VI. FOREIGN CURRENCY DEPOSIT – Section 8, RA no.

6426 or
the Foreign Currency Act
A. Coverage – Sec. 2, RA No. 6426
B. Rationale for Enactment
C. Confidentiality of Foreign Currency Deposit/Exemption from
Execution
D. Exceptions
1. Sec. 11 of RA NO. 9160
2. Salvacion vs. Central Bank of the Phils.,
3. Sec. 10 RA NO. 10167
4. Sec. 27, RA NO. 9372
VII. PDIC – DEPOSIT INSURANCE
A. Governing Laws – RA NO. 3591, as amended by RA NO. 10846
THE CREATION OF THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION
 PDIC (or referred in the act as ‘Corporation’) shall insure the
deposits of all banks which are entitled to the benefits of
insurance under this Act, and which shall have the powers
hereinafter granted.
 It shall promote and safeguard the interests of the depositing
public by providing insurance coverage on all insured deposits
and helping maintain a sound and stable banking system.
B. Insured Deposit – Sec. 5 (j)
The term insured deposit means the amount due to any bonafide
depositor for legitimate deposits in an insured bank as of the
date of closure but not to exceed Five hundred thousand pesos
(P500,000.00). Such amount shall be determined according to
such regulations as the Board of Directors may prescribe. In
determining such amount due to any depositor, there shall be
added together all deposits in the bank maintained in the same
right and capacity for his or her benefit either in his or her own
name or in the name of others. A joint account regardless of
whether the conjunction ‘and’, ‘or’, ‘and/or’ is used, shall be
insured separately from any individually-owned deposit
 account: Provided, That (1) if the account is held jointly by two or
more natural persons, or by two or more juridical persons or
entities, the maximum insured deposit shall be divided into as
many equal shares as there are individuals, juridical persons or
entities, unless a different sharing is stipulated in the document of
deposit, and (2) if the account is held by a juridical person or entity
jointly with one or more natural persons, the maximum insured
deposit shall be presumed to belong entirely to such juridical
person or entity: Provided, further, That the aggregate of the
interest of each co-owner over several joint accounts, whether
owned by the same or different combinations of individuals,
juridical persons or entities, shall likewise be subject to the
maximum insured deposit of Five hundred thousand pesos
(P500,000.00): Provided, furthermore, That the provisions of any
law to the contrary notwithstanding, no owner/holder of any
passbook, certificate of deposit, or other evidence of deposit shall
be recognized as a depositor entitled to the rights provided in this
Act unless the passbook, certificate of deposit, or other evidence of
deposit is determined by the Corporation to be an authentic
document or record of the issuing bank: Provided, finally, That in
case of a condition that threatens the monetary and financial
stability of the banking system that may have systemic
consequences, as defined in Section 22 hereof, as determined by
the Monetary Board, the maximum deposit insurance cover may be
adjusted in such amount, for such a period, and/or for such
deposit products, as may be determined by a unanimous vote of
the Board of Directors in a meeting called for the purpose and
chaired by the Secretary of Finance, subject to the approval of the
President of the Philippines.

C. Insurance Requirement
1. Rule on Deposit in a Domestic Bank Operating Within the
Philippines
Membership of banks to PDIC is mandatory. Hence, all
operating banks are covered. Deposits of all commercial banks,
savings and mortgage banks, rural banks, private development
 banks, cooperative banks, savings and loan associations are
insured with PDIC.
All deposit regardless of the classification of the bank be
subject to insurance under to PDIC(MANDATORY)
The deposit liabilities of a bank or banking institution, which
is engaged in the business of receiving deposits, shall be insured
with PDIC. The coverage is compulsory.

2. Rule on Deposit in a Domestic Bank Operating Abroad

 The PDIC Charter provides that a Philippine Bank may elect to
insure with the PDIC its deposits in branches outside the
Philippines. As of December 31, 2012, no Philippine bank has
elected to insure deposits in their foreign branches with PDIC.
 It will be approved by the PDIC upon the election of the domestic
bank.
 They are not covered by the PDIC unless it was elected by the
board or the bank opt to be covered by PDIC.
NOTE: Foreign Bank operating within the Philippines is subject
to insurance under PDIC

3. Rule on Deposit in a Foreign Bank with a Branch Operating

Within the Philippines
The PDIC Charter provides that the deposits in branches and
subsidiaries of foreign banks licensed by the BSP to perform
banking functions in the Philippines are insured by the PDIC
because of the definition of banks.

The term bank and banking institution shall be synonymous and

interchangeable and shall include banks, commercial banks,
savings banks, mortgage banks, rural banks, development banks,
cooperative banks, stock savings and loan associations and
branches and agencies in the Philippines of foreign banks and all
other corporations authorized to perform banking functions in the
Philippines.

Will a foreign currency deposit maintained with a domestic bank

covered under the PDIC?
>Yes. Foreign currency deposits are also insured by PDIC pursuant
to RA 6426 and CB Circular No. 1389. Depositors may receive
payment in the same currency in which the insured deposit is
denominated.

Rules:
1. All deposits/ liabilities in a Philippine bank (insured bank) are
covered by the PDIC;
2. As to deposits in a foreign branch by a domestic bank, not
covered as a rule, unless elected upon by the bank and
approved by the PDIC

Are the deposit/liabilities of a foreign bank in a Philippine branch

covered by the PDIC?
>Yes
Foreign currency deposits, not only Philippine peso deposits are
covered by the PDIC.
Example:
Pedro is a foreigner. He went here in the Philippines and he
deposited foreign currency deposit. The foreign currency deposit
was maintained in that bank for just one month period and
subsequently the bank closed. Is this covered by the PDIC?
>principle in economics: all dollar deposits are part of international
reserves because dollar is a strong currency
>all foreign currency deposits are covered by the PDIC**
 **Foreign currencies considered as part of BSP's international
reserves.
D. Nature of Insurance Policy
Section 10(a), RA 3591 states that, the provisions of other laws,
general or special, to the contrary notwithstanding, whenever it
shall be personnel, deputies and agents of the Corporation.
Section 1. There is hereby created a Philippine Deposit Insurance
Corporation hereinafter referred to as the “Corporation” which shall
insure, as herein provided, the deposits of all banks which are
entitled to the benefits of insurance under this Act, and which shall
have the powers hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the
interests of depositing public by way of providing permanent and
continuing insurance coverage on all insured deposits.

Sec. 10 (a), RA 3591 - (a) A permanent insurance fund in the

amount of P5,000,000 to be appropriated from the General Fund is
hereby created to be used by the Corporation to carry out the
purposes of this Act; Provided, That the maximum amount of the
insured deposit of any depositor shall be P10,000.

1. Rules on Individual Account

Rules of insurance coverage
>a deposit account may either be an individual or a joint account
1. Individual accounts
>also referred to as single accounts.
>solely name under the name of the depositor.
*depositor may either be a natural person or a juridical person.
2. ITF account
>in trust for account
>an account that is maintained in favor of the beneficiary.
>for the benefit of another person.

3. By account
>significance of “by”: the relationship is that of an agency (principal
and agent)
>Pedro by Maria
-->Pedro is the principal, Maria is the agent
>the word “by” signifies that a person is acting on behalf of another.
>significance: to avoid or limit liability.
*must indicate that you are acting in a representative capacity
otherwise you will be liable as a principal.
Example:
The following are the accounts of Pedro
- a savings account
- a deposit account
- a time deposit account.
How will you construe those accounts vis-a-vis insurance coverage
under PDIC?
>when it comes to individual accounts maintained in one bank, the
rule is when the accounts are maintained in the same right and the
same capacity, there will only be one insurance coverage and not on
a per account basis.
Pedro maintains the following accounts:
-a deposit account 100, 400, 300, 100
-a savings account
-Pedro as sole proprietorship of the entity “Pedro’s bakery” which is
the account holder in the 3rd account
How will you treat these 3 accounts for purposes of PDIC?
>These will be covered under one insurance coverage because they
are maintained in the same right and the same capacity.
*sole proprietorship is not considered juridical person having a
separate personality from the owner.
*SC: a sole proprietorship has no separate juridical personality.

JDC;
Demand deposit 200k yes : to be added
Jdc in trust for maria 400k: not added
Time deposit jdc by maria: yes
Jdc by maria or pedro 500k: yes

Pedro maintains the following accounts:

-a savings account
-a time deposit account
-Pedro by Maria
How do you treat these accounts?
> one insurance coverage - all under the same right and the same
capacity
How about in this scenario, Pedro has:
-a savings account
-a deposit account
-Pedro ITF Maria
How do you treat these accounts?
> there will be 2 insurance coverage:
1. Pedro - savings and deposit
2. Maria - Pedro ITF Maria - this is considered as Maria’s deposit
because Maria is the beneficial owner of the account.

4. Joint account - under 2 or more account holders which can be:

a. all natural persons
b. all juridical persons
c. combination of natural and juridical persons

Joint accounts can be classified into:

a. “or” account
Pedro or Maria

b. “and” account
Pedro and Maria

c. “and/or” account
Pedro and/or Maria
Pedro has an individual account in the amount of Php 1M and he
also has a joint account with Maria in the same amount. How do
you treat these accounts?
Rule: joint accounts must be insured separately with singly
accounts
>there will be 2 separate insurance coverage:
1. Php 500K insurance coverage for Pedro’s individual account
2. Php 250K for Pedro and Php 250 K for Maria in the joint account

How much is the interest of Pedro in the joint account?

>Php 500K and the insurance coverage is Php 250K.

>joint account is considered as one for insurance coverage

purposes.

Pedro has the following accounts with Maria (joint account)

-time deposit
-savings account
-current deposit
All have an outstanding balance of Php 1M. How much is the
insurance coverage?
>Add all the accounts in the joint account - insurance coverage is
Php 500K

What if it is the combination.

-Pedro with A
-Pedro with B
-Pedro with C
Each has an outstanding balance of Php 1M. How much can Pedro
claim in PDIC.
>maximum is Php 500K regardless of combination (in aggregate)

*If there is a combination in the joint account of juridical and

natural persons, the account is presumed to be owned by the
juridical person unless there is contrary evidence.
*If all the account holders are juridical persons, the presumption is
that they have equal shares.
>insurance coverage is still Php 500K
2. Rules on Joint- Account – Sec. 4 (g) of RA NO. 3591, as
amended by RA NO. 9576
Section 4(g) of the same Act is hereby amended to read as follows:

A joint account regardless of whether the conjunction 'and,' 'or,'

'and/or' is used, shall be insured separately from any
individually-owned deposit account: Provided, That (1) If the
account is held jointly by two or more natural persons, or by two or
more juridical persons or entities, the maximum insured deposit
shall be divided into as many equal shares as there are individuals,
juridical persons or entities, unless a different sharing is stipulated
in the document of deposit, and (2) If the account is held by a
juridical person or entity jointly with one or more natural persons,
the maximum insured deposits shall be presumed to belong entirely
to such juridical person or entity:
Provided, further, That the aggregate of the interest of each co-
owner over several joint accounts, whether owned by the same or
different combinations of individuals, juridical persons or entities,
 shall likewise be subject to the maximum insured deposit of Five
hundred thousand pesos (P500,000.00):
Provided, Furthermore, That the provisions of any law to the
contrary notwithstanding, no owner/holder of any negotiable
certificate of deposit shall be recognized as a depositor entitled to
the rights provided in this Act unless his name is registered as
owner/holder thereof in the books of the issuing bank:
Provided, Finally, That, in case of a condition that threatens the
monetary and financial stability of the banking system that may
have systemic consequences, as defined in section 17 hereof, as
determined by the monetary board, the maximum deposit
insurance cover may be adjusted in such amount, for such a
period, and/or for such deposit products, as may be determined by
a unanimous vote of the Board of Directors in a meeting called for
the purpose and chaired by the Secretary of Finance, subject to the
approval of the President of the Philippines."
E. Exclusions from Insurance Coverage – Sec. 4 (f), RA NO. 3591,
as amended by RA NO. 9576
Section 4 (f) of Republic Act No. 3591, as amended, is hereby
amended by adding an additional paragraph, to read as follows:
"(f) The term "deposit" means the unpaid balance of money or its
equivalent received by a bank in the usual course of business
and for which it has given or is obliged to give credit to a
commercial, checking, savings, time or thrift account, or
issued in accordance with Bangko Sentral rules and regulations
and other applicable laws, together with such other obligations
of a bank, which, consistent with banking usage and practices,
the Board of Directors shall determine and prescribe by
regulations to be deposit liabilities of the bank: Provided, That
any obligation of a bank which is payable at the office of the bank
located outside of the Philippines shall not be a deposit for any of
the purposes of this Act or included as part of the total deposits or
of insured deposits: Provided, further, That, subject to the approval
of the Board of Directors, any insured bank which is incorporated
under the laws of the Philippines which maintains a branch outside
the Philippines may elect to include for insurance its deposit
obligations payable only at such branch.

The corporation shall not pay deposit insurance for the

following accounts or transactions, whether denominated,
documented, recorded or booked as deposit by the bank:
"(1) Investment products such as bonds and securities, trust
accounts, and other similar instruments;
"(2) Deposit accounts or transactions which are unfunded, or that
are fictitious or fraudulent;
"(3) Deposits accounts or transactions constituting, and/or
emanating from, unsage and unsound banking practice/s, as
determined by the Corporation, in consultation with the BSP, after
due notice and hearing, and publication of a cease and desist order
issued by the Corporation against such deposit accounts or
transactions; and
"(4) Deposits that are determined to be the proceeds of an unlawful
activity as defined under republic act 9160, as amended.

"The actions of the Corporation taken under this section shall be

final and executory, and may not be restrained or set aside by the
court, except on appropriate petition for certiorari on the ground
that the action was taken in excess of jurisdiction or with such
grave abuse of discretion as to amount to a lack or excess of
jurisdiction. The petition for certiorari may only be filed within
thirty (30) days from notice of denial of claim for deposit insurance."
5th According To The Discussion
Section 11. Section 21, paragraph (f)(5) is hereby amended to
read as follows.
 (5) Splitting of deposits or creation of fictitious loans or deposits
accounts.
"Splitting of deposits occurs whenever a deposit account with an
outstanding balance of more that the statutory maximum
amount of insured deposit maintained under the name of natural or
juridical persons is broken down and transferred into two (2)
or more accounts in the name/s of natural or juridical persons or
entities who have no beneficial ownership on transferred deposits in
their names within one hundred twenty (120) days immediately
preceding or during a bank-declared bank holiday, or immediately
preceding a closure order issued by the Monetary Board of the
Bangko Sentral ng Pilipinas for the purpose of availing of the
maximum deposit insurance coverage."
Bank-declared holiday: bank closure
F.Notice of Claim – Sec. 21
Sec. 29, RA NO. 10846
“(k) The petition shall be filed ex parte within a reasonable period
from receipt of the Monetary Board Resolution placing the bank
under liquidation.
“(1) All persons or entities with claims against the assets of the
closed bank shall file their claims with the receiver within sixty
(60) days from the date of publication of the notice of closure.
Claims filed outside the foregoing prescribed period shall be
disallowed.
“Claims denied by the receiver shall be filed with the
liquidation court within sixty (60) days from receipt of the
final notice of denial of claim.

G. Payment of Insured Deposit – Sec. 19 (c ), RA NO. 3591

“PAYMENT OF INSURED DEPOSITS
“SEC. 19. Whenever an insured bank shall have been closed by
the Monetary Board pursuant to Section 30 of Republic Act No.
7653, or upon expiration or revocation of a bank’s corporate
term, payment of the insured deposits on such closed bank shall
be made by the Corporation as soon as possible either
(1) by cash or
(2) by making available to each depositor a transferred deposit in
another insured bank in an amount equal to insured deposit of
such depositor:
Provided, however, That the Corporation, in its discretion, may
require proof of claims to be filed before paying the insured
deposits, and that in any case where the Corporation is not
satisfied as to the validity of a claim for an insured deposit, it
may require final determination of a court of competent
jurisdiction before paying such claim: Provided, further, That
failure to settle the claim, within six (6) months from the date of
filing of claim for insured deposit, where such failure was due to
grave abuse of discretion, gross negligence, bad faith, or malice,
shall, upon conviction, subject the directors, officers or
employees of the Corporation responsible for the delay, to
imprisonment from six (6) months to one (1) year: Provided,
furthermore, That the period shall not apply if the validity of the
claim requires the resolution of issues of facts and or law by
another office, body or agency including the case mentioned in
the first proviso or by the Corporation together with such other
office, body or agency.”

*Is there a period of time within which a depositor may claim the
insurance from the PDIC?
> Yes. There is the rule on notice of claim.

How long should the notice of claim be?

>24 months (2 years) from the takeover of the PDIC of the
bankrupt or liquidated bank
 The coverage under PDIC is maximum of Php 500K. What if you
have a deposit of Php 1M, what will happen to the remaining Php
500K?
Uninsured deposit (remaining 500k) – it can still be claimed
against the asset of the corporation; participate in the liquidation
> The depositor still has a remedy -- to participate in the
liquidation of the assets of the bank.

VIII. LOAN FUNCTION

A. Authority to Lend Money – Sec. 1, BSP Circular No. 622,
Series of 2008
Section 1, BSP Cir. No. 622 – “Before granting loans or other
credit accommodations, a bank/QB/NBFI must ascertain that the
borrower, co-maker, endorser, surety and/or guarantor, if
applicable, is/are financially capable of fulfilling his/their
commitments to the bank/QB/NBFI.  For this purpose, a
bank/QB/NBFI shall obtain adequate information on his/their
credit standing and financial capacities. 

“In addition to the usual information sheet about the borrower, a

bank/QB/NBFI shall require from the credit applicant the
following:
1. A copy of the latest Income Tax Return (ITR) of the borrower and
his co-maker, if applicable, duly stamped as received by the
Bureau of Internal Revenue (BIR);
2. Except as otherwise provided by law and in other regulations, if
the borrower is engaged in business, a copy of the borrower's
latest financial statements as submitted for taxation purposes to
the BIR; and
3. A waiver of confidentiality of client information and/or an
authority of the bank/QB/NBFI to conduct random verification
with the BIR in order to establish authenticity of the ITR and
accompanying financial statements submitted by the client.
*whenever a bank lends money (banks, quasi-banks, non bank
financial institution), they must exercise safe and sound banking
practices

“THE DOCUMENTS UNDER ITEM NOS. “1” AND “2” ABOVE shall
be required to be submitted annually for as long as the loan and/or
credit accommodation is outstanding. The consistency of the
data/figures in said ITRs and FINANCIAL statements shall also be
checked and considered in the evaluation of the financial capacity
and creditworthiness of credit applicants. THE WAIVER OF
CONFIDENTIALITY OF CLIENT INFORMATION AND/OR AN
AUTHORITY OF THE BANK/QB/NBFI TO CONDUCT RANDOM
VERIFICATION WITH THE BIR NEED NOT BE SUBMITTED
ANNUALLY SINCE ONCE SUBMITTED THESE DOCUMENTS
REMAIN VALID UNLESS REVOKED.

“Should the document(s) submitted prove to be spurious or

incorrect in any material detail, the bank/QB/NBFI may
terminate any loan or other credit accommodation granted on
the basis of said document(s) and shall have the right to
demand immediate repayment or liquidation of the obligation.
Moreover, the bank/QB/NBFI may seek redress from the court for
any harm done by the borrower's submission of spurious
documents.

“The required submission of additional documents shall cover

loans, other credit accommodations, and credit lines granted,
renewed restructured or extended after 2 November 2006, including
any availment and/or re-availment against existing credit lines,
except:

1. Microfinance loans. This represents small loans granted to

the basic sectors such as farmer-peasant, artisanal fisherfolk,
workers in the formal and informal sector, migrant workers,
indigenous peoples and cultural communities, women, differently-
abled persons, senior citizens, victims of calamities and disasters,
youth and students, children, and urban poor, as defined in the
Social Reform and Poverty Alleviation Act of 1997 (R.A. No. 8425),
and other loans granted to poor and low-income households for
their microenterprises and small businesses. The maximum
principal amount of microfinance loans shall not exceed P150,000
and may be amortized on a daily, weekly, semi-monthly or monthly
basis, depending on the cash flow conditions of the borrowers. Said
loans are usually unsecured, for relatively short periods of time
(180 days) and often featuring joint and several guarantees of one
or more persons;

2. Loans to registered Barangay Micro Business Enterprises

(BMBEs);
3. Interbank loans;
4. Loans secured by hold-outs on or assignment of deposits or
other assets considered non-risk by the Monetary Board;
5. Loans to individuals who are not required to file ITRs under
BIR regulations, as follows:
a. Individuals whose gross compensation income does not exceed
their total personal and additional exemptions, or whose
compensation income derived from one employer does not exceed
P60,000 and the income tax on which has been correctly withheld;
b. Those whose income has been subjected to final withholding tax;
c. Senior citizens not required to file a return pursuant to R.A. No.
7432, as amended by R.A. No. 9257, in relation to the provisions of
the National Internal Revenue Code (NIRC) or the Tax Reform Act of
1997; and
d. An individual who is exempt from income tax pursuant to the
provisions of the NIRC and other laws, general or special; and

6. Loans to borrowers, whose only source of income is

compensation and the corresponding taxes on which have been
withheld at source: PROVIDED, THAT THE BORROWERS
submitted, in lieu of the ITR, a copy of their employer’s Certificate of
Compensation Payment/Tax Withheld (BIR Form 2316) OR THEIR
PAYSLIPS FOR AT LEAST THREE (3) MONTHS IMMEDIATELY
PRECEDING THE DATE OF LOAN APPLICATION.

“Loans to micro and small enterprises which are not specifically

exempted from the additional documentary requirements
SPECIFIED UNDER THE THIRD PARAGRAPH OF THIS
SUBSECTION SHALL BE EXEMPTED FROM SAID ADDITIONAL
DOCUMENTARY REQUIREMENT UP TO 31 DECEMBER 2011.

“Consumer loans, with original amounts not exceeding P2 million,

are exempted from updating requirements or the required annual
submission of the same requirements forwarded during the initial
submission under this Subsection but not in their restructuring,
renewal, or extensions or availment/re-availment against
existing credit lines: PROVIDED, That these loans are supported
by ITRs OR BY BIR Form 2316 OR PAYSLIPS FOR AT LEAST
THREE (3) MONTHS IMMEDIATELY PRECEDING THE DATE OF
LOAN APPLICATION, AND FINANCIAL STATEMENTS SUBMITTED
FOR TAXATION PURPOSES TO THE BIR, AS MAY BE APPLICABLE,
at the time the loans were granted, renewed, restructured, or
extended.
“For purposes of this Section, the FOLLOWING DEFINITIONS
SHALL APPLY:

1. Micro and small enterprises shall be defined as any business

activity or enterprise engaged in industry, agribusiness and/or
services whether single proprietorship, cooperative, partnership or
corporation whose total assets, inclusive of those arising from loans
but exclusive of the land on which the particular business entity’s
office, plant and equipment are situated, must have a value of up to
P3 million and P15 million, respectively, or as may be defined by
the SMED Council or other competent government agency.

2. Consumer loans is defined to include housing loans, loans for

purchase of car, household appliance(s), furniture and fixtures,
loans for payment of educational and hospital bills, salary loans
and loans for personal consumption, including credit card loans.”
Term Loan vs. Credit Line
Term Loan - intended for a specific purpose, long-term loan,
E.g., construction, improvements

Credit line - as the need arises, business needs arise, form of a

working capital

*2 criteria/considerations whenever a bank extends loans:

1.Loanable amount - to assess this criteria the bank will consider
the financial capability of the borrower, only for such amount to
complete the project
2.Period of repayment
How to determine the loanable amount?
>the amount to be extended will be dependent on the financial
capacity of the borrower to repay the loan

What may be considered to determine the financial capacity of

the borrower?
Notes:
- assessment of financial capacity, the bank may consider JSS
- JSS is a form of security (JOINT AND SOLIDARY SIGNATURE), the
bank will also consider the surety’s financial capacity
- JSS is required by the bank from the majority stockholders/
shareholders of a corporation
- purposes of JSS: First, in case of default, the creditor’s recourse,
which is normally limited to the corporate properties under the veil
of separate corporate personality, would extend to the personal
assets of the surety. Second, such surety would be compelled to
ensure that the loan would be used for the purpose agreed upon,
and that it would be paid by the corporation.

>the bank may consider the ITRs (income tax returns)

>in case of businesses, the bank may require the borrower to
submit latest financial statements especially if the borrower has a
personality
>the bank may require to execute a waiver of confidentiality of
client information and/or an authority of the bank/QB/NBFI to
conduct random verification with the BIR in order to establish
authenticity of the ITR and (audited) accompanying financial
statements
What are the types of loans that may be extended to the
borrower?
1. Microfinance loans - relatively small in amount
*microenterprises - an enterprise whose total assets excluding
land does not exceed Php 3M and their maximum loanable amount
is Php 3M
*small enterprises - are businesses which assets does not exceed
Php 15M and excluding real properties
>a corporation may be considered a microenterprise or a small
enterprise
>in determining the criteria depends on the assets of the entity
*in some banks, beyond Php 15M they are considered medium
enterprise

2. Loans granted to government entities such as LGUs

3. Agricultural loans
4. Consumer loans
>various loans; housing loans, car loans, credit cards
5. Salary based general purpose consumption loans
>simply referred to as salary loans
>do not have collaterals
>unsecured loans granted to individuals mainly on the basis of
regular salary, pensions or other fix compensation where repayment
will come from future cash flows
> no offered collateral, no security except the monthly fixed income
of the borrower
B. Conditions for the Granting of Loans/Safe and Sound
Banking Practice – Sec. 39, GBL
Section 39, GBL: 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 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 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.
>safe and sound banking practice: a bank will only extend
financial accommodation (mentioned above) a bank shall consider:
amount to be financed and period of time for the effective
completion of the project.
C. Ascertainment of Borrower’s Capacity – Sec. 40, GBL;
Security Bank vs. Cuenca, 341 SCRA 781 (2000)
Section 40, GBL: Requirement for Grant of Loans or 0ther
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 of their income and expenditures and
such information as may be prescribed by law or by rules and
regulations of the 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.
D. Secured vs. Unsecured Loans and Other Credit
Accommodation
A borrower’s loan may be classified as secured or unsecured loan.
1. Secured loan is one which has an offered collateral or
offered security.

Different kinds of security:

1.real estate mortgage: subjects only real properties
2.chattel mortgage
3.pledge: offered security is in the form of shares of stocks
4. financial guarantee: JSS

2. Unsecured loan is one without any collateral, not secured

by any form of collateral.
Clean Loan – also called as unsecured loan
Secured loan is one which has an offered collateral or offered
security.

Different kinds of security:

1.real estate mortgage
2.chatterl mortgage
3.pledge

Unsecured loan
E. Bridge Financing – De Vera vs. CA, 367 SCRA 781
Bridge financing - temporary loan being extended by a lender
bank, quasi-bank, non-bank financing institution in favor of a
borrower pending the approval of the loan negotiated by the
borrower
>an interim loan
>it fills in the gap; it connects something;

*purpose: given or extended by a lender bank pending the approval

of a loan

A borrower is applying for Php 100M term loan. That loan is yet to
be approved by the bank. Out of necessity, the borrower may
request the release of certain funds as an initial portion of the Php
100M term loan.

De Vera vs. CA (2001)

ASIATRUST cannot hide behind the pithy excuse that the grant of
the bridge financing loan was subject to the release of the Pag-IBIG
loan. The essence of bridge financing loans is to obtain funds
through an interim loan** while the Pag-IBIG funds are not yet
available. To await the release of the Pag-IBIG loan would render
any bridge financing nugatory.

**A short-term loan arranged in order to buy time until something

changes.

F. Fixed vs. Floating Interest Rate and Escalation Clauses –

Security Bank vs. RTC of Makati 263 SCRA 483 (1996);
 Consolidated Bank vs. CA 356 SCRA 671 (2001); Almeda vs.
CA 256 SCRA 292 (1996); PNB vs. CA 259 SCRA 174 (1996)

Interest rate – it is a payment for the use of money

>the basis of interest rate is that people by nature is impatient that
is why the lender collects interest

May either be classified as a fixed interest rate or a floating interest

rate.

Fixed interest rate – predetermined or pre-agreed interest rate from

the start of the repayment until the entire repayment of the loan.
>it is a pegged interest rate throughout the entire repayment of the
loan
> it is an interest rate that is pre determined throughout the term of
the loan

Floating interest rate – variable interest rate

>it is a flexible interest rate
>interest rate varies throughout the entire repayment of the loan
>interest may go up or down depending on the parameters provided
by the BSP
>maybe subjected to escalation clause

Escalation clause – interest will go up

- It is a floating interest rate, depending on the interest rate set by
the BSP
Is the imposition of a floating interest rate subject to
escalation clause valid?
>Yes. When the parties agreed for a variable or floating interest rate,
that agreement is valid. If it is subject to escalation clause, it is
valid as such subject only to the requirement that there must be a
corresponding de-escalation clause

*It is the BSP who provides for the computation of the interest rate.

A floating interest rate subject to escalation clause is not in

violation to the mutuality of contracts
>it is a valid stipulation, it is a valid agreement provided that
escalation clause has a corresponding de-escalation clause.

Security Bank vs. RTC of Makati (1996)

The rate of interest was agreed upon by the parties freely.
Significantly, respondent did not question that rate. It is not for
respondent court a quo to change the stipulations in the contract
where it is not illegal. Furthermore, Article 1306 of the New Civil
Code provides that contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. We find no valid reason for
the respondent court a quo to impose a 12% rate of interest on the
principal balance owing to petitioner by respondent in the presence
of a valid stipulation. In a loan or forbearance of money, the interest
due should be that stipulated in writing, and in the absence
thereof, the rate shall be 12% per annum. Hence, only in the
absence of a stipulation can the court impose the 12% rate of
interest.
Consolidated Bank vs. CA (2001)
The pertinent provision in the trust receipt agreement of the parties
fixing the interest rate states:

I, WE jointly and severally agree to any increase or decrease in the

interest rate which may occur after July 1, 1981, when the Central
Bank floated the interest rate, and to pay additionally the penalty of
1% per month until the amount/s or instalments/s due and unpaid
under the trust receipt on the reverse side hereof is/are fully paid.

We agree with respondent Court of Appeals that the foregoing

stipulation is invalid, there being no reference rate set either by it or
by the Central Bank, leaving the determination thereof at the sole
will and control of petitioner.

While it may be acceptable, for practical reasons given the

fluctuating economic conditions, for banks to stipulate that interest
rates on a loan not be fixed and instead be made dependent upon
prevailing market conditions, there should always be a reference
rate upon which to peg such variable interest rates.

On the other hand, a stipulation ostensibly signifying an agreement

to "any increase or decrease in the interest rate," without more,
cannot be accepted by this Court as valid for it leaves solely to the
creditor the determination of what interest rate to charge against an
outstanding loan.

Almeda vs. CA (1996)

Respondent bank's reliance on C.B. Circular No. 905, Series of
1982 did not authorize the bank, or any lending institution for that
matter, to progressively increase interest rates on borrowings to an
extent which would have made it virtually impossible for debtors to
comply with their own obligations. True, escalation clauses in credit
agreements are perfectly valid and do not contravene public policy.
Such clauses, however, (as are stipulations in other contracts) are
nonetheless still subject to laws and provisions governing
agreements between parties, which agreements — while they may
be the law between the contracting parties — implicitly incorporate
provisions of existing law. Consequently, while the Usury Law
ceiling on interest rates was lifted by C.B. Circular 905, nothing in
the said circular could possibly be read as granting respondent
bank carte blanche authority to raise interest rates to levels which
would either enslave its borrowers or lead to a hemorrhaging of
their assets. Borrowing represents a transfusion of capital from
lending institutions to industries and businesses in order to
stimulate growth. This would not, obviously, be the effect of PNB's
unilateral and lopsided policy regarding the interest rates of
petitioners' borrowings in the instant case.

Apart from violating the principle of mutuality of contracts, there is

authority for disallowing the interest rates imposed by respondent
bank, for the credit agreement specifically requires that the increase
be "within the limits allowed by law".

Furthermore, the escalation clause of the credit agreement requires

that the same be made "within the limits allowed by law," obviously
referring specifically to legislative enactments not administrative
circulars. Note that the phrase "limits imposed by law," refers only
to the escalation clause. However, the same agreement allows
reduction on the basis of law or the Monetary Board. Had the
parties intended the word "law" to refer to both legislative
enactments and administrative circulars and issuances, the
agreement would not have gone as far as making a distinction
between "law or the Monetary Board Circulars" in referring to
mutually agreed upon reductions in interest rates.
Escalation clauses are not basically wrong or legally objectionable
so long as they are not solely potestative but based on reasonable
and valid grounds.9 Here, as clearly demonstrated above, not only
the increases of the interest rates on the basis of the escalation
clause patently unreasonable and unconscionable, but also there
are no valid and reasonable standards upon which the increases
are anchored.

PNB vs. CA (1996)

PNB's argument rests on a misapprehension of the import of the
appellate court's ruling. The Court of Appeals nullified the interest
rate increases not because the promissory note did not comply with
P.D. No. 1684 by providing for a de-escalation, but because the
absence of such provision made the clause so one-sided as to make
it unreasonable.

That ruling is correct. It is in line with our decision in Banco

Filipino Savings & Mortgage Bank v. Navarro 16 that although P.D.
No. 1684 is not to be retroactively applied to loans granted before
its effectivity, there must nevertheless be a de-escalation clause to
mitigate the one-sideness of the escalation clause. Indeed because
of concern for the unequal status of borrowers vis-a-vis the banks,
our cases after Banco Filipino have fashioned the rule that any
increase in the rate of interest made pursuant to an escalation
clause must be the result of agreement between the parties.

This Court declared the increases unilaterally imposed by PNB to be

in violation of the principle of mutuality as embodied in Art. 1308 of
the Civil Code, which provides that "[t]he contract must bind both
contracting parties; its validity or compliance cannot be left to the
will of one of them."
G. Risk Based Capital – Sec. 34, GBL

H. Limitation on the Borrowing from Government-Owned or

Controlled Bank – Sec. 16, Article XI of the 1987
Constitution
I. Single Borrower’s Limit – Sec. 35.1 in relation to Sec. X303
of Manual of Regulations for Banks (MORB)
1. Exception – 35.2, GBL
J. Inclusion to SBL – Sec. X3039 (c) MORB
K. Exclusions from SBL – Sec. X303(e ) MORB
L. DOSRI Accounts – Sec. 36, GBL
1. Requisites – BSP Circular 170, in relation to Article 26,
NCBA
Subsidiary Corporation - A corporation more than 50% of the
voting stock of which is owned or controlled, directly or indirectly,
through one or more intermediaries by another corporation, which
thereby become a parent corporation.

An affiliate corporation is one where total government ownership

comprises less than the majority of its outstanding capital stock
and its outstanding voting capital stock.

DOSRI - directors, officers, stockholders and their related interest

Sec. 36, GBL - 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 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.
*Who is a director?
>one named as such in the Articles of Incorporation (first set of
directors)
>director who is duly elected by the stockholders
>a person who succeeded to any vacancy in a seat in the BOD
Board of Directors

*Who is an officer?
> 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/quasi-bank/trust entity, or those whose
duties as such are defined in the by-laws, or are generally
known to be the officers of the bank/quasi-bank/trust entity
(or any of its branches and officers other than the head office)
either through announcement, representation, publication or any
kind of communication made by the bank/quasi-bank/trust entity:
Provided, That a person holding the position of Chairman or Vice-
Chairman of the Board or another position in the board shall not be
considered as an officer unless the duties of his position in the
board include functions of management such as those ordinarily
performed by regular officers; Provided, further, That members of a
group or committee, including sub-groups or sub-committees,
whose duties include functions of management such as those
ordinarily performed by regular officers, and are not purely
recommendatory or advisory, shall likewise be considered as
officers. (Subsection X142.1 and Section 4142Q Definition of
Officers)
> Senior officers of that bank or corporation
> persons are identified as such by the AOI or in the corporations
by laws

>president or the chief executive officer and the senior officers -

executive vice president, senior vice president,trust officers and
(catch all provision) officers as may be mentioned in the banks’ or
corporation’s by-laws
> president, treasurer, secretary and compliance officer in case of
corporations imbued with public interest, (catch all provision) and
those named as officers in the by-laws [in a corporation]

*Who is a stockholder?
> A stockholder must own at least 1% or more of the total
authorized/subscribed capital stock (outstanding capital stock) of
the bank. [minimum requirement to be considered as DOSRI]

>stockholder is a person on record or recognized as such in the

corporation’s books (stock and transfer book of the corporation)

>banks are organized as stock corporations. no bank is organized

as non-stock corporation

*Who is a related interest?

>a related interest of directors, officers and stockholders.
> spouse of DOS or relative by affinity, consanguinity or relative by
adoption, partnership where the related interest is the general
partner.
> corporation – shareholder who holds at least 20%
> co-owner of the DOSRI
>
>only limited to the one degree consanguinity or affinity -- meaning
the restriction of granting loans to RI as to DOSRI is up to one
degree

*How do you know your degree with a relative?

>look for your common relative

> usually what is given is uncle and cousin in BAR exam.

*What is affinity?
>relationship relative of marriage

*DOSRI borrowing is not prohibited by law, it is only regulated by

law

*Why is there a DOSRI borrowing?

>to prevent abuses. to prevent DOSRIs from taking advantage of
their position

*If a borrower is a DOSRI, they must comply with the requirements

or conditions for the DOSRI borrowing to be valid

1.Requisites
BSP Circular 170, in relation to Art. 26, NCBA

Sec. 26, NCBA - Bank Deposits and Investments. _ Any director,

officer or stockholder who, together with his related interest,
contracts a loan or any form of financial accommodation from:
(1) his bank; or
(2) from a bank
(a) which is a subsidiary of a bank holding company of which both
his bank and the lending bank are subsidiaries or
(b) 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.

 DOSRI borrows from his bank or D with RI borrows from his

bank .
 Holding company, A. 2 subsidiaries, B and C. D borrows from B.

Requirements:
> must be a DOSRI.
1.Written consent of the majority of all the BOD excluding the
director who is requesting for a loan
2.Transaction approving should be recorded in the
corporation’s books.
3.There must be reposting with the SED (Supervision and
Examination Department) of the BSP
4. There must be execution of a waiver of the confidentiality of
bank deposits
5.Arm’s length rule: the dealings of the bank with the DOSRI
should be under the terms not less favorable to the bank as
compared to those offered to third persons.
6.The amount of loan should be limited to the unencumbered
deposits or to the paid in capital contribution of the DOSRI.

> Loan Syndication: syndicate among creditors. 3 or more bank

lenders are involved. Exceeded the
single’s borrowing limit.
-lead bank: proponent of the loan syndicate
-security: Mortgage trust indenture

> Sweetheart – 2 only

> Loan threshold – loan value

*What are the acts regulated in DOSRI borrowing?

1.the borrowing itself
2.as a guarantor,
3.endorser
4.surety
5.obligor or
6.in any contractual liability with the bank

A bank and B bank are subsidiaries of C, a holding company. Pedro

is a director of A bank. Can he secure a loan accommodation from
B bank?
>It is covered by the DOSRI
>it is a scenario wherein Pedro’s bank and the lending bank are
subsidiaries of a holding or a parent company

A bank and B bank. Pedro is a director of A bank. The controlling

stockholder in both companies is Maria. Should Pedro decide to
secure a loan from B bank, will that borrowing be covered by
DOSRI?
>Yes. Under Sec. 26, NCBA
> it is a scenario wherein the 2 banks of which the controlling
shares of both are in the name of one person

Assuming that Maria is an elected BOD of both company, how do

you call the directorship of Maria?
>interlocking directorship

*An interlocking director - is a director of 2 companies

*threshold of non risk loan: not covered by SBL

>fully secured loan

*non risk loans - is not in DOSRI but is found in SBL (under

exclusions of SBL)

*DOSRI has not provided for the kind of loan

M.Loan Syndication – Gateway Electronics Corporation vs.

Land Bank of the Philippines, GR NO> 155217 & 156393
>is a situation wherein there is a group of bank lenders, normally 3
or more bank lenders, which occurs when the loan to be extended is
so huge such that a bank already exceeded the SBL in favor to that
borrower

A wants to loan Php 100B. He went to BDO to loan this amount

and BDO can only extend a loan for Php 25B so BDO will
encourage other lender banks to co-finance the loan of the
borrower.
The bank who initiates the grouping of these lenders is called the
lead bank.

In loan syndication, it is normally secured by the security of MTI

(Mortgage Trust Indenture) which is a mortgage wherein the lender
will share a proportion of the amount loan and the mortgage

If BDO’s proportion in the loan is 50% then BDO’s proportion in the

mortgage is also 50%. If China bank has 25% sharei in the loan
then it has a proportion of 25% in the MTI.

It is a mortgage wherein several lenders have lien or encumbrance

over one mortgage. - MTI

What if there are only one or 2 lenders, will there be a loan

syndication?
>No. There is a sweetheart deal.

In the case at bar, a perfected contract for the sharing of collaterals

is evident from the exchange of communications between Landbank
and petitioner and the participating banks, as well as in the
Memorandum of Understanding executed by petitioner and the
participating banks, including Landbank. In its July 31, 1996 letter
to petitioner, Landbank stated that it is "willing to submit the
properties covered by the real estate mortgage (REM) in its favor as
part of [petitioner's] assets that will be covered by a Mortgage Trust
Indenture (MTI)." Thus, the Information Memorandum distributed
by Landbank to entice other banks to participate in the loan
syndication, expressly stated that the security for the syndicated
loan will be the "MTI on project assets including land, building and
equipment."

Landbank can be compelled to comply with its obligation to share

with the other participating banks of the loan syndication the
properties mortgaged to it by petitioner and to execute the
necessary contract that would implement said collateral sharing
agreement.

*pari passu - proportionate interest

N. Loan Threshold
 loanable amount of the security being offered.
 security may either be real or personal property.
 a mortgage is an accessory contract, the principal contract is a
contract of loan.
 you cannot mortgage a property, may it be real or personal,
unless you have the predisposal thereof.
 you must be the owner of the property.

1. Real Estate – Sec. 37, GBL

Sec. 37, GBL. 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.

 dragnet clause or the so called blanket clause - statement

incorporated in a REM stating that the obligation will secure
 present and future obligations of the mortgagor (after acquired
obligation).

2. Chattel – Sec. 38, GBL

Sec. 38, GBL - 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.

 chattel > personal property including intangibles

 there are amendments passed in 2018
- Personal Properties Security Act
- Sec. 68 > implementation is hold in abeyance until such
time that they can implement it

- Important inclusion in chattel mortgage: affidavit of good

faith: a statement that the security is being offered to
secure an exiting obligation.

O. Foreclosure and Redemption of Collaterals

1. Judicial vs. Extrajudicial Foreclosure – Rule 68 of the
Rules of Court vs. Act 3135, as amended “An Act to
Regulate the Sale of Property under Special Powers
Inserted in or Annexed to the Real Estate Mortgages”;
Huerta Alba Resort, Inc. vs. CA, GR NO. 128567
 In a mortgage, there are 2 parties -- the mortgagor and the
mortgagee.
- Mortgagor is the one who offered the property as a security for
his obligation.
>though he may not be the principal debtor himself, in which case
the mortgage is referred to as third party mortgage
>if he is the one who borrowed and at the same time offered the
property as security, then it is referred to as a first party mortgage

Pedro borrowed the loan and Maria offered the security. Maria is
referred to as a 3rd party mortgage.
Foreclosure is proper whenever the debtor or the principal debtor as
the case may be, who at one point maybe the mortgagor himself,
and whenever the debtor is in default, the mortgage may be called
upon in which case that mortgage will be foreclosed.

There are 2 kinds:

1. Judicial - Sec 68 of the ROC
 There should be compliance with Sec. 68

2.Extrajudicial
*real property
-judicial - sec 68
-extrajudicial - Act 3135 as amended

*When is judicial foreclosure proper and when is extrajudicial

foreclosure proper?
> judicial foreclosure is upon the option of the mortgagee - he will
file a petition with the court - his discretion
>extrajudicial foreclosure - is proper only when that authority is
given to the mortgagee to foreclose the property extrajudicially -
there will be a clause of an SPA in favor of the mortgagee to
foreclose the property

>in the absence of a SPA given by the mortgagor in favor of the

mortgagee then extrajudicial foreclosure would not be proper

*if there is no SPA clause, then the foreclosure is only judicial

foreclosure

*SPA is an authority given to the mortgagee to foreclose the

property extrajudicially

On the distinction between the equity of redemption and right of

redemption, the case of Gregorio Y. Limpin vs. Intermediate
Appellate Court,7 comes to the fore. Held the Court in the said case:

"The equity of redemption is, to be sure, different from and should

not be confused with the right of redemption.

The right of redemption in relation to a mortgage – understood in

the sense of a prerogative to re-acquire mortgaged property after
registration of the foreclosure sale – exists only in the case of the
extrajudicial foreclosure of the mortgage. No such right is
recognized in a judicial foreclosure except only where the mortgagee
is the Philippine National Bank or a bank or banking institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to
the mortgagor the right of redemption within one (1) year from the
registration of the sheriff's certificate of foreclosure sale.

Where the foreclosure is judicially effected, however, no equivalent

right of redemption exists. The law declares that a judicial
foreclosure sale 'when confirmed be an order of the court. . . . shall
operate to divest the rights of all the parties to the action and to
vest their rights in the purchaser, subject to such rights of
redemption as may be allowed by law.' Such rights exceptionally
'allowed by law' (i.e., even after confirmation by an order of the
court) are those granted by the charter of the Philippine National
Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A.
337). These laws confer on the mortgagor, his successors in interest
or any judgment creditor of the mortgagor, the right to redeem the
property sold on foreclosure — after confirmation by the court of
the foreclosure sale — which right may be exercised within a period
of one (1) year, counted from the date of registration of the
certificate of sale in the Registry of Property.

But, to repeat, no such right of redemption exists in case of judicial

foreclosure of a mortgage if the mortgagee is not the PNB or a bank
or banking institution. In such a case, the foreclosure sale, 'when
confirmed by an order of the court. . . shall operate to divest the
rights of all the parties to the action and to vest their rights in the
purchaser.' There then exists only what is known as the equity of
redemption. This is simply the right of the defendant mortgagor to
extinguish the mortgage and retain ownership of the property by
paying the secured debt within the 90-day period after the
judgment becomes final, in accordance with Rule 68, or even after
the foreclosure sale but prior to its confirmation.

Section 2, Rule 68 provides that —

'. . If upon the trial . . the court shall find the facts set forth in the
complaint to be true, it shall ascertain the amount due to the
plaintiff upon the mortgage debt or obligation, including interest
and costs, and shall render judgment for the sum so found due and
order the same to be paid into court within a period of not less than
ninety (90) days from the date of the service of such order, and that
in default of such payment the property be sold to realize the
mortgage debt and costs.'

This is the mortgagor's equity (not right) of redemption which, as

above stated, may be exercised by him even beyond the 90-day
period 'from the date of service of the order,' and even after the
foreclosure sale itself, provided it be before the order of confirmation
of the sale. After such order of confirmation, no redemption can be
effected any longer."8 (Emphasis supplied)
2. Redemption (Mortgagee is a Bank or a Quasi-bank)
a. Natural Person – Sec. 6, Act 3135 in relation to
Section 47, GBL; See BSP Circular No. 337 Series of
2002;
b. Juridical Person – Sec. 47, GBL; Goldenway
Merchandising Corporation vs. Equitaable PCI Bank, GR
No. 195540
c. Amount – sec. 47, GBL
XI. THE BANGKO SENTRAL NG PILIPINAS
A. CREATION – SEC. 2, NCBA as amended by RA 11211
"Sec. 2. Creation of the Bangko Sentral.— There is hereby
established an independent central monetary authority, which
shall be a body corporate known as the Bangko Sentral ng
Pilipinas, hereafter referred to as the Bangko Sentral.

"The capital of the Bangko Sentral shall be Two hundred billion

pesos (₱200,000,000,000), to be fully subscribed by the
Government of the Republic of the Philippines, hereafter
referred to as the Government: Provided, That the increase in
capitalization shall be funded solely from the declared
dividends of the Bangko Sentral in favor of the National
Government. For this purpose, any and all declared dividends of
the Bangko Sentral in favor of the National Government shall be
deposited in a special account in the General Fund, and
earmarked for the payment of Bangko Sentral’s increase in
capitalization. Such payment shall be released and disbursed
immediately and shall continue until the increase in capitalization
has been fully paid."

1. Independent Central Monetary Authority: body corporate: BSP.

2. Capital: two hundred billion pesos
3. Capital is subscribed by the Government of the Republic of the
Philippines
4. Increase in capitalization: funded solely from the declared
dividends of the BSP in favor of the National Government.
5. Dividends: deposited in a special account in the General Fund.
Earmarked for the payment of BSP’s increase in capitalization.

 The BSP is not a bank. It is a regulator of banks.

It is independent in the sense that it enjoys fiscal autonomy and
administrative autonomy.
 Fiscal autonomy: it has a wide latitude on how its resources will
be allocated or utilized. Outside from the control of the
government
 Administrative autonomy: freedom from control of other
government agencies. The decision of the BSP through its MB,
is generally, not subject of review by the courts or other
government agencies.

B. RESPONSIBILITY AND OBJECTIVE – SEC. 3, NCBA as

amended.
"Sec. 3. Responsibility and Primary Objective. - The Bangko
Sentral shall provide policy directions in the areas of money,
banking, and credit. It shall have supervision over the
operations of banks and exercise such regulatory and
examination powers as provided in this Act and other pertinent
laws over the quasi-banking operations of non-bank financial
institutions. As may be determined by the Monetary Board, it shall
likewise exercise regulatory and examination powers over
money service businesses, credit granting businesses, and
payment system operators. The Monetary Board is hereby
empowered to authorize entities or persons to engage in money
service businesses.
"The primary objective of the Bangko Sentral is to maintain
price stability conducive to a balanced and sustainable growth
of the economy and employment. It shall also promote and
maintain monetary stability and the convertibility of the peso.
"The Bangko Sentral shall promote financial stability and closely
work with the National Government, including, but not limited
to, the Department of Finance, Securities and Exchange
Commission, the Insurance Commission, and the Philippine
Deposit Insurance Corporation.
"The Bangko Sentral shall oversee the payment and settlement
systems in the Philippines, including critical financial market
infrastructures, in order to promote sound and prudent
practices consistent with the maintenance of financial
stability.

"In the attainment of its objectives, the Bangko Sentral shall

promote broad and convenient access to high quality financial
services and consider the interest of the general public."

Responsibilities of the BSP:

1. Provide policy directions in the areas of money, banking,
and credit.
2. Supervision over the operations of banks.
3. Exercise such regulatory and examination powers as
provided in this Act and other pertinent laws over the quasi-
banking operations of non-bank financial institutions.
4. Exercise regulatory and examination powers over money
service businesses, credit granting businesses, and payment
system operators.
5. Authorize entities or persons to engage in money service
businesses.
6. Oversee the payment and settlement systems in the
Philippines, including critical financial market infrastructures,
in order to promote sound and prudent practices consistent
with the maintenance of financial stability.

Primary Objective:
1. Maintain price stability conducive to a balanced and
sustainable growth of the economy and employment. It shall
also promote and maintain monetary stability and the
convertibility of the peso.
2. "The Bangko Sentral shall promote financial stability and
closely work with the National Government.

C. COMPOSITION OF THE MONETARY BOARD – SEC. 6, NCBA

Sec 6, NCBA - Composition of the Monetary Board.
_ The powers and functions of the Bangko Sentral shall be exercised
by the Bangko Sentral Monetary Board, hereafter referred to as the
Monetary Board, composed of seven (7) members appointed by
the President of the Philippines for a term of six (6) years.

The seven (7) members are:

(a) the Governor of the Bangko Sentral, who shall be the

Chairman of the Monetary Board. The Governor of the Bangko
Sentral shall be head of a department and his appointment shall be
subject to confirmation by the Commission on Appointments.
Whenever the Governor is unable to attend a meeting of the Board,
he shall designate a Deputy Governor to act as his alternate:
Provided, That in such event, the Monetary Board shall designate
one of its members as acting Chairman;

(b) a member of the Cabinet to be designated by the President

of the Philippines. Whenever the designated Cabinet Member is
unable to attend a meeting of the Board, he shall designate an
Undersecretary in his Department to attend as his alternate; and

(c) five (5) members who shall come from the private sector, all
of whom shall serve full-time: Provided, however, That of the
members first appointed under the provisions of this subsection,
three (3) shall have a term of six (6) years, and the other two (2),
three (3) years.

No member of the Monetary Board may be reappointed more than

once.
 The BSP is manned by the Monetary Board.
 Cabinet: Cabinet Secretary – head of the Cabinet/Department
 The President appoints the members of the MB.

D. VACANCIES – SEC. 7, NCBA

Sec. 7, NCBA - Vacancies. _ Any vacancy in the Monetary Board

created by the death, resignation, or removal of any member shall
be filled by the appointment of a new member to complete the
unexpired period of the term of the member concerned.

 Appointment.

E. QUALIFICATIONS – SEC. 8, NCBA

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

1. Natural-born citizens of the Philippines.

2. At least thirty-five (35) years of age; the Governor who
should at least be forty (40) years of age,
3. Good moral character, of unquestionable integrity, of known
probity and patriotism.
4. With recognized competence in social and economic
disciplines.
F. DISQUALIFICATIONS – SEC. 9, NCBA
Sec. 9, NCBA - Disqualifications. _ In addition to the
disqualifications imposed by Republic Act No. 6713, a member of
the Monetary Board is disqualified from being a director, officer,
employee, consultant, lawyer, agent or stockholder of any bank,
quasi-bank or any other institution which is subject to supervision or
examination by the Bangko Sentral, in which case such member
shall resign from, and divest himself of any and all interests in
such institution before assumption of office as member of the
Monetary Board.

The members of the Monetary Board coming from the private sector
shall not hold any other public office or public employment during
their tenure.

No person shall be a member of the Monetary Board if he has been

connected directly with any multilateral banking or financial
institution or has a substantial interest in any private bank in
the Philippines, within one (1) year prior to his appointment;
likewise, no member of the Monetary Board shall be employed in
any such institution within two (2) years after the expiration of his
term except when he serves as an official representative of the
Philippine Government to such institution.

RA no. 6715
Section 11. Penalties. - (a) Any public official or employee,
regardless of whether or not he holds office or employment in a
casual, temporary, holdover, permanent or regular capacity,
committing any violation of this Act shall be punished with a fine
not exceeding the equivalent of six (6) months' salary or suspension
not exceeding one (1) year, or removal depending on the gravity of
the offense after due notice and hearing by the appropriate body or
agency. If the violation is punishable by a heavier penalty under
another law, he shall be prosecuted under the latter statute.
Violations of Sections 7, 8 or 9 of this Act shall be punishable
with imprisonment not exceeding five (5) years, or a fine not
exceeding five thousand pesos (P5,000), or both, and, in the
discretion of the court of competent jurisdiction,
disqualification to hold public office.
Section. 7 – prohibited acts and transactions
Section. 8 – Statements and Disclosure
Section. 9 – Divestment. A public official or employee shall avoid
conflicts of interest at all times. When a conflict of interest arises,
he shall resign from his position in any private business enterprise
within thirty (30) days from his assumption of office and/or divest
himself of his shareholdings or interest within sixty (60) days from
such assumption.

 1. Resign from, and divest himself of any and all interests in

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

 The members of the MB coming from the private sector should

serve the BSP in a full time capacity

 3rd par:
-1 year period prior to appointment: if the appointee was a member
or has been connected with a multilateral banking/financial
institution or has substantial interest in any bank or quasi bank,
he cannot be appointed within a period of one year
-after the expiration of his term of office, he should not seek
employment in any such institution.
 Multilateral banking/financial institution: Asian Development
Bank, World Bank. It is a group of banking/financial institution

 Owning an interest is not a disqualification after serving as a

member of the MB.

G. REMOVAL – SEC. 10, NCBA

Sec. 10, NCBA - Removal. _ The President may remove any
member of the Monetary Board for any of the following reasons:

(a) If the member is subsequently disqualified under the

provisions of Section 8 of this Act; or

(b) If he is physically or mentally incapacitated that he cannot

properly discharge his duties and responsibilities and such
incapacity has lasted for more than six (6) months; or

(c) If the member is guilty of acts or operations which are of

fraudulent or illegal character or which are manifestly opposed
to the aims and interests of the Bangko Sentral; or

(d) If the member no longer possesses the qualifications specified

in Section 8 of this Act.

*a member of the MB can only be removed by the President of the

Republic of the Philippines.

H. EXAMINATION – SEC. 28, NCBA

Sec. 28, NCBA - Examination and Fees. _ The supervising and
examining department head, personally or by deputy, shall
examine the books of every banking institution once in every
twelve (12) months, and at such other times as the Monetary
Board by an affirmative vote of five (5) members, may deem
expedient and to make a report on the same to the Monetary Board:
Provided, That there shall be an interval of at least twelve (12)
months between annual examinations.

The bank concerned shall afford to the head of the appropriate

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

Banking and quasi-banking institutions which are subject to

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

Examination may be classified into two:

1. Regular or periodic examination by the BSP: is done by the
BSP once every 12 months or with an interval of 12 months.
2. Special examination by the BSP: conducted with the interval of
less than 12 months.
- Subject to the vote of the MB (at least 5)

 No restraining order or injunction shall be issued by the court

enjoining the BSP from examining the banking institution.
 There are only 2 requisites for the granting of restraining order or
injunction under Sec 25, NCBA
1. Provide proof that the examination is plainly arbitrary and
made in bad faith.
2. Posting of a bond as may be fixed by the court.

The inspected bank should:

1. Afford the full opportunity to examine its books, cash and
available assets and general condition at any time during
banking hours when requested to do so by the Bangko
Sentral.
2. None of the reports and other papers relative to such
examinations shall be open to inspection by the public.
- Except: when publicity is incidental to the proceedings
authorized in this Act
- or is necessary for the prosecution of violations in connection
with the business of such institutions.
Banking and quasi-banking institutions shall pay:
- Within the first thirty (30) days of each year, an annual fee in
an amount equal to a percentage as may be prescribed by the
Monetary Board of its average total assets during the
preceding year as shown on its end-of-month balance sheets,
after deducting cash on hand and amounts due from banks,
including the Bangko Sentral and banks abroad.

I. SUPERVISORY POWERS – SEC. 4, GBL as amended by RA No.

11211

Sec. 4, GBL - Supervisory Powers. — The operations and activities

of banks shall be subject to supervision of the Bangko Sentral.
"Supervision" shall include the following:
4.1. The issuance of rules of conduct or the establishment of
standards of operation for uniform application to all institutions
or functions covered, taking into consideration the distinctive
character of the operations of institutions and the substantive
similarities of specific functions to which such rules, modes or
standards are to be applied;

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.
J. INJUNCTION – SEC. 25, GBL as amended by RA No. 11211

Sec 25, NCBA - Sec. 23. Supervision and Examination. - The

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

"For purposes of this section, a subsidiary means a corporation

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

"The Bangko Sentral shall have regulatory authority over, and

conduct regular or special examinations of, entities which under
this Act or by special laws are subject to its jurisdiction.

"The Bangko Sentral shall establish a mechanism for issues arising

from bank examinations. It shall be independent and reports
directly to the Monetary Board, without prejudice to the authority of
the Bangko Sentral and its Monetary Board to take enforcement
and supervisory actions against supervised entities.

"The department heads and the examiners of the supervising

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

"No restraining order or injunction shall be issued by the court

enjoining the Bangko Sentral from examining any institution
subject to supervision or examination by the Bangko Sentral,
unless there is convincing proof that the action of the Bangko
Sentral is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or judge of the court
in which the action is pending a bond executed in favor of the
Bangko Sentral, in an amount to be fixed by the court. The
provisions of Rule 58 of the New Rules of Court insofar as they are
applicable and not inconsistent with the provisions of this section
shall govern the issuance and dissolution of the restraining order or
injunction contemplated in this section."

 No restraining order or injunction shall be issued by the court

enjoining the BSP from examining the banking institution.
 There are only 2 requisites for the granting of restraining
order or injunction under Sec 25, NCBA
1. Provide proof that the examination is plainly arbitrary and
made in bad faith.
2. Posting of a bond as may be fixed by the court executed in
favor of the BSP, in an amount to be fixed by the court

K. MONEY FUNCTION OF THE BSP – SEC. 50 & 52, NCBA

Sec 50, NCBA - Exclusive Issue Power. _ The Bangko Sentral
shall have the sole power and authority to issue currency,
within the territory of the Philippines. No other person or entity,
public or private, may put into circulation notes, coins or any
other object or document which, in the opinion of the Monetary
Board, might circulate as currency, nor reproduce or imitate
the facsimiles of Bangko Sentral notes without prior authority
from the Bangko Sentral.
The Monetary Board may issue such regulations as it may deem
advisable in order to prevent the circulation of foreign currency
or of currency substitutes as well as to prevent the
reproduction of facsimiles of Bangko Sentral notes.

The Bangko Sentral shall have the authority to investigate, make

arrests, conduct searches and seizures in accordance with law, for
the purpose of maintaining the integrity of the currency.

Violation of this provision or of any regulation issued by the

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

Sec 52, NCBA - Legal Tender Power. All notes and coins issued by
the Bangko Sentral shall be fully guaranteed by the Government of
the Republic of the Philippines and shall be legal tender in the
Philippines for all debts, both public and private: Provided, however,
That, unless otherwise fixed by the Monetary Board, coins shall be
legal tender in amounts not exceeding Fifty pesos (P50) for
denominations of twenty-five centavos and above, and in
amounts not exceeding Twenty pesos (P20) for denominations
of ten centavos or less.

 Power to issue currency

*currency: Philippine notes and coins issued by the BSP

L. CONCEPT OF LEGAL TENDER – BSP CIRCULAR NO. 537

SERIES OF 2006
BSP Circular No. 537 Series of 2006 - the maximum amount of
coins to be considered as legal tender is adjusted as follows:
1. One thousand pesos (P1,000.00) for denominations of 1-Piso, 5-
Piso and 10-Piso coins; and

2. One hundred pesos (P100.00) for denominations of 1-sentimo, 5-

sentimo, 10-sentimo, and 25-sentimo coins.

 Under the Negotiable Instrument Law, a negotiable instrument

is not considered as legal tender just like in the case of check.

 Philippine notes and coins issued by the BSP pursuant to its

money function.

*Legal tender is the money function of the BSP

 Money function is the power of the BSP to issue currencies.
 Currency pertains to notes and coins issued by the BSP which
note or coin is sufficient to extinguish a debt or obligation.

 When we say legal tender, the creditor should not refuse

acceptance thereof - refusal: violation of BSP order.
 Notes are also referred to as bill: it has no maximum limit for it
to be considered as legal tender.
-Php 20 bill in the amount of Php1M is considered legal tender

 limit applies only to coins.

*legal tender: notes or coins issued by the BSP sufficient to

extinguish a debt or obligation.

TRUTH IN LENDING
I. DUTY TO DISCLOSE
II. EFFECT OF NON-COMPLIANCE

ANTI-MONEY LAUNDERING
I. GOVERNING LAWS – RA 9160 or the “Anti-Money Laundering
Act of 2001,” as amended by RA 9194 (AMLA) was approved and
effective in 2003 ; RA 10167 amending Sections 10 and 11 of
RA 9160 of July 6, 2012; RA 10365 of March 2013; new
amendment: Nov. 4, 2017 RA 10927

II. DECLARATION OF POLICY – SEC. 2, AMLA

Section 2. Declaration of Policy. – It is hereby declared the policy
of the State to protect and preserve the integrity and
confidentiality of bank accounts and to ensure that the
Philippines shall not be used as a money laundering site for the
proceeds of any unlawful activity. Consistent with its foreign
policy, the State shall extend cooperation in transnational
investigations and prosecutions of persons involved in money
laundering activities whenever committed.

1. State: to protect and preserve the integrity and

confidentiality of bank accounts.
2. State: to ensure that the Philippines shall not be used as a
money laundering site for the proceeds of any unlawful
activity.
3. State: shall extend cooperation in transnational
investigations and prosecutions of persons involved in money
laundering activities whenever committed.

Exceptions from bank secrecy under the AMLA:

1. Kidnapping for ransom
2. Violations of the Dangerous Drugs Act
3. Hijacking
4. Destructive arson
5. Murder
6. Felonies and offenses of a similar nature which are
punishable under the penal laws of other countries???
7. Terrorism and conspiracy to commit terrorism
III. MONEY LAUNDERING – SEC. 4, RA 10365
A. PERSONS LIABLE
SEC. 4. Money Laundering Offense. – Money laundering is
committed by any person who, knowing that any monetary
instrument or property represents, involves, or relates to the
proceeds of any unlawful activity:
"(a) transacts said monetary instrument or property;
"(b) converts, transfers, disposes of, moves, acquires, possesses
or uses said monetary instrument or property;
"(c) conceals or disguises the true nature, source, location,
disposition, movement or ownership of or rights with respect to
said monetary instrument or property;
"(d) attempts or conspires to commit money laundering offenses
referred to in paragraphs (a), (b) or (c);
"(e) aids, abets, assists in or counsels the commission of the
money laundering offenses referred to in paragraphs (a), (b) or (c)
above; and
"(f) performs or fails to perform any act as a result of which he
facilitates the offense of money laundering referred to in
paragraphs (a), (b) or (c) above.
"Money laundering is also committed by any covered person who,
knowing that a covered or suspicious transaction is required
under this Act to be reported to the Anti-Money Laundering
Council (AMLC), fails to do so."
- first: any person
- second: covered person. Deliberate failure to report an STR or
CR to the AMLC.
- predicate crime: unlawful activity
- these are the acts if the offender is any person.
- monetary instrument
B. ELEMENTS
1. Committed by any person.
2. That person knows/knowledgeable.
3. That the monetary instrument or property represents, involves,
or relates to the proceeds of the abovementioned unlawful activities.

(c) “Monetary instrument” refers to:

(1) coins or currency of legal tender of the Philippines, or of any
other country;
(2) drafts, checks and notes;
(3) securities or negotiable instruments, bonds, commercial papers,
deposit certificates, trust certificates, custodial receipts or deposit
substitute instruments, trading orders, transaction tickets and
confirmations of sale or investments and money market
instruments; and
(4) other similar instruments where title thereto passes to another
by endorsement, assignment or delivery.

IV. UNLAWFUL ACTIVITIES/ PREDICATE CRIMES of Money

Laundering (Criminal case) – SEC.3 (i), AMLA AS AMENDED
(SEC. 2, RA 10365)
- classified as a derivative crime; its prosecution relies from
another crime
- there is no prosecution under AMLA unless you have
committed the predicate crimes enumerated in these
- iota of proof of commission of these activities
Section 3(i) of the same Act is hereby amended to read as follows:
"(i) ‘Unlawful activity’ refers to any act or omission or series or
combination thereof involving or having direct relation to the
following:
"(1) Kidnapping for ransom under Article 267 of Act No. 3815,
otherwise known as the Revised Penal Code, as amended;
"(2) Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of Republic
Act No. 9165, otherwise known as the Comprehensive Dangerous
Drugs Act of 2002;
"(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No.
3019, as amended, otherwise known as the Anti-Graft and
Corrupt Practices Act;
"(4) Plunder under Republic Act No. 7080, as amended;
"(5) Robbery and extortion under Articles 294, 295, 296, 299, 300,
301 and 302 of the Revised Penal Code, as amended;
"(6) Jueteng and Masiao punished as illegal gambling under
Presidential Decree No. 1602;
"(7) Piracy on the high seas under the Revised Penal Code, as
amended and Presidential Decree No. 532;
"(8) Qualified theft under Article 310 of the Revised Penal Code, as
amended;
"(9) Swindling under Article 315 and Other Forms of Swindling
under Article 316 of the Revised Penal Code, as amended;
"(10) Smuggling under Republic Act Nos. 455 and 1937;
"(11) Violations of Republic Act No. 8792, otherwise known as the
Electronic Commerce Act of 2000;
"(12) Hijacking and other violations under Republic Act No. 6235;
destructive arson and murder, as defined under the Revised Penal
Code, as amended;
"(13) Terrorism and conspiracy to commit terrorism as defined
and penalized under Sections 3 and 4 of Republic Act No. 9372;
"(14) Financing of terrorism under Section 4 and offenses
punishable under Sections 5, 6, 7 and 8 of Republic Act No.
10168, otherwise known as the Terrorism Financing Prevention
and Suppression Act of 2012:
"(15) Bribery under Articles 210, 211 and 211-A of the Revised
Penal Code, as amended, and Corruption of Public Officers under
Article 212 of the Revised Penal Code, as amended;
"(16) Frauds and Illegal Exactions and Transactions under
Articles 213, 214, 215 and 216 of the Revised Penal Code, as
amended;
"(17) Malversation of Public Funds and Property under Articles
217 and 222 of the Revised Penal Code, as amended;
"(18) Forgeries and Counterfeiting under Articles 163, 166, 167,
168, 169 and 176 of the Revised Penal Code, as amended;
"(19) Violations of Sections 4 to 6 of Republic Act No. 9208,
otherwise known as the Anti-Trafficking in Persons Act of 2003;
"(20) Violations of Sections 78 to 79 of Chapter IV, of Presidential
Decree No. 705, otherwise known as the Revised Forestry Code of
the Philippines, as amended;
"(21) Violations of Sections 86 to 106 of Chapter VI, of Republic Act
No. 8550, otherwise known as the Philippine Fisheries Code of
1998;
"(22) Violations of Sections 101 to 107, and 110 of Republic Act No.
7942, otherwise known as the Philippine Mining Act of 1995;
"(23) Violations of Section 27(c), (e), (f), (g) and (i), of Republic Act
No. 9147, otherwise known as the Wildlife Resources
Conservation and Protection Act;
"(24) Violation of Section 7(b) of Republic Act No. 9072, otherwise
known as the National Caves and Cave Resources Management
Protection Act;
"(25) Violation of Republic Act No. 6539, otherwise known as the
Anti-Carnapping Act of 2002, as amended;
"(26) Violations of Sections 1, 3 and 5 of Presidential Decree No.
1866, as amended, otherwise known as the decree Codifying the
Laws on Illegal/Unlawful Possession, Manufacture, Dealing In,
Acquisition or Disposition of Firearms, Ammunition or
Explosives;
"(27) Violation of Presidential Decree No. 1612, otherwise known as
the Anti-Fencing Law;
"(28) Violation of Section 6 of Republic Act No. 8042, otherwise
known as the Migrant Workers and Overseas Filipinos Act of
1995, as amended by Republic Act No. 10022;
"(29) Violation of Republic Act No. 8293, otherwise known as the
Intellectual Property Code of the Philippines;
"(30) Violation of Section 4 of Republic Act No. 9995, otherwise
known as the Anti-Photo and Video Voyeurism Act of 2009;
"(31) Violation of Section 4 of Republic Act No. 9775, otherwise
known as the Anti-Child Pornography Act of 2009;
"(32) Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12 and
14 of Republic Act No. 7610, otherwise known as the Special
Protection of Children Against Abuse, Exploitation and
Discrimination;
"(33) Fraudulent practices and other violations under Republic
Act No. 8799, otherwise known as the Securities Regulation Code
of 2000; and
"(34) Felonies or offenses of a similar nature that are punishable
under the penal laws of other countries."

V. COVERED PERSON – SEC. 3 (a), AMLA AS AMENDED (SEC. 1,

RA 10365)

Section 3(a) of Republic Act No. 9160, as amended, is hereby

amended to read as follows:
"(a) ‘Covered persons’, natural or juridical, refer to:
"(1) banks, non-banks, quasi-banks, trust entities, foreign
exchange dealers, pawnshops, money changers, remittance
and transfer companies and other similar entities and all
other persons and their subsidiaries and affiliates supervised
or regulated by the Bangko Sentral ng Pilipinas (BSP);
"(2) insurance companies, pre-need companies and all other
persons supervised or regulated by the Insurance Commission
(IC);
"(3) (i) securities dealers, brokers, salesmen, investment
houses and other similar persons managing securities or
rendering services as investment agent, advisor, or
consultant,
(ii) mutual funds, close-end investment companies,
common trust funds, and other similar persons, and
(iii) other entities administering or otherwise dealing in
currency, commodities or financial derivatives based
thereon, valuable objects, cash substitutes and other similar
monetary instruments or property supervised or regulated by
the Securities and Exchange Commission (SEC);
"(4) jewelry dealers in precious metals, who, as a business, trade
in precious metals, for transactions in excess of One million pesos
(P1,000,000.00);
"(5) jewelry dealers in precious stones, who, as a business, trade
in precious stones, for transactions in excess of One million pesos
(P1,000,000.00);
"(6) company service providers which, as a business, provide any
of the following services to third parties:

(i) acting as a formation agent of juridical persons;

(ii) acting as (or arranging for another person to act as) a director
or corporate secretary of a company, a partner of a partnership,
or a similar position in relation to other juridical persons;
(iii) providing a registered office, business address or
accommodation, correspondence or administrative address for
a company, a partnership or any other legal person or
arrangement; and
(iv) acting as (or arranging for another person to act as) a nominee
shareholder for another person; and
- promoter: starts the corporation.
"(7) persons who provide any of the following services:
(i) managing of client money, securities or other assets;
(ii) management of bank, savings or securities accounts;
(iii) organization of contributions for the creation, operation or
management of companies; and
(iv) creation, operation or management of juridical persons or
arrangements, and buying and selling business entities.
- 8? He mentioned number 8.
"Notwithstanding the foregoing, the term ‘covered persons’ shall
exclude lawyers and accountants acting as independent legal
professionals in relation to information concerning their clients
or where disclosure of information would compromise client
confidences or the attorney-client relationship: Provided, That
these lawyers and accountants are authorized to practice in the
Philippines and shall continue to be subject to the provisions of
their respective codes of conduct and/or professional
responsibility or any of its amendments."

SEC. 6. Prosecution of Money Laundering.  –

"(a) Any person may be charged with and convicted of both the
offense of money laundering and the unlawful activity as herein
defined.
"(b) The prosecution of any offense or violation under this Act shall
proceed independently of any proceeding relating to the unlawful
activity.

VI. ANTI-MONEY LAUDNERING COUNCIL “AMLC” – SEC. 7,

AMLA AS AMENDED (SEC. 5 & 6, RA 10365)

"SEC.7. Creation of Anti-Money Laundering Council (AMLC). --

The Anti-Money Laundering Council is hereby created and shall be
composed of the Governor of the Bangko Sentral ng Pilipinas as
chairman, the Commissioner of the Insurance Commission and
the Chairman of the Securities and Exchange Commission as
member. The AMLC shall act unanimously in the discharge of its
functions as defined hereunder:
"(1) to require and receive covered or suspicious transaction
reports from covered institutions;
"(2) to issue orders addressed to the appropriate Supervising
Authority or the covered institutions to determine the true
identity of the owner of any monetary instrument or property
subject of a covered transaction or suspicious transaction
report or request for assistance from a foreign State, or believed by
the Council, on the basis of substantial evidence, to be, in whole
or in part, wherever located, representing, involving, or related to
directly or indirectly, in any manner or by any means, the proceeds
of an unlawful activity.
"(3) to institute civil forfeiture proceedings and all other remedial
proceedings through the Office of the Solicitor General;
"(4) to cause the filing of complaints with the Department of
Justice or the Ombudsman for the prosecution of money
laundering offenses;
"(5) to investigate suspicious transactions and covered
transactions deemed suspicious after an investigation by AMLC,
money laundering activities and other violations of this Act;
(new one) (6) to apply before the Court of Appeals, ex parte, for
the freezing of any monetary instrument or property alleged to
be laundered, proceeds from, or instrumentalities used in or
intended for use in any unlawful activity as defined in Section 3(i)
hereof;
"(7) to implement such measures as may be necessary and
justified under this Act to counteract money laundering;
"(8) to receive and take action in respect of, any request from
foreign states for assistance in their own anti-money laundering
operations provided in this Act;
"(9) to develop educational programs on the pernicious effects of
money laundering, the methods and techniques used in the money
laundering, the viable means of preventing money laundering and
the effective ways of prosecuting and punishing offenders;
"(10) to enlist the assistance of any branch, department, bureau,
office, agency, or instrumentality of the government, including
government-owned and -controlled corporations, in undertaking
any and all anti-money laundering operations, which may include
the use of its personnel, facilities and resources for the more
resolute prevention, detection, and investigation of money
laundering offenses and prosecution of offenders; and
"(11) to impose administrative sanctions for the violation of
laws, rules, regulations, and orders and resolutions issued
pursuant thereto."

(new one) "(12) to require the Land Registration Authority and

all its Registries of Deeds to submit to the AMLC, reports on all
real estate transactions involving an amount in excess of Five
hundred thousand pesos (P500,000.00) within fifteen (15) days
from the date of registration of the transaction, in a form to be
prescribed by the AMLC. The AMLC may also require the Land
Registration Authority and all its Registries of Deeds to submit
copies of relevant documents of all real estate transactions."

VII. PREVENTION OF MONEY LAUNDERING

A. CUSTOMER IDENTIFICATION – SEC. 9, (a), RA 9160
Section 9. Prevention of Money Laundering; Customer Identification
Requirements and Record Keeping. –
(a) Customer Identification, - Covered institutions shall establish
and record the true identity of its clients based on official
documents. They shall maintain a system of verifying the true
identity of their clients and, in case of corporate clients, require
a system of verifying their legal existence and organizational
structure, as well as the authority and identification of all persons
purporting to act on their behalf.
- exception: peso and foreign currency and non-checking
numbered accounts are allowed
B. RECORD KEEPING – SEC. 9 (b), RA 9160
(b) Record Keeping – All records of all transactions of covered
institutions shall be maintained and safely stored for five (5)
years from the date of transactions. With respect to closed
accounts, the records on customer identification, account files and
business correspondence, shall be preserved and safely stored for
at least five (5) years from the dates when they were closed.
- the records may be culled after five years. Culling means now
that they should be digitized.

C. REPORTING OF COVERED AND SUSPICIOUS TRANSACTION

– SEC. 9(c), RA 9160
"(c) Reporting of Covered and Suspicious Transactions. –
Covered persons shall report to the AMLC all covered transactions
and suspicious transactions within five (5) working days from
occurrence thereof, unless the AMLC prescribes a different
period not exceeding fifteen (15) working days.
"Lawyers and accountants acting as independent legal professionals
are not required to report covered and suspicious transactions if
the relevant information was obtained in circumstances where
they are subject to professional secrecy or legal professional
privilege.
- If qualified as both, it will be reported as STR
Atty. – client relationship:
(1) Where legal advice of any kind is sought.
(2) from a professional legal adviser in his capacity as such,
(3) the communications relating to that purpose,
(4) made in confidence
(5) by the client,
(6) are at his instance permanently protected
(7) from disclosure by himself or by the legal advisor, (8) except the
protection be waived.

VIII. COVERED TRANSACTIONS – SEC. 3(b), AS AMENDED (SEC.

1, RA 9194); RA RULE 3(G), AMLA IRR

Section 3, paragraph (b) of Republic Act No. 9160 is hereby

amended as follows:
"(b) 'Covered transaction' is a transaction in cash or other
equivalent monetary instrument involving a total amount in
excess of Five hundred thousand pesos (PhP 500,000.00) within
one (1) banking day.
- Casino? – more than 5M
- Single 500k transaction but if more than one transaction it
falls under suspicious transaction.
- No automatic prosecution for money laundering, the
transaction will only be reported

IX. SUSPICIOUS TRANSACTION – SECTION 3 (B 1), as amended

(Sec. 2, RA 9194); Rule 3 (H), AMLA IRR
- Regardless of amount,
"(Section. 3 b-1) 'Suspicious transaction' are transactions with
covered institutions, regardless of the amounts involved, where
any of the following circumstances exist:
1. there is no underlying legal or trade obligation, purpose or
economic justification;
2. the client is not properly identified;
3. the amount involved is not commensurate with the business
or financial capacity of the client;
4. taking into account all known circumstances, it may be
perceived that the client's transaction is structured in order to
avoid being the subject of reporting requirements under the
Act;
5. any circumstances relating to the transaction which is observed
to deviate from the profile of the client and/or the client's past
transactions with the covered institution;
6. the transactions is in a way related to an unlawful activity or
offense under this Act that is about to be, is being or has been
committed; or
7. any transactions that is similar or analogous to any of the
foregoing."

X. SAFE HARBOR – SEC. 9, 2ND PARGRAPH, RA NO. 9160

When reporting covered transactions to the AMLC, covered
institutions and their officers, employees, representatives, agents,
advisors, consultants or associates shall not be deemed to have
violated Republic Act No. 1405, as amended; Republic Act No. 6426,
as amended; Republic Act No. 8791 and other similar laws, but are
prohibited from communicating, directly or indirectly, in any
manner or by any means, to any person the fact that a covered
transaction report was made, the contents thereof, or any other
information in relation thereto. In case of violation thereof, the
concerned officer, employee, representative, agent, advisor,
consultant or associate of the covered institution, shall be
criminally liable. However, no administrative, criminal or civil
proceedings, shall lie against any person for having made a
covered transaction report in the regular performance of his
duties and in good faith, whether or not such reporting
results in any criminal prosecution under this Act or any
other Philippine law.
- Reporting in good faith of STR or CR.
- Good faith is a conclusion. It is circumstantial.
- It does not cover telling it to other people, “chismis”
RULE 3, POWERS OF THE AMLC (Rules and Regulations
Implementing R.A. No. 9160)
Safe Harbor Provision. No administrative, criminal or civil
proceedings shall lie against any person for having made a covered
transaction report in the regular performance of his duties and in
good faith, whether or not such reporting results in any criminal
prosecution under the AMLA or any other Philippine law.

XI. AUTHORITY TO INQUIRE INTO BANK DEPOSITS –

Section 11, RA 9160
SEC. 11. Authority to Inquire into Bank Deposits. —
Notwithstanding the provisions of Republic Act No. 1405, as
amended; Republic Act No. 6426, as amended; Republic Act No.
8791, and other laws, the AMLC may inquire into or examine any
particular deposit or investment with any banking institution
or non-bank financial institution upon order of any competent
court in cases of violation of this Act when it has been
established that there is probable cause that the deposits or
investments involved are in any way related to a money laundering
offense: Provided, That this provision shall not apply to deposits
and investments made prior to the effectivity of this Act.
- As a rule, it should be with a prior court order.
- Be careful with the case of Republic vs. Ligot. It is said that
bank inquiry cannot be done ex-parte.
- Now, Sec. 11- ex parte inquiry is now allowed.
XII. BANK INQUIRY WIHOUT COURT ORDER

SECTION 8. Section 11 of the same Act is hereby amended to

read as follows:
“SEC. 11. Authority to Inquire into Bank Deposits. —
Notwithstanding the provisions of Republic Act No. 1405, as
amended, Republic Act No. 6426, as amended, Republic Act No.
8791, and other laws, the AMLC may inquire into or examine
any particular deposit or investment with any banking
institution or non-bank financial institution upon order of any
competent court in cases of violation of this Act, when it has
been established that there is probable cause that the deposits or
investments are related to an unlawful activity as defined in Section
3(i) hereof or a money laundering offense under Section 4 hereof;
except that no court order shall be required in cases involving
unlawful activities defined in Sections 3(i)(1), (2) and (12).
“To ensure compliance with this Act, the Bangko Sentral ng
Pilipinas (BSP) may inquire into or examine any deposit or
investment with any banking institution or non-bank financial
institution when the examination is made in the course of a
periodic or special examination, in accordance with the rules of
examination of the BSP.”

XIII. JURISDCITION OVER MONEY LAUNDERING

SEC. 5. Jurisdiction of Money Laundering Cases. — The regional
trial courts shall have jurisdiction to try all cases on money
laundering. Those committed by public officers and private
persons who are in conspiracy with such public officers shall be
under the jurisdiction of the Sandiganbayan.

XIV. FREEZE ORDER

SECTION 7. Section 10 of the same Act is hereby amended to
read as follows:
“SEC. 10. Freezing of Monetary Instrument or Property. — The
Court of Appeals, upon application ex parte by the AMLC and
after determination that probable cause exists that any monetary
instrument or property is in any way related to an unlawful activity
as defined in Section 3(i) hereof, may issue a freeze order which
shall be effective immediately. The freeze order shall be for a
period of twenty (20) days unless extended by the court.”
SEIDAC
- may kulang ito//
- Asset Preservation Order (APO)
- Remedy when there is a freeze order: motion to lift the freeze
order within that period of 20 days. ( max: 6 months)
- Freeze order
- SC is the only court that can issue a writ of injunction against
a freeze order issued by the CA.

A. ELEMENTS
1. Ex-Parte Petition – Sec. 7 (3) in relation to Sec. 10, RA 9160 as
amended.
SEC. 7. Creation of Anti-Money Laundering Council (AMLC). — The
Anti-Money Laundering Council is hereby created and shall be
composed of the Governor of the Bangko Sentral ng Pilipinas as
chairman, the Commissioner of the Insurance Commission and the
Chairman of the Securities and Exchange Commission as members.
The AMLC shall act unanimously in the discharge of its functions
as defined hereunder:
(3) to institute civil forfeiture proceedings and all other remedial
proceedings through the Office of the Solicitor General;

SECTION 7. Section 10 of the same Act is hereby amended to read

as follows:
“SEC. 10. Freezing of Monetary Instrument or Property. — The
Court of Appeals, upon application ex parte by the AMLC and after
determination that probable cause exists that any monetary
instrument or property is in any way related to an unlawful activity
as defined in Section 3(i) hereof, may issue a freeze order which
shall be effective immediately. The freeze order shall be for a period
of twenty (20) days unless extended by the court.” SEIDAC

2. Probable Cause – Ligot vs. Republic, GR No. 176944; Subido

Pagente Ceteza Mendoza & Binay Law Offices vs. CA GR No. 216914
a. Duration
b. Injunction
c. Remedy

B. CIVIL FORFEITURE
- only the forfeiture of the amount considered to be the
proceeds of an unlawful activity.
-Remedy: Section12 (b) – apply a verified petition that the same
belongs to him. Within 5 days from the date of finality of the
judgment of forfeiture.
-Section 12 (c ) – you can pay the value in the forfeiture order
it instead when it cannot be allocated, or substantially altered.

C. PROSECUTION OF MONEY LAUNDERING

- dismissed for a predicate crime: it does not follow that the
crime of money laundering follows.

Probable cause for indictment

Three kinds of probable cause
Define probable cause.
>> RA 11521- expanded the coverage of covered persons.

Financial Rehabilitation and Insolvency Act if 2010

RA 10142
A. State Policy
Section 2. Declaration of Policy. - It is the policy of the State to
encourage debtors, both juridical and natural persons, and their
creditors to collectively and realistically resolve and adjust
competing claims and property rights. In furtherance thereof, the
State shall ensure a timely, fair, transparent, effective and
efficient rehabilitation or liquidation of debtors. The
rehabilitation or liquidation shall be made with a view to ensure or
maintain certainty and predictability in commercial affairs, preserve
and maximize the value of the assets of these debtors, recognize
creditor rights and respect priority of claims, and ensure equitable
treatment of creditors who are similarly situated. When
rehabilitation is not feasible, it is in the interest of the State to
facilities a speedy and orderly liquidation of these debtor's assets
and the settlement of their obligations.

B. Nature of Proceedings
The proceedings under this Act shall be in rem. Jurisdiction over
all persons affected by the proceedings shall be considered as
acquired upon publication of the notice of the commencement
of the proceedings in any newspaper of general circulation in
the Philippines in the manner prescribed by the rules of procedure
to be promulgated by the Supreme Court.
The proceedings shall be conducted in a summary and non-
adversarial manner consistent with the declared policies of this
Act and in accordance with the rules of procedure that the
Supreme Court may promulgate.
- no full-blown trial. In lieu thereof, the rules provide for the
prohibited pleadings.
- it is a special proceeding
- the fact to be established is the insolvency of the debtor and it’s
viability to be rehabilitated.
C. Applicability to Pending Proceedings
Section 146. Application to Pending Insolvency, Suspension of
Payments and Rehabilitation Cases. - This Act shall govern all
petitions filed after it has taken effect. All further proceedings in
insolvency, suspension of payments and rehabilitation cases then
pending, except to the extent that in opinion of the court their
application would not be feasible or would work injustice, in which
event the procedures set forth in prior laws and regulations shall
apply.

On the second issue, petitioners argue that the trial court was correct
in including the subject properties in the ambit of the Stay Order.
Under the FRIA, the Stay Order may now cover third-party or
accommodation mortgages, in which the "mortgage is necessary for
the rehabilitation of the debtor as determined by the court upon
recommendation by the rehabilitation receiver."5 The FRIA likewise
provides that its provisions may be applicable to further proceedings
in pending cases, except to the extent that, in the opinion of the court,
their application would not be feasible or would work injustice.6

Sec. 146 of the FRIA, which makes it applicable to "all further

proceedings in insolvency, suspension of payments and
rehabilitation cases x x x except to the extent that in the opinion of
the court their application would not be feasible or would work
injustice," still presupposes a prospective application. The wording of
the law clearly shows that it is applicable to all further proceedings.
In no way could it be made retrospectively applicable to the Stay
Order issued by the rehabilitation court back in 2002.

D. Construction of FRIA Rules

The Court promulgated the Rules in order to provide a remedy for
summary and non-adversarial rehabilitation proceedings of
distressed but viable corporations. These Rules are to be
construed liberally to obtain for the parties a just,
expeditious, and inexpensive disposition of the case.  To be
sure, strict compliance with the rules of procedure is essential to the
administration of justice. Nonetheless, technical rules of procedure
are mere tools designed to facilitate the attainment of justice. Their
strict and rigid application should be relaxed when they hinder
rather than promote substantial justice.  Otherwise stated, strict
application of technical rules of procedure should be shunned when
they hinder rather than promote substantial justice.
-
E. Venue of Proceedings
Sec. 6, A.M. No. 12-12-11-SC
All petitions pursuant to these Rules shall be filed in the Regional
Trial Court (acting as special commercial court) which has
jurisdiction over the principal office of the debtor alleged to be
insolvent as specified in its articles of incorporation or partnership
or in its registration papers with the Department of Trade and
Industry (DTI) in cases of sole proprietorship, as the case may be.
- business address as per submission to the DTI or other proper
body.
- group of debtors: any of the principal office of the debtors.
F. Purposes
In Asiatrust Development Bank v. First Aikka Development, Inc., we
said that rehabilitation proceedings have a two-pronged purpose,
namely: (a) to efficiently and equitably distribute the assets of
the insolvent debtor to its creditors; and (b) to provide the
debtor with a fresh start, viz: Rehabilitation proceedings in our
jurisdiction have equitable and rehabilitative purposes. On the
one hand, they attempt to provide for the efficient and equitable
distribution of an insolvent debtor's remaining assets to its
creditors; and on the other, to provide debtors with a "fresh start"
by relieving them of the weight of their outstanding debts and
permitting them to reorganize their affairs. The purpose of
rehabilitation proceedings is to enable the company to gain a new
lease on life and thereby allow creditors to be paid their claims from
its earnings.
- The Rehab Gym
G. Concept of Insolvency
Section 4 (p) Insolvent shall refer to the financial condition of a
debtor that is generally unable to pay its or his liabilities as
they fall due in the ordinary course of business or has liabilities
that are greater than its or his assets.

i. Actual vs. Technical

A reading of Sec. 4-1 shows that there are two kinds of insolvency
contemplated in it:
(1) actual insolvency, i.e., the corporation’s assets are not enough
to cover its liabilities; and
(2) technical insolvency defined under Sec. 3-12, i.e., the
corporation has enough assets but it foresees its inability to pay its
obligations for more than one year.
- liquidity problem. (It’s an issue on current assets, issue on
convertibility of cash)
H. Debtor – Sec. 4 (k) & 5
(k) Debtor shall refer to, unless specifically excluded by a
provision of this Act, a sole proprietorship duly registered with the
Department of Trade and Industry (DTI), a partnership duly
registered with the Securities and Exchange Commission (SEC), a
corporation duly organized and existing under Philippine laws, or
an individual debtor who has become insolvent as defined herein.
Section 5. Exclusions. - The term debtor does not include banks,
insurance companies, pre-need companies, and national and
local government agencies or units.
For purposes of this section:
(a) Bank shall refer to any duly licensed bank or quasi-bank that is
potentially or actually subject to conservatorship, receivership or
liquidation proceedings under the New Central Bank Act (Republic
Act No. 7653) or successor legislation;
(b) Insurance company shall refer to those companies that are
potentially or actually subject to insolvency proceedings under the
Insurance Code (Presidential Decree No. 1460) or successor
legislation; and
(c) Pre-need company shall refer to any corporation
authorized/licensed to sell or offer to sell pre-need plans.
- including the national and local government agencies.
Provided, That government financial institutions other than banks
and government-owned or controlled corporations shall be covered
by this Act, unless their specific charter provides otherwise.

I. Creditor Secs. 4 (h) 42

(h) Creditor shall refer to a natural or juridical person which has a
claim against the debtor that arose on or before the commencement
date.
Section 42.Creditors' Committee.  - After the creditors' meeting
called pursuant to Section 63 hereof, the creditors belonging to a
class may formally organize a committee among themselves. In
addition, the creditors may, as a body, agree to form a creditors'
committee composed of a representative from each class of
creditors, such as the following:
(a) Secured creditors;
(b) Unsecured creditors;
(c) Trade creditors and suppliers; and
(d) Employees of the debtor.
In the . election of the creditors' representatives, the rehabilitation
receiver or his representative shall attend such meeting and extend
the appropriate assistance as may be defined in the procedural
rules.

II. Rehabilitation
A. Definition & Concept
Section 4 (gg) Rehabilitation shall refer to the restoration of the
debtor to a condition of successful operation and solvency, if it is
shown that its continuance of operation is economically feasible
and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a
going concern than if it is immediately liquidated.
- memorize this.
- centered on restoration. Restore the previous position – it is a
state of solvency and successful business operation.
-BPI Fam vs. Medical Center: read this case.
-Sec 23 of the Interim Rules
-Wonderbook Corp. vs. PBCom. Indications that a corporation cano
no longer be rehabilitated. (take note of these circumstances)
B. Concept of Material Financial Commitment
A material financial commitment is significant in a rehabilitation plan
The petitioner next argues that Basic Polyprinters did not present
any material financial commitment in the rehabilitation plan, thereby
violating Section 5, Rule 4 of the Interim Rules, the rule applicable at
the time of the filing of the petition for rehabilitation. In that regard,
Basic Polyprinters made no commitment in relation to the infusion of
fresh capital by its stakeholders,29  and presented only a "lopsided"
protracted repayment schedule that included the dacion en pago
involving an asset mortgaged to the petitioner itself in favor of
another creditor.
A material financial commitment becomes significant in
gauging the resolve, determination, earnestness and good
faith of the distressed corporation in financing the proposed
rehabilitation plan.30  This commitment may include the voluntary
undertakings of the stockholders or the would-be investors of the
debtor-corporation indicating their readiness, willingness and
ability to contribute funds or property to guarantee the
continued successful operation of the debtor corporation
during the period of rehabilitation.
- there must be a commitment but in the form of material financial
commitment.
- MFC can be in the form additional infusion of assets by the
stockholders/ would be investors of the debtor indicating …

C. Types of Rehabilitation Proceedings

1. Court Supervised
a. Voluntary Proceedings
(rr) Voluntary proceedings shall refer to proceedings initiated by
the debtor.
- its difference focuses by the petitioner in that rehab proceedings.
i. The Petitioner
Section 12. Petition to Initiate Voluntary Proceedings by Debtor. -
When approved by the owner in case of a sole proprietorship, or by
a majority of the partners in case of a partnership, or in case of a
corporation, by a majority vote of the board of directors or
trustees and authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital
stock, or in case of nonstock corporation, by the vote of at least
two-thirds (2/3) of the members, in a stockholder's or member's
meeting duly called for the purpose, an insolvent debtor may
initiate voluntary proceedings under this Act by filing a
petition for rehabilitation with the court and on the grounds
hereinafter specifically provided. The petition shall be verified to
establish the insolvency of the debtor and the viability of its
rehabilitation, and include, whether as an attachment or as part of
the body of the petition, as a minimum the following:
(a) Identification of the debtor, its principal activities and its
addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency
or inability to pay its obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act
depending on the form of relief requested;
(f) Schedule of the debtor's debts and liabilities including a list of
creditors with their addresses, amounts of claims and collaterals, or
securities, if any;
(g) An inventory of all its assets including receivables and claims
against third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of
rehabilitation receiver; and
(j) Other documents required to be filed with the petition pursuant
to this Act and the rules of procedure as may be promulgated by the
Supreme Court.
A group of debtors may jointly file a petition for rehabilitation under
this Act when one or more of its members foresee the impossibility
of meeting debts when they respectively fall due, and the financial
distress would likely adversely affect the financial condition and/or
operations of the other members of the group and/or the
participation of the other members of the group is essential under
the terms and conditions of the proposed Rehabilitation Plan.
- Verified petition.
- Allege insolvency and viability of rehabilitation. (these are
necessary)
- Follow Section 12 strictly.
ii. Grounds

b. Involuntary Proceedings
Section 4(r) Involuntary proceedings shall refer to proceedings
initiated by creditors.
i. The Petitioner and ii. Grounds
(2) Involuntary Court supervised Proceedings.
Section 13. Circumstances Necessary to Initiate Involuntary
Proceedings. - Any creditor or group of creditors with a claim of,
or the aggregate of whose claims is, at least One Million Pesos
(Php1,000,000.00) or at least twenty-five percent (25%) of the
subscribed capital stock or partners' contributions, whichever is
higher, may initiate involuntary proceedings against the debtor by
filing a petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of the
petitioner/s, and that the due and demandable payments thereon
have not been made for at least sixty (60) days or that the debtor
has failed generally to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure
proceedings against the debtor that will prevent the debtor from
paying its debts as they become due or will render it insolvent.

2. Pre-Negotiated Rehabilitation
Section 76. Petition by Debtor. - An insolvent debtor, by itself or
jointly with any of its creditors, may file a verified petition with the
court for the approval of a pre-negotiated Rehabilitation Plan which
has been endorsed or approved by creditors holding at least two-
thirds (2/3) of the total liabilities of the debtor, including
secured creditors holding more than fifty percent (50%) of the
total secured claims of the debtor and unsecured creditors
holding more than fifty percent (50%) of the total unsecured
claims of the debtor. The petition shall include as a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the names of at
least three (3) qualified nominees for rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and a report
on the provisioning of funds to account for appropriate payments
should any such claims be ruled valid or their amounts adjusted.
- there is a rehab plan, let it be approved with the court.
- it may be commenced by the debtor or the debtor and the creditor.

3. Out-of-court or Informal Restructuring Agreement

Section 84. Minimum Requirements of Out-of-Court or Informal
Restructuring Agreements and Rehabilitation Plans. - For an
out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan to qualify under this chapter, it must meet the
following minimum requirements:
(a) The debtor must agree to the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-
seven (67%) of the secured obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-
five percent (75%) of the unsecured obligations of the debtor;
and
(d) It must be approved by creditors holding at least eighty-five
percent (85%) of the total liabilities, secured and unsecured, of
the debtor.

i. Standstill Period
-binds all creditors even if disapproved provided the requisites are
met.
Section 85. Standstill Period.  - A standstill period that may be
agreed upon by the parties pending negotiation and finalization of
the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan contemplated herein shall be effective and
enforceable not only against the contracting parties but also against
the other creditors:  Provided, That (a) such agreement is approved
by creditors representing more than fifty percent (50%) of the total
liabilities of the debtor; (b) notice thereof is publishing in a newspaper
of general circulation in the Philippines once a week for two (2)
consecutive weeks; and (c) the standstill period does not exceed one
hundred twenty (120) days from the date of effectivity. The notice
must invite creditors to participate in the negotiation for out-of-court
rehabilitation or restructuring agreement and notify them that said
agreement will be binding on all creditors if the required majority
votes prescribed in Section 84 of this Act are met.
D. Commencement Order – Sec. 16, FRIA
SEC. 16. Commencement of Proceedings and Issuance of a
Commencement Order. — The rehabilitation proceedings shall
commence upon the issuance of the Commencement Order,
which shall:
(a) identify the debtor, its principal business or activity/ies and its
principal place of business;
(b) summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any requirement or
procedure particular to the relief sought;
(d) state the legal effects of the Commencement Order, including
those mentioned in Section 17 hereof;
(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a
newspaper of general circulation in the Philippines once a week for
at least two (2) consecutive weeks, with the first publication to be
made within seven (7) days from the time of its issuance;
(g) if the petitioner is the debtor, direct the service by personal
delivery of a copy of the petition on each creditor holding at least
ten percent (10%) of the total liabilities of the debtor as determined
from the schedule attached to the petition within five (5) days; if the
petitioner/s is/are creditor/s, direct the service by personal delivery
of a copy of the petition on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or may not be from
among the nominees of the petitioner/s, and who shall exercise
such powers and duties defined in this Act as well as the
procedural rules that the Supreme Court will promulgate;
(i) summarize the requirements and deadlines for creditors to
establish their claims against the debtor and direct all creditors to
file their claims with the court at least five (5) days before the initial
hearing;
(j) direct the Bureau of Internal Revenue (BIR) to file and serve on
the debtor its comment on or opposition to the petition or its
claim/s against the debtor under such procedures as the Supreme
Court may hereafter provide;
(k) prohibit the debtor’s suppliers of goods or services from
withholding the supply of goods and services in the ordinary course
of business for as long as the debtor makes payments for the
services or goods supplied after the issuance of the Commencement
Order;
(l) authorize the payment of administrative expenses as they become
due;
(m) set the case for initial hearing, which shall not be more than
forty (40) days from the date of filing of the petition for the purpose
of determining whether there is substantial likelihood for the debtor
to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for
examination and copying by any interested party;
(o) indicate the location or locations at which documents regarding
the debtor and the proceedings under this Act may be reviewed and
copied;
(p) state that any creditor or debtor, who is not the petitioner, may
submit the name or nominate any other qualified person to the
position of rehabilitation receiver at least five (5) days before the
initial hearing;
(q) include a Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the
enforcement of claims against the debtor;
(2) suspend all actions to enforce any judgment, attachment or
other provisional remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or
disposing in any manner any of its properties except in the ordinary
course of business; and
(4) prohibit the debtor from making any payment of its liabilities
outstanding as of the commencement date except as may be
provided herein.

2. Effects of Commencement Order – Sec. 17, FRIA; Sec.9, Rule

2, A.M. 12-12-11-SC; See, however, Sec. 60, FRIA
SEC. 17. Effects of the Commencement Order. — Unless otherwise
provided for in this Act, the court’s issuance of a Commencement
Order shall, in addition to the effects of a Stay or Suspension Order
described in Section 16 hereof:
(a) vest the rehabilitation receiver with all the powers and functions
provided for in this Act, such as the right to review and obtain all
records to which the debtor’s management and directors have
access, including bank accounts of whatever nature of the debtor,
subject to the approval by the court of the performance bond filed
by the rehabilitation receiver;
(b) prohibit, or otherwise serve as the legal basis for rendering null
and void the results of any extrajudicial activity or process to seize
property, sell encumbered property, or otherwise attempt to collect
on or enforce a claim against the debtor after the commencement
date unless otherwise allowed in this Act, subject to the provisions
of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any set-off
after the commencement date of any debt owed to the debtor by any
of the debtor’s creditors;
(d) serve as the legal basis for rendering null and void the perfection
of any lien against the debtor’s property after the commencement
date; and
(e) consolidate the resolution of all legal proceedings by and against
the debtor to the court: Provided, however, That the court may
allow the continuation of cases in other courts where the debtor
had initiated the suit.
Attempts to seek legal or other recourse against the debtor outside
these proceedings shall be sufficient to support a finding of indirect
contempt of court.

Sec. 9 EFFECTS OF THE COMMENCEMENT ORDER- The effects

of the court’s issuance of a Commencement Order shall retroact to
the date of the filing of the petition and, in addition to the effects of
a Stay or Suspension Order described in the foregoing section, shall
SEC. 19. Waiver of Taxes and Fees Due to the National
Government and to Local Government Units (LGUs). — Upon
issuance of the Commencement Order by the court, and until the
approval of the Rehabilitation Plan or dismissal of the petition,
whichever is earlier, the imposition of all taxes and fees, including
penalties, interests and charges thereof, due to the national
government or to LGUs shall be considered waived, in furtherance
of the objectives of rehabilitation.
SEC. 60. No Diminution of Secured Creditor Rights. — The
issuance of the Commencement Order and the Suspension or Stay
Order, and any other provision of this Act, shall not be deemed in
any way to diminish or impair the security or lien of a secured
creditor, or the value of his lien or security, except that his right to
enforce said security or lien may be suspended during the term of
the Stay Order.
The court, upon motion or recommendation of the rehabilitation
receiver, may allow a secured creditor to enforce his security or lien,
or foreclose upon property of the debtor securing his/its claim, if
the said property is not necessary for the rehabilitation of the
debtor. The secured creditor and/or the other lien holders shall be
admitted to the rehabilitation proceedings only for the balance of
his claim, if any.

3. Effectivity and Duration – Sec. 21, FRIA; Sec. 11 Rule 2,

A.M. 12-12-11-SC
SEC. 21. Effectivity and Duration of Commencement Order. —
Unless lifted by the court, the Commencement Order shall be
effective for the duration of the rehabilitation proceedings for as
long as there is a substantial likelihood that the debtor will be
successfully rehabilitated. In determining whether there is
substantial likelihood for the debtor to be successfully rehabilitated,
the court shall ensure that the following minimum requirements are
met:
(a) The proposed Rehabilitation Plan submitted complies with the
minimum contents prescribed by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the
debtor’s business for the protection of creditors;
(c) The debtor has met with its creditors to the extent reasonably
possible in attempts to reach a consensus on the proposed
Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on
preliminary evaluation, stating that the underlying assumptions
and the financial goals stated in the petitioner’s Rehabilitation Plan
are realistic, feasible and reasonable; or, if not, there is, in any
case, a substantial likelihood for the debtor to be successfully
rehabilitated because, among others:
(1) there are sufficient assets with which to rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the operations of the
debtor;
(3) the debtor’s owner/s, partners, stockholders, directors and
officers have been acting in good faith and with due diligence;
(4) the petition is not a sham filing intended only to delay the
enforcement of the rights of the creditor/s or of any group of
creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation
Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto
do not contain any materially false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its
creditor/s representing at least three-fourths (3/4) of its total
obligations to the extent reasonably possible and made a good faith
effort to reach a consensus on the proposed Rehabilitation Plan; if
the petitioner/s is/are a creditor or group of creditors, that the
petitioner/s has/have met with the debtor and made a good faith
effort to reach a consensus on the proposed Rehabilitation Plan;
and
(g) The debtor has not committed acts of misrepresentation or in
fraud of its creditor/s or a group of creditors.

Sec. 11 EFFECTIVITY AND DURATION OF COMMENCEMENT

ORDER- The Commencement Order shall be effective for the
duration of the rehabilitation proceedings, unless (a) earlier lifted by
the court, (b) the rehabilitation plan is seasonably confirmed or
approved, or (c) the rehabilitation proceedings are ordered
terminated by the court pursuant to Section 73 of this Rule.
4. Stay or Suspension Order – Sec. 16 (q), FRIA; Sec. 5 (r), Rule
1, A.M. 12-12-11-SC
SEC. 16. Commencement of Proceedings and Issuance of a
Commencement Order. — The rehabilitation proceedings shall
commence upon the issuance of the Commencement Order, which
shall:
(q) include a Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the
enforcement of claims against the debtor;
(2) suspend all actions to enforce any judgment, attachment or
other provisional remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or
disposing in any manner any of its properties except in the ordinary
course of business; and
(4) prohibit the debtor from making any payment of its liabilities
outstanding as of the commencement date except as may be
provided herein.
 Commencement order is connected with stay or suspension
order.
Sec. 5 (r). Stay or Suspension Order shall refer to an order issued
in conjunction with the commencement order that shall suspend all
actions or proceedings, in court or otherwise, for the enforcement of
claims against the debtor; suspend all actions to enforce any
judgment, attachment or other provisional remedies against the
debtor; prohibit the debtor from selling, encumbering, transferring
or disposing in any manner any of its properties except in the
ordinary course of business; and prohibit the debtor from making
any payment of its liabilities outstanding as of the commencement
date except as may be provided herein.
a. Concept of “Claims” – Sc. 4 (c), FRIA
(c) Claim shall refer to all claims or demands of whatever nature or
character against the debtor or its property, whether for money or
otherwise, liquidated or unliquidated, fixed or contingent, matured
or unmatured, disputed or undisputed, including, but not limited
to: (1) all claims of the government, whether national or local,
including taxes, tariffs and customs duties; and (2) claims against
directors and officers of the debtor arising from acts done in the
discharge of their functions falling within the scope of their
authority: Provided, That, this inclusion does not prohibit the
creditors or third parties from filing cases against the directors and
officers acting in their personal capacities.
 Whatever claims it may be.
b. Exceptions – Sec. 18, FRIA; Sec. 10, Rule 2, A.M. 12-12-11-
SC
SEC. 18. Exceptions to the Stay or Suspension Order. — The
Stay or Suspension Order shall not apply:
(a) to cases already pending appeal in the Supreme Court as of
commencement date: Provided, That any final and executory
judgment arising from such appeal shall be referred to the court for
appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at
a specialized court or quasi-judicial agency which, upon
determination by the court, is capable of resolving the claim more
quickly, fairly and efficiently than the court: Provided, That any
final and executory judgment of such court or agency shall be
referred to the court and shall be treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons
solidarily liable with the debtor, and third party or accommodation
mortgagors as well as issuers of letters of credit, unless the property
subject of the third party or accommodation mortgage is necessary
for the rehabilitation of the debtor as determined by the court upon
recommendation by the rehabilitation receiver;
 This usually comes out in the BAR. These are not suspended
because they are not a party to the suspension order as they
are third parties.
(d) to any form of action of customers or clients of a securities
market participant to recover or otherwise claim moneys and
securities entrusted to the latter in the ordinary course of the
latter’s business as well as any action of such securities market
participant or the appropriate regulatory agency or self-regulatory
organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged
securities of a debtor pursuant to a securities pledge or margin
agreement for the settlement of securities transactions in
accordance with the provisions of the Securities Regulation Code
and its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the
facilities of a clearing agency or similar entities duly authorized,
registered and/or recognized by the appropriate regulatory agency
like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as
any form of actions of such agencies or entities to reimburse
themselves for any transactions settled for the debtor; and
(g) any criminal action against the individual debtor or owner,
partner, director or officer of a debtor shall not be affected by any
proceeding commenced under this Act.
 One part to be dully remembered.
c. Notice of Claim – Sec. 23, FRIA
SEC. 23. Effect of Failure to File Notice of Claim. — A creditor
whose claim is not listed in the schedule of debts and liabilities and
who fails to file a notice of claim in accordance with the
Commencement Order but subsequently files a belated claim shall
not be entitled to participate in the rehabilitation proceedings but
shall be entitled to receive distributions arising therefrom.
 Those did not file a notice of claim will not be added in the
rehabilitation plan.
 In this section there is a belated filing of notice of claim. Will
not be allowed to participate in the rehab proceedings.
E. Displacement of Existing Management – Sec. 36, FRIA; Sec.
31 Rule 2, A.M. 12-12-11-SC
SEC. 36. Displacement of Existing Management by the
Rehabilitation Receiver or Management Committee. — Upon
motion of any interested party, the court may appoint and direct
the rehabilitation receiver to assume the powers of management of
the debtor, or appoint a management committee that will undertake
the management of the debtor, upon clear and convincing evidence
of any of the following circumstances:
(a) Actual or imminent danger of dissipation, loss, wastage or
destruction of the debtor’s assets or other properties;
(b) Paralyzation of the business operations of the debtor; or
(c) Gross mismanagement of the debtor, or fraud or other wrongful
conduct on the part of, or gross or willful violation of this Act by,
existing management of the debtor or the owner, partner, director,
officer or representative/s in management of the debtor.
In case the court appoints the rehabilitation receiver to assume the
powers of management of the debtor, the court may:
(1) require the rehabilitation receiver to post an additional bond;
(2) authorize him to engage the services or to employ persons or
entities to assist him in the discharge of his managerial functions;
and
(3) authorize a commensurate increase in his compensation.
 The BOD will retain their rights to manage the corporation
when there is a commencement order.
 But in this section, it talks about the BOD being displaced.
This is an exception to the abovementioned rule.

F. Claw-Back Principle – Sec. 52, FRIA

SEC. 52. Rescission or Nullity of Sale, Payment, Transfer or
Conveyance of Assets. — The court may rescind or declare as null
and void any sale, payment, transfer or conveyance of the debtor’s
unencumbered property or any encumbering thereof by the debtor
or its agents or representatives after the commencement date which
are not in the ordinary course of the business of the
debtor: Provided, however, That the unencumbered property may
be sold, encumbered or otherwise disposed of upon order of the
court after notice and hearing:
(a) if such are in the interest of administering the debtor and
facilitating the preparation and implementation of a Rehabilitation
Plan;
(b) in order to provide a substitute lien, mortgage or pledge of
property under this Act;
(c) for payments made to meet administrative expenses as they
arise;
(d) for payments to victims of quasi delicts upon a showing that the
claim is valid and the debtor has insurance to reimburse the debtor
for the payments made;
(e) for payments made to repurchase property of the debtor that is
auctioned off in a judicial or extrajudicial sale under this Act; or
(f) for payments made to reclaim property of the debtor held
pursuant to a possessory lien.
 It’s not really a claw-back principle but only akin to it.
G. Rehabilitation Receiver – Sec. 4(h), RRIA
 Juridical representative is solidarily liable to …
 It’s like a court or a lawyer.
 Considered as an officer of the court.
1. Who may serve – Sec. 28, FRIA; Sec. 5 (p) Rule 2, A.M. 12-
12-11-SC; Sec. 20, Rule 2, A.M. 12-12-11-SC
2. Qualifications – Sec. 29, FRIA; Sec. 21, Rule 2, A.M. 12-12-
11-SC

3. Powers, Duties, and Functions – Sec. 31, FRIA

SEC. 31. Powers, Duties and Responsibilities of the
Rehabilitation Receiver. — The rehabilitation receiver shall be
deemed an officer of the court with the principal duty of preserving
and maximizing the value of the assets of the debtor during the
rehabilitation proceedings, determining the viability of the
rehabilitation of the debtor, preparing and recommending a
Rehabilitation Plan to the court, and implementing the approved
Rehabilitation Plan. To this end, and without limiting the generality
of the foregoing, the rehabilitation receiver shall have the following
powers, duties and responsibilities:
(a) To verify the accuracy of the factual allegations in the petition
and its annexes;
(b) To verify and correct, if necessary, the inventory of all of the
assets of the debtor, and their valuation;
(c) To verify and correct, if necessary, the schedule of debts and
liabilities of the debtor;
(d) To evaluate the validity, genuineness and true amount of all the
claims against the debtor;
(e) To take possession, custody and control, and to preserve the
value of all the property of the debtor;
(f) To sue and recover, with the approval of the court, all amounts
owed to, and all properties pertaining to the debtor;
(g) To have access to all information necessary, proper or relevant to
the operations and business of the debtor and for its rehabilitation;
(h) To sue and recover, with the approval of the court, all property
or money of the debtor paid, transferred or disbursed in fraud of the
debtor or its creditors, or which constitute undue preference of
creditor/s;
(i) To monitor the operations and the business of the debtor to
ensure that no payments or transfers of property are made other
than in the ordinary course of business;
(j) With the court’s approval, to engage the services of or to employ
persons or entities to assist him in the discharge of his functions;
(k) To determine the manner by which the debtor may be best
rehabilitated, to review, revise and/or recommend action on the
Rehabilitation Plan and submit the same or a new one to the court
for approval;
(l) To implement the Rehabilitation Plan as approved by the court, if
so provided under the Rehabilitation Plan;
(m) To assume and exercise the powers of management of the
debtor, if directed by the court pursuant to Section 36 hereof;
(n) To exercise such other powers as may, from time to time, be
conferred upon him by the court; and
(o) To submit a status report on the rehabilitation proceedings every
quarter or as may be required by the court motu proprio, or upon
motion of any creditor, or as may be Provided, in the Rehabilitation
Plan.
Unless appointed by the court, pursuant to Section 36 hereof, the
rehabilitation receiver shall not take over the management and
control of the debtor but may recommend the appointment of a
management committee over the debtor in the cases provided by
this Act.

4. Role of Management Committee – Sec. 37, FRIA

SEC. 37. Role of the Management Committee. — When appointed
pursuant to the foregoing section, the management committee shall
take the place of the management and the governing body of the
debtor and assume their rights and responsibilities.
The specific powers and duties of the management committee,
whose members shall be considered as officers of the court, shall be
prescribed by the procedural rules.

(ii) Rehabilitation Plan shall refer to a plan by which the financial

well-being and viability of an insolvent debtor can be restored using
various means including, but not limited to, debt forgiveness, debt
rescheduling, reorganization or quasi-reorganization, dacion en
pago, debt-equity conversion and sale of the business (or parts of it)
as a going concern, or setting-up of new business entity as
prescribed in Section 62 hereof, or other similar arrangements as
may be approved by the court or creditors.
 In relation to Section 36 of the FRIA.
5. Immunity from Suit – Sec. 41, Sec. 38, Rule 2, A.M. 12-12-
11-SC
SEC. 41. Immunity. — The rehabilitation receiver and all persons
employed by him, and the members of the management committee
and all persons employed by it, shall not be subject to any action,
claim or demand in connection with any act done or omitted to
be done by them in good faith in connection with the exercise of
their powers and functions under this Act or other actions duly
approved by the court.

Sec. 381. , Rule 2, A.M. 12-12-11-SC

IMMUNITY FROM SUIT – The rehabilitation receiver, the members
of the management committee, and all persons they engage shall
not be subject to any action, claim or demand for any act or
omission in good faith in the exercise of their powers and functions
under the Act, these Rules, or other actions approved by the court.
6. Discharge – Sec. 73, FRIA; Sec. 71, Rule 2, A.M. 12-12-11-
SC
SEC. 73. Accounting Discharge of Rehabilitation Receiver. —
Upon the confirmation of the Rehabilitation Plan, the rehabilitation
receiver shall provide a final report and accounting to the court.
Unless the Rehabilitation Plan specifically requires and describes
the role of the rehabilitation receiver after the approval of the
Rehabilitation Plan, the court shall discharge the rehabilitation
receiver of his duties.
  Section 64. It is better to rehab instead of liquidating.

H. Rehabilitation Plan
1. Definition & Contents - Secs. 4 (ii) & 62, FRIA;
(ii) Rehabilitation Plan shall refer to a plan by which the financial
well-being and viability of an insolvent debtor can be restored
using various means including, but not limited to, debt forgiveness,
debt rescheduling, reorganization or quasi-reorganization, dacion
en pago, debt-equity conversion and sale of the business (or parts of
it) as a going concern, or setting-up of new business entity as
prescribed in Section 62 hereof, or other similar arrangements as
may be approved by the court or creditors.

SEC. 62. Contents of a Rehabilitation Plan. — The

Rehabilitation Plan shall, as a minimum:
(a) specify the underlying assumptions, the financial goals and the
procedures proposed to accomplish such goals;
(b) compare the amounts expected to be received by the creditors
under the Rehabilitation Plan with those that they will receive if
liquidation ensues within the next one hundred twenty (120) days;
(c) contain information sufficient to give the various classes of
creditors a reasonable basis for determining whether supporting the
Plan is in their financial interest when compared to the immediate
liquidation of the debtor, including any reduction of principal
interest and penalties payable to the creditors;
(d) establish classes of voting creditors;
(e) establish subclasses of voting creditors if prior approval has
been granted by the court;
(f) indicate how the insolvent debtor will be rehabilitated including,
but not limited to, debt forgiveness, debt rescheduling,
reorganization or quasi-reorganization, dacion en pago, debt-equity
conversion and sale of the business (or parts of it) as a going
concern, or setting-up of a new business entity or other similar
arrangements as may be necessary to restore the financial well-
being and viability of the insolvent debtor;
(g) specify the treatment of each class or subclass described in
subsections (d) and (e);
(h) provide for equal treatment of all claims within the same class or
subclass, unless a particular creditor voluntarily agrees to less
favorable treatment;
(i) ensure that the payments made under the plan follow the priority
established under the provisions of the Civil Code on concurrence
and preference of credits and other applicable laws;
(j) maintain the security interest of secured creditors and preserve
the liquidation value of the security unless such has been waived or
modified voluntarily;
(k) disclose all payments to creditors for pre-commencement debts
made during the proceedings and the justifications thereof;
(l) describe the disputed claims and the provisioning of funds to
account for appropriate payments should the claim be ruled valid or
its amount adjusted;
(m) identify the debtor’s role in the implementation of the Plan;
(n) state any rehabilitation covenants of the debtor, the breach of
which shall be considered a material breach of the Plan;
(o) identify those responsible for the future management of the
debtor and the supervision and implementation of the Plan, their
affiliation with the debtor and their remuneration;
(p) address the treatment of claims arising after the confirmation of
the Rehabilitation Plan;
(q) require the debtor and its counter-parties to adhere to the terms
of all contracts that the debtor has chosen to confirm;
(r) arrange for the payment of all outstanding administrative
expenses as a condition to the Plan’s approval unless such
condition has been waived in writing by the creditors concerned;
(s) arrange for the payment of all outstanding taxes and
assessments, or an adjusted amount pursuant to a compromise
settlement with the BIR or other applicable tax authorities;
(t) include a certified copy of a certificate of tax clearance or
evidence of a compromise settlement with the BIR;
(u) include a valid and binding resolution of a meeting of the
debtor’s stockholders to increase the shares by the required amount
in cases where the Plan contemplates an additional issuance of
shares by the debtor;
(v) state the compensation and status, if any, of the rehabilitation
receiver after the approval of the Plan; and
(w) contain provisions for conciliation and/or mediation as a
prerequisite to court assistance or intervention in the event of any
disagreement in the interpretation or implementation of the
Rehabilitation Plan.

2. Approval or Rejection by the Creditor – Sec. 64, FRIA; See

however Sec. 42, FRIA; Sec. 62, Rule 2, A.M. 12-12-11-SC
SEC. 64. Creditor Approval of Rehabilitation Plan. — The
rehabilitation receiver shall notify the creditors and stakeholders
that the Plan is ready for their examination. Within twenty (20)
days from the said notification, the rehabilitation receiver shall
convene the creditors, either as a whole or per class, for purposes
of voting on the approval of the Plan. The Plan shall be deemed
rejected unless approved by all classes of creditors whose right
are adversely modified or affected by the Plan. For purposes of
this section, the Plan is deemed to have been approved by a class
of creditors if members of the said class holding more than fifty
percent (50%) of the total claims of the said class vote in favor of
the Plan. The votes of the creditors shall be based solely on the
amount of their respective claims based on the registry of claims
submitted by the rehabilitation receiver pursuant to Section 44
hereof.

Notwithstanding the rejection of the Rehabilitation Plan, the

court may confirm the Rehabilitation Plan if all of the following
circumstances are present:
(a) The Rehabilitation Plan complies with the requirements
specified in this Act;
(b) The rehabilitation receiver recommends the confirmation of
the Rehabilitation Plan;
(c) The shareholders, owners or partners of the juridical debtor
lose at least their controlling interest as a result of the
Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the objecting
class of creditors with compensation which has a net present
value greater than that which they would have received if the
debtor were under liquidation.
SEC. 42. Creditors’ Committee. — After the creditors’ meeting
called pursuant to Section 63 hereof, the creditors belonging to a
class may formally organize a committee among themselves. In
addition, the creditors may, as a body, agree to form a creditors’
committee composed of a representative from each class of
creditors, such as the following:
(a) Secured creditors;
(b) Unsecured creditors;
(c) Trade creditors and suppliers; and
(d) Employees of the debtor.
In the election of the creditors’ representatives, the rehabilitation
receiver or his representative shall attend such meeting and
extend the appropriate assistance as may be defined in the
procedural rules.
3. Non-Impairment of Contracts – PNB vs. CA GR No. 165571
 4. Submission to the Court – Sec. 65, FRIA; Sec. 63, Rule 2,
A.M. 12-12-11-SC.
SEC. 65. Submission of Rehabilitation Plan to the Court. — If
the Rehabilitation Plan is approved, the rehabilitation receiver shall
submit the same to the court for confirmation. Within five (5) days
from receipt of the Rehabilitation Plan, the court shall notify the
creditors that the Rehabilitation Plan has been submitted for
confirmation, that any creditor may obtain copies of the
Rehabilitation Plan and that any creditor may file an objection
thereto.

1. Confirmation of Plan Notwithstanding Rejection by the

Creditors “Cram Down Clause” – 2nd paragraph, Sec. 64
FRIA; Sec. 62, Rule 2, A.M. 12-12-11-SC.