BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
JAN 15, Part 1: REYES
So we are done with the Central Bank Act. Let’s now go
to the R.A. 8791 GENERAL BANKING LAW OF 2000.
There’s still no amendment of the General Banking Law.
This is the rule or law that governs the banks. If RA 7653
which is the charter of the Central Bank, RA 8791
governs the rules and regulations of banks.
We have here an article written by the then Governor of
Bangko Sentral, Amando M. Tetangco, Jr.:
“The law is an important legislative reform that
addressed the need for the regulatory framework to be
more responsive to the rapid changes in the financial
environment.
Among others, the law upgrades the country’s banking
laws to meet global standards and liberalizes foreign
participation in domestic banks.”
These are the policies why the banking law is enacted. It
was promulgated to meet the global standards.
Kasi yung credit ng banking mag matter siya kung
meron kang mga safeguards. For example, our AMLA.
Before kasi haven talaga tayo for Money Laundering,
madaming finu-funnel na money sa atin kasi we have no
concrete law on Money Laundering and because of that
naging mababa yung revenue ng banks so it calls for a
strict enforcement of the Money Laundering rules and
regulation. That’s whyin-enact yung AMLA kasi our
status in the global banking industry is premised on the
existence of several safeguards. You know for a fact na
globalized na ang transactions.
There are some amendments which allow certain banks
to be owned by foreigners but certain banks only not all
the banks. We will go to that when we will go to this
particular banks.
“It promotes greater transparency in bank practice and
provides the BSP more flexibility in supervising the
banking industry. The GBL 2000 aims to enhance the
supervisory capability and enforcement powers of the
BSP, improve prudential standards and foster greater
competition in the banking industry.”
Again, we are trying to avoid what we call unsafe and
unsound banking practices so may mga rules and
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regulations on how to regulate banking practice to
avoid the unsafe and unsound practices but then again
it is impressed with public interest.
Why is competition necessary?
Of course if there is competition there is service to the
consumers. A lot of banks are merging. We have the
recent acquisition of One Network Bank by BDO. It is
now called BDO Network Bank pero magkaibang banks
yun ha. We will discuss the specific classification of
banks.
SECTION 1. Title. — The short title of this Act shall be
"The General Banking Law of 2000." (1a)
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. (n)
So let’s go first to the nature of a bank. The nature of the
banking industry, so we have the case of SIMEX
INTERNATIONAL vs CA.
SIMEX INTERNATIONAL V. CA
FACTS:
Petitioner, a private corporation engaged in the
exportation of food products, was a depositor
maintaining a checking account with respondent
Traders Royal Bank. Petitioner deposited to its
account increasing its balance and subsequently,
issued several checks but was surprised to learn that
it had been dishonored for insufficient funds. As a
consequence, petitioner received demand letters
from its suppliers for the dishonored checks.
Investigation disclosed that the deposit was not
credited to it. The error was rectified and the
dishonored checks were consequently paid.
Petitioner demanded reparation from respondent
bank for its gross and wanton negligence but the later
did not heed. Petitioner then filed before the RTC
which later held that respondent bank was guilty of
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
negligence but petitioner nonetheless was not
entitled to moral damages. CA affirmed.
ISSUE:
Whether or not petitioner is entitled to damages due
to respondent bank’s negligence.
RULING:
YES. The petitioner is entitled to damages due to
respondent bank’s negligence.
The banking system is an indispensable institution
in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as
mere passive entities for the safekeeping and
saving of money or as active instruments of
business and commerce, banks have become an
ubiquitous presence among the people, who have
come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even
the humble wage-earner has not hesitated to
entrust his life's savings to the bank of his choice,
knowing that they will be safe in its custody and
will even earn some interest for him. The ordinary
person, with equal faith, usually maintains a
modest checking account for security and
convenience in the settling of his monthly bills and
the payment of ordinary expenses. As for business
entities like the petitioner, the bank is a trusted
and active associate that can help in the running
of their affairs, not only in the form of loans when
needed but more often in the conduct of their day-
to-day transactions like the issuance or
encashment of checks.
As the Court sees it, the initial carelessness of the
respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant
of moral damages. This rather lackadaisical attitude
toward the complaining depositor constituted the
gross negligence, if not wanton bad faith, that the
respondent court said had not been established by
the petitioner. We shall recognize that the petitioner
did suffer injury because of the private respondent’s
negligence that caused the dishonor of the checks
issued by it. The immediate consequence was that its
prestige was impaired because of the bouncing
checks and confidence in it as a reliable debtor was
diminished.
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The point is that as a business affected with public
interest and because of the nature of its functions, 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. In the
case at bar, it is obvious that the respondent bank was
remiss in that duty and violated that relationship.
What is especially deplorable is that, having been
informed of its error in not crediting the deposit in
question to the petitioner, the respondent bank did
not immediately correct it but did so only one week
later or twenty-three days after the deposit was made.
It bears repeating that the record does not contain
any satisfactory explanation of why the error was
made in the first place and why it was not corrected
immediately after its discovery. Such ineptness comes
under the concept of the wanton manner
contemplated in the Civil Code that calls for the
imposition of exemplary damages.
Why was the Supreme Court so strict in appreciating the
negligence done by the bank?
The banking system is an indispensable institution in the
modern world and plays a vital role in the economic life
of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as
active instruments of business and commerce, banks
have become an ubiquitous presence among the
people, who have come to regard them with respect
and even gratitude and, most of all, confidence. Thus,
even the humble wage-earner has not hesitated to
entrust his life's savings to the bank of his choice,
knowing that they will be safe in its custody and will even
earn some interest for him. The ordinary person, with
equal faith, usually maintains a modest checking
account for security and convenience in the settling of
his monthly bills and the payment of ordinary expenses.
As for business entities like the petitioner, the bank is a
trusted and active associate that can help in the running
of their affairs, not only in the form of loans when
needed but more often in the conduct of their day-to-
day transactions like the issuance or encashment of
checks.
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.
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
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. A blunder on
the part of the bank, such as the dishonor of a check
without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps
even civil and criminal litigation.
The point is that as a business affected with public
interest and because of the nature of its functions, 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
DISCUSSION:
The banking system is an indispensable institution in the
modern world and plays a vital role in the economic life
of every civilized nation. That is why there has to be a
strict regulation.
SOLIDBANK VS ARRIETA
FACTS:
Carmen Arrieta is a bank depositor of Solidbank
Corporation under Checking Account No. 123-1996.
On March 1990, Carmen issued SBC Check No.
0293984 in the amount of P330.00 in the name of
Lopues Department Store in payment of her
purchases from said store. When the check was
deposited by the store to its account, the same was
dishonored due to Account Closed despite the fact
that at the time the check was presented for payment,
Carmens checking account was still active and
backed up by a deposit of P1,275.20.
As a consequence of the checks dishonor, Lopues
Department Store sent a demand letter to Carmen.
Before these events though, a similar incident
occurred days before, where Arrieta issued a check
which subsequently bounced.
Thereupon, Carmen filed a complaint against
Solidbank Corporation for damages.
In its answer, the bank claimed that Carmen, contrary
to her undertaking as a depositor, failed to maintain
the required balance of at least P1,000.00 on any day
of the month. Moreover, she did not handle her
account in a manner satisfactory to the bank. In view
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of her violations of the general terms and conditions
governing the establishment and operation of a
current account, Carmen’s account was
recommended for closure. In any event, the bank
claimed good faith in declaring her account closed
since one of the clerks, who substituted for the
regular clerk, committed an honest mistake when he
thought that the subject account was already closed
when the ledger containing the said account could
not be found.
ISSUE:
Whether or not Arrieta is entitled to moral damages.
RULING:
YES. Arrieta is entitled to moral damages.
The fact that another check Carmen had issued was
previously dishonored does not necessarily imply
that the dishonor of a succeeding check can no
longer cause moral injury and personal hurt for which
the aggrieved party may claim damages. Such prior
occurrence does not prove that respondent does not
have a good reputation that can be besmirched.
The circumstances surrounding the two checks are
different. The first check was to accommodate a
relative, and the succeeding one to pay for goods
purchased from the Lopues Department Store. That
she might not have suffered damages as a result of
the first dishonored check does not necessarily hold
true for the second.
The following are the conditions for the award of
moral damages:
(1) there is an injury -- whether physical, mental or
psychological -- clearly sustained by the claimant;
(2) the culpable act or omission is factually
established;
(3) the wrongful act or omission of the defendant is
the proximate cause of the injury sustained by the
claimant; and
(4) the award of damages is predicated on any of the
cases stated in Article 2219[11] of the Civil Code.
In the instant case, all four requisites have been
established.
First, these were the findings of the appellate court:
Carmen Arrieta is a bank depositor of Solidbank
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Corporation of long standing. She works with the
Central Negros Electric Cooperative, Inc. (CENECO),
as an executive secretary and later as department
secretary. She is a deaconess of the Christian Alliance
Church in Bacolod City. These are positions which no
doubt elevate her social standing in the community.
Understandably -- and as sufficiently proven by her
testimony -- she suffered mental anguish, serious
anxiety, besmirched reputation, wounded feelings
and social humiliation; and she suffered thus when
the people she worked with -- her friends, her family
and even her daughters classmates -- learned and
talked about her bounced check.
Second, it is undisputed that the subject check was
adequately funded, but that petitioner wrongfully
dishonored it.
Third, Respondent Carmen was able to prove that
petitioners wrongful dishonor of her check was the
proximate cause of her embarrassment and
humiliation in her workplace, in her own home, and in
the church where she served as deaconess.
Proximate cause has been defined as any cause
which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces the result
complained of and without which would not have
occurred x x x.
It is determined from the facts of each case upon
combined considerations of logic, common sense,
policy and precedent. Clearly, had the bank accepted
and honored the check, Carmen would not have had
to face the questions of -- and explain her
predicament to -- her office mates, her daughters,
and the leaders and members of her church.
Furthermore, the CA was in agreement with the trial
court in ruling that her injury arose from the gross
negligence of petitioner in dishonoring her well-
funded check.
Fourth, treating Carmens account as closed, merely
because the ledger could not be found was a reckless
act that could not simply be brushed off as an honest
mistake. The Supreme Court said, We have
repeatedly emphasized that the banking industry
is impressed with public interest. Consequently,
the highest degree of diligence is expected, and
high standards of integrity and performance are
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even required of it. By the nature of its functions,
a bank is under obligation to treat the accounts of
its depositors with meticulous care and always to
have in mind the fiduciary nature of its
relationship with them.
Petitioners negligence here was so gross as to
amount to a wilful injury to Respondent Carmen.
Article 21 of the Civil Code states that any person who
wilfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public
policy shall compensate the latter for the damage.
Further, Article 2219 provides for the recovery of
moral damages for acts referred to in the
aforementioned Article 21. Hence, the bank is liable
for moral damages to respondent.
TAN VS CA and RCBC
FACTS:
Businessman Ramon Tan had maintained an account
with RCBC Binondo since 1976. To avoid carrying
cash while going to Manila, he secured a Cashier’s
Check from PCIB in the amount of P 30K, payable to
his order. He deposited the check to RCBC Binondo.
On the same day, RCBC erroneously sent the same
cashier's check for clearing to the Central Bank which
was returned for having been "missent" or
"misrouted."
The next day, March 16, RCBC debited the amount
covered by the same cashier's check from the
account of the petitioner. Respondent bank at this
time had not informed the petitioner of its action
which the latter claims he learned of only 42 days
after, specifically on March 16, when he received the
bank's debit memo.
Relying on the common knowledge that a cashier's
check was as good as cash, that the usual banking
practice that local checks are cleared within three (3)
working days and regional checks within seven (7)
working days, and the fact that the cashier's check
was accepted, petitioner issued two (2) personal
checks both dated March 18. Check No. 040719 in
the name of Go Lac for Five Thousand Five Hundred
(P5,5000.00) Pesos was presented on April 25,3 more
than 30 days from petitioner's deposit date of the
cashier's check. CheckNo. 040718 in the name of MS
Development Trading Corporation for Six Thousand
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Fifty-Three Pesos and Seventy Centavos (P6,053.70)
was returned twice on March 24, nine (9) days from
his deposit date and again on April 26, twenty-two
days after the day the cashier's check was deposited
for insufficiency of funds.
Tan now files a case against RCBC.
On the other hand, RCBC denied negligence and put
the blame on Tan for the "misrouting" on the
petitioner for using the wrong check deposit slip. It
insisted that the misuse of a local check deposit slip,
instead of a regional check deposit slip, triggered the
"misrouting" by RCBC of the cashier's check to the
Central Bank and it was petitioner's negligent
"misuse" of a local deposit slip which was the
proximate cause of the "misrouting," thus he should
bear the consequence.
ISSUE:
Whether or not the RCBC had been remiss in the
performance of its duty and obligation to its client as
well to itself.
RULING:
YES. The RCBC had been remiss in the performance
of its duty and obligation to its client as well to itself.
In a most recent case decided by this Court, City
Trust Corporation v. The Intermediate Appellate
Court, 22 involving damages against City Trust
Banking Corporation, the depositor, instead of
stating her correct account number 29000823
inaccurately wrote 2900823. Because of this
error, six postdated checks amounting to
P20,209.00 she issued were dishonored for
insufficiency of funds. The Regional Trial Court
dismissed the complaint for lack of merit. The
Court of Appeals, however, found the appeal
meritorious and ordered the bank to pay nominal
damages of P2,000.00, temperate and moderate
damages of P5,000.00 and attorney's fees of
P4,000.00. Upon review, this Court quoted with
favor the disquisition of the appellate court:
Bank clients are supposed to rely on the services
extended by the bank, including the assurance
that their deposits will be duly credited them as
soon as they are made. For, any delay in crediting
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their account can be embarrassing to them as in
the case of plaintiff.
The point is that as a business affected with public
interest and because of the nature of its functions,
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. (Emphasis supplied).
The Court cited its earlier ruling in the case of City
Trust Corporation v. The Intermediate Appellate
Court. In that case, the depositor failed to put another
zero in her account number, thus the checks she
issued were dishonored. The Court said that even if
there was a discrepancy in the number, still the name
of the depositor was correct. The name is controlling
in determining in whose account the deposit is made
or should be posted. This is so because it is not likely
to commit an error in one's name that merely relying
on numbers which are difficult to remember,
especially a number with eight (8) digits as the
account numbers of defendant's depositors.
In the instant case, the teller should not have
accepted the local deposit slip with the cashier's
check that on its face was clearly a regional check
without calling the depositor's attention to the
mistake at the very moment this was presented to her.
Neither should everyone else down the line who
processed the same check for clearing have allowed
the check to be sent to Central Bank. Depositors do
not pretend to be past master of banking
technicalities, much more of clearing procedures. As
soon as their deposits are accepted by the bank teller,
they wholly repose trust in the bank personnel's
mastery of banking, their and the bank's sworn
profession of diligence and meticulousness in giving
irreproachable service.
So it is in the instant case, where the conclusion is
inevitable that RCBC had been remiss in the
performance of its duty and obligation to its client as
well as to itself.
Sabi ng Supreme Court:
“The point is that as a business affected with public
interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
depositors with meticulous care, always having in mind
the fiduciary nature of their relationship.”
This why when you go to the bank minsan kaunting
difference lang ng signature di nila i-gogood yung
check. They are doing this because its their job as they
are imbued with public interest. Wag po magalit agad
kung bakit strict yung teller or strict yung manager. They
are just doing their job. In fact if you might ask the bank
manager is not supposed to stay sa isang branch for a
long time because of familiarity reasons. I-momove
talaga yan sila to avoid any tendency for unsound and
unsafe practice of banks.
METROPOLITAN BANK AND TRUST COMPAN vs.
THE HON. COURT OF APPEALS, RURAL BANK OF
PADRE GARCIA, INC. and ISABEL R. KATIGBAK
FACTS:
Katigbak is the president and director of RBPG, while
MBTC is the rural bank's depository bank, where
Katigbak maintains current accounts.
April 6, 1982, MBTC received from the CB a credit
memo dated April 5, 1982 that its demand deposit
account was credited with P304,000.00 for the
account of RBPG, representing loans granted by the
Central Bank to RBPG.
Katigbak issued several checks in the total amount of
P300,000.00, payable to Dr. Felipe and Mrs. Eliza
Roque for P25,000.00 each.
Dr. and Mrs. Roque deposited the checks with PBC,
but the checks were returned by MBTC with the
annotations "DAIF — TNC" (Drawn Against Insufficient
Funds — Try Next Clearing) so they were redeposited
on April 14, 1982, which was again dishonored for
the following reason: "DAIF — TNC — NO ADVICE
FROM CB."
The Roques went to Katigbak and the latter paid them
in P50,000 cash.
While Katigbak was on a business-vacation trip, she
received overseas phone calls from Mrs. San Juan
informing her that a certain Mr. Dungo, Assistant
Cashier of MBTC insisted on talking to Mrs. San Juan
(Dungo thought she is Isabel Katigbak), berating her
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about the checks which bounced, saying "Nag-issue
kayo ng tseke, wala namang pondo."
Mrs. Katigbak asked Mrs. San Juan to request MBTC
to check and verify the records regarding the CB
credit memo for P304,000.00 but Mrs. San Juan
received another insulting call from Mr. Dungo ("Bakit
kayo nag-issue ng tseke na wala namang pondo,
Three Hundred Thousand na.") When Mrs. San Juan
explained to him the need to verify the records
regarding the Central Bank memo, he merely
brushed it aside, telling her sarcastically that he was
very sure that no such credit memo existed.
Subsequent events led to hospitalization of Katigbak
for 2 days.
ISSUE:
Whether or not Metropolitan Bank remiss in its duty
and obligation to treat Katigbak’s account with the
highest degree of care.
HELD:
YES. The Metropolitan Bank remissed in its duty and
obligation to treat Katigbak’s account with the highest
degree of care considering the fiduciary nature of
their relationship.
Clearly, petitioner bank was remiss in its duty and
obligation to treat private respondent's account
with the highest degree of care, considering the
fiduciary nature of their relationship. The bank is
under obligation to treat the accounts of its
depositors with meticulous care, whether such
account consists only of a few hundred pesos or of
millions. It must bear the blame for failing to
discover the mistake of its employee despite the
established procedure requiring bank papers to
pass through bank personnel whose duty it is to
check and countercheck them for possible errors.
Responsibility arising from negligence in the
performance of every kind of obligation is
demandable.
It was established that when Mrs. Katigbak learned
that her checks were not being honored and Mr.
Dungo repeatedly made the insulting phone calls,
her wounded feelings and the mental anguish
suffered by her caused her blood pressure to rise
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
beyond normal limits, necessitating medical
attendance for two (2) days at a hospital.
The damage to private respondents' reputation and
social standing entitles them to moral damages.
Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social
humiliation and similar injury.
Whose fault was it? Sino nagkamali? Metropolitan Bank
Was there a credit memo? Was there a credit advance?
Yes.
Ano nangyari? There was misrouting.
There was negligence on the part of the personnel of
the bank
PHILIPPINE NATIONAL BANK vs. COURT OF
APPEALS and CARMELO H. FLORES
FACTS:
Flores, business man engaged in real estate,
purchased from PNB 2 manager's checks worth
P500,000.00 each, paying a total of P1,000,040.00,
including the service charge. A receipt for said
amount was issued by the petitioner.
On 12 July 1989, Flores presented these checks at the
Baguio Hyatt Casino unit of PNB. However, PNB
initially refused to encash the checks but after a
lengthy discussion, it agreed to encash one 1 of the
checks, and deferred the payment of the other check.
Flores tried to encashed the check on several
occasions, to no avail.
Left with no other choice, Flores filed a case with the
RTC.
ISSUE:
Whether or not PNB’s act of issuing the manager’s
checks and corresponding receipt before payment
thereof acted recklessly and grossly negligent.
HELD:
YES. The Supreme Court said that the petitioner's act
of issuing the manager's checks and corresponding
receipt before payment thereof was completely
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counted reckless and grossly negligent. It is an
appalling breach of bank procedures and must never
be repeated.
In Bautista v. Mangaldan Rural Bank, Inc., we stated
that 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. Whether as mere passive entities for the safe-
keeping and saving of money or as active instruments
of business and commerce, banks have attained an
unbiquitous presence among the people,
who have come to regard them with respect and even
gratitude and, most of all, confidence.
G.R. No. 136202 January 25, 2007
BANK OF THE PHILIPPINE ISLANDS,
Petitioner,vs.COURT OF APPEALS, ANNABELLE A.
SALAZAR, and JULIO R. TEMPLONUEVO,
Respondents
FACTS:
A.A. Salazar Construction and Engineering Services
filed an action for a sum of money with damages
against herein petitioner Bank of the Philippine
Islands (BPI) on December 5, 1991. The complaint
was later amended by substituting the name of
Annabelle A. Salazar as the real party in interest in
place of A.A. Salazar Construction and Engineering
Services. Private respondent Salazar prayed for the
recovery of the amount of P267,707.70 debited by
petitioner BPI from her account. She likewise prayed
for damages and attorney’s fees.
Petitioner BPI, in its answer, alleged that on August
31, 1991, Julio R. Templonuevo, third-party
defendant and herein also a private respondent,
demanded from the former payment of the amount
of P267,692.50 representing the aggregate value of
three (3) checks, which were allegedly payable to
him, but which were deposited with the petitioner
bank to private respondent Salazar’s account
(Account No. 0203-1187-67) without his knowledge
and corresponding endorsement.
Accepting that Templonuevo’s claim was a valid one,
petitioner BPI froze Account No. 0201-0588-48 of
A.A. Salazar and Construction and Engineering
Services, instead of Account No. 0203-1187-67 where
the checks were deposited, since this account was
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
already closed by private respondent Salazar or had
an insufficient balance.
Private respondent Salazar was advised to settle the
matter with Templonuevo but they did not arrive at
any settlement. As it appeared that private
respondent Salazar was not entitled to the funds
represented by the checks which were deposited and
accepted for deposit, petitioner BPI decided to debit
the amount of P267,707.70 from her Account No.
0201-0588-48 and the sum of P267,692.50 was paid
to Templonuevo by means of a cashier’s check. The
difference between the value of the checks
(P267,692.50) and the amount actually debited from
her account (P267,707.70) represented bank charges
in connection with the issuance of a cashier’s check to
Templonuevo.
In the answer to the third-party complaint, private
respondent Templonuevo admitted the payment to
him of P267,692.50 and argued that said payment
was to correct the malicious deposit made by private
respondent Salazar to her private account, and that
petitioner bank’s negligence and tolerance regarding
the matter was violative of the primary and ordinary
rules of banking. He likewise contended that the
debiting or taking of the reimbursed amount from the
account of private respondent Salazar by petitioner
BPI was a matter exclusively between said parties and
may be pursuant to banking rules and regulations,
but did not in any way affect him. The debiting from
another account of private respondent Salazar,
considering that her other account was effectively
closed, was not his concern.
ISSUE:
Does a collecting bank, over the objections of its
depositor, have the authority to withdraw unilaterally
from such depositor’s account the amount it had
previously paid upon certain unendorsed order
instruments deposited by the depositor to another
account that she later closed?
HELD:
The right of set-off was explained in Associated Bank
v. Tan:
A bank generally has a right of set-off over the
deposits therein for the payment of any withdrawals
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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."
Hence, the relationship between banks and
depositors has been held to be that of creditor and
debtor. Thus, legal compensation under Article 1278
of the Civil Code may take place "when all the
requisites mentioned in Article 1279 are present," as
follows:
(1) That each one of the obligors be bound
principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind,
and also of the same quality if the latter has been
stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention
or controversy, commenced by third persons and
communicated in due time to the debtor.
While, however, it is conceded that petitioner had the
right of set-off over the amount it paid to
Templonuevo against the deposit of Salazar, the issue
of whether it acted judiciously is an entirely different
matter. As businesses affected with public interest,
and because of the nature of their functions, banks
are under obligation to treat the accounts of their
depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. In
this regard, petitioner was clearly remiss in its
duty to private respondent Salazar as its
depositor.
To begin with, the irregularity appeared plainly on
the face of the checks. Despite the obvious lack of
indorsement thereon, petitioner permitted the
encashment of these checks three times on three
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
separate occasions. This negates petitioner’s
claim that it merely made a mistake in crediting
the value of the checks to Salazar’s account and
instead bolsters the conclusion of the CA that
petitioner recognized Salazar’s claim of
ownership of checks and acted deliberately in
paying the same, contrary to ordinary banking
policy and practice. It must be emphasized that
the law imposes a duty of diligence on the
collecting bank to scrutinize checks deposited
with it, for the purpose of determining their
genuineness and regularity. The collecting bank,
being primarily engaged in banking, holds itself
out to the public as the expert on this field, and
the law thus holds it to a high standard of conduct.
The taking and collection of a check without the
proper indorsement amount to a conversion of the
check by the bank.
More importantly, however, solely upon the
prompting of Templonuevo, and with full knowledge
of the brewing dispute between Salazar and
Templonuevo, petitioner debited the account held in
the name of the sole proprietorship of Salazar without
even serving due notice upon her. This ran contrary
to petitioner’s assurances to private respondent
Salazar that the account would remain untouched,
pending the resolution of the controversy between
her and Templonuevo.29 In this connection, the CA
cited the letter dated September 5, 1991 of Mr.
Manuel Ablan, Senior Manager of petitioner bank’s
Pasig/Ortigas branch, to private respondent Salazar
informing her that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe
to conclude that Account No. 0201-0588-48 will
remain frozen or untouched until herein [Salazar] has
settled matters with Templonuevo. But, in an
unexpected move, in less than two weeks (eleven
days to be precise) from the time that letter was
written, [petitioner] bank issued a cashier’s check in
the name of Julio R. Templonuevo of the J.R.T.
Construction and Trading for the sum of P267,692.50
and debited said amount from Ms. Arcilla’s account
No. 0201-0588-48 which was supposed to be frozen
or controlled. Such a move by BPI is, to Our minds, a
clear case of negligence, if not a fraudulent, wanton
and reckless disregard of the right of its depositor.
Let’s go to definition and classification of banks.
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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 the Republic Act No. 7906 (hereafter the
"Thrift Banks Act");
(d)Rural banks, as defined in Republic Act No. 73S3
(hereafter the "Rural Banks Act");
(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- A)
So this is the definition of a bank- it shall be engaged in
the lending of funds obtained in the form of deposits
and not deposit substitutes. If it is deposit substitutes
you are engaged in a quasi-bank.
FRAMEWORK FOR A SAFE AND SOUND BANKING
SYSTEM
These are the criteria for a certain bank to be considered
as having safe and sound banking practices.
1. INTERNAL OR CORPORATE
GOVERNANCE
2. MARKET DISCPILINE
3. EXTERNAL GOVERNANCE or BANK RULES
OR SUPERVISION
INTERNAL OR CORPORATE GOVERNANCE
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
I. Independent directors as members of board of
directors;
The banking industry is one of those industries na
kailangan magkaroon ng independent director. In fact
independent director is one of the incorporated
provisions in Corpo. Previously the Corporation Code of
the Philippines, there was no mention of independent
directors. It was only mentioned in the series of Ciruclar
Memorandum and in the General Banking Law but nung
ni-revise ang Corporation Code they actually
incorporated it under the provision of directors but for
industries with public interest, there has to be an
independent directors. When we talk about
independent directors we are not referring to someone
talaga na walang ownership ng bank or company
because as you know you can’t be a director if you do
not own at least a share. So kailangan meron ka but its
just that a part of shareholdings, he or she is
independent with the bank. Ang purpose talaga ng
independent director is to check the check and
balances.
II. Limitations on directors, officers, stockholders
and related interests (DOSRI) lending;
This is what we call DOSRI loans.
III. Teleconferencing and videoconferencing in
meetings
Again before the Revised Corporation Code, its only the
General Banking Law which permits teleconferencing or
video- conferencing. So Board of Directors can now
attend meetings through Skype or Viber. The only thing
that is required is that there must be identification
before the meeting begins.
IV. Authority to the Monetary Board to set “fit-and-
proper” rules;
This is another concept in banking. The “fit-and proper”
rule. For you to be a director of a bank, you must be fit
and proper. You must be competent so that’s fit and you
must be proper.
V. Adoption of risk-based capital adequacy ratios.
The capital ratio required will depend upon the class of
bank. Ano yon?
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For example, THRIFT BANK will never have the same
capital ratio as a UNIVERSAL BANK. Kasi magkaiba yung
risk kaya siya tinawag na risk-based because the capital
requirement will actually depend on the risk assumed by
a certain bank.
A universal bank should not have the same capital
requirement as a commercial bank. A commercial bank
will not have the same capital requirement with a thrift
bank or a rural bank kasi magkaiba yung risk na ma-
assume ng ganitong kalseng bank.
MARKET DISCIPLINE
I. Liberal policy in foreign banks entry and
non-banks foreign investors,
II. Transparency, and accessibility of bank data
Again as we have discussed in the Bangko Snetral ng
Pilipinas, may pinopost sila na aggregate data of tax.
Hindi pwede na ipopost nila yung individual because
that is under the confidentiality. That is a trade secret.
Hindi pwedeng i-disclose. Aggregate data kailangan
nilang i-dispose to properly appraise the public na this
is what is going on in the banking industry.
The purpose of allowing entry of foreign banks is to have
more funds. Kasi kung local lang we cannot sustain. We
will discuss later what are the restrictions when it comes
to ownership of foreign and local banks. Also what’s the
procedure for a foreign bank to enter the market of the
Philippines.
EXTERNAL GOVERNANCE or BANK RULES OR
SUPERVISION
BSP, through the Monetary Board, supervises and
regulates banks. Regulation and supervision cannot be
the solitary isolated answer to depositor protection.
Instead, the approach taken is to make bank regulation
and supervision, supportive of internal governance and
market discipline.
Again BSP and the Monetary Board who supervises and
regulates. You already know that. Pwede sila magreport
para ma-subject to receivership or conservatorship. We
have discussed this extensively. Please bear in mind that
the more important provisions are the procedure and
grounds of receivership and conservatorship and the
remedies.
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Let’s now talk about the classification of banks.
Hindi ba kayo nagtaka na kung dito sa Davao may
identification like Eastwest Bank Rural Bank, BPI Family
Saving Bank, BDO Universal Bank.
JAN 15, Part 2: MANA-AY
Why should banks be classified? It is because they have
different powers, different authorities of certain banks. A
universal bank can do this, but it cannot be done by a thrift
bank or a rural bank, limited lang yung powers nila. You have
to very careful in knowing. If you are gonna set up a thrift bank,
can it do this? Can it do that? Kasi limited lang yung kanyang
powers.
The most universal bank is of course the universal bank. It can
do everything that a bank can do legally, next is the
commercial bank. It can even own a universal bank and even
own another commercial bank. So you have to be very careful.
Because, for example, you have to exchange your dollar into
peso, not all banks can actually do that. There has to be an
authority under the respective laws.
NOTE: Please refer to CIRCULAR NO. 271, Series of 2001 for
the full text.
CLASSIFICATIONS OF BANKS IN GENERAL
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)
The basic function of the bank is to ACCEPT THE DEPOSIT
AND LEND IT. But actually it is RISK MANAGEMENT because
not all na pinahiram mo magbabayad, how can you repay the
deposit? Ito yung risk na inaassume ng bank that is why it has
to be regulated. Because anong mangyayari pag hindi siya
regulated? Walang trust ang public. No deposit ang banks.
Bakit kailangan magkaroon ng trust? Because the more
deposit there is, there is more fund available to the public,
there is more fund available for economic transactions which
are very good for the economy of a certain country.
POWERS AND SCOPE OF AUTHORITY OF BANKS
1. UNIVERSAL BANK
a. UBs. A UB shall have the authority to exercise, in addition
to the powers and services authorized for a KB as enumerated
in item b of this Subsection and those provided by other laws,
the following:
(1) the powers of an investment house as provided under
existing laws;
(2) the power to invest in non-allied enterprises; -
(3) the power to own up to one hundred percent (100%) of the
equity in a TB, an RB, a financial allied enterprise, or a non-
financial allied enterprise; and
(4) in case of publicly-listed UBs, the power to own up to one
hundred percent (100%) of the voting stock of only one
other UB or KB.
A UB may perform the functions of an investment house either
directly or indirectly through a subsidiary investment house; in
either case, the underwriting of equity securities and securities
dealing shall be subject to pertinent laws and regulations of
the Securities and Exchange Commission (SEC): Provided,
That if the investment house functions are performed directly
by the UB, such functions shall be undertaken by a separate
and distinct department or other similar unit in the UB but
it cannot perform such functions both directly and indirectly
through a subsidiary. (CIRCULAR NO. 271, Series of 2001)
NOTE: KB stands for COMMERCIAL BANK.
DISCUSSION:
A UB shall have the authority to exercise, in addition to the
powers and services authorized for a KB. Therefore, when
you talk about commercial banks, lahat ng kapangyarihan ay
kapangyarihan niya. Lahat ng kapangyarihan ni commercial
bank, pwede gawin ni universal bank. Pero in addition sa
kapangyarihan ni KB, ano ang pwedeng gawin ni UB?
(1) the powers of an investment house as provided
under existing laws;
(2) the power to invest in non-allied enterprises; -

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 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
(3) the power to own up to one hundred percent
(100%) of the equity in a TB, an RB, a financial allied
enterprise, or a non-financial allied enterprise; and
(4) in case of publicly-listed UBs, the power to own up
to one hundred percent (100%) of the voting stock
of only one other UB or KB.
Please take note na ang universal bank ang pinaka-
powerful.
2. COMMERCIAL BANKS
b. KBs. In addition to the general powers incident to
corporations and those provided in other laws, a KB shall have
the authority to exercise all such powers as may be necessary
to carry on the business of commercial banking, such as
accepting drafts and issuing letters of credit; discounting and
negotiating promissory notes, drafts, bills of exchange, and
other evidences of debt; accepting or creating demand
deposits; receiving other types of deposits and deposit
substitutes; buying and selling foreign exchange and gold or
silver bullion; acquiring marketable bonds and other debt
securities; and extending credit, subject to such rules as the
Monetary Board may promulgate. These rules may include the
determination of bonds and other debt securities eligible for
investment, the maturities and aggregate amount of such
investment.
It may also exercise or perform any or all of the following:
(1) invest in the equities of allied enterprises as may be
determined by the Monetary Board;
(2) purchase, hold and convey real estate as specified under
Sections 51 and 52 of R.A. No. 8791;
(3) receive in custody funds, documents and valuable
objects;
(4) act as financial agent and buy and sell, by order of and for
the account of their customers, shares, evidences of
indebtedness and all types of securities;
(5) make collections and payments for the account of others
and perform such other services for their customers as are
not incompatible with banking business;
(6) upon prior approval of the Monetary Board, act as
managing agent, adviser, consultant or administrator of
investment management/advisory/-consultancy
accounts;
(7) rent out safety deposit boxes; and
(8) engage in quasi-banking functions.
DISCUSSION:
In addition to the general powers incident to corporations.
Because you now for a fact that banks are actually
corporations. Wala pong partnership na banks. Wala pong
sole proprietorship, kailangan po corporation. Saan po
makikita ang general powers of corporation? Nandun sa
CORPORATION CODE.
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exercise all such powers as may be necessary to carry on
the business of commercial banking, such as accepting
drafts and issuing letters of credit; discounting and
negotiating promissory notes. This expedites paying in
cross-border transactions. A good question is, pwede ka bang
mag_LC if local lang yung transaction mo? Somebody asked
me that. That is not even a question. Ano bang purpose ng LC?
Kung nag-iimport ka ng products. Ngayon kung may
outstanding(?, sorry may nag-ubo ) LC ka may trust yung
nagsupply sayo na babayaran mo yan. Bakit kailangang may
trust, kasi walang jurisdiction. Pero kung local ka, kailangan pa
ba yun? (NAGDUBIDUBIDAPDAP NA SI SIR ) Regardless
kung wala kang pera, pag may LC magbabayad parin sayo ang
bank.
accepting or creating demand deposits; receiving other
types of deposits and deposit substitutes; buying and
selling foreign exchange and gold or silver bullion.
Therefore commercial banks can engage to foreign exchange.
acquiring marketable bonds and other debt securities;
and extending credit.
3. THRIFT BANKS
Governed by a special law, R.A. 7906, “Thrift Banks Act”.
(a) "Thrift banks" shall include savings and mortgage
banks, private development banks, and stock savings
and loans associations organized under existing laws,
and any banking corporation that may be organized for
the following purposes:
(1) Accumulating the savings of depositors and investing
them, together with capital loans secured by bonds,
mortgages in real estate and insured improvements
thereon, chattel mortgage, bonds and other forms
of security or in loans for personal or household
finance, whether secured or unsecured, or in
financing for homebuilding and home
development; in readily marketable and debt
securities; in commercial papers and accounts
receivables, drafts, bills of exchange, acceptances
or notes arising out of commercial transactions; and
in such other investments and loans which the
Monetary Board may determine as necessary in the
furtherance of national economic objectives;
(2) Providing short-term working capital, medium- and
long-term financing, to businesses engaged in
agriculture, services, industry and housing; and
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
(3) Providing diversified financial and allied services for its
chosen market and constituencies specially for
small and medium enterprises and individuals.
(Section 3, RA 7906)
DISCUSSION:
1. Accumulating the savings of depositors and investing
them, together with capital loans secured by bonds,
mortgages in real estate and insured improvements
thereon, chattel mortgage, bonds and other forms of
security or in loans for personal or household finance,
whether secured or unsecured, or in financing for
homebuilding and home development; Kaya po
merong Savings and Mortgage Banks. Ito yung mga nagsi-
save tapos iiinvest. Ito yung mga thrift banks. Ang purpose
nito is to accumulate savings for the depositiors.
2. Providing short-term working capital, medium- and
long-term financing, to businesses engaged in
agriculture, services, industry and housing; This is
similar to coop but iba lang yung coop restricted to the
members.
3. Providing diversified financial and allied services for its
chosen market and constituencies specially for small
and medium enterprises and individuals. The concept
5. COOPERATIVE BANKS
of thrift banks is actually for SMEs (Small and Medium
Enterprises). Thrift banks are very prevalent in the
provinces.
4. RURAL BANKS
Organize to promote comprehensive rural development
with the end in view of attaining acquitable distribution of
opportunities, income and wealth; a sustained increase in
the amount of goods and services produced by the nation
of the benefit of the people; and in expanding
6. ISLAMIC BANKS
productivity as a key raising the quality of life for all,
especially the underprivileged. (Sec. 2, RA 7353, Rural Act
of 1992)
Kung ang thrift bank prevalent sa provinces, itong thrift banks
ito na talga yung nasa malayo. Kasi ang purpose nito ay there
shoulb de available credit. For example, magsasaka ka
kailangang mo mangutang, there should be available credit to
help you finance your daily needs.
d. RBs. In addition to the powers provided in other laws, an
RB may perform any or all of the following services:
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(1) extend loans and advances primarily for the purpose of
meeting the normal credit needs of farmers, fishermen or
farm families as well as cooperatives, merchants, private
and public employees;
(2) accept savings and time deposits;
(3) act as correspondent of other financial institutions;
(4) rediscount paper with the LBP, DBP or any other bank,
including its branches and agencies. Said banks shall
specify the nature of paper deemed acceptable for
rediscount, as well as the rediscount rate to be charged by
any of these banks;
(5) Act as collection agent; and
(6) Offer other banking services as provided in Section 53 of
R.A. No. 8791.
With prior approval of the Monetary Board, an RB may perform
any or all of the following services:
(1) accept current or checking accounts: Provided, That such
RB has net assets of at least P5 million;
(2) accept NOW accounts;
(3) act as trustee over estates or properties of farmers and
merchants;
(4) act as official depository of municipal, city or provincial
funds in the municipality, city or province where it is located;
(5) sell domestic drafts; and
(6) invest in allied undertakings. (CIRCULAR NO. 271, Series
of 2001)
e. Coop Banks. A Coop Bank shall be organized primarily to
provide financial and credit services to cooperatives and
may perform any or all of the services offered by
RBs. (CIRCULAR NO. 271, Series of 2001)
It is restricted to cooperative organization and its members.
Mag-deposit kayo sa coop tapos kung may member na mag-
utang papautangin, tapos iintersan. Yung interest will be the
profit doon sa funds ng coop.
• REPUBLIC ACT No. 6848, The Charter of the Al-
Amanah Islamic Investment Bank of the Philippines
Very peculiar ang Islamic Banks in Qur’an they do not regard
interest. Interest is not allowed because interest is a profit from
money. Sa kanila hindi dapat magkakaron ng profit ang
money. So ang mangyayari of you try to lend money from an
IB, for them to profit for it they will not get it in the form of
interest but they will get it in the form of sharing profits in their
business ventures.
There is an article saying that the next trend for banks in
developed countries is actually in the pursuit in this type of set-
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
up. Why? Because it promotes enterprise, movement, and
activity. Magpapahiram lang ako kung meron kang mapresent
sa akin na kung saan mo gagamitin yung pera.
7. GOVERNMENT BANKS
Can be a UB or KB, the only difference is it is controlled and
owned by the National Government.
SECTION 4. 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;
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)
For the purposes of this Act, "quasi-banks" shall refer to
entities engaged in the borrowing of funds through the
issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes as defined in Section 95 of
Republic Act No. 7653 (hereafter the "New Central Bank Act")
for purposes of relending or purchasing of receivables and
other obligations. (2-Da)
SECTION 5. 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
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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 6. Authority to Engage in Banking and Quasi-
Banking Functions. — No person or entity shall engage in
banking operations or quasi-banking functions without
authority from the Bangko Sentral: Provided, however, That an
entity authorized by the Bangko Sentral to perform universal
or commercial banking functions shall likewise have the
authority to engage in quasi-banking functions. The
determination of whether a person or entity is performing
banking or quasi-banking functions without Bangko Sentral
authority shall be decided by the Monetary Board. To resolve
such issue, the Monetary Board may, through the appropriate
supervising and examining department of the Bangko Sentral,
examine, inspect or investigate the books and records of such
person or entity. Upon issuance of this authority, such person
or entity may commence to engage in banking operations or
quasi-banking functions and shall continue to do so unless
such authority is sooner surrendered, revoked, suspended or
annulled by the Bangko Sentral in accordance with this Act or
other special laws. The department head and the examiners of
the appropriate supervising and examining department are
hereby authorized to administer oaths to any such person,
employee, officer, or director of any such entity and to compel
the presentation or production of such books, documents,
papers or records that are reasonably necessary to ascertain
the facts relative to the true functions and operations of such
person or entity. Failure or refusal to comply with the required
presentation or production of such books, documents, papers
or records within a reasonable time shall subject the persons
responsible therefore to the penal sanctions provided under
the New Central Bank Act. 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)
NOTE: Already extensively discussed last exam.
BANKING OPERATIONS
How do you start a bank? You have to look at it in three phases.
1. Authority to establish
2. Authority to register
3. Authority to operate.
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
You have establish first. You have to register before you can
operate.
QUASI-BANKING
Elements:
a. Borrowing funds for the borrower’s own account;
b. Twenty (20) or more lenders at any one (1) time;
c. Methods of borrowing are issuance, endorsement, or
acceptance of debt instruments of any kind, other than
deposits, such as acceptances, promissory notes,
participations, certificates of assignments or similar
instruments with recourse, trust certificates,
repurchase agreements, and such other instruments
as the Monetary Board may determine; and
d. The purpose of which is (1) relending, or (2) purchasing
receivables or other obligations
A classic example is the factoring of receivables. Meron may
utang sayo, kailangan mo ng cash, diniscount yung
receivables mo para makakuha ka ng cash at the same time si
bank naman yung hahabol doon sa may utang sayo.
But, for you to be engaged in quasi-banking, it must be for
twenty or more lenders at any one time. Pag-isa-isa lang, you
are not engaged in quasi-banking.
Transactions not considered quasi-banking
The following shall not constitute quasi-banking:
a. Borrowing by commercial, industrial and other non-financial
companies through any of the means listed in Subsec. X234.1
hereof, for the limited purpose of financing their own needs or
the needs of their agents or dealers; and
b. The mere buying and selling without recourse of
instruments mentioned in Subsec. X234.1: Provided, That: (1)
The institution buying and selling without recourse shall
indicate in conspicuous print on its instrument the phrase
without recourse, sans recourse or words of similar import that
will convey
the absence of liability or guarantee by said institution; and (2)
In the absence of the phrase “without recourse”, “sans
recourse” or words of similar import, the instrument so issued,
endorsed or accepted, shall automatically be considered as
falling within the purview of these regulations: Provided,
further, That any of the following practices or practices similar
and/or tantamount thereto in connection with a without
recourse transaction is hereby prohibited:
(a) Issuance of postdated checks by a financial intermediary,
whether for its own account or as an agent of the debt
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instrument issuer, in payment of the debt instrument, sold,
assigned or transferred without recourse; or
(b) Issuance by a financial intermediary of any form of guaranty
on sale transactions or on negotiations or assignment of debt
instruments without recourse; and
(c) Payment with its own funds by a financial intermediary
which assigned, sold or transferred the debt instrument
without recourse, unless the financial intermediary can show
that the issuer has with the said financial intermediary funds
corresponding to the amount of the obligation. (Sec. 234.3,
Manual of Regulation for Banks, 2017)
a. Borrowing by commercial, industrial and other non-
financial companies through any of the means listed in
Subsec. X234.1 hereof, for the limited purpose of
financing their own needs or the needs of their agents or
dealers;
DISCUSSION: Ito yung magdiscount ka but only for the
purpose of liquidity. Hindi naman continuing yung business
mo. For example nagkaproblema ka lang, wala ka ng cash
kaya ka nagpadiscount.
b. The mere buying and selling without recourse of
instruments mentioned in Subsec. X234.1
DISCUSSION: Take note of the elements of quasi-banking it
must be with recourse.
In the absence of the phrase “without recourse”, “sans
recourse” or words of similar import, the instrument so
issued, endorsed or accepted, shall automatically be
considered as falling within the purview of these
regulations: Provided, further, That any of the following
practices or practices similar and/or tantamount thereto in
connection with a without recourse transaction is hereby
prohibited.
SECTION 7. Examination by the Bangko Sentral. — The
Bangko Sentral shall, when examining a bank, have the
authority to examine an enterprise which is wholly or majority-
owned or controlled by the bank. (21-Ba) (RA 8791)
You just have to determine of the subsidiary of the bank is not
engaged in quasi-banking or any other activities under the
jurisdiction of the BSP. The only jurisdiction of the BSP is to
determine whether that particular activity is engaged in quasi-
banking or banking. Wala siyang authority to audit or check
the internal mechanisms of that particular entity. Hindi niya
pwede issuehan ng compliance order, cease and desist order.
The only jurisdiction of the BSP is to determine whether it is
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
engaged in banking or quasi-banking. But of course, if it is
already a bank or quasi-bank, pwede niyang issuehan ng
compliance order.
Organization, Management and Administration of Banks,
Quasi-Banks and Trust Entities
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. (RA 8791)
DISCUSSION:
That the entity is a stock corporation. There is no
partnership or sole proprietorship na corporation. Dapat
corporation. Stock corporation, not non-stock.
That its funds are obtained from the public, which shall
mean twenty (20) or more persons. Less than 20 cannot be
considered as a bank or a quasi-bank.
That the minimum capital requirements prescribed by the
Monetary Board for each category of banks are satisfied.
Mind you may minimum capital per classification of banks.
We’ll discuss that later. Hindi po basta-basta ganun
magpatayo ng bangko. Dapat magcompky sa minimum
capitalization. For a reason. This capital is considered as a trust
fund for the creditor. Sino ba ang creditor? The depositor. So
for the depositor to have the trust in depositing the money to
you, there must be a sufficient capityal that is considered as
the trust fund for the benefit of the depositor.
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
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financial resources and technical expertise and integrity. If
you want to sit as a BOD there has to be certain qualifications
such as competence and integrity. Mas strict pa ang
qualifications nila kesa sa ating senators.
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. Even the assets of the bank iconsider mo muna.
One of the requirements din is dapat may IT control. Kailangan
meron kang plan in case of holdap, merong SOP, may vault
ka. Hindi po ganun kadali, especially with the advent of KAPA,
gawa nalang tayo ng bangko kasi namromroblema saan
ilalagay yung pera. Hindi po ganun kadali. Kung ganun,
madami sana tayong bangko.
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. (RA 8791)
DISCUSSION:
Kailangan may corporation, kailangan may stock. And yung
stock kailangang may par value.
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) (RA 8791)
DISCUSSION:
There is a requirement for the selling. Pwede ba magpurchase
ng shares outstanding included in the treasury? The nature of
treasury shares? Diba nag-issue ka ng stocks already
subscribed na siya bilhin mo (MAY NAG-UBO) Pag nagbili ka
ng shares again sa treasury, this can be reissued. In fact pag
treasury shares, it can actually be issued lower than the par
value. So that is why it is very strict na walang pwedeng
treasury share kasi if there is a treasury share, pag binili mo yan
anong mangyayari? (VICCO’S WATER INTERMISSION
NUMBER) The problem with treasury shares, yung capital,
yung pambili mo, will come out from your undistributed
earnings, galing yun sa profit. Pag binili mo yan you will dilute
yung ownership kasi magiging sayo yung property. Tapos
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
there is also a tendency that you will reissue it at lower than par imagine the nuance pero in reality, wala namang nag gaganito
value. kasi almost all of the banks are controlled by Filipino citizens.
Ang ginagawa ng mga foreign banks, gumagawa ng branch.
Pero ang sabi naman dito, pag meron kang treasury shares it
must be reissued within six months be sold or disposed of at a OWNERSHIP CEILING
public or private sale. *Please refer to CIRCULAR NO. 718, Series of 2011 for the full
text
Bakit kung magbawal magpurchase ng treasury share, bakit Under R.A. No. 8791, R.A. No. No.
may provision na pwede kang magbenta? There are some Ceiling
7906 and R.A. No. 7353
instances na kailangan mong ipurchase ang treasury shares
(a) Voting shares of stock of a Filipino
not because you want to purchase it but because of other legal
individual or a Philippine non-bank 40%
reasons. Example, to eliminate fractional shares, imagine
corporation in a domestic bank
kunwari ang owner, let’s say 20% owner ka nagdeclare ng
stock dividends na 12%, magiging ano ka na (May mathetical
process na involved, basta ang answer is may point (b) Voting shares of stock of foreign
something). Eh wala namang share na point2x, walang share individual or a foreign non-bank
na half2x, walang share na fraction. So, the only solution to that corporation in a domestic:
is that you will repurchase it para naman fair dun sa subscriber. i. UB/KB and TB i.40%
Hindi naman pwedeng iembargo without compensation. So, ii. RB ii. No foreign
ipupurchse yung fractional share such that buo yung stockholdings1
mabibigay mo. That is one of the instances that it is not really
the desire of the corporation to purchase treasury shares but
it is necessary to avoid having fractional shares.
(c) Combined ownership of the
voting shares of stock of foreign
Again, pag bangko ka tapos nagpurchase ka you need to
individuals and/or foreign non-bank
reissue it within six months. This is the regulation. i. 40%
corporations in a domestic:
i. UB/KB ii. 60%
SECTION 11. Foreign Stockholdings. — Foreign individuals ii. TB iii. No foreign
and non-bank corporations may own or control up to forty iii. RB stockholdings1
percent (40%) of the voting stock of a domestic bank. This rule
shall apply to Filipinos and domestic non-bank corporations.
(12a; 12-Aa) (d) Combined ownership of the voting
shares of stock in a domestic bank of
The percentage of foreign-owned voting stocks in a bank shall an individual and corporation/s which
be determined by the citizenship of the individual 40%
is/are wholly-owned or a majority of
stockholders in that bank. The citizenship of the corporation the voting shares of stock of which is
which is a stockholder in a bank shall follow the citizenship of owned by such individual
the controlling stockholders of the corporation, irrespective of
the place of incorporation. (n) (RA 8791) Under R.A. No. 7721

(a) Voting shares of stock of a

DISCUSSION: qualified foreign bank or qualified
So by specific provision we do not follow the incorporation 60%
Philippine corporation in a domestic
test, we follow the control test. This is one of those laws na very bank, i.e., UB/KB, TB and RB
specific ang batas. This is different from your corporation code (b) Combined ownership of the
wherein the prevailing test is the incoporation test. voting shares of stock of qualified
foreign banks (including foreign
The basis is only the voting stock of a domestic bank. Imagine 60%
individuals and non-bank
the nuance no, pwede pala mag-own, limit lang pala yung 40% corporations) in a domestic bank, i.e.,
doon sa voting stock, but a foreign corporation or foreign UB/KB, TB and RB
individual can own 60, 70, 80 of the non-voting shares. What
will happen? Remember there are some powers na kailangang
tuparin, yung sale ng non-voting shareholders (???) So,
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 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
RA 7221: AN ACT LIBERALIZING THE ENTRY AND SCOPE
OF OPERATIONS OF FOREIGN BANKS IN THE
PHILIPPINES AND FOR OTHER PURPOSES
SECTION 1. Declaration of Policy. — The State shall develop
a self-reliant and independent national economy effectively
controlled by Filipinos and encourage, promote, and maintain
a stable, competitive, efficient, and dynamic banking and
financial system that will stimulate economic growth, attract
foreign investments, provide a wider variety of financial
services to Philippine enterprises, households and individuals,
strengthen linkages with
global financial centers, enhance the country's
competitiveness in the international market and serve as a
channel for the flow of funds and investments into the
economy to promote industrialization.
Pursuant to this policy, the Philippine banking and financial
system is hereby liberalized to create a more competitive
environment and encourage greater foreign participation
through increase in ownership in domestic banks by foreign
banks and the entry of new foreign bank branches.
In allowing increased foreign participation in the financial
system, it shall be the policy of the State that the financial
system shall remain effectively controlled by Filipinos.
When can foreign entities enter the foreign banking market?
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
(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; So kung existing pwede din na 60%,
kapag new 60% ng subsidiary
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(iii) by establishing branches with full banking authority.
The most common, so they can establish branches in the
Philippines.
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.
RA 10461:AN ACT ALLOWING THE FULL ENTRY OF
FOREIGN BANKS IN THE PHILIPPINES, AMENDING FOR
THE PURPOSE REPUBLIC ACT NO. 7721
Section 1. Section 2 of Republic Act No. 7721 is hereby
amended to read as follows:
SEC. 2. Modes of Entry. – The Monetary Board may authorize
foreign banks to operate in the Philippine banking system
through any one of the following" modes of entry: (i) by
acquiring, purchasing or owning up to one hundred percent
(100%) of the voting stock of an existing bank; (ii) by investing
in up to one hundred percent (100%) of the voting stockof a
new banking subsidiary incorporated under the laws of the
Philippines; or (iii) by establishing branches with full banking
authority.
This time pinayagan ng MB. Pwede na by acquiring,
purchasing or owning up to one hundred percent (100%) of
the voting stock of an existing bank. Kung subsidiary, pwede
100% of the voting stock of a new banking subsidiary
incorporated under the laws of the Philippines.
Section 6. A new provision in Section 9 is hereby inserted in
the same Act, in lieu of the original provisions of Section 9
repealed by Section 11 of Republic Act No. 10000. Section 9
shall now read as follows:
"SEC. 9. Participation in Foreclosure Proceedings.—Foreign
banks which are authorized to do banking business in the
Philippines through any of the modes of entry under Section 2
hereof shall be allowed to bid and take part in foreclosure
sales of real property mortgaged to them, as well as to avail of
enforcement and other proceedings, and accordingly take
possession of the mortgaged property, for a period not
exceeding five (5) years from actual
possession: Provided, That in no event shall title to the
property be transferred to such foreign bank. In case said bank
is the winning bidder, it shall, during the said five (5)-year
period, transfer its rights to a qualified Philippine national,
without prejudice to a borrower’s rights under applicable laws.
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Should the bank fail to transfer such property within the five
(5)-year period, it shall be penalized one half (1/2) of one
percent (1%) per annum of the price at which the property was
foreclosed until it is able to transfer the property to a qualified
Philippine national."
What will happen, because if 100%-owned by a foreign bank
in the Philippines, anong mangyayari kapag may mga
properties na naforeclose
JAN 15, Part 3: TAN
Diba sa foreclosure proceedings, magiging may-ari ang
bangko? But since inallow mo na foreign owned sya,
you are effectively violating the Constitution, because
foreigners effectively own that piece of land. Merong
saving clause ang RA 10641
SEC. 9. Participation in Foreclosure Proceedings.—
Foreign banks which are authorized to do banking
business in the Philippines through any of the modes of
entry under Section 2 hereof shall be allowed to bid and
take part in foreclosure sales of real property
mortgaged to them, as well as to avail of enforcement
and other proceedings, and accordingly take
possession of the mortgaged property, for a period not
exceeding five (5) years from actual possession:
Provided, That in no event shall title to the property be
transferred to such foreign bank. In case said bank is the
winning bidder, it shall, during the said five (5) -year
period, transfer its rights to a qualified Philippine
national, without prejudice to a borrower’s rights under
applicable laws. Should the bank fail to transfer such
property within the five (5)-year period, it shall be
penalized one half (1/2) of one percent (1%) per annum
of the price at which the property was foreclosed until it
is able to transfer the property to a qualified Philippine
national.
The holding period of foreign banks is only up to five
years. So if you want to buy cheaper lands, go to foreign
banks because as to the foreclosed lands, they have no
choice but to sell them. So you have the leverage to
bargain for it. Same case with PAG-IBIG as to foreclosed
property. Foreclosed property is actually cheap. In fact,
normal banks are required to sell it because it’s not part
of their powers to hoard real property.
Section 12. Stockholdings of Family Groups of Related
Interests. - Stockholdings of individuals related to each
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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 corporations or
related groups of persons with the bank. (12-Ba)
This is an example of related interest transaction. It is
needed to be disclosed.
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 group of
persons with the bank. (12-Ba)
Section 14. Certificate of Authority to Register. - The
Securities and Exchange Commission shall no register
the articles of incorporation of any bank, or any
amendment thereto, unless accompanied by a
certificate of authority issued by the Monetary Board,
under it 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)
When you acquire the authority to establish a banking
operation, next you acquire the authority to register.
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
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
(15) members of the board or 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)
This is the first time in our laws where teleconferencing
and video-conferencing were allowed. Now this is also
provided for in the Revised Corporation Code.
Board of Directors
The board of directors is primarily responsible for the
corporate governance of the entity. Directors are those:
• Named as such in the articles of incorporation;
• Duly elected in subsequent meetings of the
stockholders; or
• Elected to fill vacancies in the board of directors.
Independent Director
An independent director is not:
i. An officer or employee, or has not been an
officer or employee, of the entity, its subsidiaries or
affiliates or related interests during the past 3 years
counted from the date of his election;
ii. A director or officer of the related companies of
the institution’s majority stockholder;
iii. A majority stockholder of the institution, any of
its related companies, or of its majority stockholders;
• This does not mean that an independent
director must not have any shareholdings. It just means
that he must not have insufficient shareholdings to elect
a member of the BOD. In short, his shareholdings is
insignificant enough to be a director, the latter of which
requires that he must be a holder of at least one share.
iv. A relative within the 4th degree of
consanguinity or affinity, legitimate or common-law of
any director, officer, or majority shareholder of the entity
or any of its related companies;
• Even common-law spouses are not allowed.
v. Acting as a nominee or representative of any
director or substantial shareholder of the entity, any of
its related companies or any of its substantial
shareholders; and
vi. Retained as professional adviser, consultant,
agent or counsel of the institution, any of its related
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companies or any of its substantial shareholders, either
in his personal capacity or through his firm.
An independent director must also only serve for a term
of 5 years. Do not confuse this with the independent
director under the Revised Corporation Code, the latter
of which has a different term.
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)
This is a very important provision. The Monetary Board
has a blacklist where the individuals inside cannot sit as
a director of any bank.
Basel Committee on Banking Supervision
This provision is actually in compliance with the Basel
Committee on Banking Supervision.
Principle 5: Licensing Criteria
The licensing authority has the power to set criteria and
reject applications for establishments that do not meet
the criteria. At a minimum, the licensing process consists
of assessment of the ownership structure and
governance (including the fitness and propriety of
Board members and senior management) of the bank
and its wider group, and its strategic and operating
plan, internal conflicts, risk management and projected
financial condition (including capital base).
Manual of Regulations for Banks Qualifications of a
Director
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
A director shall have the following minimum
qualifications:
a. He shall be at least twenty-five (25) years of age
at the time of his election or appointment;
b. He shall be at least a college graduate, or have
at least five (5) years’ experience in business;
c. He must have attended a special seminar on
corporate governance for board of directors accredited
by the Bangko Sentral
• Example: AMLA (Anti Money-Laundering Act)
seminars
d. He must be fit and proper for the position of a
director of a bank
That the following persons are exempted from
attending said seminar:
a) Foreign nationals who have attended corporate
governance training covering core topics in the Bangko
Sentral
b) Filipino citizens with recognized stature,
influence and reputation in the banking community and
whose business practices stand as testimonies to good
corporate governance;
c) Distinguished Filipino and foreign nationals
who served as senior officials in central banks and/or
financial regulatory agencies, including former
Monetary Board members; or
d) Former Chief Justices of the Philippines
Definition of Officers
Officers shall include the president, executive vice
president, senior vice-president, vice president, general
manager, treasurer, secretary, trust officer and others
mentioned as officers of the bank, or those whose duties
as such are defined in the by-laws, or are generally
known to be the officers of the bank (or any of its
branches and offices other than the head office) either
through announcement, representation, publication or
any kind of communication made by the bank.
This is important, because even if the officer isn’t
included in the articles of incorporation or by-laws, it will
not hold water if the bank states otherwise through its
advertisement, publication, calling card, credit card,
correspondent etc. In this case, the officer must follow
the fit and proper rule. If the Monetary Board believes
he is not qualified, he can be removed.
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Qualifications of an officer.
An officer shall have the following minimum
qualifications:
a. He shall be at least twenty-one (21) years of age;
b. He shall be at least a college graduate, or have
at least five (5) years’ experience in banking or trust
operations or related activities or in a field related to his
position and responsibilities, or have undergone
training in banking or trust operations acceptable to the
appropriate department of the Supervising and
Examining Sector of the BSP.
Provided, however, that the trust officer who shall be
appointed shall possess any of the following:
1) at least five (5) years of actual experience in trust
operations;
2) at least three (3) years of actual experience in
trust operations and must have:
a) completed at least ninety (90) training hours
in trust, other fiduciary business, or investment
management activities acceptable to the Bangko
Sentral; or
b) completed a relevant global or local
professional certification program; or (3) at least five (5)
years of actual experience as an officer of a bank and
must have:
i. completed at least ninety (90) training hours in
trust, other fiduciary business, or
ii. investment management activities acceptable
to the Bangko Sentral; or
iii. completed a relevant global or local
professional certification program; and
c) He must be fit and proper for the position he is
being proposed/appointed to.
Disqualification and Watchlisting of Directors and
Officers
Permanently disqualified
Directors/officers/employees permanently disqualified
by the Monetary Board from holding a director position:
(1) Persons who have been convicted by final
judgment of a court for offenses involving dishonesty or
breach of trust such as, but not limited to, estafa,
embezzlement, extortion, forgery, malversation,
swindling, theft, robbery, falsification, bribery, violation
of B.P. Blg. 22, violation of Anti-Graft and Corrupt
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Practices Act and prohibited acts and transactions
under Section 7 of R.A. No. 6713 (Code of Judicial
Ethics)
(2) Persons who have been convicted by final
judgment of a court sentencing them to serve a
maximum term of imprisonment of more than 6 years
(3) Persons who have been convicted by final
judgment of a court for violation of banking laws, rules
and regulations;
(4) Persons who have been judicially declared
insolvent, spendthrift or incapacitated to contract
(5) Directors, officers or employees of closed banks
who were found to be culpable for such
institution’s closure as determined by the Monetary
Board
(6) Directors and officers found by the MB as
administratively liable for violation of banking laws
(7) Directors and officers of banks or any person
found by the MB to be unfit for the position of directors
or officers because they were found administratively
liable by another government agency for violation of
banking laws, rules and regulations or any offense
Temporarily disqualified
(1) Persons who refuse to fully disclose the extent
of their business interest or any material information to
the appropriate department of the SES
(2) Directors who have been absent or who have
not participated for whatever reasons in more than 50 %
of all meeting, both regular and special of the board of
directors during their incumbency
(3) Persons who are delinquent in the payment of
their obligation
(4) Persons who have been convicted by a court for
offenses involving dishonesty or breach of trust
• The difference from this with permanent
disqualification is that the latter requires final
judgement. Here, it can still be appealed.
(5) Directors and officers of closed banks pending
their clearance by the MB
(6) Directors disqualified for their failure to observe
or discharge their duties and responsibilities prescribed
under existing regulations
(7) Directors who failed to attend special seminar
for board of directors
(8) Persons dismissed/terminated form
employment for a cause
(9) Those under preventive suspension
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(10) Persons with derogatory records
The spouses or relative within the second degree of
consanguinity or affinity are prohibited from holding
officership positions across the following functional
categories within a bank:
1. decision making and senior management
function e.g. chairman, CEO, COO, CFO
2. treasury function
3. record keeping and financial functions
4. safekeeping of assets
5. risk management function
6. compliance function
7. internal audit function
Example: Both you and your relative are BPI employees.
You are not allowed to be in the same branch.
Watchlisting
How does the Central Bank monitor the people within
the banks?
To provide the Bangko Sentral with a central information
file to be used as reference in passing upon and
reviewing the qualifications of persons elected or
appointed as director or officer of a bank, QB or trust
entity, the SES shall maintain a watchlist of persons
disqualified to be a director or officer of entities under
its supervision.
Let’s say there’s a newly appointed bank officer. The
Central Bank can look into his qualifications, and if found
unfit, he can be removed.
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)
The maximum number for directorship is 15. If the banks
merged, it will become 30. That’s not allowed, so only
21 is allowed.
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,
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
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)
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)
Exceptions
1) In cases of rural banks
Section 5 of the Rural Bank Act. All members of
the Board of Directors of the rural bank shall be citizens
of the Philippines at the time of their assumption to
office: Provided, however, That nothing in this Act shall
be construed as prohibiting any appointive or elective
public official from serving as director, officer,
consultant or in any capacity in the bank.
General Rule: Approval from the CSC must first
be sought
2) In cases of negative covenants for a loan (stipulations
that provide conditions for the granting of a loan.)
EX. A LGU granted a loan, but there is a negative
covenant that states that a government official shall be
placed there to check that the loan was disbursed in
accordance to the purpose it was given.
SECTION 20. Bank Branches. — Universal or commercial
banks may open branches or other offices within or
outside the Philippines upon prior approval of the
Bangko Sentral. Branching by all other banks shall be
governed by pertinent laws. A bank may, subject to
prior approval of the Monetary Board, use any or all of
its branches as outlets for the presentation and/or sale
of the financial products of its allied undertaking or of its
investment house units. A bank authorized to establish
branches or other offices shall be responsible for all
business conducted in such branches and offices to the
same extent and in the same manner as though such
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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)
So bank branches are treated as one unit. EX. BPI
Abreeza and BPI JP Laurel are all one unit of the head
office.
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)
SECTION 22. Strikes and Lockouts. — The banking
industry is hereby declared as indispensable to the
national interest and, not withstanding the provisions of
any law to the contrary, any strike or lockout involving
banks, if unsettled after seven (7) calendar days shall be
reported by the Bangko Sentral to the Secretary of
Labor who may assume jurisdiction over the dispute or
decide it or certify the same to the National Labor
Relations Commission for compulsory arbitration.
However, the President of the Philippines may at any
time intervene and assume jurisdiction over such labor
dispute in order to settle or terminate the same. (6-E)
SECTION 23. Powers of a Universal Bank. — A universal
bank shall have the authority to exercise, in addition to
the powers authorized for a commercial bank in Section
29, the powers of an investment house as provided in
existing laws and the power to invest in non-allied
enterprises as provided in this Act. (21 -B)
Universal bank has the following powers, you have:
1. Powers of a commercial bank;
2. Powers of an investment house;
3. Powers to invest in non-allied enterprise;
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
4. Power to own up to 100% equity in a thrift bank,
rural bank or financial allied enterprise and;
5. Power to own up to 100% equity in a non-
financial allied enterprise.
In case of a publicly-listed universal bank, power to own
up to one hundred percent (100%) of the voting stock of
only one other universal or commercial bank.
So a universal bank may be owned by a universal bank.
So pwedeng universal bank is 100% owned by another
universal bank, provided that the owner UB is a publicly-
listed universal bank.
Take note: 100% of the voting stock
So pwede bang magkaroon ng corporation ng non-
voting stock?
The investment house is an enterprise…anong
investment house? – engaged in the underwriting of
securities of other corporations.
Underwriting: act or process of guaranteeing the sale
of securities of any kind issued by another corporation
(CA 83)
Section 7. Powers. In addition to the powers granted to
corporations in general, an Investment House is
authorized to do the following:
1. Arrange to distribute on a guaranteed basis securities
of other corporations and of the Government or its
instrumentalities;
2. Participate in a syndicate undertaking to purchase
and sell, distribute or arrange to distribute on a
guaranteed basis securities of other corporations and of
the Government or its instrumentalities;
3. Arrange to distribute or participate in a syndicate
undertaking to purchase and sell on a best-efforts basis
securities of other corporations and of the Government
or its instrumentalities;
4. Participate as soliciting dealer or selling group
member in tender offers, block sales, or exchange
offering or securities; deal in options, rights or warrants
relating to securities and such other powers which a
dealer may exercise under the Securities Act (Act No.
83, as amended);
5. Promote, sponsor, or otherwise assist and implement
ventures, projects and programs that contribute to the
economy's development;
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6. Act as financial consultant, investment adviser, or
broker;
• A universal bank has investment schemes
because they’re allowed to act as an investment house.
But a commercial bank isn’t allowed to because they
don’t have the power of an investment house.
• As a side note, if you really want to invest, do it
with an insurance company, not with a bank. The former
has broader powers and assumes a lot of risks, such as
risk of debt. The latter is more prudent and conservative.
7. Act as porfolio manager, and/or financial agent, but
not as trustee of a trust fund or trust property as
provided for in Chapter VII of Republic Act No. 337, as
amended;
8. Encourage companies to go public, and initiate
and/or promote, whenever warranted, the formation,
merger, consolidation, reorganization, or
recapitalization of productive enterprises, by providing
assistance or participation in the form of debt or equity
financing or through the extension of financial or
technical advice or service;
9. Undertake or contract for researches, studies and
surveys on such matters as business and economic
conditions of various countries, the structure of financial
markets, the institutional arrangements for mobilizing
investments;
10. Acquire, own, hold, lease or obtain an interest in real
and/or personal property as may be necessary or
appropriate to carry on its objectives and purposes;
11. Design pension, profit-sharing and other employee
benefits plans; and
12. Such other activities or business ventures as are
directly or indirectly related to the dealing in securities
and other commercial papers, unless otherwise
governed or prohibited by special laws, in which case
the special law shall apply.
Nothing in this section shall preclude other enterprises
not covered by this Decree from engaging in the
activities listed under subsections (3) to (11) of this
section, except as may otherwise be governed by
special laws.
JAN 22, Part 1: PAULMA
We are now discussing the operations of different
banks.
It is very important to determine what type of bank
because every bank has its own distinct powers and
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
limitations. Certain banks cannot do certain powers and
certain functions that is only given to a particular type of
bank.
SECTION 23. Powers of a Universal Bank. —
A universal bank shall have the authority to
exercise, in addition to the powers authorized
for a commercial bank in Section 29, the
powers of an investment house as provided in
existing laws and the power to invest in non-
allied enterprises as provided in this Act.
Powers of a Universal Bank
- Powers of a Commercial bank;
- Powers of an Investment House;
- Power to invest in non-allied enterprises;
Comment: So you have to know if a certain
business is considered non-allied
- Power to own up to 100% equity in a thrift bank,
a rural bank, or a financial allied enterprise;
- Power to own up to 100% equity in a non-
financial allied enterprise; and
- In case of publicly-listed universal bank, power
to own up to 100% of the voting stock of only
one (1) other universal bank or commercial bank
What is an investment house?
Any enterprise which engages in the underwriting of
securities of other corporations shall be considered an
"Investment House" and shall be subject to the
provisions of this Decree and of other pertinent laws.
(PD 129)
Underwriting is the act or process of guaranteeing the
distribution and sale of securities of any kind issued by
another corporation.
So, if you are an investment house, you are actually
checking that the securities are valid and are good for
investment. The money that you would spend to invest
comes from the public. That's why when you are an
investment house, you need to be regulated under the
SEC through the SRC and also under the different
government agencies.
Powers of an Investment House
What are the other powers of an Investment House? An
investment house is authorized to do the following: (So
please take note ha: if you are a universal bank, you have
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the power of an investment house. Therefore, itong mga
powers na 'to are also the powers of a universal bank)
1. Arrange to distribute on a guaranteed basis
securities of other corporations and of the
Government or its instrumentalities;
2. Participate in a syndicate undertaking to
purchase and sell, distribute or arrange to
distribute on a guaranteed basis securities of
other corporations and of the Government or its
instrumentalities;
3. Arrange to distribute or participate in a
syndicate undertaking to purchase and sell on a
best-efforts basis securities of other
corporations and of the Government or its
instrumentalities;
Comment: If you are an investment house, you
are actually getting money from the public to
invest in securities. You are handling their
money. You are the fund manager of the
investors.
4. Participate as soliciting dealer or selling group
member in tender offers, block sales, or
exchange offering or securities; deal in options,
rights or warrants relating to securities and such
other powers which a dealer may exercise
under the Securities Act (Act No. 83, as
amended);
5. Promote, sponsor, or otherwise assist and
implement ventures, projects and programs
that contribute to the economy's development;
6. Act as financial consultant, investment adviser,
or broker;
7. Act as porfolio manager, and/or financial agent,
but not as trustee of a trust fund or trust property
as provided for in Chapter VII of Republic Act
No. 337, as amended;
8. Encourage companies to go public, and initiate
and/or promote, whenever warranted, the
formation, merger, consolidation,
reorganization, or recapitalization of productive
enterprises, by providing assistance or
participation in the form of debt or equity
financing or through the extension of financial
or technical advice or service;
9. Undertake or contract for researches, studies
and surveys on such matters as business and
economic conditions of various countries, the
structure of financial markets, the institutional
arrangements for mobilizing investments;
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
10. Acquire, own, hold, lease or obtain an interest
in real and/or personal property as may be
necessary or appropriate to carry on its
objectives and purposes;
11. Design pension, profit-sharing and other
employee benefits plans; and
12. Such other activities or business ventures as are
directly or indirectly related to the dealing in
securities and other commercial papers, unless
otherwise governed or prohibited by special
laws, in which case the special law shall apply.
(Section 7, PD 129)
A universal bank can actually invest in equity or shares
of entities.
SECTION 24. Equity Investments of a Universal
Bank. — A universal bank may, subject to the
conditions stated in the succeeding paragraph, invest
in the equities of allied and non-allied enterprises as
may be determined by the Monetary Board. Allied
enterprises may either be financial or non-financial.
Except as the Monetary Board may otherwise
prescribe:
24.1. The total investment in equities of allied and non-
allied enterprises shall not exceed fifty percent (50%)
of the net worth of the bank; and
24.2. The equity investment in any one enterprise,
whether allied or non-allied, shall not exceed twenty-
five percent (25%) of the net worth of the bank.
As used in this Act, "net worth" shall mean the total of
the unimpaired paid-in capital including paid-in
surplus, retained earnings and undivided profit, net of
valuation reserves and other adjustments as may be
required by the Bangko Sentral.
The acquisition of such equity or equities is subject to
the prior approval of the Monetary Board which shall
promulgate appropriate guidelines to govern such
investments. (21-Ba)
Please take note of the limitation in 24.1. They are
authorized to invest in shares. Kukuha sila ng money
from the depositors tapos yun yung gagawin nilang
pang-invest. But, it must be limited only to 50% because
then again, their primary purpose must be that of a bank
which is to get investment and re-lend it.
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SECTION 25. Equity Investments of a
Universal Bank in Financial Allied Enterprises.
— A universal bank can own up to one hundred
percent (100%) of the equity in a thrift bank, a
rural bank or a financial allied enterprise.
A publicly-listed universal or commercial bank
may own up to one hundred percent (100%) of
the voting stock of only one other universal or
commercial bank. (21-B; 21-Ca)
Financial Allied Undertakings
- Leasing companies including leasing of stalls
and spaces in a commercial establishment;
- Banks;
- Investment Houses;
- Financing Companies;
- Credit Card Companies;
- Financial intermediaries catering to small and
medium scale industries including venture
capital corporation (VCC);
- Companies engaged in stock
brokerage/securities dealership;
- Trust Corporations; and
- Companies engaged in foreign exchange
dealership/brokerage. In addition, UBs may
invest in the following as financial allied
undertakings:
- Insurance companies; and
- Holding Company;
Provided, that the investments of such
holding company are confined to the
equities of allied undertakings and/or non-
allied undertakings of UBs allowed under
Bangko Sentral regulations. The Monetary
Board may declare such other activities as
financial allied undertakings of banks.
What is a VCC?
A venture capital corporation is formed for the sole
purpose of investing start-ups and emerging and
expanding eligible small business. So eto siya, purpose
ng corporation na ito is to venture - mag fund ng mga
small and medium enterprises. Before crowdfunding,
ito yung legal form of funding small businesses but now,
we have new regulation on crowd lending and crowd
funding. There's a platform that people can actually
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
fund and then this platform will send it to smaller region
business enterprise. But, the regulated one is the
platform and the entity, the business. This is one type of
funding small and medium enterprises.
DEPOSITS, LOANS, AND OTHER OPERATIONS
SECTION 26. Equity Investments of a
Universal Bank in Non-Financial Allied
Enterprises. — A universal bank may own up
to one hundred percent (100%) of the equity
in a non-financial allied enterprise. (21-Ba)
The preceding given list is the list for the financial
undertakings, any other undertaking which is outside
the list is considered as non-financial.
Now, what is a non-allied enterprise?
SECTION 27. Equity Investments of a
Universal Bank in Non-Allied Enterprises.
— The equity investment of a universal bank,
or of its wholly or majority-owned
subsidiaries, in a single nonallied enterprise
shall not exceed thirty-five percent (35%) of
the total equity in that enterprise nor shall it
exceed thirty-five percent (35%) of the voting
stock in that enterprise. (21-B)
Non-allied Undertakings:
1. Enterprises engaged in physically productive
activities in agriculture, mining and quarrying,
manufacturing, public utilities, construction,
wholesale trade and community and social
services following the industrial groupings in
the Philippine Standard Industrial Classification
(PSIC);
2. Industrial park projects and/or industrial estate
developments;
3. Financial and commercial complex projects
(including land development and buildings
constructed thereon) arising from or in
connection with the Government's privatization
program; and
4. Such other broad categories as the Monetary
Board may declare as appropriate.
Any other non-financial related undertakings are
considered as non-allied undertakings.
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Now, what you have to determine is leasing. Kasi sa
lahat ng mga nakalagay na ito, these are all considered
as financial except yung number 1. Madaling ma-
confuse kasi leasing siya. Please take note that the
leasing companies including leasing of stalls and spaces
in commercial establishment is considered as a financial
allied establishment.
Non-Financial Allied Undertakings
1. Warehousing companies;
2. Storage companies;
3. Safe deposit box companies;
4. Companies primarily engaged in the
management of mutual funds but not in the
mutual funds themselves;
5. Management corporations engaged or to be
engaged in an activity similar to the
management of mutual funds;
6. Companies engaged in providing computer
services;
7. Insurance agencies/brokerages;
8. Companies engaged in home building and
home development;
9. Companies providing drying and/or milling
facilities for agricultural crops such as rice and
corn;
10. Service bureaus, organized to perform for and
in behalf of banks and NBFIs the services
allowed to be outsourced enumerated in Sec
X162: Provided, that data processing
companies may be allowed to invest up to 40%
in the equity of service bureaus;
11. Philippine Clearing House Corporation,
Philippine Central Depository, Inc. and Fixed
Income Exchange;
12. Companies engaged in merchant acquiring
business;
13. Such other similar activities as the Monetary
Board may declare as non-financial allied
undertakings of banks.
SECTION 28. Equity Investments in Quasi-
Banks. — To promote competitive conditions in
financial markets, the Monetary Board may
further limit to forty percent (40%) equity
investments of universal banks in quasi-banks.
This rule shall also apply in the case of
commercial banks. (12-E)
Remember what is a quasi-bank, what are considered
quasi-bank in banking laws.
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
For the purposes of this Act, "quasi-banks" shall refer to
entities engaged in the borrowing of funds through the
issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes as defined in Section
95 of Republic Act No. 7653 (hereafter the "New Central
Bank Act") for purposes of relending or purchasing of
receivables and other obligations. [RA 8791]
So those are the powers of a universal bank. In the
hierarchy of banks, the universal bank is at the top. Now,
let's discuss the commercial bank.
OPERATIONS OF COMMERCIAL BANKS
SECTION 29. Powers of a Commercial Bank. — A
commercial bank shall have, in addition to the general
powers incident to corporations, all such powers as
may be necessary to carry on the business of
commercial banking, such as accepting drafts and
issuing letters of credit; discounting and negotiating
promissory notes, drafts, bills of exchange, and other
evidences of debt; accepting or creating demand
deposits; receiving other types of deposits and deposit
substitutes; buying and selling foreign exchange and
gold or silver bullion; acquiring marketable bonds and
other debt securities; and extending credit, subject to
such rules as the Monetary Board may promulgate.
These rules may include the determination of bonds
and other debt securities eligible for investment, the
maturities and aggregate amount of such investment.
(21a)"
Please take note that commercial banks can actually buy
and sell foreign exchange. But again, only those that are
considered as convertible currencies can be
exchanged.
If you heard the news, BDO, manghihingi sila sa public
ng pera and in exchange they will issue bonds. A good
thing about bond is that fixed yung interest and it's
secured.
To summarize, these are the powers of a commercial
bank:
1. accepting drafts;
2. issuing letters of credit;
3. discounting and negotiating promissory notes,
drafts, bills of exchange, and other evidences of
debt;
4. accepting or creating demand deposits;
5. receiving other types of deposits and deposit
substitutes;
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6. buying and selling foreign exchange and gold
or silver bullion;
7. acquiring marketable bonds and other debt
securities; and
8. extending credit.
Can the commercial bank invest in the shares of other
corporation?
SECTION 30. Equity Investments of a Commercial
Bank. — A commercial bank may, subject to the
conditions stated in the succeeding paragraphs,
invest only in the equities of allied enterprises as may
be determined by the Monetary Board. Allied
enterprises may either be financial or non-financial.
Except as the Monetary Board may otherwise
prescribe:
30.1. The total investment in equities of allied
enterprises shall not exceed thirty-five percent (35%)
of the net worth of the bank; and
30.2. The equity investment in any one enterprise shall
not exceed twenty-five percent (25%) of the net worth
of the bank. The acquisition of such equity or equities
is subject to the prior approval of the Monetary Board
which shall promulgate appropriate guidelines to
govern such investments. (21A-a; 21-Ca)
It cannot invest in non-allied. Kapag tinanong kayo: "A"
Bank, a universal bank, which has current holding of
blabla in “X” Bank which is blabla, pwede ba to? Kayo na
bahala magsagot.
SECTION 31. Equity Investments of a Commercial
Bank in Financial Allied Enterprises. — A commercial
bank may own up to one hundred percent (100%) of
the equity of a thrift bank or a rural bank. Where the
equity investment of a commercial bank is in other
financial allied enterprises, including another
commercial bank, such investment shall remain a
minority holding in that enterprise. (21-Aa; 21-Ca)
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
SECTION 32. Equity Investments of a Commercial
Bank in Non-Financial Allied Enterprises. — A
commercial bank may own up to one hundred percent
(100%) of the equity in a non-financial allied
enterprise. (21-Aa)
Remember, may non-allied and allied. Under allied, may
financial and non-financial.
So kapag commercial bank ka, can you invest in financial
allied? Yes.
Can you invest in non-financial allied? Yes.
But can you invest in non-allied enterprise? No.
PROVISIONS APPLICABLE TO ALL BANKS, QUASI-
BANKS, AND TRUST ENTITIES
SECTION 33. Acceptance of Demand
Deposits. — A bank other than a universal or
commercial bank cannot accept or create
demand deposits except upon prior approval
of, and subject to such conditions and rules
as may be prescribed by the Monetary Board.
(72-Aa)
Sobrang haba ng next section, di ko nalang ilagay sa
box. Nasisira kasi format.
“SECTION 34. Risk-Based Capital. — The Monetary
Board shall prescribe the minimum ratio which the net
worth of a bank must bear to its total risk assets which
may include contingent accounts. For purposes of this
Section, the Monetary Board may require that such ratio
be determined on the basis of the net worth and risk
assets of a bank and its subsidiaries, financial or
otherwise, as well as prescribe the composition and the
manner of determining the net worth and total risk
assets of banks and their subsidiaries: Provided, That in
the exercise of this authority, the Monetary Board shall,
to the extent feasible, conform to internationally
accepted standards, including those of the Bank for
International Settlements (BIS), relating to risk-based
capital requirements: Provided, further, That it may alter
or suspend compliance with such ratio whenever
necessary for a maximum period of one (1) year:
Provided, finally, That such ratio shall be applied
uniformly to banks of the same category.
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In case a bank does not comply with the prescribed
minimum ratio, the Monetary Board may limit or prohibit
the distribution of net profits by such bank and may
require that part or all of the net profits be used to
increase the capital accounts of the bank until the
minimum requirement has been met. The Monetary
Board may, furthermore, restrict or prohibit the
acquisition of major assets and the making of new
investments by the bank, with the exception of
purchases of readily marketable evidences of
indebtedness of the Republic of the Philippines and of
the Bangko Sentral and any other evidences of
indebtedness or obligations the servicing and
repayment of which are fully guaranteed by the
Republic of the Philippines, until the minimum required
capital ratio has been restored.
In case of a bank merger or consolidation, or when a
bank is under rehabilitation under a program approved
by the Bangko Sentral, the Monetary Board may
temporarily relieve the surviving bank, consolidated
bank, or constituent bank or corporations under
rehabilitation from full compliance with the required
capital ratio under such conditions as it may prescribe.
Before the effectivity of the rules which the Monetary
Board is authorized to prescribe under this provision,
Section 22 of the General Banking Act, as amended,
Section 9 of the Thrift Banks Act, and all pertinent rules
issued pursuant thereto, shall continue to be in force.
(22a)”
This is a requirement for banks. This is the minimum
regulatory capital for financial institutions. Kapag
sinasabi nating risk-based, it would depend upon what
type of risk a certain bank actually accepts. Dun
nagbabase yung minimum capital required by the
Monetary Board. Sa universal bank iba yung risk-based
capital requirement, iba din yung requirement for a
commercial bank.
Can a commercial bank give a loan without limit? Can it
give credit accommodations without limit?
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW

SECTION 35. Limit on Loans, Credit 35.2. Unless the Monetary Board prescribes
Accommodations and Guarantees. — otherwise, the total amount of loans, credit
accommodations and guarantees prescribed
35.1. Except as the Monetary Board may otherwise in the preceding paragraph may be
prescribe for reasons of national interest, the total increased by an additional ten percent
amount of loans, credit accommodations and (10%) of the net worth of such
guarantees as may be defined by the Monetary Board bank provided the additional liabilities of any
that may be extended by a bank to any person, borrower are adequately secured by trust
partnership, association, corporation or other entity receipts, shipping documents, warehouse
shall at no time exceed twenty percent (20%) (Now receipts or other similar documents
25%) of the net worth of such bank. The basis for transferring or securing title covering
readily marketable, non-perishable goods
determining compliance with single-borrower limit is
which must be fully covered by insurance.
the total credit commitment of the bank to the
borrower. (Concept of Single Borrower Limit)
Take note, pwede namang iextend. Pero yung
extension mo must be adequately secured. Now what is
Di siya pwedeng magpautang ng sobra-sobra, may required to be secured by these types of document is
limit. Again, it is regulated because what happens if the additional liabilities which is only up to 10%.
lahat ipautang niya? It might not be able to pay its What securities are allowed? Those securities which
depositors because the chances are the borrowers may pertains to marketable goods covered by insurance.
not be able to pay. Baka mag default, wala na siyang Kasi ang purpose nito, even if mag default man si single
pambayad sa depositor. borrower, at least meron kang collateral na pwede
mong ibenta.
Concept of Single Borrower Limit
A bank has limitations with regard to granting loans to a How do you compute the total credit commitment in
single borrower. A single borrower may be a person, terms of measuring the 25% single borrower's limit?
partnership, corporation, association. Hindi po
pwedeng sa lahat ng capital ng bangko, isa lang yung
borrower kasi may tinatawag na single borrower's limit.
For purposes of the bar, pwede po itong itanong. May
isang borrower, siya lang, tapos you have to determine
whether the credit accommodation given by the bank is
allowed. Because right now, a bank is only authorized to
grant loans to a single borrower to up to 25% of its net
worth. And the single borrower's limit pertains to the
total credit commitment of the bank to a borrower. Kasi
pwede namang maraming types of loan na ginagrant.
So you have to add it up, you have to consider the total
credit commitment of the bank to the single borrower.
The concept here is to avoid a situation wherein
masyadong nakasalalay yung risk of default sa isang
borrower lang. Kasi what if mag default yung borrower
na yun tapos unlimited ka nagpapaborrow ng pera, so
hindi ka mababayaran. How can you pay your
depositors?

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 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
35.3. The above prescribed ceilings shall include:
(a) the direct liability of the maker or acceptor of paper
discounted with or sold to such bank and the liability
of a general indorser, drawer or guarantor who
obtains a loan or other credit accommodation from or
discounts paper with or sells papers to such bank;
(b) in the case of an individual who owns or controls a
majority interest in a corporation, partnership,
association or any other entity, the liabilities of said
entities to such bank;
(c) in the case of a corporation, all liabilities to such
bank of all subsidiaries in which such corporation
owns or controls a majority interest; and
(d) in the case of a partnership, association or other
entity, the liabilities of the members thereof to such
bank.
(Computation of Single Borrower's Limit)
In other words, you consider the related parties in
determining whether it has exceeded the 25% limit.
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35.4. Even if a parent corporation, partnership,
association, entity or an individual who owns or
controls a majority interest in such entities has no
liability to the bank, the Monetary Board may
prescribe the combination of the liabilities of
subsidiary corporations or members of the
partnership, association, entity or such individual
under certain circumstances, including but not limited
to any of the following situations:
(a) the parent corporation, partnership, association,
entity or individual guarantees the repayment of the
liabilities;
(b) the liabilities were incurred for the
accommodation of the parent corporation or another
subsidiary or of the partnership or association or
entity or such individual; or
(c) the subsidiaries though separate entities operate
merely as departments or divisions of a single entity.
Why is this the rule? Kasi ang dali lang sabihin na ganito,
"Meron palang limit na 25%. So I will create a company,
subsidiary, siya yung uutang nung 25%. So ako another
25%." Sabi ng batas, NO. All related parties, you
consider them as one. Especially if may majority interest
yung owner - they are owned under one umbrella which
owns majority or has majority control. In that case, you
consider all banks in determining the 25% limit. Pag in-
add mo yung lahat, pag sumbobra siya ng 25%, di na
yun pwede.
Sabi natin, when we talk about the single borrower's
limit, we consider the total credit accommodation. So
lahat ng credit accommodation na binigay ng bank dun
sa borrower, add mo yun lahat in determining whether
papasok siya sa 25%.
What is excluded dun sa total credit accommodation?
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
35.5. For purposes of this Section, loans,
other credit accommodations and
guarantees shall exclude:
(a) loans and other credit accommodations
secured by obligations of the Bangko Sentral
or of the Philippine Government;
(b) loans and other credit accommodations
fully guaranteed by the government as to the
payment of principal and interest;
(c) loans and other credit accommodations
covered by assignment of deposits
maintained in the lending bank and held in
the Philippines;
(d) loans, credit accommodations and
acceptances under letters of credit to the
extent covered by margin deposits; and
(e) other loans or credit accommodations
which the Monetary Board may from time to
time, specify as non-risk items.
Sa first paragraph ng 35.5, this is what we call non-risk.
Why? Because the (a) and (b), these are fully guaranteed
by the government. Nag utang nga sila pero
ginuarantee ng government yun. So that's not part of
your total credit accommodation because it's
guaranteed. Kung hindi ka magbabayad, merong
magbabayad na ibang tao.
Letter (c) is also a non-risk item because there is already
a receivable. Inassign dun mismo sa bank. Kung hindi ka
magbabayad, pwedeng i-execute yung assignment ng
bank.
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35.6. Loans and other credit
accommodations, deposits maintained with,
and usual guarantees by a bank to any other
bank or non-bank entity, whether locally or
abroad, shall be subject to the limits as herein
prescribed.
35.7. Certain types of contingent accounts of
borrowers may be included among those
subject to these prescribed limits as may be
determined by the Monetary Board. (23a)
BSP Approves Separate Credit Limits for Stand-
Alone Projects
There is what we call the separate credit limits for stand-
alone projects. Kasi, the rationale for this circular: it's
part of the government's Build, Build, Build Initiative. In
other words, walang pera. What will happen? What if
may contractor, nanalo ng 500M project. Eh wala siyang
pang finance, uutang siya sa kanyang bank. Di niya
mauutang yun lahat kasi may single borrower's limit na.
Especially if limited lang yung capital ng bank. So anong
gagawin niya? Uutang na naman siya sa other bank.
That's why, the MB issues this Circular 425. Sabi this
approves the separate credit limits for stand-alone
projects. In support of the Build, Build, Build Program,
the MB of the BSP amended regulations providing
entities created as vehicles to implement major projects
[often Special Purpose Entities (SPEs)] with a separate
single borrower's limit. The SBL is currently at 25
percent of a bank’s/quasi-bank’s (QB) net worth.
Such SPEs were given their own separate SBL in
consideration of the independence they usually enjoy
under project finance schemes. Under these schemes,
SPEs are ring-fenced by appropriate legal structures,
operational set up, and controls so that assets and cash
flows of SPEs remain separate from those of their
sponsors, shareholders, and other related parties.
The BSP’s policy reform is premised on banks/QBs’
understanding of risks of such exposures. Lending to
such dedicated SPEs shall be subject to certain
conditions to ensure effective risk monitoring and
management. It is also required that purposes of
project finance loans be in line with the government’s
priority programs and projects. Lending banks/QBs
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
must also ensure standard prudential controls. These
may include pledges of borrowers’ shares, assignments
of borrowers’ assets, revenues, cash waterfall accounts
and project documents.
To curb excessive credit risk-taking, banks/QBs must
also take into account, their total project finance
exposures in managing large exposures and credit risk
concentrations. These prudential controls shall likewise
apply to credit extended by banks/QBs to their SPE
subsidiaries and affiliates involved in project finance
activities.
Related to this, Circular No. 976 has also been issued.
Starting 30 June 2018, banks are required to submit
more granular reports on their real estate exposures
including project finance loans. This will aid the BSP in
crafting more informed and calibrated policy decisions
in areas that require careful supervisory action.
Therefore, if I am the borrower, tapos lahat kami may
isang project. Gumawa ako ng separate joint ventures
(special purpose entities), so separate yung kanyang
credit limit sa akin even if I own it. It can actually borrow
another 25%.
Do you know what happened to Enron? Why it
collapsed? It's actually of this case, mga special purpose
enterprise.
JAN 22, Part 2: ESTREMOS
Ang ginawa ng Enron, they have entities, special
purpose vehicle. Tapos it would appear na all the losing
businesses, tinatago nila sa special purpose vehicle.
And the problem with special purpose vehicle, hindi mo
kino-consolidate.
For example, ito yung Enron, ito yung owner. Tapos nag
set up siya ng maraming entities, and some of them are
special purpose vehicles (SPVs). Ito yung main nila na
business. So lahat ng mga profiting businesses, dito nila
pinapasok. So it would appear that the financial
statements ng company is stable. So tataas ang presyo.
Lahat ng losing, tinatago nila sa SPVs. Kasi ang rules ng
SPVs, independent ka of your owner. So you do not
report it along with the entire business of your owner.
So pwede mo talaga matago sa SPVs.
So it would appear that they are profiting, but in fact, if
you would look at it, nababalanse ang profiting sa
losing. Yung profiting na business, nababawasan ng
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losing. So talaga ang net worth nila kokonti. But because
of the structure, narereport siya as positive.
So the people investing are defrauded in believing na
okay pala ito, but in fact, di na pala okay. Eventually,
when it collapsed, nagkaroon ng cash problems, nagka
domino effect. So ngayon, bumagsak na siya. And that’s
the reason why they established the PCOB (Public
Company Overhead Board) of the US. Kasi the PCOB
now oversees those public companies when it comes to
reporting. Chinecheck nila kung may SPVs ba ito.
Marami na silang regulation because of that Enron.
The auditor of Enron was implicated kasi nagkonsabo.
Alam naman niya kung ano ang nangyayari, nag
konsabo lang talaga sila, na sige, i-report natin ng
ganito, para more appealing sa investors. Tataas ang
presyo ng stocks. That’s what happened with Enron.
So the special purpose vehicles, similar with special
purpose entities.
So based on BSP Circular 425, they have a separate SBL.
BSP CIRCULAR 425 (EXCLUSIONS)
BSP CIRCULAR 425
EXCLUSIONS
For purposes of this section, loans, other credit
accommodations and guarantees shall exclude:
(a) loans and other credit accommodations
secured by obligations of the Bangko Sentral
or of the Philippine Government;
(b) loans and other credit accommodations fully
guaranteed by the government as to the
payment of principal and interest;
(c) loans and other credit accommodations
secured by U.S. treasury notes and other
securities issued by central governments and
central banks of foreign countries with the
highest credit quality given by any two
internationally accepted rating agencies;
(d) loans and other credit accommodations to
the extent covered by the hold-out on or
assignment of, deposits maintained in the
lending bank and held in the Philippines;
(e) loans, credit accommodations and
acceptances under letters of credit to the
extent covered by margin deposits; and
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
(f) other loans or credit accommodations which
the Monetary Board may from time to time
specify as non-risk items.
As you can see, those exclusions include those
guaranteed by the government.
Even those secured by U.S. treasury notes, these are
risky items.
BSP CIRCULAR 425
EXCLUSIONS (Cont.)
F. The wholesale lending activities of government
banks to participating financial institutions for
relending to end-user borrowers shall at no time
exceed a separate limit of thirty-five percent (35%) of
net worth, subject to the following guidelines:
(a) it shall apply only to loans granted to
participating financial institutions (PFIs) on a
wholesale basis for on-lending to end-user
borrowers;
(b) it shall apply only to loan programs funded by
multilateral, international or local
development agencies, organizations or
institutions especially designed for wholesale
lending activities of government banks;
(c) the end-user borrowers of the PFIs shall be
subject to the 25% SBL, not the increased
ceiling of 35%; and
(d) government banks shall observe appropriate
criteria for accrediting PFIs and for the
grant/renewal of credit lines to accredited
PFIs.
G. Loans and other credit accommodations as well as
deposits maintained with, and usual guarantees by a
bank to any other bank or non-bank entity, whether
locally or abroad, shall be subject to the limits as
herein prescribed.
Deposits of rural banks and cooperative banks
(RBs/Coop Banks) with government-owned or
controlled financial institutions like the Land Bank of
the Philippines and the Development Bank of the
Philippines shall not be covered by the SBL imposed
under R. A. No. 8791.
In municipalities and cities where there are no
government banks, the deposits of RBs/Coop Banks
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in private banks in said areas shall not be subject to
the SBL. Deposits in private banks located in other
municipalities/cities shall be covered by the SBL.
The outstanding balance of the deposit in a private
depository bank being used by the Thrift
Banks/RBs/Coop Banks with authority to
accept/create demand or current deposits, to fund
checks cleared through the said private depository
bank shall also be exempt from the SBL even if there
is a government-owned or controlled financial
institution in the area.
TOTAL CREDIT COMMITMENT
Subsection X303.1 Definition of Terms.
For purposes of this Circular, the following
definitions shall apply:
a. Total Credit Commitment shall include
outstanding loans and other credit
accommodations, deferred letters of credit less
margin deposits, and guarantees. Except as
specifically provided, total credit commitment shall
be reckoned on credit risk-weighted basis consistent
with existing regulations.
xxx
c. Other Credit Accommodations shall refer to
credit and specific market risk exposures of banks
arising from accommodations other than loans such
as receivables (sales contract receivables, accounts
receivables and other receivables), and debt
securities booked as investments.
Let’s say kaibigan mo yung may-ari ng bangko. Even if
you exceed your SBL, di parin sila nag adjust. So what’s
the penalty for the bank? What’s the teeth of this law
which sets the limits to the borrowing power of a single
borrower?
MONETARY PENALTIES
Monetary Penalties - Fines of one-tenth of one
percent (1/10 of 1%) of the excess over the ceiling but
not to exceed Thirty Thousand Pesos (P30,000.00) a
day for each SBL violation shall be assessed on the
bank to be reckoned from the date the excess started
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
up to the date when such excess was eliminated:
Provided, That a maximum fine of Five Hundred
Pesos (P500.00) a day for each violation shall be
imposed against banks with total resources of less
than P50 million at the time of granting of loan/credit
accommodation.
So lets say meron kang P30,000 maximum na penalty,
yung bangko na nagbigay ng more than 25%. That’s a
hefty sum.
OTHER SANCTIONS
Other Sanctions
First Offense – Reprimand for the directors/officers
who approved the credit availment which resulted in
the excess with a warning that subsequent violations
will be subject to more severe sanctions.
Subsequent Offenses –
1. Fine of One Thousand Pesos (P1,000.00) for
directors/officers who approved the credit
availment which resulted in the excess.
2. Suspension of the bank’s branching privileges
and access to Bangko Sentral rediscounting
facilities until the excess is eliminated.
3. Other penalties as the Monetary Board may
impose depending on the gravity of the
offense.
Sanctions. Even the officers who grants the credit
availment. That’s why pag nagboborrow kayo sa
bangko, merong process to check.
Section 36. Restriction on Bank Exposure to
Directors, Officers, Stockholders and Their Related
Interests. - No director or officer of any bank shall,
directly or indirectly, for himself or as the
representative or agent of others, borrow from such
bank nor shall he become a guarantor, endorser or
surety for loans from such bank to others, or in any
manner be an obligor or incur any contractual
liability to the bank except with the written approval
of the majority of all the directors of the bank,
excluding the director concerned: Provided, That
such written approval shall not be required for loans,
other credit accommodations and advances granted
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to officers under a fringe benefit plan approved by
the Bangko Sentral. The required approval shall be
entered upon the records of the bank and a copy of
such entry shall be transmitted forthwith to the
appropriate supervising and examining department
of the Bangko Sentral. Dealings of a bank with any of
its directors, officers or stockholders and their
related interests shall be upon terms not less
favorable to the bank than those offered to others.
After due notice to the board of directors of the
bank, the office of any bank director or officer who
violates the provisions of this Section may be
declared vacant and the director or officer shall be
subject to the penal provisions of the New Central
Bank Act. The Monetary Board may regulate the
amount of loans, credit accommodations and
guarantees that may be extended, directly or
indirectly, by a bank to its directors, officers,
stockholders and their related interests, as well as
investments of such bank in enterprises owned or
controlled by said directors, officers, stockholders
and their related interests. However, the outstanding
loans, credit accommodations and guarantees which
a bank may extend to each of its stockholders,
directors, or officers and their related interests, shall
be limited to an amount equivalent to their
respective unencumbered deposits and book value
of their paid-in capital contribution in the bank:
Provided, however, That loans, credit
accommodations and guarantees secured by assets
considered as non-risk by the Monetary Board shall
be excluded from such limit: Provided, further, That
loans, credit accommodations and advances to
officers in the form of fringe benefits granted in
accordance with rules as may be prescribed by the
Monetary Board shall not be subject to the individual
limit. The Monetary Board shall define the term
"related interests." The limit on loans, credit
accommodations and guarantees prescribed herein
shall not apply to loans, credit accommodations and
guarantees extended by a cooperative bank to its
cooperative shareholders. (83a)
“No director or officer of any bank shall, directly or
indirectly, for himself or as the representative or agent
of others, borrow from such bank nor shall he become a
guarantor, endorser or surety for loans from such bank
to others, or in any manner be an obligor or incur any
contractual liability to the bank except with the written
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
approval of the majority of all the directors of the bank,
excluding the director concerned:”
Please take note of the limitations and the checks and
balances imposed by law.
Why? The rationale of this is because it is very easy.
Maraming nag-iisip na kailangan natin ng pera, gawa
tayo ng bangko. Kailangan natin ng funds, so gawa tayo
ng bangko. Let’s accept the deposit, tapos uutangin
natin.
If you are a director, you have this limitation –
“Provided, That such written approval shall not be
required for loans, other credit accommodations and
advances granted to officers under a fringe benefit plan
approved by the Bangko Sentral.”
So if the loan is in the nature of a fringe benefit (you
already know that a fringe benefit is an additional
compensation).
“The required approval shall be entered upon the
records of the bank and a copy of such entry shall be
transmitted forthwith to the appropriate supervising and
examining department of the Bangko Sentral.”
Please take note, para makita ninyo ang big picture –
Any violation of this will be examined by the personnel
of the SES, yung sinasabi natin sa New Central Bank Act,
yung supervising.
Tapos pag nag eexamine sila, pag nakita nila na “uy, ang
laki pala ng DOSRI mo.” Tapos bigyan ka ng compliance
order. Tapos they failed to follow it. Ano mangyayari?
They will consider this as an unsound banking practice.
So they will put you in receivership.
“Dealings of a bank with any of its directors, officers or
stockholders and their related interests shall be upon
terms not less favorable to the bank than those offered
to others.”
So arm’s length transaction. If you are given, lets say
fringe benefit, it must be in arm’s length transaction.
“After due notice to the board of directors of the bank,
the office of any bank director or officer who violates the
provisions of this Section may be declared vacant and
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the director or officer shall be subject to the penal
provisions of the New Central Bank Act. The Monetary
Board may regulate the amount of loans, credit
accommodations and guarantees that may be
extended, directly or indirectly, by a bank to its
directors, officers, stockholders and their related
interests, as well as investments of such bank in
enterprises owned or controlled by said directors,
officers, stockholders and their related interests.”
“However, the outstanding loans, credit
accommodations and guarantees which a bank may
extend to each of its stockholders, directors, or officers
and their related interests, shall be limited to an amount
equivalent to their respective unencumbered deposits
and book value of their paid-in capital contribution in
the bank”
Please take note of that. It is limited to that amount.
So ano meaning niyan? Kung may limit, kung i-aallow
ako mangutang sa bangko, it is only limited kung
magkano ang deposit mo doon, and ang book value ng
shares ko doon.
Why? So in the event of default, pwede mo kunin. So
walang lugi ang bangko kasi equivalent dun. Ang
inutang mo is equivalent to your investment in such
bank in the event mag default ka.
“Provided, however, That loans, credit accommodations
and guarantees secured by assets considered as non-
risk by the Monetary Board shall be excluded from such
limit:”
Please take note of that.
Again, non-risk item, not included in the limit.
BASEL CORE PRINCIPLES
In order to prevent abuses arising in transactions with
related parties and to address the risk of conflict of
interest, the supervisor requires banks:
1. to enter into any transactions with related
parties on an arm’s length basis;
Sino yung supervisor? It is the Central Bank.
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Again, itong mga convention na to, ito ang mga
guidelines promulgated for different jurisdictions. So
sabi ng Basel Core Principles, kailangan mo ng
supervisor, na magchecheck nun because of public
interests.
2. to monitor these transactions;
3. to take appropriate steps to control or mitigate
the risks; and
4. to write off exposures to related parties in
accordance with standard policies and
processes.
ESSENTIAL CRITERIA (BASEL CORE PRINCIPLES)
Laws or regulations provide, or the supervisor has the
power to prescribe, a comprehensive definition of
“related parties.” This considers the parties identified in
the footnote to the Principle. The supervisor may
exercise discretion in applying this definition on a case
by case basis.
Laws, regulations or the supervisor require that
transactions with related parties are not undertaken on
more favourable terms (e.g. in credit assessment, tenor,
interest, rates, fees, amortization schedules,
requirement for collateral) than corresponding
transactions with non-related counterparties.
The supervisor requires that transactions with related
parties and the write-off of related-party exposures
exceeding specified amounts or otherwise posing
special risks are subject to prior approval by the bank’s
Board. The supervisor requires that Board members
with conflicts of interest are excluded from the approval
process of granting and managing related party
transactions.
The supervisor determines that banks have policies and
processes to prevent persons benefitting from the
transaction and/or persons related to such a person
from being part of the process of granting and
managing the transaction.
Laws or regulations set, or the supervisor has the power
to set on a general or case by case basis, limits for
exposures to related parties, to deduct such exposures
from capital when assessing capital adequacy, or to
require collateralization of such exposures. When limits
are set on aggregate exposures to related parties, those
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are at least as strict as those for single counterparties or
groups of connected counterparties.
The supervisor determines that banks have policies and
processes to identify individual exposures to and
transactions with related parties as well as the total
amount of exposures, and to monitor and report on
them through an independent credit review or audit
process. The supervisor determines that exceptions to
policies, processes and limits are reported to the
appropriate level of the bank’s senior management and,
if necessary, to the Board, for timely action. The
supervisor also determines that senior management
monitors related party transactions on an ongoing basis,
and that the Board also provides oversight of these
transactions.
The supervisor obtains and reviews information on
aggregate exposures to related parties.
These are the rationale for the general banking law. Our
law is promulgated to cater the Basel Core Principle for
the best practice ng mga banking transactions.
STATUTORY REQUIREMENTS FOR DOSRI
TRANSACTIONS
1. Dealings of a bank with any of its DOSRI should
be in the regular course of business and upon
terms not less favorable to the bank;
2. Written approval of the majority of all members
of the bank’s board of directors, excluding the
director concerned, is required before bank
directors and officers can borrow or in any
manner be an obligor or incur contractual
liability to the bank;
3. The required approval by the board of directors
shall be entered upon the records of the
corporation and a copy of the entry be
transmitted to the appropriate supervising and
examining department of the Bangko Sentral;
4. Ceiling imposes a limit on the amount of loans,
credit accommodations and guarantees
extended to the bank’s DOSRI to an amount
equivalent to their respective unencumbered
deposits and book value of their paid in capital
contribution in the bank.
So these are the four checks and balances when it
comes to loans or credit accommodations by directors,
officers, stockholders.
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Discussion on the Four Elements
1. So first, dapat regular course of business. So the
transaction must be arm’s length. So 10% ang
interest na binibigay mo sa third party, dapat
dun sa director, 10% din. It must be arm’s
length.
2. Second, kailangan ng approval. Please take
note na kailangan ng majority of the board,
excluding the one borrowing.
3. Third, saan mo itratransmit yung records? Sa
SES ng Bangko Sentral.
4. Fourth, this is only limited to magkano ang
deposit ng director sa bangko na yun, plus ang
book value ng paid in capital contribution ng
kanyang share. Kasi director siya, so meron
siyang at least 1 share. So kung magkano ang
value na yon, yun ang limit ng kanyang
maboborrow.
Please take note, this excludes borrowings
which are collateralized or may asset na naka
collateral. When we talk about DOSRI loans, we
are only referring to risky loans, yung walang
collateral.
So what happens when you buy any of these?
Then yung DOSRI transaction is considered as
VOID.
WAIVER OF SECRECY OF DEPOSIT
Any director, officer or stockholder who, together with
his related interest, contracts a loan or any form of
financial accommodation from: his bank; or from a bank
Note: Please take na pwede na indirectly.
Hindi lang kinoconsider yung bank na
directly nag loan. It can be done indirectly.
(1) which is subsidiary of a bank holding company
of which both his bank and lending bank are
subsidiaries or
This is the holding, may dalawang bank siya. Dito ka
director (first bank), pero dito ka nangutang (second
bank). Kasi sabi mo bawal ako dito kasi ako ang director,
eh dun nalang ako sa sister company. So kung dito ka
director (first bank), dito ka nangutang (second bank),
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that is also part, because you are doing indirectly what
is prohibited directly.
(2) in which a controlling proportion of the shares is
owned by the same interest that owns a
controlling proportion of the shares of his bank,
in excess of five percent (5%) of the capital and
surplus of the bank, or in the maximum amount
permitted by law, whichever is lower*, shall be
required by the lending bank to waive** the
secrecy of his deposits of whatever nature in all
banks in the Philippines. Any information
obtained from an examination of his deposits
shall be held strictly confidential and may be
used by the examiners only in connection with
their supervisory and examination responsibility
or by the Bangko Sentral in an appropriate legal
action it has initiated involving the deposit
account.
* So kahit hindi holding, if it is majority interest, that is
still part of the prohibition.
** Therefore, if you are a director, officer or stockholder,
you need to sign a waiver, not only of your bank, but also
of banks which are related to your bank.
So we have the cases.
Go v. Bangko Sentral
GR 178429 (2009)
HELD:
Section 83 of RA 337 actually imposes three
restrictions:
1. approval,
2. reportorial, and
3. ceiling requirements.
The approval requirement (found in the first
sentence of the first paragraph of the law) refers to the
written approval of the majority of the bank’s board of
directors required before bank directors and officers
can in any manner be an obligor for money borrowed
from or loaned by the bank. Failure to secure the
approval renders the bank director or officer
concerned liable for prosecution and, upon
conviction, subjects him to the penalty provided in
the third sentence of first paragraph of Section 83.
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
The reportorial requirement, on the other hand,
mandates that any such approval should be entered
upon the records of the corporation, and a copy of
the entry be transmitted to the appropriate
supervising department. The reportorial requirement
is addressed to the bank itself, which, upon its failure
to do so, subjects it to quo warranto proceedings
under Section 87 of RA 337.
The ceiling requirement under the second
paragraph of Section 83 regulates the amount of
credit accommodations that banks may extend to
their directors or officers by limiting these to an
amount equivalent to the respective outstanding
deposits and book value of the paid-in capital
contribution in the bank. Again, this is a requirement
directed at the bank. In this light, a prosecution for
violation of the first paragraph of Section 83, such as
the one involved here, does not require an allegation
that the loan exceeded the legal limit. Even if the loan
involved is below the legal limit, a written approval by
the majority of the bank’s directors is still required;
otherwise, the bank director or officer who becomes
an obligor of the bank is liable. Compliance with the
ceiling requirement does not dispense with the
approval requirement.
Evidently, the failure to observe the three
requirements under Section 83 paves the way for the
prosecution of three different offenses, each with its
own set of elements. A successful indictment for
failing to comply with the approval requirement will
not necessitate proof that the other two were likewise
not observed.
DISCUSSION: The law provides for three requirements.
So kahit hindi ka dun pa nag violate sa first requirement,
sa third requirement na, you can be penalized.
So please take note of the three requirements.
1. First, meron kang approve-an, sa BoD;
2. Tapos, may reportorial. May isusubmit kang
records sa supervising department of the
central bank; and
3. You have the ceiling requirement.
Please take note, tatlong requirement yan that you have
to comply. Any violation, talagang ma pepenalize.
Soriano v. People
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GR 162336 (2010)
HELD: The prohibition in Section 83 is broad enough
to cover various modes of borrowing. It covers loans
by a bank director or officer (like herein petitioner)
which are made either: (1) directly, (2) indirectly, (3)
for himself, (4) or as the representative or agent of
others. It applies even if the director or officer is a
mere guarantor, indorser or surety for someone else's
loan or is in any manner an obligor for money
borrowed from the bank or loaned by it. The covered
transactions are prohibited unless the approval,
reportorial and ceiling requirements under Section
83 are complied with. The prohibition is intended to
protect the public, especially the depositors, from the
overborrowing of bank funds by bank officers,
directors, stockholders and related interests, as such
overborrowing may lead to bank failures. It has been
said that "banking institutions are not created for the
benefit of the directors [or officers]. While directors
have great powers as directors, they have no special
privileges as individuals. They cannot use the assets
of the bank for their own benefit except as permitted
by law. Stringent restrictions are placed about them
so that when acting both for the bank and for one of
themselves at the same time, they must keep within
certain prescribed lines regarded by the legislature
as essential to safety in the banking business".
A direct borrowing is obviously one that is made in
the name of the DOSRI himself or where the DOSRI is
a named party, while an indirect borrowing includes
one that is made by a third party, but the DOSRI has a
stake in the transaction. The latter type – indirect
borrowing – applies here. The information in Criminal
Case 238-M-2001 alleges that petitioner "in his
capacity as President of Rural Bank of San Miguel –
San Ildefonso branch x x x indirectly borrow[ed] or
secure[d] a loan with [RBSM] x x x knowing fully well
that the same has been done by him without the
written consent and approval of the majority of the
board of directors x x x, and which consent and
approval the said accused deliberately failed to
obtain and enter the same upon the records of said
banking institution and to transmit a copy thereof to
the supervising department of the said bank x x x by
using the name of one depositor Enrico Carlos x x x,
the latter having no knowledge of the said loan, and
once in possession of the said amount of eight million
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
pesos (₱8 million), [petitioner] converted the same to
his own personal use and benefit".
The foregoing information describes the manner of
securing the loan as indirect; names petitioner as the
benefactor of the indirect loan; and states that the
requirements of the law were not complied with. It
contains all the required elements for a violation of
Section 83, even if petitioner did not secure the loan
in his own name.
JAN 22, Part 3: TALON
SEC. 36. Restriction on Bank Exposure to Directors,
Officers, Stockholders and Their Related Interests.
No director or officer of any bank shall, directly or
indirectly, for himself or as the representative or agent
of others, borrow from such bank nor shall he become a
guarantor, indorser or surety for loans from such bank
to others, or in any manner be an obligor or incur any
contractual liability to the bank except with the written
approval of the majority of all the directors of the bank,
excluding the director concerned: Provided, That such
written approval shall not be required for loans, other
credit accommodations and advances granted to officer
under a fringe benefit plan approved by the Bangko
Sentral. The required approval shall be entered upon
the records of the bank and a copy of such entry shall be
transmitted forthwith to the appropriate supervising and
examining department of the Bangko Sentral.
Dealings of a bank with any of its directors, officers or
stockholders and their related interests shall be upon
terms not less favorable to the bank than those offered
to others.
After due notice to the board of directors of the bank,
the office of any bank director or officer who violates the
provisions of this Section may be declared vacant and
the director or officer shall be subject to the penal
provisions of the New Central Bank Act.
The Monetary Board may regulate the amount of loans,
credit accommodations and guarantees that may be
extended, directly or indirectly, by a bank to its
directors, officers, stockholders and their related
interests, as well as investments of such bank in
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enterprises owned or controlled by said directors,
officers, stockholders and their related interests.
However, the outstanding loans, credit
accommodations and guarantees which a bank may
extend to each of its stockholders, directors, or officers
and their related interests, shall be limited to an amount
equivalent to their respective unencumbered deposits
and book value of their paid-in capital contribution in
the bank: Provided, however, That loans, credit
accommodations and guarantees secured by assets
considered as non-risk by the Monetary Board shall be
excluded from such limit: Provided, further, That loans,
credit accommodations and advances to officers in the
form of fringe benefits granted in accordance with rules
as may be prescribed by the Monetary Board shall not
be subject to the individual limit. The Monetary Board
shall define the term "related interests.
The limit on loans, credit accommodations and
guarantees prescribed herein shall not apply to loans,
credit accommodations and guarantees extended by a
cooperative bank to its cooperative shareholders. (83a)
The Persons Covered
1. Stockholders
Stockholder shall refer to any stockholder of
record in the books of the bank/quasi-
bank/trust entity, acting personally, or through
an attorney-in-fact; or any other person duly
authorized by him or through a trustee
designated pursuant to a proxy or voting trust
or other similar contracts, whose stockholdings
in the lending bank/quasi-bank/trust entity,
individual and/or collectively with the
stockholdings of: (i) his spouse and/or relative
within the first degree by consanguinity or
affinity or legal adoption; (ii) a partnership in
which the stockholder and/or the spouse and/or
any of the aforementioned relatives is a general
partner; and (iii) corporation, association or firm
of which the stockholder and/or his spouse
and/or the aforementioned relatives own more
than fifty percent (50%) of the total subscribed
capital stock of such corporation, association or
firm, amount to ONE PERCENT (1%) or more of
the total subscribed capital stock of the
bank/quasi-bank/trust entity (Circular No. 464).
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Not because you have one share of the bank,
you are already considered to be a stockholder
within the purview of the DOSRI. Please take
note kelangan mag qualify ka muna diyan. Your
stock holdings must be 1% or more of the total
subscribed capital stock. And in determining the
1% we also must consider your relatives in a
partnership or corporation. Here the basis is the
subscription of the capital stock.
2. Related Interest
Related Interest shall refer to any of the
following:
(1) Spouse or relative within the first degree of
consanguinity or affinity, or relative by legal
adoption, of a director, officer or stockholder of
the bank;
(2) Partnership of which a director, officer, or
stockholder of a bank or his spouse or relative
within the first degree of consanguinity or
affinity, or relative by legal adoption, is a general
partner;
(3) Co-owner with the director, officer,
stockholder or his spouse or relative within the
first degree of consanguinity or affinity, or
relative by legal adoption, of the property or
interest or right mortgaged, pledged or
assigned to secure the loans or other credit
accommodations, except when the mortgage,
pledge or assignment covers only said co-
owner's undivided interest;
(4) Corporation, association, or firm of which a
director or officer of the bank, or his spouse is
also a director or officer of such corporation,
association or firm, except (a) where the
securities of such corporation, association or
firm are listed and traded in the big board or
commercial and industrial board of domestic
stock exchanges and less than fifty percent
(50%) of the voting stock thereof is owned by
any one person or by persons related to each
other within the first degree of consanguinity or
affinity; or (b) where the director, officer or
stockholder of the bank sits as a representative
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of the bank in the board of directors of such
corporation: Provided, That the bank
representative shall not have any equity interest
in the borrower corporation except for the
minimum shares required by law, rules and
regulations, or by the by-laws of the
corporation: Provided, further, that the
borrowing corporation is not among those
mentioned in items e(5), e(6), e(7) and e(8) of
this Section;
(5) Corporation, association or firm of which
any or a group of directors, officers,
stockholders of the lending bank and/or their
spouses or relatives within the first degree of
consanguinity or affinity, or relative by legal
adoption, hold or own at least twenty percent
(20%) of the subscribed capital of such
corporation, or of the equity of such association
or firm;
(6) Corporation, association or firm wholly or
majority-owned or controlled by any related
entity or a group of related entities mentioned
in Items e(2), e(4) and e(5) of this Section.
(7) Corporation, association or firm which owns
or controls directly or indirectly whether singly
or as part of a group of related interest at least
twenty percent (20%) of the subscribed capital
of a substantial stockholder of the lending bank
or which controls majority interest of the bank
pursuant to Subsection X303.1 of the MOR.
(8) Corporation, association or firm in which the
lending bank and/or its parent/subsidiary holds
or owns at least twenty percent (20%) of the
subscribed capital of such corporation, or in the
equity of such association or firm, or has an
existing management contract or any similar
arrangement with the lending bank or its
parent/subsidiary.
Direct and Indirect Borrowings
SECTION X329. Direct or Indirect Borrowings. Loans,
other credit accommodations and guarantees to DOSRI
shall be considered direct or indirect borrowings in
accordance with the following criteria:
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Direct borrowing. If the director, officer or stockholder
of the lending bank is a party to any of the transactions
enumerated in Section X327 for himself, or as the
representative or agent of others, or if he acts as a
guarantor, endorser or surety for loans from the bank
(so even if hindi nakapangalan sa kanya yung loan but he
acted as a guarantor or siya ang na-benefit) or if the loan
or other credit accommodation to another party is
secured by a property interest or right of the director,
officer or stockholder.
Indirect Borrowing. If in any of the transactions in
Section X327 the borrower, guarantor, endorser or
surety is a related interest as defined in item e,
Subsection X326.1.
Transaction Covered
SECTION X327. Transactions Covered. The terms
loans, other credit accommodations and guarantees as
used herein shall refer to transactions of the bank which
involve the grant of any loan, advance or other credit
accommodation in any form whatsoever, whether
renewal, extension or increase, and shall include:
1. Any advance by means of an incidental or
temporary overdraft, cash item, “vale”, etc.;
2. Any advance of unearned salary or other
unearned compensation for periods in excess of
thirty (30) days;
3. Any advance by means of DAUDs (Drawn
Against Uncollected Deposits: may cheke ka na
papasok, nagbayad sayo ang may utang tapos
nisulod sa imo Bangko. Wala pa siya na-clear gi-
widraw na nimo) ;
4. Outstanding availments under an established
credit line;
5. Drawings against an existing letter of credit;
6. The acquisition of any note, draft, bill of
exchange or other evidence of indebtedness
upon which the bank’s directors, officers,
stockholders, and their related interests may be
liable as makers, drawers, acceptors, endorsers,
guarantors or sureties;
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7. Indirect lending such as loans or other credit
accommodations granted by another financial
intermediary to said directors, officers,
stockholders, and their related interests from
funds of the bank invested in the other
institution's trust or other department when
there is a clear relationship between the
transactions;
8. The increase of an existing indebtedness, as
well as additional availments under a credit line
or additional drawings against a letter of credit;
9. The sale of assets, such as shares of stock, on
credit (nagbenta ang Bangko ng property tapos
inutang mo muna ang pambayad mo. Yung
utang na iyon is considered to be a borrowing);
and
10. Any other transactions as a result of which the
bank’s directors, officers, stockholders and their
related interests become obligated or may
become obligated to the lending bank, by any
means whatsoever to pay money or its
equivalent.
Transactions not Covered
(Kapag ito ang ginawa ng DOSRI, di niya kelangan mag-
comply sa mga requirements)
SECTION X328. Transactions Not Covered. The terms
loans, other credit accommodations and guarantees as
used herein shall not refer to the following:
1. Advances against accrued compensation, or for
the purpose of providing payment of authorized
travel, legitimate expenses or other transactions
for the account of the bank or for utilization of
maternity and other leave credits;
2. The increase in the amount of outstanding
credit accommodations as a result of additional
charges or advances made by the bank to
protect its interest such as taxes, insurance, etc.;
3. The discount of bills of exchange drawn in good
faith against actually existing values, and the
discount of commercial or business paper
actually owned by the person negotiating the
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
same, including but not limited to the
acquisition by a domestic bank of export bills
from any of its DOSRI and their related interest
which are drawn in accordance with the terms
and conditions of the covering letters of credit:
Provided, That the transaction shall
automatically be subject to the ceilings as
herein provided once the DOSRI who is a party
to the transaction becomes directly liable to the
bank;
4. Transactions with a foreign bank which has
stockholdings in the local bank where the
foreign bank acts as guarantor through the
issuance of letters of credit or assignment of a
deposit in a currency eligible as part of the
international reserves and held in a bank in the
Philippines to secure other credit
accommodations granted to another person or
entity: Provided, That the foreign bank
stockholder shall automatically be subject to the
ceilings as herein provided in the event that its
contingent liability as guarantor becomes a real
liability; and
5. Interbank call loan transactions.
Please take note of the three requirements:
1. Approval requirement. It has to be approved by
written approval of the majority of the bank’s
board of directors.
2. Reportorial requirement
3. Ceiling requirement (it could be individual,
aggregate, individual-unsecured or aggregate
unsecured. Take note andaming ceiling)
Secured and Unsecured
Secured loan, borrowing or other credit
accommodation shall refer to any loan, or credit
accommodation or portion thereof which is secured by
physical collateral, financial guarantee, or other
instruments, that are enforceable, realizable, and
marketable and meets the standards prescribed.
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Unsecured loan, borrowing or other credit
accommodation shall refer to any loan or other credit
accommodation or portion thereof which is not secured.
Individual Ceiling
SECTION X330. Individual Ceiling. The total
outstanding loans, other credit accommodations and
guarantees to each of the bank’s directors, officers,
stockholders and their related interests shall be limited
to an amount equivalent to their respective
unencumbered deposits and book value of their paid-in
capital contribution in the bank: Provided, however, that
unsecured loans, other credit accommodations and
guarantees to each of the bank's directors, officers,
stockholders and their related interests shall not exceed
thirty percent (30%) of their respective total loans, other
credit accommodations and guarantees.
Unencumbered deposits shall refer to savings, time and
demand deposits, which are not subject to an
assignment or hold-out agreement or any other
encumbrance.
Book value of the paid-in capital contribution shall mean
the proportional amount of the bank’s total capital
accounts (net of such unbooked valuation reserves and
other capital adjustments as may be required by the
Bangko Sentral) as the corresponding paid-in capital
contribution of each of the bank’s directors, officers,
stockholders and their related interests bear to the total
paid-in capital of the bank: Provided, That as a basis for
determining the individual ceiling, the corresponding
book value of the shares of stock of said directors,
officers, stockholders and their related interests which
are the subject of pledge, assignment or any other
encumbrance shall be deducted therefrom.
Exclusions of Individual Ceiling
Subsection X330.1 Exclusions from Individual
Ceiling. The following loans, other credit
accommodations and guarantees shall be excluded in
determining compliance with the individual ceiling.
1. Loans, other credit accommodations and
guarantees secured by assets considered as
non-risk by the Monetary Board;
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Assets considered as non-risk shall refer to the
following:
1. Cash;
2. Debt securities issued by the BSP or the
Philippine government;
3. Deposits maintained in the lending bank
and held in the Philippines;
4. Debt securities issued by the U.S.
government;
5. Debt securities issued by central
governments, central banks of foreign countries
and multilateral financial institutions such as
International Finance Corporation, Asian
Development Bank and World Bank, with the
highest credit quality given by any two
internationally accepted rating agencies;
6. Such other assets considered as non-risk by
the Monetary Board.
2. Loans, other credit accommodations and
advances to officers in the form of fringe
benefits granted in accordance with existing
regulations;
3. Loans, other credit accommodations and
guarantees extended by a cooperative bank to
its cooperative shareholders;
Aggregate Ceiling
SECTION X331. Aggregate Ceiling; Ceiling on
Unsecured Loans, Other Credit Accommodations and
Guarantees. Except with the prior approval of the
Monetary Board, the total outstanding loans, other
credit accommodations and guarantees to directors,
officers, stockholders and their related interests shall
not exceed fifteen percent (15%) of the total loan
portfolio of the bank or one hundred percent (100%) of
net worth whichever is lower: Provided, That in no case
shall the total unsecured loans, other credit
accommodations and guarantees to said directors,
officers, stockholders and their related interests exceed
thirty percent (30%) of the aggregate ceiling or the
outstanding loans, other credit accommodations and
guarantees, whichever is lower. For the purpose of
determining compliance with the ceiling on unsecured
loans, other credit accommodations and guarantees,
banks shall be allowed to average their ceiling on
unsecured loans, other credit accommodations and
guarantees every quarter.
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In evaluating requests for extension of loans in excess of
the aggregate ceiling, the BSP shall consider the credit
standing of the borrower, viability of the projects
financed by such other credit accommodations in
relation to national objectives, collateral or security and
other pertinent considerations.
Example
Si director meron siyang deposit ng 50. Yung book
value/paid-in capital is also 50. Tapos yung unsecured
loan niya 30, yung secured loan niya with real estate
mortgage 70. So, what is the limit?
1. Kung individual ka: it is the unencumbered
deposit plus the whole value of paid in capital.
So, 50 and 50, 100. Tapos sa unsecured, it is
only 30% of the agreement. Therefore, the 70%
must be secured.
Credit Card Operations
Does the limitations on DOSRI loans include credit
cards? Ano ba ang nature ng credit card? Utang diba.
Pwede mong nakawin. You can be liable for qualified
theft because of credit card charges.
Subsection X328.1 Applicability to Credit Card
Operations. The credit card operations of banks shall
not be subject to these regulations where the credit
cardholders are bank’s DOSRI: Provided, That
(a) the privilege of becoming a credit
cardholder is open to all qualified persons on
the basis of selective criterial which are applied
by the bank to all applicants thereof; and
(b) the bank’s DOSRIs reimburse/pay the bank
for the billed amount in full (not partial) on or
before the payment due date in the billing or
statement of account, as set by the bank for all
other qualified credit cardholders on availments
made for the same period on their credit cards.
However, the transaction shall be subject to
applicable DOSRI regulations if the bank’s
directors, officers, stockholders and their
related interests:
(i) Fail to reimburse/pay the bank within
the period mentioned herein; or
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
(ii) On the outset, opt for deferred
payment scheme, and the availment is
booked by the bank.
For purposes of this section, stockholders and
related interests refer to individual credit card
holders.
SEC. 37. Loans and Other Credit Accommodations
Against Real Estate.
Except as the Monetary Board may otherwise prescribe,
loans and other credit accommodations against real
estate shall not exceed seventy-five percent (75%) of the
appraised value of the respective real estate security,
plus sixty percent (60%) of the appraised value of the
insured improvements, and such loans may be made to
the owner of the real estate or to his assignees. (78a)
So may limit po. 75% lang of the appraised value. if they
gave you more than that, they are in violation of this
section. But the BSP can issue circular naman to increase
of decrease the ceiling.
SEC. 38. Loans and Other Credit Accommodations on
Security of Chattels and Intangible Properties.
Except as the Monetary Board may otherwise prescribe,
loans and other credit accommodations on security of
chattels and intangible properties, such as, but not
limited to, patents, trademarks, trade names, and
copyrights shall not exceed seventy-five percent (75%)
of the appraised value of the Security, and such loans
and other credit accommodations may be made to the
title-holder of the chattels and intangible properties or
his assignees. (78a)
What if yung lupa may bahay. 75% for the lupa, 60% for
the improvements.
SEC. 39. Grant and Purpose of Loans and Other Credit
Accommodations.
A bank shall grant loans and other credit
accommodations only in amounts and for the periods of
time essential for the effective completion of the
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operations to be financed. Such grant of loans and other
credit accommodations shall be consistent with safe and
sound banking practices. (75a)
The purpose of all loans and other credit
accommodations shall be stated in the application and
in the contract between the bank and the borrower. If
the bank finds that the proceeds of the loan or other
credit accommodation have been employed, without its
approval, for the purposes other than those agreed
upon with the bank, it shall have the right to terminate
the loan or other credit accommodation and demand
immediate repayment of the obligation. (77)
If you try to start a business ang umutang ka sa Bangko,
humihingi talaga sila ng feasibility study. Kasi that would
be your best evidence kung kikita ka ba and kung
makakapay ka ba.
Required po sa batas kung saan po and pang-gagamitan
mo ng loan.
A bank must ascertain that the debtor is capable of
fulfilling his commitments to the bank, and in
ascertaining that, he may require the borrower to submit
the corresponding financial statements submitted for
taxation purposes to the BIR. In reality, you’re earning
millions, but you submitted to the BIR a lower amount
because you want to evade paying the taxes. Now here
comes the time that you have to loan, hindi ka tuloy
iaapprove sa loan na amount na gusto mo.
When the TRAIN LAW was promulgated, there was a
provision there that states that the commissioner has the
right to inquire on the documents given by the taxpayer
to the Bank. This certain provisions was taken out
because it would indirectly violate the bank secrecy
deposits.
SEC. 40. Requirement for Grant of Loans or Other Credit
Accommodations.
Before granting a loan or other credit accommodation,
a bank must ascertain that the debtor is capable of
fulfilling his commitments to the bank.
Toward this end, a bank may demand from its credit
applicants a statement of their assets and liabilities and
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
of their income and expenditures and such informations
as may be prescribed by law or by rules and regulations
of Monetary Board to enable the bank to properly
evaluate the credit application which includes the
corresponding financial statements submitted for
taxation purposes to the Bureau of Internal Revenue.
Should such statements prove to be false or incorrect in
any material detail, the bank may terminate any loan or
other credit accommodation granted on the basis of
said statements and shall have the right to demand
immediate repayment or liquidation of the obligation. In
formulating rules and regulations under this section, the
Monetary Board shall recognize the peculiar
characteristics of micro financing, such as cash flow-
based lending to the basic sectors that are not covered
by traditional collateral. (76a)
SEC 41. Unsecured Loans or Other Credit
Accommodations.
The Monetary Board is hereby authorized to issue such
regulations as it may deem necessary with respect to
unsecured loans or other credit accommodations that
may be granted by banks, (n)
SEC. 42. Other security Requirements for Bank Credits
The Monetary Board may, by regulation, prescribe
further Security requirements to which the various types
of bank credits shall be subject, and, in accordance with
the authority granted to it in section 106 of the New
Central Bank Act, the Board may by regulation, reduce
the maximum ratios established in Sections 36 and 37 of
this Act, or, in special cases, increase the maximum
ratios established therein. (78)
SEC. 43. Authority to Prescribe Terms and Conditions of
Loans and Others Credit Accommodations.
The Monetary Board may, similarly, in accordance with
the authority granted to it in Section 106 of the New
Central Bank Act, and taking into account the
requirements of the economy for the effective utilization
of long-term funds, prescribe the maturities, as well as
related terms and conditions for various types of bank
loans and other credit accommodations. Any change by
the Board in the maximum maturities shall apply only to
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loans and other credit accommodations made after the
date of such action.
The Monetary Board shall regulate the interest imposed
on microfinance borrowers by lending investors and
similar lenders, such as, but not limited to, the
unconscionable rates of interest collected on salary
loans and similar credit accommodations. (78a)
SEC. 44. Amortization on Loans and other Credit
Accommodations.
The amortization schedule of bank loans and other
credit accommodations shall be adapted to the nature
of the operation to be financed. In case of loans and
other credit accommodations with maturities of more
than five (5) years, provisions must be made for periodic
amortization payments, but such payments must be
made at least annually: Provided, however, That when
the borrowed funds are to be used for purposes which
do not initially produce revenues adequate for regular
amortization payments: therefrom, the bank may permit
the initial amortization payment to be deferred until
such time as said revenues are sufficient for such
purpose, but in no case shall the initial amortization date
be later than five (5) years from the date on which the
loan or other credit accommodation is granted. (79a)
In case of loans and other credit accommodations to
microfinance sectors, the schedule of loan amortization
shall take into consideration the projected cash flow of
the borrower and adopt this into the terms and
conditions formulated by banks (n)
Feb 12, Part 1: DELA CERNA
Comment: We are talking about the rules and
regulations of banks as they relate to the public.
Section 45. Prepayment of Loans and Other Credit
Accommodations. - A borrower may at any time
prior to the agreed maturity date prepay, in whole or
in part, the unpaid balance of any bank loan and other
credit accommodation, subject to such reasonable
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
terms and conditions as may be agreed upon Comment: This section 47 is discussed in relation to
between the bank and its borrower. your credit transactions.

Section 46. Development Assistance Incentives. -

The Bangko Sentral shall provide incentives to banks
which, without government guarantee, extend loans
to finance educational institutions cooperatives,
hospitals and other medical services, socialized or
low-cost housing, local government units and other
activities with social content.
Section 47. Foreclosure of Real Estate Mortgage. -
In the event of foreclosure, whether judicially or extra-
judicially, of any mortgage on real estate which is
security for any loan or other credit accommodation
granted, the mortgagor or debtor whose real
property has been sold for the full or partial payment
of his obligation shall have the right within one year
after the sale of the real estate, to redeem the
property by paying the amount due under the
mortgage deed, with interest thereon at rate
specified in the mortgage, and all the costs and
expenses incurred by the bank or institution from the
sale and custody of said property less the income
derived therefrom. However, the purchaser at the
auction sale concerned whether in a judicial or extra-
judicial foreclosure shall have the right to enter upon
and take possession of such property immediately
after the date of the confirmation of the auction sale
and administer the same in accordance with law. Any
petition in court to enjoin or restrain the conduct of
foreclosure proceedings instituted pursuant to this
provision shall be given due course only upon the
filing by the petitioner of a bond in an amount fixed
by the court conditioned that he will pay all the
damages which the bank may suffer by the enjoining
or the restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose
property is being sold pursuant to an extrajudicial
foreclosure, shall have the right to redeem the
property in accordance with this provision until, but
not after, the registration of the certificate of
foreclosure sale with the applicable Register of Deeds
which in no case shall be more than three (3) months
after foreclosure, whichever is earlier. Owners of
property that has been sold in a foreclosure sale prior
to the effectivity of this Act shall retain their
redemption rights until their expiration.
Two (2) Kinds of Redemption (REVIEW)
1. Legal Redemption - The period to redeem the
property sold extra-judicially following the
foreclosure of mortgage is one (1) year from the
registration of the sheriff’s certificate of foreclosure
sale (Bernandez v. Reyes, 201 SCRA 648; Section 6,
Act 3135, as amended).
NOTE (related to topic): In case the mortgagor is a
JURIDICAL PERSON Section 47 of of RA 8791 (the
General Banking Law of 2000) provides:
“Notwithstanding Act 3135, juridical persons x x x shall
have the right to redeem the property in accordance
with this provision until, but not after, the registration of
the certificate of foreclosure sale with the applicable
Register of Deeds which in no case shall be more than
three (3) months after the foreclosure, whichever is
earlier.”
2. Equity of Redemption - This is the right of the
mortgagor to redeem the mortgaged property after
his default in the performance of the conditions of
the mortgage but before the sale of the property or
the confirmation of the sale after foreclosure thereof
(International Services, Inc. V. IAC, 142 SCRA 467
[1986]). This is the right of the defendant mortgagor
to extinguish the mortgage and retain ownership of
the property by paying the secured debt within a 90-
day period after the judgment becomes final or after
the foreclosure sale but prior to its confirmation
(GSIS v. CFI, 175 SCRA 19 [1989]).
NOTE: There is NO right of redemption from a judicial
foreclosure of mortgage, except foreclosure of
mortgage by banks or banking institutions (GSIS v. CFI,
175 SCRA 19 [1989]).

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 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Section 48. Renewal or Extension of Loans and
Other Credit Accommodations. - The Monetary
Board may, by regulation, prescribe the conditions
and limitations under which a bank may grant
extensions or renewals of its loans and other credit
accommodations.
Comment: Whatever contract a bank has and its
depositor, they cannot just freely enter into other terms
and conditions they want. It is subject to a regulation.
The bank will always refer it to the Manual of Regulations
for Financial Institutions. Di sila pwede magstipulate
lang ng kahit anong contract.
Section 49. Provisions for Losses and Write-Offs. -
All debts due to any bank on which interest is past
due and unpaid for such period as may be
determined by the Monetary Board, unless the same
are well-secured and in the process of collection shall
be considered bad debts within the meaning of this
Section. The Monetary Board may fix, by regulation or
by order in a specific case, the amount of reserves for
bad debts or doubtful accounts or other
contingencies. Writing off of loans, other credit
accommodations, advances and other assets shall be
subject to regulations issued by the Monetary Board.
Comment: Please take note na medyo strict sila in
providing for losses and write-offs because they
manage risks of not paying their depositor. So whatever
debts that are due to them that they cannot collect, iba-
balance na nila ‘yun unless it is well-secured for
collaterals. That is also the reason why the value of the
assets or the collateral assets is really higher than what
they could lend you to ensure that it is fully covered.
Section 50. Major Investments. - For the purpose or
enhancing bank supervision, the Monetary Board
shall establish criteria for reviewing major
acquisitions of investments by a bank including
corporate affiliations or structures that may expose
the bank to undue risks or in any way hinder effective
supervision.
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Comment: So again, a bank cannot just invest its excess
money anywhere. Kailangan icheck yan ng Monetary
Board (MB).
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.
Comment: So that is the reason why banks, if they keep
on foreclosing property, they have to sell it because
limited lang yung pwede nila hawakan from real estate.
The reason for that is that real estate is not really liquid.
If you are a bank, you are concerned about liquidity. If
you talk about liquidity, we are referring to how the
assets can be converted to cash to be used as a medium
for currency.
So imagine if ang laman lang ng asset ng isang bangko
puro lupa, pano na ngayon nila mababayaran ang
depositor if magwiwithdraw sa ATM? Lupa? Hindi diba?
Kung puro ka real estate, you will not be able to pay the
depositors if they pull out money especially if it’s a
demand deposit.
Please take note na pag sinasabi mong equity
investment, if a bank holds a share of an entity which is
primarily engaged in real estate, that asset or
investment is considered in determining the 50% limit.
GOVERNMENT OF THE PHILIPPINE ISLANDS v. EL
HOGAR FILIPINO
GR No. L-26649, July 13, 1927
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Facts: This is a quo warranto proceeding instituted
originally in this court by the Government of the
Philippine Islands on the relation of the Attorney-
General against the building and loan association
known as El Hogar Filipino, for the purpose of
depriving it of its corporate franchise, excluding it
from all corporate rights and privileges, and effecting
a final dissolution of said corporation.
Defendant El Hogar was organized in the year 1911
as a building and loan association under the laws of
the Philippine Islands, and that, since its organization,
the corporation has been doing business in the
Philippine Islands, with its principal office in the City
of Manila.
On March 1, 1906, the Philippine Commission
enacted what is known as the Corporation Law (Act
No. 1459) effective upon April 1 of the same year.
Section 171 to 190, inclusive, of this Act are devoted
to the subject of building and loan associations,
defining their objects making various provisions
governing their organization and administration, and
providing for the supervision to be exercised over
them. These provisions appear to be adopted from
American statutes governing building and loan
associations and they of course reflect the ideals and
principles found in American law relative to such
associations.
FIRST CAUSE OF ACTION: The first cause of
action is based upon the alleged illegal holding by
the respondent of the title to real property for a
period in excess of five years after the property had
been bought in by the respondent at one of its own
foreclosure sales. The provision of law relevant to
the matter is found in section 75 of Act of Congress
of July 1, 1902 (repeated in subsection 5 of section
13 of the Corporation Law.) In both of these
provisions it is in substance declared that while
corporations may loan funds upon real estate
security and purchase real estate when necessary
for the collection of loans, they shall dispose of real
estate so obtained within five years after receiving
the title.
Facts related to the first cause of action: In this
connection it appears that in the year 1920, El Hogar
Filipino was the holder of a recorded mortgage upon
a tract of land in the municipality of San Clemente,
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Province of Tarlac, as security for a loan of P24,000 to
the shareholders of El Hogar Filipino who were the
owners of said property. The borrowers having
defaulted in their payments, El Hogar Filipino
foreclosed the mortgage and purchased the land at
the foreclosure sale for the net amount of the
indebtedness. The auction sale of the mortgaged
property took place November 18, 1920, and the
deed conveying the property to El Hogar Filipino was
executed and delivered December 22, 1920. On
December 27, 1920, the deed conveying the
property to El Hogar Filipino was sent to the register
of deeds of the Province of Tarlac, with the request
that the certificate of title then standing in the name
of the former owners be cancelled and that a new
certificate of title be issued in the name of El Hogar
Filipino. Said deed was received in the office of the
register of deeds of Tarlac on December 28, 1920.
On May 7, 1921, the certificate of title to the San
Clemente land was received by El Hogar from the
register of deeds but the same land was only sold to
one Doña Felipa Alberto for 6,000 on July 30, 1926
after several failed attempts of trying to sell such
property through its agents.
Issue: Whether the failure of the respondent to get
rid of the San Clemente property within five years
after it first acquired the deed thereto violates the
law? -NO.
Defendant Violated Strict Letter of Law But It is
Excusable Because It Was Not Due To Its Fault. -
Upon consideration of the facts above set forth it is
evident that the strict letter of the law was violated by
the respondent; but it is equally obvious that its
conduct has not been characterized by obduracy or
pertinacity in contempt of the law. Moreover, several
facts connected with the incident tend to mitigate the
offense. The Attorney-General points out that the
respondent acquired title on December 22, 1920,
when the deed was executed and delivered, by which
the property was conveyed to it as purchaser at its
foreclosure sale, and this title remained in it until July
30, 1926, when the property was finally sold to Felipa
Alberto. The interval between these two conveyances
is thus more than five years; and it is contended that
the five year period did not begin to run against the
respondent until May 7, 1921, when the register of
deeds of Tarlac delivered the new certificate of title to
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
the respondent pursuant to the deed by which the
property was acquired. As an equitable consideration
affecting the case this contention, though not
decisive, is in our opinion more than respectable. It
has been held by this court that a purchaser of land
registered under the Torrens system cannot acquire
the status of an innocent purchaser for value unless
his vendor is able to place in his hands an owner's
duplicate showing the title of such land to be in the
vendor. It results that prior to May 7, 1921, El Hogar
Filipino was not really in a position to pass an
indefeasible title to any purchaser. In this connection
it will be noted that section 75 of the Act of Congress
of July 1, 1902, and the similar provision in section 13
of the Corporation Law, allow the corporation "five
years after receiving the title," within which to dispose
of the property. A fair interpretation of these
provisions would seem to indicate that the date of the
receiving of the title in this case was the date when
the respondent received the owner's certificate, or
May 7, 1921, for it was only after that date that the
respondent had an unequivocal and unquestionable
power to pass a complete title. The failure of the
respondent to receive the certificate sooner was not
due in any wise to its fault, but to unexplained delay
on the part of the register of deeds. For this delay the
respondent cannot be held accountable.
Again, it is urged for the respondent that the period
between March 25, 1926, and April 30, 1926, should
not be counted as part of the five-year period. This
was the period during which the respondent was
under obligation to sell the property to Alcantara,
prior to the rescission of the contract by reason of
Alcantara's failure to make the stipulated first
payment.
The respondent was not at all chargeable with the
collapse of the negotiations (sale of the property) and
hence in any equitable application of the law this
period should be deducted from the five-year period
within which the respondent ought to have made the
sale. Another circumstance explanatory of the
respondent's delay in selling the property is found in
the fact that it purchased the property for the full
amount of the indebtedness due to it from the former
owner, which was nearly P24,000. It was subsequently
found that the property was not salable for anything
like that amount and in the end it had to be sold for
P6,000, notwithstanding energetic efforts on the part
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of the respondent to find a purchaser upon better
terms.
The corporation has not been shown to have
offended against the law in a manner that should
entail a forfeiture of its charter. Certainly no court with
any discretion to use in the matter would visit upon
the respondent and its thousands of shareholders the
extreme penalty of the law as a consequence of the
delinquency here shown to have been committed.
El Hogar was In Good Faith. - In the case before us
the respondent corporation has in good faith
disposed of the piece of property which appears to
have been in its hands at the expiration of the period
fixed by law, and a fair explanation is given of its
failure to dispose of it sooner. Under these
circumstances the destruction of the corporation
would bring irreparable loss upon the thousand of
innocent shareholders of the corporation without any
corresponding benefit to the public.
SECOND CAUSE OF ACTION: The second cause
of action is based upon a charge that the
respondent is owning and holding a business lot,
with the structure thereon, in the financial district of
the City of Manila is excess of its reasonable
requirements and in contravention of subsection 5
of section 13 of the corporation Law.
Facts Related to Cause of Action: On August 28,
1913, the respondent purchased 1,413 square
meters of land at the corner of Juan Luna Street and
the Muelle de la Industria, in the City of Manila,
immediately adjacent to the building then occupied
by the Hongkong and Shanghai Banking
Corporation.
It is supposed that the acquisition of this lot, the
construction of the new office building thereon, and
the subsequent renting of the same in great part to
third persons, are ultra vires acts on the part of the
corporation, and that the proper penalty to be
enforced against it in this action is that if dissolution.
Issue: Was the Corporation Law violated? -NO.
Held: Under subsection 5 of section 13 of the
Corporation Law, every corporation has the power to
purchase, hold and lease such real property as the
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
transaction of the lawful business of the corporation
may reasonably and necessarily require. When this
property was acquired in 1916, the business of El
Hogar Filipino had developed to such an extent, and
its prospects for the future were such as to justify its
directors in acquiring a lot in the financial district of
the City of Manila and in constructing thereon a
suitable building as the site of its offices; and it cannot
be fairly said that the area of the lot — 1,413 square
meters — was in excess of its reasonable
requirements.
Law Expressly Declares That Corporations May
Acquire Real Estate Which is Reasonably
Necessary to Carry Out its Purpose. - The law
expressly declares that corporations may acquire
such real estate as is reasonably necessary to enable
them to carry out the purposes for which they were
created; and we are of the opinion that the owning of
a business lot upon which to construct and maintain
its offices is reasonably necessary to a building and
loan association such as the respondent was at the
time this property was acquired. A different ruling on
this point would compel important enterprises to
conduct their business exclusively in leased offices —
a result which could serve no useful end but would
retard industrial growth and be inimical to the best
interests of society.
Lot Lawfully Acquired by El Hogar. -We are
furthermore of the opinion that, inasmuch as the lot
referred to was lawfully acquired by the respondent,
it is entitled to the full beneficial use thereof. No
legitimate principle can discovered which would
deny to one owner the right to enjoy his (or its)
property to the same extent that is conceded to any
other owner; and an intention to discriminate
between owners in this respect is not lightly to be
imputed to the Legislature.
The point here involved has been the subject of
consideration in many decisions of American courts
under statutes even more restrictive than that which
prevails in this jurisdiction; and the conclusion has
uniformly been that a corporations whose business
may properly be conducted in a populous center may
acquire an appropriate lot and construct thereon an
edifice with facilities in excess of its own immediate
requirements.
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Brown vs. Schleier may be cited as being in harmony
with the foregoing authorities. In dealing with the
powers of a national bank the court, in this case, said:
When an occasion arises for an investment in real
property for either of the purposes specified in the
statute the national bank act permits banking
associations to act as any prudent person would act
in making an investment in real estate, and to
exercise the same measure of judgment and
discretion. The act ought not to be construed in
such as way as to compel a national bank, when it
acquires real property for a legitimate purpose, to
deal with it otherwise than a prudent land owner
would ordinarily deal with such property.
Sir’s side comment when he got distracted by the
poster (just in case relevant): Corporations can donate.
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.
Comment: So that is why pag may nagfoforeclose na
bangko, it is really part of a public sale. Now if you are
keen on buying property at a lower cost, you should
look out for yung mga finoforeclose ng mga bangko.
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Chances are, they will be obliged to really sell it. Kung
walang buyer, you can buy it at a bargain.
Sec. 53. Other Banking Services. – In addition to
the operations specifically authorized in this Act, a
bank may perform the following services:
53.1. Receive in custody funds, documents and
valuable objects;
53.2. Act as financial agent and buy and sell, by
order of and for the account of their customers,
shares, evidences of indebtedness and all types of
securities;
53.3. Make collections and payments for the
account of others and perform such other services
for their customers as are not incompatible with
banking business;
53.4 Upon prior approval of the Monetary Board,
act as managing agent, adviser, consultant or
administrator of investment
management/advisory/consultancy accounts; and
53.5. Rent out safety deposit boxes.
The bank shall perform the services permitted
under Subsections 53.1., 53.2., 53.3. and 53.4. as
depositary or as an agent. Accordingly, it shall
keep the funds, securities and other effects which it
receives duly separate from the bank's own assets
and liabilities:
The Monetary Board may regulate the operations
authorized by this Section in order to ensure that such
operations do not endanger the interests of the
depositors and other creditors of the bank.
In case a bank or quasi-bank notifies the Bangko
Sentral or publicly announces a bank holiday, or in
any manner suspends the payment of its deposit
liabilities continuously for more than thirty (30) days,
the Monetary Board may summarily and without need
for prior hearing close such banking institution and
place it under receivership of the Philippine Deposit
Insurance Corporation.
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Comment: That is why may mga vault. If you have land
titles na takot kang manakaw sa bahay mo or diamonds
pwede mong ilagay sa bangko.
IN RE LIQUIDATION OF MERCANTILE BANK OF
CHINA, TAN TIONG TICK v. APOTHECARIES
GR L-42682, March 31, 1938
DOCTRINE: Current account and savings deposits
are not preferred credits in the cases, like the
present, involving the insolvency and liquidation of
a bank, where there are various creditors and it
becomes necessary to ascertain the preference of
various credits. These deposits are essentially
mercantile contracts and should, therefore, be
governed by the provisions of the Code of
Commerce, pursuant to its article
Facts: In the proceedings for the liquidation of the
Mercantile Bank of China, the appellant presented a
written claim alleging: that when this bank ceased to
operate on September 19, 1931, his current account
in said bank showed a balance of P9,657.50 in his
favor; that on the same date his savings account in the
said bank also showed a balance in his favor of
P20,000 plus interest then due amounting to
P194.78; that on the other hand, he owed the bank in
the amount of P13,262.58, the amount of the trust
receipts which he signed because of his withdrawal
from the bank of certain merchandise consigned to
him without paying the drafts drawn upon him by the
remittors thereof; that the credits thus described
should be set off against each other according to law,
and on such set off being made it appeared that he
was still the creditor of the bank in the sum of
P16,589.70. And he asked that the court order the
Bank Commissioner to pay him the aforesaid balance
and that the same be declared as preferred credit.
The claim was referred to the commissioner
appointed by the court, who at the same time acted
as referee, and this officer recommended that the
balance claimed be paid without interest and as an
ordinary credit. The court approved the
recommendation and entered judgment in the
accordance therewith. The claimant took an appeal.
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Issue: Whether or not the current account and
savings deposits are preferred credits in cases
involving insolvency and liquidation of the bank.
Held: The Court is of the opinion that current account
and savings deposits are not preferred credits in the
cases, like the present, involving the insolvency and
liquidation of a bank, where there are various
creditors and it becomes necessary to ascertain the
preference of various credits.
The Supreme Court ruled that, these deposits are
essentially mercantile contracts and should,
therefore, be governed by the provisions of the Code
of Commerce.
ART. 303. In order that a deposit may be
considered commercial, it is necessary —
1. That the depositary, at least, be a merchant.
2. That the things deposited be commercial
objects.
3. That the deposit constitute in itself a commercial
transaction, or be made by reason or as a
consequence of commercial transactions.
ART. 309. Whenever, with the consent of the
depositor, the depositary disposes of the articles
on deposit either for himself or for his business, or
for transactions intrusted to him by the former, the
rights and obligations of the depositary and of the
depositor shall cease, and the rules and provisions
applicable to the commercial loans, commission,
or contract which took the place of the deposit shall
be observed.
Current Account and Savings Deposits Have Lost
the Character of Deposits; Converted to Simple
Commercial Loans. - In accordance with article 309,
the so-called current account and savings deposits
have lost the character of deposits properly so-called,
and are converted into simple commercial loans,
because the bank disposed of the funds deposited by
the claimant for its ordinary transactions and for the
banking business in which it was engaged. That the
bank had the authority of the claimant to make use of
the money deposited on current and savings
accounts is deducible from the fact that the bank has
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been paying interest on both deposits, and the
claimant himself asks that he be allowed interest up
to the time when the bank ceased its operations.
Moreover, according to sections 126 of the
Corporation Law and 9 of Act No. 3154, said bank is
authorized to make use of the current account,
savings, and fixed deposits provided it retains in its
treasury a certain percentage of the amounts of said
deposits.
Q: Why is there an importance to determine if it is
preferred or nominal?
A: It is important because the bank is under insolvency
proceedings.
REVIEW:
When Rule of Preference Applicable
⚫ Apply only where two or more creditors have
separate and distinct claims against the same
debtor who has an insufficient property.
⚫ Is applicable when the debtor is insolvent-having
more liabilities than his assets
⚫ It is a matter of necessity and the question of
preference should arise only when the debtor’s
assets are insufficient to pay his debts in full.
FEB 12, Part 2: BAJAO
SESBRENO VS. COURT OF APPEALS
G.R. No. 89252 (May 24, 1993)
Digested by: April Sillada
Facts: On 9 February 1981, petitioner Raul Sesbreño
made a money market placement in the amount of
P300,000.00 with Philfinance. The placement, with a
term of thirty-two (32) days, would mature on 13
March 1981. (Note: As defined by Lawrence Smith
"the money market is a market dealing in
standardized short-term credit instruments (involving
large amounts) where lenders and borrowers do not
deal directly with each other but through a middle
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
manor a dealer in the open market." It involves
"commercial papers" which are instruments
"evidencing indebtness of any person or entity which
are issued, endorsed, sold or transferred or in any
manner conveyed to another person or entity, with or
without recourse". The fundamental function of the
money market device in its operation is to match and
bring together in a most impersonal manner both the
"fund users" and the "fund suppliers." The money
market is an "impersonal market", free from personal
considerations. "The market mechanism is intended
to provide quick mobility of money and securities.")
Philfinance issued the following documents to
petitioner:
(a) the Certificate of Confirmation of Sale of one Delta
Motors Corporation Promissory Note ("DMC PN") No.
2731 for a term of 32 days at 17.0% per annum;
(b) the Certificate of securities Delivery Receipt No.
16587 indicating the sale of DMC PN No. 2731 to
petitioner, with the notation that the said security was
in custodianship of Pilipinas Bank, as per
Denominated Custodian Receipt ("DCR") No. 10805;
and
(c) post-dated checks payable on 13 March 1981 in
the total amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the
postdated checks issued by Philfinance. However, the
checks were dishonored for having been drawn
against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner
the DCR No. 10805 issued by private respondent
Pilipinas Bank ("Pilipinas").
Petitioner approached Ms. Elizabeth de Villa of
Pilipinas, and handed her a demand letter informing
the bank that his placement with Philfinance in the
amount reflected in the DCR No. 10805 had
remained unpaid and outstanding, and that he in
effect was asking for the physical delivery of the
underlying promissory note.
Pilipinas allegedly referred all of petitioner's demand
letters to Philfinance for written instructions, as has
been supposedly agreed upon in "Securities
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Custodianship Agreement" between Pilipinas and
Philfinance. Philfinance did not provide the
appropriate instructions; Pilipinas never released
DMC PN No. 2731, nor any other instrument in
respect thereof, to petitioner.
Issue: Whether or not Pilipinas had breached its
undertaking under the DCR to petitioner Sesbreño
Ruling: Yes. We believe and so hold that a contract
of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary
bank. The depositor was initially Philfinance; the
obligation of the depository was owed, however, to
petitioner Sesbreño as beneficiary of the
custodianship or depository agreement. We do not
consider that this is a simple case of a stipulation pour
autri. The custodianship or depositary agreement
was established as an integral part of the money
market transaction entered into by petitioner with
Philfinance. Petitioner bought a portion of DMC PN
No. 2731; Philfinance as assignor-vendor deposited
that Note with Pilipinas in order that the thing sold
would be placed outside the control of the vendor.
In the case at bar, the custodian-depositary bank
Pilipinas refused to deliver the security deposited
with it when petitioner first demanded physical
delivery thereof on 2 April 1981. We must
again note, in this connection, that on 2 April 1981,
DMC PN No. 2731 had not yet matured and
therefore, compensation or offsetting against
Philfinance PN No. 143-A had not yet taken
place. Instead of complying with the demand of the
petitioner, Pilipinas purported to require and await
the instructions of Philfinance, in obvious
contravention of its undertaking under the DCR to
effect physical delivery of the Note upon receipt of
"written instructions" from petitioner Sesbreño. The
ostensible term written into the DCR (i.e., "should
this [DCR] remain outstanding in your favor thirty
[30] days after its maturity") was not a defense
against petitioner's demand for physical surrender
of the Note on at least three grounds: firstly, such
term was never brought to the attention of petitioner
Sesbreño at the time the money market placement
with Philfinance was made; secondly, such term runs
counter to the very purpose of the custodianship or
depositary agreement as an integral part of a money
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
market transaction; and thirdly, it is inconsistent with
the provisions of Article 1988 of the Civil Code.
Indeed, in principle, petitioner became entitled to
demand physical delivery of the Note held by
Pilipinas as soon as petitioner's money market
placement matured on 13 March 1981 without
payment from Philfinance.
We conclude, therefore, that private respondent
Pilipinas must respond to petitioner for damages
sustained by arising out of its breach of duty. By
failing to deliver the Note to the petitioner as
depositor-beneficiary of the thing deposited,
Pilipinas effectively and unlawfully deprived
petitioner of the Note deposited with it. Whether or
not Pilipinas itself benefitted from such conversion
or unlawful deprivation inflicted upon petitioner, is
of no moment for present purposes. Prima facie, the
damages suffered by petitioner consisted of
P304,533.33, the portion of the DMC PN No. 2731
assigned to petitioner but lost by him by reason of
discharge of the Note by compensation, plus legal
interest of six percent (6%) per annum containing
from 14 March 1981.
The conclusion we have reached is, of course,
without prejudice to such right of reimbursement as
Pilipinas may have vis-à-vis Philfinance.
Sir did not Comment on the case nor ask Questions.
PHILIPPINE COMMERCIAL INTERNATIONAL
BANK (formerly INSULAR BANK OF ASIA AND
AMERICA) vs. COURT OF APPEALS and FORD
PHILIPPINES, INC. and CITIBANK, N.A.
Digested by: Edsam Andit
FACTS
This case is composed of three consolidated
petitions involving several checks, payable to the
Bureau of Internal Revenue, but was embezzled
allegedly by an organized syndicate.
I. G. R. Nos. 121413 and 121479
On October 19, 1977, plaintiff Ford issued a Citibank
check amounting to P4,746,114.41 in favor of the
Commissioner of Internal Revenue for the payment of
manufacturer’s taxes. The check was deposited with
defendant IBAA (now PCIB), subsequently cleared
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the Central Bank, and paid by Citibank to IBAA. The
proceeds never reached BIR, so plaintiff was
compelled to make a second payment. Defendant
refused to reimburse plaintiff, and so the latter filed a
complaint. An investigation revealed that the check
was recalled by Godofredo Rivera, the general ledger
accountant of Ford, and was replaced by a manager’s
check. Alleged members of a syndicate deposited
the two manager’s checks with Pacific Banking
Corporation. Ford filed a third-party complaint
against Rivera and PBC. The case against PBC was
dismissed. The case against Rivera was likewise
dismissed because summons could not be served.
The trial court held Citibank and PCIB jointly and
severally liable to Ford, but the Court of Appeals only
held PCIB liable.
II. G. R. No. 128604
Ford drew two checks in favor of the Commissioner
of Internal Revenue, amounting to P5,851,706.37 and
P6,311,591.73. Both are crossed checks payable to
payee’s account only. The checks never reached BIR,
so plaintiff was compelled to make second payments.
Plaintiff instituted an action for recovery against PCIB
and Citibank. On investigation of NBI, the modus
operandi was discovered. Gorofredo Rivera made the
checks but instead of delivering them to BIR, passed
it to Castro, who was the manager of PCIB San
Andres. Castro opened a checking account in the
name of a fictitious person “Reynaldo Reyes”. Castro
deposited a worthless Bank of America check with the
same amount as that issued by Ford. While being
routed to the Central Bank for clearing, the worthless
check was replaced by the genuine one from Ford.
The trial court absolved PCIB and held Citibank liable,
which decision was affirmed in toto by the Court of
Appeals.
ISSUES
(1) Whether there is contributory negligence on the
part of Ford
(2) Has petitioner Ford the right to recover from the
collecting bank (PCIBank) and the drawee bank
(Citibank) the value of the checks intended as
payment to the Commissioner of Internal Revenue?
RULING
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
(1) The general rule is that if the master is injured by
the negligence of a third person and by the
concurring contributory negligence of his own
servant or agent, the latter's negligence is imputed to
his superior and will defeat the superior's action
against the third person, assuming, of course that the
contributory negligence was the proximate cause of
the injury of which complaint is made. As defined,
proximate cause is that which, in the natural and
continuous sequence, unbroken by any efficient,
intervening cause produces the injury and without the
result would not have occurred. It appears that
although the employees of Ford initiated the
transactions attributable to an organized syndicate, in
our view, their actions were not the proximate cause
of encashing the checks payable to the CIR. The
degree of Ford's negligence, if any, could not be
characterized as the proximate cause of the injury to
the parties. The mere fact that the forgery was
committed by a drawer-payor's confidential
employee or agent, who by virtue of his position had
unusual facilities for perpetrating the fraud and
imposing the forged paper upon the bank, does not
entitle the bank to shift the loss to the drawer-payor,
in the absence of some circumstance raising estoppel
against the drawer. This rule likewise applies to the
checks fraudulently negotiated or diverted by the
confidential employees who hold them in their
possession.
(2) We have to scrutinize, separately, PCIBank's share
of negligence when the syndicate achieved its
ultimate agenda of stealing the proceeds of these
checks.
a. G. R. Nos. 121413 and 121479
On record, PCIBank failed to verify the authority of Mr.
Rivera to negotiate the checks. The neglect of
PCIBank employees to verify whether his letter
requesting for the replacement of the Citibank Check
No. SN-04867 was duly authorized, showed lack of
care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is
authorized to collect the payment of taxpayers in
behalf of the BIR. As an agent of BIR, PCI Bank is duty
bound to consult its principal regarding the
unwarranted instructions given by the payor or its
agent. It is a well-settled rule that the relationship
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between the payee or holder of commercial paper
and the bank to which it is sent for collection is, in the
absence of an agreement to the contrary, that of
principal and agent. A bank which receives such
paper for collection is the agent of the payee or
holder.
Indeed, the crossing of the check with the phrase
"Payee's Account Only," is a warning that the check
should be deposited only in the account of the CIR.
Thus, it is the duty of the collecting bank PCI Bank to
ascertain that the check be deposited in payee's
account only. Therefore, it is the collecting bank
(PCIBank) which is bound to scrutinize the check and
to know its depositors before it could make the
clearing indorsement "all prior indorsements and/or
lack of indorsement guaranteed".
Lastly, banking business requires that the one who
first cashes and negotiates the check must take some
precautions to learn whether it is genuine. And if the
one cashing the check through indifference or other
circumstance assists the forger in committing the
fraud, he should not be permitted to retain the
proceeds of the check from the drawee whose sole
fault was that it did not discover the forgery or the
defect in the title of the person negotiating the
instrument before paying the check. For this reason,
a bank which cashes a check drawn upon another
bank, without requiring proof as to the identity of
persons presenting it, or making inquiries with regard
to them, cannot hold the proceeds against the
drawee when the proceeds of the checks were
afterwards diverted to the hands of a third party. In
such cases the drawee bank has a right to believe that
the cashing bank (or the collecting bank) had, by the
usual proper investigation satisfied itself of the
authenticity of the negotiation of the checks. Thus,
one who enchased a check which had been forged or
diverted and in turn received payment thereon from
the drawee, is guilty of negligence which proximately
contributed to the success of the fraud practiced on
the drawee bank. The latter may recover from the
holder the money paid on the
check.
b. G. R. No. 128604
In this case, there was no evidence presented
confirming the conscious participation of PCIBank in
the embezzlement. As a general rule, however, a
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
banking corporation is liable for the wrongful or
tortuous acts and declarations of its officers or agents
within the course and scope of their employment. A
bank will be held liable for the negligence of its
officers or agents when acting within the course and
scope of their employment. It may be liable for the
tortuous acts of its officers even as regards that
species of tort of which malice is an essential element.
In this case, we find a situation where the PCIBank
appears also to be the victim of the scheme hatched
by a syndicate in which its own management
employees had participated. But in this case,
responsibility for negligence does not lie on PCI
Bank's shoulders alone.
Citibank failed to notice and verify the absence of the
clearing stamps. For this reason, Citibank had indeed
failed to perform what was incumbent upon it, which
is to ensure that the amount of the checks should be
paid only to its designated payee. The point is that as
a business affected with public interest and because
of the nature of its functions, 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. Thus, invoking the
doctrine of comparative negligence, we are of the
view that both PCI Bank and Citibank failed in their
respective obligations and both were negligent in the
selection and supervision of their employees
resulting in the encashment of Citibank Check Nos.
SN 10597 AND 16508. Thus, we are constrained to
hold them equally liable for the loss of the proceeds
of said checks issued by Ford in favor of the CIR.
Sir did not Comment on the case nor ask Questions.
CA AGRO-INDUSTRIAL DEV’T CORP v CA and
SECURITY BANK AND TRUST COMPANY
GR 90027, (March 3, 1993)
Digested by: Gillian Grancho
Facts:
CA Agro and Spouses Pugao entered into an
agreement to purchase the latter’s land. Among the
terms and conditions of the agreement were that:
the titles to the lots shall be transferred to the
petitioner upon full payment of the purchase price
and that the owner's copies of the CTCs and TCTs
shall be deposited in a safety deposit box of any
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bank. The same could be withdrawn only upon the
joint signatures of a representative of the petitioner
and the Pugaos upon full payment of the purchase
price.
Both parties then rented Safety Deposit Box No.
1448 of private respondent Security Bank and Trust
Company and signed a contract of lease which
contains, inter alia, the following conditions:
13. The bank is not a depositary of the contents of
the safe and it has neither the possession nor control
of the same.
14. The bank has no interest whatsoever in said
contents, except herein expressly provided, and it
assumes absolutely no liability in connection
therewith.
After the execution of the contract, two (2) renter's
keys were given to the renters while a guard key
remained in the possession of the respondent Bank.
The safety deposit box has two (2) keyholes, one for
the guard key and the other for the renter's key, and
can be opened only with the use of both keys.
When both parties went to open the box (a certain
Ramos offered to buy the properties), the box yield
no such certificates. CA Agro allegedly failed to
realize profits hence filed a complaint for damages
against Security Bank.
Bank’s contention: CA Agro has no cause of action
because of paragraphs 13 and 14 of the contract of
lease. RTC ruled in favor of the Bank, ruling that
provisions in the contract bind the parties. CA
affirmed ruling that their contract is in the nature of a
lease and the Bank had neither the possession and
control over it and its contents.
CA Agro’s contentions: the Bank is liable for the
loss of the certificates because the contract for the
rent of the safety deposit box is actually a contract of
deposit - that conditions 13 and 14 of the
questioned contract are contrary to law and public
policy and should be declared null and void.
Issues:
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
1. Is the contractual relation between a commercial
bank and another party in a contract of rent of a
safety deposit box with respect to its contents
placed by the latter one of bailor and bailee or one
of lessor and lessee? (Neither. It is a special kind of
deposit)
2. Are conditions 13 and 14 in the contract are void
for being contrary to law and public policy (Yes)
Ruling:
(As to the first issue) the SC held that the contract in
the case at bar is a special kind of deposit. It cannot
be characterized as an ordinary contract of lease
under
Article 1643 because the full and absolute
possession and control of the safety deposit box was
not given to the joint renters — the petitioner and the
Pugaos. The guard key of the box remained with the
respondent Bank; without this key, neither of the
renters could open the box. On the other hand, the
respondent Bank could not likewise open the box
without the renter's key. In this case, the said key had
a duplicate which was made so that both renters
could have access to the box.
Prevailing rule in American jurisprudence: the
relation between a bank renting out safe-deposit
boxes and its customer with respect to the contents
of the box is that of a bail or and bailee, the bailment
being for hire and mutual benefit. The relation
between a bank, safe-deposit company, or storage
company, and the renter of a safe-deposit box
therein, is often described as contractual, express or
implied, oral or written, in whole or in part. But there
is apparently no jurisdiction in which any rule other
than that applicable to bailments governs questions
of the liability and rights of the parties in respect of
loss of the contents of safe-deposit boxes.
In the context of our laws which authorize banking
institutions to rent out safety deposit boxes, it is clear
that in this jurisdiction, the prevailing rule in the
United States has been adopted. Section 72 of the
General Banking Act pertinently provides:
Sec. 72. In addition to the operations specifically
authorized elsewhere in this Act, banking institutions
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other than building and loan associations may
perform the following services:
(a) Receive in custody funds, documents, and
valuable objects, and rent safety deposit boxes for th
safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted
under subsections (a), (b) and (c) of this section as
depositories or as agents.
Note that the primary function is still found within the
parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other
valuable objects for safekeeping. The renting out of
the safety deposit boxes is not independent from,
but related to or in conjunction with, this principal
function.
(As to the second issue) Conditions 13 and 14 are
void as they are contrary to law and public policy.
Said provisions are inconsistent with the respondent
Bank's responsibility as a depositary under Section
72(a) of the General Banking Act. Both exempt the
latter from any liability except as contemplated in
condition 8 thereof which limits its duty to exercise
reasonable diligence only with respect to who shall
be admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no
unauthorized person shall be admitted to any
rented, safe and beyond this, the Bank will not be
responsible for the contents of any safe rented from
it.
Furthermore, condition 13 stands on a wrong
premise and is contrary to the actual practice of the
Bank. It is not correct to assert that the Bank has
neither the possession nor control of the contents of
the box since in fact, the safety deposit box itself is
located in its premises and is under its absolute
control; moreover, the respondent Bank keeps the
guard key to the said box. As stated earlier, renters
cannot open their respective boxes unless the Bank
cooperates by presenting and using this guard key.
Clearly then, to the extent above stated, the
foregoing conditions in the contract in question are
void and ineffective. It has been said:
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
xxx The company, in renting safe-deposit boxes,
cannot exempt itself from liability for loss of the
contents by its own fraud or negligence or that of its Prohibited transactions. VERY IMPORTANT.
agents or servants, and if a provision of the contract
SECTION 55. Prohibited Transactions. —
may be construed as an attempt to do so, it will be
held ineffective for the purpose. Although it has
55.1. No director, officer, employee, or agent of any
been held that the lessor of a safe-deposit box
bank shall —
cannot limit its liability for loss of the contents
thereof through its own negligence, the view has
(a) Make false entries in any bank report or
been taken that such a lessor may limits its liability to
statement or participate in any fraudulent
some extent by agreement or stipulation.
transaction, thereby affecting the financial interest
of, or causing damage to, the bank or any person;
Conclusion: Petition is dismissed based on the fact
that no competent proof was presented to show that
(b) Without order of a court of competent
respondent Bank was aware of the agreement
jurisdiction, disclose to any unauthorized person
between the petitioner and the Pugaos to the effect
any information relative to the funds or properties
that the certificates of title were withdrawable from
in the custody of the bank belonging to private
the safety deposit box only upon both parties' joint
individuals, corporations, or any other entity:
signatures, and that no evidence was submitted to
Provided, That with respect to bank deposits, the
reveal that the loss of the certificates of title was due
provisions of existing laws shall prevail;
to the fraud or negligence of the respondent Bank.
(c) Accept gifts, fees or commissions or any other
form of remuneration in connection with the
Q: What’s the relationship of the bank with the depositor
approval of a loan or other credit accommodation
in a security deposit box?
from said bank;
A: Bailee and Bailor
(d) Overvalue or aid in overvaluing any security for
the purpose of influencing in any way the actions
Comment: Sir emphasized that it’s a Special kind of
of the bank or any bank; or
Deposit. It cannot be characterized as an Ordinary
Contract of Lease.
(e) Outsource inherent banking functions.

FEB 12, Part 3: MANLIGOY 55.2. No borrower of a bank shall —

Very important. (a) Fraudulently overvalue property offered as

security for a loan or other credit
Section 54. A bank shall not directly engage in
accommodation from the bank;
insurance business as the insurer.
(b) Furnish false or make misrepresentation or
This is the reason why a bank cannot sell insurance suppression of material facts for the purpose of
obtaining, renewing, or increasing a loan or
policies and the reason for this is that, an insurance
other credit accommodation or extending the
company mitigates a different kind of risk. The risk on
period thereof;
banks is the defaulting borrowers and they cannot pay
the depositors. When you talk about insurance (c) Attempt to defraud the said bank in the event
company, the risk is the death or the triggering factor of a court action to recover a loan or other credit
that would make the insurance pay the customer. They accommodation; or
have different aims that’s why banks cannot sell
insurance policy. (d) Offer any director, officer, employee or agent
of a bank any gift, fee, commission, or any other
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 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
form of compensation in order to influence such
persons into approving a loan or other credit
accommodation application.
55.3. No examiner, officer or employee of the Bangko
Sentral or of any department, bureau, office, branch
or agency of the Government that is assigned to
supervise, examine, assist or render technical
assistance to any bank shall commit any of the acts
enumerated in this Section or aid in the commission
of the same. (87-Aa)
The making of false reports or misrepresentation or
suppression of material facts by personnel of the
Bangko Sentral ng Pilipinas shall constitute fraud and
shall be subject to the administrative and criminal
sanctions provided under the New Central Bank Act.
55.4. Consistent with the provisions of Republic Act
No. 1405, otherwise known as the Banks Secrecy Law,
no bank shall employ casual or nonregular personnel
or too lengthy probationary personnel in the conduct
of its business involving bank deposits.
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;
This is self-explanatory.
(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;
This is in relation to the Bank Secrecy Act. If you
are a teller and you have access to information
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of a certain customer, you cannot just divulge
that to any other customer or person.
The court order there is an exception to the Bank
Secrecy Law. It is one of the exceptions.
(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;
This is self-explanatory.
(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
Just like when you mortgage your property for a
loan, there’s a limit in the valuation of the
property. When you overvalue your property to
get a higher loan is not allowed.
(e) Offer any director, officer, employee or agent
of a bank any gift, fee, commission, or any
other form of compensation in order to
influence such persons into approving a loan
or other credit accommodation application.
(f) Outsource inherent banking functions.
They cannot employ an agency to do inherent
banking functions. There is in Circular 765 dated
August 3, 2012 which was amended by Circular
998 on January 18, 2016, … proliferation of
agencies and labor contracting businesses, the
Monetary Board issued a Statement of Principle
on Outsourcing.
Can they outsource tellers? Can they outsource
people who will review the loan? Can they
outsource the accounting? Can they outsource
the guards in the bank’s premises? What are
those things that they can outsource?
The bank can outsource to 3rd parties or to
related companies in the group in accordance to
the existing banking regulations, certain
services or activities to have access to certain
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
areas of expertise or to address resource A-Assets
constraints, provided that it has in place the
M-Management Capability
appropriate processes, procedures and
information systems that can adequately E-Earnings
identify, monitor and mitigate operational risk
arising from the outsourcing activities; provided L-Liquidity
further that the banks BOD and senior
S-Sensitivity
management shall remain responsible for
ensuring that the outsource activities are
conducted in a safe and sound manner in
compliance with the applicable laws and Those banks with a CAMEL rating of at least 3
regulations. and management rating of not lower than 3 can
outsource without acquiring prior approval from
Prohibition against outsourcing of inherent the Monetary Board.
banking functions in relation to (e):

1. Taking of deposits from the public 55.2. No borrower of a bank shall —

2. Granting of loans and extension of other
credits exposures
3. Managing of risk exposures and
4. general management
The above cannot be outsourced for any
reason. All the things outside the above can be
outsourced provided that there is security or
protection in place.
Only those banks with a CAMELS of 3 shall be
allowed to outsource designated activities
without prior approval. Otherwise, the bank
must secure prior approval from the appropriate
department of the SEC and the validation will be
based on the bank’s ability to manage risk
attendant to outsourcing.
What are the banks that do not need to secure a
prior approval from the Monetary Board? Yan
yung may CAMELS. What is CAMEL? It is an
international standard setting which is like ISO
when it comes to internal control.
C-Capital Adequacy
(a) Fraudulently overvalue property offered as
security for a loan or other credit
accommodation from the bank;
(b) Furnish false or make misrepresentation or
suppression of material facts for the
purpose of obtaining, renewing, or
increasing a loan or other credit
accommodation or extending the period
thereof;
(c) Attempt to defraud the said bank in the
event of a court action to recover a loan or
other credit accommodation; or
(d) Offer any director, officer, employee or
agent of a bank any gift, fee, commission, or
any other form of compensation in order to
influence such persons into approving a
loan or other credit accommodation
application.
There will be two violators. The one who
received and gave the loan/credit
accommodation.

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 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
55.3. No examiner, officer or employee of the Bangko
Sentral or of any department, bureau, office, branch
or agency of the Government that is assigned to
supervise, examine, assist or render technical
assistance to any bank shall commit any of the acts
enumerated in this Section or aid in the commission
of the same. (87-Aa).
The making of false reports or misrepresentation or
suppression of material facts by personnel of the
Bangko Sentral ng Pilipinas shall constitute fraud and
shall be subject to the administrative and criminal
sanctions provided under the New Central Bank Act.
55.4. Consistent with the provisions of Republic Act
No. 1405, otherwise known as the Banks Secrecy Law,
no bank shall employ casual or nonregular personnel
or too lengthy probationary personnel in the conduct
of its business involving bank deposits.
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
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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.
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).
Again, it’s only in the General Banking Law that there is
a description or hindi naman exclusive enumeration of
what constitutes a safe and sound banking practice.
Under the General Banking Law, the following are
considered as safe and sound banking practice.
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;
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;
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
4. The act or omission involves entering into any
contract or transaction manifestly and grossly
disadvantageous to the bank, quasi-bank or
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
trust entity, whether or not the director or officer
profited or will profit thereby.
Can the bank declare dividends?
Sec 57 of General Banking Act
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:
57.1 Its clearing account with the Bangko Sentral is
overdrawn; or
57.2 It is deficient in the required liquidity floor for
government deposits for five (5) or more consecutive
days; or
57.3 It does not comply with the liquidity
standards/ratios prescribed by the Bangko Sentral for
purposes of determining funds available for dividend
declaration; or
57.4 It has committed a major violation as may be
There is an independent auditor appointed by the
determined by the Bangko Sentral. (84a)
bank’s stockholder who is approved by the Monetary
Board.
What is dividend declaration? Remember that a bank is
a corporation. It has stockholders. When you talk about
dividend declaration, its actually a way of giving to the
stockholders a share of the retained earnings. For a
bank, you cannot just declare or give the shareholders a
share of the retained profits under the particular
circumstances are present to ensure the commitment of
the bank to the public is secured before giving it out to
the stockholders.
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SECTION 58. Independent Auditor. —
The Monetary Board may require a bank, quasi-bank
or trust entity to engage the services of an
independent auditor to be chosen by the bank, quasi-
bank or trust entity concerned from a list of certified
public accountants acceptable to the Monetary
Board.
The term of the engagement shall be as prescribed
by the Monetary Board which may either be on a
continuing basis where the auditor shall act as
resident examiner, or on the basis of special
engagements, but in any case, the independent
auditor shall be responsible to the bank's, quasi-
bank's or trust entity's board of directors.
A copy of the report shall be furnished to the
Monetary Board. The Monetary Board may also direct
the board of directors of a bank, quasi-bank, trusty
entity and/or the individual members thereof, to
conduct, either personally or by a committee created
by the board, an annual balance sheet audit of the
bank, quasi-bank or trust entity to review the internal
audit and control system of the bank, quasi-bank or
trust entity and to submit a report of such audit. (6-Da)
SECTION 59. Authority to Regulate Electronic
Transactions. —
The Bangko Sentral shall have full authority to
regulate the use of electronic devices, such as
computers, and processes for recording, storing and
transmitting information or data in connection with
the operations of a bank, quasibank or trust entity,
including the delivery of services and products to
customers by such entity. (n)
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
If you try to set up a bank, even a rural bank, or even for
a lesser classification, you are required to submit not
only the physical asset but you are also required to have
a data asset management system, an electronic one. It’s
not easy to set up a bank and you have to consider your
information management system.
SECTION 60. Financial Statements. —
Every bank, quasi-bank or trust entity shall submit to
the appropriate supervising and examining
department of the Bangko Sentral financial
statements in such form and frequency as may be
prescribed by the Bangko Sentral. Such statements,
which shall be as of a specific date designated by the
Bangko Sentral, shall show the actual financial
condition of the institution submitting the statement,
and of its branches, offices, subsidiaries and affiliates,
including the results of its operations, and shall
contain such information as may be required in
Bangko Sentral regulations. (n)
SECTION 61. Publication of Financial Statements.
— prominence, the amount of its capital actually paid
Every bank, quasi-bank or trust entity, shall publish a
statement of its financial condition, including those of
its subsidiaries and affiliates, in such terms
understandable to the layman and in such frequency
as may be prescribed by the Bangko Sentral, in
English or Filipino, at least once every quarter in a
newspaper of general circulation in the city or
province where the principal office, in the case of a
domestic institution, or the principal branch or office
in the case of a foreign bank, is located, but if no
newspaper is published in the same province, then in
a
newspaper published in Metro Manila or in the
nearest city or province.
The Bangko Sentral may by regulation prescribe the
newspaper where the statements prescribed herein
shall be published.
The Monetary Board may allow the posting of the
financial statements of a bank, quasi-bank or trust
entity in public places it may determine, in lieu of the
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publication required in the preceding paragraph,
when warranted by the circumstances.
Additionally, banks shall make available to the public
in such form and manner as the Bangko Sentral may
prescribe the complete set of its audited financial
statements as well as such other relevant information
including those on enterprises majority-owned or
controlled by the bank, that will inform the public of
the true financial condition of a bank as of any given
time.
In periods of national and/or local emergency or of
imminent panic which directly threaten monetary and
banking stability, the Monetary Board, by a vote of at
least five (5) of its members, in special cases and upon
application of the bank, quasi-bank or trust entity,
may allow such bank, quasibank or trust entity to
defer for a stated period of time the publication of the
statement of financial condition required herein. (n)
SECTION 62. Publication of Capital Stock. —
A bank, quasi-bank or trust entity incorporated under
the laws of the Philippines shall not publish the
amount of its authorized or subscribed capital stock
without indicating at the same time and with equal
up.
No branch of any foreign bank doing business in the
Philippines shall in any way announce the amount of
the capital and surplus of its head office, or of the
bank in its entirety without indicating at the same time
and with equal prominence the amount of the capital,
if any, definitely assigned to such branch. In case no
capital has been definitely assigned to such branch,
such fact shall be stated in, and shall form part of the
publication. (82).
SECTION 63. Settlement of Disputes. —
The provisions of any law to the contrary
notwithstanding, the Bangko Sentral shall be
consulted by other government agencies or
instrumentalities in actions or proceedings initiated
by or brought before them involving controversies in
banks, quasibanks or trust entities arising out of and
involving relations between and among their
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
directors, officers or stockholders, as well as disputes violation is committed by a corporation, such
between any or all of them and the bank, quasi-bank corporation may be dissolved by quo warranto
or trust entity of which they are directors, officers or proceedings instituted by the Solicitor General. (87).
stockholders. (n)

SECTION 64. Unauthorized Advertisement or
Business Representation. —
No person, association, or corporation unless duly
authorized to engage in the business of a bank, quasi-
bank, trust entity, or savings and loan association as
defined in this Act, or other banking laws, shall
advertise or hold itself out as being engaged in the
business of such bank, quasi-bank, trust entity, or
association, or use in connection with its business
title, the word or words "bank", "banking", "banker",
"quasi-bank", "quasibanking", "quasi-banker",
"savings and loan association", "trust corporation",
"trust company" or words of similar import or transact
in any manner the business of any such bank,
corporation or association. (6)
If you’ve remembered your partnership, we have the
SEC Memorandum Circular that sets out what are the
words that cannot be used in securing a name unless of
course you indeed operate under that name. if you are
an investment company, you put investment. If you are
a bank, you put bank. Otherwise, you cannot use those
words as it will deceive the public.
CHAPTER V
PLACEMENT UNDER CONSERVATORSHIP
SECTION 67. Conservatorship. —
The grounds and procedures for placing a bank
under conservatorship, as well as, the powers and
duties of the conservator appointed for the bank shall
be governed by the provisions of Section 29 and the
last two paragraphs of Section 30 of the New Central
Bank Act: Provided, That this Section shall also apply
to conservatorship proceedings of quasi-banks. (n)
Please note that they referred it to the provision of the
New Central Bank Act. Conservatorship is governed by
the rules on the New Central Bank Act.
CHAPTER VI
CESSATION OF BANKING BUSINESS
SECTION 68. Voluntary Liquidation. —

In case of the voluntary liquidation of any bank

SECTION 65. Service Fees. —
The Bangko Sentral may charge equitable rates,
commissions or fees, as may be prescribed by the
Monetary Board for supervision, examination and
other services which it renders under this Act. (n)
organized under the laws of the Philippines, or of any
branch or office in the Philippines of a foreign bank,
written notice of such liquidation shall be sent to the
Monetary Board before such liquidation is
undertaken, and the Monetary Board shall have the
right to intervene and take such steps as may be
necessary to protect the interests of creditors. (86)

SECTION 66. Penalty for Violation of this Act. — Remember that when you close and the depositors are
Unless otherwise herein provided, the violation of any not yet paid, that may be a ground for receivership.
of the provisions of this Act shall be subject to
Sections 34, 35, 36 and 37 of the New Central Bank
Act. If the offender is a director or officer of a bank,
quasi-bank or trust entity, the Monetary Board may
also suspend or remove such director or officer. If the

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 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
SECTION 69. Receivership and Involuntary discussed previously. A bank can actually acquire 100%,
Liquidation. — a foreign bank? 3 ways yun.
The grounds and procedures for placing a bank
under receivership or liquidation, as well as the
powers and duties of the receiver or liquidator
Let’s proceed with Trust Operations.
appointed for the bank shall be governed by the
provisions of Sections 30, 31, 32, and 33 of the New
Central Bank Act: Provided, That the petitioner or
plaintiff files with the clerk or judge of the court in CHAPTER IX
which the action is pending a bond, executed in favor TRUST OPERATIONS
of the Bangko Sentral, in an amount to be fixed by the
court. This Section shall also apply to the extent SECTION 79. Authority to Engage in Trust
possible to the receivership and liquidation Business. —
proceedings of quasi-banks. (n)
Only a stock corporation or a person duly authorized
by the Monetary Board to engage in trust business
Other banking laws refer to the General Banking Law. shall act as a trustee or administer any trust or hold
For those banks that are created pursuant to a special property in trust or on deposit for the use, benefit, or
law, such as the Rural Bank’s Act or the Cooperative behoof of others. For purposes of this Act, such a
Code of the Philippines, those special laws will govern corporation shall be referred to as a trust entity. (56a;
primarily and this law will apply suppletorily. 57a)

The operations of a trust company is different from the

SECTION 70. Penalty for Transactions After a Bank
Becomes Insolvent. —
Any director or officer of any bank declared insolvent
or placed under receivership by the Monetary Board
who refuses to turn over the bank's records and
assets to the designated receivers, or who tampers
with banks records, or who appropriates for himself
or another party or destroys or causes the
misappropriation and destruction of the bank's
assets, or who receives or permits or causes to be
received in said bank any deposit, collection of loans
and/or receivables, or who pays out or permits or
causes to be paid out any funds of said bank, or who
transfers or permits or causes to be transferred any
securities or property of said bank shall be subject to
the penal provisions of the New Central Bank Act.
(85a)
operations of a bank company.
The fiduciary relationship of a trustee is equally
applicable on this one but this is more on the
commercial side. Please note that the cardinal principle
common to all fiduciary relationship is fidelity. There is
no trust when there is no fidelity.
When you are a trustee, you must be prudent.
SECTION 80. Conduct of Trust Business. —
A trust entity shall administer the funds or property
under its custody with the diligence that a prudent
man would exercise in the conduct of an enterprise of
a like character and with similar aims.

No trust entity shall, for the account of the trustor or

The provisions on Foreign Banks have already been the beneficiary of the trust, purchase or acquire
superseded by the amendments/laws we have property from, or sell, transfer, assign or lend money
or property to, or purchase debt instruments of, any

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 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
of the departments, directors, officers, stockholders,
or employees of the trust entity, relatives within the
first degree of consanguinity or affinity, or the related
interests, of such directors, officers and stockholders,
unless the transaction is specifically authorized by the
trustor and the relationship of the trustee and the
other party involved in the transaction is fully
disclosed to the trustor or beneficiary of the trust prior
to the transaction.
The Monetary Board shall promulgate such rules and
regulations as may be necessary to prevent
circumvention of this prohibition or the evasion of the
responsibility herein imposed on a trust entity. (56)
Please take note of the degree of diligence required of
trustees. If ever you encounter somewhere, what is the
Prudent Man Rule? You are referring to a trust. It is
based a common law from the 1830 Masachussets
Court Harvard College vs Amory.
The Prudent Investor Rule: How It Began
In the 1830s, a now-famous court case was decided
in Massachusetts. Known as Harvard College v.
Amory, it involved a man named John McClean, who
had passed away seven years earlier on October 23,
1823. His heirs were to inherit what was then a sizable
estate, ultimately valued at $228,120. Of that,
$100,800 was invested in manufacturing stock,
$48,000 was invested in insurance company stock,
and $24,700 was invested in bank stock with the
remainder consisting of real estate, personal items,
and cash.
To his wife, Ann McClean, he bequeathed a variety of
chattel, his primary residence, and $35,000 outright.
He also left $27,500 worth of financial gifts to others.
On top of this, he bequeathed $50,000 to Jonathan
and Francis Amory, to be held in trust, with specific
instructions that they were to invest or lend the
money, "in safe and productive stock, either in the
public funds, bank shares, or other stock, according
to their best judgment and discretion." The passive
income generated by the trust fund was to be paid to
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his wife, Ann, in either quarterly or semi-annual
distributions for her to maintain her standard of living
based on whatever was most convenient for the
trustees.
When Ann McClean died, the trust fund was to be
divided among to charitable beneficiaries. Fifty
percent of the trust assets were to go the President
and Fellow of Harvard College to establish a
professorship of ancient and modern history,
covering the salary of the new position. The other fifty
percent of the trust assets were to be gifted to the
Trustees of the Massachusetts General Hospital for
general charitable purposes.
Over the next few years, what followed was a long and
complicated series of investments, dividends,
distributions paid out as part of an international treaty
with Spain, and a host of other legal entanglements
that left the trust with less value than it had when was
originally established. Then, in 1928, the surviving
trustee, Francis Amory, tendered his resignation.
Harvard College sued the trustee for the losses,
claiming that the money had been invested in risky
operating companies solely to provide a high income
or the widow Ann while disregarding their interest as
a remainder beneficiary.
The court sided with the trustees for multiple reasons.
When the decision was appealed, and affirmed,
Justice Samuel Putnam famously wrote what is now
known as the prudent man rule, or prudent investor
rule:
All that can be required of a trustee is, that he shall
conduct himself faithfully and exercise a sound
discretion. He is to observe how men of prudence,
discretion and intelligence manage their own affairs,
not in regard to speculation, but in regard to the
permanent disposition of their funds, considering the
probable income as well as the probable safety of the
capital to be invested… Do what you will, the capital
is at hazard.
https://www.thebalance.com/what-is-the-prudent-
man-rule-or-prudent-investor-rule-357258
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
What is the principle in finance for you to manage
the risk? 83.3. Act as the executor of any will when it is named
the executor thereof;
83.4. Act as administrator of the estate of any
deceased person, with the will annexed, or as
A: Diversification
administrator of the estate of any deceased person
when there is no will;

So ang nangyayari, you invest, tapos ito mataas yung 83.5. Accept and execute any trust for the holding,
risk, invest ka dun sa lower risk para kung kumita ka management, and administration of any estate, real
ditto, lugi ka don. (vice versa) You diversy your risk. or personal, and the rents, issues and profits thereof;
and

83.6. Establish and manage common trust funds,

SECTION 81. Registration of Articles of Incorporation
and By-Laws of a Trust Entity. —
The Securities and Exchange Commission shall not
register the articles of incorporation and by-laws or
any amendment thereto, of any trust entity, unless
accompanied by a certificate of authority issued by
the Bangko Sentral. (n)
SECTION 82. Minimum Capitalization. — A trust entity,
before it can engage in trust or other fiduciary
business, shall comply with the minimum paid-in
capital requirement which will be determined by the
Monetary Board. (n)
What can a trust entity do? We are talking about the trust
entity ha, a separate entity.
subject to such rules and regulations as may be
prescribed by the Monetary Board. (58)
So again, a trust entity is a corporation. So you have your
usual powers of a corporation. So in addition to that you
have the powers above.
83.2. Act under the order or appointment of any
court as guardian, receiver, trustee, or depositary of
the estate of any minor or other incompetent person,
and as receiver and depositary of any moneys paid
into court by parties to any legal proceedings and of
property of any kind which may be brought under
the jurisdiction of the court;

SECTION 83. Powers of a Trust Entity. — Now you have your special proceedings ngayon? You
A trust entity, in addition to the general powers will encounter trust, guardianship. Just correlate this.
incident to corporations, shall have the power to:
So paano kumikita ang isang trust entity?
83.1. Act as trustee on any mortgage or bond issued
by any municipality, corporation, or any body politic
and to accept and execute any trust consistent with
law; A: meron silang administration fee usually in
percentage.
83.2. Act under the order or appointment of any court
as guardian, receiver, trustee, or depositary of the
estate of any minor or other incompetent person, and Pag sobrang dami ng trust fund, ayun na. Yung mga
as receiver and depositary of any moneys paid into usually nakikita nyo sa mga shows diba. Trust fund baby.
court by parties to any legal proceedings and of Ang nagmamanage ng property nila is yung trust. And
property of any kind which may be brought under the
at the age of 18, makukuha nila ang funds.
jurisdiction of the court;
Nagmamanage lang trust.
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 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
SECTION 84. Deposit for the Faithful Performance
of Trust Duties. —
Before transacting trust business, every trust entity
shall deposit with the Bangko Sentral as security for
the faithful performance of its trust duties, cash or
securities approved by the Monetary Board in an
amount equal to not less than Five hundred thousand
pesos (P500,000.00) or such higher amount as may
be fixed by the
Monetary Board: Provided, however, That the
Monetary Board shall require every trust entity to
increase the amount of its cash or securities on
deposit with the Bangko Sentral whenever in its
judgment such increase is necessary by reason of the
trust business of such entity:
Provided, further, That the paid-in capital and surplus
of such entity must be at least equal to the amount
required to be deposited with the Bangko Sentral in
accordance with the provisions of this paragraph.
Should the capital and surplus fall below said amount,
the Monetary Board shall have the same authority as
that granted to it under the provisions of the fifth
paragraph of Section 34 of this Act.
A trust entity so long as it shall continue to be solvent
and comply with laws or regulations shall have the
right to collect the interest earned on such securities
deposited with the Bangko Sentral and, from time to
time, with the approval of the Bangko Sentral, to
exchange the securities for others.
If the trust entity fails to comply with any law or
regulation, the Bangko Sentral shall retain such
interest on the securities deposited with it for the
benefit of rightful claimants. All claims arising out of
the trust business of a trust entity shall have priority
over all other claims as regards the cash or securities
deposited asabove provided. The Monetary Board
may not permit the cash or securities deposited in
accordance with the provisions of this Section to be
reduced below the prescribed minimum amount until
the depositingentity shall discontinue its trust
business and shall satisfy the Monetary Board that it
has complied with all
its obligations in connection with such business.
(65a).
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So this is what you call a bond. Security for the faithful
performance of its trust duties. Now in your
guardianship meron din bond to ensure that you would
perform your duties.
SECTION 85. Bond of Certain Persons for the Faithful
Performance of Duties. — Before an executor,
administrator, guardian, trustee, receiver or
depositary appointed by the court enters upon the
execution of his duties, he shall, upon order of the
court, file a bond in such sum, as the court may direct.
Upon the application of any executor, administrator,
guardian, trustee, receiver, depositary or any other
person in interest, the court may, after notice and
hearing, order that the subject matter of the trust or
any part thereof be deposited with a trust entity. Upon
presentation of proof to the court that the subject
matter of the trust has been deposited with a trust
entity, the court may order that the bond given by
such persons for the faithful performance of their
duties be reduced to such sums as it may deem
proper:
Provided, however, That the reduced bond shall be
sufficient to secure adequately the proper
administration and care of any property remaining
under the control of such persons and the proper
accounting for such property.
Property deposited with any trust entity in conformity
with this Section shall be held by such entity under the
orders and direction of the court. (59)
SECTION 86. Exemption of Trust Entity from Bond
Requirement. —
No bond or other security shall be required by the
court from a trust entity for the faithful performance of
its duties as court appointed trustee, executor,
administrator, guardian, receiver, or depositary.
However, the court may, upon proper application
with it showing special cause therefor, require the
trust entity to post a bond or other security for the
protection of funds or property confided to such
entity. (59)
 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
So if court appointed ka, you are not required to furnish
a bond. Kasi nga inappoint ka na nga tapos magbond
ka pa.
Please take note, very important:
SECTION 87. Separation of Trust Business from
General Business. —
The trust business and all funds, properties or
securities received by any trust entity as executor,
administrator, guardian, trustee, receiver, or
depositary shall be kept separate and distinct from
the general business including all other funds,
properties, and assets of such trust entity. The
accounts of all such funds, properties, or securities
shall likewise be kept separate and distinct from the
accounts of the general business of the trust entity.
(61)
So kaylangan may separate accounting.
SECTION 88. Investment Limitations of a Trust
Entity. —
Unless otherwise directed by the instrument creating
the trust, the lending and investment of funds and
other assets acquired by a trust entity as executor,
administrator, guardian, trustee, receiver or
depositary of the estate of any minor or other
incompetent person shall be limited to loans or
investments as may be prescribed by law, the
Monetary Board or any court of competent
jurisdiction. (63a)
investment house shall be governed by the relevant
provisions of this Act and other applicable laws. (64)
SECTION 91. Sanctions and Penalties. —
A trust entity or any of its officers and directors found
to have willfully violated any pertinent provisions of
this Act, shall be subject to the sanctions and
penalties provided under Section 66 of this Act as
well as Sections 36 and 37 of the New Central Bank
Act. (63)
SECTION 92. Exemption of Trust Assets from
Claims. —
No assets held by a trust entity in its capacity as
trustee shall be subject to any claims other than those
of the parties interested in the specific trusts. (65)
Can the trust entity establish branches?
SECTION 93. Establishment of Branches of a Trust
Entity. —
The ordinary business of a trust entity shall be
transacted at the place of business specified in its
articles of incorporation. Such trust entity may, with
prior approval of the Monetary Board, establish
branches in the Philippines, and the said entity shall
be responsible for all business conducted in such
branches to the same extent and in the same manner
as though such business had all been conducted in
the head office.
For the purpose of this Act, the trust entity and its
branches shall be treated as one unit. (67)

SECTION 89. Real Estate Acquired by a Trust

CHAPTER X
Entity. —
FINAL PROVISIONS
Unless otherwise specifically directed by the trustor
or the nature of the trust, real estate acquired by a
SECTION 94. Phase Out of Bangko Sentral Powers
trust entity in whatever manner and for whatever
Over Building and Loan Associations.
purpose, shall likewise be governed by the relevant
— Within a period of three (3) years from the effectivity
provisions of Section 52 of this Act. (64a)
of this Act, the Bangko Sentral shall phase out and
transfer its supervising and regulatory powers over
SECTION 90. Investment of Non-Trust Funds. —
building and loan associations to the Home Insurance
The investment of funds other than trust funds of a
and Guaranty Corporation which shall assume the
trust entity which is a bank, financing company or an
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 BANKING AND OTHER COMMERCIAL LAWS
A class transcription from the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
same. Until otherwise provided by law, building and
loan associations shall continue to be governed by
Sections 39 to 55, Chapter VI of the

General Banking Act, as amended, including such

rules and regulations issued pursuant thereto. Upon
assumption by the Home Insurance and Guaranty
Corporation of supervising and regulatory powers
over building and loan associations, all references in
Sections 39 to 55 of the General Banking Act, as
amended, to the Bangko Sentral and the Monetary
Board shall be deemed to refer to the Home
Insurance and Guaranty Corporation and its board of
directors, respectively. (n)

SECTION 95. Repealing Clause. — Except as may be

provided for in Sections 34 and 94 of this Act, the
General Banking Act, as amended, and the provisions
of any other law, special charters, rule or regulation
issued pursuant to said General Banking Act, as
amended, or parts thereof, which may be inconsistent
with the provisions of this Act are hereby repealed.
The provisions of paragraph 8, Section 8,Republic Act
No. 3591, as amended by Republic Act No. 7400, are
likewise repealed. (90a)

SECTION 96. Separability Clause. — If any provision

or section of this Act or the application thereof to any
person or circumstance is held invalid, the other
provisions or sections of this Act, and the application
of such provision or section to other persons or
circumstances, shall not be affected thereby.
(n)
SECTION 97. Effectivity Clause. — This Act shall take
effect fifteen (15) days following its publication in the
Official Gazette or in two (2) national newspapers of
general circulation. (91)

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