member
of the Monetary Board.
The members of the Monetary Board coming from the private sector shall not hold any other public office or public employment
during their tenure.
No person shall be a member of the Monetary Board if he has been connected directly with any multilateral banking or financial
institution or has a substantial interest in any private bank in the Philippines, within one (1) year prior to his appointment;
likewise, no member of the Monetary Board shall be employed in any such institution within two (2) years after the expiration of
his term except when he serves as an official representative of the Philippine Government to such institution.
SECTION 11.Meetings. — The Monetary Board shall meet at least once a week. The Board may be called to a meeting by the
Governor of the Bangko Sentral or by two (2) other members of the Board.
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(Moot Court, 2013-2014)
The presence of four (4) members shall constitute a quorum: Provided, That in all cases the Governor or his duly designated
alternate shall be among the four (4).
Unless otherwise provided in this Act, all decisions of the Monetary Board shall require the concurrence of at least four (4)
members.
The Bangko Sentral shall maintain and preserve a complete record of the proceedings and deliberations of the Monetary Board,
including the tapes and transcripts of the stenographic notes, either in their original form or in microfilm.
SECTION 19.Authority of the Governor in Emergencies. — In case of emergencies where time is insufficient to call a meeting of
the Monetary Board, the Governor of the Bangko Sentral, with the concurrence of two (2) other members of the Monetary
Board, may decide any matter or take any action within the authority of the Board.
Members of the MB cannot act singly. NCBA requires majority under Sec. 11.
- It is not like ordinary corporations where majority of the quorum is required. Here, majority of members (four)
General rule: All decisions of the Monetary Board shall require the concurrence of at least four (4) members. Sec. 11
Exception: Section 19
SECTION 17.Powers and Duties of the Governor. — The Governor shall be the chief executive officer of the Bangko Sentral. His
powers and duties shall be to:
(a)prepare the agenda for the meetings of the Monetary Board and to submit for the consideration of the Board the policies and
measures which he believes to be necessary to carry out the purposes and provisions of this Act;
(b)execute and administer the policies and measures approved by the Monetary Board;
(c)direct and supervise the operations and internal administration of the Bangko Sentral. The Governor may delegate certain of
his administrative responsibilities to other officers or may assign specific tasks or responsibilities to any full-time member of the
Monetary Board without additional remuneration or allowance whenever he may deem fit or subject to such rules and
regulations as the Monetary Board may prescribe;
(d)appoint and fix the remunerations and other emoluments of personnel below the rank of a department head in accordance
with the position and compensation plans approved by the Monetary Board, as well as to impose disciplinary measures upon
personnel of the Bangko Sentral, subject to the provisions of Section 15(c) of this Act: Provided, That removal of personnel shall
be with the approval of the Monetary Board;
(e)render opinions, decisions, or rulings, which shall be final and executory until reversed or modified by the Monetary Board, on
matters regarding application or enforcement of laws pertaining to institutions supervised by the Bangko Sentral and laws
pertaining to quasi-banks, as well as regulations, policies or instructions issued by the Monetary Board, and the implementation
thereof; and
(f)exercise such other powers as may be vested in him by the Monetary Board.
SECTION 21.Deputy Governors. — The Governor of the Bangko Sentral, with the approval of the Monetary Board, shall appoint
not more than three (3) Deputy Governors who shall perform duties as may be assigned to them by the Governor and the Board.
In the absence of the Governor, a Deputy Governor designated by the Governor shall act as chief executive of the Bangko
Sentral and shall exercise the powers and perform the duties of the Governor. Whenever the Governor is unable to attend
meetings of government boards or councils in which he is an ex officio member pursuant to provisions of special laws, a Deputy
Governor as may be designated by the Governor shall be vested with authority to participate and exercise the right to vote in
such meetings.
Deputy governor – not necessarily a member of the MB
CLOSURE OF BANKS
APPOINTMENT OF CONSERVATORSHIP
SECTION 29, NCBA
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(Moot Court, 2013-2014)
PURPOSE OF CONSERVATORSHIP: to restore the viability of the operations of banks and quasi-banks
- Package of administrative, financial and organizational measures used to address the state of continuing inability to
maintain continuing liability
Lack of liquid assets
Conservatorship- transfer administration of the banks to conservator
LESS DRASTIC MEASURES THAT BSP CAN IMPOSE TO AID THE BANK HAVING LIQUDITY PROBLEMS:
1. Granting loans- banks can give 7-day credit
2. It required the bank’s DOSRI TO PAY UP THEIR LOAN OR INCREASE COLLATERAL
What do you call that power? POWER OF SUPERVISION

CERTAIN ASPECTS OF POWER OF SUPERVISION- one of the powers is to enforce prompt corrective action
Bangko Sentral is not limited to directly put the bank in receivership.

1. It can resort to prompt corrective measures
2. And special loan to DOSRI – the power of lender of last resort
WHICH BODY HAS THE RIGHT TO DECLARE THAT A BANK SHOULD BE PUT UNDER CONSERVATORSHIP?
MONETARY BOARD- has exclusive authority to appoint the conservator
EXCLUSIVELY THE POWER OF THE MONETARY BOARD
REQUISITES BEFORE THE MONETARY BOARD CAN DECLARE A BANK UDNER CONSERVATORSHIP?
SECTION 29, NCMB
1. Report submitted by the appropriated supervising and examining department of Bangko Sentral
2. Finding by the monetary board that the bank or quasi bank is in a state of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to protect its creditors
3. The board of directors of the bank should be informed in writing of the decision to place the bank under
conservatorship
The SH holding majority of the shares can question through a petition for certiorari but before they can question they have to
be notified in writing or they have to be informed in writing of the order of the monetary board directing the conservatorship
What are the powers for the conservator?

1. Take charge of assets
2. Reorganize
3. Collect monies and debts
4. Overrule and revoke the actions of previous management
5. All powers necessary to restore the viability of the bank
(take note all powers of the receiver)
FIRST PHILIPPINE NATIONAL BANK VS CA:

What was the contention of the buyers as regards the authority granted to the conservator?
- They could not repudiate
CONTENTION OF THE CONSERVATOR?
- The NCMBA gave conservator the power to repudiate
RULING OF SC:
Although NCBA gave far-reaching powers to conservator, it should be in relation to restoring the viability of the bank. Does not
extend to those perfected transactions
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(Moot Court, 2013-2014)
SC said: Congress itself cannot repudiate a valid contract based on NON.IMPAIRTMENT CLAUSE. So it cannot pass on this right
or power to Bangko Sentral
- It cannot go beyond the actual power of congress and it cannot revoke validly enacted contract
- This far-reaching power of conservator is limited to voidable, rescissible contract
- Only limited to contracts during the period of managment or conservatorship
Section 29: PROVIDES FOR THE TIME WHEN CONSERVATORSHIP MAY BE TERMINATED. How long is it deemed to last?
- Only for one year
- Even before the lapse of one year can it be terminated. On what grounds?
Check last par. Of section 29: terminate the conservatorship when monetary board is satisfied that the bank can continue to
operate on its own. If the monetary board on the basis of the report of the conservator determine the continuance would cause
probable loss (section 30 shall apply or receivership)
IF MONETARY BOARD MAKES A FINIDNG THAT IT WILL CAUSE PROBABLE LOSS IT CAN TERMINATE CONSERVATORSHIP AND
MOVE ON TO RECEIVERSHIP
TAKE NOTE: main purpose of conservatorship is to restore the viability of bank or quasi-bank
RECEIVERSHIP AND LIQUDIATION

WHAT IS A RECEIVERSHIP? Bangko Sentral has stated that receivership is a state or condition of a corporation or a bank over
whom the receiver has been appointed for the purpose of protection of its assets
IN CONSERVATORSHIP: THE PURPOSE IS TO RESTORE ITS VIABITY
RECEIVERSHIP: TO ADMINSTER OR PROTECT THE ASSETS OF THE BANK
DIFFERENCE: GROUND
In conservatorship: only one ground in 29: if the bank is unable to maintain its liquidity
Receivership: has several grounds
TIME LIMIT:
Conservatorship: 1 year
Receivership: 90 days
But main difference is on the purpose
Requisites for receivership:

1. Report from the supervising and examining department of Bangko Sentral
What is meant by report?
- Has a definite and unambiguous meaning which is clearly different from “examination”. A report, as a noun, may be
defined as “something that gives information” or a “usually detailed account or statement.” On the other hand, an examination
is a search, investigation or scrutiny
SECTION 68: VOLUNTARY LIQUDIATION
SECTION 69: INVOLUNTARY LIQUDIATION
WHAT WAS THE BASIS OF THE BANK IN DECLARING THAT THERE HAS TO BE EXAMINATION? Due process
Old central bank-THERE IS EXAMINATION BY THE SEC
NCBA amended the old central bank law which said that there has to be an examination but now it says report.
Based on the ruling on RBSM..what it required to place a bank under receivership? There has to be a report
WHICH IS BROADER..a report or examination??
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(Moot Court, 2013-2014)
EXAMINATION- in depth analysis, inquiry-- a search or investigation or scrutiny of the bank itself
REPORT – basically a detailed account or a statement, it is something that gives information
If the monetary board finds the report sufficient then you have basis. THERE IS NO MORE NEED TO PUT THE BANK UNDER
EXAMINATION
A REPORT BY THE SED (supervising or examining department) IS SUFFICIENT no need for examination
2nd requisite before declaration of receivership: findings of the grounds to declare receivership
GROUNDS FOR RECEIVERSHIP

1. the bank is under a state of insolvency
2. unable to pay the debt when they become due in the ordinary course of business
3. the bank has willfully violated a cease and desist order under section 37
** CHECK LAROBIS NOTES
SECTION 53 OF THE GBL- additional to that which is provided in section 50

SECTION 36, GBL
***Aside from provisions under section 30 of NCBA, u also have section 53 and section 36: which provides that if the bank
persists in conducting business in unsafe and unsound manner, the monetary board may apply section 30 which is the
declaration of receivership
** 4 grounds under section 30, then section 53 and section 36

Unable to pay liability when they become due—you don’t have sufficient liquid assets
FIRST GROUND IS CALLED: EQUITY TEST OF DECLARING A BANK UNDER RECEIVERSHIP

- If the bank has no sufficient liquid assets to pay its liabilities in the ordinary course of business, the Bangko Sentral can
put them under conservatorship and go directly to receivership
- Section 30: if the bank has no sufficient liquid assets
BALANCE SHEET TEST

- Assets on one side, liabilities and capital on the other side
- If the assets are sufficient or greater than liabilities, you have solvency position
- If liabilities are greater than assets-insolvent position
BANKO FILIPINO SAVINGS AND MORTGAGE BANK VS MONETARY BOARD

- HOW WILL U DETERMINE WEHTHER OR NOT A BANK IS CONSIDERED OR THERE IS A VALID GROUND FOR
DECLARATION FO RECEIVERSHIP?
WHAT WAS THE TEST OF INSOLVENCY LAID DOWN BY THE SUPREME COURT?
- The SC laid down the test of insolvency that should be applied
- Difference between realizable assets
When is a bank solvent? The bank is solvent if the fair cash value of all the assets realizable within a reasonable time and by a
reasonable person would equal or exceed its liabilities
There is a solvency position if the realizable value of the assets is equal or greater than the liability of the bank
WHEN WOULD THERE BE INSOVLENCY? If the cash is not sufficient to pay liabilities within reasonable time. How much asset did
the bank have?
2nd: the balance sheet test
TAKE NOTE: REALIZABLE VS LIQUID ASSETS

LIQUD- assets which are readily convertible to cash eg. actual cash, bank deposits or time deposits or receivables payable now
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(Moot Court, 2013-2014)
REALIZABLE ASSSETS- that’s broader in terms

- Include real properties, bldg, etc
They can be realizable within a reasonable time..they are convertible to cash within a reasoable time but not readily convertible
- This 2nd ground is just a comparison of the assets and the liabilities of the bank
- You compare how much is the total assets..include all the cash and liquid assets or the non.liquid or non.current
assets
*** you include all the liabilities whether current or non.current assets
FIRST GROUND= you only look at ordinary current assets

SECOND GROUND- you look at total assets: both current and non.current
IN BANK SENTRAL CASE:

The total asset is 4.5 million..the bank deducted the liabilities of 5.2 million..it would seem that he liability is higher than its
assets because liability is higher than assets..but SC said it is wrong because you have to take out total assets compare it with
total liability
WHEN YOU ADD UP THE DEDUCTED RESERVES: you know have 500billion
So here the bank was solvent said the Supreme Court. There is no ground to declare it under receivership.
1ST GROUND: only look at the liquid assets: failure to pay obligation as they become due
2nd ground: check total assets and total liabilities. If total assets I greater than total liabilities then there is no problem, you are
solvent.
3rd ground: when the bank cannot continue and is incurring probable loss
4th ground: it has violated cease and desist order
- When any of these grounds exist, a bank can be declared under receivership
- If the ground is not among those listed, you cannot declare the bank under receivership. The grounds under the law
will have to exist.
THIRD REQUIREMENT: if the monetary board finds that one of the grounds exists..what happens next? Under section 30 what
will the bangko sentral do??
Monetary Board will have to make a decision to forbid the bank from operating or transacting business in the Phils
- There must be decision to close the bank
- Conservatorship is more conservative than receivership
- Receivership0 there is a decision to close the bank
DECISION TO CLOSE THE BANK DOES NOT REQUIRE TRIAL AND HEARING:
In the case of Rural Bank vs Buhi and Central Bank vs CA:
THE SC explained why the monetary board can close the bank without hearing
Example: you are a depositor of the bank, you will run to the bank and withdraw the money..there will be a bank run
- The monetary board can close the bank directly --- close now hear later scheme
Rural bank vs Buhi:

“ resulting in panic and hysteria..gamut of the entire community”
CB vs CA
“it’s a valid exercise of police power..it is designed to protect the interest of all concerned”
- It’s an exercise of police power to protect the bank
FOURTH REQUIREMENT: SECTION 30 LAST TWO PARAGRAPHS

1. Notice in writing to the BOD of the bank
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(Moot Court, 2013-2014)
** DISTINGUISH BASED ON THE GROUNDS AND BASED ON PURPOSE
Who can be assigned as receiver of the bank? PDIC

What are the powers and duties of PDIC?
• Section 30
1. Gather and take charge of assets and liabilities
2. Administer the same for the benefit of the creditors
Powers of receiver in ABACUS VS MANILA BANKIGN CORPORATION:

WHAT WAS THE ACTION FO RECEIVER WITH RESPECT TO EXCLUSIVE OPTION TO PURCHASE?
- Receiver ratified or approved the transaction
SC said:
Power of receiver is limited to administering the assets of the bank
** there was an exclusive option to purchase between the management of the bank and third party, the third party wants to
enforce it and the receiver has approved it. The SC said that even if there is approval by the receiver, it is not binding, because it
is an act of DOMINION OR ACT OF OWNERSHIP AND THE POWER OF THE RECEIVER IS ONLY LIMITED TO ACTS OF
ADMNSITRATION. The receiver has no power to dispose or encumber any properties of the bank. Only acts of administration.
Receiver by himself cannot dispose the assets of the bank.

WHAT IS THE EFFECT OF DECLARATION OF RECEIVERHSIP AS TO THE ASSETS FO THE BANK??
VILLANUEVA VS CA:
Wife borrowed money from the bank. However, he was not able to get the loan because of subsequent acts. It was transferred
to the banks. So what happened?
The bank received offers by Mr. Ong to purchase the property. Mr. Ong offered to purchase the property but there was no
approval by the bank yet. It was made on November 1984..but Mr. Ong was not in the Phils at that time. Subsequently on April
3, 1985—the bank was placed under receivership.
When Mr. Ong came back in the Phils. The bank was already in receivership—it came about April 3, 1985. There was no valid
contract because the SC applied provision that an offer becomes ineffective when either of the parties become insolvent, dies,
etc.
“there was still no perfected contracted b/w the bank and Mr. Ong. Mr. Ong has not yet learned of his acceptance to purchase.
At the time of receivership, the property was still the property of the bank”
What happened to the property when the bank was placed under receivership? It’s considered in custodia legis so the bank
cannot dispose of it.
“ the assets of the bank passed into the possession and control of the receiver for the benefit of the creditors of the bank.
At the time when the receivership took place there was still no contract b/w Mr. Ong and the bank. By the time Mr. Ong came
back and learned of the acceptance there could be no valid contact anymore because the bank has no more authority to sell
the property.
What happens after the lapse of 90 days or the receivership period? AS SOON AS POSIBLE
DURING THE RECEIVERSHIP PERIOD which is only 90 days, the receiver will make a decision, can this bank continue with its
operations or should it be permanently closed. Receiver will make recommendation to the Monetary Board. If the receiver
thinks that the bank can still be saved, it will approve plans of rehabilitation.
Rehabilitate or liquidate
Can both liquidation and rehabilitation exist together?
In the case of Phil. Veterans bank vs Vega:
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(Moot Court, 2013-2014)
- Rehabilitation and liquidation are diametrically opposed

- Rehabilitation contemplates a continuation of corporate life and effectivities in an effort to reinstate the corporation
to its former condition of solvency
LIQUDIATION- where you want to end
SC: The enactment of RA 7161 has rendered the liquidation court functus oficio. Respondent judge has been stripped off of
power. Can the liquidation continue? No more because Congress passed a law to rehabilitate the Philippine Veterans Bank.
They cannot exist together because they are diametrically opposed.
THE FINAL STEP IS: LIQUIDATION
Pacific Banking vs CA:

There are 2 steps in liquidation:
In section 30: liquidation is done in court. It’s a judicial process. You have to file in court a liquidation plan. Once the court
accepts, the court will issue an order for all creditors to file a claim. The next step is for the court to approve or disapprove
claims. All disapproved claims are final decisions so they can already be appealed. Since it can no longer continue, the claims
will already be through a petition for review.
If claims are approved, continue with liquidation. Once all claims are there, move to the 2nd step: approval of liquidation plan
LIQUIDATOR: will sell assets of the banks and pay all claims according to the distribution plan. Once this is done, bank is already
closed.
Receiver Liquidator
the receiver is recommended by the Monetary Board receiver designates the liquidator
time limit is 90 days has not time limit because it’s a court proceeding
the responsibility is to administer to convert the assets to cash with the approval of the court
go to receiver before liquidator
six grounds to establish receivership only one ground in liquidation
SECURITIES REGULATIONS CODE
Previously known as “Blue Sky law”

Why? It intends to protect the public from making investments with no substance other than few feet of blue sky.
AROUND 1940- blue sky law was repealed and was replaced by Securities Act which was repealed and became the Revised
Securities Act
2000: SRC was enacted
Section 2: the declaration of policy:

1. To establish a socially conscious, free market that regulates itself
- Through the SRO (Self-regulatory organization): there is only one in the Philippines which is the PSE – Philippine stock
exchange. PSE issues rules and regulations
SRC through the SEC requires that if the company wants to sell to the public or wants to do an initial public offering, it is
required to offer to the public at large. You cannot limit to those big buyers or investors. You have to offer your shares to the
public at large without distinction.
10%- offered to the public
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(Moot Court, 2013-2014)
60%- offered to medium-scale investors

30%- to banks etc
** to make sure that there is widest participation
2. Enhance democratization of wealth

3. Encourage the widest participation of ownership in enterprises
PURPOSE MAINLY OF SRC is to ensure full and fair disclosure of securities: THIS IS ALSO KNOW AS THE TRUTH IN SECURITEIS
LAW- to make sure that there is full and fair disclosure about securities being sold in the Phil. The SRC addresses this by
requiring registration before they can be sold in the Phils.
ISSUER- must give full disclosure about itself and the securities
Take note: the registration of securities is not a guarantee of the merit and viability
REGISTRATION is not merit-based but full disclosure based—what the SRC requires is before you attract the public to invest
with you, give them full information and let the public decide. How? By registration of securities with SEC.
When you have full disclosure- people can make intelligent decisions about their choices. high earning because it is speculative.
It’s not a guarantee that the investment is meritorious. As long as you have full and fair disclosure about the securities you are
buying.
** There is probability that your investment would succeed

PURPOSE: is to ensure full and fair disclosure of information and in this way the investor are protected.
Truth in securities act- REGISTRAITON OF SECURITIES

- Securities cannot be offered for sale without registration statement duly filed with and approved by the commission
- 1. File a registration statement with SEC and
- 2. SEC has to approve the registration statement
WHAT ARE SECURITES?

IN SECTION 3.1 OF THE SRC- securities are shares, participation or interests in a corporation or commercial enterprise or profit
making venture whether electronic or contract character.
TWO TYPES OF SECURITES:

1. EQUITY SECRUTIES - * what is described in the definition
2. DEBT SECURITEIS * but in the enumeration there are debt securities
EXAMPLES:
1. SHARES OF STOCK
2. BONDS
3. DEBENTURES
4. NOTES
5. EVIDENCE OF INDEBTEDNESS AND
6. ASSET BACKED CURITEIS - Are governed by different law - the Securitization Act of 2004
SPE- SPECIAL PURPOSE ENTITIES

- Are created for the purpose of buying debt securities
- When a corporation would issue bonds or long term indebtedness, the SPEs would buy them and gather them
together.
SPE would turn around and create asset back securities which they will sell to the public: basis is the value owned. These
secondary securities are derived from the assets owned by the SPEs from their debt securities investment.
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(Moot Court, 2013-2014)
- Big corporations like San Miguel and Coca Cola. Ordinary investors cannot buy..ordinary SPE: they will buy 1million
worth of bonds..so what they will do is to sell 10k worth of shares ..so mareturn ra..
WHAT IS COVERED? Bond securities are also securities
- The asset back securities are also considered securities requiring registration under the SRC
Investment contracts
- What is the test to determine whether there is investment contract is HOWEY TEST:
IN THE CASE OF
Prosperity.com
- Prosperity sells internet at 204 dollars..persons who have downlines just like pyramid scheme
SC applied the HOWEY TEST: what are the elements of Howey test
a. A contract of money
b. Investment of money
c. In a common enterprise or undertaking
d. With expectation of profits
e. Primarily through the effort of other people
COMMON ENTERPRISE OR UNDERTAKING—under the implementing rules of SRC- when two or more persons pool their
resources together
In the case of prosperity.com, there was no investment contract: the money is not an investment to speak of because the
money that you paid is actually a purchase price and not an investment..it’s a purchase price for the product which is an access
to the website of prosperity.com.
Powerhomes case
- Into real estate business
- If you have downlines you will receive commission but not in the form of money..you will receive from the bankers
- They reported the transactions of powerhomes to SEC
- SEC found out it’s an investment contract that needs registration
PROSPERITY CASE- in the money that they give they expect something to receive
- NO INVESTMENT CONTRACT SO REGISTRATION OF SCHEME WAS NOT REQUIRED
- WHEN YOU PAID THE MONEY, YOU DID NOT POOL IT IN COMMON ENTERPRISE..YOU RECEIVED PROFITS TO IT.THE
MONEY ALLOWED YOU ACCESS TO CERTAIN WEBSITE
PROSPERITY CASE- in the money that they give they expect something to receive
- No investment contract so registration of scheme was not required
- When you paid the money, you did not pool it in common enterprise, instead you receive profits to it. The money
allowed you access to certain website.
POWERHOMES-they don’t receive anything

- This is an investment contract
- When you pay registration fee it will not entitle you to anything just allow you to get downlines. When they pay, you
get commission. You are investing to allow you to get downlines and you get profits in the efforts to get commission. In
powerhomes, you don’t receive products but commission from the efforts of your downlines.
FRACTIONAL
DERIVATIVES- a financial instrument whose value depends on the interest in or in the performance of an underlying security,
but which does not require any investment of principal in the underlying security.
= there are 2 kinds of derivatives:
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1. Options – are contracts that give the buyer the right, but not the obligation to buy or sell an underlying security at a
predetermined price, on or before a predetermined date, called expiry date, which can only be extended in
accordance with exchange rules.
- It’s A RIGHT or authority to buy securities
- It’s broader
2. Warrants- rights to subscribe or purchase new shares or existing shares in a company, on or before a predetermined
date called the expiry date, which can only be extended in accordance with exchange rules.
- is a right to purchase stocks or shares
- Confined to shares
- Generally have longer exercise period than options
HOW DOES DERIVATIVE WORK?

Derivatives are considered securities and any sale of derivatives will have to be registered in SEC
When a corporation issues a warrant, it’s paired with a share and this warrant will entitle me to purchase another share at a
predetermined price during a predetermined time. Warrant allows me to purchase shares at 250 per share as of march 15. On
March 15, the shares are selling at 400 per share. you can buy them at 250, warrant entitles you to that.
CAN I SELL MY WARRANT? You can either sell it by itself if it’s a detachable warrant or goes with another if it’s a non-detachable
warrant
ON MARCH 15- you can sell the warrant for 100 pesos because whoever buys the warrant has 350 compared to the market
price of 400. I’d rather buy the warrants. What if at some point the shares are selling at 200. So dili na paliton ang warrant
because the shares kai ni.drecrease na ang value. That’s the problem with derivatives. The value of derivatives depends on the
underlying security or the security that your derivative allows you to purchase or to acquire
** WARRANT- as a derivative will allow you to purchase shares of a company at a predetermined price on a predetermined
date.
Predetermined price is 250. You can use your warrant to buy the shares at 250 pesos. Can you sell warrants? Yes, it’s a security
in its own right. At this point, you can sell the warrant at 100 pesos because a purchaser who buys your warrant is 350, 250 for
shares then 100 for your warrant. So compared sa shares sa market 400 dako. So your warrant has a value. Can somebody still
want to purchase warrant? Not, but if the value in the market decreases to 200 then they can just buy at in the market
ASSET BACKED SECURITIES—is a guaranteed income because you have debt securities with guaranteed earnings. As compared
to WARRANTS which has predetermined value
** WARRANT will be issued by the issuing company
** Warrant always go together with shares
** I’m shareholder of ABC company and when ABC company issues shares, they will go to me. The shares that you own are
known as beneficiary securities. The shares that you can buy with your warrant is underlying security because the value of the
warrant is dependent on the value of the underlying security that you can purchase
If the value of the underlying security is high—you can sell your warrant at a higher price
If it goes up to 4,500 you can sell your warrant for 1,000 but if it goes down to 400 or 250, warrant has no value. quits na
FIRST ISSUANCE OF THE WARANT- is not purchased but granted as a right

- It’s like an accommodation to existing shareholders. It’s only that you give it to another that you sell it
** They can sell their own warrant—depends on the market

DERIVATIVES- the value will depend on the value of the underlying security
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** depends on the value of the underlying security
WHAT ARE CONSIDERED SECURITIES? Certificate of assignments, trust certificates, voting trust certificates
When you sell incorporeal rights? You have deed of assignments

If you sell not the full right you have certificate of participation
WHEN IS IT PROPRIETARY AND NOT PROPREITARY?

Proprietary- You earn dividends and you take part during liquidation
Not just use the asset but you earn income and dividends and upon liquidation, you get your share
NON PROPRIETARY – when the only thing you are entitled to is the use to the property, no right to income. That is the security
required to be registered under section 8
- Cannot be sold without filing registration of SEC and getting approval of that registration
TAKE NOTE OF SECTION 8.1: prior to such sale, information in such form and substance as the commission may prescribe shall
be available to each respective purchaser
Section 8. Requirement of Registration of Securities.– 8.1. Securities shall not be sold or offered for sale or distribution within the
Philippines, without a registration statement duly filed with and approved by the Commission. Prior to such sale, information on
the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each
prospective purchaser.
8.2. The Commission may conditionally approve the registration statement under such terms as it may deem necessary.
8.3. The Commission may specify the terms and conditions under which any written communication, including any summary
prospectus, shall be deemed not to constitute an offer for sale under this Section.
8.4. A record of the registration of securities shall be kept in Register Securities in which shall be recorded orders entered by the
Commission with respect such securities. Such register and all documents or information with the respect to the securities
registered therein shall be open to public inspection at reasonable hours on business days.
8.5. The Commission may audit the financial statements, assets and other information of firm applying for registration of its
securities whenever it deems the same necessary to insure full disclosure or to protect the interest of the investors and the
public in general.
Registration of securities- has 3 stages:

1. Pre-filing:
- You have not yet applied at all with SEC
- At this point, are you allowed to sell? No, first par.
Are you allowed to give information about securities? The sec has interpreted the 2 nd sentence together with section 8.3 that
pre-filing : sale not allowed, information not allowed
- WHAT DO YOU FILE WITH SEC WHEN YOU WANT TO REGISTER? You file an application in fthe form of registration
statement and together with registration statement, you apply prospectus
PROSPECTUS- gives you information that is required under SRC

1. PREFILING-sale not allowed, information dissemination not allowed
2. PRE OFFERING OR PRE-APPROVALE PHASE
- You have sold RS and prospectus but no approval yet, can you sell securities? NO
- Information? YES, you can already disseminate information
- You can already disseminate the prospectus that you filed together with the registration statement
- You can even disseminate the preliminary prospectus but not the APPROVED PROSPECTUS. This is called the RED-
HERRING PROSPECTUS (because it’s not yet the final prospecuts, dili pa tinuod, provided that you comply with the
SEC requirement with what should be stated in the prospectus.
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Requirements in the prospectus:

- A. a bold statement that it has been applied for registration but it has not yet been approved
- You have to expressly provide in the prospectus that the registration is not yet approved. The dissemination is not
considered an offer for sale
-
3. OFFER PERIOD- once you already have the approval
- At this period, can you now sell the shares? Yes, can you disseminate information? Yes, the information is known as
the FINAL PROSPECTUS
- What happens if the offer period has already expired but you still have shares unsold? Can you still sell the shares? Or
do you need to register again?
- This is called as SHELF-REGISTRATION- you are still allowed to sell the shares, you are not required to register again.
You are just required to update the prospectus. The unsold shares are on the shelf
-
SHELF REGISTRATION- allowed to be sold, you just need to update your prospectus with SEC
EXEMPT SECURITIES
- There are instances when securities can be sold in the Philippines without need of registering with the SEC
Section 9. Exempt Securities. – 9.1. The requirement of registration under Subsection 8.1 shall not as a general rule apply to any
of the following classes of securities:
(a) Any security issued or guaranteed by the Government of the Philippines, or by any political subdivision or agency thereof,
or by any person controlled or supervised by, and acting as an instrumentality of said Government.
- there is sufficient protection and the government can’t go bankrupt because they can always get income in the form of tax
(b) Any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic
relations, or by any state, province or political subdivision thereof on the basis of reciprocity: Provided, That the Commission
may require compliance with the form and content for disclosures the Commission may prescribe.
(c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body.
- undergo court proceedings and approved by the court hence securities are presumed approved by the court
(d) Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the Office of
the Insurance Commission, Housing and Land Use Rule Regulatory Board, or the Bureau of Internal Revenue.
- there is sufficient protection
(e) Any security issued by a bank except its own shares of stock.
- if own shares of stock, there is conflict of interest
- exception: if share of stock of the bank—bank may add
9.2. The Commission may, by rule or regulation after public hearing, add to the foregoing any class of securities if it finds that
the enforcement of this Code with respect to such securities is not necessary in the public interest and for the protection of
investors.
EXEMPT TRANSACTIONS
What is the difference between exempt securities under Section 9 and exempt transactions under Section 10?
- In exempt transaction, the security itself is not exempt. It’s only a one time thing and the same share may not be
exempt anymore. You need to register it already.
- In section 9: the securities are always exempt no matter how many times you transact with it
- In section 10: only one time ang exempt transaction. The security will have to be registered before it can be sold if it
does not fall under section 10 anymore
Section 10. Exempt Transactions. – 10.1. The requirement of registration under Subsection 8.1 shall not apply to the sale of any
security in any of the following transactions:
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(a) At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in insolvency or
bankrupt.
- the sale is supervised by the court
(b) By or for the account of a pledge holder, or mortgagee or any of a pledge lien holder selling of offering for sale or
delivery in the ordinary course of business and not for the purpose of avoiding the provision of this Code, to
liquidate a bonafide debt, a security pledged in good faith as security for such debt.
- Basically a foreclosure. Why is it exempt? It is supervised by the courts. it can be done judicially or extrajudicially which has to
be approved by the court. The court still has to issue a certificate of sale
- CHATTEL MORTGAGE- no future loans can be covered by chattel mortgage
(c) An isolated transaction in which any security is sold, offered for sale, subscription or delivery by the owner therefore, or by
his representative for the owner’s account, such sale or offer for sale or offer for sale, subscription or delivery not being made
in the course of repeated and successive transaction of a like character by such owner, or on his account by such representative
and such owner or representative not being the underwriter of such security.
- not in the ordinary course of transaction. If it’s one time thing you can sell the shares.
(d) The distribution by a corporation actively engaged in the business authorized by its articles of incorporation, of securities to
its stockholders or other security holders as a stock dividend or other distribution out of surplus.
- The distribution is authorized in business. As stock dividends as other distributions.
- Covered by stock dividends and what else? Property and stock. Cash is not security. What about property is it covered? Yes,
it’s a distribution out of profits.
- Stock dividend has to come from unissued shares
- If I’m declaring dividends which are not my own share. Is it covered by exemption? Yes, it’s a distribution out of profits
(e) The sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other remuneration is
paid or given directly or indirectly in connection with the sale of such capital stock.
- Sale of capital stock of corporation to its own shareholder. Why is it exempt? Only applicable if sold solely to its shareholders.
If you sell to third persons it is not applicable
(f) The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property, when the entire
mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single sale.
- but must only be sold to a single purchaser because it’s not considered sale to the public. But if sold to the many, then not
exempt
(g) The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a right of conversion
entitling the holder of the security surrendered in exchange to make such conversion: Provided, That the security so
surrendered has been registered under this Code or was, when sold, exempt from the provision of this Code, and that the
security issued and delivered in exchange, if sold at the conversion price, would at the time of such conversion fall within the
class of securities entitled to registration under this Code. Upon such conversion the par value of the security surrendered in
such exchange shall be deemed the price at which the securities issued and delivered in such exchange are sold.
- applicable to convertible shares and when you exercise your right to convert then that is exempt
(h) Broker’s transaction, executed upon customer’s orders, on any registered Exchange or other trading market.
- this is what you call as secondary sale, the primary sale is the one when the issuer sells it to the public. Normally, in sale to the
public, that would require registration. You have 100k shares and you sell it to only one person and you instruct broker to sell it
to 100 persons. Do I need to register my sale? Broker’s transactions executed upon customer’s order on any registration to
market
- Secondary sale even if made through the public- NO NEED TO REGISTER
(i) Subscriptions for shares of the capitals stocks of a corporation prior to the incorporation thereof or in pursuance of an
increase in its authorized capital stocks under the Corporation Code, when no expense is incurred, or no commission,
compensation or remuneration is paid or given in connection with the sale or disposition of such securities, and only when the
purpose for soliciting, giving or taking of such subscription is to comply with the requirements of such law as to the percentage
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of the capital stock of a corporation which should be subscribed before it can be registered and duly incorporated, or its
authorized, capital increase.
- Subscription during incorporation or pursuant to an increase in authorized capital stock provided it is in accordance with the
law. SCS: 25% when you incorporate or increase, do you need to do a registration: not according to paragraph I provided that
you are not within the 25 limit. Not fall under other exception.
- You do an increase then you subscribed to 100% of the increase. That would not be exempt under paragraph I but that will not
be an exception solely to your shareholder. Can fall under another paragraph par i
(j) The exchange of securities by the issuer with the existing security holders exclusively, where no commission or other
remuneration is paid or given directly or indirectly for soliciting such exchange.
(k) The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period.
- Sale of securities by an issuer for fewer than 20 persons in any period. This is called private placement because it is less than
20 persons
- If it’s 20 persons or more, it becomes public
- if it’s public, you cannot sell without registration
- If 19 or less - you cannot be exempt. Example: I want to sell my shares so I put out a publication in a newspaper inviting people
to invest in my shares and 15 persons bought. Should I register my securities? 15 persons ra man? But you are required because
you advertised that sale of your share and if you intend to sell the public, it does not matter. But if you said I will sell it only to
ABCDEFGHIJ (1o persons only) – you can still sell without registering because you pinpoint the persons. But if you said the first
fifteen --- it is exempt transaction
- But if you advertise or sell to the public- no longer covered under exempt transaction
(l) The sale of securities to any number of the following qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or
manage by a bank or other persons authorized by the Bangko Sentral to engage in trust functions;
(v) Investment company or;
(vi) Such other person as the Commission may rule by determine as qualified buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under
management.
- If you sell shares solely to the above-mentioned, you don’t need protection of registration
10.2. The Commission may exempt other transactions, if it finds that the requirements of registration under this Code is not
necessary in the public interest or for the protection of the investors such as by the reason of the small amount involved or the
limited character of the public offering.
10.3. Any person applying for an exemption under this Section, shall file with the Commission a notice identifying the
exemption relied upon on such form and at such time as the Commission by the rule may prescribe and with such notice shall
pay to the Commission fee equivalent to one-tenth (1/10) of one percent (1%) of the maximum value aggregate price or issued
value of the securities.
Do you need to get confirmation or approval of the SEC before you can avail of the exemption? Do you need to get SEC’s prior
approval?
- No need to get prior approval fi you fall under exemptions
- If the SEC does that and confirmed that you are exempt, you are safe. You are considered beyond or exempt from the
registration requirement
Note: Confirmation is not required for validity but confirmation is important so as not to dispute its validity
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Tender offer
- Required under section 19 of SRC but take note because the SEC in the implementing rules in the SRC has modified the
requirement to a great extent
- The requirement under SRC is only 15% and 30% in case of creeping transaction but Sec has increased the limits
- Now its 35% for a one time transactions, 35% also for a creeping transactions
- Creeping transactions-when it’s over a 12 month period or any percentage.
- Mandatory tender offer is only applicable in what kind of securities? EQUITY SECURITES not debt securities and only if the
issuer is a PUBLIC COMPNY
PUBLIC COMPANY:
- There are 2 grounds for a corporation to become a public company. If the corporation will list its shares in the
exchange it automatically becomes a public company or when the company has assets in excess of 50 million and having 200 or
more holders, at least 200 of them are holding 100 shares of a class of its equity securities
AFFIRMED IN PHIL VETERANS BANK VS CALLANGAN:

- Required to submit reports
- Phil veterans said it’s not public company because it’s not listed in exchange
- But Callangan said that aside from listing it is considered public company because it has 50 million assets and 200 shareholders
at least 200 of them are holding 100 equity shares
** If any person wants to buy equity securities of a public company and the equity securities will be 35% of the equity shares
then you need to do tender offer. This is for one time transaction or even if it’s not a one-time transaction but over a 12 month
period, it exceeds 35%, then you need to do a mandatory tender offer. Also, even if the transaction is not 35% but if it will result
in over 51%, it will make you fall under the requirement of mandatory tender offer
** 12 month period is fiscal and reckoned from the time that you started buying the shares
Tender offer
- Required under section 19 of SRC but take note because the SEC in the implementing rules in the SRC has modified the
requirement to a great extent
- The requirement under SRC is only 15% and 30% in case of creeping transaction but Sec has increased the limits
- Now its 35% for a one time transactions, 35% also for a creeping transactions
- Creeping transactions-when it’s over a 12 month period or any percentage.
- Mandatory tender offer is only applicable in what kind of securities? EQUITY SECURITES not debt securities and only if the
issuer is a PUBLIC COMPNY
PUBLIC COMPANY:
- There are 2 grounds for a corporation to become a public company. If the corporation will list its shares in the
exchange it automatically becomes a public company or when the company has assets in excess of 50 million and having 200 or
more holders, at least 200 of them are holding 100 shares of a class of its equity securities
AFFIRMED IN PHIL VETERANS BANK VS CALLANGAN:

- Required to submit reports
- Phil veterans said it’s not public company because it’s not listed in exchange
- But Callangan said that aside from listing it is considered public company because it has 50 million assets and 200 shareholders
at least 200 of them are holding 100 equity shares
** If any person wants to buy equity securities of a public company and the equity securities will be 35% of the equity shares
then you need to do tender offer. This is for one time transaction or even if it’s not a one-time transaction but over a 12 month
period, it exceeds 35%, then you need to do a mandatory tender offer. Also, even if the transaction is not 35% but if it will result
in over 51%, it will make you fall under the requirement of mandatory tender offer
** 12 month period is fiscal and reckoned from the time that you started buying the shares
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What is tender offer?

- As stated in rule 19 is a publicly announced intention by a person acting alone or with another person to acquire securities in
publicly tendered company
- You cannot buy it from one person only you need to offer to all shareholder of the company. You cannot publish.. to all of
you.. i want to buy 45% at 100 per share. Deposit your shares at this particular custodian bank if you want me to buy your
shares. It’s an offer to let you purchase their shares. What if there is more like 70% offered. 45% ra man imo paliton so you buy
proportionately.
- What if 30% lang ang ni.offer so gi.increase nimo ang imo ang price. So do you have to pay the previous or all…PAY ALL THE
INCREASED PRICE
What is an investment house:

- Has the power of an underwriter
- UNDERWRITER- purchases shares on a guaranteed basis
- Guarantees that 1M shares will be sold. If not sold, it will have to pay for the difference
CAN COMMERCIAL BANK UNDERTAKE THIS ACIVITY? It cannot. only UNIVERSAL BANK can
Commercial bank – can only invest in allied enterprises
UNIVERSAL bank- can invest in both allied and non-allied enterprises
- IT IS AN EXPANDED COMMERCIAL BANK
SPECIAL CREDIT OPERATIONS – SECTION 83

- Lending made by BSP in case the bank is experiencing liquidation
- More withdrawals in a day
- Bank should not close.. otherwise it’s a bank holiday..then receiver
In cases of emergency situations or if bank is in financial situations, the BSP can also lend money in section 84 of NCBA
TO ENGAGE IN OPEN MARKET OPERATIONS IN ACCORDANCE WITH ITS OBJECTIVE OF PRICE STABLIITY
= BUYING AND SELING OF GOVERNMENT SECURITIES
PURPOSE: IN THE SUPPLY OF MONEY

there will be an infusion of money in the market
Buying and selling of securities can only be considered as OMO (Open Market Operations) by BSP in 2 instances:
1. It must be government securities
2. The purpose is to maintain price stability or to affect liquidity in the market
To act as a banker of government

Section 110- in this capacity the BSP represents the Philippines internationally
---
3 INSTANCES WHEN TENDER OFFER IS MANDATORY?

1. If u acquire at a single transaction 35% or more of a public company
2. If you acquire 35% not in a one time transaction but in a creeping transaction over a period of 12 mos.
- fiscal year, from the date of first acquisition
3. You acquire less than 31% of the activity shares but the outstanding ownership is total of equity securities to more
than 51% then you have to do a tender offer
Remember: only applicable in public companies and if the shares to be acquired are equity shares as opposed to debt
securities..
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WHAT ACQUISITIIONS ARE NOT REQUIRED TO BE SUBJECT TO A TENDER OFFER?

Under SRC rule 19 par. 3a: tender offer is not required for any purchase of shares from unissued capital stock that will not result
to 50% or more of shares to the purchaser
WHY IS THIS NOT SUBJECT TO TENDER OFFER?

Because normally if there is additional issuance of the corporation of its unissued share..the corporation has to offer it to
existing stockholders in PURSUANCE TO THEIR PRE-EMPTIVE RIGHTS so they can take action accordingly.. So evil to be dispelled
by mandatory tender rule is minimized
- Normally, shareholders are notified and they can exercise pre.emptive rights
In case of any purchase from an increase in ACS
- What does the corporation do if it wants to increase ACS? Before it can issue new shares? When you increase ACS,
YOU NEED TO AMEND YOUR ARTICLES..CAN U DO IT INTERNALLY? No you have to get approval of the SEC—as sufficient
protection to the minority shareholders
In cases of foreclosure proceedings, can be done extrajudicially. You need approval of the court
In case of corporate rehabilitation - Purchases at the open market at the prevailing market price
If you are buying it at the stock exchange.. no need for tender offer because tender offer applies if you buy in a PRIVATE
TRANSACTION.. if acquisition is through stock exchange you are not required to do tender offer..in case of merger or
consolidation, tender offer is not required.
CEMCO HOLDINGS:
- CEMCO – owned additional 51% share . Cemco owned 60% of uchc. There should have been a tender offer.
WHAT IS THE DANGER THAT IS SOUGHT TO BE PREVENTED BY THE MANDATORY TENDER OFFER RULE?
WHY CAN NOT THE MINOIRTY SHAREHOLDERS SELL IT TO 3RD PERSONS? They ae not interested in buying mandatory shares
The danger sought to be prevented is the ACQUISITION FO CONTROL BY ONE ENTITY OF A PBULICLY LISTED COMPANY TO THE
PREJUDICE OF MINOIRTY SHAREHODLERS
- MAJORITY shareholders has control.. how it is ran..how to declare dividends
- Majority shareholders can squeeze out of the value of shareholdings
- No one would purchase your share because they will be in the same situation as you
It applies even if indirect acquisition

MANDATORY TENDER OFFER RULE: to prevent controlling shareholders form squeezing out the value of the shareholdings
Is this provision applicable to non.public company? THIS RIGHT IS SUBJECT TO CONTRACTUAL AGREEMENT OF THE
PARITES..THE PARTIES CAN AGREE..TEH SHAREHOLDERS CAN ENTER INTO shareholders agreement..they can either do tag along
clause or drag along clause
TAG ALONG- granted to minority shareholders that if majority shareholders hold their shares..BUYER IS BOUND BY THE
AGREMENT. Whoever buys can aslo be comepelled to buy his shares
DRAG ALONG CLAUSE- an agreement between minority and majority that if majority shareholder will share his shares..included
in the sale is minority shareholders share regardless of whether or not minority shareholders would want to sell
TAG ALONG: OPTION OF THE MINIROTY

DRAG ALONG SHARES: OPTION FO THE BUYER IF HE WANTS TO BUY
This is for private but for the public you have mandatory tender offer rule
MANIPULATIVE PRACTICES:
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1. UNLAWFUL TO CREATE AN APPEARANCE OF ACTIVE TRADING

a. By affecting transaction in the security without any intention …-> called wash sale
I own stocks listed in the exchange.. you ask the broker to transfer shares to my account then to another account which she
also owns.. you give the impression that your shares are actively traded.. so those who watch the stock exchange..ma.mislead
sila kai active ang trading.. they might want to buy it.. NO CHANGE IN BENEFICIAL OWNERSHIP.
b. Improperly matched order
-just like wash sales..there is collusion on the part of 2 persons.. i will sell at this time and they collude..the difference wash sale
and IMPROPERLY MATCH ORDERS
IN IMO: THERE ARE 2 persons and they are colluding

- Here you are creating an active trading of the security. There was a collusion b/w the buyer and seller or performing
similar acts where there is no change in beneficial ownership
- TO EFFECT LOAN OR WITH OTHERS
- Depresses the price or creates active trading
 Marking the close—closing price is important

 Painting the tape- engage in series of transaction to give appearance of price movement
 Squeezing the float- shortage of securities in the market by controlling the demands..IF NO ONE IS SELLING A
PARITUCLAR SHARE AND U HAVE THAT SHARE—so you try to demand more and u offer higher price.. it creates the
idea that your stocks are desirable..because no one is selling and everybody wants to buy
 Hype and dump - like squeezing the float..buy different shares..110, 150 or 170..creates the impression that prices
are going up..when the shares go high, that’s the time the share everything as your owned..you hype it up and then
dump
 Boiler room operations - DEALING WITH unlicensed or exempt securities
 Churning- act by the broker where he sells shares of hat he has in stock for the purpose of creating higher
commissions
 Short sale: sale of security by the seller who does not own security or consummated by delivery of a borrowed
security
Seller in the short sale does not own security yet..example: im active in the stock market then i anticipate that the price fo
security will go down..i enter a contract
i sell it at 200 per share with caveat..i anticpate that 10 days from now the price will go down..10 days from now for 150, i
already sold it for 200
= this is not prohibited per se but it is regulated.
 insider trading- sale by an insider of a secuiriyt of an issuer while in posessionf o a material non.public information
3 THINGS THAT YOU NEED TO LOOK AT:

1. Who is considered an insider
2. What is a material information
3. When do you consider it non-public information
WHO IS AN INSIDER? It is defined under section 3.8 of the SRC: INSIDER
CLOSE TO ISSUER WHO HAS ACCESS TO MATERIAL INFOMRATION
2 KINDS OF MATERIAL IFORMATION

1. Can affect the price of security
WHEN IS INFORMATION CONSIDERED NON.PUBLIC?

1. It has already exist but not disseminated
2. It exist but no time for the market to absorb
3. NOT EVERYONE ARE EXPERT IN TRAIDING
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Under section 27: an insider is not allowed to sell or transact securities or sell or buy securities if he is in possession of material
non.public information but there are exceptions to the rule:
If the insider proves that he information as not gained from his relationship with the issuer-
Example: that he obtained information from newspaper or internet, provided that it is not direct result of his relationship with
issuer then sale can be considered as valid or if the party selling to or buying from insider can be identified and the insider
proved that he disclosed information to other party and had reason to believe that the other party also possessed the
information.
SECTION 23: SPECIAL RELATIONSHIP

1. Beneficial owner of any class of securities= 10%- NOT JUST LEGAL OWNER—your name may not appear in STB (Stock
and Transfer Book) You are still considered beneficial owner and you are covered by this provision because you can still get
dividends and ma.revoke ang voting trust
2. You are director or issuer of the issuing company
3. DIRECTOR OR OFFICER
TAKE NOTE OF ANY PROVISION UNDER SECURITY?

Sale and purchase which occur within 6 months from each other.. Purchase and sale or any share and purchase within a period
of six months is called a SHORT SWING TRANSACTION..i buy shares now and i’m a 10% owner..3 months form my purchase..i
sold it..it’s a purchase and sale combination within a 6 month period.. that is a short swing transaction..in case of short swing
transaction..the profit derived from the transaction will inure to the benefit of the issuer
THE SHORT SWING PROFIT WILL BELONG THE ISSUER OF SECUIRTY—take note of this rule
Suits to recover from profit may be institued in the name and in behalf of issuer..can be done directly by issuer to sue either of
the 3 persons.. issuer can do it directly or it can be done through a derivative suit
SHORT SWING TRANSACTION- 6 mos..combination of purchase and sale or short swing transaction of the issuing company
WHAT IS THE TRANSACTION WHEN YOU SELL BUT YOU DON’T OWN THE SEUCIRYT? Is called short sale..it’s valid as a general
rule which means that you just have to comply..
exception: WHEN YOU ARE: beneficial officer, director etc..to sell securities which he does not own.. short sale own by any of
the 3 persons is illegal..even if you comply with sec rules
This is what you call as SHARES AGAINST THE BOX: it’s basically because your creating papers..you anticipate that the share of
prices will go down..u recorded it now..u delivered the pofit but the actual transaction is not recorded it yet..when you deliver
ni.ubos na ang price.in effect you get paper profits..that is prohibited if you belong to beneficial owner/officer or director of
issuing company
Margin trading: WHEN YOU BUY ON CREDIT: you just pay a margin or the portion for the price and broker will advance the
shares although it is allowed.
FOREIGN INVESTMENT ACT
TAKE NOTE:
1. It defines who can be considered as a Philippine national
A citizen of the Phils, a domestic partnership or associations, wholly owned by citizens of the phils.. corporations of at least 60%
of capital stock outstanding entitled to vote are owned and held by citizens of the phils or foreign corporations abroad and they
are owned 100% by Filipino citizens
39
(Moot Court, 2013-2014)
IT’S EASY TO DETERMINE IF NATIONAL PERSON THEN YOU MUST BE CITIZEN OF THE PHILS.
If the entity is a corporation, you have to ask, where is it incorporated? can it still be a phil national? As long as it is owned by
100% Filipino citizens. if 98% held by Filipinos but incorporated abroad, not a Philippine national anymore
2 TYPES OF INVESTORS:
1. PHIL NATIONAL
2. NON.PHILIPPINE NATIONAL- so you can be an export enterprise or domestic market enterprise
WHAT IS AN EXPORT ENTEPRISE? the company exports 60% of its production

DOMESTIC MARKET ENTERPRISE? If it caters to the domestic market or less than 60% is being imported
EXPORT- then domestic market.. which kind of investor can invest in either of this two? In general, a philippine national can
invest any time
exception: there are certain instances when you are required to have more than 60%
a. mass media- 100%
b. recruitment agency- 75% filipino
WHAT IF YOU ARE NON.PHIL NATIONAL.CAN YOU INVEST IN EXPORT ENTERPISE? Yes, section 6 said that they can be owned
100% by foreign national provided that they are not exempt from the list
foreign investment negative list- summary of all laws which provides the required minimum capitalization
- invested by non-philippine national
Example: I want to open a BPO and my clients are abroad so that would be considered export enterprise: I have capitalization of
100% can I own that BPO? Am I allowed? Yes..for export enterprise you can and bpo is not an industry covered by FINL.. there is
no law that it covers 60% foreign ownership.. can I own land? no because land ownership is covered by FINL (foreign
investment negative list)
If an export enterprise it can be done by philippine nationals except if not covered by FINL
- It looks like it’s the same rule..
SMALL AND MEDIUM DOMESTIC MARKET- investment rule under the FIA
No foreign equity allowed based on the Constitution and the law: mass media, practice of profession, retail trade. For retail
trade you need to have capital of 2.5 million US dollars.. if less than 2.5 million us dollars it has to be philiippine national..
less than 50% Filipino ownership , fireckraker and pyrotechnicss---have to be 100% filipino owned..for radio communications
- Under the labor code, public works projects
- 10% foreign equity can be advertising
***those are the projects under FINL
Example: I want to manufacture firearms or gunpowder can this be owned by 100% FOREIGN??? No, IN GENERAL PWEDE UNTA
BUT NO BECAUSE IT BELONGS TO FINL..dynamite, supplies, snipers, dangerous drugs and dangerous chemical ..read that lang
GAMBOA VS TEVES (2011)

FIRST DECISION in 2011: which was appealed in PLDT aided by ACCRA..
The transaction in question involves the common stock of PTIC... question: won the shares of PTIC to subsidiary pan pacific is
valid...we are not telling about public utility but the share of the shareholders
**won the share of PTIC sales was valid for violation of constitutional provision on 60%?
**won it tackles the meaning of the term of capital as used in public securities
Answer: it pertains only to shares entitled to vote

ATTY G: THE BIGGEST ISSUE HERE IS THE MEANING OF CAPITAL
40
(Moot Court, 2013-2014)
INTERPRETATATION IS TOTAL OUTSTNADING STOCK

2 INTEPRETATIONS
What is the difference: YOU HAVE A OMPANY WHICH AHS 1K total outstanding sahres..100 has voting right and 900 has voting
rights and the 100 are owned by foreigners and 900 owned by Filipinos.. filipinos owned 90%
ANSWER WOULD DEPEND ON THE ITNERPETATION OF TOTAL OUTSDTANDING CAPITAL.. but the problem is all the shares
owned by filipino does not have voting right. .so they cannot elect the directors..and we know that the directors manage the
corporation.. so since they cannot elect they cannot control the corporation
- if we take it to mean total outstanding shares..it’s ok

-but if the meaning of capital is entitlement or right to vote: in the case the 100% is with the foreigners who are entitled to vote
- shares entitled to vote
FINAL DECISION: THEY REITERATED VOTING RIGHTS

BUT IF YOU LOOK AT THIS: there is an important statement
PLDT EQUITY STRUCTURE:

- That’s how PLDT is structured
- PLDT has many preferred shares issued mostly to Philippines
77% of total equities is preferred 22% lang ang owned by Filipinos
This is in the gamboa case: 54% foreign
99% Filipinos
**if you look at outstanding stock, it seems ok kai mas daghan ang phil shares..but the SC said this is not right because they are
all non-dividend shares.. the common get 70 per share while preferred got 1 peso per share..
Market value: common is 1, 328 per share while preferred is 11 pesos per share..so the classification is worthless.. you don’t
have beneficial ownership
Ending: 60% voting

Take a look at FIA: 60%-- c overs entitlement and right to vote. It’s still defensible because you can interpret that way
IT GOT WORSE—na.realize niya nga ang shares under corporation code. All shares are entitled to vote: the non-voting shares
may vote on matters affecting the identity and
60% for non-voting
And 60% on voting
60-40 ownership requirement...must apply separately whether common, preferred non.voting...you don’t only need to look at
voting but you also need to look at non.voting
UNDER THE FIA, IT’S OUSTANDING AND ENTITELD TO VOTE SO KANI NA RULNG IS NOT BASED ON LAW
**to be Philippine national – Filipinos must own shares 60% entitled to vote and 60% not entitled to vote
BAYANTEL CASE (2013 CASE)

- 50% - OWNED directly by foreign bank
- 40% owned by foreign corporations and 60% by Filipino corporation
PROPSAL OF CREDITORS OF BYANTEL—the debt will be convert to total of 60% of total outstanding equity so they will get 40%
directly while others 60% will e devoted to a holding company which is 60-40 corporation so it’s a Philippine national
TO KNOW THE NATIONALITY: CONTROL TEST AND GRANDFTATHER RULE: whatever will be the controlling shareholder that is
the nationality of the corporation
GRANDFATHER RULE: u don’t stop looking at the controlling look at the minority and trace it back to the nationality for the
person owning the shares..
HERE, WHAT IS USED BY SEC..PRIMARILLY USES THE CONTROL TEST..BASED ON THE PROVISON FO FIA..
- Check 2nd paragraph of the definition of the Philippine national
41
(Moot Court, 2013-2014)
Take a look at 2nd par:

Philippine nationals: owned by Filipinos. If they own shares by another corporation and non-Filipino shareholders own shares.
Again 60-40%..405 is owned by X so 2 layers
If corporation owns shares. As long as 60-40 sila duha..then ni.own xa..the 2nd corporation is considered Philippine
nationls..becuaes60% is 100% Filipino owned..60% even if owned by 60-40 company is considered Filipino owend
*** IF CONSTITUTION- GRANDFATHER RULE

**IF FIA - CONTROL OWENRSHIP
SC: OWNERSHIP EXCEEDED 40%: the other 40% was owned by a phil national.. How does the grandfather rule work? Sa note is
60-40..if control test pa lang ni siya this is Philippine nationals. But in grandfather rule we take a look at even indirect
shareholdings. They have direct shareholding of 40% so foreigners owned 64%.
2nd not a Filipino corporation because it is owned 60% by Filipinos. In bayntal case. What rule was applied? Grandfather rule..
SC: applied the grandfather rule consistent with the ruling of the SEC
Since public utility man ang banyantel we use the grandfather rule because it’s the constitution..2nd gamboa ruling..total
number of share held by foreign entities exceed 40% of the capital stock with voting rights..so what is prevailing here..is
gamboa
TIPS:
1. If general lang or theoretical: use gamboa
2. But if you use BAYANTEL CASE..MEMORIZE ONE GR: BAYANTEL CASE
If you use Sec memorandum circular..the total voting..2013
LETTERS OF CREDIT
Letters of credit: engagement by the bank

THIS IS normally for international transactions. I am manufacturer, I need raw materials from Malaysia. No need to go to
Malaysia. What to do? When you order, don’t pay in advance. It may be that the seller will not send you the goods. When he’s
not sure that you will pay him. How is it remedied? Under commercial law, it can be remedied by a letter of credit. It’s a letter
from the bank telling the addressee that I will pay the debt of the person provided that you will comply with all conditions
involving letters of credit.
Bank will issue letter of credit with the supplier. Present necessary documents then bank will pay you.
Buyer is also assured that seller will ship the goods then he will receive it. Seller can ship the goods and based on letter of credit
bank will pay the seller and will encash his drafts.
WHO ARE THE PARITES TO THE LETTERS OF CREDIT?

1. Issuing bank
2. Advising or notifying bank—bank who will inform the seller that there is letter of credit.
3. Confirming bank - If not paid, then it will also pay
4. Paying bank - undertakes to draw drafts issued by the seller.
INDEPENDENT CONTRACTS IN LC:

1. contract of sale between buyer and seller
2. contract of carriage between seller and common carrier
3. letters of credit proper between the issuing bank and seller
42
(Moot Court, 2013-2014)
INDEPNEDENCE PRINCIPLE- if one OF the contracts is proved to be void, it does not affect the other contracts or if there is fraud
—it does not affect other contracts
Take note: letter of credit is document based transaction

- issuing bank has no obligation to check ang gipadala sa seller..the issuing bank has no obligation to do that. as long as
the documents mentioned in the letter of credit are presented to him then it will pay
When bank receives the goods, he has to turn them over to the buyer.
Instances when buyer cannot pay for the goods yet pwede i.manufacture then ibaligya, bank can release the goods or
relinquish ownership. How sure is the bank na mabayaran pa siya? To ensure that it gets paid, the parties can enter into trust
receipts agreement.
TRUST RECEIPTS LAW
ENTRUSTEE- commits to sell the goods and remit to the bank what he owed to the bank
TRUST RECEIPTS MUST CONTAIN NECESSARY ITEMS:

1. description of the goods
2. total invoice price
3. there must be undertaking of the entrustee to sell the goods and remit the proceeds to the entrustor
These are the obligations of the entrustee under the trust receipts law - to hold the goods in trust and dispose of them strictly
in accordance with trust receipts
Entrustee - bears the risk of loss. Beneficial goods belongs to the entrustee. If you don’t return the goods or proceeds, you may
be criminally liable for estafa.
INTELLECUTAL PROPERTY CODE
What are the international law related provisions?

1. RULES ON RECIPROCITY- if the person is domiciled or national of a country which extends reciprocal rights to a person in the
Phils, that national will be entitled to the benefits of reciprocity law under IPC
REVERSE RECIPROCITY- Any condition, diminution requirement penalty or similar burden seeking protection on IP rights shall
reciprocally be demandable. If dili u.uphold ang IP rights sa foreign country, then dili pud i.uphold sa Phils ilang IP rights.
MOST FAVORITE NATIONAL TREATMENTS- to give similar rights to all the members:
1. Copyrights and related rights
2. Trademarks
3. Protection of undisclosed information
4. Indication in certain product that it belonged in a certain country..dili pwede gamiton
Problem: Company nag.manufacture tequila. You are not allowed to use the term tequila if your product was not manufactured
in Mexico. You are only allowed to use tequila if there is a letter from Mexican industry
PATENT- it must be new and involves an inventive step- it must not be obvious to a person expert in the field
It must be industrially applicable. It shall not be considered new if it forms part of the prior art
43
(Moot Court, 2013-2014)
What are the non-patentable inventions?

- anything contrary to public order
Who has the right to patents?

- Inventor, heirs or assigns
Exception: in case of commissioned work, patent belongs to a person who commissioned the work
Work of employee:
Depends on whether or not inventive activity is part of his regular duty. If he made the invention during office time using
facilities of the office, but it is not related to his job description, it belongs to employee.
SECTON 29 FIRST TO FILE RULE

SECTION 31: RIGHT OF PRIORITY
SECTION 46; RIGHTS COFERRED BY PATENT APPLICATION
VIOLATION: remedy is civil action for infringement
HOW TO DETERMINE INFRINGMENT: you use the patented invention even if you added something but u also use the literal
infringement
DOCTRIN OF EQUIVALENTS- you modify it, but substantially the invention japun..so that is still considered infringement
Literal: use patented inventions or u added something
If you modified it: it’s still substantially the same result then you modify it
Patent is a public or national interest- the government can compel licensing..it can compel the holder of patent to allow
another person to use it in case of public non.commercial use
Example: in cases of drugs and medicines
TERM OF THE PATENT: 20 YEARS
Trademark - visible sign capable of interpreting the goods or service.

Tradename - the name OR designation identifying or extinguishing the enterprise. there must be a visible sign
HOW IS THE MARK ACQUIRED? HOW DO U ACQURIE TRADEMARK? You have to register it. You cannot sue infringement if you
don’t register..but you can sue for unfair competition or false registration of origin
WHAT ARE THE DIFFERNCES B/W UNFAIR COMPETITION AND INFRINGMENT?
Infringement Unfair competition

when you use the trademark which is registered when you try to pass your product as the product of the
trademark holder. No need of registration
You need not prove bad faith or fraudulent intention. It’s a You have to prove bad faith
violation of your right so no need to prove.
PRIORITY RIGHT - the person who registers ahead will have priority right
44
(Moot Court, 2013-2014)
Doctrine of secondary meaning – a generic or descriptive mark may later acquire the characteristics of distinctiveness and can
later be registered if it acquires a meaning which is different from its ordinary connotation. For this to happen, there must be
continuous use for a period of at least five years. Covers even for goods and services not originally contemplated.
Tradename - name is protected even prior to without registration

Trademark - not protected if not registered
COPYRIGHT
Who owns copyright? Author
If in the course of employment, employer
If creation is not part of regular duties, employer
Commissioned work is different from patent

- The commissioned work belongs to the person who commissioned the work but the copyright belongs to the author
********************
Therefore we do not lose heart. Though outwardly we are wasting away, yet inwardly we are being renewed day by
day. For our light and momentary troubles are achieving for us an eternal glory that far outweighs them all. So we
fix our eyes not on what is seen, but on what is unseen, since what is seen is temporary, but what is unseen is
eternal.
2 Corinthians 16-18
Commercial Law Review Committee:

1. Abejero, Marian
2. Abellana-Espina, Angge
3. Absin, Roh Dundee
4. Aguilar, Christianne
5. Bautista, Veronicaliza
6. Delos Santos, Robnette
7. Duran, Riza
8. Espina, Carlo Eduardo
9. Furuyama, Ken
10. Garong, Daisy Mae
11. Go, Eden Jerby
12. Ibanez, Eddu
13. Larino, Emily
14. Llanera, Mary Ann
15. Malana, Micha Chernobyl
16. Rosas, Reeld
17. Sayson, James Allan
18. Sing, Anthony
19. Teodorico, Ron
45

Banking Law, Central Bank Act, SRC, Foreign Investment, Letters of Credit

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General Banking Law, New Central Bank Act, SRC, Foreign Investment Act, Letters of Credit, Trust Receipts,

RA 337: GENERAL BANKING ACT

BANKS- engaged in the lending of funds obtained in the form of deposits

Fiduciary nature of banking:

Role of banks in the economy:

FINANCIAL INTERMEDIATION - conduits between supplier of funds and users of funds

Westmont Bank v. dela Rosa-Ramos

Equitable PCI vs. Arcelito Tan (2010)

CENTRAL BANK OF THE PHILIPPINES, petitioner, vs. CITYTRUST BANKING CORPORATION,respondent. (2009)

Tan vs. CA GR 108555, 20 December 1994 First Division, Kapunan (J)

What if the depositor is negligent which resulted into a loss?

Definition and Classification of Banks

*came out in the 2010 bar worth 10 points

SECTION 3.Definition and Classification of Banks. —

Cooperative banks - caters to cooperatives. It extends loans and assistance to cooperatives

Islamic banks - caters to our Muslim brothers and sisters

BANKING DAYS AND HOURS

Solidbank’s Breach of its Contractual Obligation

Proximate Cause of the Unauthorized Withdrawal

Doctrine of Last Clear Chance

Central Bank vs. Morfe (1975)

WHO CAN DEPOSIT

PRESIDENTIAL DECREE No. 734 June 25, 1975

AUTHORIZING MINORS TO DEPOSIT WITH AND WITHDRAW FROM BANKS

Secrecy of Bank Deposits

Amendment to Sec. 6 of NIRC

[REPUBLIC ACT NO. 10168]

Republic vs. Eugenio

Sec. 3. Corrupt practices of public officers.

Section 11. Authority to inquire into Bank Deposits.

Section 54 vs. Section 20

SECTION 55.Prohibited Transactions. —

Union Bank vs. Tiu

Underwriting – commercial bank cannot undertake, only universal bank.

As distinguished from banks:

SECTION 54: does not allow a bank itself to become an insurer..

SECTION 55.1 E: prohibits a bank from outsourcing banking functions

**janitorial can be outsourced even without monetary board approval

“BANK IS NOT ALLOWED TO CONDUCT BUSINESS IN AN UNSAFE AND UNSOUND MANNER”

POSSIBLE CONSEQUENCES: abnormal risk or loss

INVESTMENTS OF A BANK IN REAL ESTATE

POWERS OF COMMERCIAL BANK

How much can the bank invest in allied enterprise?

So you have to look at two things:

- if OTHER FINANCIAL ALLIED ENTERPRISES: not exceeding 49% -commercial bank

POWERS OF A UNIVERSAL BANK

INVESTMENTS LIMITS OF A UNIVERSAL BANK:

OTHER TYPE OF LIMITATION BASED ON INVESTEE

Only universal and commercial bank are authorized to engage in QUASI-BANKING

Citibank vs. Sabeniano

REPUBLIC ACT NO. 7653 NEW CENTRAL BANK ACT

Administrative autonomy – independence in operations without intervention of the executive branch

Convertibility – external (other currencies)

- This supervisions includes the power to audit.

Deputy governor – not necessarily a member of the MB

Lack of liquid assets

Conservatorship- transfer administration of the banks to conservator

What do you call that power? POWER OF SUPERVISION

Bangko Sentral is not limited to directly put the bank in receivership.

What are the powers for the conservator?

FIRST PHILIPPINE NATIONAL BANK VS CA:

RECEIVERSHIP AND LIQUDIATION

But main difference is on the purpose