AMLA Complete With R.A. No. 11521 Latest Amendment SPEC COM Notes

SPECIAL COMMERCIAL LAWS NOTES
(based on Atty. Gumabon’s syllabus and discussions)
SPECIAL COMMERCIAL LAW

🡪under Mercantile Law (3rd Sunday)
Questions usually from FRIA

Enumerate the different kinds of banks
BANKING AND ALLIED LAWS
I. NATURE AND CONCEPT OF BANKING LAWS
A. Governing Law
2 Primary Laws in Banking Laws
1. “The General Banking Act of 2000” (GBL) or RA 337, as amended by RA 8791

2. “The New Central Bank Act”, RA 7653 or as amended by RA 11211 (NCBA)
B. Nature of Business
1. Bank
🡪Sec. 3.1, GBL - shall refer to entities engaged in the lending of funds obtained in the form of deposits
🡪BDO, BPI, RCBI, LBP
*banks are highly regulated institution

*Bangko Sentral is one of the regulating entity
Primary business of a banks is to lend money.
The fund of the bank come from deposits of the public.
*If you deposit money from a bank, it has a low interest but when you loan money, it has a high interest.
2. Quasi-bank
🡪Sec. 95, NCBA in relation to Sec. 4.6., GBL - 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.
🡪Orix Metro Leasing and Financing Corp. – classified by BSP as non bank performing quasi banking
functions
RCBC capital corporation – another example
A bank must be distinguished from a quasi-bank

🡪both has the purpose of lending money to the public
*a quasi-bank’s funds came from the public through a deposit substitute
Deposit substitute
🡪Sec. 95, RA 11211 –
● an alternative form of obtaining funds from the public, other than deposits (other than cash),
● through the Issuance, Endorsement, or Acceptance of debt instruments for the borrower’s own
account,
● from 20 or more people or from public
● for the purpose of relending or purchasing of receivables and other obligations.
● These instruments may include, but need not be limited to, banker’s acceptances, promissory
notes, participations, certificates of assignment and similar instruments with recourse, and
repurchase agreements.
*lending/financing company is different from a quasi-bank and a bank referred to under the GBL
although they also extend loans.
*a lending company is not within the jurisdiction of the BSP. It is not classified as a bank or a quasi-bank.
It is regulated by the SEC.
Lending company
🡪defined in Lending Company Regulation Act of 2007 (RA 9474) –

● a corporation engaged in granting loans
● from its own capital funds OR from funds sourced from not more than nineteen (19) persons.
NOTE: This number of persons is material, because it distinguishes a lending company from a
bank).
As to source of funds
Lending company – came from its own funding or not more than 19 persons
Bank or Quasi-bank – came from the public or at least 20 persons.
As to regulator
Lending company – SEC
Bank or Quasi-bank – BSP
As to purpose
Both lending
As to source of funds
Bank – deposits
Quasi-bank – deposit substitutes
3. One-Unit Rule
🡪Sec. 20, GBL - A bank authorized to establish branches or other offices shall be responsible for all
business conducted in such branches and offices to the same extent and in the same manner as though
such business had all been conducted in the head office. A bank and its branches and offices shall be
treated as one unit.
*The transactions made by the branches are considered transactions of the head office.
PDIC v. Citibank (2012)
It is clear that the head office of a bank and its branches are considered as one under the eyes of the law.
While branches are treated as separate business units for commercial and financial reporting purposes,
in the end, the head office remains responsible and answerable for the liabilities of its branches which are
under its supervision and control.
C. Declaration of Policy
Sec. 2, GBL - The State recognizes the vital role of banks in providing an environment conducive to the
sustained development of the national economy and the fiduciary nature of banking that requires high
standards of integrity and performance.
In furtherance thereof, the State shall promote and maintain a stable and efficient banking and
financial system that is globally competitive, dynamic and responsive to the demands of a developing
economy.
D. Requirements to Operate
Can a bank operate as sole proprietorship?

No
Can a bank operate as partnership?

No
Sec. 8, GBL - Organization. — The Monetary Board may authorize the organization of a bank or quasi-
bank subject to the following conditions:
8.1. That the entity is a stock corporation;
8.2. That its funds are obtained from the public, which shall mean twenty (20) or more persons; and
8.3. That the minimum capital requirements prescribed by the Monetary Board for each category of
banks are satisfied.
No new commercial bank shall be established within three (3) years from the effectivity of this Act. In the
exercise of the authority granted herein, the Monetary Board shall take into consideration their capability
in terms of their financial resources and technical expertise and integrity. The bank licensing process
shall incorporate an assessment of the bank's ownership structure, directors and senior management, its
operating plan and internal controls as well as its projected financial condition and capital base.
*all banks are stock corporations
SEC. 116. One Person Corporation. – A One Person Corporation is a corporation with a single stockholder:
Provided, That only a natural person, trust, or an estate may form a One Person Corporation.
Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and
non-chartered government-owned and -controlled corporations may not incorporate as One Person
Corporations: Provided, further, That a natural person who is licensed to exercise a profession may not
organize as a One Person Corporation for the purpose of exercising such profession except as otherwise
provided under special laws.
Stock corporation v. Non-stock corporation
Stock corporations are those which have capital stock divided into shares and are authorized to
distribute to the holders of such shares, dividends, or allotments of the surplus profits on the basis of the
shares held.
All other corporations are nonstock corporations (Sec. 3, RA 11232).
*A bank is a corporation so if there is a defect on its incorporation, the provisions of RCC likewise applies.
● If the issue concerning the bank is its incorporation, it is the SEC who has a primary jurisdiction.
- the bank itself
- its compliance with the RCC
● If the issue is concerning the primary functions of the bank, it is the BSP who has the primary
jurisdiction of the issue.
- its banking operations
Sec. 14, GBL - Certificate of Authority to Register. —
● The SEC shall not register the AOI of any bank, or any amendment thereto, unless accompanied
by a certificate of authority issued by the Monetary Board, under its seal.
Such certificate shall not be issued unless the Monetary Board is satisfied from the evidence
submitted to it:
14.1 That all requirements of existing laws and regulations to engage in the business for which the
applicant is proposed to be incorporated have been complied with;
14.2. That the public interest and economic conditions, both general and local, justify the
authorization; and
14.3. That the amount of capital, the financing, organization, direction and administration, as well
as the integrity and responsibility of the organizers and administrators reasonably assure the
safety of deposits and the public interest.
The Securities and Exchange Commission shall not register the by-laws of any bank, or any amendment
thereto, unless accompanied by a certificate of authority from the Bangko Sentral.
*Dual franchise requirement - a bank cannot be organized without the recommendation from the BSP
(two franchises – recommendation from the BSP and the AOI) – sec. 16 RCC
Sec. 9, GBL - Issuance of Stocks. — The Monetary Board may prescribe rules and regulations on the
types of stock a bank may issue, including the terms thereof and rights appurtenant thereto to determine
compliance with laws and regulations governing capital and equity structure of banks:
Provided, That banks shall issue par value stocks only.
The shares or series of shares may or may not have a par value: Provided, That banks, trust, insurance,
and preneed companies, public utilities, building and loan associations, and other corporations
authorized to obtain or access funds from the public, whether publicly listed or not, shall not be
permitted to issue no-par value shares of stock.
*no par value has issued value
1. Treasury shares
🡪Sec. 10, GBL - No bank shall purchase or acquire shares of its own capital stock or accept its own shares
as a security for a loan, except when authorized by the Monetary Board:
Provided, That in every case the stock so purchased or acquired shall, within six (6) months from
the time of its purchase or acquisition, be sold or disposed of at a public or private sale.
Treasury shares - are shares of stock which have been issued and fully paid for, but subsequently
reacquired by the issuing corporation through purchase, redemption, donation, or some other lawful
means. (Sec. 9, RA 11232)
Can a bank acquire/purchase treasury shares?

Can a bank acquire/purchase its own shares?
Yes, subject to conditions:
1. Purchase or acquisition of treasury shares requires prior approval by the BSP through the
Monetary Board
2. That treasury shares acquired must be disposed within 6 months from purchase or acquisition as
required in sec. 10, GBL.
2. Degree of care of bank in view of fiduciary nature of banking

🡪banks exercise extra ordinary diligence
In the exercise of its banking functions, banks are required to observe a diligence more than that of a
good father of a family.
Default degree of diligence is the diligence of a good father of a family

>but this may be modified by a law, stipulation, pursuant to a public policy
*Banks, as a matter of public policy, are bound to exercise utmost diligence or extraordinary diligence.
>Reason: the nature of the business of a bank is imbued with public interest. The public is interested
over the functions, operations of a bank.
Alano v. Planter’s Development Bank (2011)
The general rule that a mortgagee need not look beyond the title does not apply to banks and other
financial institutions as greater care and due diligence is required of them. Imbued with public interest,
they "are expected to be more cautious than ordinary individuals." Thus, before approving a loan, the
standard practice for banks and other financial institutions is to conduct an ocular inspection of the
property offered to be mortgaged and verify the genuineness of the title to determine the real owner or
owners thereof. Failure to do so makes them mortgagees in bad faith.
China Banking Corp. v. Lagon (2006)
Petitioner could not be considered a mortgagee in good faith. It had knowledge that respondent was in the
United States at the time the SPAs were allegedly executed, yet, it did not question their due execution.
Though petitioner is not expected to conduct an exhaustive investigation on the history of the mortgagor's
title, it cannot be excused from the duty of exercising the due diligence required of a banking institution.
Banks are expected to exercise more care and prudence than private individuals in their dealings, even
those that involve registered lands, for their business is affected with public interest.
Sps. Jalbay v. PNB (2015)
(should be compared with Alano v. Planter’s Development Bank)
True, banks, in handling real estate transactions, are required to exert a higher degree of diligence, care,
and prudence than individuals. Unlike private individuals, it is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. A banking institution is expected to
exercise due diligence before entering into a mortgage contract. Indeed, there is a situation where,
despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent,
the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy.
This is the doctrine of "the mortgagee in good faith," wherein buyers or mortgagees dealing with property
covered by a Torrens Certificate of Title are no longer required to go beyond what appears on the face of the
title. However, the rule that persons dealing with registered lands can rely solely on the certificate of title is
not applicable to banks. Thus, before approving a loan application, it is a standard operating practice for
these institutions to conduct an ocular inspection of the property offered for mortgage and to verify the
veracity of the title to determine its real owners. An ocular inspection is necessary to protect the true
owner of the property as well as innocent third parties with a right, interest or claim thereon from a usurper
who may have acquired a fraudulent certificate of title.
Citibank v. Cabamongan (2006)
The Court has repeatedly emphasized that, since the banking business is impressed with public interest,
of paramount importance thereto is the trust and confidence of the public in general. Consequently, the
highest degree of diligence is expected, and high standards of integrity and performance are even
required, of it. By the nature of its functions, a bank is "under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their relationship."
In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for
pretermination of deposits are forgeries. Citibank, with its signature verification procedure, failed to
detect the forgery. Its negligence consisted in the omission of that degree of diligence required of banks.
The Court has held that a bank is "bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged." Such principle equally applies here.
Citibank cannot label its negligence as mere mistake or human error. Banks handle daily transactions
involving millions of pesos. By the very nature of their works the degree of responsibility, care and
trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and
employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision
of their employees.
The Court agrees with the observation of the CA that Citibank, thru Account Officer San Pedro, openly
courted disaster when despite noticing discrepancies in the signature and photograph of the person
claiming to be Carmelita and the failure to surrender the original certificate of time deposit, the
pretermination of the account was allowed. Even the waiver document was not notarized, a procedure
meant to protect the bank. For not observing the degree of diligence required of banking institutions, whose
business is impressed with public interest, Citibank is liable for damages.
BPI Family Savings Bank, Inc. v. First Metro

Investment Corp. (2004)
Petitioner failed to exercise that degree of diligence required by the nature of its obligations to its
depositors. A bank is under obligation to treat the accounts of its depositors with meticulous care, whether
such account consists only of a few hundred pesos or of million of pesos.
Go v. Metropolitan Bank and Trust and Co.

(2010)
Negligence was committed by respondent bank in accepting for deposit the crossed checks without
indorsement and in not verifying the authenticity of the negotiation of the checks. The law imposes a duty of
extraordinary diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of
determining their genuineness and regularity. As a business affected with public interest and because of
the nature of its functions, the banks are under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of the relationship. The fact that this
arrangement had been practiced for three years without Mr. Go/Hope Pharmacy raising any objection
does not detract from the duty of the bank to exercise extraordinary diligence. Thus, the Decision of the
RTC, as affirmed by the CA, holding respondent bank liable for moral damages is sufficient to remind it of
its responsibility to exercise extraordinary diligence in the course of its business which is imbued with
public interest.
*limitation of cross check: it is for deposit and not for encashment.

>negotiation: only once
PCIB v. CA (2001)
Banking business is so impressed with public interest where the trust and confidence of the public in general
is of paramount importance such that the appropriate standard of diligence must be very high, if not the
highest, degree of diligence. A bank's liability as obligor is not merely vicarious but primary, wherein the
defense of exercise of due diligence in the selection and supervision of its employees is of no moment.
Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree
of responsibility, care and trustworthiness expected of their employees and officials is far greater than
those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in
the selection and supervision of their employees.
Firestone Tire & Rubber Company of the

Phil. v. CA (2001)
A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such
account consists only of a few hundred pesos or of millions of pesos. The fact that the other withdrawal
slips were honored and paid by respondent bank was no license for Citibank to presume that subsequent
slips would be honored and paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts
of its clients with the highest degree of care.
BPI v. Tarcila Fernandez (2015)
BPI is sternly reminded that the business of banks is impressed with public interest. The fiduciary nature
of their relationship with their depositors requires it to treat the accounts of its clients with the highest
degree of integrity, care and respect. In the present case, the manner by which BPI treated Tarcila also
transgresses the general banking law and Article 19 of the Civil Code, which directs every person, in the
exercise of his rights, "to give everyone his due, and observe honesty and good faith."
Prudential Bank v. CA (1993)
The liability of the principal for the acts of the agent is not even debatable. Law and jurisprudence are
clearly and absolutely against the petitioner.
Such liability dates back to the Roman Law maxim, Qui per alium facit per seipsum facere videtur. "He
who does a thing by an agent is considered as doing it himself." This rule is affirmed by the Civil Code
thus:
Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as though he had full powers.
Conformably, we have declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agent's apparent representation yields to the principal's true
representation and the contract is considered as entered into between the principal and the third
person. 18
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of
dealings of the officers in their representative capacity but not for acts outside the scope of their
authority. (9 c.q.s. p. 417) A bank holding out its officers and agent as worthy of confidence will not
be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of
their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking
corporation is liable to innocent third persons where the representation is made in the course of its
business by an agent acting within the general scope of his authority even though, in the particular
case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his
principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND
752, 204 NW 818, 40 ALR 1021.)
Application of these principles in especially necessary because banks have a fiduciary relationship with the
public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith
will be eroded where banks do not exercise strict care in the selection and supervision of its employees,
resulting in prejudice to their depositors.
Prudential Bank v. Lim (2005)
The negligence of the bank constitutes a breach of duty to its client. It is worthy of note that the banking
industry is impressed with public interest. As such, it must observe a high degree of diligence and
observe lofty standards of integrity and performance. By the nature of its functions, a bank is under
obligation to treat the accounts of its depositors with meticulous care and always to have in mind the
fiduciary nature of its relationship with them.
With the attending factual milieu, the imposition of damages on the errant bank is in order. Presaging this
course of action is the ruling in Simex International v. Court of Appeals, where this Court rendered a
telling discourse on the fiduciary responsibility of depository banks, thus:
The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce, banks have become an ubiquitous presence
among the people, who have come to regard them with respect and even gratitude and, most of all,
confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's savings to the bank
of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The
ordinary person, with equal faith, usually maintains a modest checking account for security and
convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business
entities like the petitioner, the bank is a trusted and active associate that can help in the running of their
affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day
transactions like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of
a check without good reason, can cause the depositor not a little embarrassment if not also financial loss
and perhaps even civil and criminal litigation.
Metropolitan Bank v. Custodio (2011)
The Court of Appeals underscored the "highest degree of diligence" from the banking business,
considering that it is impressed with public interest and of paramount importance.91 However, as
petitioner Metrobank pointed out, the exacting standard of diligence required by the appellate court
pertains to the relationship between a bank and a depositor, and not between a bank and its employees. In
this case, no depositors were affected, as the transactions during that day were accounted for, and no error
was found in the recording thereof. The relevant standard of diligence that we need to examine here is that
of a bank teller who was entrusted monies by the bank and who may have failed to account for them. ["A
teller's relationship with the bank is necessarily one of trust and confidence. The teller as a trustee is
expected to possess a high degree of fidelity to trust and must exercise utmost diligence and care in handling
cash. A teller cannot afford to relax vigilance in the performance of his duties."] In this case, petitioner
Metrobank was unable to prove that respondent Custodio failed to exercise the necessary degree of diligence
that would justify the bank’s action for damages. Respondent Custodio was not remiss in her duties as all her
dealings with the bank’s money were clearly reflected on the records of the bank.
PCI Bank v. CA (1996)
Freedom of contract is subject to the limitation that the agreement must not be against public policy and
any agreement or contract made in violation, of this rule is not binding and will not be enforced. The
prohibition against this type of contractual stipulation is moreover treated by law as void which may not
be ratified or waived by a contracting party. Undoubtedly, the services being offered by a banking
institution like petitioner are imbued with public interest. The use of telegraphic transfers have now become
commonplace among businessmen because it facilitates commercial transactions. Any attempt to
completely exempt one of the contracting parties from any liability in case of loss notwithstanding its bad
faith, fault or negligence, as in the instant case, cannot be sanctioned for being inimical to public interest
and therefore contrary to public policy. Resultingly, there being no dispute that petitioner acted
fraudulently and in bad faith, the award of moral and exemplary damages were proper.
Solidbank v. CA (2003)
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic
Act No. 8791 ("RA 8791"), which took effect on 13 June 2000, declares that the State recognizes the
"fiduciary nature of banking that requires high standards of integrity and performance." This new
provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding that "the bank is
under obligation to treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.
This fiduciary relationship means that the bank’s obligation to observe "high standards of integrity and
performance" is deemed written into every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good
father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor
is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a
family. Section 2 of RA 8791 prescribes the statutory diligence required from banks — that banks must
observe "high standards of integrity and performance" in servicing their depositors. Although RA 8791 took
effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diaz’s savings account,
jurisprudence at the time of the withdrawal already imposed on banks the same high standard of diligence
required under RA No. 8791.
BPI v. Casa Montessori Internationale (2004)
The banking business is impressed with public interest, of paramount importance thereto is the trust and
confidence of the public in general. Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are even required, of it. By the nature of its functions, a bank is
"under obligation to treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship."
BPI contends that it has a signature verification procedure, in which checks are honored only when the
signatures therein are verified to be the same with or similar to the specimen signatures on the signature
cards. Nonetheless, it still failed to detect the eight instances of forgery. Its negligence consisted in the
omission of that degree of diligence required of a bank. It cannot now feign ignorance, for very early on we
have already ruled that a bank is "bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged."
3. Strikes and Lockouts
🡪Sec. 22, GBL - The banking industry is hereby declared as indispensable to the national interest and,
not withstanding the provisions of any law to the contrary, any strike or lockout involving banks, if
unsettled after seven (7) calendar days shall be reported by the Bangko Sentral to the Secretary of
Labor who may assume jurisdiction over the dispute or decide it or certify the same to the National
Labor Relations Commission for compulsory arbitration. However, the President of the Philippines may
at any time intervene and assume jurisdiction over such labor dispute in order to settle or terminate
the same.
*both in strike and in lockout, there is stoppage of work. The difference is who initiated the stoppage of
work.
If the stoppage of work is initiated by the workers or employees, there is a strike.
If the stoppage of work is initiated by the employer, there is a lockout.

What will happen if there is a strike or a lockout in banks?

Sec. 22, GBL
What is the reason of assumption of jurisdiction?

The banking industry is imbued with public interest. (Section 2 of GBL)
The public will be prejudiced should there be a continuing strike or lockout in the banking industry.
II. CLASSIFICATION OF BANKS
(UCT-SMBSSLAPDB-RCIO)
Sec 3.2, GBL - Banks shall be classified into:

(a) Universal banks;
(b) Commercial banks;
(c) Thrift banks, composed of:
(i) Savings and mortgage banks,
(ii) Stock savings and loan associations, and
(iii) Private development banks, as defined in Republic Act No. 7906 (hereafter the "Thrift
Banks Act");
(d) Rural banks, as defined in Republic Act No. 7353 (hereafter the "Rural Banks Act");
(e) Cooperative banks, as defined in Republic Act No. 6938 (hereafter the "Cooperative Code");
(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al Amanah
Islamic Investment Bank of the Philippines"; and
(g) Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng
Pilipinas.
● Why are banks classified as such?
- because banks are classified according to capitalization

- the bigger the bank, the higher is the capitalization
A. Types of Bank
Sec. 23, GBL - Powers of a Universal Bank. — A universal bank shall have the authority to exercise,
1. in addition to the powers authorized for a commercial bank in Section 29,
2. the powers of an investment house as provided in existing laws and
3. the power to invest in non-allied enterprises (not strictly banking functions) as provided in this
Act.
RA 7906 or “Thrift Banks Act of 1995”
RA 7353 or “Rural Bank Act of 1992”

RA 6938 or “Cooperative Code of the Philippines” amended by RA 9520 or Philippine Cooperative Code of
2008
RA 6848 or “The Charter of the Al-Amanah Islamic Investment Bank of the Philippines”
B. Distinctions
Differentiation or classification:
● AS TO CAPITALIZATION
- It will depend on the extent of operation of the bank

- a universal bank has higher capitalization than a rural bank or a thrift bank
- under MORB (Manual of Regulations of Banks), the higher number of branches of banks requires a
higher minimum of capitalization
- different classification of banks requires different minimum capitalization (general statement)
NOTE:
- MORB: as if the bible of the BSP (the compliance group of a bank must be well-versed of this)
- compliance group is separate from legal group of a bank
● AS TO FUNCTIONS
- also differ in so far as functions are concerned.
● AS TO PURPOSES
- they also differ in purpose of the banks
● AS TO THE APPOINTMENT AN APPOINTIVE ELECTIVE PUBLIC OFFICER AS PART OF THE

BOARD OF DIRECTORS
o GENERAL RULE: elective public officer as member of bod is prohibited (Rural Bank Act)
o EXCEPT IN CASE OF:
1. RURAL BANKS: under the Rural bank Act, appointive or elective public officers may
hold or may be elected as a member of the board of directors
2. GOVERNMENT BANKS: there are officers who are called ex officio officers or members
of the board of directors, e.g., LBP – one of the BOD is the Secretary of Finance (not
considered as double compensation because he is merely acting in an ex officio
position)
NOTE: AN EX OFFICIO POSITION - automatically becomes a member of the board of directors by

virtue of his position
● AS TO INITIAL PUBLIC OFFERING (IPO)
- Public offering is required whenever a bank is seeking authority to operate as a universal bank
- universal bank has the highest classification
THERE ARE SEVEN CLASSIFICATIONS OF A BANK

- The last classification is a catch-all provision.
1. UNIVERSAL BANK
- Capitalization: highest
- Power: highest
- Functions:
1. Performs all functions of a commercial bank PLUS
2. “investment in NON-ALLIED ENTERPRISES (not strictly a banking function); and
3. power to act as INVESTMENT HOUSE – (Sec. 23 in relation to Sec 29 of GBL)
2. COMMERCIAL BANKS
- POWERS:
1. General powers incident to a corporation;
2. All such powers as may be necessary to carry on the business of commercial banking;
3. such as accepting drafts and issuing letters of credit;
4. discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of
debt;
5. accepting or creating demand (checking) deposits;
NOTE: UB AND CB – They CAN accept or create demand deposits (without prior approval from
the monetary board or BSP)
FROM OTHER TYPES OF BANKS (They need prior approval from monetary board)
6. receiving other types of deposits and deposit substitutes;

7. buying and selling foreign exchange and gold or silver bullion;
8. acquiring marketable bonds and other debt securities; and
9. extending credit, subject to such rules as the Monetary Board may promulgate.
10.These rules may include the determination of bonds and other debt securities eligible for
investment, the maturities and aggregate amount of such investment (Sec. 29, GBL).
NOTE:
- CB cannot invest in non-allied enterprises (Sec. 30, GBL);
- only UB are allowed to invest in a non-allied enterprises.
3. THRIFT BANKS
Example: Thrift banks – LUZON DEVELOPMENT BANK (LDB)
- No definition under the law;

- Private development bank is not a classification of a bank;
- The correct classification is thrift bank
- DEFINITION
1. “Thrift banks" shall include:
1. savings and mortgage banks (SMB),
2. private development banks (PDB), and
3. stock savings and loans associations (SSLA) organized under existing laws, and any
banking corporation [Sec 3(a), RA 7906].
NOTE: No automatic power to create or accept demand (checking) deposit (Sec. 10, GBL).
POWERS:
Sec. 10, RA 7906. Powers of Thrift Banks. — In addition to powers granted it by this Act and existing
laws, any thrift bank may:
(a) Accept savings and time deposits;
(b) Open current or checking accounts: Provided, That the thrift bank has net assets of at least Twenty
million pesos (P20,000,000) subject to such guidelines as may be established by the Monetary
Board; and shall be allowed to directly clear its demand deposit operations with the Bangko Sentral
and the Philippine Clearing House Corporation;
(c) Act as correspondent for other financial institutions;
(d) Act as collection agent for government entities, including but not limited to, the Bureau of Internal
Revenue, Social Security System, and the Bureau of Customs;
(e) Act as official depository of national agencies and of municipal, city or provincial funds in the
municipality, city or province where the thrift bank is located, subject to such guidelines as may be
established by the Monetary Board;
(f) Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines, the
Development Bank of the Philippines, and other government-owned or –controlled corporations.
Said institutions shall specify the nature of paper deemed acceptable for rediscount, as well as
rediscounting rate to be charged by any of these institutions; and
(g) Issue mortgage and chattel mortgage certificates, buy and sell them for its own account or for the
account of others, or accept and receive them in payment or as amortization of its loan.
Such mortgage and chattel mortgage certificates shall be issued exclusively in national currency and
exclusively for the financing of equipment loans, mortgage loans for the acquisition of machinery
and other fixed installations, conservation, enlargement or improvement of productive properties
and real estate mortgage loans for:
1. the construction, acquisition, expansion or improvement of rural and urban properties;

2. the refinancing of similar loans and mortgages; and
3. such other purposes as may be authorized by the Monetary Board.
A thrift bank shall coordinate the amounts and maturities of its certificates with those of its loans, so
as to ensure adequate cash receipts for the payment of principal and interest at the time they
become due. The bank shall accept its own certificates at least at the actual price of issue, in any
prepayment of loans which mortgage or chattel mortgage debtors may wish to make: Provided, That
the date of maturity of the certificates is not later than the date on which the payment would
otherwise become due, in the absence of the aforesaid prepayment;
(h) Purchase, hold and convey real estate under the same conditions as those governing commercial
banks as specified under Section 25 of Republic Act No. 337;
(i) Engage in quasi-banking and money market operations;
(j) Open domestic letters of credit;
(k) Extend credit facilities to private and government employees: Provided, That in the case of a
borrower who is a permanent employee or wage earner, the treasurer, cashier or paymaster of the
office employing him is authorized, notwithstanding the provisions of any existing law, rules and
regulations to the contrary, to make deductions from his salary, wage or income pursuant to the
terms of his loan, to remit deductions to the thrift bank concerned, and collect such reasonable fee
for his services;
(l) Extend credit against the security of jewelry, precious stones and articles of similar nature, subject
to such rules and regulations as the Monetary Board may prescribe; and
(m) Offer other banking services as provided in Section 72 of Republic Act No. 337 and Republic
Act No. 6426, as amended.
Thrift banks may perform the services under subsections (b), (d), (e), (g) and (i) only upon
prior approval of the Monetary Board.
Nothing in this Section shall be construed as precluding a thrift bank from performing, with
prior approval of the Monetary Board, commercial banking services, or from operating under
an expanded banking authority, nor from exercising, whenever applicable and not inconsistent
with the provisions of this Act and Bangko Sentral regulations, and such other powers incident
to a corporation.
4. RURAL BANKS
- DEFINITION:
These are banks that are formed for the purpose of providing adequate credit facilities to
farmers and merchants, or to cooperatives of such farmers and merchants and in general,
the people of the rural communities. They are primarily governed by RA 7353 (Rural Banks Act).
- banks which are normally found in the provinces (if there are no universal or commercial banks)
- geared towards rural development
- CAPITALIZATION:
1. Nationalized industries – 100% FILIPINO; and

2. Partly nationalized industries – LAW ALLOWS FOREIGN OWNERSHIP
Rural banks shall be organized in the form of stock corporations.

1. No less than 40% of the voting stocks of a rural bank – owned by Filipino citizens (at least
60% of whose capital shall be owned by Filipino citizens); and
2. Up to 60% of the voting stocks – may be owned by Non-Filipino citizens. (40% may be owned
by Non-Filipino citizens) [Sec. 4 (R.A. 7353 as amended by R.A. 10574)].
NOTE: Holders of non-voting shares are nevertheless entitled to vote on the following:
(AASIIMID)
1) Amendment of the articles of incorporation;

2) Adoption and amendment of bylaws;
3) Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the
corporate property;
4) Incurring, creating, or increasing bonded indebtedness;
5) Increase or decrease of authorized capital stock;
6) Merger or consolidation of the corporation with another corporation or other corporations;
7) Investment of corporate funds in another corporation or business in accordance with this
Code; and
8) Dissolution of the corporation.
No less than forty percent (40%) of the voting stocks of a rural bank shall be owned by
citizens of the Philippines or corporations or associations organized under the laws of the
Philippines at least sixty percent (60%) of whose capital is owned by such citizens.
Non-Filipino citizens may own, acquire or purchase up to sixty percent (60%) of the voting
stocks in a rural bank.
CONTINUATION OF SEC. 4 OF RA 7353 AS AMENDED: The percentage of foreign-owned voting

stocks shall be determined by the citizenship of the individual or corporate stockholders of the
rural bank.
Upon consultation with the rural banks in the area, duly established cooperatives and
corporations primarily organized to hold equities in rural banks may organize a rural bank and/or
subscribe to the shares of stock of any rural bank:
Provided, That a cooperative or corporation owning or controlling the whole or majority of the

voting stock of the rural bank shall be subject to special examination and to such rules and
regulations as the Monetary Board may prescribe. If subscription of private shareholders to the
capital stock of a rural bank cannot be secured or is not available, or insufficient to meet the
normal credit needs of the locality, the Land Bank of the Philippines, the Development Bank of the
Philippines, or any government-owned or -controlled bank or financial institution, on
representation of the said private shareholders but subject to the investment guidelines, policies
and procedures of the bank or financial institution and upon approval of the Monetary Board of
the Bangko Sentral ng Pilipinas, shall subscribe to the capital stock of such rural bank, which shall
be paid in full at the time of subscription, in an amount equal to the fully paid subscribed and
unimpaired capital of the private stockholders or such amount as the Monetary Board may
prescribe as may be necessary to promote and expand rural economic development: Provided,
however, That such shares of stock subscribed by the Land Bank of the Philippines, the
Development Bank of the Philippines or any government-owned or -controlled bank or financial

institution may be sold at any time at adjusted book value: Provided, finally, That in the sale of
shares of stock subscribed by the Land Bank of the Philippines, the Development Bank of the
Philippines or any government-owned or -controlled bank or financial institution, the registered
stockholders shall have the right of preemption within one (1) year from the date of offer in
proportion to their respective holdings, but in the absence of such buyer, preference, however,
shall be given to residents of the locality or province where the rural bank is located."
NOTE: In 2018, the negative list provides entities of nationalized and partly nationalized
industries under the Philippines.
Sec. 12, RA 7353 - In addition to the operations especially authorized in this Act, any rural bank
may:
a. Accept saving and time deposit;
b. Open current or checking accounts, provided the rural bank has net assets of at least Five
million (P5,000,000) subject to such guidelines as may be established by the Monetary Board:
c. Act as correspondent for other financial institutions;
d. Act as a collection agent;
e. Act as official depositary of municipal, city or provincial funds in the municipality, city or
province where it is located, subject to such guidelines as may be established by the Monetary
Board;
f. Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines, the
Development Bank of the Philippines, or any other banking institution, including its branches
and agencies. Said institution shall specify the nature of paper deemed acceptable for
rediscount, as well as the rediscount rate to be charged by any of these institutions;
g. Offer other banking service as provided in Section 72 of Republic Act No. 337, as amended,
and
h. Extend financial assistance to public and private employees in accordance with the provisions
of Section 5 of Republic Act No. 3779, as amended.
With written permission of the Monetary Board of the Central bank, any rural bank may act as
trustee over estates or properties of farmer and merchants.
Nothing in this section shall be construed as precluding a rural bank from performing, with
prior approval of the Monetary Board, all the services authorized and mortgage banks, of for
commercial banks, under an expanded banking authority as provided in Section 21-B of the same
Act.
5. COOPERATIVE BANKS
- DEFINITION:
Cooperative bank is one organized by, the majority shares of which is owned and controlled by,
cooperatives primarily to provide financial and credit services to cooperatives.
The term “cooperative bank” shall include cooperative rural banks (Art. 100, R.A. No. 6938).
- FUNCTIONS:
1. A cooperative bank shall primarily provide financial, banking and credit services to
cooperative organizations and their members.
2. However, the BSP may prescribe appropriate guidelines, ceilings and conditions on borrowing
of a cooperative organization from a cooperative bank.
3. The powers and functions of a cooperative bank shall be subject to such rules and regulations
as may be promulgated by the BSP.
4. In addition to the powers granted by this Code and other existing laws, any cooperative bank
may perform any or all of the banking services offered by other types of banks subject to the
prior approval of the BSP (Art. 100, R.A. No. 6938 as amended by R.A. No. 9520).
- normally provides financial, banking and credit services to the cooperative and its members
- functions are not limited or restricted to the financial needs of member or cooperative
because it may also extend financial and credit accommodations in favor of the public, non-
members or third persons other than the members of the cooperative
- REGISTRATION:
No entry shall be registered by the Cooperative Development Authority as a cooperative bank

unless the articles of cooperation and by-laws thereof as well as its establishment and operation
as a cooperative bank have been approved by the Central Bank of the Philippines and it satisfies all
requirements for registration as a cooperative (Art. 101, R.A. No. 6938).
6. ISLAMIC BANK
- Only Islamic bank in the Philippines is a subsidiary of Development Bank of the Philippines (DBP)
which is Al Amanah Islamic Investment Bank of the Philippines
- SEC. 6, RA 6848 - Islamic Bank’s Powers.—The Al-Amanah Islamic Investment Bank of the
Philippines, upon its organization, shall be a body corporate and shall have the power:
(1) To prescribe its bylaws and its operating policies;

(2) To adopt, alter and use a corporate seal;
(3) To make contracts, to sue and be sued;
(4) To borrow money; to own real or personal property and to introduce improvements thereon,
and to sell, mortgage or otherwise dispose of the same;
(5) To employ such officers and personnel, preferably from the qualified Muslim sector, as may be
necessary to carry Islamic banking business;
(6) To establish such branches and agencies in provinces and cities in the Philippines, particularly
where Muslims are predominantly located, and such correspondent offices in other areas in the
country or abroad as may be necessary to carry on its Islamic banking business, subject to the
provisions of Section 2 hereof;

(7) To perform the following banking services:
i. Open current or checking accounts;

ii. Open savings accounts for safekeeping or custody with no participation in profit and losses
except unless otherwise authorized by the account holders to be invested;
iii. Accept investment account placements and invest the same for a term with the Islamic Bank’s
funds in Islamically permissible transactions on participation basis;
iv. Accept foreign currency deposits from banks, companies, organizations and individuals,
including foreign governments;
v. Buy and sell foreign exchange;
vi. Act as correspondent of banks and institutions to handle remittances or any fund transfers;
vii. Accept drafts and issue letters of credit or letters of guarantee, negotiate notes and bills of
exchange and other evidence of indebtedness under the universally accepted Islamic financial
instruments;
viii. Act as collection agent insofar as the payment orders, bills of exchange or other commercial
documents are exclusive of riba or interest prohibitions;
ix. Provide financing with or without collateral by way of leasing, sale and leaseback, or cost plus
profit sales arrangement;
x. Handle storage operations for goods or commodity financing secured by warehouse receipts
presented to the Bank;
xi. Issue shares for the account of institutions and companies assisted by the Bank in meeting
subscription calls or augmenting their capital and/or fund requirements as may be allowed
by law;
xii. Undertake various investments in all transactions allowed by Islamic Shari’a in such a way
that shall not permit the haram (forbidden), nor forbid the halal (permissible);
(8) To act as an official government depository, or its branches, subdivisions and instrumentalities
and of government-owned or controlled corporations, particularly those doing business in the
autonomous region;
(9) To issue investment participation certificates, muquaradah (non-interest-bearing bonds),
debentures, collaterals and/or the renewal or refinancing of the same, with the approval of the
Monetary Board of the Central Bank of the Philippines, to be used by the Bank in its financing
operations for projects that will promote the economic development primarily of the
Autonomous Region;
(10) To carry out financing and joint investment operations by way of mudarabah partnership,
musharaka joint venture or by decreasing participation, murabaha purchasing for others on a
cost-plus financing arrangement, and to invest funds directly in various projects or through the
use of funds whose owners desire to invest jointly with other resources available to the Islamic
Bank on a joint mudarabah basis;
(11) To invest in equities of the following allied undertakings:
(a) Warehousing companies;
(b) Leasing companies;
(c) Storage companies;
(d) Safe deposit box companies;
(e) Companies engaged in the management of mutual funds but not in the mutual funds
themselves; and
(f) Such other similar activities as the Monetary Board of the Central Bank of the Philippines
has declared or may declare as appropriate from time to time, subject to existing limitations
imposed by law;
(12) To exercise the powers granted under this Charter and such incidental powers as may be
necessary to carry on its business, and to exercise further the general powers mentioned in the
Corporation Law and the General Banking Act, insofar as they are not inconsistent or
incompatible with the provisions of this Charter.
- Banks may engage themselves in allied undertakings
- WHAT ARE ALLIED UNDERTAKINGS?
(1)authorized services that may be undertaken by banks

(2)may be financial and non-financial undertakings
(3)these financial and non-financial undertakings may differ depending on the classification of the
banks, in fact there are banks which cannot undertake any of these undertakings
NOTE: Financial undertakings: Read Bangko Sentral Circular No. 263, Series of 2000 - Section X377
- Non-financial undertakings (under MORB)
- BANKS, IN ITS GENERIC SENSE, HAS 2 FUNCTIONS:
1. deposit functions, or
2. lending or loan function
NOTE: deposit functions, is a misnomer because it suggests something which is not being
undertaken by the bank
III. DEPOSIT FUNCTION
- a function that allows the bank to accept or receive money from the public with the obligation of
safely keeping it and returning the same upon demand
- not strictly a deposit itself because when you deposit your money to the bank you are in fact
becoming a lender of the bank (base on the cases)
- the term ‘safely keep’ is a misnomer because the bank uses the money deposited to it
NOTE: in credit transaction, when you safely keep an object, the same object must be returned.
A. Nature
Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan (Art. 1980, Civil Code of the Philippines).
RELATIONSHIP CREATED WHEN YOU DEPOSIT IN THE BANK:
1. Debtor;
2. Creditor.
B. Relationship Between the Bank and

Depositor
- The relationship is not of a depositary and a depositor, rather the relationship of a debtor and a
creditor (as per jurisprudence).
- The deposit is considered a simple loan or a mutuum (whenever money or cash is deposited to the
bank)
- The relationship is different when a check is deposited to the bank – there may or may not be a
debtor-creditor relationship
Gullas v. PNB (1935)
The Civil Code contains provisions regarding compensation (set off) and deposit. (Articles 1195 et seq.,
1758 et seq. The portions of Philippine law provide that compensation shall take place when two persons
are reciprocally creditor and debtor of each other (Civil Code, article 1195). In his connection, it has been
held that the relation existing between a depositor and a bank is that of creditor and debtor. (Fulton Iron
Works Co. vs. China Banking Corporation [1933], 59 Phil., 59.)
As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third
party, it has been held that he has a right of action against the bank for its refusal to pay such a check in
the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past
due claims held against him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) The decision cited
represents the minority doctrine, for on principle it would seem that notice is not necessary to a maker
because the right is based on the doctrine that the relationship is that of creditor and debtor. However
this may be, as to an indorser the situation is different, and notice should actually have been given him in
order that he might protect his interests.
Maclaring Lucman v. Alimatar Malawi (2006)
By virtue of the deposits, there exists between the barangays as depositors and LBP a creditor-debtor
relationship. Fixed, savings, and current deposits of money in banks and similar institutions are governed
by the provisions concerning simple loan. In other words, the barangays are the lenders while the bank is
the borrower.
This Court elucidated on the matter in Guingona, Jr., et al. v. The City Fiscal of Manila, et al., citing Serrano
v. Central Bank of the Philippines, thus:
Bank deposits are in the nature of irregular deposits. They are really loans because they earn
interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans
and are to be covered by the law on loans (Art. 1980, Civil Code; Gullas v. Phil. National Bank, 62
Phil. 519). Current and savings deposits are loans to a bank because it can use the same. The
petitioner here in making time deposits that earn interest with respondent Overseas Bank of
Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank
was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is
failure to pay its obligation as a debtor and not a breach of trust arising from a depository's failure
to return the subject matter of the deposit. (Emphasis supplied.)
Serrano v. Central Bank (1980)
Both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner
claimed that there should be created a constructive trust in his favor when the respondent Overseas Bank
of Manila increased its collaterals in favor of respondent Central Bank for the former's overdrafts and
emergency loans, since these collaterals were acquired by the use of depositors' money.
Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All
kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered
by the law on loans. Current and savings deposit are loans to a bank because it can use the same. The
petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was
in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a
debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay s
obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject
matter of the deposit.
Guingona v. The City of Manila (1984)
It must be pointed out that when private respondent David invested his money on nine. and savings
deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan or
mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that:
Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall
be governed by the provisions concerning simple loan.
The relationship between the private respondent and the Nation Savings and Loan Association is that of
creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank
upon the perfection of the contract and it can make use of the amount deposited for its banking
operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the
obligation to return the amount deposited, it has, however, no obligation to return or deliver the same
money that was deposited.
Consolidated Bank and Trust Corp. v. CA

(2003)
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple
loan. Article 1980 of the Civil Code expressly provides that." . . savings . . . deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple loan." There is a debtor-
creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the
creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the depositor is the contract that determines the rights
and obligations of the parties.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the
bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by
the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. The law simply
imposes on the bank a higher standard of integrity and performance in complying with its obligations
under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of
simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do
not accept deposits to enrich depositors but to earn money for themselves. The law allows banks to offer
the lowest possible interest rate to depositors while charging the highest possible interest rate on their
own borrowers. The interest spread or differential belongs to the bank and not to the depositors who are
not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or
income belongs to the depositors, a situation that Congress certainly did not intend in enacting Section 2
of RA 8791.
NOTE: Deposits are always payable on demand
RULE ON CHECKS AS DEPOSIT TO A BANK
QUESTION: You are in possession of a BPI check (you as the payee) and you deposited it to your account
in BDO. What is the relationship created when you deposited the check to BDO?
ANSWER: Checks when deposited in the bank is not tantamount to money.
- Money = legal tender

- All checks (cashier’s check, personal check, manager’s check) are not considered money.
- The mere deposit of check does not create a debtor-creditor relationship, at the moment.
- The relationship created is an agency. BDO (collecting bank) will collect the proceed of the
check from the drawee bank (BPI). The contract of agency will be converted to a debtor-
creditor relationship whenever the check is credited (because the check may have
insufficient funds).
- Pending clearing of the check (pending crediting of the amount of the check to the account
of the depositor), the relationship is that of an agency.
- When the drawee and the drawer is the same bank, the check is good as cash and a debtor-
creditor relationship is created
QUESTION: What is the relationship created between a bank and its depositor?
ANSWER: The relationship is that of a borrower and a lender.
● depositor = lender
● bank = borrower
There are qualifications but in so far as checks of deposits pending clearing.
C. Relationship of Bank and Safety Deposit

Box Client
CA Argo Industrial Development Corp. v. CA

(1993)
The contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in
Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a
contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; the
contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary
contract of lease under Article 1643 because the full and absolute possession and control of the safety
deposit box was not given to the joint renters — the petitioner and the Pugaos. The guard key of the box
remained with the respondent Bank; without this key, neither of the renters could open the box. On the
other hand, the respondent Bank could not likewise open the box without the renter's key. In this case,
the said key had a duplicate which was made so that both renters could have access to the box.
The relation between a bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or and bailee, the bailment being for hire and mutual benefit.
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of
the safety deposit boxes is not independent from, but related to or in conjunction with, this principal
function. A contract of deposit may be entered into orally or in writing and, pursuant to Article 1306 of
the Civil Code, the parties thereto 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. The depositary's responsibility for the safekeeping of the objects deposited in the case at
bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in
performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement. In the absence of any stipulation prescribing the degree of diligence required, that of a good
father of a family is to be observed. Hence, any stipulation exempting the depositary from any liability
arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for
being contrary to law and public policy.
NOTE:
1. there is no full possession of the safety deposit box in favor of the renter – the bank’s possession of
the guard key.
2. the relationship of the client with the bank concerning the deposit box is a special kind of
deposit and not an ordinary contract of lease)
3. the relationship of the client with the bank concerning the contents of the safety deposit
box is a contract of bailment
4. in a contract of bailment, there is a delivery of property in trust with the obligation to
return the same upon accomplishment of the purpose or upon expiration of the period
D. Rules on Minors
Sec. 1. PD 734 –
MINORS are hereby vested with special capacity and power, in their own right and in their own
names, to make:
1. savings or time deposits

2. with and withdraw the same as well as
3. receive interests thereon from banking institutions,
without the assistance of their parents or guardians, the provisions of existing laws and regulations to
the contrary notwithstanding.
Parents may nevertheless deposit for their minor children and guardians for their wards.
PROVIDED, THE MINORS ARE (7DS):
1. at least seven years of age, are able to read and write,

2. have sufficient discretion, and
3. are not otherwise disqualified by any other incapacity,
NOTES:
- a minor child is one below the age of 18 years. 18 years is the age of emancipation.
- A minor can open an account, without the assistance of his/her parents or guardian, as long as
he/she fits the requirements of Sec. 1. PD 734.
- A minor cannot open a demand deposit or a checking account (because it is a form of contract).
E. Kinds of Deposit
1. DEMAND DEPOSIT
- also referred to as current account or checking account
- means all those liabilities of the Bangko Sentral and of other banks which are denominated in
Philippine currency and are subject to payment in legal tender upon demand by the presentation
of checks (Sec. 58, NCBA).
Q. Who can issue demand deposits?
A. Only universal and commercial banks are authorized to issue demand deposits without additional
consent or authorization from the BSP through the MB. They are deemed authorized because of their
classification.
For other banks, as mentioned in Sec. 33, GBL, they cannot issue checking accounts or demand
deposits without prior authorization from the BSP.
Sec. 33, GBL - Acceptance of Demand Deposits. — A bank other than a universal or commercial bank
cannot accept or create demand deposits except upon prior approval of, and subject to such conditions
and rules as may be prescribed by the Monetary Board.
NOTES:
● Checks, regardless of its kind, are not considered legal tender

- a negotiable instrument: bill of exchange
- substitute for money
● Legal tender – only those bills, currencies issued by the BSP
Sec. 60, NCBA - Legal Character. - Checks representing demand deposits do not have legal tender power
and their acceptance in the payment of debts, both public and private, is at the option of the creditor:
Provided, however, that a check which has been cleared and credited to the account of the creditor shall
be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his
account.
NOTE:
● (OBLICON) – A creditor cannot be compelled to accept a check and will only extinguish the
obligation after the check has been encashed or if the value of the check has been diminished due
to the fault of the creditor (stale checks).
● STALE CHECK – one which has not been presented for payment within a reasonable time after its
issue
2. SAVINGS DEPOSIT ACCOUNT
Q. What is a savings deposit account?
A. The following:
1. It is the most common type of deposit

2. evidenced by a passbook or an ATM card
3. other term is the basic deposit account
NOTES:
● almost all deposit accounts are classified as savings deposit

● designed to promote financial inclusion – meaning all Filipinos should have a savings account
Q. What is the target market of SAVINGS DEPOSIT ACCOUNT?
A. Those unserved and undeserved Filipinos.

Q. What is the purpose?
A. To receive and make payments as well as to have a facility for store of value.
NOTES:
● deposit account = checking account

● savings account = the type account usually evidenced by a passbook or an ATM card
3. TIME DEPOSIT
Q. What is a time deposit?
A. The following:
1. It is an account with a term which can be 1 year, 6 months, 3 months

2. cannot withdraw from the account otherwise pre-termination fees or charges will be collected
from you
3. must finish the term but you can pre-terminate it subject to fees and charges
4. NOW (NEGOTIABLE ORDER OF WITHDRAWAL) ACCOUNT
Q. What is a Negotiable order of withdrawal account (NOW)?
A. The following:
1. It is a hybrid account, it combines the features of a (investment feature) savings account and a
(interest bearing feature) checking account.
2. It is an interest deposit account that combine the payable on demand feature of a checking account
and the investment in case of savings account.
Q. What are the 2 KINDS OF AN ACCOUNT of an individual?
A. It may also be:
1. INDIVIDUAL ACCOUNT
- there is only one account holder
2. JOINT ACCOUNT
- if the account holder is a combination of two or more natural persons or two or more juridical
persons, it can also be a mixture of a natural person and a juridical person.
- if there are two or more account holders
- may either be an OR account or an AND account or AND/OR account
a. A OR B ACCOUNT
- either of them may transact with the bank without the presence of the other joint
account holder
b. A AND B ACCOUNT
- to consummate a transaction with the bank, all the account holders must be present
during the transaction
c. AND/OR ACCOUNT
- discouraged by the bank because it can be confusing. some banks no longer have
this kind of accounts
F. Anonymous Account
Q. How do covered institutions prevent money laundering?
A. Through CUSTOMER IDENTIFICATION.
Q. How is customer identification done?
A. Covered institutions shall establish and record the true identity of its clients based on official
documents.
1. They shall maintain a system of verifying the true identity of their clients and,
2. 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 [Sec. 9 (a), RA 9160].
Q. Are ANONYMOUS ACCOUNTS, ACCOUNTS UNDER FICTITIOUS NAMES, AND ALL OTHER SIMILAR
ACCOUNTS allowed in the Philippines?
A. NO. The following shall be absolutely prohibited, notwithstanding the provisions of existing laws:
1. anonymous accounts,
2. accounts under fictitious names, and
3. all other similar accounts [Sec. 9 (a), RA 9160].
Q. Are PESO AND FOREIGN CURRENCY NON-CHECKING NUMBERED ACCOUNTS allowed?
A. YES. The BSP may conduct annual testing solely limited to the determination of the existence and true
identity of the owners of such accounts [Sec. 9 (a), RA 9160].
NOTE: Screen name is allowed (a.k.a. _____) as long as you can establish the identity of the particular
person.
G. Survivorship Agreement
Q. What is a SURVIVORSHIP AGREEMENT?
A. Co-depositors agree to permit either of them to either withdraw the whole deposit during their
lifetime or transfer of the outstanding balance to the account of the surviving account holder.
It is in the nature of an aleatory contract (uncertain event determines the rights of the parties).
The validity of the contract seems debatable by reason of its "survivor-take-all" feature, but in
reality, that contract imposed a mere obligation with a term, the term being death (Vitug v. Court of
Appeals).
It does not involve conveyance of a spouse's own properties to the other.
Q. What are ALEATORY CONTRACTS?
A. One of the parties or both reciprocally bind themselves to give or to do something in consideration of
what the other shall give or do upon the happening of an event which is uncertain, OR which is to occur at
an indeterminate time (Art. 2010, New Civil Code).
Q. What are example of aleatory contracts?
A. Under Art. 2010 of the Civil Code, the fulfillment of an aleatory contract depends on either the
happening of an event which is
a. "uncertain,"
i. A survivorship agreement,
ii. sale of a sweepstake ticket,
iii. transaction stipulating on the value of currency, and
iv. insurance
b. "which is to occur at an indeterminate time."
i. contract for life annuity or
ii. pension under Article 2021(Vitug v. Court of Appeals, GR No. 82027).
Q. Are such agreement valid?
A. As a general rule, yes.
Q. What are the exceptions?
A. The following:
1. It is used as a mere cloak to hide an inofficious donation

2. Transfer property in fraud of creditors
3. Used to defeat the legitime of a compulsory heir (Vitug v. Court of Appeals, GR No. 82027).
Q. What is the nature of a donation mortis causa?
A. A donation embodied in a will that is to take effect after the death of the donor through a probate
proceeding.
Q. What is a will?
A. "A personal, solemn, revocable and free act by which a capacitated person disposes of his property and
rights and declares or complies with duties to take effect after his death."
Q. What is the reason why the law does not allow spouses to donate with each other?
A. To prevent undue influence or pressure of one spouse to the other spouse.
Rule of thumb
To make inquiry, order of the court is necessary
No need for court order if written consent
Section 11 of AMLA as amended
If these predicate crimes are subject of litigation, no need for order from the court
Probable cause is necessary
If peso deposit RA 1405 applies
If foreign, FCDA
Vitug v. CA (1990)
Romarico G. Vitug v. The Honorable Court of Appeals and Rowena Faustino-Corona

G.R. No. 82027, March 29, 1990
DOCTRINE:
1. Survivorship Agreement is neither a donation mortis causa nor a donation inter vivos.
2. It is in the nature of an aleatory contract whereby one or both of the parties reciprocally bind
themselves to give or to do something in consideration of what the other shall give or do upon the
happening of an event which is to occur at an indeterminate time or is uncertain, such as death.
3. The validity of the contract seems debatable by reason of its "survivor-take-all" feature, but in
reality, that contract imposed a mere obligation with a term, the term being death.
FACTS:
1. This case is a chapter in an earlier suit decided by this Court involving the probate of the two wills
of the late Dolores Luchangco Vitug, who died in New York, U.S.A., on November 10, 1980, naming
private respondent Rowena Faustino-Corona executrix.
2. In our said decision, we upheld the appointment of Nenita Alonte as co-special administrator of
Mrs. Vitug's estate with her (Mrs. Vitug's) widower, petitioner Romarico G. Vitug, pending probate.
3. Romarico Vitug (surviving spouse) filed a motion asking for authority for the probate court to sell
certain shares of stock and real properties belonging to the estate to cover allegedly his advance to
the estate in the sum of P6,667,731.66 plus interest.
4. The Court of Appeals found that the alleged advances were increment thereto.
5. RESPONDENT’S CONTENTION: On April 12, 1985, Rowena Corona opposed the motion to sell on
the ground that the same funds withdrawn from savings account were conjugal partnership,
hence, there was no ground for reimbursement.
6. PLAINTIFF’S CONTENTION: However, Vitug insisted that the said funds are his exclusive
property having acquired the same through a survivorship agreement.
7. The trial court rendered a decision and granted the motion to sell some of the estate of Dolores
Vitug.
8. On appeal, it was held that the agreement constitutes a conyevance mortis causa which did not
comply with the formalities of a valid will and assuming that it is a mere donation inter vivos, it is
a prohibited donation under the civil code.
ISSUE: Whether the survivorship agreement was valid.
RULING:
1. YES. The Court ruled that a Survivorship Agreement is neither a donation mortis causa nor a
donation inter vivos.
2. It is in the nature of an aleatory contract whereby one or both of the parties reciprocally bind
themselves to give or to do something in consideration of what the other shall give or do upon the
happening of an event which is to occur at an indeterminate time or is uncertain, such as death.
3. The Court further ruled that a survivorship agreement is per se not contrary to law and thus is
valid unless its operation or effect may be violative of a law such as in the following instances:
a. it is used as a mere cloak to hide an inofficious donation;
b. it is used to transfer property in fraud of creditors; or
c. it is used to defeat the legitime of a compulsory heir. In the instant case, none of the
foregoing instances were present.
4. Consequently, the Court upheld the validity of the survivorship agreement entered into by the
spouses Vitug.
5. As such, Romarico, being the surviving spouse, acquired a vested right over the amounts under the
savings account, which became his exclusive property upon the death of his wife pursuant to the
survivorship agreement.
6. Thus, the funds of the savings account are not conjugal partnership properties and not part of the
estate of the deceased Dolores.
7. The conveyance in question is not, first of all, one of mortis causa, which should be embodied in a
will. A will has been defined as "a personal, solemn, revocable and free act by which a capacitated
person disposes of his property and rights and declares or complies with duties to take effect after
his death." In other words, the bequest or device must pertain to the testator. In this case,
the monies subject of savings account No. 35342-038 were in the nature of conjugal funds.
8. There is no showing that the funds exclusively belonged to one party, and hence it must be
presumed to be conjugal, having been acquired during the existence of the marital relations.
9. Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it was
to take effect after the death of one party. Secondly, it is not a donation between the spouses
because it involved no conveyance of a spouse's own properties to the other.
10.The validity of the contract seems debatable by reason of its "survivor-take-all" feature, but
in reality, that contract imposed a mere obligation with a term, the term being death.
11.Under Art. 2010 of the Civil Code, the fulfillment of an aleatory contract depends on either
the happening of an event which is
a. "uncertain,"
i. A survivorship agreement,
ii. sale of a sweepstake ticket,
iii. transaction stipulating on the value of currency, and
iv. insurance
b. "which is to occur at an indeterminate time."
i. contract for life annuity or
ii. pension under Article 2021
12.In either case, the element of risk is present. In the case at bar, the risk was the death of one party
and survivorship of the other.
2 MAJOR FUNCTIONS OF A BANK
1. DEPOSIT
2. LENDING – pertains to the function to receive money from the public, to safely keep it and to
return the same upon demand of the depositor.
IV. SECRECY OF BANK DEPOSIT
A. Purpose
Q. What are the purposes of RA 1405 “Secrecy of Bank Deposits Act of 1955”?
A. The following:
1. Encourage the people to deposit their money in banking institutions; and
NOTES:
- in order for the money to be used for the economy
- the bank will use the money through its lending function which in turn will boost
the economy
2. Discourage private hoarding so that the same may be properly utilized by banks in authorized
loans to assist in the economic development of the country (Sec. 1, Secrecy of Bank Deposits
Act of 1955).
B. Nature/Coverage
Q. What are covered by the Secrecy of Bank Deposits Act of 1955?
A. AS A GENERAL RULE, the following are considered to be absolutely confidential nature and may
not be examined, inquired or looked into by any person, government official, bureau or office:
1. All deposits of whatever nature with BANKS OR BANKING INSTITUTIONS in the Philippines;
and
2. Investments in bonds issued by:
a. the Government of the Philippines;
b. its political subdivisions; and
c. its instrumentalities (Sec. 2, Secrecy of Bank Deposits Act of 1955).
Q. What are the EXCEPTIONS?
A. All deposits of whatever nature with banks or banking institutions AND investment bonds may be
examined upon:
1. Written permission of the depositor;

2. In cases of impeachment (legislative department);
3. Order of a competent court in cases of:
a. bribery; or
b. dereliction of duty of public officials; or
4. In cases where the money deposited or invested is the subject matter of the litigation (Sec. 2,
Secrecy of Bank Deposits Act of 1955). – there must be an order of a competent court
Q. Is the concept of debtor-creditor relationship in the deposit function of a bank the same with
the term ‘deposit’ in Secrecy of Bank Deposits Act of 1955 (R.A. No. 1405)? If not, why?
A. No. It is not the same.

- The concept of deposit is not restrictive in so far as secrecy of bank deposits because the term
‘deposit’ must be interpreted in its broadest sense under RA 1405;
- It does not only include deposit which creates a debtor creditor relationship but includes money
invested to a bank pursuant to the case of Ejercito v. Sandiganbayan:
● The contention that trust accounts are not covered by the term "deposits," as used in
R.A. 1405, by the mere fact that they do not entail a creditor-debtor relationship
between the trustor and the bank, does not lie. An examination of the law shows that
the term "deposits" used therein is to be understood broadly and not limited only to
accounts which give rise to a creditor-debtor relationship between the depositor and
the bank.
● The phrase "of whatever nature" forbids any restrictive interpretation of "deposits."
Moreover, it is clear from the immediately quoted provision that, generally, the law applies
not only to money which is deposited but also to those which are invested. This further
shows that the law was not intended to apply only to "deposits" in the strict sense of the
word. Otherwise, there would have been no need to add the phrase "or invested."
Q. What is the punishable act of Secrecy of Bank Deposits Act of 1955?

A. The unlawful disclosure of information regarding the deposits or the investment in bonds issued by
the government to any person other than those mentioned in Sec. 2 of R.A. 1405 (Sec. 3, Secrecy of Bank
Deposits Act of 1955).
Q. Who can be prosecuted for violation of Secrecy of Bank Deposits Act of 1955 (R.A. No. 1405)?
A. Any official or employee of the banking institutions who made the disclosure without prior consent of
the depositor or without the order of the court (Sec. 3, Secrecy of Bank Deposits Act of 1955).
Q. What is the penalty for such violation?
A. The following:
1. Imprisonment of not more than five years or

2. a fine of not more than twenty thousand pesos or
3. both, in the discretion of the court (Sec. 5, Secrecy of Bank Deposits Act of 1955).
C. Acts Punishable
Sec. 3, RA 1405 - It shall be unlawful for any official or employee of a banking institution to disclose to
any person other than those mentioned in Section two hereof any information concerning said deposits.
D. Penalty for Violation
Sec. 5, 1405 - Any violation of this law will subject offender upon conviction, to an imprisonment of not
more than five years or a fine of not more than twenty thousand pesos or both, in the discretion of the
court.
V. EXCEPTIONS TO BANK SECRECY
A. Sec. 2, RA 1405
All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential nature and may not be
examined, inquired or looked into by any person, government official, bureau or office, except upon
written permission of the depositor, or in cases of impeachment, or upon order of a competent court in
cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or
invested is the subject matter of the litigation.
China Banking Corporation v. Ortega (1973)
China Banking Corporation v. Ortega

GR No. L-34964, January 31, 1973
DOCTRINE:
1. It is sufficiently clear from the foregoing discussion of the conference committee report of the two
houses of Congress that the prohibition against examination of or inquiry into a bank deposit
under Republic Act 1405 does not preclude its being garnished to insure satisfaction of a
judgment.
2. Indeed, there is no real inquiry in such a case, and if the existence of the deposit is disclosed the
disclosure is purely incidental to the execution process.
3. It is hard to conceive that it was ever within the intention of Congress to enable debtors to
evade payment of their just debts, even if ordered by the Court, through the expedient of
converting their assets into cash and depositing the same in a bank.
FACTS:
1. Acaban won a civil case for collection of a sum of money against B&B Forest Development
Corporation.
2. To satisfy the judgment, Acaban sought the garnishment of the bank deposit of B&B with China
Bank.
3. A notice of garnishment was issued by the Deputy Sheriff and served on said bank through its
cashier, Liong, who refused to comply with the court order, alleging that RA 1405 prohibits the
disclosure of any information concerning bank deposits.
ISSUE: May China Bank validly refuse to comply with a court order garnishing the bank deposit of a
judgment debtor?
RULING:
1. No. The prohibition against examination of or inquiry into a bank deposit under RA 1405 does not
preclude its being garnished to insure satisfaction of a judgment .
2. In the present case, there was no inquiry as to how much the actual deposits are . The only
inquiry that the court had was whether or not there are deposits of B&B with China Bank and if
so, the Bank shall hold the same intact and not allow any withdrawal until further order.
3. It is not the intention of the lawmakers to place bank deposits beyond the reach of
execution to satisfy a final judgment. It was never within the intention of Congress to enable
debtors to evade payment of their just debts, even if ordered by the Court, by converting their
assets into cash and then depositing the same in a bank.
Q. What is the order of garnishment in this case?
A. It is to confirm if there is a deposit with China Bank under the name of the defendant and to hold or
disallow any transaction thereof.
Q. Is garnishment violative of RA 1405?
A. No. There is no real inquiry in this case, the order is only to confirm.
China Banking Corporation v. Ortega

In RELATION TO:
SEC. 30, New Central Bank Act (R.A. No. 7653 as amended by R.A. No. 11211)
Sec. 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
1. Has notified the Bangko Sentral or publicly announced a unilateral closure, or has been dormant
for at least sixty (60) days or in any manner has suspended the payment of its deposit/deposit
substitute liabilities, or is unable to pay its liabilities as they become due in the ordinary course
of business: Provided, that this shall not include inability to pay caused by extraordinary
demands induced by financial panic in the banking community;
2. has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
3. cannot continue in business without involving probable losses to its depositors or creditors; or
4. has willfully violated a cease and desist order under Section 37 of this Act that has become final,
involving acts or transactions which amount to fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines and designate the Philippine
Deposit Insurance Corporation (PDIC) as receiver in the case of banks and direct the PDIC to
proceed with the liquidation of the closed bank pursuant to this section and the relevant
provisions of Republic Act No. 3591, as amended. The Monetary Board shall notify in writing,
through the receiver, the board of directors of the closed bank of its decision.
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be
final and executory and may not be restrained or set aside by the court except on petition
for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of
discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by
the stockholders of record representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the institution of the order directing receivership, liquidation or
conservatorship. The designation of a conservator under Section 29 of this Act or the appointment of a
receiver under this section shall be vested exclusively with the Monetary Board. Furthermore, the
designation of a conservator is not a precondition to the designation of a receiver.
The authority of the Monetary Board to summarily and without need for prior hearing forbid the
bank or quasi-bank from doing business in the Philippines as provided above may also be exercised over
non-stock savings and loan associations, based on the same applicable grounds. For quasi-banks and non-
stock savings and loan associations, any person of recognized competence in banking, credit or finance
may be designated by the Bangko Sentral as a receiver.
BSB Group, Inc. v. Go (2010)
BSB Group, Inc. v. Sally Go a.k.a. Sally Go-Bangayan

G.R. No. 168644, February 16, 2010
DOCTRINE:
1. The inquiry into bank deposits allowable under R.A. No. 1405 must be premised on the fact
that the money deposited in the account is itself the subject of the action.
2. Given this perspective, we deduce that the subject matter of the action in the case at bar is to be
determined from the indictment that charges respondent with the offense, and not from the
evidence sought by the prosecution to be admitted into the records.
3. In the criminal Information filed with the trial court, respondent, unqualifiedly and in plain
language, is charged with qualified theft by abusing petitioner’s trust and confidence and
stealing cash in the amount of ₱1,534,135.50.
4. The said Information makes no factual allegation that in some material way involves the
checks subject of the testimonial and documentary evidence sought to be suppressed.
Neither do the allegations in said Information make mention of the supposed bank account
in which the funds represented by the checks have allegedly been kept.
FACTS:
1. BSB Group filed a complaint for estafa and/or qualified theft against Sally Go, alleging that several
checks representing the aggregate amount of ₱ 1,534,135.50 issued by the company’s customers
in payment of their obligation were, instead of being turned over to the company’s coffers,
indorsed by Go and deposited the same to her personal banking account at Security Bank
and Trust Company.
2. Upon finding that the evidence adduced was uncontroverted, the assistant city prosecutor
recommended the filing of the Information for qualified theft against Go.
3. The prosecution presented the testimony of Elenita Marasigan, the representative of Security
Bank, that between 1988 and 1989, Sally Go, while engaged as cashier at the BSB Group, Inc., was
able to run away with the checks issued to the company by its customers, indorse the same, and
credit the corresponding amounts to her personal deposit account with Security Bank.
4. In the course of the testimony, the subject checks were presented to Marasigan for
identification and marking as the same checks received, indorsed, and deposited by Go.
5. But before the testimony could be completed, Go filed a Motion to Suppress seeking the
exclusion of Marasigan’s testimony and accompanying documents invoking the privilege of
confidentiality.
ISSUE: Is the testimony of Marasigan and the accompanying documents violative of the absolutely
confidential nature of bank deposits?
RULING:
1. Yes. While the fundamental law has not bothered with the triviality of specifically addressing
privacy rights relative to banking accounts, there, nevertheless, exists in our jurisdiction a
legitimate expectation of privacy governing such accounts.
2. What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A. No. 1405
has been pointedly and amply addressed in Union Bank of the Philippines v. Court of Appeals, in
which the Court noted that the inquiry into bank deposits allowable under R.A. No. 1405
must be premised on the fact that the money deposited in the account is itself the subject of
the action.
3. Given this perspective, we deduce that the subject matter of the action in the case at bar is
to be determined from the indictment that charges respondent with the offense, and not
from the evidence sought by the prosecution to be admitted into the records.
4. In the criminal Information filed with the trial court, respondent, unqualifiedly and in plain
language, is charged with qualified theft by abusing petitioner’s trust and confidence and stealing
cash in the amount of ₱1,534,135.50.
5. The said Information makes no factual allegation that in some material way involves the
checks subject of the testimonial and documentary evidence sought to be suppressed.
Neither do the allegations in said Information make mention of the supposed bank account
in which the funds represented by the checks have allegedly been kept.
6. It comes clear that the admission of testimonial and documentary evidence relative to
respondent’s Security Bank account serves no other purpose than to establish the existence of
such account, its nature and the amount kept in it. It constitutes an attempt by the prosecution at
an impermissible inquiry into a bank deposit account the privacy and confidentiality of which is
protected by law. On this score alone, the objection posed by respondent in her motion to
suppress should have indeed put an end to the controversy at the very first instance it was raised
before the trial court.
7. In sum, we hold that the testimony of Marasigan on the particulars of respondent’s
supposed bank account with Security Bank and the documentary evidence represented by
the checks adduced in support thereof, are not only incompetent for being excluded by
operation of R.A. No. 1405. They are likewise irrelevant to the case, inasmuch as they do not
appear to have any logical and reasonable connection to the prosecution of respondent for
qualified theft. We find full merit in and affirm respondent’s objection to the evidence of
the prosecution.
Ejercito v. Sandiganbayan (2006)
JOSEPH VICTOR G. EJERCITO v. SANDIGANBAYAN

G.R. Nos. 157294-95, November 30, 2006
DOCTRINES:
1. Here, the first exception applies because plunder is analogous to bribery or dereliction of duty.
2. The second exception also applies because the money deposited in Ejercito’s bank accounts is said
to form part of the subject matter of the same plunder case.
3. The contention that trust accounts are not covered by the term "deposits," as used in R.A.
1405, by the mere fact that they do not entail a creditor-debtor relationship between the
trustor and the bank, does not lie. An examination of the law shows that the term "deposits"
used therein is to be understood broadly and not limited only to accounts which give rise to
a creditor-debtor relationship between the depositor and the bank.
4. The phrase "of whatever nature" forbids any restrictive interpretation of "deposits." Moreover, it
is clear from the immediately quoted provision that, generally, the law applies not only to money
which is deposited but also to those which are invested.
5. In light then of this Court’s pronouncement in Union Bank, the subject matter of the
litigation cannot be limited to bank accounts under the name of President Estrada alone,
but must include those accounts to which the money purportedly acquired illegally or a
portion thereof was alleged to have been transferred.
7. The "fruit of the poisonous tree" principle, which states that once the primary source (the
"tree") is shown to have been unlawfully obtained, any secondary or derivative evidence (the
"fruit") derived from it is also inadmissible, does not apply in this case.
8. Clearly, the "fruit of the poisonous tree" doctrine presupposes a violation of law. If there was
no violation of R.A. 1405 in the instant case, then there would be no "poisonous tree" to begin
with, and, thus, no reason to apply the doctrine.
FACTS:
1. Joseph Ejercito was charged with Plunder.

2. The Sandiganbayan filed a request for issuance of subpoena duces tecum to direct the President of
Export and Industry Bank (EIB) or his/her authorized representative to produce various
documents related to the investigation.
3. The Special Prosecution Panel also filed a request for issuance of subpoena duces tecum and ad
testificandum directed to the authorized representative of Equitable-PCI Bank to produce
statements of account pertaining to certain accounts in the name of “Jose Velarde” and to testify
thereon.
4. The Sandiganbayan granted both requests and subpoenas were accordingly issued.
5. The Special Prosecution Panel filed still another request for issuance of subpoena duces tecum and
ad testificandum for the President of EIB or his/her authorized representative to produce the
same documents subject of the first subpoena and to testify thereon.
6. The request was likewise granted and a subpoena was accordingly issued.
7. Ejercito filed various motions to quash the various subpoenas, claiming that his bank
accounts are covered RA 1405 and do not fall under any of the exceptions stated therein
since plunder is neither bribery nor dereliction of duty.
ISSUE: Is his contention correct?
RULING:
1. NO. Although RA 1405 is broad enough to cover Trust Account No. 858, the protection afforded by
the law is not absolute. In the present case, two exceptions apply, to wit:
a. the examination of bank accounts is upon order of a competent court in cases of bribery
or dereliction of duty of public officials, and
b. the money deposited or invested is the subject matter of the litigation.
2. Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no
reason is seen why these two classes of cases cannot be excepted from the rule making bank
deposits confidential.
3. The policy as to one cannot be different from the policy as to the other. This policy expresses
the notion that a public office is a public trust and any person who enters upon its discharge
does so with the full knowledge that his life, so far as relevant to his duty, is open to public
scrutiny.
4. Undoubtedly, cases for plunder involve unexplained wealth.
5. RA 1405 allows the disclosure of bank deposits in cases where the money deposited is the subject
matter of the litigation.
6. Here, the first exception applies because plunder is analogous to bribery or dereliction of duty.
7. The second exception also applies because the money deposited in Ejercito’s bank accounts is said
to form part of the subject matter of the same plunder case.
a. The plunder case now pending with the Sandiganbayan necessarily involves an inquiry into
the whereabouts of the amount purportedly acquired illegally by former President Joseph
Estrada.
9. Trust Account No. 858 is, without doubt, one such account. The Trust Agreement between
petitioner and Urban Bank provides that the trust account covers "deposit, placement or
investment of funds" by Urban Bank for and in behalf of petitioner. The money deposited under
Trust Account No. 858, was, therefore, intended not merely to remain with the bank but to be
invested by it elsewhere. To hold that this type of account is not protected by R.A. 1405 would
encourage private hoarding of funds that could otherwise be invested by banks in other ventures,
contrary to the policy behind the law.
10.The phrase "of whatever nature" forbids any restrictive interpretation of "deposits."
Moreover, it is clear from the immediately quoted provision that, generally, the law applies
not only to money which is deposited but also to those which are invested. This further
shows that the law was not intended to apply only to "deposits" in the strict sense of the
word. Otherwise, there would have been no need to add the phrase "or invested."
11.In light then of this Court’s pronouncement in Union Bank, the subject matter of the
litigation cannot be limited to bank accounts under the name of President Estrada alone,
but must include those accounts to which the money purportedly acquired illegally or a
portion thereof was alleged to have been transferred. Trust Account No. 858 and Savings
Account No. 0116-17345-9 in the name of petitioner fall under this description and must thus be
part of the subject matter of the litigation.
12.Petitioner’s attempt to make the exclusionary rule applicable to the instant case fails. R.A. 1405, it
bears noting, nowhere provides that an unlawful examination of bank accounts shall render the
evidence obtained therefrom inadmissible in evidence. Section 5 of R.A. 1405 only states that
"[a]ny violation of this law will subject the offender upon conviction, to an imprisonment of not
more than five years or a fine of not more than twenty thousand pesos or both, in the discretion of
the court."
13.Clearly, the "fruit of the poisonous tree" doctrine presupposes a violation of law. If there
was no violation of R.A. 1405 in the instant case, then there would be no "poisonous tree" to
begin with, and, thus, no reason to apply the doctrine.
14.The "fruit of the poisonous tree" principle, which states that once the primary source (the
"tree") is shown to have been unlawfully obtained, any secondary or derivative evidence
(the "fruit") derived from it is also inadmissible, does not apply in this case. In the first place,
R.A. 1405 does not provide for the application of this rule. Moreover, there is no basis for applying
the same in this case since the primary source for the detailed information regarding petitioner’s
bank accounts – the investigation previously conducted by the Ombudsman – was lawful.
Union Bank of the Phils. v. CA (1999)
Q. What is the Philippine Clearing House Corporation (PCHC)?
A. The following:
1. Philippine Clearing House Corporation (PCHC) was incorporated in July 1977, as a private
corporation co-equally owned by all commercial banks enlisted as members of the Bankers
Association of the Philippines (BAP). PCHC commenced its LIVE operations on June 06, 1980
and stood proud being the FIRST Automated MICR Cheque Clearing House in Southeast Asia;
2. PCHC provides check clearing services covering sixty-nine (69) geographical regions
processing a daily average of 704,000 clearing items from more than 9,000 participating bank
branches nationwide. Fulfilling the corporate status as exclusive check clearing service provider
for the country fittingly highlights PCHC’s operational existence.
Q. What is check clearing?
A. Check clearing is simply a process whereby funds move from one account to another to settle a check
payment. The check is said to be cleared when the receiver's bank has received the check from the check
writer's bank. The time taken to complete the check-clearing process varies.
Union Bank of the Philippines v. Court of Appeals and Allied Bank Corporation
G.R. No. 134699, December 23, 1999
DOCTRINE:
1. What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A. No.
1405 has been pointedly and amply addressed in Union Bank of the Philippines v. Court of
Appeals, in which the Court noted that the inquiry into bank deposits allowable under R.A. No.
1405 must be premised on the fact that the money deposited in the account is itself the
subject of the action.
2. Petitioner is fishing for information so it can determine the culpability of private
respondent and the amount of damages it can recover from the latter. It does not seek
recovery of the very money contained in the deposit.
3. The subject matter of the dispute may be the amount of P999,000.00 that petitioner seeks from
private respondent as a result of the latter's alleged failure to inform the former of the
discrepancy; but it is not the P999,000.00 deposited in the drawer's account. By the terms of R.A.
No. 1405, the "money deposited" itself should be the subject matter of the litigation.
4. That petitioner feels a need for such information in order to establish its case against private
respondent does not, by itself, warrant the examination of the bank deposits. The necessity of the
inquiry, or the lack thereof, is immaterial since the case does not come under any of the
exceptions allowed by the Bank Deposits Secrecy Act.
PARTIES:
1. Payee – Alvarez
2. Collecting bank - Union Bank
3. Drawee - bank - Allied bank
FACTS:
1. A check in the amount of P1M was drawn against an account with Allied Bank payable to the order
of one Jose Ch. Alvarez.
2. The payee deposited the check with Union Bank who credited the P1M to the account of Mr.
Alvarez. Union Bank sent the check for clearing through the Philippine Clearing House
Corporation (PCHC).
3. When the check was presented for payment, a clearing discrepancy was committed by
Union Bank’s clearing staff when the amount P1M was erroneously “under-encoded” to
P1,000 only.
4. Petitioner only discovered the under-encoding almost a year later.
5. Thus, Union Bank notified Allied Bank of the discrepancy by way of a charge slip for P999,000
for automatic debiting against Allied Bank.
6. Allied Bank, however, refused to accept the charge slip “since the transaction was completed per
Union Bank’s original instruction and client’s account is now insufficiently funded.”
7. Union Bank filed a complaint against Allied Bank before the (PCHC) Arbitration Committee
(Arbicom) for reimbursement of the P999,000 from the drawer’s account.
8. Thereafter, Union Bank filed before the RTC a petition for the examination of the account
with Allied Bank. Judgment on the arbitration case was held in abeyance pending the
resolution of said petition.
9. RTC: dismissed Union Bank’s petition because the case does not fall under any of the exceptions to
warrant disclosure of or inquiry into the ledgers/books of account of Allied Checking Account
0111-01854-8.
a. Petitioner's complaint primarily hing[e]s on the alleged deliberate violation by Allied Bank
Corporation of the provisions of the PCHC Rule Book, Sec. 25[.], and as principal reliefs, it
seeks for [sic] the recovery of amounts of money as a consequence of an alleged under-
coding of check amount to P1,000,000.00 and damage[s] by way of loss of interest income.
10.Sec. 2 of the Law on Secrecy of Bank Deposits, as amended (PD 1792), declares bank
deposits to be "absolutely confidential" except:
a. In an examination made in the course of a special or general examination of a bank that is
specifically authorized by the Monetary Board after being satisfied that there is reasonable
ground to believe that a bank fraud or serious irregularity has been or is being committed
and that it is necessary to look into the deposit to establish such fraud or irregularity,
b. In an examination made by an independent auditor hired by the bank to conduct its regular
audit provided that the examination is for audit purposes only and the results thereof shall
be for the exclusive use of the bank,
c. Upon written permission of the depositor,
d. In cases of impeachment,
e. Upon order of a competent court in cases of bribery or dereliction of duty of public officials,
or
f. In cases where the money deposited or invested is the subject matter of the
litigation.
11.COURT OF APPEALS: affirmed the dismissal ruling that the case was not one where the money
deposited is the subject matter of the litigation.
a. Nowhere in petitioner collecting bank's complaint filed before the PCHC does it mention of
the amount it seeks to recover from Account No. 0111-018548 itself, but speaks of
P999,000.00 only as an incident of its alleged opportunity losses and interest as a result of
its own employee's admitted error in encoding the check.
12.CONTENTIONS OF UNION BANK BEFORE THE SUPREME COURT:

a. The money deposited in Account No. 0111-01854-8 is the subject matter of the
litigation.
b. The Court of Appeals confuses the "cause of action" with the "subject of the action."
i. The cause of action is the legal wrong threatened or committed,
ii. while the object of the action is to prevent or redress the wrong by obtaining some
legal relief;
iii. but the subject of the action is neither of these since it is not the wrong or the relief
demanded, it is the matter or thing with respect to which the controversy has arisen,
concerning which the wrong has been done, and this ordinarily is the property, or
the contract and its subject matter, or the thing in dispute.
ISSUE: Whether the case falls under the last exception is the issue in the instant petition.
RULING:
1. No. Union Bank’s theory is that Allied Bank should have informed petitioner of the under-
encoding pursuant to the provisions of Section 25.3.1 of the PCHC Handbook, which states:
25.3.1. The Receiving Bank should inform the erring Bank about the under-
encoding of amount not later than 10:00 A.M. of the following clearing day.
2. Failing in that duty, Union Bank holds Allied Bank directly liable for the P999,000 and other
damages. It does not appear that Union Bank is seeking reimbursement from the account of
the drawer.
3. Further, Union Bank rejected Allied Bank’s proposal that the drawer issue postdated checks in
favor of Union Bank since the identity and credit standing of the depositor were unknown to
Union Bank. Union Bank also believed that it had no privity with the depositor.
4. Union Bank points to its prayer in its complaint to show that it sought reimbursement from the
drawer's account. The prayer, however, does not specifically state that it was seeking recovery of
the amount from the depositor's account. Union Bank merely asked that "judgment be
rendered in favor of plaintiff against defendant sentencing it to pay plaintiff: 1. The sum of
NINE HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00). . . .
5. The petition before this Court reveals that the true purpose for the examination is to aid
Union Bank in proving the extent of Allied Bank’s liability. In other words, only a disclosure
of the pertinent details and information relating to the transactions involving the subject
account will enable Union Bank to prove its allegations in the pending Arbicom case.
6. Union Bank is fishing for information so it can determine the culpability of Allied Bank and the
amount of damages it can recover from Allied Bank. It does not seek recovery of the very money
contained in the deposit. The subject matter of the dispute may be the amount of P999,000.00 that
Union Bank seeks from Allied Bank as a result of the Allied Bank ‘s alleged failure to inform the
Union Bank of the discrepancy; but it is not the P999,000.00 deposited in the drawer’s account. By
the terms of R.A. No. 1405, the “money deposited” itself should be the subject matter of the
litigation.
7. That Union Bank feels a need for such information in order to establish its case Allied Bank does
not, by itself, warrant the examination of the bank deposits. The necessity of the inquiry, or the
lack thereof, is immaterial since the case does not come under any of the exceptions allowed by
the Bank Deposits Secrecy Act.
8. WHEREFORE, the petition is DENIED.
B. Required by Law
Section 26. 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;

(2) or 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
c.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.
NOTE: DOSRI borrowing is subject to waiver of RA 1405.
C. Sec. 8, RA 3019 “Anti-Graft and Corrupt

Practices Act”
Section 8, Anti-Graft and Corrupt Practices Act
Q. State the rule on Dismissal due to unexplained wealth.

A. The following:
1. If in accordance with the provisions of Republic Act 1379, a public official has been found to have
acquired during his incumbency, whether:
a. in his name or
b. in the name of other persons,
an amount of property and/or money manifestly out of proportion to his salary and to his
other lawful income, that fact shall be a ground for dismissal or removal.
2. Properties in the name of the spouse and unmarried children of such public official may be taken
into consideration, when their acquisition through legitimate means cannot be satisfactorily
shown.
3. Bank deposits shall be taken into consideration in the enforcement of this section,
notwithstanding any provision of law to the contrary (Section 8, Anti-Graft and Corrupt
Practices Act).
D. Determination of net estate/compromise

of tax liability
Q. What are the requisites of a tax compromise?

A. The commissioner may compromise any national internal revenue tax when:
1.A reasonable doubt as to the validity of the claim against the taxpayer exists; or
2.The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax
[Sec. 204(A), NIRC].
Q. Can all tax liabilities be subject to tax compromise?

A. NO. As a general rule, all criminal violations may be compromised,
As an exception:
1. those already filed in court, or
2. those involving fraud [Sec. 204(A), NIRC].
Q. When is the taxpayer’s offer to compromise (BY REASON OF HIS CLEAR INABILITY TO PAY THE
ASSESSED TAX) considered by the Commissioner?
A. The taxpayer's offer to compromise shall not be considered, unless and until he:
1. waives in writing his privilege under R.A. 1405 or under other general or special laws, and
2. such waiver shall constitute the authority of the Commissioner to inquire into his bank deposits
[Sec.6 (F), NIRC].
Sec. 6 (F), RA 8424 “Tax Reform Act of 1997”
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for
Tax Administration and Enforcement. -
xxx
(F) Authority of the Commissioner to Inquire into Bank Deposit Accounts and Other Related
information held by Financial Institutions [Sec. 6 (f), NIRC as amended by Exchange of Information
on tax Matters Act of 2009] –
Notwithstanding any contrary provision of Republic Act No. 1405, Republic Act No. 6426, otherwise
known as the Foreign Currency Deposit Act of the Philippines, and other general or special laws, the
Commissioner is hereby authorized to INQUIRE INTO THE BANK DEPOSITS AND OTHER RELATED
INFORMATION HELD BY FINANCIAL INSTITUTIONS OF:
1. A decedent to determine his gross estate; and

2. Any taxpayer who has filed an application for compromise of his tax liability under Section
204(A)(2) of this Code by reason of financial incapacity to pay his tax liability;
In case a taxpayer files an application to compromise the payment of his tax liabilities on
his claim that his financial position demonstrates a clear inability to pay the tax assessed, his
application shall not be considered unless and until he waives in writing his privilege under
Republic Act No. 1405, Republic Act No. 6426, otherwise known as the Foreign Currency Deposit
Act of the Philippines, or under other general or special laws, and such waiver shall constitute
the authority of the Commissioner to inquire into the bank deposits of the taxpayer.
3. A specific taxpayer or taxpayers subject of a request for the supply of tax information
from a foreign tax authority pursuant to an international convention or agreement on tax
matters to which the Philippines is a signatory or a party of:
NOTE: The information obtained from the banks and other financial institutions may be used by
the Bureau of Internal Revenue for tax assessment, verification, audit and enforcement purposes.
In case of a request from a foreign tax authority for tax information held by banks and
financial institutions, the exchange of information shall be done in a secure manner to ensure
confidentiality thereof under such rules and regulations as may be promulgated by the Secretary
of Finance, upon recommendation of the Commissioner.
The Commissioner shall provide the tax information obtained from banks and financial
institutions pursuant to a convention or agreement upon request of the foreign tax authority when
such requesting foreign tax authority has provided the following information to demonstrate
the foreseeable relevance of the information to the request:
a. The identity of the person under examination or investigation;

b. A statement of the information being sought, including its nature and the form in which
the said foreign tax authority prefers to receive the information from the Commissioner;
c. The tax purpose for which the information is being sought;
d. Grounds for believing that the information requested is held in the Philippines or is in
the possession or control of a person within the jurisdiction of the Philippines;
e. To the extent known, the name and address of any person believed to be in possession
of the requested information;

f. A statement that the request is in conformity with the law and administrative practices
of the said foreign tax authority, such that if the requested information was within the
jurisdiction of the said foreign tax authority then it would be able to obtain the information
under its laws or in the normal course of administrative practice and that it is in conformity
with a convention or international agreement; and
g. A statement that the requesting foreign tax authority has exhausted all means
available in its own territory to obtain the information, except those that would give rise
to disproportionate difficulties.
The Commissioner shall forward the information as promptly as possible to the requesting
foreign tax authority. To ensure a prompt response, the Commissioner shall confirm receipt of a
request in writing to the requesting tax authority and shall notify the latter of deficiencies in the
request, if any, within sixty (60) days from receipt of the request.
If the Commissioner is unable to obtain and provide the information within ninety (90)
days from receipt of the request, due to obstacles encountered in furnishing the information or
when the bank or financial institution refuses to furnish the information, he shall immediately
inform the requesting tax authority of the same, explaining the nature of the obstacles
encountered or the reasons for refusal [Sec. 6 (f), NIRC as amended by Exchange of
Information on tax Matters Act of 2009].
Q. What is the meaning of ‘FOREIGN TAX AUTHORITY’?
A. The tax authority or tax administration of the requesting State under the tax treaty or convention to
which the Philippines is a signatory or a party of [Sec. 6 (f), NIRC as amended by Exchange of
Information on tax Matters Act of 2009].
E. Sec. 8(8), RA 3591, as amended “PDIC

Act”
REPUBLIC ACT No. 3591
An Act Establishing the Philippine Deposit Insurance Corporation, Defining its Powers and Duties
and for Other Purposes
Q. What is the purpose of Philippine Deposit Insurance Corporation (PDIC)?
A. It shall insure, the deposits of all banks which are entitled to the benefits of insurance under this R.A.
No. 3591, and which shall have the powers hereinafter granted (Sec. 1, R.A. No. 3591).
Q. State the power of the PDIC to make examinations and require information and reports from
banks.
A. The CORPORATION (Philippine Deposit Insurance Corporation – Sec. 1, R.A. No. 3591) as a
corporate body shall have the power —
1. To conduct examination of banks with prior approval of the Monetary Board (R.A. No.
9576).
Q. What are the restrictions to the power of the PDIC to make examinations from banks?
A. The following:
1. No examination can be conducted within twelve (12) months from the last examination date;
2. The Corporation may, in coordination with the Bangko Sentral, conduct a special examination as
the Board of Directors, by an affirmative vote of a majority of all of its members, if there is a
threatened or impending closure of a bank;
3. Notwithstanding the provisions of Republic Act No. 1405, as amended, Republic Act No. 6426, as
amended, Republic Act No. 8791, and other laws, the Corporation and/or Bangko Sentral may
inquire into or examine deposit accounts and all information related thereto in case there
is a FINDING OF:
i. UNSAFE; OR
ii. UNSOUND BANKING PRACTICE;
4. To avoid overlapping of efforts, the examination shall maximize the efficient use of the relevant
reports, information, and findings of the Bangko Sentral, which it shall make available to the
Corporation."
F. Act 3936 or the “Unclaimed Balances

Act” see also PD 679
Q. What are “Unclaimed balances” under P.D. No. 679?
A. It shall include:
1. credits or deposits of money,

2. bullion,
3. security or
4. other evidence of indebtedness of any kind, and
5. interest thereon with banks, buildings and loan associations, and trust corporations, as hereinafter
defined
in favor of any person known to be dead or who has not made further deposits or withdrawals during the
preceding ten years or more (Sec. 1, P.D. No. 679).
NOTE: Such unclaimed balances, together with the increase and proceeds thereof, shall be
deposited with the Treasurer of the Philippines to the credit of the Government of the Republic of
the Philippines to be used as the National Assembly may direct (Sec. 1, P.D. No. 679).
Q. Who is the treasurer of the Philippines?
A. Rosalia V. De Leon is the treasurer of the Philippines (Bureau of Treasury under the Department of
Finance) as of August 28, 2021.
Q. Who is the head of Department of Finance?
A. Carlos G. Dominguez as of August 28, 2021.
Q. What is the obligation of all banks, building and loan associations, and trust corporations to the
Treasurer of the Philippines?
A. The following:
1. Within the month of January of every odd year, all banks, building and loan associations, and trust
corporations shall forward to the Treasurer of the Philippines a statement, under oath, of:
a. their respective managing officers,
b. of all credits and deposits held by them in favor of persons known to be dead, or who
have not made further deposits or withdrawals during the preceding ten years or
more, arranged in alphabetical order according to the names of creditors and depositors,
and showing:
i. The names and last known place of residence or post office addresses of the persons
in whose favor such unclaimed balances stand
ii. The amount and the date of the outstanding unclaimed balance and whether the
same is in money or in security, and if the latter, the nature of the same
iii. The date when the person in whose favor the unclaimed balance stands died, if
known, or the date when he made his last deposit or withdrawal; an
iv. The interest due on such unclaimed balance, if any, and the amount thereof (Sec. 2).
NOTE:
o A copy of the above sworn statement shall be posted in a conspicuous place in the premises
of the bank, building and loan association, or trust corporation concerned for at least sixty
days from the date of filing thereof:
o immediately before filing the above sworn statement, the bank, building and loan
association, and trust corporation shall communicate with the person in whose favor the
unclaimed balance stands at his last known place of residence or post office address.
Q. What is the duty of the Treasurer of the Philippines?
A. It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to time
the existence of unclaimed balances held by banks, building and loan associations, and trust corporations
(Sec. 2).
Q. What will the Solicitor General do upon receipt of the information regarding existence of
unclaimed balances held by banks?
A. The Solicitor General shall commence an action or actions (ESCHEAT PROCEEDINGS) in the name
of the People of the Republic of the Philippines in the Court of First Instance of the province or city
where the bank, building and loan association or trust corporation is located (Sec. 3).
Q. Who are joined as parties to the ESCHEAT PROCEEDINGS?
A. The following:
1. the bank,
2. building and loan association or
3. trust corporation and all such creditors or depositors (Sec. 3).
Q. What will happen at the trial?
A. The following:
1. The court must hear all parties who have appeared therein, and
2. if it be determined that such unclaimed balances in any defendant bank, building and loan
association or trust corporation are unclaimed, then the court shall render judgment in favor
of the Government of the Republic of the Philippines:
a. declaring that said unclaimed balances have escheated to the Government of the
Republic of the Philippines and commanding said bank, building and loan association or
trust corporation
b. to forthwith deposit the same with the Treasurer of the Philippines to credit of the
Government of the Republic of the Philippines to be used as the National Assembly may
direct (Sec. 3).
Q. What are unclaimed balances?
A. They are dormant accounts wherein there is no withdrawals or movements within the past 10 years.
Q. What is the rationale for filing of escheat proceedings?
A. These money or deposits are probably abandoned, neglected or there are no interested persons
Q. What are escheat proceedings?
A. Escheat proceedings is not a punishment on the persons but a recognition that there are no interested
persons on the deposit.
Escheat proceedings refer to the judicial process in which the state, by virtue of its
sovereignty, steps in and claims abandoned, left vacant, or unclaimed property, without there
being an interested person having a legal claim thereto.
In the case of dormant accounts, the state inquires into the status, custody, and ownership of the
unclaimed balance to determine whether the inactivity was brought about by the fact of death or absence
of or abandonment by the depositor. If after the proceedings the property remains without a lawful
owner interested to claim it, the property shall be reverted to the state "to forestall an open invitation to
self-service by the first comers (RCBC v. Hi-Tri-Development Corporation).
However, if interested parties have come forward and lain claim to the property, the courts shall
determine whether the credit or deposit should pass to the claimants or be forfeited in favor of the state.
We emphasize that escheat is not a proceeding to penalize depositors for failing to deposit to or
withdraw from their accounts. It is a proceeding whereby the state compels the surrender to it of
unclaimed deposit balances when there is substantial ground for a belief that they have been abandoned,
forgotten, or without an owner.
Republic v. CA (2000)
The publication of the list of unclaimed balances is intended to safeguard the right of the depositors, their
heirs and successors to due process. This was made clear by the lower court in its assailed Order, to wit:
Moreover, how would other persons who may have an interest in any of the unclaimed balances know
what this case is all about and whether they have an interest in this case if the amended complaint and
list of unclaimed balances are not published? Such other persons may be heirs of the bank depositors
named in the list of unclaimed balances.
RCBC v. Hi-Tri Development Corp. (2012)
Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation and Luz R. Bakunawa
G.R. No. 192413, June 13, 2012
DOCTRINE:
1. The court emphasize that escheat is not a proceeding to penalize depositors for failing to
deposit to or withdraw from their accounts.
2. It is a proceeding whereby the state compels the surrender to it of unclaimed deposit
balances when there is substantial ground for a belief that they have been abandoned,
forgotten, or without an owner.
3. Act No. 3936, as amended, outlines the proper procedure to be followed by banks and other
similar institutions in filing a sworn statement with the Treasurer concerning dormant accounts
4. Sec. 2. Immediately after the taking effect of this Act and within the month of January of every odd
year, all banks, building and loan associations, and trust corporations shall forward to the
Treasurer of the Philippines a statement, under oath, of:
a. their respective managing officers,
b. of all credits and deposits held by them in favor of persons known to be dead, or who
have not made further deposits or withdrawals during the preceding ten years or
more, arranged in alphabetical order according to the names of creditors and depositors,
and showing:
i. The names and last known place of residence or post office addresses of the persons
in whose favor such unclaimed balances stand
ii. The amount and the date of the outstanding unclaimed balance and whether the
same is in money or in security, and if the latter, the nature of the same
iii. The date when the person in whose favor the unclaimed balance stands died, if
known, or the date when he made his last deposit or withdrawal; an
iv. The interest due on such unclaimed balance, if any, and the amount thereof.
A copy of the above sworn statement shall be posted in a conspicuous place in the premises
of the bank, building and loan association, or trust corporation concerned for at least sixty days
from the date of filing thereof: Provided, That immediately before filing the above sworn
statement, the bank, building and loan association, and trust corporation shall communicate with
the person in whose favor the unclaimed balance stands at his last known place of residence or
post office address.
It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from
time to time the existence of unclaimed balances held by banks, building and loan associations,
and trust corporations.
FACTS:
1. Teresita Millan through her representative Jerry Montemayor, offered to buy several parcels of
lots owned by Spouses Bakunawa with the promise that she will take care of clearing whatever
preliminary obstacles there maybe to effect a "completion of the sale".
2. The Spouses Bakunawa then surrendered the Owner’s Copies of said TCTs and in turn, Millan
made a downpayment of "₱ 1,019,514.29" for the intended purchase.
3. However, Millan was not able to clear the obstacles as promised.
4. As a result, the Spouses Bakunawa rescinded the sale and offered to return to Millan her
downpayment which was refused.
5. Consequently, the Spouses Bakunawa, through their company, the Hi-Tri Development
Corporation ("Hi-Tri") took out on October 28, 1991, a Manager’s Check from RCBC-Ermita in
the amount of ₱ 1,019,514.29, payable to Millan’s company Rosmil Realty and Development
Corporation ("Rosmil") c/o Teresita Millan and used this as one of their basis for a
complaint against Millan and Montemayor which they filed with the Regional Trial Court of
Quezon City praying for the return of the TCTs surrendered to Millan.
6. During the pendency of the case RCBC reported "₱1,019,514.29-credit existing in favor of
Rosmil" to the Bureau of Treasury as among its "unclaimed balances" as of January 31,
2003 without the knowledge of Hi-Tri and Spouses Bakunawa.
7. The case was amicably settled but to the Bakunawas’ dismay, the amount was already
subject of the escheat proceedings before the RTC.
ISSUE: Whether the allocated funds for the payment of the Manager’s check ("₱ 1,019,514.29) may be
escheated in favor of the Republic?
RULING:
1. NO. The SC affirmed the CA on the exclusion of the funds allocated for the payment of the
Manager’s Check in the escheat proceedings.
2. Since there was no delivery, presentment of the check to the bank for payment did not
occur.
3. An order to debit the account of respondents was never made.
4. In fact, petitioner confirms that the Manager’s Check was never negotiated nor presented
for payment to its Ermita Branch, and that the allocated fund is still held by the bank.
5. As a result, the assigned fund is deemed to remain part of the account of Hi-Tri, which
procured the Manager’s Check.
6. The doctrine that the deposit represented by a manager’s check automatically passes to the
payee is inapplicable, because the instrument – although accepted in advance – remains
undelivered.
7. Hence, respondents should have been informed that the deposit had been left inactive for
more than 10 years, and that it may be subjected to escheat proceedings if left unclaimed.
8. Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty,
steps in and claims abandoned, left vacant, or unclaimed property, without there being an
interested person having a legal claim thereto.
9. In the case of dormant accounts, the state inquires into the status, custody, and ownership of
the unclaimed balance to determine whether the inactivity was brought about by the fact of
death or absence of or abandonment by the depositor.
10.If after the proceedings the property remains without a lawful owner interested to claim it,
the property shall be reverted to the state "to forestall an open invitation to self-service by
the first comers."
11.However, if interested parties have come forward and lain claim to the property, the courts
shall determine whether the credit or deposit should pass to the claimants or be forfeited in
favor of the state.
12.The court emphasize that escheat is not a proceeding to penalize depositors for failing to deposit
to or withdraw from their accounts.
13.It is a proceeding whereby the state compels the surrender to it of unclaimed deposit balances
when there is substantial ground for a belief that they have been abandoned, forgotten, or without
an owner.
G. Sec. 3(i) in relation to Sec. 11 of RA

9160 “The Anti-Money Laundering Act” as
amended (Sec. 8, RA 9194)
Sec. 3 (i) - “Unlawful activity” refers to any act or omission or series or combination thereof involving or
having 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 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended, otherwise known as
the Dangerous Drugs Act of 1972;
(12) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined
under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-
combatant persons and similar targets;
and lastly, Terorrism (sec. 35, RA 11479)
Q. What is the meaning of “Unlawful activity” under Sec. 3 (i) of Anti-Money Laundering Act of
2001 (R.A. No. 9160)?
A. It refers to any act or omission or series or combination thereof involving or having 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 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended, otherwise
known as the Dangerous Drugs Act of 1972;
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
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 of the Revised Penal Code, as amended;
10. Smuggling under Republic Act Nos. 455 and 1937;
11. Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of
2000;
12. Hijacking and other violations under Republic Act No. 6235;
13. destructive arson and murder, as defined under the Revised Penal Code, as amended,
including those perpetrated by terrorists against non-combatant persons and similar targets;
14. Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as
the Securities Regulation Code of 2000;
15. Felonies or offenses of a similar nature that are punishable under the penal laws of other
countries.
Q. What is the authority of AMLC to inquire into bank deposits?
A. Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as
amended; Republic Act No. 8791; and other laws, the AMLC may inquire into or examine any
particular deposit or investment, including related accounts, with any banking institution or non-
bank financial institution upon:
1. ORDER of any competent court based on an ex parte application in cases of violations of this
Act,
2. when it has been established that there is probable cause that the deposits or investments,
including related accounts involved,
a. are related to an unlawful activity as defined in Section 3(i) hereof or
b. a money laundering offense under Section 4 hereof;
c. EXCEPT THAT NO COURT ORDER SHALL BE REQUIRED in cases involving activities
defined in:
i. Section 3(i)(1) - Kidnapping for ransom;
ii. Sec. 3(i)(2) - Dangerous Drugs Act of 1972;
iii. Sec. (3)(i)(12) - Hijacking and other violations, destructive arson and murder;
and
iv. felonies or offenses of a nature similar to those mentioned in Section 3(i)(1), (2),
and (12), which are Punishable under the penal laws of other countries, and
terrorism and conspiracy to commit terrorism as defined and penalized under
Republic Act No. 9372 (Sec. 11, Anti-Money Laundering Act as amended by R.A.
No. 10167).
Q. When should the court of appeals act on the application to inquire into or examine any deposit
or investment with any banking institution or non-bank financial institution?
A. It should act within twenty-four (24) hours from filing of the application (Sec. 11, Anti-Money
Laundering Act as amended by R.A. No. 10167).
NOTES:
1. “To ensure compliance with this Act, the Bangko Sentral ng Pilipinas may, in the course of a
periodic or special examination, check the compliance of a Covered institution with the
requirements of the AMLA and its implementing rules and regulations.”
2. “For purposes of this section, ‘related accounts’ shall refer to accounts, the funds and sources of
which originated from and/or are materially linked to the monetary instrument(s) or
property(ies) subject of the freeze order(s).”
3. “A court order ex parte must first be obtained before the AMLC can inquire into these related
Accounts: Provided, That the procedure for the ex parte application of the ex parte court order for
the principal account shall be the same with that of the related accounts.”
4. “The authority to inquire into or examine the main account and the related accounts shall comply
with the requirements of Article III, Sections 2 and 3 of the 1987 Constitution, which are hereby
incorporated by reference (Sec. 11, Anti-Money Laundering Act as amended by R.A. No.
10167).
*AMLA - prosecution is dependent on another crime (predicate crimes or unlawful crimes enumerated in
AMLA as amended - 34 crimes)
- derivative crime
Q. What is Derivative Crime?
A. Prosecution is dependent on another crime (predicate crimes or unlawful crimes enumerated in AMLA
as amended - 34 crimes)
NOTES:
1. safe harbor provision - Sec. 9, AMLA - there is immunity from prosecution

2. RA 1405 does not provide for immunity
Republic v. Eugenio (2008)
REPUBLIC OF THE PHILIPPINES, Represented by THE ANTI-MONEY LAUNDERING COUNCIL (AMLC)

v. HON. ANTONIO M. EUGENIO, JR., AS PRESIDING JUDGE OF RTC, MANILA, BRANCH 34,
PANTALEON ALVAREZ and LILIA CHENG
G.R. No. 174629, February 14, 2008
DOCTRINES:
1. The AMLA also provides exceptions to the Bank Secrecy Act.

2. Under Section 11, the AMLC may inquire into a bank account upon order of any competent
court in cases of violation of the AMLA, it having been established that there is probable
cause that the deposits or investments are related to unlawful activities as defined in
Section 3(i) of the law, or a money laundering offense under Section 4 thereof.
3. Further, in instances where there is probable cause that the deposits or investments are
related to kidnapping for ransom, certain violations of the Comprehensive Dangerous

Drugs Act of 2002, hijacking and other violations under R.A. No. 6235, destructive arson
and murder, then there is no need for the AMLC to obtain a court order before it could
inquire into such accounts.
4. It cannot be successfully argued the proceedings relating to the bank inquiry order under
Section 11 of the AMLA is a "litigation" encompassed in one of the exceptions to the Bank
Secrecy Act which is when "the money deposited or invested is the subject matter of the
litigation."
5. The orientation of the bank inquiry order is simply to serve as a provisional relief or remedy.
6. As earlier stated, the application for such does not entail a full-blown trial.
7. While petitioner would premise that the inquiry into Lilia Chengs accounts finds root in
Section 11 of the AMLA, it cannot be denied that the authority to inquire under Section 11 is
only exceptional in character, contrary as it is to the general rule preserving the secrecy of
bank deposits.
8. Even though she may not have been the subject of the inquiry orders, her bank accounts
nevertheless were, and she thus has the standing to vindicate the right to secrecy that
attaches to said accounts and their owners.
9. This statutory right to privacy will not prevent the courts from authorizing the inquiry
anyway upon the fulfillment of the requirements set forth under Section 11 of the AMLA or
Section 2 of the Bank Secrecy Act; at the same time, the owner of the accounts have the right
to challenge whether the requirements were indeed complied with.
FACTS:
1. In relation to the series of investigations concerning the award of the NAIA 3 contracts to PIATCO
undertaken by the Ombudsman and the Compliance and Investigation Staff (CIS) of petitioner
Anti-Money Laundering Council (AMLC), Pantaleon Alvarez (Alvarez) was charged with violation
of RA No. 3019 (ANTI-GRAFT AND CORRUPT PRACTICES ACT).
2. The CIS conducted an intelligence database search on the financial transactions of certain
individuals involved in the award, including Alvarez, which revealed that the latter
maintained eight (8) bank accounts with six (6) different banks.
3. Under the authority granted by the Resolution, the AMLC filed an application to inquire into
or examine the deposits or investments of Alvarez, Trinidad, Liongson and Cheng Yong
before the RTC of Makati.
4. The RTC granted application being satisfied that there existed probable cause to believe that the
deposits in various bank accounts are related to the offense of violation of Anti-Graft and Corrupt
Practices Act now the subject of criminal prosecution before the Sandiganbayan.
5. The CIS proceeded to inquire and examine the deposits, investments and related web accounts of
the four.
6. Meanwhile, the Special Prosecutor of the Office of the Ombudsman requested the AMLC to
investigate the accounts of Alvarez, PIATCO, and several other entities involved in the nullified
contract adverting to probable cause to believe that the bank accounts were used in the
commission of unlawful activities that were committed in relation to the criminal cases then
pending before the Sandiganbayan.
7. In response, the AMLC authorized the executive director of the AMLC to inquire into and examine
the accounts named in the letter, including one maintained by Alvarez with DBS Bank and two
other accounts in the name of Cheng Yong with Metrobank.
8. Following the AMLC Resolution, the Republic, through the AMLC, filed an application before
the Manila RTC to inquire into and/or examine thirteen (13) accounts and two (2) related
web of accounts alleged as having been used to facilitate corruption in the NAIA 3 Project.
9. Among said accounts were the DBS Bank account of Alvarez and the Metrobank accounts of Cheng
Yong.
10.The Manila RTC issued an Order granted the Ex Parte Application
11.Alvarez, through counsel, filed an Urgent Motion to Stay Enforcement of the said Order arguing
that nothing in R.A. No. 9160 authorized the AMLC to seek the authority to inquire into bank
accounts ex parte.
12.The Manila RTC issued an Order staying the enforcement of its bank inquiry order and giving the
Republic five (5) days to respond to Alvarez’ motion.
13.The Republic filed an Omnibus Motion for Reconsideration which was granted by the Manila RTC
denying Alvarez’s motion to dismiss and reinstating in full force and effect the stayed order.
14.Acting on Alvarez’s latest motion, the Manila RTC issued an Order directing the AMLC to refrain
from enforcing the order until the expiration of the period to appeal, without any appeal having
been filed.
15.On the same day, Alvarez filed a Notice of Appeal.
16.The Republic filed an Urgent Omnibus Motion for Reconsideration urging that it be allowed to
immediately enforce the bank inquiry order against Alvarez and that Alvarez notice of appeal be
expunged from the records since appeal from an order of inquiry is disallowed under the Anti
money Laundering Act (AMLA).
17.Meanwhile, respondent Lilia Cheng filed with the Court of Appeals a Petition for Certiorari,
Prohibition and Mandamus with Application for TRO and/or Writ of Preliminary Injunction
directed against the Republic of the Philippines through the AMLC, Manila RTC Judge Eugenio, Jr.
and Makati RTC Judge Marella, Jr. imputing grave abuse of discretion on the part of the Makati
and Manila RTCs in granting AMLCs ex parte applications for a bank inquiry order, arguing
among others that the ex parte applications violated her constitutional right to due
process, that the bank inquiry order under the AMLA can only be granted in connection with
violations of the AMLA and that the AMLA can not apply to bank accounts opened and transactions
entered into prior to the effectivity of the AMLA or to bank accounts located outside the
Philippines.
18.The Court of Appeals, acting on Lilia Chengs petition, issued a Temporary Restraining Order.
19.On even date, the Manila RTC issued an Order resolving to hold in abeyance the resolution of the
urgent omnibus motion for reconsideration then pending before it until the resolution of Lilia
Cheng’s petition for certiorari with the Court of Appeals.
ISSUE: WHETHER THE BANK ACCOUNTS OF RESPONDENTS CAN BE EXAMINED.
RULING:
1. NO. Because of the Bank Secrecy Act, the confidentiality of bank deposits remains a basic state
policy in the Philippines. Subsequent laws, including the AMLA, may have added exceptions to the
Bank Secrecy Act, yet the secrecy of bank deposits still lies as the general rule.
2. It falls within the zones of privacy recognized by our laws.
3. The framers of the 1987 Constitution likewise recognized that bank accounts are not covered by
either the right to information or under the requirement of full public disclosure.
4. Unless the Bank Secrecy Act is repealed or amended, the legal order is obliged to conserve the
absolutely confidential nature of Philippine bank deposits.
5. Any exception to the rule of absolute confidentiality must be specifically legislated.
6. Section 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank accounts may
be examined by any person, government official, bureau or office; namely when:

a. upon written permission of the depositor;
b. in cases of impeachment;
c. the examination of bank accounts is upon order of a competent court in cases of bribery or
dereliction of duty of public officials; and
d. money deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act No.
3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this Court as
constituting an additional exception to the rule of absolute confidentiality and there have
been other similar recognitions as well.
7. The AMLA also provides exceptions to the Bank Secrecy Act.
8. Under Section 11, the AMLC may inquire into a bank account upon order of any competent court
in cases of violation of the AMLA, it having been established that there is probable cause that the
deposits or investments are related to unlawful activities as defined in Section 3(i) of the law, or a
money laundering offense under Section 4 thereof.
9. Further, in instances where there is probable cause that the deposits or investments are related to
kidnapping for ransom certain violations of the Comprehensive Dangerous Drugs Act of 2002
hijacking and other violations under R.A. No. 6235, destructive arson and murder, then there is no
need for the AMLC to obtain a court order before it could inquire into such accounts.
10.It cannot be successfully argued the proceedings relating to the bank inquiry order under
Section 11 of the AMLA is a litigation encompassed in one of the exceptions to the Bank
Secrecy Act which is when the money deposited or invested is the subject matter of the
litigation.
11.The orientation of the bank inquiry order is simply to serve as a provisional relief or remedy.
12.As earlier stated, the application for such does not entail a full-blown trial.
13.Nevertheless, just because the AMLA establishes additional exceptions to the Bank Secrecy
Act it does not mean that the later law has dispensed with the general principle established
in the older law that all deposits of whatever nature with banks or banking institutions in
the Philippines are considered as of an absolutely confidential nature.
14.Indeed, by force of statute, all bank deposits are absolutely confidential, and that nature is
unaltered even by the legislated exceptions referred to above.
15.There is disfavor towards construing these exceptions in such a manner that would authorize
unlimited discretion on the part of the government or of any party seeking to enforce those
exceptions and inquire into bank deposits.
16.If there are doubts in upholding the absolutely confidential nature of bank deposits against
affirming the authority to inquire into such accounts, then such doubts must be resolved in
favor of the former.
17.Such a stance would persist unless Congress passes a law reversing the general state policy of
preserving the absolutely confidential nature of Philippine bank accounts.
18.While petitioner would premise that the inquiry into Lilia Chengs accounts finds root in
Section 11 of the AMLA, it cannot be denied that the authority to inquire under Section 11 is
only exceptional in character, contrary as it is to the general rule preserving the secrecy of
bank deposits.
19.Even though she may not have been the subject of the inquiry orders, her bank accounts
nevertheless were, and she thus has the standing to vindicate the right to secrecy that
attaches to said accounts and their owners.
20.This statutory right to privacy will not prevent the courts from authorizing the inquiry
anyway upon the fulfillment of the requirements set forth under Section 11 of the AMLA or
Section 2 of the Bank Secrecy Act; at the same time, the owner of the accounts have the right
to challenge whether the requirements were indeed complied with.

21.PETITION IS DISMISSED.
H. Sec. 27, RA 9372 of the “Human Security

Act of 2007”
> amended by RA 11479 or An act to prevent, prohibit and penalize terrorism, thereby repealing RA
9372, otherwise known as the "Human Security Act of 2007"
> same with Sec. 11 of AMLA
Sec. 35, RA 11479 - no court order is required for AMLC to inquire into the bank deposits of the person as
long as it can show probable cause
I. Sec. 15(8), RA 6770 “The Ombudsman

Act of 1989”, as amended
Q. What is the power, function and duty of the Ombudsman to examine bank accounts and
records?
A. The following:
1. Administer oaths,
2. issue subpoena and subpoena duces tecum, and
3. take testimony in any investigation or inquiry, including the
a. power to examine and
b. have access to bank accounts and records [Sec. 15 (8), Ombudsman Act of 1989].
Q. Can an ombudsman to conduct in camera inspection?
A. Yes, subject to certain conditions - there must be a pending case in court
NOTE: In the absence of pending case in court, there is phishing of information.
Marquez v. Disierto (2001)
MARQUEZ v. DESIERTO
G.R. No. 135882, June 27, 2001
DOCTRINE:
1. In the case at bar, there is yet no pending litigation before any court of competent
authority. What is existing is an investigation by the Office of the Ombudsman. In short,
what the office of the ombudsman would wish to do is to fish for additional evidence to
formally charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no
pending case in court which would warrant the opening of the bank account for
inspection.
2. The inspection would be done "in camera" wherein the bank records would be examined
without bringing the documents outside the bank premises. Its purpose was to identify the
specific bank records prior to the issuance of the required information not in any manner
needed in or relevant to the investigation.
3. The Court ruled that before an IN CAMERA INSPECTION may be allowed, the following
requisites must be present:
a. There must be a pending case before a court of competent jurisdiction;

b. The account must be clearly identified
c. The inspection limited to the subject matter of the pending case before the court of
competent jurisdiction;
d. The bank personnel and the account holder must be notified to be present during the
inspection, and
e. Such inspection may cover only the account identified in the pending case.
FACTS:
1. Petitioner Lourdes Marquez received an Order from respondent Ombudsman Aniano Desierto to
produce several bank documents for purposes of inspection in camera relative to various accounts
maintained at the Union Bank where petitioner is the branch manager.
2. The accounts to be inspected are involved in a case pending with the Ombudsman entitled, Fact-
Finding and Intelligence Bureau (FFIB) v. Amado Lagdameo.
3. It appears that a certain George Trivinio purchased trail managers check and deposited some of it
to an account maintained at petitioner’s branch.
4. Petitioner after meeting with the FFIB Panel to ensure the veracity of the checks agreed to the in-
camera inspection.
5. Petitioner being unable to readily identify the accounts in question, the Ombudsman issued an
order directing petitioner to produce the bank documents.
6. Thus, petitioner sought a declaration of her rights from the court due to the clear conflict between
RA 6770 (Ombudsman Act of 1989) and RA 1405 (Secrecy of Bank Deposits).
7. Meanwhile, FFIB moved to cite petitioner in contempt before the Ombudsman.
ISSUES:
1. Whether the order of the Ombudsman to have an in camera inspection of the questioned account
is allowed as an exception to the law on secrecy of bank deposits (R.A. No.1405).
2. Whether Marquez may be cited for indirect contempt for her failure to produce the documents
requested by the Ombudsman
RULING:
1. No. The order of the Ombudsman to have an in camera inspection of the questioned account is
NOT allowed as an exception to the law on secrecy of bank deposits (R.A. No.1405)
An examination of the secrecy of bank deposits law (R.A. No.1405) would reveal the
following exceptions:
a. Where the depositor consents in writing;

b. Impeachment case;
c. By court order in bribery or dereliction of duty cases against public officials;
d. Deposit is subject of litigation;
e. Sec. 8, R.A. No.3019, in cases of unexplained wealth as held in the case of PNB vs. Gancayco.
The order of the Ombudsman to produce for in camera inspection the subject accounts
with the Union Bank of the Philippines, Julia Vargas Branch, is based on a pending investigation at
the Office of the Ombudsman against Amado Lagdameo, et. al. for violation of R.A. No. 3019, Sec. 3
(e) and (g) relative to the Joint Venture Agreement between the Public Estates Authority and
AMARI.
The Court ruled that before an IN CAMERA INSPECTION may be allowed, the
following requisites must be present:
1. There must be a pending case before a court of competent jurisdiction;

2. The account must be clearly identified
3. The inspection limited to the subject matter of the pending case before the court of
competent jurisdiction;
4. The bank personnel and the account holder must be notified to be present during the
inspection, and
5. Such inspection may cover only the account identified in the pending case.
In Union Bank of the Philippines v. Court of Appeals, the Court held that "Section 2 of the
Law on Secrecy of Bank Deposits, as amended, declares bank deposits to be "absolutely
confidential" except:
(1) In an examination made in the course of a special or general examination of a bank that is
specifically authorized by the Monetary Board after being satisfied that there is reasonable
ground to believe that a bank fraud or serious irregularity has been or is being committed
and that it is necessary to look into the deposit to establish such fraud or irregularity,
(2) In an examination made by an independent auditor hired by the bank to conduct its regular
audit provided that the examination is for audit purposes only and the results thereof shall
be for the exclusive use of the bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or dereliction of duty of public
officials, or
(6) In cases where the money deposited or invested is the subject matter of the litigation". 27
In the case at bar, there is yet no pending litigation before any court of competent
authority. What is existing is an investigation by the Office of the Ombudsman. In short,
what the office of the ombudsman would wish to do is to fish for additional evidence to
formally charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no
pending case in court which would warrant the opening of the bank account for inspection.
2. No. Marquez cannot be cited for indirect contempt for her failure to produce the documents
requested by the Ombudsman.
The Court stated that zone of privacy are recognized and protected in our laws. The Civil
Code provides that" [e]very person shall respect the dignity, personality, privacy and peace of
mind of his neighbors and other persons" and punishes as actionable torts several acts for
meddling and prying into the privacy of another.
It also holds public officer or employee or any private individual liable for damages for any
violation of the rights and liberties of another person, and recognizes the privacy of letters and
other private communications.
The Revised Penal Code makes a crime of the violation of secrets by an officer, revelation of
trade and industrial secrets, and trespass to dwelling.
Invasion of privacy is an offense in special laws like the Anti-Wiretapping Law, the Secrecy
of Bank Deposits Act, and the Intellectual Property Code.
J. Sec. 17(a), RA 10142 “Financial and

Rehabilitation and Insolvency Act”
Q. What is the effect of the Commencement Order under FRIA?
A. 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:
1. Vest the rehabilitation with all the powers and functions provided for this Act, such as
a. the right to review and obtain records to which the debtor's management and directors have
access, including bank accounts or whatever nature of the debtor subject to the approval by
the court of the performance bond filed by the rehabilitation receiver;
Attempts to seek legal of other resource against the debtor outside these proceedings shall
be sufficient to support a finding of INDIRECT CONTEMPT OF COURT.
NOTE:
Section 16. Commencement of Proceedings and Issuance of a Commencement Order. - The

rehabilitation proceedings shall commence upon the issuance of the Commencement Order, which
shall:
1.identify the debtor, its principal business or activity/ies and its principal place of business;
2.summarize the ground/s for initiating the proceedings;
3.state the relief sought under this Act and any requirement or procedure particular to the relief
sought;
4.state the legal effects of the Commencement Order, including those mentioned in Section 17
hereof;
5.declare that the debtor is under rehabilitation;
6.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;
7.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;
8.appoint a rehabilitation receiver who may or 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;
9.summarize the requirements and deadlines for creditors to establish their claims against the
debtor and direct all creditors to their claims with the court at least five (5) days before the initial
hearing;
10. direct 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 provide;
11. 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;
12. authorize the payment of administrative expenses as they become due;
13. 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;
14. make available copies of the petition and rehabilitation plan for examination and copying
by any interested party;
15. indicate the location or locations at which documents regarding the debtor and the
proceedings under Act may be reviewed and copied;
16. 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;
17. includes Stay or Suspension Order which shall:
a. suspend all actions or proceedings, in court or otherwise, for the enforcement of claims
against the debtor;
b. suspend all actions to enforce any judgment, attachment or other provisional remedies
against the debtor;
c. prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of
its properties except in the ordinary course of business; and
d. prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided herein.
K. Sec. 10, RA 10168 “The Terrorism Financing Prevention

and Suppression Act of 2012”
Q. What is the Authority to investigate financing of terrorism of AMLC?
A. The AMLC, either upon its:
1. Own initiative or
2. At the request of the Anti-Terrorism Council (ATC), is hereby AUTHORIZED TO

INVESTIGATE:
a. any property or funds that are in any way related to financing of terrorism or acts of
terrorism;
b. property or funds of any person or persons in relation to whom there is probable cause to
believe that such person or persons are committing or attempting or conspiring to
commit, or participating in or facilitating the financing of terrorism or acts of terrorism as
defined herein.
● For purposes of this section and notwithstanding the provisions of Republic Act No. 1405,
otherwise known as the “Law on Secrecy of Bank Deposits”, as amended; Republic Act No. 6426,
otherwise known as the “Foreign Currency Deposit Act of the Philippines”, as amended; Republic
Act No. 8791, otherwise known as “The General Banking Law of 2000” and other laws, the AMLC
is hereby authorized to inquire into or examine deposits and investments with any banking
institution or non-bank financial institution and their subsidiaries and affiliates without a
court order (Sec. 10, R.A. No. 10168).
NOTES:
● The AMLC may also enlist the assistance of any branch, department, bureau, office, agency or
instrumentality of the government, including government-owned and -controlled corporations in
undertaking measures to counter the financing of terrorism, which may include the use of its
personnel, facilities and resources (Sec. 10, R.A. No. 10168).
L. Sec. 35, R.A. No. 11479 “The Anti-Terrorism Act of 2020”
Q. What is the authority of the AMLC to investigate, inquire into and examine bank deposits under
the Anti-Terrorism Act of 2020?
A. The following:
1. Upon the issuance by the court of A PRELIMINARY ORDER OF PROSCRIPTION (SECTION 27) or
2. in case of DESIGNATION UNDER SECTION 25 of this Act, the AMLC, either upon:
a. its own initiative or

b. at the request of the Anti-Terrorism Council (ATC), is hereby authorized to investigate:
i. any property or funds that are in any way related to financing of terrorism as defined and
penalized under Republic Act No. 10168, or violation of Sections 4, 6, 7, 10, 11 or 12 of this
Act: and
ii. property or funds of any person or persons in relation to whom there is probable cause to
believe that such persons are committing or attempting or conspiring to commit, or
participating in or facilitating the financing of the aforementioned sections of this Act (Sec.
35, Anti-Terrorism Law of 2020).
NOTES:
● Section 27. Preliminary Order of Proscription.- Where the Court has determined that probable
cause exists on the basis of the verified application which is sufficient in form and substance, that
the issuance of an order of proscription is necessary to prevent the commission of terrorism,
he/she shall, within seventy-two (72) hours from the filing of the application, issue a preliminary
order of proscription declaring that the respondent is a terrorist and an outlawed organization or
association within the meaning of Section 26 of this Act.
The court shall immediately commence and conduct continuous hearings, which should be
completed within six (6) months from the application has been filed, to determine whether:
(a) The preliminary order of proscription should be made permanent;

(b) A permanent order of proscription should be issued in case no preliminary order was issued;
or
(c) A preliminary order of proscription should be lifted. It shall be the burden of the applicant to
prove that the respondent is a terrorist and an outlawed organization or association within
the meaning of Section 26 of this Act before the court issues an order of proscription whether
preliminary or permanent.
The permanent order of proscription herein granted shall be published in a newspaper of

general circulation. It shall be valid for a period of three (3) years after which, a review of such
order shall be made and if circumstances warrant, the same shall be lifted.
● Section 25. Designation of Terrorist Individual, Groups of Persons, Organizations or

Associations - Pursuant to our obligations under United Nations Security Council Resolution
(UNSCR) No. 1373, the ATC shall automatically adopt the United Nations Security Council
Consolidated List of designated individuals, group of persons, organizations, or associations
designated and/or identified as a terrorist, one who finances terrorism, or a terrorist organization
or group.
Request for designation by other jurisdictions of supranational jurisdictions may be

adopted by the ATC after determination that the proposed designee meets the criteria for
designation of UNSCR No. 1373.
The ATC may designate an individual, groups of persons, organization, or association,

whether domestic or foreign, upon a finding of probable cause that the individual, groups of
persons, organization, or association commit, or attempt to commit, or conspire in the commission
of the acts defined and penalized under Sections 4, 5, 6, 7, 8, 9, 10, 11 and 12 of this Act.
The assets of the designated individual, groups of persons, organization or association

above-mentioned shall be subject to the authority of the Anti-Money Laundering Council (AMLC)
to freeze pursuant to Section 11 of Republic Act No. 10168.
The designation shall be without prejudice to the proscription of terrorist organizations,

associations, or groups of persons under Section 26 of this Act.
● The AMLC may also enlist the assistance of any branch, department, bureau, office, agency or
instrumentality of the government, including government-owned and -controlled corporations in
undertaking measures to counter the financing of terrorism, which may include the use of its
personnel, facilities and resources (Sec. 35, Anti-Terrorism Law of 2020).
● For purposes of this section and notwithstanding the provisions of Republic Act no. 1405,
otherwise known as the "Law on Secrecy of Bank Deposits", as amended; Republic Act No. 6426,
otherwise known as the "Foreign Currency Deposit Act of the Philippines", as amended; Republic
Act No. 8791, otherwise known as "The General Banking Law of 2000" and other laws, the AMLC is
hereby authorized to inquire into or examine deposits and investments with any banking
institution or non-bank financial institution and their subsidiaries and affiliates without a court
order (Sec. 35, Anti-Terrorism Law of 2020).
SUMMARY
Q. What are covered by the Secrecy of Bank Deposits Act of 1955?
A. AS A GENERAL RULE, the following are considered to be absolutely confidential nature and may
not be examined, inquired or looked into by any person, government official, bureau or office:
1. All deposits of whatever nature with BANKS OR BANKING INSTITUTIONS in the Philippines;
and
2. Investments in bonds issued by:
a. the Government of the Philippines;
b. its political subdivisions; and
c. its instrumentalities (Sec. 2, Secrecy of Bank Deposits Act of 1955).
Q. What are the EXCEPTIONS?
A. All deposits of whatever nature with banks or banking institutions AND investment bonds may be
examined upon:

2. In cases of impeachment;
c. bribery; or
d. dereliction of duty of public officials; or
4. In cases where the money deposited or invested is the subject matter of the litigation (Sec. 2,
Secrecy of Bank Deposits Act of 1955).
MAIN EXCEPTIONS under Section 2, RA 1405

WRITTEN PERMISSION of the depositor
cases of IMPEACHMENT
upon ORDER of a competent court in cases of bribery or dereliction of duty of public officials
cases where the money deposited or invested is the subject matter of the LITIGATION
OTHER EXCEPTIONS
1. Upon ORDER of the Commissioner of Internal Revenue
a. in respect of the bank deposits of a decedent for the purpose of determining such decedent’s
gross ESTATE
b. in respect of bank deposits of a taxpayer who has filed an application for COMPROMISE of
his tax liability by reason of financial incapacity to pay his tax liability
2. The Commissioner of Internal Revenue is authorized to inquire into bank deposits of a specific
taxpayer upon request for tax information from a foreign tax authority pursuant to an
INTERNATIONAL convention or agreement on tax matters to which the Philippines is a party
3. In case of DORMANT accounts/deposits for at least 10 years under the Unclaimed Balances
Act1
4. The prohibition against examination of bank deposit does not preclude its GARNISHMENT to
satisfy a judgment against the depositor2
5. Presidential Commission on Good Government (PCGG) may require the production of bank
records material to its investigation
6. The Anti-Money Laundering Council (AMLC) may inquire into any deposit with any bank in case
of violation of the RA 9160 or the AMLA if there is probable cause that it is related to an
unlawful activity3
7. The PDIC and the BSP may examine deposit accounts and all information related to them in case of
a finding of unsafe or unsound banking PRACTICES4
8. With COURT ORDER:
a. In cases of unexplained wealth under Sec. 8 of the Anti-Graft and Corrupt Practices Act5
b. In cases filed by the Ombudsman and upon the latter’s authority to examine and have
access to bank accounts and records6
9. Without court order: If the AMLC determines that a particular deposit or investment with any
banking institution is related to the following (HK-MADS):
a. Hijacking
b. Kidnapping
c. Murder
d. Destructive Arson
e. Violation of the Dangerous Drugs Act
f. Acts of Terrorism or in violation of Human Security Act
10.In case the law is repealed, superseded or modified by any law to the contrary
Written permission of the depositor, or in cases of impeachment, or upon order of a competent court
in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or
invested is the subject matter of litigation
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
1
Act No. 3936, Sec. 2
2
Oñate v. Abrogar, G.R. No. 107303, February 21, 1994
3
RA 9160, as amended, Sec. 11
4
RA 3591, as amended, Sec. 8
5
PNB v. Gancayco, L-18343, September 30, 1965
6
Marquez v. Desierto, GR 138569, September 11, 2003
be used by the examiners only in connection with their supervisory and examination responsibility or by
the BSP in an appropriate legal action it has initiated involving the deposit account.
CONSIDER THE NATURE OF THE DEPOSITS - whether it is in peso or foreign currency to know what
law is applicable:
1. Peso deposit - RA 1405

2. Foreign Currency deposit - RA 6426
VI. FOREIGN CURRENCY DEPOSIT
Q. Who has the authority to deposit foreign currencies under the Foreign Currency Deposit Act
(FCDA)?
A. Any person, natural or juridical, may, in accordance with the provisions of this Act, deposit with such
Philippine banks in good standing, as may, upon application, be designated by the Central Bank for the
purpose (Sec. 2, R.A. No. 6426).
Q. What may be deposited under the FCDA?
A. As a general rule, foreign currencies which are acceptable as part of the international reserve.
As an exception, those which are required by the Central Bank to be surrendered in accordance
with the provisions of the New Central Bank Act (R.A. No. 7653) (Sec. 2, R.A. No. 6426).
Q. What is the purpose of the FCDA?
A. Authority to deposit foreign currencies. – Any person, natural or juridical, may, in accordance with
the provisions of this Act, deposit with such Philippine banks in good standing, as may, upon application,
be designated by the Central Bank for the purpose, foreign currencies which are acceptable as part of the
international reserve, except those which are required by the Central Bank to be surrendered in
accordance with the provisions of Republic Act Numbered two hundred sixty-five (Now the New Central
Bank Act, R.A. No. 7653) (Sec. 2, Foreign Currency Deposit Act).
Q. Are all foreign currency deposits under R.A. No. 6426 confidential?
A. YES. As a general rule, Foreign currency deposits authorized under this Act, as amended by PD No.
1035, as well as foreign currency deposits authorized under PD No. 1034, are hereby declared as and
considered of an absolutely confidential nature (Sec. 8, Foreign Currency Deposit Act).
Q. What is the exception to the general rule?
A. Foreign currency deposits shall not be confidential upon the:
1. Written permission of the depositor (Sec. 8, Foreign Currency Deposit Act).
NOTE: The exceptions in RA 1405 are not the same as exception in RA 6426

2. In cases of impeachment;
i. bribery; or
ii. dereliction of duty of public officials; or
4. In cases where the money deposited or invested is the subject matter of the litigation (Sec.
2, Secrecy of Bank Deposits Act of 1955).
Q. Who are the persons or institutions that are not allowed to Examine, Look into, or Inquire
foreign currency deposits under the FCDA?
A. The following:
1. Any person,
2. government official,
3. bureau or office
a. whether judicial or
b. administrative or
c. legislative, or
4. any other entity
a. whether public or
b. private (Sec. 8, Foreign Currency Deposit Act).
Q. Can the foreign currency deposits under the FCDA be subjected to attachment, garnishment or
any other order or process of any court, legislative body, government agency, or any
administrative body?
A. NO. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.) (Sec. 8,
Foreign Currency Deposit Act).
Q. What is the coverage of Foreign Currency Deposit Act (R.A. No. 6426)?
A. The following:
1. secrecy of foreign currency

2. not subject to execution
A. Exceptions:
Q. Is the AMLC authorized to inquire into foreign currency deposits?
A. YES. Notwithstanding the provisions of:
1. Republic Act No. 1405 (PESO DEPOSIT), as amended;

2. Republic Act No. 6426 (FOREIGN CURRENCY DEPOSIT), as amended;
3. Republic Act No. 8791 (GENERAL BANKING LAW OF 2000); and
4. Other laws (Sec. 11, Anti-Money Laundering Act of 2001).
Q. Must there be an order of any competent court before the AMLC be allowed to inquire into
foreign currency deposits?
A. YES. The AMLC may inquire into or examine any particular deposit or investment with:
1. any banking institution or

2. non-bank financial institution
- upon order of any competent court in cases of

a. violation of this Act
b. 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 (Sec. 11,
Anti-Money Laundering Act of 2001).
NOTE: This provision shall not apply to deposits and investments made prior to the effectivity of this Act
(Sec. 11, Anti-Money Laundering Act of 2001).
Intengan v. CA (2002)
DOCTRINE:
1. The accounts in question are U.S. dollar deposits; consequently, the applicable law is not
Republic Act No. 1405 but Republic Act (RA) No. 6426, known as the Foreign Currency
Deposit Act of the Philippines, section 8 of which provides:
2. Sec. 8. Secrecy of Foreign Currency Deposits.- All foreign currency deposits authorized under
this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits
authorized under Presidential Decree No. 1034, are hereby declared as and considered of an
absolutely confidential nature and, except upon the written permission of the depositor, in no
instance shall such foreign currency deposits be examined, inquired or looked into by any person,
government official bureau or office whether judicial or administrative or legislative or any other
entity whether public or private: Provided, however, that said foreign currency deposits shall be
exempt from attachment, garnishment, or any other order or process of any court, legislative
body, government agency or any administrative body whatsoever.
3. Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency
deposits, that is, disclosure is allowed only upon the written permission of the depositor.
Incidentally, the acts of private respondents complained of happened before the enactment on
September 29, 2001 of R.A. No. 9160 otherwise known as the Anti-Money Laundering Act of 2001.
FACTS:
1. Citibank filed a complaint for violation of the Corporation Code against two (2) of its officers
(Santos and Genuino).
a. "SEC. 144. Violations of the Code. -Violations of any of the provisions of this Code or its
amendments not otherwise specifically penalized therein shall be punished by a fine of not
less than one thousand (P1,000.00) pesos but not more than ten thousand (P10,000.00)
pesos or by imprisonment for not less than thirty (30) days but not more than five (5)
years, or both, in the discretion of the court. If the violation is committed by a corporation,
the same may, after notice and hearing, be dissolved in appropriate proceedings before the
Securities and Exchange Commission; Provided, That such dissolution shall not preclude
the institution of appropriate action against the director, trustee or officer of the
corporation responsible for said violation; Provided, further, That nothing in this section
shall be construed to repeal the other causes for dissolution of a corporation provided in
this Code."
2. Attached to the complaint was an affidavit executed by Vic Lim, a vice-president of Citibank.
3. As evidence, Lim annexed bank records purporting to establish the deception practiced by Santos
and Genuino.
4. It was found that with the use of two (2) companies in which they have personal financial interest,
namely
a. Torrance Development Corporation and
b. Global Pacific Corporation,
5. they managed or caused existing bank clients/depositors to divert their money from Citibank,
N.A., such as those placed in peso and dollar deposits and money placements, to products offered
by other companies that were commanding higher rate of yields.
6. This was done by first transferring bank clients’ monies to Torrance and Global which in turn
placed the monies of the bank clients in securities, shares of stock and other certificates of third
parties.
7. It also appeared that out of these transactions, Mr. Dante L. Santos and Ms. Marilou Genuino
derived substantial financial gains.
8. In the course of the investigation, I was able to determine that the bank clients which Mr. Santos
and Ms. Genuino helped/caused to divert their deposits/money placements with Citibank, NA. to
a. Torrance and Global (their family corporations)
b. for subsequent investment in securities, shares of stocks and debt papers in other companies
9. Some of the documents pertained to the dollar deposits of petitioners Carmen Ll. Intengan,
Rosario Ll. Neri, and Rita P. Brawner.
10.In turn, Joven Reyes, vice-president/business manager of the Global Consumer Banking
Group of Citibank, admits to having authorized Lim to state the names of the clients
involved and to attach the pertinent bank records, including those of petitioners.
11.Petitioners aver that respondents violated RA 1405.
12.In due time, Lim and Reyes filed their respective counter-affidavits.
13.In separate Memoranda dated March 8, 1994 and March 15, 1994 2nd Assistant Provincial
Prosecutor Hermino T. Ubana, Sr. recommended the dismissal of petitioners’ complaints.
14.The recommendation was overruled by Provincial Prosecutor Mauro M. Castro who, in a
Resolution dated August 18, 1994, directed the filing of informations against private respondents
for alleged violation of Republic Act No. 1405, otherwise known as the Bank Secrecy Law.
15.Private respondents’ counsel then filed an appeal before the Department of Justice (DOJ).
16.DOJ Secretary Franklin M. Drilon issued a Resolution ordering, inter alia, the withdrawal of the
aforesaid informations against private respondents.
17.Petitioners sought the reversal of the DOJ resolutions via a petition for certiorari and mandamus
filed with this Court.
18.However, the former First Division of this Court, in a Resolution referred the matter to the Court of
the Appeals, on the basis of the latter tribunal’s concurrent jurisdiction to issue the extraordinary
writs therein prayed for.
19.COURT OF APPEALS:
a. Clearly, the disclosure of petitioners’ deposits was necessary to establish the allegation that
Santos and Genuino had violated Section 31 of the Corporation Code in acquiring "any
interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence." To substantiate the alleged scheme of Santos and Genuino, private respondents
had to present the records of the monies which were manipulated by the two officers which
included the bank records of herein petitioners.
b. Although petitioners were not the parties involved in IS. No. 93-8469, their accounts were
relevant to the complete prosecution of the case against Santos and Genuino and the
respondent DOJ properly ruled that the disclosure of the same falls under the last exception
of R.A. No. 1405.
20.PETITIONERS ALLEGE THAT PRIVATE RESPONDENTS VIOLATED R.A. NO. 1405 FOR HAVING
ILLEGALLY DISCLOSED PETITIONERS’ CONFIDENTIAL BANK DEPOSITS AND RECORDS IN IS.
NO. 93-8469.
ISSUE: Is Joven Reyes liable for violating RA 1405?
RULING:
1. No. The accounts in question are U.S. dollar deposits; consequently, the applicable law is not RA
1405 but RA 6426, known as the "Foreign Currency Deposit Act of the Philippines”, where there
is only a single exception to the secrecy of foreign currency deposits , that is, disclosure is
allowed only upon the written permission of the depositor.
2. Incidentally, the acts of private respondents complained of happened before the enactment on
September 29, 2001 of R.A. No. 9160 otherwise known as the Anti-Money Laundering Act of
2001.
3. A case for violation of Republic Act No. 6426 should have been the proper case brought against
private respondents. Private respondents Lim and Reyes admitted that they had disclosed details
of petitioners’ dollar deposits without the latter’s written permission.
4. It does not matter if that such disclosure was necessary to establish Citibank’s case against Dante
L. Santos and Marilou Genuino.
5. Lim’s act of disclosing details of petitioners’ bank records regarding their foreign currency
deposits, with the authority of Reyes, would appear to belong to that species of criminal acts
punishable by special laws, called malum prohibitum.
6. WHEREFORE, the petition is hereby DENIED. No pronouncement as to costs.
Philippine Savings Bank v. Senate

Impeachment Court (2012)
DOCTRINE:
1. On November 5, 2012, and during the pendency of this petition, petitioners filed a Motion with
Leave of Court to Withdraw the Petition averring that subsequent events have overtaken the
petition and that, with the termination of the impeachment proceedings against former Chief
Justice Corona, they are no longer faced with the dilemma of either violating Republic Act No.
6426 (RA 6426) or being held in contempt of court for refusing to disclose the details of the
subject foreign currency deposits.
2. Indeed, the main issue of whether the Impeachment Court acted arbitrarily when it issued the
assailed subpoena to obtain information concerning the subject foreign currency deposits
notwithstanding the confidentiality of such deposits under RA 6426 has been overtaken by events.
3. The supervening conviction of Chief Justice Corona on May 29, 2012, as well as his execution of a
waiver against the confidentiality of all his bank accounts, whether in peso or foreign currency,
has rendered the present petition moot and academic.
FACTS:
1. Philippine Savings Bank (PS Bank) and its President, Pascual M. Garcia III, filed before the
Supreme Court an original civil action for certiorari and prohibition with application for
temporary restraining order and/or writ of preliminary injunction.
2. The TRO was sought to stop the Senate, sitting as impeachment court, from further
implementing the Subpoena Ad Testificandum et Duces Tecum, dated February 6, 2012,
that it issued against the Branch Manager of PS Bank, Katipunan Branch.
3. The subpoena assailed by petitioners covers the foreign currency denominated accounts
allegedly owned by the impeached Chief Justice Renato Corona of the Philippine Supreme
Court.
ISSUE: Should a TRO be issued against the impeachment court to enjoin it from further
implementing the subpoena with respect to the alleged foreign currency denominated accounts of
CJ Corona?
RULING:
1. Yes, a TRO should be issued against the impeachment court to enjoin it from further
implementing the subpoena with respect to the alleged foreign currency denominated
accounts of CJ Corona.
2. There are two requisite conditions for the issuance of a preliminary injunction:
a. the right to be protected exists prima facie, and
b. the acts sought to be enjoined are violative of that right. It must be proven that the
violation sought to be prevented would cause an irreparable injustice.
3. A clear right to maintain the confidentiality of the foreign currency deposits of the Chief
Justice is provided under Section 8 of Republic Act No. 6426, otherwise known as the
Foreign Currency Deposit Act of the Philippines (RA 6426).
4. This law establishes the absolute confidentiality of foreign currency deposits.
Salvacion v. Central Bank of the Phils. (1997)

2.
DOCTRINE:
1. Thus, one of the principal purposes of the protection accorded to foreign currency deposits is "to
assure the development and speedy growth of the Foreign Currency Deposit system and the
Offshore Banking in the Philippines"
2. The Offshore Banking System and the Foreign Currency Deposit System were designed to draw
deposits from foreign lenders and investors.
3. It is these deposits that are induced by the two laws and given protection and incentives by them.
4. Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of deposit
encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said laws because
such depositor stays only for a few days in the country and, therefore, will maintain his deposit in
the bank only for a short time.
5. Respondent Greg Bartelli, as stated, is just a tourist or a transient.
6. He deposited his dollars with respondent China Banking Corporation only for safekeeping during
his temporary stay in the Philippines.
7. For the reasons stated above, the Solicitor General thus submits that the dollar deposit of
respondent Greg Bartelli is not entitled to the protection of Section 113 of Central Bank Circular
No. 960 and PD No. 1246 against attachment, garnishment or other court processes.
8. In fine, the application of the law depends on the extent of its justice.
9. Eventually, if we rule that the questioned Section 113 of Central Bank Circular No. 960
which exempts from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever, is applicable
to a foreign transient, injustice would result especially to a citizen aggrieved by a foreign
guest like accused Greg Bartelli.
10.This would negate Article 10 of the New Civil Code which provides that "in case of doubt in
the interpretation or application of laws, it is presumed that the lawmaking body intended
right and justice to prevail.
11."Ninguno non deue enriquecerse tortizeramente con dano de otro." Simply stated, when the
statute is silent or ambiguous, this is one of those fundamental solutions that would respond to
the vehement urge of conscience.
FACTS:
1. Greg Bartelli, an American tourist, was arrested for committing four counts of rape and
serious illegal detention.
2. Police recovered from him several dollar checks and a dollar account in the China Banking
Corp.
3. He was, however, able to escape from prison.
4. In a civil case filed against him, the trial court awarded Salvacion moral, exemplary and
attorney’s fees amounting to almost P1,000,000.
5. Salvacion tried to execute the judgment on the dollar deposit of Bartelli with the China
Banking Corp. but the latter refused arguing that Section 11 of Central Bank Circular No.
960 exempts foreign currency deposits from attachment, garnishment, or any other order
or process of any court, legislative body, government agency or any administrative body
whatsoever.
6. Salvacion therefore filed this action for declaratory relief in the Supreme Court.
ISSUE: Should the Foreign Currency Deposit Act be made applicable to a foreign transient?
RULING:
1. No. The provisions of Section 113 of Central Bank Circular No. 960 and PD No. 1246, insofar as it
amends Section 8 of Republic Act No. 6426, are INAPPLICABLE to this case because of its peculiar
circumstances. Respondents are hereby required to comply with the writ of execution issued in
the civil case and to release to petitioners the dollar deposit of Bartelli in such amount as would
satisfy the judgment.
2. The Offshore Banking System and the Foreign Currency Deposit System were designed to draw
deposits from foreign lenders and investors and, subsequently, to give the latter protection.
3. However, the foreign currency deposit made by a transient or a tourist is not the kind of
deposit encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said
laws because such depositor stays only for a few days in the country and, therefore, will
maintain his deposit in the bank only for a short time.
4. Considering that Bartelli is just a tourist or a transient , his dollar deposit is not entitled to the
protection of Section 113 of Central Bank Circular No. 960 and PD No. 1246 against attachment,
garnishment or other court processes.
China Banking Corp. v. CA (2006)
DOCTRINE:
1. The law provides that all foreign currency deposits authorized under Republic Act No. 6426, as
amended by Sec. 8, Presidential Decree No. 1246, Presidential Decree No. 1035, as well as foreign
currency deposits authorized under Presidential Decree No. 1034 are considered absolutely
confidential in nature and may not be inquired into.
2. There is only one exception to the secrecy of foreign currency deposits, that is, disclosure is
allowed upon the written permission of the depositor.
3. This much was pronounced in the case of Intengan v. Court of Appeals, where it was held that the
only exception to the secrecy of foreign currency deposits is in the case of a written permission of
the depositor.
4. It is in this light that the court in the case of Salvacion v. Central Bank of the Philippines, allowed
the inquiry of the foreign currency deposit in question mainly due to the peculiar circumstances of
the case such that a strict interpretation of the letter of the law would result to rank injustice.
5. Therein, Greg Bartelli y Northcott, an American tourist, was charged with criminal cases for
serious illegal detention and rape committed against then 12 year-old Karen Salvacion.
6. A separate civil case for damages with preliminary attachment was filed against Greg Bartelli.
7. The trial court issued an Order granting the Salvacions' application for the issuance of a writ of
preliminary attachment.
8. A notice of garnishment was then served on China Bank where Bartelli held a dollar account.
China Bank refused, invoking the secrecy of bank deposits.
9. The Supreme Court ruled: "In fine, the application of the law depends on the extent of its justice x
x x It would be unthinkable, that the questioned law exempting foreign currency deposits from
attachment, garnishment, or any other order or process of any court, legislative body, government
agency or any administrative body whatsoever would be used as a device by an accused x x x for
wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent.
10.There is no issue as to the source of the funds.
11.Mary Margaret Dee declared the source to be Jose Gotianuy.
12.There is likewise no dispute that these funds in the form of Citibank US dollar Checks are now
deposited with China Bank.
13.As the owner of the funds unlawfully taken and which are undisputably now deposited with China
Bank, Jose Gotianuy has the right to inquire into the said deposits.
14.A depositor, in cases of bank deposits, is one who pays money into the bank in the usual course of
business, to be placed to his credit and subject to his check or the beneficiary of the funds held by
the bank as trustee.
15.It is indubitable that the Citibank checks were drawn against the foreign currency account
with Citibank, NA.
16.The monies subject of said checks originally came from the late Jose Gotianuy, the owner of
the account.
17.Thus, he also has legal rights and interests in the CBC account where said monies were
deposited.
18.More importantly, the Citibank checks readily demonstrate that the late Jose Gotianuy is
one of the payees of said checks.
19.Being a co-payee thereof, then he or his estate can be considered as a co-depositor of said
checks.
20.Ergo, since the late Jose Gotianuy is a co-depositor of the CBC account, then his request for
the assailed subpoena is tantamount to an express permission of a depositor for the
disclosure of the name of the account holder.
FACTS:
1. Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among his other
properties, US dollar deposits with Citibank N.A. amounting to not less than P35,000,000
and US$864,000.
2. Mary Margaret Dee received these amounts from Citibank N.A. through checks which she
allegedly deposited at China Banking Corporation (China Bank).
3. He likewise accused his son-in-law, George Dee, husband of his daughter, Mary Margaret, of
transferring his real properties and shares of stock in George Dee’s name without any
consideration.
4. Jose Gotianuy, died during the pendency of the case before the trial court.
5. He was substituted by his daughter, Elizabeth Gotianuy Lo.
6. The latter presented the US Dollar checks withdrawn by Mary Margaret Dee from his US
dollar placement with Citibank.
7. Under the above provision, the law provides that all foreign currency deposits authorized
under RA 6426, as amended, as well as foreign currency deposits authorized under PD
1034 are considered absolutely confidential in nature and may not be inquired into.
8. There is only one exception to the secrecy of foreign currency deposits, that is, disclosure is
allowed upon the written permission of the depositor.
9. Upon motion of Elizabeth Gotianuy Lo, the trial court issued a subpoena to Cristota Labios
and Isabel Yap, employees of China Bank, to testify on the case.
ISSUE: Does the subpoena issued by the court violate the secrecy of foreign currency deposits?
RULING:
1. No. As the owner of the funds unlawfully taken and which are undisputably now deposited
with China Bank, Jose Gotianuy has the right to inquire into the said deposits.
2. A depositor, in cases of bank deposits, is one who pays money into the bank in the usual course of
business, to be placed to his credit and subject to his check or the beneficiary of the funds held by
the bank as trustee.
3. Furthermore, it is indubitable that the Citibank checks were drawn against the foreign currency
account with Citibank, NA.
4. The monies subject of said checks originally came from the late Jose Gotianuy, the owner of the
account.
5. Thus, he also has legal rights and interests in the CBC account where said monies were deposited.
Jose Gotianuy is one of the payees of said checks.
6. Being a co-payee thereof, then he or his estate can be considered as a co-depositor of said
checks.
7. Since the late Jose Gotianuy is a co-depositor of the CBC account, then his request for the
assailed subpoena is tantamount to an express permission of a depositor for the disclosure
of the name of the account holder.
8. The April 16, 1999 Order perforce must be sustained.
9. The law provides that all foreign currency deposits authorized under RA 6426, as amended, are
considered absolutely confidential in nature and may not be inquired into. There is only one
exception to the secrecy of foreign currency deposits, that is, disclosure is allowed upon the
written permission of the depositor.
10.The Court of Appeals, in allowing the inquiry, considered Jose Gotianuy, a co-depositor of Mary
Margaret Dee.
11.It reasoned that since Jose Gotianuy is the named co-payee of the latter in the subject checks,
which checks were deposited in China Bank, then, Jose Gotianuy is likewise a depositor thereof.
12.On that basis, no written consent from Mary Margaret Dee is necessitated.
3. Sec. 10 of AMLA (R.A. No. 9160) as amended by R.A. No. 10167
Q. Is the AMLC allowed to freeze monetary instrument or property? If so, what are the
requirements?
A. Yes. Upon compliance of the following:
1. Upon verified ex parte petition by the AMLC and

2. 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,
2001 (R.A. No. 9160)?
following:
2. Sections 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended, otherwise
known as the Dangerous Drugs Act of 1972;
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;

5. Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised
7. Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree
No. 532;
11. Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of
2000;
13. destructive arson and murder, as defined under the Revised Penal Code, as amended,
including those perpetrated by terrorists against non-combatant persons and similar targets;
14. Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as
the Securities Regulation Code of 2000;
15. Felonies or offenses of a similar nature that are punishable under the penal laws of other
countries.
Q. What court will issue a freeze order upon submission of the requirements by the AMLC?
A. The Court of Appeals may issue a freeze order, which shall be effective immediately.
Q. Until when is a freeze order effective or valid?
A. The freeze order shall be for a period of twenty (20) days unless extended by the court.
Q. When should the Court of Appeals act on the petition to freeze?
A. In any case, the court should act on the petition to freeze within twenty-four (24) hours from filing of
the petition.
If the application is filed a day before a nonworking day, the computation of the twenty-four (24)-
hour period shall exclude the nonworking days.
Q. May a person whose account has been frozen file a motion to lift the freeze order of the court? If
so, until when should the court act upon the said motion?
A. Yes. The court must resolve this motion before the expiration of the twenty (20)-day original freeze
order.
Q. Are courts allowed to issue T.R.O. or a writ of injunction against any freeze order?
A. As a general rule, NO.
Exception to the rule is the Supreme Court (Sec. 10, AMLA, as amended by R.A. No. 10167).
4. Sec. 27, HUMAN SECURITY ACT OF 2007 (RA 9372) - Judicial Authorization Required to
Examine Bank Deposits, Accounts, and Records.
Q. What court is designated as a special court to handle anti-terrorism cases?
A. The justices of the Court of Appeals (Sec. 27, Human Security Act of 2007).
Q. What are the requirements before a special court handling anti-terrorism cases can examine
bank deposits, accounts and records?
A. The justices of the Court of Appeals designated as a special court to handle anti-terrorism cases after
satisfying themselves of:
1. The existence of probable cause

2. In a hearing called for the purpose that:
a. A person charged with or suspected of the crime of terrorism or conspiracy to commit

terrorism;
b. Of a judicially declared and outlawed terrorist organization, association, or group of persons;
and
c. Of a member of such judicially declared and outlawed organization, association, or group of
persons (Sec. 27, Human Security Act of 2007).
Q. What is the authority of the special court handling anti-terrorism cases?
A. The special court handling anti-terrorism cases may:
1. authorize in writing;
2. any police or law enforcement officer and the members of his/her team duly authorized in
writing by the anti-terrorism council to:
a. examine, or cause the examination of, the deposits, placements, trust accounts, assets and
records in a bank or financial institution; and
b. gather or cause the gathering of any relevant information about such deposits, placements,
trust accounts, assets, and records from a bank or financial institution (Sec. 27, Human
Security Act of 2007).
Q. Is the bank or financial institution allowed to refuse such examination by the special court
handling anti-terrorism cases?
A. NO. The bank or financial institution concerned shall not refuse to allow such examination or to
provide the desired information, when so ordered by and served with the written order of the Court
of Appeals (Sec. 27, Human Security Act of 2007).
VII. PDIC –DEPOSIT INSURANCE
Q. What is the Philippine Deposit Insurance Commission (PDIC)?

A. PDIC exists to protect depositors by providing deposit insurance coverage for the depositing public
and help promote financial stability.
PDIC is a government instrumentality created in 1963 by virtue of Republic Act 3591 to

provide depositor protection and promote financial stability.
It is an attached agency of the Department of Finance.
The PDIC’s core mandates are:

1. deposit insurance and
2. liquidation of closed banks.
The PDIC prides itself as a professional, committed and responsive public service institution and a
champion in governance. It is a socially responsible corporation which advocates to empower every
Filipino through financial literacy.
Q. What is a contract of insurance?
A. A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify

another against loss, damage or liability arising from an unknown or contingent event.
Q. What is the function of the PDIC?
A. It shall insure the deposits of all banks which are entitled to the benefits of insurance under this R.A.
No. 3591 as amended by R.A. No. 10846, and which shall have the powers hereinafter granted (Sec. 1,
R.A. No. 3591 as amended by R.A. No. 10846).
Q. What is the two-fold purpose of PDIC?
A. The Philippine Deposit Insurance Corporation (PDIC) shall, as a basic policy:
1. Promote and safeguard the interests of the depositing public by providing insurance
coverage on all insured deposits; and
2. Helping maintain a sound and stable banking system (Sec. 1, R.A. No. 3591 as amended by
R.A. No. 10846).
Q. What is the declared policy of the State in the creation of the PDIC?
A. It is hereby declared to be the policy of the State to strengthen the mandatory deposit insurance
coverage system to:
1. generate, preserve, maintain faith and confidence in the country’s banking system, and
2. protect it from illegal schemes and machinations (Sec. 2, R.A. No. 3591, as amended by R.A. No.
10846).
Q. Does the PDIC have fiscal and administrative autonomy?
A. YES. In view of the crucial role and the nature of its functions and responsibilities, the Corporation,
while being a government instrumentality with corporate powers, shall enjoy fiscal and administrative
autonomy (Sec. 2, R.A. No. 3591 as amended by R.A. No. 10846).
Q. What government agency is the PDIC attached to?
A. The Department of Finance.
A. Governing Laws – Act 3591, as amended

by RA 10846
Q. What is the amending law of R.A. No. 3591?
A. R.A. No. 10846 - latest amendment - May 23, 2016
NOTE: The PDIC has empowered authority under this law to protect the depositing public
Q. What is a closed bank under R.A. No. 10846?
A. Closed bank refers to a bank placed under liquidation by the BSP through the Monetary Board [Sec.
5(e), RA 10846].
Q. When does the PDIC come into play?
A. PDIC comes into play whenever a bank is declared closed by the Monetary Board or the BSP
B. Insured Deposit – Sec. 5 (j), R.A. No.

10846
Q. What is the object of insurance of the PDIC?
A. The deposit.
Q. What does ‘insured deposit’ mean under R.A. No. 10846 amending the PDIC Law?
A. The term insured deposit means:
1. the amount due to any bonafide depositor

2. for legitimate deposits in an insured bank as of the date of closure
3. but not to exceed (P500,000.00).
NOTE: Such amount shall be determined according to such regulations as the Board of Directors may
prescribe.
Q. How to determine the amount due to any depositor?
A. There shall be added together:

1. all deposits in the bank
2. maintained in the same right and capacity

3. for his or her benefit
a. either in his or her own name or
b. in the name of others.
Q. Are joint accounts insured separately? If so, what are the rules?
A. YES. A joint account regardless of whether the conjunction ‘and’, ‘or’, ‘and/or’ is used, shall be
insured separately from any individually-owned deposit account.
1. If the account is held jointly by:
(a) two or more natural persons, or

(b) 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:
(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:
Q. What is the maximum insured deposit?
A. It shall be subject to the maximum insured deposit of (P500,000.00).
The aggregate of the interest of each co-owner over several joint accounts, whether
1. owned by the same or different combinations of individuals,

2. juridical persons or entities,
Q. Should the evidence of deposit be authentic document or record of the issuing bank in order to
be entitled to the rights under the PDIC law?
A. YES. No owner/holder of any:
1. passbook,
2. certificate of deposit, or
3. 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.
Q. May the amount of the maximum deposit insurance cover be adjusted? If so, what are the rules?
A. YES. Subject to the following rules:
1. There must be 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.
2. The maximum deposit insurance cover may be adjusted in

a. such amount,
b. for such a period,
c. and/or for such deposit products
- As may be determined by:

o a unanimous vote of the Board of Directors
o in a meeting called for the purpose and
o chaired by the Secretary of Finance,
o Subject to the approval of the President of the Philippines.
NOTE: SEC. 22 of R.A. 3591 (PDIC Charter) and its amendatory laws.
CORPORATE FUNDS AND ASSETS
(a) Subject to guidelines and limits as approved by the Board of Directors, money of
the Corporation denominated in the local currency, not otherwise employed, shall
be invested in obligations of the Republic of the Philippines or in obligations
guaranteed as to principal and interest by the Republic of the Philippines.
The Corporation may also invest in debt instruments denominated in foreign

currencies issued or guaranteed by the Republic of the Philippines, or debt
instruments denominated in freely convertible foreign currencies issued by
supranationals, multilateral agencies, or foreign governments with at least an
investment grade credit rating.
The Corporation shall likewise be authorized to buy and/or sell debt

instruments and foreign currencies from any government securities eligible
dealers or any counterparties or brokers, accredited by the PDIC Board.
For this purpose, the Corporation shall be authorized to open securities

custodianship and settlement accounts.
(b) The banking or checking accounts of the Corporation shall be kept with the
Bangko Sentral ng Pilipinas, or with any other bank designated as depository or
fiscal agent of the Philippine government.
(c) It is hereby declared to be the policy of the State that the Deposit Insurance Fund
of the Corporation shall be preserved and maintained at all times. Accordingly, all
tax obligations of the Corporation for a period of five (5) years reckoned from the
date of effectivity of this Act shall be chargeable to the Tax Expenditure Fund
(TEF) in the annual General Appropriations Act pursuant to the provisions of E.O.
No. 93, series of 1986: Provided, That, on the 6 th year and thereafter, the
Corporation shall be exempt from income tax, final withholding tax, value
added tax on assessments collected from member banks, and local taxes.
(d) Assets of the Corporation shall be exempt from attachment, garnishment or

any other order or process of any court, agency or any other administrative
body.
FINANCIAL ASSISTANCE
Q. Is the PDIC allowed to make financial assistance?
A. YES. The PDIC is authorized to:
1. make loans to, or

2. purchase the assets of, or
3. assume liabilities of, or
4. make deposits in:
Q. What entities are allowed to be given financial assistance by the PDIC?
A. The following:
1. A bank in danger of closing, upon its acquisition by a qualified investor; or

2. A qualified investor, upon its purchase of all assets and assumption of all liabilities of a bank in
danger of closing; or
3. A surviving or consolidated institution that has merged or consolidated with a bank in
danger of closing; upon such terms and conditions as the Board of Directors may prescribe,
when in the opinion of the Board of Directors, such acquisition, purchase of assets, assumption of
liabilities, merger or consolidation, is essential to provide adequate banking service in the
community or maintain financial stability in the economy [SEC. 22 of R.A. 3591 (PDIC Charter)
and its amendatory laws].
NOTE: The PDIC, prior to the exercise of the powers under this section, shall determine that actual payoff
and liquidation thereof will be more expensive than the exercise of this power:
Q. When may the PDIC grant financial assistance to an insured bank?
A. The following:
1. The Monetary Board must determine that there are systemic consequences of a probable
failure or closure of an insured bank,
- The Corporation may grant financial assistance to such insured bank in such amount as may be
necessary to prevent its failure or closure and/or restore the insured bank to viable operations
2. Under such terms and conditions as may be deemed necessary by:

a. the Board of Directors,
b. subject to concurrence by the Monetary Board and
c. without additional cost to the Deposit Insurance Fund (DIF).
Q. What is a systemic risk?
A. The following:
1. A systemic risk refers to the possibility that failure of one bank to settle net transactions with
other banks will trigger a chain reaction, depriving other banks of funds leading to a general
shutdown of normal clearing and settlement activity.
2. Systemic risk also means the likelihood of a sudden, unexpected collapse of confidence in a
significant portion of the banking or financial system with potentially large real economic
effects.
Q. May the PDIC use its authority to purchase voting or commons stock of an insured bank?
A. The PDIC may not use its authority under this subsection to purchase the voting or common stock of
an insured bank but it can enter into and enforce agreements that it determines to be necessary to
protect its financial interests.
Q. May the financial assistance extended by the PDIC take the form of equity or quasi-entity?
A. Yes. Financial assistance may take the form of equity or quasi-equity of the insured bank as may be
deemed necessary by the Board of Directors with concurrence by the Monetary Board:
NOTE: Corporation shall dispose of such equity as soon as practicable.
Q. How to determine the insured amount?
A. In determining the insured amount:
1. Outstanding balance of each account is adjusted;

2. Such that interest is updated;
3. Withholding taxes are deducted;
4. Unpaid loans will be deducted; and
NOTE: Deductions: obligations of the depositor to the bank
5. the deposits maintained by the depositor in the same right and the same capacity
NOTE: The deposit is not determined by per account basis, it is based on the same right and the same
capacity.
Q. Pedro has an account in bank X and has another account in bank Y. How much is the insurance
coverage?
A. 2 insurance coverage because different banking institutions are subject to different insurance
coverage.
Q. Pedro has an account in BDO in Luneta Branch and he also has a savings account in BDO in
Pangasinan. How many insurance coverage?
A. Under one unit one rule, if a depositor has 2 accounts in different branches under one bank, there
will only be one insurance coverage.
NOTE: The closure is directed to the bank as an entity not against one branch.
Q. What is the risk covered by or being insured by the PDIC?
A. Closure of the bank. What is insured by the PDIC is the solvency of the bank or the possible bankruptcy
of the bank.
Q. Is the robbing of the bank covered by the PDIC?
A. No. The only risk covered by the PDIC is the bank closure as ordered by the Monetary Bank.
Q. Who pays for the insurance premium?
A. Banks
C. Insurance Requirement
1. Rule on Deposit in a Domestic Bank Operating Within the Philippines
a. Membership of banks to PDIC is mandatory.

b. Hence, all operating banks are covered.
c. Deposits of all banks are insured by the PDIC:
i. commercial banks,
ii. savings and mortgage banks,
iii. rural banks,
iv. private development banks,
v. cooperative banks,
vi. savings and loan associations
2. Rule on Deposit in a Domestic Bank Operating Abroad
a. The PDIC Charter provides that a Philippine Bank may elect to insure with the PDIC its
deposits in branches outside the Philippines.
i. As of December 31, 2012, no Philippine bank has elected to insure deposits in their
foreign branches with PDIC.
b. It will be approved by the PDIC upon the election of the domestic bank
3. Rule on Deposit in a Foreign Bank with a Branch Operating Within the Philippines
a. 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.
Q. Are banks and banking institution synonymous?
A. YES. The term bank and banking institution shall be synonymous and interchangeable and shall
include:
1. banks,
2. commercial banks,
3. savings banks,
4. mortgage banks,
5. rural banks,
6. development banks,
7. cooperative banks,
8. stock savings and loan associations and
9. branches and agencies in the Philippines of foreign banks and
10.all other corporations authorized to perform banking functions in the Philippines.
Q. Is a foreign currency deposit maintained with a domestic bank covered under the PDIC?
A. 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.
Q. What are the rules on deposits of a domestic bank with a branch abroad?
A. The following:
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.
Q. Are the deposit/liabilities of a foreign bank in a Philippine branch covered by the PDIC?
A. Yes. Foreign currency deposits, not only Philippine peso deposits are covered by the PDIC.
Q. 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?
A. YES. 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.
NOTE: Foreign currencies considered as part of BSP's international reserves.
D. Nature of Insurance Policy
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.
The Philippine Deposit Insurance Corporation shall insure the deposits of all banks which are entitled to
the benefits of insurance. The PDIC 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.
Q. What does the term ‘deposit’ mean under the PDIC?
A. The following:
1. unpaid balance of money or its equivalent received by a bank in the usual course of business and
2. for which it has given or is obliged to give credit to a
a. commercial,
b. checking,
c. savings,
d. time or
e. thrift account,
3. evidenced by a:
a. passbook,
b. certificate of deposit, or
c. other evidence of deposit issued in accordance with Bangko Sentral ng Pilipinas rules and
regulations and other applicable laws,
4. 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 [Sec. 5 (g), PDIC Charter].
Q. Is the obligation of a bank which is payable at the office of the bank located outside the
Philippines considered a deposit?
A. NO. It shall not be a deposit for any of the purposes of this Act or included as part of the total deposits
or of insured deposit.
Q. May an insured domestic bank which has a branch outside the Philippines elect to include for
insurance its deposit obligations payable only at such branch?
A. YES. It is subject to the approval of the Board of Directors (As amended by R.A. No. 10846, 11 June 2016)
Q. WHAT ARE THE EXCLUSIONS FROM INSURANCE COVERAGE?

A. The Corporation shall not pay deposit insurance for the following accounts or transactions: (As
amended by R.A. No. 10846, 11 June 2016)
(1) Investment products such as:

i. bonds and securities,
ii. trust accounts, and
iii. other similar instruments;
(2) Deposit accounts or transactions which are:
i. fictitious or
ii. fraudulent as determined by the PDIC; (As amended by R.A. No. 10846, 11 June
2016)
(3) Deposit accounts or transactions constituting, and/ or emanating from:
i. unsafe and unsound banking practice/s,
ii. as determined by the PDIC, in consultation with the Bangko Sentral ng Pilipinas,
iii. after due notice and hearing, and publication of a directive to cease and desist
issued by the Corporation against such deposit accounts, transactions or practices;
and (As amended by R.A. No. 10846, 11 June 2016)
(4) Deposits that are determined to be the proceeds of an unlawful activity as defined under
Republic Act No. 9160 (AMLA), as amended.
Q. Is the action of the PDIC final and executory?
A. YES. The actions of the Corporation taken under Section 5(g) shall be final and executory.
Q. May the decision of the PDIC assailed?
A. YES. It may only be restrained or set aside by the Court of Appeals, upon appropriate petition for
certiorari on the ground that the:
1. action was taken in excess of jurisdiction or

2. with such grave abuse of discretion as to amount to a lack or excess of jurisdiction.
Q. When may the petition for certiorari be filed?
A. It may only be filed within thirty (30) days from notice of denial of claim for deposit insurance.
(As amended by Presidential Decree [P.D.J No. 1940, 27 June 1984; R.A. No. 7400, 13 April 1992; R.A. No.
9302, 12 August 2004; R.A. No. 9576, 01 June 2009; R.A. No. 10846, 11 June 2016)
1. RULES ON INDIVIDUAL ACCOUNT

2. RULES ON JOINT 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 named under the name of the depositor
- depositor may either be a natural person or a juridical person
- 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
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)
EXAMPLE: Pedro by Maria
a. Pedro is the principal, Maria is the agent

b. the word “by” signifies that a person is acting on behalf of another
c. significance: to avoid or limit liability
NOTE: Must indicate that you are acting in a representative capacity otherwise you will be liable
as a principal
Q. The following are the accounts of Pedro:
1. a savings account
2. a deposit account
3. a time deposit account.
How will you construe those accounts vis-a-vis insurance coverage under PDIC?
A. 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
Q. Pedro maintains the following accounts:
3. 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?
A. These will be covered under one insurance coverage because they are maintained in the same
right and the same capacity.
NOTE: A sole proprietorship is not considered juridical person having a separate

personality from the owner.
Q. Pedro maintains the following accounts
2. a time deposit account
3. Pedro by Maria
How do you treat these accounts?
A. One insurance coverage - all under the same right and the same capacity
Q. How about in this scenario, Pedro has
3. Pedro ITF (In Trust For Account) Maria
How do you treat these accounts?
A. 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
Q. 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?
A. RULE: joint accounts must be insured separately with single accounts. There will be 2
separate insurance coverage:
1. Php 500K insurance coverage for Pedro’s individual account;

2. Php 250K for Pedro; and
3. Php 250K for Maria in the joint account.
Q. How much is the interest of Pedro in the joint account?
A. Php 500K and the insurance coverage is Php 250K
NOTE: Joint account is considered as one for insurance coverage purposes
Q. Pedro has the following accounts with Maria (joint account)
1. time deposit
2. savings account
3. current deposit
All have an outstanding balance of Php 1M. How much is the insurance coverage?
A. Add all the amounts in the joint account - insurance coverage is Php 500K.
Q. What if it is the combination.
1. Pedro with A
2. Pedro with B
3. Pedro with C
Each has an outstanding balance of Php 1M. How much can Pedro claim in PDIC?
A. Maximum is Php 500K regardless of combination (in aggregate)
NOTE:
- 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
E. Exclusions from Insurance Coverage

Q. What are the exclusions from Insurance Coverage?
A. The Corporation shall not pay deposit insurance for the following accounts or transactions: (As
amended by R.A. No. 10846, 11 June 2016)
(1) Investment products such as:

i. bonds and securities,
ii. trust accounts, and
iii. other similar instruments;
(2) Deposit accounts or transactions which are:
i. fictitious or
ii. fraudulent as determined by the PDIC; (As amended by R.A. No. 10846, 11 June
2016)
(3) Deposit accounts or transactions constituting, and/ or emanating from:
i. unsafe and unsound banking practice/s,
ii. as determined by the PDIC, in consultation with the Bangko Sentral ng Pilipinas,
iii. after due notice and hearing, and publication of a directive to cease and desist
issued by the Corporation against such deposit accounts, transactions or practices;
and (As amended by R.A. No. 10846, 11 June 2016)
(4) Deposits that are determined to be the proceeds of an unlawful activity as defined
under Republic Act No. 9160 (AMLA), as amended.
(5) Splitting of deposits or creation of fictitious loans or deposit accounts [Sec. 26 (e),
R.A. No. 10846].
NOTE: AMLA - prosecution is dependent on another crime (predicate crimes or unlawful crimes
enumerated in AMLA as amended - 34 crimes)
2001 (R.A. No. 9160)?
following:
1. Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the
Revised Penal Code, as amended;
2. Sections 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended,
otherwise known as the Dangerous Drugs Act of 1972;
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;
5. Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the
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;
11. Violations under Republic Act No. 8792, otherwise known as the Electronic
Commerce Act of 2000;
13. destructive arson and murder, as defined under the Revised Penal Code, as
amended, including those perpetrated by terrorists against non-combatant persons
and similar targets;
14. Fraudulent practices and other violations under Republic Act No. 8799, otherwise
known as the Securities Regulation Code of 2000;
15. Felonies or offenses of a similar nature that are punishable under the penal laws
of other countries.
Q. When is there a splitting of deposits?
A. Splitting of deposits occurs whenever:
1. A deposit account with an outstanding balance of more than the statutory maximum amount
of insured deposit; and
2. Maintained under the name of natural or juridical persons is broken down and transferred
into:
a. two (2) or more accounts in the name/s of natural or juridical persons or entities;
b. who have no beneficial ownership on transferred deposits in their names;
c. within one hundred twenty (120) days immediately preceding or during:
i. a bank-declared bank holiday, or
ii. 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 [Sec. 26 (e), R.A. No.
10846].
Q. Your account has Php 1M, you retained Php 500K in your account and you created a separate
account in favor of another person who has no beneficial interest over the account and you
transferred the other Php 500K (pinangalan mo sa person who has no beneficial interest).
Purpose: to get another insurance coverage. When should you do this?
A. 120 days prior to the bank closure.
Q. Is the action of the PDIC final and executory?
A. YES. The actions of the Corporation taken under Section 5(g) shall be final and executory.
It may only be restrained or set aside by the Court of Appeals, upon appropriate petition for
certiorari on the ground that the:
1. action was taken in excess of jurisdiction or

2. with such grave abuse of discretion as to amount to a lack or excess of jurisdiction.
Q. When may the petition for certiorari be filed?
A. It may only be filed within thirty (30) days from notice of denial of claim for deposit insurance.
(As amended by Presidential Decree [P.D.J No. 1940, 27 June 1984; R.A. No. 7400, 13 April 1992; R.A. No.
9302, 12 August 2004; R.A. No. 9576, 01 June 2009; R.A. No. 10846, 11 June 2016)
F. Notice of Claim – Sec. 16, renumbered

as Sec. 21 (e) of R.A. No. 10846
Q. When should the notice of claim be filed by the depositor?
A. It should be filed within two (2) years from actual takeover of the closed bank by the receiver.
Q. What will happen if the depositor fails to claim his insured deposits within the 2-year period?
A. Unless otherwise waived by the PDIC, if the depositor in the closed bank shall fail to claim his
insured deposits with the PDIC within:
1. two (2) years from actual takeover of the closed bank by the receiver, or
2. does not enforce his claim filed with the corporation within two (2) years after the two-year
period to file a claim as mentioned hereinabove,
- all rights of the depositor against the Corporation with respect to the insured deposit
SHALL BE BARRED;
- however, all rights of the depositor against the closed bank and its shareholders or the
receivership estate to which the Corporation may have become subrogated, shall thereupon
revert to the depositor.
- Thereafter, the Corporation shall be discharged from any liability on the insured deposit.
(Renumbered from Sec. 16(e) by R.A. No. 10846, 11 June 2016; As amended by R.A. No. 9302, 12
August 2004)
Q. Is there a period of time within which a depositor may claim the insurance from the PDIC?
A. YES. There is the rule on notice of claim.
Q. How long should the notice of claim be?
A. 24 months (2 years) from the takeover of the PDIC of the bankrupt or liquidated bank
Q. 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?
A. The depositor still has a remedy -- to participate in the liquidation of the assets of the bank
G. Payment of Insured Deposit
Q. What are the instances when there is payment of insured deposit?
A. The following:
1. Whenever an insured bank shall have been closed by the Monetary Board pursuant to Section
30 of Republic Act No. 7653 (New Central Bank Act), or
2. Upon expiration or revocation of a bank's corporate term.
Q. When should the insured deposit be paid?
A. Payment of the insured deposits on such closed bank shall be made by the Corporation as soon as
possible.
Q. What are the modes of payment?
A. 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.
Q. May the PDIC require proof of claims to be filed before paying the insured deposits?
A. YES. The PDIC in its discretion, may require proof of claims to be filed before paying the insured
deposits.
Q. If the PDIC is not satisfied as to the validity of a claim for an insured deposit, what is the rule?
A. It may require final determination of a court of competent jurisdiction before paying such
claim.
Q. What will happen if the PDIC fails to settle the claim within 6 months from the date of filing of
claim for insured deposit?
A. Where such failure was due to:

1. grave abuse of discretion,
2. gross negligence,
3. bad faith, or
4. malice,
- shall, upon conviction, subject the:

o directors,
o officers or
o employees of the PDIC responsible for the delay,
- to imprisonment from six (6) months to one (1) year:
NOTE: 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 (Sec. 19, renumbered from
Sec. 14 and amended by R.A. No. 10846, 11 June2016).
VIII. LOAN FUNCTION

A. Authority to lend money
NOTE: Whenever a bank lends money (banks, quasi-banks, non-bank financial institution), they must
exercise safe and sound banking practices
Sec. 1, BSP Circular No. 622, Series of 2008
Subsection X304.1 of the MORB and Subsections 4312Q.1 and 4312N.1 of the MORNBFI, as
amended by Circular No. 549 dated 9 October 2006, on the general guidelines for the grant by
banks, quasi-banks (QBs) and other non-bank financial institutions (NBFIs) of loans and other
credit accommodations, are hereby further amended to read as follows:
Q. When and in what amount is a bank, quasi-bank (QB), or non-bank financial institutions (NBFI)
allowed to grant loans or other credit accommodations?
A. Consistent with safe and sound banking/business practices, a bank/QB/NBFI shall grant loans or other
credit accommodations:
1. only in amounts and for the periods of time

2. essential for the effective completion of the operation to be financed.
Q. Before granting the loans, are banks/QB/NBFI required to ascertain that the borrower, co-
maker, endorser, surety and/or guarantor are financially capable of fulfilling their commitments
to the bank/QB/NBFI?
A. YES, if applicable. A bank/QB/NBFI shall obtain adequate information on his/their credit standing
and financial capacities.
Q. What are the additional requirements to be ascertained by the banks/QB/NBFI from the
borrower?
A. The following:
1. Usual information sheet about the borrower;
2. ANNUAL SUBMISSION – as long as the loan and/or credit accommodation is outstanding:
a. 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);
b. 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. NEED NOT BE SUBMITTED ANNUALLY - once submitted these documents remain valid
unless revoked.
a. 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.
Q. Is the bank/QB/NBFI required to check and consider the consistency of the data/figures in the
ITRs and FINANCIAL STATEMENTS?
A. YES. They shall be checked and considered in the evaluation of the financial capacity and
creditworthiness of credit applicants.
Q. Suppose the document(s) submitted prove to be spurious or incorrect in any material detail, is
the bank/QB/NBFI allowed to terminate any loan or other credit accommodation it granted?
A. YES. The bank/QB/NBFI may:
1. terminate any loan or other credit accommodation granted on the basis of said document(s)
and
2. shall have the right to demand immediate repayment or liquidation of the obligation.
3. Moreover, the bank/QB/NBFI may seek redress from the court for any harm done by the
borrower's submission of spurious documents.
NOTES:
“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.
Q. What are micro and small enterprises?
A. Micro and small enterprises shall be defined as:
1. any business activity or enterprise engaged in

a. industry,
b. agribusiness and/or
c. services
2. whether
a. single proprietorship,
b. cooperative,
c. partnership or
d. corporation
3. 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:
a. MICRO ENTERPRISES (P3 million) and
b. SMALL ENTERPRISES (P15 million), respectively, or as may be defined by the SMED
Council or other competent government agency.
Q. What are consumer loans?
A. Consumer loans is defined to include:
1. housing loans,
2. loans for purchase of car,
3. household appliance(s),
4. furniture and fixtures,
5. loans for payment of educational and hospital bills,
6. salary loans and
7. loans for personal consumption, including credit card loans.
Q. What are the 2 criterias/considerations whenever a bank extends loans?
A. The following:
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
Q. How to determine the loanable amount?
A. The amount to be extended will be dependent on the financial capacity of the borrower to repay the
loan
Q. What may be considered to determine the financial capacity of the borrower?
A. The following:
1. the bank may consider the ITRs (income tax returns)

2. in case of businesses, the bank may require the borrower to submit financial statements
3. 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 accompanying financial statements
Q. What are the types of loans that may be extended to the borrower?
A. The following:
1. Microfinance loans - relatively small in amount
NOTE: microenterprises - an enterprise whose total assets excluding land does not exceed Php 3M
and their maximum loanable amount is Php 3M
2. small enterprises - are businesses which assets does not exceed Php 15M
- 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
3. Loans granted to government entities such as LGUs

4. Agricultural loans
5. Consumer loans
- various loans
6. 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
B. Conditions for the granting of loans/safe

and sound banking practice
Sec. 39, GBL - Grant and Purpose of Loans and Other Credit Accommodations. —
Q. When and in what amount is a bank, quasi-bank (QB), or non-bank financial institutions (NBFI)
allowed to grant loans or other credit accommodations?
A. Consistent with safe and sound banking/business practices, a bank/QB/NBFI shall grant loans or other
credit accommodations:
1. only in amounts and for the periods of time

2. essential for the effective completion of the operation to be financed.
Q. Is it required that the purpose of the loan and other credit accommodation be stated in the
application and in the contract between the bank and borrower?
A. YES.
Q. Suppose 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, is the
bank given the right to terminate the loan?
A. YES. It shall have the right to terminate the loan or other credit accommodation and demand
immediate repayment of the obligation.
C. Ascertainment of Borrower’s Capacity
Sec. 40, GBL - Requirement for Grant of Loans or Other Credit Accommodations
Q. Before granting a loan or other credit accommodation, is a bank required to ascertain that the
debtor is capable of fulfilling his commitments to the bank?
A. YES.
Q. Once the bank has ascertained that the debtor is capable of fulfilling his commitments, what
other documents are demanded from its credit applicants?
A. To enable the bank to properly evaluate the credit application, the following are required from the
credit applicant:
1. a statement of their assets and liabilities and of their income and expenditures and
2. such information as may be prescribed by law or by rules and regulations of Monetary Board
3. corresponding financial statements submitted for taxation purposes to the Bureau of Internal
Revenue.
Q. Should such statements prove to be false or incorrect in any material detail, what will happen?
A. The bank may:
1. terminate any loan or other credit accommodation granted on the basis of said statements; and
2. shall have the right to demand immediate repayment or liquidation of the obligation.
NOTE: In formulating rules and regulations under this Section, the Monetary Board shall recognize the
peculiar characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are
not covered by traditional collateral.
Security Bank v. Cuenca (2000)
Q. What is a contract of guaranty?
A. By guaranty, a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.
Q. What is a suretyship contract?
A. Suretyship contract, by definition, refers to an agreement whereunder one person, the surety, engages
to be answerable for the debt, default, or miscarriage of another known as the principal.
Q. What is the distinction between a guarantor and a surety?
A. The following:
1. A surety is an insurer of debt, whereas a guarantor is an insurer of the solvency of the debtor.
2. A suretyship is an undertaking that the debt shall be paid.
3. Stated differently, a surety promises to pay the principal’s debt if the principal will not pay, while
a guarantor agrees that the creditor, after proceeding against the principal, may proceed against
the guarantor if the principal is unable to pay.
4. A surety binds himself to perform if the principal does not, without regard to his ability to do so.
5. In other words, a surety undertakes directly for the payment and is so responsible at once if the
principal debtor makes default.
6. A creditor’s right to proceed against the surety exists independently of his right to proceed against
the principal.
7. Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously.
GUARANTY SURETYSHIP
Guarantor is subsidiary liable Surety is primarily liable
Guarantor binds himself to pay if the principal Surety binds himself to pay if the principal debtor
debtor cannot pay does not pay
Insurer of the solvency of debtor Insurer of debt
Q. What is the nature of the benefit of excussion?
A. The benefit of excussion is a right granted to the guarantor and, therefore, only he may invoke
it at his discretion.
The benefit of excussion, as well as the requirement of consent to extensions of payment, is a

protective device pertaining to and conferred on the guarantor.
These may be invoked by the guarantor against the creditor as defenses to bar the
unwarranted enforcement of the guarantee.
However, Philguarantee did not avail of these defenses when it paid its obligation according to the
tenor of the guarantee once demand was made on it.
Q. When to invoke benefit of excussion.
A. The following:
1. The benefit of excussion may only be invoked after legal remedies against the principal
debtor have been expanded.
2. Thus, it was held that the creditor must be first obtain a judgment against the principal debtor
before assuming to run after the alleged guarantor, “for obviously the ‘exhaustion of the
principal’s property’ cannot even begin to take place before judgment has been obtained”.
3. The law imposes conditions precedent for the invocation of the defense.
4. Thus, in order that the guarantor may make use of the benefit of excussion, he must set it up
against the creditor upon the latter’s demand for payment and point out to the creditor available
property of the debtor within the Philippines sufficient to cover the amount of the debt. (Article
2060, NCC; JN Dev. Corp. vs. Phil. Export & Foreign Guarantee Corp., G.R. No. 151060, August
31, 2005).
FROM THIS CASE:
1. differentiate a guarantor from a surety

2. who has the remedy of excussion
3. Special Nature of the JSS
It is a common banking practice to require the JSS ("joint and solidary signature") of a
major stockholder or corporate officer, as an additional security for loans granted to
corporations.
There are at least two reasons for this.
1. 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.
2. 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.
Following this practice, it was therefore logical and reasonable for the bank to have
required the JSS of respondent, who was the chairman and president of Sta. Ines in 1980 when the
credit accommodation was granted.
There was no reason or logic, however, for the bank or Sta. Ines to assume that he would
still agree to act as surety in the 1989 Loan Agreement, because at that time, he was no longer an
officer or a stockholder of the debtor-corporation. Verily, he was not in a position then to ensure
the payment of the obligation. Neither did he have any reason to bind himself further to a bigger
and more onerous obligation.
2 KINDS OF PIERCING THE VEIL OF CORPORATE FICTION
As held in the U.S. Case, C.F. Trust, Inc., v. First Flight Limited Partnership, "in a traditional
veil-piercing action, a court disregards the existence of the corporate entity so a claimant can
reach the assets of a corporate insider. In a reverse piercing action, however, the plaintiff seeks
to reach the assets of a corporation to satisfy claims against a corporate insider." (from corporate
insider)
"Reverse-piercing flows in the opposite direction (of traditional corporate veil-piercing)

and makes the corporation liable for the debt of the shareholders." (From the properties of the
corporation)
Security Bank v. Cuenca, 341 SCRA 781 (2000)
PARTIES:
1. Defendant-appellant – Sta. Ines Melale (‘Sta. Ines’/SIMC)

2. President and Chairman of the Board of Directors – Rodolfo Cuenca
FACTS:
1. Sta. Ines Melale (SIMC) is a corporation engaged in logging operations. It was a holder of a Timber
License Agreement issued by the DENR on 10 November 1980.
2. Security Bank and Trust Co. (SBTC) granted Sta. Ines a credit line in the amount of P8 Million
effective until November 30, 1981, to assist the latter in meeting the additional capitalization
requirements of its logging operations.
3. To secure payment, it executed a chattel mortgage over some of its machineries and equipment.
4. And as an additional security, its President and Chairman of the Board of Directors Rodolfo
Cuenca, executed an indemnity agreement in favor of Security Bank whereby he bound himself
jointly and severally with Sta. Ines.
5. The Credit Approval Memorandum expressly stated that the ₱8M Credit Loan Facility shall be
effective until November 30, 1981.
6. One of the conditions is that the bank reserves the right to amend any of the terms upon
written notice to the borrower.
7. Rodolfo Cuenca, SIMC’s President, executed a Joint and Solidary Signature to bind himself
solidarily with SIMC as an additional security for the credit line.
8. Sometime in 1985, Cuenca resigned as President and Chairman of the Board of SIMC, and his
shares were sold to Adolfo Angala.
9. SIMC then obtained 6 other loans from SBTC in the aggregate amount of P6,369,019.50, and it
executed a promissory note to cover the additional loans against the credit line.
10.SIMC requested Security Bank for complete restructuring of indebtedness when it had
difficulty in making amortization payments.
11.This was approved in 1989 without notice to Cuenca. SIMC eventually defaulted its obligation,
thus Security Bank filed a case against SIMC and Cuenca.
12.The trial court ruled against SIMC and Cuenca, who were held jointly and severally liable for a
total amount of ₱39,129,124.73.
13.Cuenca appealed with the CA, and it found that Cuenca should not be liable because he was no
longer a stockholder, and the terms were amended without notice to him.
14.It also noted the expiration of the credit line.
ISSUE: Should Cuenca be solidarily liable with SIMC for its default in paying the second credit line, even
when he was not given due notice?
RULING:
1. NO. Cuenca should only be liable for the 1980 credit line that expired on 1981.
2. A contract of surety cannot extend to more than what is stipulated.
3. It is strictly construed against the creditor, and every doubt is resolved in favor of the solidary
debtor.
4. The fundamental rules of fair play require the creditor to obtain the consent of the surety to any
material alteration in the principal loan agreement, or at least to notify it.
5. Hence, the bank cannot hold Cuenca liable for loans obtained in excess of the amount or beyond
the period stipulated in the original agreement, absent any clear stipulation showing that the
latter waived his right to be notified, or to give consent.
6. This is especially true where, as in this case, Cuenca was no longer the principal officer or major
stockholder of the corporate-debtor at the time the subsequent obligations were incurred.
7. He was thus no longer in a position to compel the corporation to pay the creditor and had no more
reason to bind himself anew to the subsequent obligations.
8. On the special nature of a JSS- It was illogical for the bank or Sta. Ines to assume, however,
that Cuenca would still agree to act as Surety in the 1989 Loan Agreement when he was no
longer an officer or stockholder of Sta. Ines Melale.
9. Neither did he have reason to bind himself further to a bigger and more onerous obligation.
10.Thus, the Loan Agreement in 1989 without informing Cuenca smacks negligence and bad faith on
the part of the principal debtor.
Q. What are the reasons for JSS as common practice of banks?
A. The following:
1. 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.
2. 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.
D. Secured v. Unsecured Loans and Other

Credit Accommodation
Q. What is a Secured loan?
A. Secured loan, borrowing or other credit accommodation shall refer to any loan, or credit
accommodation or portion thereof referred to in Section X327 which is secured by:
(1)Real estate mortgage, chattel mortgage on tangible assets , and pledge of jewelry, precious
stones and other valuable articles
(2)Assignment of intangible assets such as patents, trademarks, trade names and copyrights
(3)Unconditional payment guarantees such as standby letters of credit and letter of indemnity
issued by banks/multilateral financial institutions
(4)Assignment of, or hold-out on, deposits or deposit substitutes maintained in the lending bank
(5)Cash margin deposits; or assignment or pledge of government securities or readily marketable
bonds and other high-grade debt securities and “blue chip” stocks, except those issued by the
lending entity, and subject to the additional provision that the issuer corporation has a net worth
of at least P1billion and with a record of at least 5 consecutive years earnings reckoned from the
immediately preceding 5 years
(6)Customer's liability under import bills outstanding for not more than thirty (30) days from date of
original entry
(7)Sales contract receivables arising from sale of real property on credit where title to the property is
retained by the bank
(8)Customer's liability-import bills under trust receipts outstanding for not more than thirty (30)
days from date of booking: Provided, That the booking under trust receipts shall have been made
not later than the thirty-first day from the date of original entry referred to in Item (6) above
Q. What is an unsecured loan?
A. Unsecured loan, borrowing or other credit accommodation shall refer to any loan, or other credit
accommodation or portion thereof referred in Section X327 which is not secured in accordance with
Item k above.
Q. Is the monetary board authorized to issue such regulations as it may deem necessary with
respect to unsecured loans or other credit accommodations that may be granted by banks?
A. YES. (GBL, Sec. 41. Unsecured Loans or Other Credit Accommodations.)
NOTES:
1. A borrower’s loan may be classified as secured or unsecured loan.

2. Secured loan is one which has an offered collateral or offered security.
Different kinds of security:

1. real estate mortgage
2. chattel mortgage
3. pledge
E. Bridge Financing
Q. What is Bridge financing?
A. The following:
1. 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
2. an interim loan
3. it fills in the gap; it connects something;
Bridge financing is a form of temporary financing intended to cover a borrower’s short-

term costs until the moment when regular long-term financing is secured.
Thus, it is named as bridge financing since it is like a bridge that connects a company to debt
capital through short-term borrowings.
Q. What is the purpose of bridge financing?
A. Given or extended by a lender bank pending the approval of a loan
FOR EXAMPLE:
1. A borrower is applying for Php 100M term loan.

2. That loan is yet to be approved by the bank.
3. 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)
De Vera v. Court of Appeals, 367 SCRA 781
DOCTRINE:
1. ASIATRUST cannot hide behind the pity excuse that the grant of the bridge financing loan
was subject to the release of the Pag-IBIG loan.
2. The essence of bridge financing loans is to obtain funds through an interim loan** while the Pag-
IBIG funds are not yet available.
3. 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.
FACTS:
1. Q. P. San Diego Construction, Inc. (QPSDCI), owned a parcel of land located at Quezon City, on
which it built Lourdes I Condominium.
2. To finance its construction and development, QPSDCI entered into a Syndicate Loan Agreement
with Asiatrust Development Bank (ASIATRUST) as lead bank, and Second Laguna Development
Bank (LAGUNA) and Capitol City Development Bank (CAPITOL) as participating banks
(FUNDERS).
3. QPSDCI mortgaged to the creditor banks as security the QC property and the condominium
constructed thereon.
4. The mortgage deed was registered with the Register of Deeds of Quezon City and annotated on the
individual condominium certificates of title (CCT) of each condominium unit.
5. On 23 June 1983, De Vera and QPSDCI, through its authorized agent Fil-Estate Realty Corporation
(FIL-ESTATE), entered into a Condominium Reservation Agreement where de Vera undertook to
buy Unit 211-2C of the condominium for P325,000.00 under the following terms of payment:
a. an option money of P5,000.00 payable upon signing of the agreement to form part of the
purchase price;
b. a full downpayment of P175,675.00 broken down into the reservation fee of P5,000.00 and
three (3) equal monthly installments payable beginning the month after the signing of the
contract; and,
c. the remaining balance of P160,000.00 to be secured through petitioner's Pag-IBIG and
Open-Housing Loan.
6. Pending release of the loan, De Vera was to avail of a bridge financing loan with ASIATRUST or any
accredited originating bank of the Pag-IBIG program.
7. De Vera then paid the reservation fee of P5,000.00, and later on, the balance of the downpayment
of P167,000.00, thus completing the downpayment of P175,675.00. As incentive, he was given a
full discount on cash payment by QPSDCI to bring the total payment to P184,040.00.
8. Pursuant to their Condominium Reservation Agreement, petitioner submitted through FIL-ESTATE
his application for the Pag-IBIG loan.
9. ASIATRUST as originating bank notified FIL-ESTATE that petitioner's Pag-IBIG loan application
had been approved.
10.However, the amount approved was only P139,100.00 and not P160,000.00. Additional charges
further reduced the amount to P117,043.33.
11.Petitioner De Vera approached QPSDCI to have the P12,040.00 discount credited to his additional
equity.
12.Since the resultant net loan of P117,043.33 was insufficient to cover the balance of the purchase
price, De Vera negotiated with QPSDCI to defer payment of the P23,916.67 deficiency until the
project was completed and the unit was ready for turnover.
13.QPSDCI agreed.
14.The condominium project was substantially completed in June 1984 and the unit was turned over
to De Vera the following month. Accordingly, petitioner paid QPSDCI the P23,916.67 shortfall
between the balance and the granted loan.
15.ASIATRUST wrote to QPSDCI asking the unit buyers to pay in advance the costs of the transfer of
titles and registration of their Pag-IBIG loan mortgages.
16.QPSDCI forwarded the letter to De Vera and requested that he pay the amount to QPSDCI.
17.As ASIATRUST indicated that the amount be paid directly to it, De Vera went to the bank for
clarification.
18.After learning that ASIATRUST was in possession of the certificate of title, De Vera paid the
transfer expenses directly to ASIATRUST.
19.ASIATRUST sent another notice of approval to QPSDCI and De Vera with the notation, "additional
equity of all accounts have (sic) to be paid directly to the Bank."
20.ASIATRUST also wrote a letter to De Vera informing him that his housing loan would only be
implemented upon the following conditions:
a. Payment of the remaining equity directly to ASIATRUST; and
b. Signing of all Pag-IBIG documents not later than 20 October 1984, so his mortgages could
be registered on or before 31 October 1984. Mortgages registered beyond said date shall
subject the Pag-IBIG loan to the increased interest rates of the National Home Mortgage
Finance Corp. (per Circular #27 dated June 21, 1984).
21.According to De Vera, the letter came as a total surprise to him; all the while he thought that his
loan had already been released to QPSDCI and the titles transferred to his name;
a. ASIATRUST informed De Vera that the developmental loan agreement between QPSDCI and
the 3 banks, under which the individual titles of the condominium units were mortgaged in
favor of the FUNDERS to secure the loan, shall be paid out of the net proceeds of the Pag-
IBIG loans of the buyers;
b. that the total amount of loan from the FUNDERS was distributed among all condominium
units such that each unit had to bear a certain portion of the total loan, or a "loan value;"
c. that per agreement with QPSDCI, ASIATRUST would only grant the Pag-IBIG-Housing Loan
with the release of the mortgage liens, which could not be released unless the buyers fully
paid their respective loan values; and
d. that petitioner's equity payments to QPSDCI had not been remitted to the bank.
e. On May 30, 1985, ASIATRUST informed QPSDCI that it could no longer extend the bridge
financing loan to some of the buyers, including De Vera, for various reasons, among which
was that De Vera had already exceeded the age limit, hence, he was disqualified.
22.Since De Vera had already invested a substantial amount in improving his unit, rescinding the sale
was no longer a viable option, so he asked the president of QPSDCI for some assurance that the
title would be turned over to him upon full payment. QPSDCI then suggested that he deal directly
with ASIATRUST for any matter regarding the sale of the unit.
23.As De Vera failed to obtain the housing loan, he was not able to pay the balance of the purchase
price. QPSDCI sent him a letter presenting him with two options:
a. to pay the remaining balance of the purchase price, with interest, which had already
ballooned to P263,751.63, on or before 15 August 1987; or,
b. to pay rent for the use of the unit from 28 July 1984 to June 1987.
24.De Vera, upon discovering that the FUNDERS had already published a notice of extrajudicial
foreclosure of the mortgage, filed a complaint against respondents for damages and injunction
with urgent prayer for issuance of a writ of preliminary injunction, annulment of mortgage based
on fraud, with urgent prayer for the issuance of a writ of preliminary attachment and specific
performance.
25.Meanwhile, QPSDCI failed to pay its obligations to the FUNDERS.

26.ASIATRUST extrajudicially foreclosed the mortgage on twenty-seven (27) condominium units,
including that of De Vera.
27.The units were sold at public auction, with the FUNDERS as the highest bidder. The certificate of
sale was issued and annotated on the CCTs.
28.RTC rendered judgment "directing the defendants (private respondents) to pay to the plaintiff (De
Vera) jointly and severally the sum equivalent to the penalties and charges plus whatever amount
may be necessary to redeem Unit 211-2C from any lien and encumbrances so that the title may be
released and delivered to the plaintiff, free from any lien and encumbrances, subject only to the
deduction of his unpaid balance of P139,000.00, which the plaintiff should pay out of his own
funds, plus exemplary damages of P100,000.00 each and to pay plaintiff attorney's fees jointly and
severally x x x P50,000.00 plus the expenses of litigation." The lower court denied plaintiff's
prayer for moral damages and dismissed defendants' counterclaim against the plaintiff and cross-
claims against each other.
29.The Court of Appeals affirmed the decision of the trial court with the modification that
respondents were ordered solidarily to pay De Vera P50,000.00 as nominal damages, but the
award for actual and exemplary damages was deleted.
SHORTCUT:
1. Respondent Q. P. San Diego Construction, Inc. (QPSDCI), owned a parcel of land located at 101
Panay Avenue, Quezon City, on which it built Lourdes I Condominium.
2. Q. P. San Diego Construction, Inc. (QPSDCI), entered into a Syndicate Loan to finance a
construction of a building with respondents
a. Asiatrust Development Bank (ASIATRUST) as lead bank, and
i. Second Laguna Development Bank (LAGUNA) and
ii. Capitol City Development Bank (CAPITOL) as participating banks (hereafter
collectively known as FUNDERS).
3. QPSDCI mortgaged Panay Avenue property and the condominium constructed thereon.
4. On 23 June 1983 petitioner Gregorio de Vera Jr. and QPSDCI, through its authorized agent Fil-
Estate Realty Corporation (FIL-ESTATE), entered into a Condominium Reservation Agreement
where De Vera undertook to buy Unit 211-2C of the condominium for P325,000.00.
5. Pending release of the loan, petitioner was to avail of a bridge financing loan with ASIATRUST or
any accredited originating bank of the Pag-IBIG program.
ISSUE: Whether De Vera was liable to private respondents for penalties, interests and other charges that
accrued by reason of non-payment of the balance of the purchase price
RULING:
1. No. Respondent ASIATRUST had made several representations to De Vera that his loan had been
approved. The tenor of the letters sent by ASIATRUST would lead a reasonable man to believe that
there was nothing left to do but await the release of the loan.
2. 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.
3. The essence of bridge financing loans is to obtain funds through an interim loan while the
Pag-IBIG funds are not yet available.
4. To await the release of the Pag-IBIG loan would render any bridge financing nugatory.
5. Thus, we agree with the trial court when it said that "the conclusion is inevitable that
although the plaintiff was not able to pay, he was a victim of circumstances and his failure
was not due to his own fault."
6. Furthermore, Sec. 25 of PD 957 provides:
a. SECTION 25. Issuance of Title. — The owner or developer shall deliver the title of the lot or
unit to the buyer upon full payment of the lot or unit. No fee, except those required for the
registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance
of such title. In the event a mortgage over the lot or unit is outstanding at the time of the
issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the
corresponding portion thereof within six months from such issuance in order that the title
over any fully paid lot or unit may be secured and delivered to the buyer in accordance
herewith.
7. From the foregoing it is clear that upon full payment, the seller is duty-bound to deliver the title of
the unit to the buyer.
8. Even with a valid mortgage over the lot, the seller is still bound to redeem said mortgage without
any cost to the buyer apart from the balance of the purchase price and registration fees.
9. It has been established that respondent QPSDCI had been negligent in failing to remit petitioner's
payments to ASIATRUST.
10.If QPSDCI had not been negligent, then even the possibility of charges, liens or penalties would not
have arisen.
11.Therefore, as between QPSDCI and petitioner, the former should be held liable for any charge, lien
or penalty that may arise.
12.Nevertheless, both trial court and the Court of Appeals found that petitioner De Vera had superior
rights over the condominium unit; that De Vera was not bound by the mortgage in favor of the
FUNDERS and, that QPSDCI violated its contract with De Vera by its failure to remit the latter's
payments.
F. Fixed v. Floating Interest Rate and

Escalation Clauses
Q. What is Interest rate?
A. The following:
1. it is a payment for the use of money

2. the basis of interest rate is that people by nature is impatient that is why the lender collects
interest
Q. What are the classifications of interest rate?
A. It may either be classified as a:
1. fixed interest rate or a

2. floating interest rate.
Q. What is a fixed interest rate?

A. The following:
1. predetermined or pre-agreed interest rate from the start of the repayment until the entire
repayment of the loan.
2. it is a pegged interest rate throughout the entire repayment of the loan
3. it is an interest rate that is pre determined throughout the term of the loan
Q. What is a floating interest rate?
A. The following:
1. variable interest rate

2. it is a flexible interest rate
3. interest rate varies throughout the entire repayment of the loan
4. interest may go up or down depending on the parameters provided by the BSP
5. maybe subjected to escalation clause
Q. What is an Escalation clause?
A. Interest will go up. It is a floating interest rate, depending on the interest rate set by the BSP
Q. Is an escalation clause void?
A. NO.
1. Escalation clauses are not void per se.

2. However, one which grants the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the debtor of the right to assent to an
important modification in the agreement is void.
3. Clauses of that nature violate the principle of mutuality of contracts.
4. Article 1308 of the Civil Code holds that a contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them.
Q. When is there a valid escalation clause?
A. For this reason, we have consistently held that a valid escalation clause provides:
1. that the rate of interest will only be increased if the applicable maximum rate of interest is
increased by law or by the Monetary Board; and
2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is
reduced by law or by the Monetary Board (de-escalation clause).
Q. Is the imposition of a floating interest rate subject to escalation clause valid?
A. 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
NOTE: It is the BSP who provides for the computation of the interest rate.
Q. Is a floating interest rate subject to escalation clause not in violation to the mutuality of
contracts?
A. YES. It is a valid stipulation, it is a valid agreement provided that escalation clause has a corresponding
de-escalation clause.
Security Bank v. RTC of Makati (1996)
Security Bank v. RTC of Makati 263 SCRA 483 (1196)
DOCTRINE:
1. The rate of interest was agreed upon by the parties freely.

2. Significantly, respondent did not question that rate.
3. It is not for respondent court a quo to change the stipulations in the contract where it is not illegal.
4. 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.
5. 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.
6. 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.
7. Hence, only in the absence of a stipulation can the court impose the 12% rate of interest.
FACTS:
1. Magtanggol Eusebio executed 3 Promissory Notes from different dates in favor of petitioner
Security Bank and Trust Co. (SBTC) in the amounts of 100,000, 100,000, and 65,000.
2. Respondent bound himself to pay the said amounts in six (6) monthly installments plus 23% interest
per annum.
3. On all the above mentioned promissory notes, private respondent Leila Ventura had signed as co-
maker.
4. Upon maturity there were still principal balance remaining on the notes.
5. Eusebio refused to pay the balance payable, so SBTC filed a collection case against him.
6. The RTC rendered a judgment in favor of SBTC, although the rate of interest imposed by the RTC
was 12% p.a. instead of the agreed upon 23% p.a.
7. The court denied the motion filed by SBTC to apply the 23% p.a. instead of the 12% p.a.
ISSUE: Did the RTC err in using 12% instead of the 23% as agreed upon by the parties?
RULING:
1. YES, the rate of interest was agreed upon by the parties freely.
2. Significantly, respondent did not question that rate.
3. P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate
freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan
or forbearance of money, goods or credits.
4. It is not for respondent court a quo to change the stipulations in the contract where it is not illegal.
5. 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.
6. The 12% shall be applied for obligations arising from loans, or forbearance of money in the
absence of express stipulations
Consolidated Bank v. CA (2001)
Consolidated Bank and Trust Corporation (Solidbank) v. CA, Continental Cement Corp., Gregory T.
Lim, and Spouse
G.R. No. 114286, April 19, 2001
DOCTRINE:
1. 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.
2. 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.
3. 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.
4. 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.
FACTS:
1. On July 13, 1982, Continental Cement Corporation headed by Gregory T. Lim obtained a letter of
credit from the Consolidated Bank of the Philippines or Solidbank.
2. The Letter of Credit No. DOM-23277 covers P1,068,150.00
3. They also deposited P320,445.00 as marginal deposit to the bank.
4. It’s good to take note that the letter of credit included a clause for floating interest.
5. Out of the letter of credit, Continental bought around 500L of bunker fuel oil from Petrophil, which
Continental delivered for use in its Bulacan plant.
6. To this end, On September 2, 1982, a trust receipt for the amount of P1,001,520.93 was executed
by the Continental, with Lim as signatory.
7. Claiming that Lim and Continental failed to turn over the goods covered by the trust receipts,
Solidbank filed a complaint for sum of money and applied for preliminary attachment before the
RTC of Manila.
8. Lim and Continental answered, saying that the transaction was a simple loan, and not a trust
receipt.
9. They also said that Solidbank failed to deduct their payments from the amount the bank is
claiming.
10.In a supplemental pleading they asked for the reimbursement of alleged overpayment to
petitioner of the amount of P490,228.90.
11.The Manila RTC decided the case against Solidbank.
12.It had to pay Continental Cement the reimbursement of P490,228.90, the legal interest of the
amount, attorney’s fees of P10,000, and the costs of proceedings.
13.The parties appealed to the Court of Appeals.
14.The CA partially modified the Decision by deleting the award of attorney's fees.
15.Instead, it ordered Solidbank to pay Continental the sum of P37,469.22 as and for attorney's fees
and litigation expenses.
16.Unsatisfied, Solidbank filed this petition for review to set aside the CA decision.
ISSUES:
1. Primary Issue for this subject: Is the agreement involving a floating interest valid in this
case?
2. Was the CA incorrect in ruling that there was overpayment by Continetal to Solidbank?
3. Was the computation of the marginal deposit/ overpayment which was not clearly shown be
sufficient basis?
4. Was the contract a contract of loan or a trust receipt?
5. Were the spouses Lim liable under their trust receipt agreement?
RULING:
1. NO. The Supreme Court upheld the CA’s ruling to invalidate the floating interest rate. This is
because the stipulation did not mention any reference rate from which to base the floating
interest. There being no reference rate set by it or by the Central Bank, it was a left dependent
on the sole will of Solidbank.
The Supreme Court clarified that given the fluctuating economic conditions, banks are
allowed to stipulate floating interest rates, so long as the future interest will have a
reasonable basis. An example is to base it upon prevailing market conditions at that future time.
TO BE VALID, THERE SHOULD ALWAYS BE A REFERENCE RATE UPON WHICH TO PEG SUCH
VARIABLE INTEREST RATES.
An example of such a valid variable interest rate was found in POLOTAN, SR. V. COURT OF
APPEALS. In that case, the contractual provision stating that "IF THERE OCCURS ANY CHANGE IN
THE PREVAILING MARKET RATES, THE NEW INTEREST RATE SHALL BE THE GUIDING RATE IN
COMPUTING THE INTEREST DUE ON THE OUTSTANDING OBLIGATION WITHOUT NEED OF
SERVING NOTICE TO THE CARDHOLDER OTHER THAN THE REQUIRED POSTING ON THE
MONTHLY STATEMENT SERVED TO THE CARDHOLDER" was valid. This was described by the
Supreme Court as an escalation clause, because at the same time it provides for the increase or
decrease in the interest rate in case the prevailing market rates dictate its increase or reduction.
2. While the Supreme Court admitted that the computation was not shown in the decision, it adhere
to the factual findings of both the RTC and the CA that Continental and Lim committed an
overpayment, and entitled to reimbursement based on the evidence that were submitted.
3. The Court ruled that contention that the marginal deposit made by Continental Cement should be
deducted from the amount of the letter of credit. If we take Solidbank’s contention not to deduct it,
The Supreme Court said that it will be as if they allowed unjust enrichment to happen. Because
while a marginal deposit earns no interest for the debtor-depositor, the bank is not only able to
use it for its own purposes, interest-free, but also earn interest on the money loaned to
Continental.
4. The Supreme Court ruled [citing Colinares v. CA] that there was no trust receipt transaction that
took place.
Prior to the date of execution of the trust receipt, which was September 2, 1982, ownership
over the goods, particularly the 500 L Bunker Oil Fuel was already transferred to Continental in
their Bulacan plant on July 19, 1982. This situation is inconsistent with what normally obtains in a
pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only
released to the importer in trust after the loan is granted.
[Take note: The Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner [xxx]. The practice of banks of
making borrowers sign trust receipts to facilitate collection of loans and place them under the
threats of criminal prosecution should they be unable to pay it may be unjust and inequitable if
not reprehensible]
Continental was held to be honest in its dealings with Solidbank based on various receipts
issued by the bank acknowledging payment on the loan. Certainly, the payment of the sum of
P1,832,158.38 on a loan with a principal amount of only P681,075.93 negates any badge of
dishonesty. Also, Continental Cement is not an importer, which acquired the bunker fuel oil for re-
sale; it needed the oil for its own cement production operations.
5. Since there is no trust receipt agreement, so to speak, Lim and his spouse cannot be liable. But,
even if it did exist, Lim would still not be liable as he signed it in his capacity as Executive Vice
President of Continental Cement. Thus, the Corporate personality will shield him from personal
liability.
Almeda v. CA (1996)
ALMEDA v. COURT OF APPEALS

256 SCRA 292 (1996);
DOCTRINE:
1. 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.
2. True, escalation clauses in credit agreements are perfectly valid and do not contravene public
policy.
3. 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.
4. 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.
5. Borrowing represents a transfusion of capital from lending institutions to industries and
businesses in order to stimulate growth.
6. 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.
7. 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".
8. 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.
9. Note that the phrase "limits imposed by law," refers only to the escalation clause.
10.However, the same agreement allows reduction on the basis of law or the Monetary Board.
11.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.
12.Escalation clauses are not basically wrong or legally objectionable so long as they are not
solely potestative but based on reasonable and valid grounds.
13.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.
FACTS:
1. On various dates in 1981, the Philippine National Bank granted to herein petitioners, the spouses
Ponciano L. Almeda and Eufemia P. Almeda several loan/credit accommodations totaling P18.0
Million pesos payable in a period of six years at an interest rate of 21% per annum.
2. To secure the loan, the spouses Almeda executed a Real Estate Mortgage Contract covering a 3,500
square meter parcel of land, together with the building erected thereon (the Marvin Plaza) located
at Pasong Tamo, Makati, Metro Manila.
3. Between 1981 and 1984, petitioners made several partial payments on the loan totaling.
P7,735,004.66, a substantial portion of which was applied to accrued interest.
4. On March 31, 1984, respondent bank, over petitioners’ protestations, raised the interest rate to
28%, allegedly pursuant to Section III-c (1) of its credit agreement.
5. Said interest rate thereupon increased from an initial 21% to a high of 68% between March of
1984 to September of 1986.
6. Petitioner protested the increase in interest rates, to no avail.

7. Before the loan was to mature in March, 1988, the spouses filed on, February 6, 1988 a petition for
declaratory relief with prayer for a writ of preliminary injunction and temporary restraining
order.
8. Invoking the Law on Mandatory Foreclosure (Act 3135, as amended and P.D. 385), the PNB
countered by ordering the extrajudicial foreclosure of petitioner’s mortgaged properties and
scheduled an auction sale for March 14, 1989.
9. Upon motion by petitioners, however, the lower court, on April 5, 1989, granted a supplemental
writ of preliminary injunction, staying the public auction of the mortgaged property.
ISSUE: Whether PNB was authorized to raise its interest rates from 21% to as high as 68% under the
credit agreement.
RULING:
1. No. Any contact which appears to be heavily weighted in favor of one of the parties so as to lead
to an unconscionable result is void.
2. Likewise, any stipulation regarding the validity or compliance of the contract which is left
solely to the will of one of the parties is invalid.
3. The binding effect of any agreement between parties to a contract is premised on two settled
principle:
a. that any obligation arising from the contact has the force of law between the parties; and
b. that there must be mutuality between the parties based on their essential equality.
4. The Bank reserves the right to increase the interest rate within the limits allowed by law at any
time depending on whatever policy it may adopt in the future; provided, that the interest rate on
this/these accommodations shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board.
5. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity
date of the increase or decrease of the maximum interest rate.
PNB v. CA (1996)
PNB v. Court of Appeals

259 SCRA 174 (1996)
DOCTRINE:
1. PNB's argument rests on a misapprehension of the import of the appellate court's ruling.
2. 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.
3. That ruling is correct. It is in line with our decision in BANCO FILIPINO SAVINGS & MORTGAGE
BANK V. NAVARRO, 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.
4. 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.

5. 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."
FACTS:
1. Payments for the purchase of medicines, the Province of Isabela issued several checks drawn
against its account with petitioner Philippine National Bank (PNB) in favor of the seller, Lyndon
Pharmaceuticals Laboratories, a business operated by private respondent Ibarrola.
2. The checks were delivered to the seller’s agents who turned them over to Ibarrola, excepted 23
checks amounting to P98,691.90, which the agents appropriated after negotiating them with PNB.
3. For her failure to receive the full payment for the medicines, Ibarrola filed on November 6, 1974
before the Regional Trial Court (RTC) an "action for a sum of money and damages," docketed as
Civil Case 4226-P 2 against the Province of Isabela, its Treasurer, the two agents and PNB.
4. In its decision dated September 29, 1987, the trial court ordered all the defendants in said civil
case, except the treasurer who died in the meantime, to "jointly and solidarily" pay Ibarrola
several amounts, among which is: "(1) P98, 691.90 with interest thereon at the legal rate from the
date of the filing of the complaint until the entire amount is fully paid;
ISSUE: Whether in an action for damages, the legal rate of interest is 6% as provided by Article 2209 of
the New Civil Code or 12% as provided by CB Circular 416 series of 1974, and whether such rate shall be
computed from the filling of the complaint until fully paid?
RULING:
1. "When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum.
2. No Interest, however, shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time it is deemed is made, it shall begin to run only from the date
the judgment of the court is made (at which time qualification of damages may be deemed to have
been reasonably ascertained).
3. The actual base for computation for legal interest shall, in any case, be on the amount
finally adjudged."
4. The case at bench does not involve a loan, forbearance of money or judgment involving a
loan or forbearance of money as it arose from a contract of sale whereby Ibarrola did not
receive full payment for her merchandise.
5. When an obligation arise" from a contract of purchase and sale and not from a contract or
loan or mutuum," the applicable rate is "6% per annum, as provided in Article 2209 of the
NCC and not the rate of 12% per annum as provided in (CB) Cir. No. 4167."
6. Indeed, PNB’s liability is based only on the RTC’s judgment where it was held solidarily liable with
the other defendants due to its negligence when it "failed to assure itself" if the Provincial
Treasurer was" property authorized" by Ibarrola to "make endorsement" of said checks.
7. Applying the aforequoted rule, therefore, the proper rate of interest referred to in the
judgment under execution is only 6%.

8. The rate of interest shall be 6% p.a. computed from the time of the filling of the complaint
until its full payment before finality of judgment.
9. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% p.a. computed
from the time the judgment become final and executory on November 26, 1993 until fully
satisfied.
G. Risk Based Capital
Q. Is the monetary board required to prescribe the minimum ratio which the net worth of a bank
must bear to its total risk assets which may include contingent accounts?
A. YES.
Q. How is such minimum ratio determined by the Monetary Board?
A. The Monetary Board may require such ratio be determined on the:
1. basis of the net worth and

2. risk assets of a bank and its subsidiaries, financial or otherwise,
3. as well as prescribe the composition and the manner of determining the net worth and total risk
assets of banks and their subsidiaries:
Q. What is the limitation in the exercise of the Monetary board to determine the minimum ratio?
A. In the exercise of this authority, the Monetary Board shall,
1. to the extent feasible conform to

a. internationally accepted standards, including those of the
b. Bank for International Settlements (BIS), relating to risk-based capital requirements:
NOTE: The Monetary Board may alter or suspend compliance with such ratio whenever necessary for a
maximum period of one (1) year:
Q. Is the minimum ratio applied uniformly to banks of the same category?
A. YES.
Q. In case a bank does not comply with the prescribed minimum ratio, what may the Monetary
Board do?
A. The Monetary Board may:
1. Limit or prohibit the distribution of net profits by such bank and

2. Require that part or all of the net profits be used to increase the capital accounts of the
bank until the minimum requirement has been met.
3. Restrict or prohibit the acquisition of major assets and the making of new investments by the
bank, until the minimum required capital ratio has been restored.
- EXCEPTION: purchases of:

i. readily marketable evidences of indebtedness of the Republic of the Philippines and
of the Bangko Sentral and
ii. any other evidences of indebtedness or obligations the servicing and repayment of
which are fully guaranteed by the Republic of the Philippines,
Q. In case of a bank merger or consolidation, or when a bank is under rehabilitation under a

program approved by the Bangko Sentral, what may the Monetary Board do?
A. Monetary Board may temporarily relieve the surviving bank, consolidated bank, or constituent bank or
corporations under rehabilitation from full compliance with the required capital ratio under such
conditions as it may prescribe.
NOTE: Before the effectivity of rules which the Monetary Board is authorized to prescribe under this
provision, Section 22 of the General Banking Act, as amended, Section 9 of the Thrift Banks Act, and all
pertinent rules issued pursuant thereto, shall continue to be in force. (22a)
Q. What is a risk-based capital?
A. Risk based capital is simply the ratio which the net worth of the bank must bear to its total assets
NOTE: The MB may provide for the minimum ratio which the net worth of a bank must bear to its total
risk-based assets
Q. What is the net worth of the bank?
A. Net worth of the bank = equity of the bank
DEFINITION IN MORB: It shall refer to the total of the unimpaired paid-in capital, surplus,
retained earnings and undivided profits.
Q. What is a risk asset?
A. Risk asset, in so far as the banking industry is concerned, refers to the asset owned by the bank that is
subject to a frequent fluctuation of changes brought about by:
1. interest rate,
2. credit quality or
3. repayment risk.
Q. What are the 2 criteria being considered by the BSP in setting the minimum ratio of net worth
over the risk-based assets of a bank?
A. The following:
1. conformity to internationally accepted standards

2. the minimum ratio should be applied uniformly to all banks of the same category
Q. Will there be an exception wherein a bank will not comply to the minimum ratio of risk-based
capital?
A. Yes, there are 2 exceptions:
1. The purchase of readily marketable evidence of indebtedness of the Republic of the Philippines
and of the Bangko Sentral and any other evidences of indebtedness or obligations the servicing
and repayment of which are fully guaranteed by the Republic of the Philippines, until the
minimum required capital ratio has been restored.
2. In case of bank merger or consolidation, or when a bank is under rehabilitation under a program
approved by the Bangko Sentral, the Monetary Board may temporarily relieve the surviving bank,
consolidated bank, or constituent bank or corporations under rehabilitation from full compliance
with the required capital ratio under such conditions as it may prescribe.
Q. What are the consequences whenever a bank failed to comply with the risk based capital?
A. The following:
1. the BSP through the Monetary Board may limit or prohibit the distribution of net profits by such
bank
2. the BSP may require that part or all of the net profits be used to increase the capital accounts of
the bank until the minimum requirement has been met
H. Limitation on the borrowing from

Government-owned or controlled bank
Q. What is the limitation on the borrowing from GOCB?
A. NO LOAN, guaranty, or other form of financial accommodation for any business purpose MAY BE
GRANTED, directly or indirectly, BY ANY GOVERNMENT-OWNED OR CONTROLLED BANK OR
FINANCIAL INSTITUTION TO THE:
1. President, the
2. Vice-President, the
3. Members of the Cabinet, the
4. Congress, the
5. Supreme Court, and the
6. Constitutional Commissions, the
7. Ombudsman, or
8. to any firm or entity in which they have controlling interest, during their tenure (Sec. 16,
Art XI of the 1987 Constitution).
Q. What government bank is the lender in this case?

A. DBP, LBP
Q. What are their limitations?
A. The following:
1. cannot extend a loan in favor of the public officers mentioned

2. they cannot borrow from any government-owned or controlled bank
I. Single Borrower’s Limit
Must be knowledgeable in SBL and DOSRI (most Bar Qs)

>scenario based and not objective
Differentiate bank from quasi-bank
- limitation on the borrowings, not the prohibition on extension of credits given by banks
- exception to SBL: Is it possible for a bank to raise the credit accommodation in favor of that
single borrower? YES. Up to 10% subject to disqualification.
Sec. 35.1, GBL in relation to Sec. X303 Manual of Regulations for Banks (MORB)
Q. What is the percentage of SBL - Single Borrower’s Limit?
A. 25% of the net worth of such bank.
Q. What is the Limit on Loans, Credit Accommodations and Guarantees?
A. Except as the Monetary Board may otherwise prescribe for reasons of national interest:
The total amount of loans, credit accommodations and guarantees as may be defined by the
Monetary Board that may be extended by a bank to any person, partnership, association, corporation or
other entity shall at no time exceed twenty percent (20%) of the net worth of such bank (raised to 25%
pursuant to the MORB 2016) (Sec. 35.1, GBL).
Q. What is the basis for determining compliance with single-borrower limit?
A. The total credit commitment of the bank to the borrower (Sec. 35.1, GBL).
Q. What is the exception to the limit on Loans, Credit Accommodations and Guarantees? OR When
can a bank increase?
A. Unless the Monetary Board prescribes otherwise, the total amount of loans, credit accommodations
and guarantees prescribed may be increased by an additional ten percent (10%) of the net worth of
such bank.
Provided the additional liabilities of any borrower are adequately secured by (memorize)
[TSWORN]:
1. trust receipts,
2. shipping documents,
3. warehouse receipts or
4. other similar documents transferring or securing title covering:
a. readily marketable,
b. non-perishable goods which must be fully covered by insurance (Sec. 35.2, GBL).
Q. What is the maximum credit accommodation that may be granted in favor of any entity (natural
person, corporation or partnership)?
A. It should not exceed 20% of its net worth (amendment on the benchmark: it is now 25%).
Q. Can the bank increase the 25% extended to a single borrower?
A. Yes
NOTE:
1. may go as high as 35%

2. there are other exceptions to allow increase in the MORB however our discussion is only limited
to the 35% discussion.
Q. If X bank has a net worth of Php 100M, how much can the bank extend as loan in favor of a
borrower?
A. In favor of a single borrower, it must not exceed Php 25M (25%)
Q. Can the bank extend as a loan the whole Php 100M?
A. Yes, it may be increased for only 10% but the 10% should be fully secured sec 35.2 of the GBL
(memorize unless onwards)
NOTE:
- as long as the bank can maintain the minimum risk-based capital

- as long as there are 2 or more borrowers
J. Inclusions to SBL
Sec. x303 (c) MORB
Q. What are the inclusions of the Single-borrower limit? (MEMORIZE) – (MGICP)
A. The following are the inclusions of the SBL:

1. ALL LIABILITIES TO SUCH BANK OF:

a. MAKER OR ACCEPTOR of paper discounted with or sold to such bank;
b. GENERAL INDORSER, DRAWER OR GUARANTOR who obtains a loan or other credit
accommodation from or discounts paper with or sells papers to such bank;
c. INDIVIDUAL who owns or controls a MAJORITY INTEREST IN A CORPORATION ,
PARTNERSHIP, ASSOCIATION or any other entity;
NOTE: Shareholdings is more than 50% - 51%
d. CORPORATION, who OWNS OR CONTROLS MAJORITY INTEREST OF ALL

SUBSIDIARIES; and
e. MEMBERS OF PARTNERSHIP, ASSOCIATION OR OTHER ENTITY (Sec. 35.3, GBL).
Scenario 2:
- The borrower is an individual (natural person) and that natural person has majority control over
a partnership, association or corporation in which case the liability of the corporation will be
added to the borrowing of the natural person.
Q. When do we say that an individual has majority control over a corporation?
A. He has control over that corporation for more than 50 % or at least 51%.
Q. Distinguish affiliate from subsidiary.
A. The following:
1. A SUBSIDIARY is a company whose parent company is a majority shareholder that owns more
than 50% of all the subsidiary company's shares.
2. An AFFILIATE is used to describe a company with a parent company that possesses 20 to 50%
ownership of the affiliate.
SCENARIO 3:
- The borrowing of the parent corporation is added with the borrowing of the subsidiary to
determine the SBL
SCENARIO 4:
- Have to add as part of the SBL the borrowing of its members or part owners
- A is the holding company and B is the subsidiary company.
- The borrowing of A is added to the borrowing of B to determine the SBL.
K. Exclusions from SBL

Sec. x303(e) MORB
Q. What are the exclusions from the Single-borrower limit?
A. The exclusions are LOANS AND OTHER CREDIT ACCOMODATIONS: (BGUHLN)
1. secured by obligations of the BANGKO SENTRAL OR OF THE PHILIPPINE GOVERNMENT;

2. fully guaranteed by the GOVERNMENT as to the payment of principal and interest;
3. secured by U.S. TREASURY NOTES and other securities issued by central governments and
central banks of foreign countries with the highest credit quality given by any two internationally
accepted rating agencies;
4. to the extent covered by the hold-out on or assignment of, deposits maintained in the
lending bank and held in the Philippines;
- ALSO CALLED AS DEPOSIT WITHHOLD OUT
5. under letters of credit to the extent covered by margin deposits; and
6. which the Monetary Board may from time to time specify as non-risk items (Sec. 35.3, GBL).
SCENARIO 1:
- Borrower is DPWH
- its loan can exceed 25% because the guarantor is the Philippine Government
SCENARIO 4:
- Pedro has a loan from the bank amounting to Php 1M. The loan is subject to a Php 50M hold
out.
Q. What does ‘hold out’ means?
A. The bank holds a security in the form of a deposit made to the bank.
L. DOSRI Accounts
Q. What is a Subsidiary Corporation?
A. 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.
Q. What is an affiliate corporation?
A. Is one where total government ownership comprising less than the majority of its outstanding capital
stock and its outstanding voting capital stock.
Q. What does DOSRI mean?

A. Directors, officers, stockholders and their related interest.
Sec. 36, GBL
Section 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related
Interests. - No director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from such bank nor shall he become a guarantor,
endorser or surety for loans from such bank to others, or in any manner be an obligor or incur
any contractual liability to the bank except with the written approval of the majority of all the
directors of the bank, excluding the director concerned:
Provided, That such written approval shall not be required for loans, other credit
accommodations and advances granted to officers under a fringe benefit plan approved by the
Bangko Sentral. The required approval shall be entered upon the records of the bank and a copy
of such entry shall be transmitted forthwith to the appropriate supervising and examining
department of the Bangko Sentral. Dealings of a bank with any of its directors, officers or
stockholders and their related interests shall be upon terms not less favorable to the bank than
those offered to others. After due notice to the board of directors of the bank, the office of any
bank director or officer who violates the provisions of this Section may be declared vacant and the
director or officer shall be subject to the penal provisions of the New Central Bank Act. The
Monetary Board may regulate the amount of loans, credit accommodations and guarantees that
may be extended, directly or indirectly, by a bank to its directors, officers, stockholders and their
related interests, as well as investments of such bank in enterprises owned or controlled by said
directors, officers, stockholders and their related interests. However, the outstanding loans,
credit accommodations and guarantees which a bank may extend to each of its stockholders,
directors, or officers and their related interests, shall be limited to an amount equivalent to their
respective unencumbered deposits and book value of their paid-in capital contribution in the
bank: Provided, however, That loans, credit accommodations and guarantees secured by assets
considered as non-risk by the Monetary Board shall be excluded from such limit: Provided,
further, That loans, credit accommodations and advances to officers in the form of fringe benefits
granted in accordance with rules as may be prescribed by the Monetary Board shall not be subject
to the individual limit. The Monetary Board shall define the term "related interests." The limit on
loans, credit accommodations and guarantees prescribed herein shall not apply to loans, credit
accommodations and guarantees extended by a cooperative bank to its cooperative shareholders.
(83a)
Q. Are directors or officers of any bank directly or indirectly allowed to borrow from such bank?
A. NO.
As a general rule, NO. Representative, director or officer of any bank shall borrow (directly or
indirectly, for himself or as agent of others) from such bank nor shall he become:
1. Guarantor,
2. Indorser,
3. Surety for loans from such bank to others,
4. in any manner, be an Obligor, or
5. incur any contractual Liability to the bank.
As an exception (WRS),
1. with the WRITTEN APPROVAL OF THE MAJORITY OF ALL THE DIRECTORS OF THE BANK,
excluding the director concerned.
2. The required approval shall be entered upon the records of the bank and
3. a copy of such entry shall be transmitted forthwith to the appropriate supervising and
examining department (SED) of the Bangko Sentral.
Q. When is such written approval of the majority of all the directors of the bank not required?
A. Such written approval shall not be required for:
1. loans,
2. other credit accommodations and
3. advances granted to officers under a fringe benefit plan approved by the Bangko Sentral.
NOTE CREDIT CARDS ARE BEYOND THE COVERAGE
Q. Is the written approval required to be entered upon the records of the bank?
A. YES.
Q. Should a copy of such entry be transmitted to the appropriate supervising and examining
department of the Bangko Sentral?
A. YES.
Q. Should the dealings of the bank with any of its DOSRI be upon terms which is not favorable to
the bank than those offered to others (ARM’S LENGTH RULE)?
A. YES.
Q. What happens if a bank director or officer violates this provision of the Sec. 36 of the GBL?
A. 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:
1. declared vacant; and

2. the director or officer shall be subject to the penal provisions of the New Central Bank Act.
Q. May the Monetary Board regulate the amount of loans, credit accommodations and guarantees
that may be extended, directly or indirectly, by a bank to its DOSRI, as well as investments of such
bank in enterprises owned or controlled by said directors, officers, stockholders and their related
interests?
A. YES.
Q. What is the limitation to the outstanding loans, credit accommodations and guarantees which a
bank may extend to each of its DOSRI?
A. It shall be limited to:
1. an amount equivalent to their respective unencumbered (free of any lien or encumbrances)

deposits; and
2. book value of their paid-in capital contribution in the bank.
Q. What are the EXCLUSIONS from such limitation?
A. The following shall be excluded from such limitation:
1. Loans, credit accommodations and guarantees secured by assets considered as non-risk by the
Monetary Board shall be excluded from such limit.
2. 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.
NOTE: The Monetary Board shall define the term "related interests."
Q. What is the EXCEPTION from such limitation?
A. The limit on loans, credit accommodations and guarantees prescribed shall not apply to loans, credit
accommodations and guarantees extended by a cooperative bank to its cooperative shareholders.
Q. Who is a director?
A. The following: (AES)
1. one named as such in the Articles of Incorporation (first set of directors)

2. director who is duly elected by the stockholders
3. a person who succeeded to any vacancy in a seat in the BOD (Board of Directors)
Q. Who is an officer of a Bank?
A. Officers shall include the:
1. President,
2. Executive Vice President,
3. Senior Vice-President,
4. Vice President,
5. General Manager,
6. Treasurer,
7. Secretary,
8. Trust Officer and
9. others mentioned as officers of the bank/quasi-bank/trust entity, or
10.those WHOSE DUTIES AS SUCH ARE DEFINED IN THE BY-LAWS, or
11.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 (Subsection X142.1 and Section 4142Q Definition of Officers).
Q. What are other positions considered as ‘officers’?
A. The following:
1. A person holding the position of Chairman or Vice-Chairman of the Board or another position in
the board whose duties in the board include functions of management such as those ordinarily
performed by regular officers;
NOTE: If it does not include functions of management regularly performed by regular officers, it
shall not be considered an officer.
2. 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 (Subsection X142.1 and Section 4142Q Definition of
Officers).
Q. Who is a stockholder?
A. The following:
1. 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]
2. Stockholder is a person on record or recognized as such in the corporation’s books (stock and
transfer book of the corporation)
NOTE: Banks are organized as stock corporations. No bank is organized as non-stock corporation
Q. Who is a related interest?
A. The following:
1. a related interest of DOS.

2. spouse of DOS or
3. relative by affinity, consanguinity or relative by adoption, partnership where the related
interest is the general partner.
4. In case of a corporation – shareholder who holds at least 20%
5. Co-owner of the DOSRI of the property or in mortgage
Q. What degree of consanguinity or affinity may a related interest of a DOSRI be allowed to be

granted loans?
A. Only limited to the one-degree consanguinity or affinity.

Q. How do you know your degree with a relative?
A. Start from you (0), then the next degree is your
1. CONSANGUINITY: parent, child (1)

2. AFFINITY: spouse (1)
NOTE: Usually what is given is uncle and cousin in BAR exam.
Q. What is affinity?
A. Relationship relative of marriage (in-laws).
Q. Are DOSRI borrowings prohibited by law?
A. NO. DOSRI borrowing is not prohibited by law, it is only regulated by law
Q. Why is there a DOSRI borrowing?
A. The following:
1. To prevent abuses.
2. To prevent DOSRIs from taking advantage of their position.
NOTE: If a borrower is a DOSRI, they must comply with the requirements or conditions for the DOSRI
borrowing to be valid.
I. Requisites: BSP Circular 170, in relation

to Art. 26, NCBA
BSP CIRCULAR NO. 170

Series of 1998 (08/05/98)
Pursuant to Monetary Board Resolution Nos. 832 and 1098 dated June 10, 1998 and August 5,
1998, respectively, the following clarifications and illustrations are hereby issued relative to Section 26 of
Republic Act No. 7653:
1. All banks and their directors, officers or stockholders shall continue to comply with Section 26 of
Republic Act No. 7653, which provides, thus:
"SECTION 26. 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 subsidiary of a bank holding company of which both his bank and 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.
Q. What will happen when there is an examination of the deposits of DOSRI under the New
Central Bank Act?
A. Any information obtained from an examination of his deposits shall be:
1. Held strictly confidential;

2. May be used by the examiners only in connection with:
a. their supervisory and examination responsibility or
b. by the Bangko Sentral in an appropriate legal action it has initiated involving the
deposit account (Section 26, NCBA).
Q. What are the elements of DOSRI borrowing? (MEMORIZE THIS)
A. The FOLLOWING ELEMENTS MUST CONCUR:
1. The borrower is a DOS (director, officer or stockholder) of a bank;

2. He contracts a loan or any form of financial accommodation;
3. The loan or financial accommodation is from:
a. his bank or
b. a bank that is a subsidiary of a bank holding company of which both his bank and the
lending bank are subsidiaries, or
c. a bank 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; and
4. The loan or financial accommodation of the DOSRI, is:

a. WHICHEVER IS LOWER between:
i. excess of 5% of the capital and surplus of the lending bank or
ii. maximum amount permitted by law, (Item No. 2, BSP Circular 170).
Q. Further discussions on the elements of DOSRI BORROWING.
A. The FOLLOWING ELEMENTS MUST CONCUR:
1. The borrower is a DOS (director, officer or stockholder) of a bank;
NOTE:
a. The director, officer or any stockholder should himself be the borrower or recipient of
the loan or financial accommodation.

b. Thus, if the borrower is the related interest but not the director, officer or stockholder
himself, the director, officer or stockholder is not required to waive the secrecy of his
bank deposits.
c. The function of the phrase "who, together with his related interest" in abovequoted
Section 26 is to determine whether the loan(s) or financial accommodation(s) exceeds the
aggregate ceiling prescribed therein.
2. He contracts a loan or any form of financial accommodation;
NOTE:
a. The terms "loan" or "financial accommodation" shall refer to transactions which involve
the grant, renewal or extension or increase of any loan, discount, credit or advance in any
form whatsoever, including the transactions considered as such in Part III of the Manual of
Regulations for Banks and Other Financial Intermediaries.
3. The loan or financial accommodation is from:
a. his bank or
b. a bank that is a subsidiary of a bank holding company of which both his bank and the
lending bank are subsidiaries, or
EXAMPLE: Thus, if Mr. A, who is a director of Z Bank borrows from Y Bank, he should
waive the secrecy of deposits of whatever nature in all banks in the Philippines since both Y
Bank and Z Bank are subsidiaries of X Holding Company.
c. a bank 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; and
NOTE:
i. "Controlling interest" means ownership of more than 50% of the voting stock or
subscribed capital stock of the bank.
ii. The term "same interest" as used herein shall refer to any of the following:
1. The same natural person;
2. The same corporation, partnership or entity;
3. The same family group, i.e., persons related to each other within the third
degree of consanguinity or affinity, including any corporation majority or all
of the equity of which is owned by such family group; or
4. The same business group, i.e., a group of persons whose stockholdings
altogether constitute a majority or control in one or more enterprises.
EXAMPLE: In the illustration above, the controlling shares in both banks belong to the
"same interest", Owner A.
Thus, if Mr. B., who is a director of Bank Z, borrows from Bank Y, Mr. B should waive
the secrecy of his deposits of whatever nature in all banks in the Philippines since the
controlling shares in both banks belong to the "same interest".
4. The loan or financial accommodation of the director, officer or stockholder, singly or with that of
his related interest, is in excess of 5% of the capital and surplus of the lending bank or in the
maximum amount permitted by law, WHICHEVER IS LOWER (Item No. 2, BSP Circular 170).
NOTE:
- The term "stockholder" means one as defined in Section 83 of Republic Act No. 337, as
amended, and its implementing rules in Part III of the Manual of Regulations for Banks and
Other Financial Intermediaries, owning two percent (2%) of more of the subscribed capital
stock of the bank.
- The phrase "maximum amount permitted by law" refers to the limit on loans that may be
extended to a director, officer or stockholder under Section 83 of R.A. No. 337, as amended.
Q. What does "related interest" mean under Section 26 of the NCBA?
A. It shall include the following:
1. Spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption,
of a director, officer or stockholder of the bank;
2. Partnership of which a director, officer, or stockholder or his spouse or relative within the first
degree of consanguinity or affinity, or relative by legal adoption, is a general partner;
3. Co-owner with the director, officer, stockholder or his spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, of the property or interest or right
mortgaged, pledged or assigned to secure the loans or credit accommodations, except when the
mortgage, pledge or assignment covers only said co-owner's undivided interest;
4. Corporation, association, or firm of which a director or officer of the bank, or his spouse is also
director or officer of such corporation, association or firm, except:
a. where the securities of such corporation, association of firm are listed and traded in the big
board or commercial and industrial board of domestic stock exchanges and less than fifty
percent (50%) of the voting stock thereof is owned by any one person or by persons
related to each other within the third degree of consanguinity or affinity; or
b. where the director, officer or stockholder of the lending bank sits as a representative of the
bank in the board of directors of such corporation.
NOTE:
i. That the bank representative shall not have any equity interest in the borrower
corporation except for the minimum shares required by law, rules and regulations,
or by the by-laws of the corporation
ii. That the borrowing corporation under (a) or (b) is not among those mentioned in
items (5) and (6) hereof.
5. Corporation, association or firm of which any or a group of directors, officers, stockholders of the
lending bank and/or their spouses or relatives within the first degree of consanguinity or affinity,
or relative by legal adoption, hold/own more than twenty percent (20%) of the subscribed capital
of such corporation, or of the equity of such association or firm;
6. Corporation, association or firm wholly or majority-owned or controlled by any related entity or a

group of related entities mentioned in items (2), (4) and (5) hereof.
NOTE: Violations of Section 26 of Republic Act No. 7653 committed after date of issuance of this Circular,
or those committed in connection with loans or financial accommodations granted on or after July 3,
1993 (date of effectivity of Republic Act No. 7653) and which are still outstanding on the date of this
Circular, will subject the offender to the sanctions provided under Section 37 of Republic Act No. 7653.
Q. SAMPLE PROBLEM:
1. DOSRI borrows from his bank or D with RI borrows from his bank.
2. Holding company, A.
3. 2 subsidiaries, B and C.
4. D borrows from B.
What are the requirements?
A. The following are the requirements:
1. must be a DOSRI.
2. Written consent of the majority of all the BOD excluding the director who is requesting for a
loan
3. Transaction approving should be recorded in the corporation’s books.
4. There must be reposting with the SED (Supervision and Examination Department) of the BSP
5. There must be execution of a waiver of the confidentiality of bank deposits
6. 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.
7. The amount of loan should be limited to the unencumbered deposits or to the paid in
capital contribution of the DOSRI.
Q. What is a Loan Syndication?
A. The following:
1. syndicate among creditors.

2. 3 or more bank lenders are involved.
3. Exceeded the single’s borrowing limit.
4. LEAD BANK: proponent of the loan syndicate
5. SECURITY: Mortgage trust indenture
NOTES:
1. Sweetheart loans – 2 bank lenders only

2. Loan threshold – loan value
Q. What are the acts regulated in DOSRI borrowing?
A. The following:
1. The borrowing itself

2. as a guarantor,
3. endorser
4. surety
5. obligor or
6. in any contractual liability with the bank
Q. 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?
A. The following:
1. It is covered by the DOSR

2. It is a scenario wherein Pedro’s bank and the lending bank are subsidiaries of a holding or a
parent company
Q. 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?
A. 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
Q. Assuming that Maria is an elected BOD of both companies, how do you call the directorship of
Maria?
A. Interlocking directorship.
Q. What is an interlocking director?
A. Is a director of 2 companies
NOTES:
1. threshold of non-risk loan: not covered by SBL

2. fully secured loan: covered by SBL
3. non-risk loans - is not in DOSRI but is found in SBL (under exclusions of SBL)
4. DOSRI has not provided for the kind of loan
M. Loan Syndication
Q. What is a loan syndication?
A. It 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.
EXAMPLE:
1. A wants to loan Php 100B.

2. 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.
NOTE: The bank who initiates the grouping of these lenders is called the lead bank.
Q. Is a loan syndication normally secured by the security of Mortgage Trust Indenture (MTI)?
A. YES. 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.
EXAMPLE: If BDO’s proportion in the loan is 50% then BDO’s proportion in the mortgage is also
50%. If China bank has 25% share in the loan then it has a proportion of 25% in the MTI.
Q. What is a Mortgage Trust Indenture (MTI)?
A. It is a mortgage wherein several lenders have lien or encumbrance over one mortgage.
Q. What if there are only one or 2 lenders, will there be a loan syndication?
A. No. There is a sweetheart deal.
Gateway Electronics Corp. v. LBP (2003)
GATEWAY ELECTRONICS CORPORATION v. LAND BANK OF THE PHILIPPINES

G. R. Nos. 155217 & 156393 - July 30, 2003
DOCTRINE:
1. 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.
2. 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)."

3. 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."
4. 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.
NOTE: pari passu - proportionate interest
FACTS:
1. In 1995, Gateway Electronics Corporation applied for a loan in the amount of one billion pesos
with Landbank to finance the construction and acquisition of machineries and equipment for a
semi-conductor plant at Gateway Business Park in Javalera, General Trias, Cavite.
2. However, Landbank was only able to extend a six hundred million pesos (P600,000,000.00) loan.
3. Hence, it offered to assist petitioner in securing additional funding through its investment banking
services, which offer petitioner accepted.
4. Thereafter, Landbank released to petitioner the initial amount of P250,000,000.00, with the
balance of P350,000,000.00 to be released in June 1996.
5. As security for the said loans, petitioner mortgaged in favor of Landbank two parcels of land
located in Barangay Jalavera, General Trias, Cavite, the movable properties as well as the
machineries to be installed therein.
6. After petitioner's acceptance of Landbank's financial banking services, the latter prepared an
Information Memorandum which it disseminated to various banks to attract them into providing
additional funding for petitioner.
7. The Information Memorandum stated that the security for the proposed loan syndication will be
the "Mortgage Trust Indenture (MTI) on the project assets including land, building and
equipment."
8. Thereafter, Landbank informed petitioner of its willingness to share the loan collateral which the
latter constituted in its favor as part of the collateral for the syndicated loan from the other banks.
9. On August 20, 1996, Landbank confirmed its undertaking to share the said collateral with the
other creditor banks, which contains a provision that in case of failure of syndication of the loan,
banks that have granted loans to GEC [Gateway Electronics Corporation] in anticipation of the loan
syndication will be allowed to have a registered pari passu (Proportionate interest) mortgage over
the property, the intention being that all banks, including Landbank, shall be on equal footing
where the aforesaid collateral is concerned.
10.Consequently, Philippine Commercial International Bank (PCIB), Union Bank of the Philippines,
(UBP), Rizal Commercial Banking Corporation-Trust Investment Division (RCBC), and Asia Trust
Bank (Asia Trust) joined the loan syndication and released various loans to petitioner.
11.Thereafter, a Memorandum of Understanding (MOU) was executed by Landbank, PCIB, UBP, RCBC,
Asiatrust and the petitioner, with RCBC as the trustee of the loan syndication.
12.Under the Memorandum of Understanding, the said signatories agreed to enter into a Mortgage
Trust Indenture (MTI), under which GEC will constitute a mortgage over the land, building, other
land improvements, machinery and equipment of GEC located within Gateway Business Park,
Crisanto de Los Reyes Avenue, Javalera, General Trias, Cavite as well as the assets to be acquired
by GEC under the Project (as hereinafter defined) in favor of RCBC-TID as trustee, for the benefit
of the Creditors (as defined in the MTI), to secure the payment by GEC of its loan obligations.
13.Negotiations for the execution of an MTI failed because Landbank and the petitioner were unable
to agree on the valuation of the equipment and machineries to be acquired by the latter.
14.The petitioner insisted on a 70% valuation, while the former wanted a 50% valuation.
15.To break the impasse, PCIB, RCBC, UBP, and Asiatrust proposed, subject to the approval of their
respective Executive Committees or Board of Directors, to execute a Joint Real Estate Mortgage
(JREM)10 as the "new mode to secure [their] respective loan vis-à -vis [petitioner's] collaterals."
16.Under the proposed JREM, the six hundred million peso-loan granted by Land Bank shall be
secured up to 94.42%, while the loans granted by PCIB, RCBC, and UBP would be similarly secured
up to 75.22%.
17.Land Bank, however, refused to agree to the said proposal unless 100% of its loan exposure is
secured, pursuant to the Loan Agreement it executed with petitioner.
18.On February 27, 1998, Land Bank informed petitioner of its intention not to share collaterals with
the other banks.
19.In the meantime, petitioner's loan with PCIB became due because of its failure to comply with the
collateral requirement under the MTI or JREM, or to provide acceptable substitute collaterals.
20.Hence, petitioner filed with the Regional Trial Court of Makati City, Branch 133, a complaint
against Land Bank for specific performance and damages with prayer for the issuance of
preliminary mandatory injunction.
21.The trial court granted the petitioner's prayer for the issuance of a writ of preliminary
mandatory injunction.
22.The defendant is directed to accede to the terms of the draft MTI and/or to agree to share
collaterals under a joint real estate mortgage [JREM] with long-term creditors of plaintiff
(including PCIB) as joint mortgagees and with defendant as custodian of the titles.
23.The motion for reconsideration was denied.
24.Thereafter, respondent filed a petition for certiorari with the Court of Appeals, on the ground that
the trial court gravely abused its discretion in issuing the assailed writ of preliminary mandatory
injunction.
25.On March 23, 2001, the Court of Appeals, on motion of Landbank, issued a temporary restraining
order enjoining the trial court from enforcing the October 18, 2000 Order.
26.In a decision rendered on April 12, 2002, the Court of Appeals annulled the assailed order of
the trial court.
27.Petitioner failed to prove the requisite clear and legal right that would justify the issuance of the
writ of preliminary mandatory injunction; and that respondent cannot be compelled to accede to
the terms of the MTI and/or JREM which was supposed to cover the syndicated loan of petitioner
inasmuch as the said schemes were never executed nor approved by the petitioner and the
participating banks.
28.The petitioner filed an omnibus motion seeking, inter alia, the issuance of a temporary restraining
order enjoining Landbank from proceeding and completing the foreclosure proceedings over its
mortgaged properties.
29.However, the Court denied said motion for lack of merit.
30.Petitioner's motion for reconsideration was likewise denied on March 26, 2003.
31.Meanwhile, on January 10, 2003, petitioner filed a petition to cite Landbank President Margarito
Teves and Landbank's lawyer in contempt of Court for proceeding and concluding the foreclosure
proceedings and public auction sale.
32.Petitioner contended that Landbank's acts constitute improper conduct which directly or
indirectly impede, obstruct, or degrade the administration of justice.
33.The petition was docketed as G.R. No. 156393.
34.On March 12, 2003, the consolidation of G.R. No. 156393 and G.R. No. 155217 was ordered.
ISSUES:
1. Is Landbank bound to share the properties mortgaged to it by respondent with the other creditor
banks in the loan syndication?
2. If the answer is in the affirmative, can Landbank be compelled at this point to agree with the terms
of the MTI or JREM?
RULING:
1. Anent the FIRST ISSUE, the Court finds that Landbank is bound by a perfected contract to share
petitioner's collateral with the participating banks in the loan syndication.
a. Article 1305 of the Civil Code defines a contract as a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to
render some service.
b. A contract undergoes three distinct stages
i. preparation or negotiation;
ii. perfection; and
iii. consummation.
c. Negotiation begins from the time the prospective contracting parties manifest their
interest in the contract and ends at the moment of agreement of the parties.
d. The perfection or birth of the contract takes place when the parties agree upon the
essential elements of the contract.
e. The last stage is the consummation of the contract wherein the parties fulfill or perform
the terms agreed upon in the contract, culminating in the extinguishment thereof.
f. Article 1315 of the Civil Code, on the other hand, provides that a contract is perfected by
mere consent, which is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract.
g. 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.
h. 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)."
i. 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."
j. Finally, on October 10, 1996, petitioner, Landbank, PCIB, RCBC, UBP, and Asiatrust
executed a Memorandum of Understanding confirming the said collateral sharing
agreement.
k. To effect said sharing, they decided to enter into a Mortgage Trust Indenture (MTI) which
will be secured by the same properties previously mortgaged by petitioner to Landbank, or
more specifically, to enter into a Mortgage Trust Indenture (herein, the "MTI"), under
which GEC will constitute a mortgage over the land, building, other land improvements,
machinery and equipment of GEC located within Gateway Business Park, Crisanto de Los
Reyes Avenue, Javalera, General Trias, Cavite as well as the assets to be acquired by GEC
under the Project (as hereinafter defined) in favor of RCBC-TID as trustee, for the benefit of
the Creditors (as defined in the MTI), to secure the payment by GEC of its loan obligations.
l. Clearly, there was an acceptance by petitioner and by PCIB, RCBC, UBP, and Asiatrust
of Lanbank's offer to share collaterals, culminating in the execution of the
Memorandum of Understanding.
m. We agree with petitioner that the MTI and/or the JREM belong to the realm of
consummation of said Memorandum of Understanding, being the proposed vehicles or
modes to effect the sharing agreement.
n. Thus, in the JREM which was approved by Landbank, except for its loan security coverage,
the participating banks expressly acknowledged that "[t]he Joint Real Estate Mortgage [is]
pursued by [them] as a new mode to secure [their] respective loans vis-à -vis GEC's
collateral."
o. Verily, the perfection of the collateral sharing agreement is not dependent upon the
execution of the MTI or the JREM.
p. The failure to execute said schemes did not affect the perfected and binding
collateral sharing contract.
2. With respect, however, to the SECOND ISSUE, we find that the issuance by the trial court of the
writ of preliminary mandatory injunction directing Landbank to agree with the terms of the MTI
or JREM was premature.
a. This is so because the MTI and/or JREM that were supposed to consummate the
perfected collateral sharing agreement have not yet come into existence.
b. As correctly held by the Court of Appeals, Landbank cannot be compelled to agree
with the terms of the MTI considering that no such terms were finalized and
approved by the petitioner and the participating banks.
c. Simply stated, Landbank cannot be forced to give its conformity to an inexistent
contract.
d. So, also, the proposed JREM was never approved by the petitioner and the participating
banks.
e. Notably, the JREM expressly stated that "we hereby appeal to the GEC's senior management
to decide swiftly and to favorably approve our humble requests so that, in turn, we can
seek respective approvals from our senior management to culminate this long term project
financing deal of ours."
f. No such approval, however, appears in the records.
g. As to the questioned security coverage under the JREM, Landbank cannot be compelled to
agree to the proposed 94.42% loan security coverage over its six hundred million peso-
loan to petitioner.
h. The security coverage of the participating banks on the collaterals of petitioner was not
agreed upon in the Memorandum of Understanding.
i. While it is true that Landbank informed petitioner in its letter dated July 30, 1996 that "the
participating banks in the loan syndication will have equal security position",and that on
August 20, 1996, Landbank confirmed to PCIB that the participating banks, "shall be on
equal footing where the aforesaid collateral is concerned," no such stipulation was
embodied in the Memorandum of Understanding executed by petitioner, Landbank,
PCIB, RCBC, UBP, and Asiatrust on October 10, 1996.
j. As the repository of the terms and conditions agreed upon by the parties, the Memorandum
of Understanding is considered as containing all their stipulations and there can be no
evidence of such terms other than the contents thereof.
k. Inasmuch as the parties to the Memorandum of Understanding did not agree on the terms
of the security coverage of the participating banks in the MTI or JREM, we can neither add
such a stipulation nor direct Landbank to agree to the security coverage stated in the JREM.
l. Furthermore, the reasonableness of the terms of the MTI and JREM, as well as the good
faith or bad faith of the parties in negotiating the terms of the said schemes, are matters
that should be determined at the trial, and cannot at this point be passed upon by this
Court.
m. Furthermore, the other participating banks, namely PCIB, RCBC, UBP, and Asiatrust, are not
parties to the instant case and cannot, therefore, be bound by an order directing Landbank
to accede to the terms of the MTI or the JREM.
n. We are not even aware if said banks are amenable to the said schemes or pursuing other
modes to effect the sharing agreement.
o. Indeed, the scheme or mode and the terms that would consummate the collateral sharing
agreement are matters that the signatories of the Memorandum of Understanding have yet
to come up with.
p. The rule in this jurisdiction is that the contracting parties may establish any agreement,
term, and condition they may deem advisable, provided they are not contrary to law,
morals or public policy.
q. The right to enter into lawful contracts constitutes one of the liberties guaranteed by the
Constitution.
r. It cannot be struck down or arbitrarily interfered with without violating the freedom to
enter into lawful contracts.
s. While it is true that petitioner has a right to compel Landbank to comply with the
collateral sharing agreement, its right to enforce the same by way of an inexistent
MTI or JREM is certainly not clear and unmistakable.
t. At this stage, Landbank cannot be compelled to agree to the terms of the MTI and/or
JREM.
u. At the most, 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.
Coming now to the petition for contempt, we find that Landbank's acts of foreclosing
and selling at public auction the lots mortgaged by petitioner were not
contumacious.
v. Landbank instituted the foreclosure proceedings upon an honest belief that petitioner had
defaulted in the payment of its obligation.
w. Having acted in good faith, the officers of the bank cannot be held in contempt of
court.
x. However, in order not to render this decision moot and ineffectual, the sale at public
auction should be annulled.
y. The Supreme Court ruled that the respondent Landbank is directed to implement its
agreement under the Memorandum of Understanding dated October 10, 1996 to share with
Philippine Commercial International Bank (PCIB), Union Bank of the Philippines, (UBP),
Rizal Commercial Banking Corporation-Trust Investment Division (RCBC), and Asia Trust
Bank (Asia Trust) the properties mortgaged to it by petitioner Gateway Electronics
Corporation, as collaterals for the syndicated loan.
3. In G.R. No. 156393, the petition to cite Landbank President Margarito Teves and
Landbank's lawyer in contempt of Court is DENIED for lack of merit.
N. Loan Threshold
NOTES:
1. loanable amount of the security being offered

2. security may either be real or personal property
3. a mortgage is an accessory contract, the principal contract is a contract of loan.
4. you cannot mortgage a property, may it be real or personal, unless you have the predisposal
thereof
5. you must be the owner of the property
Q. What is a REAL ESTATE mortgage?
A. It is:
1. a contract
2. in which the debtor guarantees to the creditor
3. the fulfillment of a principal obligation,
4. subjecting for the faithful compliance therewith a real property
5. in case of non-fulfillment of said obligation at the time stipulated.
NOTES:
1. Real estate Mortgage (REM) is constituted on immovables

2. Delivery is not required
3. It is not valid against third persons unless it is registered, nevertheless, it is still binding
upon the parties.
Q. What is a CHATTEL mortgage?
A. Chattel mortgage is a contract by virtue of which a personal property is recorded in the Chattel
Mortgage Register as a security for the performance of an obligation.
NOTES:
1. VALIDITY AS TO PARTIES – CHATTEL Mortgage (CM) must be:

a. recorded in the Chattel Mortgage Register;
2. VALIDITY AS TO THIRD PERSONS – the personal property must be:

a. recorded in the Chattel Mortgage Register and
b. must be accompanied by an affidavit of good faith.
Q. What is an affidavit of good faith?
A. It is an oath in a contract of chattel mortgage wherein the parties:

1. “severally swear that the mortgage is made for the purpose of securing the obligation
specified in the conditions thereof; and
2. for no other purposes and that the same is a just and valid obligation; and
3. one not entered into for the purpose of fraud.”
1. REAL ESTATE
Q. What is the loan threshold for loans and other credit accommodations against REAL ESTATE?
A. Except as the Monetary Board may otherwise prescribe, loans and other credit accommodations
against real estate shall:
1. not exceed seventy-five percent (75%) of the appraised value of the respective real estate
security,
2. plus sixty percent (60%) of the appraised value of the insured improvements, and
3. such loans may be made to the owner of the real estate or to his assignees (Sec. 37, GBL - Loans
and Other Credit Accommodations Against Real Estate).
NOTE: 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
Q. What is the loan threshold for loans and other credit accommodations against CHATTELS and
INTANGIBLE PROPERTIES (patents, trademarks, trade names, and copyrights)?
A. 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:
1. not exceed seventy-five percent (75%) of the appraised value of the security, and
2. such loans and other credit accommodations may be made to the title-holder of the chattels and
intangible properties or his assignees (Sec. 38, GBL - Loans and Other Credit Accommodations
on Security of Chattels and Intangible Properties).
Q. What does Chattel mean?
A. Chattel refers to personal property including intangibles.
NOTE:
1. There are amendments passed in 2018
a. Personal Properties Security Act
i. Sec. 68 – implementation is hold in abeyance until such time that they can
implement it
Q. What is the important inclusion in chattel mortgage?

A. Affidavit of good faith which refers to a statement that the security is being offered to secure an
existing obligation.
O. Foreclosure and Redemption of

Collaterals
Article 2085 of the NCC: what are the requisites of a mortgage
Q. What are the requisites of a mortgage?
A. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and
in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property (Art. 2085, New Civil Code).
1. Judicial vs. Extrajudicial Foreclosure - Rule 68 of the Rules of Court v. Act 3135, as amended “An
act to regulate the sale of property under special powers inserted in or annexed the real estate
mortgages”
Q. State the process in a JUDICIAL FORECLOSURE of mortgage.
A. The following:
1. The mortgagee should file a petition for judicial foreclosure in the court which has jurisdiction
over the area where the property is situated;
2. The court will conduct a trial. If, after trial, the court finds merit in the petition, it will render
judgment ordering the mortgagor/debtor to pay the obligation within a period not less than 90
nor more than 120 days from the finality of judgment;
3. Within this 90 to 120-day period, the mortgagor has the chance to pay the obligation to prevent
his property from being sold. This is called the EQUITY OF REDEMPTION PERIOD.
4. If mortgagor fails to pay within the 90-120 days given to him by the court, the property shall be
sold to the highest bidder at public auction to satisfy the judgment.
5. There will be a judicial confirmation of the sale. After the confirmation of the sale, the purchaser
shall be entitled to the possession of the property, and all the rights of the mortgagor with respect
to the property are severed or terminated. The equity of redemption period actually extends until
the sale is confirmed. Even after the lapse of the 90 to 120-day period, the mortgagor can still
redeem the property, so long as there has been no confirmation of the sale yet. Therefore, the
equity of redemption can be considered as the right of the mortgagor to redeem the
property BEFORE the confirmation of the sale.
Q. After the confirmation of the sale, does the mortgagor have a right to redeem the property?
A. NO. This is the general rule in judicial foreclosures – there is no right of redemption after the sale is
confirmed.
Q. How are the proceeds of the sale of the property be disposed?
A. The proceeds of the sale of the property will be disposed as follows:
1. First, the costs of the sale will be deducted from the price at which the property was sold
2. The amount of the principal obligation and interest will be deducted
3. The junior encumbrances will be satisfied
4. If there is still an excess, the excess will go back to the mortgagor.
NOTE: In mortgage, the mortgagee DOES NOT get the excess (unlike in pledge).
Q. What if there is a deficiency, can the mortgagee ask for a deficiency judgment?
A. YES. IN JUDICIAL FORECLOSURE – If there is a deficiency, the mortgagee can ask for a DEFICIENCY
JUDGMENT which can be imposed on other property of the mortgagor.
IN EXTRAJUDICIAL FORECLOSURE – The rule on extrajudicial foreclosure is different. The

mortgagee must go to court and file another action for the collection of the deficiency.
NOTES:
ONE WOULD SHY AWAY FROM A JUDICIAL FORECLOSURE:
1. Judicial foreclosure is COSTLY, since the parties would need to hire lawyers. But then again, the
present rules provide that court fees are needed to be paid in extrajudicial proceedings also.
2. The parties have very little control over the sale because there is court INTERVENTION.
3. More susceptible to stalling/dilatory tactics by the mortgagor, since he can file all sorts of motions
in court to prevent the sale.
4. It is more efficient to have extrajudicial proceedings since for judicial proceedings, there is a
minimum lapse of time of 6 years.
Q. Who are the parties in a mortgage?
A. There are 2 parties -- the mortgagor and the mortgagee.
1. mortgagor is the one who offered the property as a security for his obligation:
a. though he may not be the principal debtor himself, in which case the mortgage is referred
to as third party mortgage
Example: Pedro borrowed the loan and Maria offered the security. Maria is referred to as a
3rd party mortgage.
b. 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
2. Mortgagee is the one who accepts the security of the property.
Q. What is foreclosure?
A. It is the remedy available to the mortgagee by which he subjects the mortgaged property to the
satisfaction of the obligation to secure that for which the mortgage was given.
Q. When to foreclose?
A. The following:
1. When the principal obligation is not paid when due; and

2. When the debtor has violated the terms and conditions of the mortgage contract.
NOTE: The foreclosure of a mortgage before mortgagor’s default is void.
Q. Who can foreclose?
A. The mortgagee or his assigns.
Q. What are the kinds of foreclosure?
A. The following:
1. Judicial – it is the ordinary action for foreclosure under Rule 68 of the Rules of Court. It is based
on a personal claim against a specific property of the mortgagor.
The mortgagee is specifically given the right to claim for deficiency.
There should be compliance with Sec. 68
2. Extrajudicial – it is when a mortgagee is given a special power of attorney to sell the mortgaged
property by public auction under Act. No. 3135.
A deficiency claim is allowed.
If it is a real property – Act No. 3135
If it is a chattel mortgage – Act 1508 as amended by PPSA
Q. State the process in EXTRAJUDICIAL FORECLOSURE.
A. The following:
1. Sale cannot be made legally outside the city or province wherein the property sold is situated.
2. In case the place has not been stipulated, it shall be made in the municipal building of the said
place
3. Only when there is SPA for MGE to foreclose the mortgage extrajudicially
Q. State the process in the NOTICE OF THE SALE under extrajudicial foreclosure.
A. The following:
1. POSTING of the notices of the sale FOR NOT LESS THAN 20 DAYS in at least 3 public places of the
municipality or city where the property is situated
2. IF THE PROPERTY IS WORTH MORE THAN P400, such notice shall also be published once a week
at least 3 consecutive weeks in a newspaper of general circulation in the municipality or city. (You
don't need to count 6 days between publications.)
NOTE: There is sufficient notice when there is publication.
Q. State the process in the PUBLIC AUCTION/SALE under extrajudicial foreclosure.
A. The following:
1. Time shall be between 9AM and 4PM. It shall be made in the direction of the sheriff of the
province, the justice or auxiliary justice of the peace of the municipality, or of the notary public of
the municipality, who shall be compensated with P5 for each day of actual work or performance in
addition to his expenses.
2. Anyone may bid at the sale, unless there are stipulations in the agreement.
Q. When is judicial foreclosure proper and when is extrajudicial foreclosure proper?
A. Judicial foreclosure is upon the option of the mortgagee - he will file a petition with the court - his
discretion - before the OCC.
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.
Q. What are the 2 kinds of extrajudicial foreclosure?
A. The following:
1. Notarial Disclosure
2. EJ conducted by the Sheriff
NOTES:
1. in the absence of a SPA given by the mortgagor in favor of the mortgagee then extrajudicial
foreclosure would not be proper
2. if there is no SPA clause, then the foreclosure is only judicial foreclosure
3. SPA is an authority given to the mortgagee to foreclose the property extrajudicially
Huerta Alba Resort, Inc. v. CA (2000)

Huerta Alba Resort, Inc. v. Court of Appeals

GR No. 128S67, 2000
DOCTRINE:
1. On the distinction between the equity of redemption and right of redemption, the case of Gregorio
Y. Limpin vs. Intermediate Appellate Court, comes to the fore. Held the Court in the said case:
a. "The equity of redemption is, to be sure, different from and should not be confused with
the right of redemption.
b. 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.
c. 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.
d. 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.'
e. 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).
f. 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.
⮚ If confirmed in a public sale then the mortgagor has no right over the property.
1. 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.
2. 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.'
3. There then exists only what is known as the equity of redemption.
4. 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.
5. Section 2, Rule 68 provides that —
a. '. . 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.'
b. 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."
⮚ Within 90 but not more than 120 from the order of the court.
FACTS:
1. Syndicated Management Group, Inc. (SMGI), as mortgagee-assignee, filed a complaint before

the RTC for foreclosure of 4 parcels of land mortgaged by Huerta Alba Resort to Intercon Fund
Resource (Intercon).
2. The decision of the lower courts are as follows:
a. RTC granted the complaint while
b. CA dismissed appeal due to late payment of docket fees
c. finally, the Supreme Court dismissed petition for certiorari.
3. SMGI then filed with the trial court of origin a motion for execution of decision.
4. Thus, a writ of execution was issued.
5. Petitioner filed an urgent motion to quash and set aside the writ of execution.
6. The dispute is principally is as to when the 150 period within which Huerta Alba may exercise
its equity of redemption be counted.
7. RTC denied the urgent motion to quash.
8. The auction sale proceeded with SMGI as the sole bidder.
9. The CA held that the 150 periods should be computed from the date petitioner was notified of the
Entry of Judgment but the same period has expired already.
10.Huerta Alba filed with the RTC a motion for clarification seeking clarification whether or not the
12 month period of redemption for ordinary execution should apply.
11.The RTC said that redemption should be governed by the rule on the sale of judicially foreclosed
property under Rule 68 of the Rules of Court.
12.Huerta Alba again sought clarification with CA of the date of the commencement of the 1 year
period for the redemption of the properties
13.The Court of Appeals said that Foreclosure in this case is judicial and as such mortgagor has only
the equity and not the right or redemption.
14.Even if under section 78 of RA 337 (General Banking Act), a mortgagor of a bank, banking
or credit institution, whether the foreclosure was done judicially or extrajudicially, has a
period of 1 year from the auction sale within which to redeem the foreclosed property, it
was never raised whether SMGI is a bank or credit institution.
15.Upon motion for a writ of possession by SMGI, Huerta Alba then filed in opposition a motion to
compel respondent to accept redemption, alleging for the first time his right under RA 337,
theorizing that the original mortgagee being a credit institution, its assignment of mortgage credit
did not remove the coverage of RA 337.
16.The decision of the lower courts are as follows:
a. RTC denied SMGI’s writ of possession.
b. The Court of Appeals set aside the RTC’s decision.
17.Hence, the present petition.
ISSUE: Whether Huerta Alba has the one year right of redemption of subject properties under
Section 78 of RA 337
RULING:
1. Yes, however, this was not seasonably filed.

2. The claim that it is entitled to the beneficial provisions of RA 337 – since SMGI’s predecessor-in-
interest is a credit institution – is in a nature of a compulsory counterclaim which should
have been averred in its answer to the complaint for judicial foreclosure.
3. The failure of petitioner to seasonably assert its right under RA 337 precludes it from so
doing at this late stage case.
4. Estoppel may be successfully invoked if the party fails to raise the question in the early
stages in proceeding.
5. The sale of the properties, as confirmed by the court, operated to divest Huerta Alba of its
right of redemption.
6. There then existed only what is known as equity of redemption, which is simply the right of the
petitioner to extinguish the mortgage and retain ownership of the property by paying the secured
debt within the 90-day period after the judgment became final.
7. However, redemption can no longer be effected since petitioner failed to exercise its equity of
redemption within the prescribed period.
8. “The equity of redemption is, to be sure, different from and should not be confused with the right
of redemption.
2. Redemption (Mortgagee is a Bank or Quasi-Bank)
Q. Define redemption.
A. Redemption is the right of the mortgagee to purchase back the property.
It is a right given to the mortgagee whose property was foreclosed to buy back the property that
was sold through public auction
NOTES:
1. there are different rules if the mortgagee is a bank or a natural person (REM)
Q. Is redemption allowed in a chattel mortgage?
A. NO. There is no redemption in chattel mortgage.
Q. What is EQUITY OF REDEMPTION?
A. It is the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the
property by paying the debt within a period of not less than 90 nor more than 120 days from the:
1. entry of judgment or
2. even after the foreclosure sale but prior to confirmation.
It is governed by RULE 68 of the ROC.
Q. What is RIGHT OF REDEMPTION?
A. The right of the debtor, his successor in interest or any judicial creditor or judgment creditor of said
debtor or any person having a lien on the property subsequent to the mortgage or deed of trust under
which the property is sold to redeem the property within 1 year from the registration of the
Sheriff’s certificate of foreclosure sale.
It is governed by Sec. 29-31 of RULE 39 of the ROC.
Q. What are the rules on redemption in certain instances?
A. IF:
1. JUDICIAL FORECLOSURE:
a. The mortgagee is a non-bank or not a quasi-bank
- There is NO right of redemption

- the mortgagee has equity of redemption (Sec. 2, Rule 68 ROC).
2. EXTRA JUDICIAL FORECLOSURE:
a. mortgagee is not a bank
- there is a right of redemption pursuant to Act 3135; sec 47, GBL
b. mortgagor is a juridical person, mortgagee is a bank
- There is a right of redemption.

- right of redemption will be until but not after the registration of the certificate of
sale which in no case would not exceed 3 months or 90 days whichever is earlier.
- 3 months is not the maximum, registrations should not be more than 3 months.
- the period of redemption may be waived if the following date, the certificate of sale is
registered.
- whichever is earlier between the 90 days period and the registration
3. JUDICIAL OR EXTRAJUDICIAL FORECLOSURE:
a. mortgagee is a bank or quasi-bank, mortgagor is a natural person,
- There is a right of redemption pursuant to Sec 47, GBL.

- within one (1) year from the registration of the sheriff's certificate of foreclosure
sale. (Certificate of Sale)
Q. In extrajudicial foreclosure, does the mortgagor have the right to redeem the property within
one year from the registration of the deed of sale?
A. YES.
a. Natural Person - Sec. 6, Act 3135 in relation to Sec. 47, GBL; See BSP Circular No. 337 Series of
2002
In all cases in which an extrajudicial sale is made under the special power herein before referred
to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or
any person having a lien on the property subsequent to the mortgage or deed of trust under which the
property is sold, may redeem the same at any time within the term of one year from and after the
date of the sale; and such redemption shall be governed by the provisions of sections four hundred and
sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not
inconsistent with the provisions of this Act (Sec. 6, Act 3135).
Q. Who may redeem in case of extrajudicial sale for natural persons?
A. The following:
1. the debtor,
2. his successors in interest or
3. any judicial creditor or
4. judgment creditor of said debtor, or
5. any person having a lien on the property subsequent to the mortgage or deed of trust under which
the property is sold (Sec. 6, Act 3135).
Q. When may natural persons redeem in an extrajudicial sale?
A. They may redeem the same at any time within the term of one year and after the date of the sale
(Sec. 6, Act 3135).
b. Juridical Person - Sec. 47, GBL -Foreclosure of Real Estate Mortgage. —
Q. What is the rule on the right of redemption in case of extrajudicial foreclosure (for JURIDICAL
PERSONS) under Sec. 47 of the General Banking Act?
A. Juridical persons shall have the right to redeem the property:
1. until, but not after, the registration of the certificate of foreclosure sale
2. which in no case shall be more than 3 months after foreclosure, whichever is earlier.
NOTE:
1. The pendency of the action stops the running of the right of redemption.
2. Said right continues after perfection of an appeal until the decision of the appeal (Consolidated
Bank and Trust Corp. v. IAC, G.R. No. 73341, August 21, 1987).
Goldenway Merchandising Corp. v. Equitable

PCI Bank (2013)
Goldenway Merchandising Corporation v. Equitable PCI Bank, GR No. 195540
DOCTRINE:
1. Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an
extrajudicial foreclosure, shall have the right to redeem the property in accordance with this
provision until, but not after, the registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be more than three (3) months after
foreclosure, whichever is earlier.
2. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall
retain their redemption rights until their expiration. (Emphasis supplied.)
3. Under the new law, an exception is thus made in the case of juridical persons which are allowed to
exercise the right of redemption only "until, but not after, the registration of the certificate of
foreclosure sale" and in no case more than three (3) months after foreclosure, whichever comes
first.
4. Section 47 did not divest juridical persons of the right to redeem their foreclosed properties but
only modified the time for the exercise of such right by reducing the one-year period originally
provided in Act No. 3135.
5. The new redemption period commences from the date of foreclosure sale, and expires upon
registration of the certificate of sale or three months after foreclosure, whichever is earlier.
6. We agree with the CA that the legislature clearly intended to shorten the period of redemption for
juridical persons whose properties were foreclosed and sold in accordance with the provisions of
Act No. 3135.
7. The difference in the treatment of juridical persons and natural persons was based on the nature
of the properties foreclosed – whether these are used as residence, for which the more liberal one-
year redemption period is retained, or used for industrial or commercial purposes, in which case a
shorter term is deemed necessary to reduce the period of uncertainty in the ownership of
property and enable mortgagee-banks to dispose sooner of these acquired assets.
8. It must be underscored that the General Banking Law of 2000, crafted in the aftermath of the 1997
Southeast Asian financial crisis, sought to reform the General Banking Act of 1949 by fashioning a
legal framework for maintaining a safe and sound banking system.
9. In this context, the amendment introduced by Section 47 embodied one of such safe and sound
practices aimed at ensuring the solvency and liquidity of our banks.
10.It cannot therefore be disputed that the said provision amending the redemption period in Act
3135 was based on a reasonable classification and germane to the purpose of the law.
FACTS:
1. Goldenway Merchandising Corporation executed a REM in favor of Equitable PCI Bank over three
parcels of land to secure a P2M loan.
2. Petitioner failed to settle its loan obligation, so respondent extrajudicially foreclosed the
mortgage.
3. Accordingly, a Certificate of Sale was issued and later registered.
4. Petitioner’s counsel offered to redeem the foreclosed properties by tendering a check.
5. However, petitioner was told that such redemption is no longer possible because the certificate of
sale had already been registered and consolidated in favor of respondent.
6. Petitioner filed a complaint for specific performance and damages contending that the one-year
period of redemption under Act 3135 should apply, and not the shorter redemption period under
RA 8791, as that would result in the impairment of obligations of contracts and would violate the
equal protection clause under the constitution.
7. The RTC dismissed the action, ruling that redemption was made belatedly and that there was no
redemption made at all.
8. The CA affirmed the RTC’s decision.
ISSUE: Should the one-year redemption period apply instead of the shorter period under RA
8791?
RULING:
1. No. The shorter period under RA 8791 should apply.

2. The one-year period of redemption is counted from the date of the registration of the certificate of
sale.
3. In this case, the parties provided in their REM contract that upon petitioner’s default and upon the
loan obligation becoming due, respondent may immediately foreclose the mortgage judicially
in accordance with the Rules of Court, or extrajudicially in accordance with Act No. 3135, as
amended.
4. Act No. 3135 was amended by Sec. 47 of RA 8791, which stated an exception made in the case of
juridical persons which are allowed to exercise the right of redemption only until, but not
after, the registration of the certificate of foreclosure sale and in no case more than three
(3) months after foreclosure, whichever comes first.
5. The legislature clearly intended to shorten the period of redemption for juridical persons
whose properties were foreclosed and sold in accordance with the provisions of Act No. 3135.
6. The right of redemption, being statutory, must be exercised in the manner prescribed by the
statute, and within the prescribed time limit, to make it effective.
7. Furthermore, the freedom to contract is not absolute ; all contracts and all rights are subject to
the police power of the State and not only may regulations which affect them be established by
the State, but all such regulations must be subject to change from time to time, as the general well-
being of the community may require, or as the circumstances may change, or as experience may
demonstrate the necessity.
c. Amount - Sec. 47, GBL
Q. What is the right of the mortgagor or debtor whose real property has been sold for the full or
partial payment of his obligation in the event of foreclosure (whether judicially or extrajudicially)
of any mortgage on real estate which is security for any loan or other credit accommodation
granted?
A. The mortgagor shall have the right within one year after the sale of the real estate, to redeem the
property by paying:
1. the amount due under the mortgage deed,

2. with interest thereon at the rate specified in the mortgage, and
3. all the costs and expenses incurred by the bank or institution from the sale and custody of said
property
a. less the income derived therefrom.
Q. What is the right of the purchaser at the auction sale (whether judicial or extrajudicial
foreclosure)?
A. The purchaser at the auction sale concerned shall have the right to:
1. enter upon;
2. take possession of such property immediately after the date of the confirmation of the auction
sale; and
3. administer the same in accordance with law.
Q. Is a petition in any court to enjoin or restrain the conduct of foreclosure proceedings under Sec.
47 of GBL allowed? If so, what are the requirements?
A. YES. It shall be given due course only upon:
1. Filing by the petitioner of a bond in an amount fixed by the court

2. conditioned that he will pay all the damages which the bank may suffer by the enjoining or the
restraint of the foreclosure proceeding.
3. Prohibited Acts of Borrowers - Sec. 55.2, GBL
Q. What are the prohibited acts of borrowers of a bank?
A. The following:
1. Fraudulently overvalue property offered as security for a loan or other credit accommodation
from the bank;
2. Furnish false or make misrepresentation or suppression of material facts for the purpose of
obtaining, renewing, or increasing a loan or other credit accommodation or extending the period
thereof;
3. Attempt to defraud the said bank in the event of a court action to recover a loan or other credit
accommodation; or
4. Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any
other form of compensation in order to influence such persons into approving a loan or other
credit accommodation application (Sec. 55.2, GBL).
NOTE: Sec. 55 enumerates also the prohibited acts of director, officer, employee, or agent of any bank,
examiner, officer or employee of the Bangko Sentral or of any department, bureau, office, branch or
agency of the Government.
IX. OWNERSHIP OF BANKS

NOTE:
1. If the owner is a FOREIGN INDIVIDUAL OR A NON-BANK FOREIGN CORPORATION, it has a

maximum equity of 40%
2. this limitation applies also to Filipinos and domestic non-bank corporation
Q. What if the stockholder of a bank is a foreign bank, will there be a limitation as to the
ownership of a foreign bank?
A. No, there is no limitation in so far as a foreign bank.
Basis is Sec. 2, RA 7721 “Foreign Banks Liberalization Act”, as amended by RA 10641
AN ACT ALLOWING THE FULL ENTRY OF FOREIGN BANKS IN THE PHILIPPINES,

AMENDING FOR THE PURPOSE REPUBLIC ACT NO. 7721.
SEC. 2. Modes of Entry. – The Monetary Board may authorize foreign banks to operate in
the Philippine banking system through any one of the following" modes of entry:
1. by ACQUIRING, PURCHASING OR OWNING UP TO one hundred percent (100%) of the

voting stock of an existing bank;
2. by INVESTING IN UP TO one hundred percent (100%) of the voting stock of a new
banking subsidiary incorporated under the laws of the Philippines; or
3. by ESTABLISHING BRANCHES with full banking authority.
SUB-NOTES:
1. Bank can only be formed as a stock corporation.

2. Bank cannot be a One-Person Corporation (OPC).
3. REVISED CORPORATION CODE. Section 116. One Person Corporation. - A One Person
Corporation is a corporation with a single stockholder: Provided, That only a natural person, trust,
or an estate may form a One Person Corporation.
Banks and quasi-banks, preneed, trust, insurance, public and publicly-listed

companies, and non-chartered government-owned and -controlled corporations may not
incorporate as One-Person Corporations:
Provided, further, a natural person who is licensed to exercise a profession may not
organize as a One-Person Corporation for the purpose of exercising such profession except as
otherwise provided under special laws.
A. Foreign Equity in a Domestic Bank
LEGAL BASIS:
Sec. 11, GBL - Foreign Stockholdings. — Foreign individuals and non-bank corporations
may own or control up to forty percent (40%) of the voting stock of a domestic bank. This rule shall
apply to Filipinos and domestic non-bank corporations.
The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of
the individual stockholders in that bank. The citizenship of the corporation which is a stockholder in a
bank shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the
place of incorporation.
Q. Up to how many percent of the voting stock of a domestic bank may foreign individuals and
non-bank corporations own or control?
A. Up to 40%. It shall be applicable to Filipinos and domestic non-bank corporations.
Q. How is the percentage of a foreign-owned voting stock in a bank determined?
A. It shall be determined by the citizenship of the individual stockholders in that bank.
NOTE: The citizenship of the corporation which is a stockholder in a bank shall follow the citizenship of
the controlling stockholders of the corporation, irrespective of the place of incorporation.
⮚ Natural foreign persons not a juridical person.
B. Foreign Banks Operation in the Philippines
1. Modes of Entry
Sec. 2, RA 7721 “Foreign Banks Liberalization Act”, as amended by RA 10641
LEGAL BASIS:
AN ACT ALLOWING THE FULL ENTRY OF FOREIGN BANKS IN THE PHILIPPINES, AMENDING FOR
THE PURPOSE REPUBLIC ACT NO. 7721.
SEC. 2. Modes of Entry. – The Monetary Board may authorize foreign banks to operate in the
Philippine banking system through any one of the following" modes of entry:
1. by acquiring, purchasing or owning up to one hundred percent (100%) of the voting

stock of an existing bank;
2. by investing in up to one hundred percent (100%) of the voting stock of a new banking
subsidiary incorporated under the laws of the Philippines; or
3. by establishing branches with full banking authority.
DISCUSSION:
1. In RA 7721, a foreign bank may own 100% of the authorized capital stocks of the domestic bank.
2. We need to qualify the investor:

a. foreign individual or corp. and not a bank: 40%
b. Foreign banks: 100% of the voting shares of the domestic bank
3. In Sec. 2, RA 7721 - provides for the 3 modes by which a foreign bank may own up to 100% of the
voting stock of the domestic bank.
2. Limitation - Sec. 2, RA 10641 amending Section 3 of R.A. No. 7721
LEGAL BASIS:
SEC. 3. Guidelines for Approval. – In approving entry applications of foreign banks, the Monetary
Board shall: (G – S – D – R – T)
1. ensure Geographic representation and complementation;
2. consider Strategic trade and investment relationships between the Philippines and the country
of incorporation of the foreign bank;
3. study the Demonstrated capacity, global reputation for financial innovations and stability in a
competitive environment of the applicant;
4. see to it that Reciprocity rights are enjoyed by Philippine banks in the applicant’s country; and
5. consider willingness to fully share their Technology.
Continuation:
Q. What foreign banks shall be allowed entry?
A. The following: (E – R – F – S – W – P)
1. Only Established, Reputable and Financially Sound foreign banks shall be allowed entry in
accordance with Section 2 of this Act.
2. The foreign bank applicant must be widely-owned and publicly-listed in its country of origin,
unless the foreign bank applicant is owned and controlled by the government of its country of
origin.
Q. Is the Monetary Board allowed to adopt measures as may be necessary to ensure that the
control of at least 60% of the resources or assets of the entire banking system is held by domestic
banks which are majority-owned by Filipinos?
A. YES.
3. Criteria/Guidelines for Entry- Sec. 2, RA 10641
SEC. 2. Guidelines for Approval. – In approving entry applications of foreign banks, the Monetary
Board shall: (G – S – D – R – T)
1. ensure Geographic representation and complementation;

2. consider Strategic trade and investment relationships between the Philippines and the country
of incorporation of the foreign bank;
3. study the Demonstrated capacity, global reputation for financial innovations and stability in a
competitive environment of the applicant;
4. see to it that Reciprocity rights are enjoyed by Philippine banks in the applicant’s country; and
5. consider willingness to fully share their Technology.
4. Right of Foreign Bank to Bid in a Foreclosure Sale - Sec 6, R.A. No. 10641
LEGAL BASIS:
R.A. No. 10641. Sec. 6. A new provision in Section 9 is hereby inserted in the same Act, in lieu of
the original provisions of Section 9 repealed by Section 11 of Republic Act No. 10000. Section 9 shall now
read as follows:
"SEC. 9. Participation in Foreclosure Proceedings.—Foreign banks which are authorized to do

banking business in the Philippines through any of the modes of entry under Section 2 hereof shall be
allowed to bid and take part in foreclosure sales of real property mortgaged to them , as well as to
avail of enforcement and other proceedings, and accordingly take possession of the mortgaged
property, for a period not exceeding five (5) years from actual possession: Provided, That in no event
shall title to the property be transferred to such foreign bank. In case said bank is the winning bidder, it
shall, during the said five (5)-year period, transfer its rights to a qualified Philippine national, without
prejudice to a borrower’s rights under applicable laws. Should the bank fail to transfer such property
within the five (5)-year period, it shall be penalized one half (1/2) of one percent (1%) per annum of the
price at which the property was foreclosed until it is able to transfer the property to a qualified Philippine
national."
Q. Can a foreign bank own real property here in the Philippines? Can a foreign bank purchase a
property mortgaged?
A. YES. It can participate in the bidding process IN A PROPERTY MORGAGED TO IT but it cannot transfer
that parcel of land in its name.
It can hold the property for a period of 5 years from the date of actual possession but it cannot
register the same under the name of the foreign bank.
No such right of registry shall be in favor of that foreign bank.
After 5 years, the foreign bank shall dispose of the parcel of land in favor of a qualified
Filipino citizen or corporation.
Q. Is the foreign bank penalized if it fails to transfer or dispose the real property in favor of a
qualified Filipino citizen or corporation WITHIN THE 5-YEAR PERIOD?
A. YES. It shall be penalized one half (1/2) of one percent (1%) per annum of the price at which the
property was foreclosed until it is able to transfer the property to a qualified Philippine national.
⮚ Section is from the Constitution which provides the limitation. Except in condominium corporation.
C. Offshore Banking
LEGAL BASIS:
Sec. 1(1) PD 1034 “Offshore Banking System Decree”
Q. Define offshore banking.
A. Offshore Banking shall refer to the CONDUCT OF BANKING TRANSACTIONS IN FOREIGN CURRENCIES
involving
1. the receipt of funds from external sources and
2. the utilization of such funds as provided in this Decree.
Q. Define offshore banking unit (OBU).
A. Offshore Banking Unit shall mean a

1. Branch, Subsidiary or Affiliate of a FOREIGN BANKING CORPORATION
2. which is DULY AUTHORIZED BY THE BSP (Central Bank of the Philippines) to transact
offshore banking business in the Philippines.
Q. Define “deposits” in accordance with P.D. No. 1034.
A. "Deposits" shall mean funds in foreign currencies which are accepted and held by an offshore banking
unit in the regular course of business, with the obligation to return an equivalent amount to the owner
thereof, with or without interest.
Q. Define "Resident" in accordance with P.D. No. 1034.
A. The following:
1. an individual citizen of the Philippines residing therein; or

2. an individual who is not a citizen of the Philippines but is permanently residing therein; or
3. a corporation or other juridical person organized under the law of the Philippines.
Q. Define "Non-resident" in accordance with P.D. No. 1034.
A. It shall mean an individual, corporation or other juridical person not included in the above definition of
"resident".
Branches, subsidiaries, affiliates, extension offices or any other units of corporation or juridical
person organized under the laws of any foreign country operating in the Philippines shall be considered
residents of the Philippines.
Q. Define "Branch" in accordance with P.D. No. 1034.
A. It shall mean a separately managed department or unit of a foreign corporation.
Q. Can a domestic bank engage in offshore banking?

A. NO. Only foreign banks authorized by the BSP.
LEGAL BASIS:
- Section 2. Qualification Requirements. Subject to such regulatory guidelines as the

Monetary Board may prescribe, only banks which are organized under any law other
than those of the Republic of the Philippines their branches, subsidiaries or affiliates,
shall be qualified to operate offshore banking units in the Philippines.
- However, local branches of foreign banks already authorized to accept foreign currency
deposits under the provisions of R.A. No. 6426 may opt to apply for authority to operate an
offshore banking unit under the provisions of this Decree
- Upon their receipt of a corresponding certificate of authority to operate as an
offshore banking unit, THE LICENSE TO TRANSACT BUSINESS UNDER THE
PROVISIONS OF R.A. NO. 6426 shall be deemed automatically withdrawn.
X. BANK DIRECTORS AND OFFICERS
A. Composition
LEGAL BASIS:
Sec. 15, 17, 19 of the General Banking Law.
SECTION 15, GBL - Board of Directors. — The provisions of the Corporation Code to the
contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen (15) members of
the board of directors of bank, two (2) of whom shall be independent directors.
An "independent director" shall mean a person other than an officer or employee of the bank, its
subsidiaries or affiliates or related interests.
Non-Filipino citizens may become members of the board of directors of a bank to the extent of the
foreign participation in the equity of said bank. (Sec. 7, RA 7721)
The meetings of the board of directors may be conducted through modern technologies such as,
but not limited to, teleconferencing and video-conferencing.
SECTION 17. Directors of Merged or Consolidated Banks. — In the case of a bank merger or
consolidation, the number of directors shall not exceed twenty-one (21).
SECTION 19. Prohibition on Public Officials. — Except as otherwise provided in the Rural
Banks Act, no appointive or elective public official, whether full-time or part-time shall at the same
time serve as officer of any private bank, save in cases where such service is incident to financial
assistance provided by the government or a government-owned or controlled corporation to the bank or
unless otherwise provided under existing laws.
Q. What is the composition and how many members are there in the Board of Directors of a bank?
A. There shall be:
1. At least five (5), and

2. A maximum of fifteen (15) members of the board of directors of bank,
NOTE: Two (2) of whom shall be INDEPENDENT DIRECTORS.
Q. Define independent director.
A. An "independent director" shall mean a person other than an officer or employee of the bank, its
subsidiaries or affiliates or related interests.
Q. Are non-Filipino citizens (foreigners) allowed to become members of the BOD of a bank?
A. YES. ONLY to the extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721)
Q. Can a bank have a board of trustees (BOT)?
A. NO. A bank can never have a board of trustees because a bank can never be organized as a non-stock
corporation
Q. Are the meetings of the BOD allowed to be conducted through modern technologies?
A. YES. The meetings of the board of directors may be conducted through modern technologies such as,
but not limited to, teleconferencing and video-conferencing.
Q. In case of a bank merger or consolidation, what should be the composition of its BOD?
A. The number of directors shall not exceed twenty-one (21).
NOTE:
1. Merger – A + B = A/B
2. Consolidation – A + B = C
Q. Is an appointive or elective public official, whether full-time or part time allowed to be part of
the Board of Directors of a bank?
A. As a GENERAL RULE: NO. Elective public officer as member of Board of Directors is prohibited
(General Banking Law).
EXCEPTION: YES, in cases of:
1. SEC. 19, GBL. When being a member of the BOD is incident to financial assistance provided by
the government or GOCC to the bank (ex officio membership to);
2. RURAL BANKS: Under the Rural bank Act, appointive or elective public officers may hold or may
be elected as a member of the board of directors
3. GOVERNMENT BANKS: There are officers who are called ex officio officers or members of the
board of directors, e.g., LBP – one of the BOD is the Secretary of Finance (not considered as double
compensation because he is merely acting in an ex officio position)
NOTE: AN EX OFFICIO POSITION - automatically becomes a member of the board of directors by

virtue of his position
1. Rural Bank
LEGAL BASIS:
SEC. 5, RA 7353 AS AMENDED BY R.A. NO. 10574 - Non-Filipino citizens may become
members of the Board of Directors of a rural bank but their participation in the Board shall be
limited to their proportionate share in the equity of the rural bank: Provided, however, That at least
one (1) independent director shall be elected to the Board of Directors.
No Director or officer of any rural bank shall, either directly or indirectly, for himself or as the
representative or agent of another borrow any of the deposits or funds of such banks, nor shall he
become a guarantor, indorser, or surety for loans from such bank to others, or in any manner be an
obligor for money borrowed from the bank or loaned by it except with the written approval of the
majority of the directors of the bank, excluding the director concerned. Any such approval shall be
entered upon the records of the corporation and a copy of such entry shall be transmitted forthwith to
the appropriate supervising department. The director/officer of the bank who violates the provisions of
this section shall be immediately dismissed from his office and shall be penalized in accordance with
Section 26 of this Act.
The Monetary Board may regulate the amount of credit accommodations that may be extended
directly to the directors, officers or stockholders of rural banks of banking institutions. However, the
outstanding credit accommodations which a rural bank may extend to each of its stockholders
owning two percent (2%) or more of the subscribed capital stock, its directors, or officers shall be
limited to an amount equivalent to the respective outstanding deposits and book value of the
paid-in capital contributions in the bank.
Q. Are foreigners allowed to become members of the BOD of a rural bank? IF YES, what is the
limitation?
A. YES. Limitations:
1. Their participation in the Board shall be limited to their proportionate share in the equity of the
rural bank.
2. Also, at least 1 independent director shall be elected to the Board of directors of the rural bank.
Q. Are directors or officers of a rural bank allowed to borrow any of its funds? What is the
exception?
A. As a GENERAL RULE, NO.

No Director or officer of any rural bank shall borrow any of the deposits or funds of such banks
either directly or indirectly:
1. for himself or
2. as the representative or
3. agent of another; nor
4. shall he become a:
a. guarantor,
b. indorser, or
c. surety for loans from such bank to others, or
d. in any manner be an obligor for money borrowed from the bank or loaned by it
EXCEPTION: YES. Directors or officers of any rural bank may be allowed to borrow any of its
funds provided:
1. With the written approval of the majority of the directors of the bank, EXCLUDING THE
DIRECTOR CONCERNED.
2. Any such approval shall be entered upon the records of the corporation and
3. A copy of such entry shall be TRANSMITTED forthwith TO THE APPROPRIATE SUPERVISING
DEPARTMENT.
Q. What will happen to the director or officer who violates Sec. 5 of R.A. No. 7353 (Rural Bank Act)
as amended by R.A. No. 10574?
A. The director/officer of the bank who violates the provisions of this section shall be immediately
dismissed from his office and shall be penalized in accordance with Section 26 of this Act.
NOTE: Section 26. Without prejudice to any prosecution under any law which may have been
violated a:
a. fine of not more than ten thousand pesos (P10,000); OR
b. imprisonment of not less than six (6) months but not more than ten (10) years,
c. or both, at the discretion of the court
B. Fit and Proper Rule
LEGAL BASIS:
Sec. 16 of the General Banking Law
Sec. 16, GBL - Fit and Proper Rule. — To maintain the quality of bank management and afford
better protection to depositors and the public in general, the Monetary Board shall prescribe, pass
upon and review the qualifications and disqualifications of individuals elected or appointed bank
directors or officers and disqualify those found unfit.
After due notice to the board of directors of the bank, the Monetary Board may disqualify,
suspend or remove any bank director or officer who commits or omits an act which render him unfit for
the position.
In determining whether an individual is fit and proper to hold the position of a director or officer
of a bank, regard shall be given to his integrity, experience, education, training, and competence.
NOTA BENE: Memorize this, it often comes out from the bar.
In determining the fitness and proper rule of a director, the Monetary Board may consider
the integrity, experience, education, training, and competence of the said appointed and elected
member of the BOD of the bank.
Q. What is the reason why there is a fit and proper rule?
A. The following:
1. To maintain the quality of bank management; and

2. Afford better protection to depositors and the public in general.
Q. What is the scope of the power of the Monetary Board to implement the fit and proper rule?
A. The Monetary Board shall:
1. Prescribe, pass upon and review the qualifications and disqualifications of individuals
elected or appointed bank directors or officers; and
2. Disqualify those found unfit.
Q. What is the basis in determining if an individual is fit and proper to hold the position of a
director or officer of a bank?
A. Regard shall be given to his:
1. integrity,
2. experience,
3. education,
4. training, and
5. competence.
Q. When may the Monetary board disqualify, suspend, or remove any bank director or officer who
commits an act which render him unfit for the position?
A. After due notice to the board of directors of the bank.
Busuego v. CA (1999)
Busuego v. Court of Appeals

G.R. No. 95326; March 11, 1999
DOCTRINE:
1. Petitioners opine that with the issuance of Monetary Board Resolution No. 805, "they are now
barred from being elected or designated as officers again of PESALA and are likewise prevented
from future engagements or employments in all institutions under the supervision of the Central
Bank thereby virtually depriving them of the opportunity to seek employments in the field which
they can excel and are best fitted."
2. According to them, the Monetary Board is not vested with "the authority to disqualify persons
from occupying positions in institutions under the supervision of the Central Bank without proper
notice and hearing" nor is it vested with authority "to file civil and criminal cases against its
officers/directors for suspected fraudulent acts.
3. The special law governing savings and loan association is Republic Act No. 3779, as
amended, otherwise known as the "Savings and Loan Association Act."
4. Said law authorizes the Monetary Board to conduct regular yearly examinations of the books and
records of savings and loan associations, to suspend, a savings and loan association for violation of
law, to decide any controversy over the obligations and duties of directors and officers, and to take
remedial measures, among others.
5. Section 28 of Rep. Act No. 3779, reads:
a. "SEC. 28. Supervisory powers over savings and loan associations. - In addition to whatever
powers have been conferred by the foregoing provisions, the Monetary Board shall have the
power to exercise the following:
xxx
(d) After proper notice and hearing, to suspend a savings and loan association for
violation of law, for unsafe and unsound practices or for reason of insolvency.
The Monetary Board may likewise, upon the proof that a savings and loan association or
its board or directors or officers are conducting and managing its affairs in a manner
contrary to laws, orders, instructions, rules and regulations promulgated by the
Monetary Board or in a manner substantially prejudicial to the interest of the
government, depositors or creditor, take over the management of the savings and loan
association after due hearing, until a new board of directors and officers are elected and
qualified without prejudice to the prosecution of the persons responsible for such violations.
The management by the Monetary Board shall be without expense to the savings and loan
association, except such as is actually necessary for its operation, pending the election and
qualification of a new board of directors and officers to take the place of those responsible for
the violation or acts contrary to the interest of the government, depositors or creditors;
6. Petitioners were not deprived of their lawful calling as they are free to look for another
employment so long as the agency or company involved is not subject to Central Bank
control and supervision.
7. Petitioners can still practise their profession or engage in business as long as these are not
within the ambit of Monetary Board Resolution No. 805.
FACTS:
1. The books and records of the PAL Employees Savings and Loan Association, Inc (PESALA) was
conducted by a team of Central Bank examiners where

a. questionable investment in a multi-million peso real estate project (Pesalaville);
b. conflict of interest in the conduct of business;
c. unwarranted declaration and payment of dividends; and
d. commission of unsound and unsafe business practices.
2. Central Bank Supervision and Examination Section Department IV Director Ricardo. F. Lirio sent a
letter to the Board of Directors of PESALA inviting them to a conference on July 21, 1988 to
discuss subject findings noted in the said examination, but petitioners did not attend such
conference.
3. Petitioner Renato Lim wrote the PESALA's Board of Directors explaining his side on the said
examination and requesting that a copy of his letter be furnished the CB, which was forthwith
made by the Board.
4. On July 29, 1988, PESALA's Board of Directors sent to Director Lirio a letter concerning the
examination of PESALA's records.
5. On September 9, 1988, the Monetary Board adopted and issued MB Resolution No. 805 where
the petitioners were included in Sector's watchlist to prevent them from holding responsible
positions in any institution under Central Bank supervision and requiring the board of directors
of PESALA to file civil and criminal cases against said petitioners for all the misfeasance and
malfeasance committed by them, as warranted by the evidence;
6. The petitioners were able to secure a TRO and a writ of preliminary injunction enjoining the
Monetary Board of the CB from including the names of petitioners in the watchlist.
7. THE TRIAL COURT HANDED DOWN ITS DECISION DECLARING THAT BOARD RESOLUTION
NO. 805 AS VOID AND INEXISTENT.
8. THE MONETARY BOARD APPEALED THE AFORESAID DECISION TO THE COURT OF APPEALS
WHICH CAME OUT WITH A DECISION OF REVERSAL ON SEPTEMBER 14, 1990.
9. Hence, this petition for review on certiorari.
ISSUES:
1. Whether or not the petitioners were deprived of their right to a notice and the opportunity
to be heard by the Monetary Board prior to its issuance of MB Resolution No. 805.
2. Whether or not the MB is legally bound to observe the essential requirements of due process
of a valid charge, notice and opportunity to be heard in so far as the petitioner’s subject
case is concerned.
3. Whether or not MB Resolution No. 805 is null and void for being violative of the petitioner’s
right to due process.
RULING:
1. NO. With respect to the first issue, it appears that the requisites of procedural due process were
complied with by the Monetary Board before it issued the questioned MB Resolution No. 805.
a. Firstly, the petitioners were invited to a conference to discuss the findings gathered during the
examination of records. (The requirement of a hearing is complied with as long as there
was an opportunity to be heard, and not necessarily that an actual hearing was
conducted.)
b. Secondly, the Monetary Board considered the evidence presented.
c. Thirdly, fourthly and fifthly, MB Resolution No. 805 was adopted on the basis of said findings
unearthed during the examination of PESALA's records and derived from the letter-comments
submitted by the parties.

d. Sixthly, the members of the Monetary Board acted independently on their own in issuing
subject Resolution, placing reliance on the said findings made during the examination.
e. Lastly, the reason for the issuance of MB Resolution No. 805 is readily apparent, which is
to prevent further irregularities from being committed and to prosecute the officials
responsible therefore.
2. YES. With respect to the second issue, there is tenability in petitioners' contention that the
Monetary Board, as an administrative agency, is legally bound to observe due process, although
they are free from the rigidity of certain procedural requirements. Even Section 28, (c) and (d), of
Republic Act No. 3779 ("RA 3779") delineating the powers of the Monetary Board over savings
and loan associations, require observance of due process in the exercise of its powers:
a. To conduct at least once every year, and whenever necessary, any inspection, examination
or investigation of the books, and records, business affairs, administration, and financial
condition of any savings and loan association WITH OR WITHOUT PRIOR NOTICE BUT
ALWAYS WITH FAIRNESS AND REASONABLE OPPORTUNITY FOR THE ASSOCIATION OR ANY
OF ITS OFFICIALS TO GIVE THEIR SIDE OF THE CASE.
b. After proper notice and hearing, to suspend a savings and loan association for violation of law,
for unsafe and unsound practices or for reason of insolvency.
c. Hence, there is no denial of due process.
3. NO. It is valid. Anent the third issue, petitioners theorize that MB Resolution No. 805 is null and
void for being violative of their right to due process.
a. According to them, the Monetary Board is not vested with "the authority to disqualify persons
from occupying positions in institutions under the supervision of the Central Bank without
proper notice and hearing" nor is it vested with authority "to file civil and criminal cases
against its officers/directors for suspected fraudulent acts."
b. The SC ruled that petitioners' contentions are untenable.
c. It must be remembered that the Central Bank of the Philippines through the Monetary
Board, is the government agency charged with the responsibility of administering the
monetary, banking and credit system of the country and is granted the power of supervision
and examination over banks and non-bank financial institutions performing
quasi-banking functions, of which savings and loan associations, such as PESALA,
form part of.
d. The special law governing savings and loan association is Republic Act No. 3779, as
amended, otherwise known as the "Savings and Loan Association Act."
e. Said law authorizes the Monetary Board to conduct regular yearly examinations of the
books and records of savings and loan associations, to suspend, a savings and loan
association for violation of law, to decide any controversy over the obligations and duties
of directors and officers, and to take remedial measures, among others.
f. THE REQUIREMENT OF PRIOR NOTICE IS ALSO RELAXED UNDER SECTION 28 (C) OF RA
3779 AS INVESTIGATIONS OR EXAMINATIONS MAY BE CONDUCTED WITH OR WITHOUT
PRIOR NOTICE "BUT ALWAYS WITH FAIRNESS AND REASONABLE OPPORTUNITY FOR
THE ASSOCIATION OR ANY OF ITS OFFICIALS TO GIVE THEIR SIDE."
g. As may be gathered from the records, the said requirement was properly complied with by the
respondent Monetary Board.
h. All things studiedly considered, the SC upholds the validity of Monetary Board
Resolution No. 805 and affirms the decision of the Court of Appeals.
C. Remedies of the BSP for a Bank in Distress
Q. What are the remedies that may be extended by the BSP in case a bank is under distress?
A. The following:
1. Emergency loan
2. Conservatorship
3. Receivership
4. Liquidation
1. Emergency Loan
LEGAL BASIS: Sec. 84, New Central Bank Act
Q. When may the Monetary Board authorize the Bangko Sentral to grant extraordinary loans or
advances to banking institutions secured by assets?
A. The following:
1. In periods of national and/or local emergency; or

2. Imminent financial panic which directly threaten monetary and banking stability ;
3. By a vote of at least five (5) of its members.
NOTE: While such loans or advances ARE OUTSTANDING, the debtor institution shall not, EXCEPT
UPON PRIOR AUTHORIZATION BY THE MONETARY BOARD, expand the total volume of its loans or
investments.
Q. When may an emergency loan granted by the Bangko Sentral?
A. The following:
1. When authorized by the Monetary board at its discretion (by a vote of at least 5 of its members);
2. Monetary Board has ascertained that the bank is not insolvent and has the assets to secure the
advances; and
3. It may be granted even during normal periods.
Q. Purpose of granting emergency loans.
A. The following:
1. For the purpose of assisting a bank in a precarious financial condition; or

2. Under serious financial pressures brought by unforeseen events, or events which, though
foreseeable, could not be prevented by the bank concerned
Q. Amount of emergency loans or advances.
A. The following:
1. Shall not exceed the sum of (50%) of total deposits and deposit substitutes of the banking
institution and
2. shall be disbursed in (2) or more tranches.
Q. Amount of first tranche.
A. Limited to twenty-five percent (25%) of the total deposit and deposit substitutes of the
institution and shall be secured by government securities to the extent of their applicable loan values
and other unencumbered first-class collaterals which the Monetary Board may approve.
Q. Exception to the amount of first tranche.
A. The following:
1. If as determined by the Monetary Board,

2. the circumstances surrounding the emergency warrant a loan or advance greater than the
amount provided, the amount of the first tranche may exceed twenty five percent (25%) of the
bank's total deposit and deposit substitutes if:
a. The same is adequately secured by:
i. applicable loan values of government securities and
ii. unencumbered first class collaterals approved by the Monetary Board, and
iii. the principal stockholders of the institution furnish an acceptable undertaking to
indemnify and hold harmless from suit a conservator whose appointment the
Monetary Board may find necessary at any time.
Q. Requirement prior to the release of the first tranche.
A. The BANKING INSTITUTION shall submit to the Bangko Sentral a:
1. resolution of its board of directors authorizing the Bangko Sentral to evaluate other assets of
the banking institution
2. certified by its external auditor to be good and available for collateral purposes should the release
of the subsequent tranche be thereafter applied for.
Q. Requirements for the release of the subsequent tranche.
A. The following:
1. Vote of at least five (5) members of the Monetary Board.

2. On condition that the principal stockholders of the institution:
a. furnish an acceptable undertaking to indemnify and hold harmless from suit a
conservator whose appointment the Monetary Board may find necessary at any time; and
b. provide acceptable security which, in the judgment of the Monetary Board, would be
adequate to supplement, where necessary, the assets tendered by the banking institution to
collaterize the subsequent tranche.
NOTES:
1. In connection with the exercise of these powers, the prohibitions in Section 128 of this Act shall
not apply insofar as it refers to acceptance as collateral of shares and their acquisition as a result
of foreclosure proceedings, including the exercise of voting rights pertaining to said shares:
SUB-NOTE:
Section 128. Prohibitions. - The Bangko Sentral shall not acquire shares of any kind or
accept them as collateral, and shall not participate in the ownership or management of any
enterprise, either directly or indirectly.
The Bangko Sentral shall not engage in development banking or financing: Provided,
however, That outstanding loans obtained or extended for development financing shall not be
affected by the prohibition of this section.
Q. Period to dispose any shares accepted as collateral acquired by the Bangko Sentral as a result
of foreclosure proceedings.
A. BSP shall dispose of said shares by public bidding within one (1) year from the date of
consolidation of title by the Bangko Sentral.
NOTE: Whenever a financial institution incurs an overdraft in its account with the Bangko Sentral, the
same shall be eliminated within the period prescribed in Section 102 of this Act.
2. Conservatorship
LEGAL BASIS: Sec. 29, New Central Bank Act
Q. Grounds for an Appointment of Conservator.
A. The Monetary Board may appoint a conservator:
1. Whenever, on the basis of a report submitted by the appropriate supervising or examining

department,
2. the MONETARY BOARD FINDS THAT A BANK OR A QUASI-BANK IS IN:
a. a state of continuing inability to maintain liquidity; or
b. unwillingness to maintain a condition of liquidity deemed adequate to protect the
interest of depositors and creditors.
Q. Powers of conservator.
A. The following:
1. such powers as the Monetary Board shall deem necessary to take charge of the
a. assets,
b. liabilities, and
c. the management thereof,
2. reorganize the management;
3. collect all monies and debts due said institution;
4. exercise all powers necessary to restore its viability;
5. Report and be responsible to the Monetary Board; and
6. Power to overrule or revoke the actions of the previous management and board of directors
of the bank or quasi-bank.
Q. Qualifications of a conservator.
A. The conservator should be:
1. competent and
2. knowledgeable in bank operations and management.
Q. Period of conservatorship.
A. The conservatorship shall not exceed one (1) year.
Q. Renumeration of a conservator.
A. The conservator shall receive remuneration to be fixed by the Monetary Board in an:
1. amount not to exceed two-thirds (2/3) of the salary of the president of the institution in one (1)
year,
2. payable in twelve (12) equal monthly payments:
Q. If at any time within the one-year period, the conservatorship is terminated, what is the
renumeration of the conservator?
A. The following:
1. ON THE GROUND THAT THE INSTITUTION CAN OPERATE ON ITS OWN – conservator shall
receive the balance of the remuneration which he would have received up to the end of the
year; but
2. TERMINATED ON OTHER GROUNDS – conservator shall not be entitled to such remaining
balance.
Q. Appointment by the Monetary Board of a Conservator connected with the BSP.
A. Conservator shall not be entitled to receive any remuneration or emolument from the Bangko
Sentral during the conservatorship.
Q. Expenses attendant to the conservatorship.

A. It shall be borne by the bank or quasi-bank concerned.
Q. Grounds to terminate conservatorship.
A. The Monetary Board shall terminate the conservatorship when:
1. It is satisfied that the institution can continue to operate on its own and the conservatorship
is no longer necessary.
2. Monetary Board determines that the continuance in business of the institution would involve
probable loss to its depositors or creditors:
a. on the basis of the report of the conservator or

b. of its own findings,
NOTE: If on the 2nd ground, the provisions of Section 30 (Proceedings in Receivership and
Liquidation) shall apply.
3. Receivership
LEGAL BASES: Sec. 30, NCBA as amended by RA 11211 in relation to Sec 56, RA 8791
Sec. 30. Proceedings in Receivership and Liquidation. –
Q. Grounds in receivership and liquidation.
A. Whenever, upon report of the head of the supervising or examining department, the Monetary Board
finds that a BANK or QUASI-BANK or over NON-STOCK SAVINGS AND LOAN ASSOCIATIONS:
1. Has notified the Bangko Sentral;

2. publicly announced a unilateral closure;
3. has been dormant for at least sixty (60) days;
4. in any manner has suspended the payment of its deposit/deposit substitute liabilities;
5. Is unable to pay its liabilities as they become due in the ordinary course of business:
a. this shall not include inability to pay caused by extraordinary demands induced by financial
panic in the banking community;
6. has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities;
7. cannot continue in business without involving probable losses to its depositors or
creditors; or
8. has willfully violated a cease and desist order under Section 37 of NCBA that has become final,
involving acts or transactions which amount to fraud or a dissipation of the assets of the
institution.
NOTE: For quasi-banks and non-stock savings and loan associations, any person of recognized
competence in banking, credit or finance may be designated by the Bangko Sentral as a receiver.
Q. Proceedings in receivership and liquidation.
A. IN ANY OF THE GROUNDS MENTIONED above, the Monetary Board:

1. May summarily and without need for prior hearing forbid the institution from doing business
in the Philippines;
2. Designate the Philippine Deposit Insurance Corporation (PDIC) as receiver in the case of
banks;
3. Direct the PDIC to proceed with the liquidation of the closed bank pursuant to this section and
the relevant provisions of Republic Act No. 3591, as amended; and
4. Shall notify in writing, through the receiver, the board of directors of the closed bank of its
decision.
NOTE: The authority of the Monetary Board to summarily and without need for prior hearing forbid
the bank or quasi-bank from doing business in the Philippines as provided above may also be
exercised over non-stock savings and loan associations based on the same applicable grounds.
Q. Nature of the action of the Monetary Board in the appointment of conservator, and proceedings
in receivership and liquidation.
A. As a GENERAL RULE, the actions of the Monetary Board shall be final and executory and may not be
restrained or set aside by the court.
As an EXCEPTION, it may be restrained or set aside by the court upon petition for certiorari
on the ground that the action taken was in excess of jurisdiction or with such grave abuse of
discretion as to amount to lack or excess of jurisdiction.
Q. Is the action of the Monetary Board subject to appeal?
A. NO.
Q. Requirements for petition for certiorari assailing the action taken by the Monetary Board.
A. The following:
1. may only be filed by the stockholders of record representing the majority of the capital stock;
2. must be filed within ten (10) days from receipt by the board of directors of the institution of the
order directing receivership, liquidation or conservatorship.
NOTE: The 10 days is a departure from the 60 days filing of certiorari under Rule 65 of the Rules of Court.
Q. Exclusive power of the Monetary board.
A. The designation of a conservator or the appointment of a receiver shall be vested exclusively with the
Monetary Board.
NOTE:
1. Designation of a conservator is not a precondition to the designation of a receiver.

2. Conservatorship is not a precedent to a receivership. Not a sine quanon.
Sec. 56, General Banking Law (R.A. No. 8791)
LAST PARAGRAPH OF SEC. 56:
Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe
or unsound manner, the Monetary Board may, without prejudice to the administrative sanctions
provided in Section 37 of the New Central Bank Act, take action under Section 30 of the same Act
and/or immediately exclude the erring bank from clearing, the provisions of law to the contrary
notwithstanding. (n)
Section 56. Conducting Business in an Unsafe or Unsound Manner - In determining whether a

particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting
banks, quasi-banks or trust entities, may be deemed as conducting business in an unsafe or unsound
manner for purposes of this Section, the Monetary Board shall consider any of the following
circumstances:
1. The act or omission has resulted or may result in material loss or damage, or abnormal risk
or danger to the safety, stability, liquidity or solvency of the institution;
2. The act or omission has resulted or may result in material loss or damage or abnormal risk to
the institution's depositors, creditors, investors, stockholders or to the Bangko Sentral or to
the public in general;
3. The act or omission has caused any undue injury, or has given any unwarranted benefits,
advantage or preference to the bank or any party in the discharge by the director or officer of
his duties and responsibilities through manifest partiality, evident bad faith or gross
inexcusable negligence; or
4. The act or omission involves entering into any contract or transaction manifestly and grossly
disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or officer
profited or will profit thereby.
a. Effects
Fidelity Savings and Mortgage Bank v. Cenzon

(1990)
Fidelity Savings and Mortgage Bank v. Cenzon

GR. No. L-46208;
DOCTRINE:
1. It is settled jurisprudence that a banking institution which has been declared insolvent and
subsequently ordered closed by the Central Bank of the Philippines cannot be held liable to pay
interest on bank deposits which accrued during the period when the bank is actually closed
and non-operational.
2. In The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, we held that:
a. It is a matter of common knowledge, which We take judicial notice of, that what enables a bank
to pay stipulated interest on money deposited with it is that thru the other aspects of its
operation it is able to generate funds to cover the payment of such interest.
b. Unless a bank can lend money, engage in international transactions, acquire foreclosed
mortgaged properties or their proceeds and generally engage in other banking and financing
activities from which it can derive income, it is inconceivable how it can carry on as a
depository obligated to pay stipulated interest.
c. Conventional wisdom dictates this inexorable fair and just conclusion.
d. And it can be said that all who deposit money in banks are aware of such a simple
economic proposition.
e. Consequently, it should be deemed read into every contract of deposit with a bank that the
obligation to pay interest on the deposit ceases the moment the operation of the bank is
completely suspended by the duly constituted authority, the Central Bank.
FACTS:
1. Respondent spouses Santiago maintained a savings and time deposit with petitioner bank.
2. The Monetary Board found petitioner bank to be insolvent and ordered for its assets to be taken
charged of by the Acting Superintendent.
3. The PDIC paid spouses for their deposits with petitioner bank but there was still a remaining
balance.
4. The Monetary Board then directed the liquidation of the affairs of petitioner bank and a
subsequent petition for assistance and supervision in liquidation was filed in the court.
5. The liquidation proceedings still pending, respondent spouses sent demand letters to petitioner
bank for the payment of their deposits.
6. The court found in favor of respondent spouses.
ISSUE: Whether petitioner bank may be adjudged to pay interest on unpaid deposits even after its
closure by the Central Bank by reason of insolvency.
RULING:
1. No. It is settled jurisprudence that a banking institution which has been declared insolvent
and subsequently ordered closed by the Central Bank of the Philippines cannot be held
liable to pay interest on bank deposits which accrued during the period when the bank is
actually closed and non-operational.
2. In The Overseas Bank of Manila v. Court of Appeals and Tony D. Tapia, we held that:
a. It is a matter of common knowledge, which We take judicial notice of, that what enables a bank
to pay stipulated interest on money deposited with it is that thru the other aspects of its
operation it is able to generate funds to cover the payment of such interest.
b. Unless a bank can lend money, engage in international transactions, acquire foreclosed
mortgaged properties or their proceeds and generally engage in other banking and financing
activities from which it can derive income, it is inconceivable how it can carry on as a
depository obligated to pay stipulated interest.
c. Conventional wisdom dictates this inexorable fair and just conclusion.
d. And it can be said that all who deposit money in banks are aware of such a simple
economic proposition.
e. Consequently, it should be deemed read into every contract of deposit with a bank that
the obligation to pay interest on the deposit ceases the moment the operation of the
bank is completely suspended by the duly constituted authority, the Central Bank.
3. From the aforecited authorities, it is manifest that petitioner cannot be held liable for
interest on bank deposits which accrued from the time it was prohibited by the Central
Bank to continue with its banking operations.
4. The order, therefore, of the Central Bank as receiver/liquidator of petitioner bank allowing
the claims of depositors and creditors to earn interest up to the date of its closure is in line
with the doctrine laid down in the jurisprudence above cited.
Larrobis v. PVD (2004)
Larrobis v. Philippine Veterans Bank

GR. No. 135706
DOCTRINE:
1. Foreclosure should not be considered included in the acts prohibited whenever banks are
"prohibited from doing business" during receivership and liquidation proceedings.
2. The purpose of receivership proceedings, i.e., to receive collectibles and preserve the assets of the
bank in substitution of its former management, and prevent the dissipation of its assets to the
detriment of the creditors of the bank.
3. WHEN A BANK IS DECLARED INSOLVENT AND PLACED UNDER RECEIVERSHIP , the Central
Bank, through the Monetary Board, determines whether to proceed with the liquidation or
reorganization of the financially distressed bank.
4. A RECEIVER, who concurrently represents the bank, then takes control and possession of its
assets for the benefit of the bank’s creditors.
5. A LIQUIDATOR meanwhile assumes the role of the receiver upon the determination by the
Monetary Board that the bank can no longer resume business.
6. His task is to dispose of all the assets of the bank and effect partial payments of the bank’s
obligations in accordance with legal priority.
7. In both receivership and liquidation proceedings, the bank retains its juridical personality
notwithstanding the closure of its business and may even be sued as its corporate existence is
assumed by the receiver or liquidator.
8. THE RECEIVER OR LIQUIDATOR MEANWHILE ACTS NOT ONLY FOR THE BENEFIT OF THE
BANK, BUT FOR ITS CREDITORS AS WELL.
9. In this case, it is not disputed that Philippine Veterans Bank was placed under receivership by the
Monetary Board of the Central Bank by virtue of Resolution No. 364 on April 25, 1985, pursuant to
Section 29 of the Central Bank Act on insolvency of banks.
10.There is also no truth to respondent’s claim that it could not continue doing business from the
period of April 1985 to August 1992, the time it was under receivership.
11.As correctly pointed out by petitioner, respondent was even able to send petitioners a demand
letter, through Francisco Go, on August 23, 1985 for "accounts receivable in the total amount of
₱6,345.00 as of August 15, 1984" for the insurance premiums advanced by respondent bank over
the mortgaged property of petitioners.
12.How it could send a demand letter on unpaid insurance premiums and not foreclose the mortgage
during the time it was "prohibited from doing business" was not adequately explained by
respondent.
13.Settled is the principle that a bank is bound by the acts, or failure to act of its receiver.
14.However, the bank may go after the receiver who is liable to it for any culpable or negligent failure
to collect the assets of such bank and to safeguard its assets.

15. Therefore, the period within which respondent bank was placed under receivership and
liquidation proceedings does not constitute a fortuitous event which interrupted the
prescriptive period in bringing actions.
FACTS:
1. Petitioner spouses contracted a monetary loan with herein respondent bank secured by a REM
executed on their lot.
2. Respondent bank then went bankrupt and was placed under receivership/liquidation by the
Central Bank.
3. Sometime after, respondent bank sent a demand letter for the amount of the insurance
premiums advanced by it over the mortgaged property of petitioners.
4. MORE THAN 14 YEARS FROM THE TIME THE LOAN BECAME DUE AND DEMANDABLE,
RESPONDENT BANK MOVED FOR THE EXTRAJUDICIAL FORECLOSURE OF THE MORTGAGED
PROPERTY AND WAS SOLD TO IT AS BEING THE LONE BIDDER.
5. Petitioners moved to declare the foreclosure null and void contending that the respondent
bank being placed under receivership did not interrupt the running of the prescriptive
period.
6. RTC ruled in favor of respondents.
ISSUES:
1. Whether foreclosure of mortgage is included in the acts prohibited during

receivership/liquidation proceedings.
2. Whether the period within which the respondent bank was placed under receivership and
liquidation proceedings interrupted the running of the prescriptive period in bringing actions.
RULING:
1. NO. While it is true that foreclosure falls within the broad definition of “doing business,” it
should not be considered included, however, in the acts prohibited whenever banks are
“prohibited from doing business” during receivership and liquidation proceedings.
a. This is consistent with the purpose of receivership proceedings, i.e., to receive
collectibles and preserve the assets of the bank in substitution of its former
management, and prevent the dissipation of its assets to the detriment of the creditors
of the bank.
b. There is also no truth to respondent’s claim that it could not continue doing business from
the time it was under receivership.
c. As correctly pointed out by petitioner, respondent was even able to send petitioners a
demand letter, through Francisco Go, for the insurance premiums advanced by respondent
bank over the mortgaged property of petitioners.
d. How it could send a demand letter on unpaid insurance premiums and not foreclose the
mortgage during the time it was “prohibited from doing business” was not adequately
explained by respondent.
2. NO. A close scrutiny of the Provident case shows that the Court arrived at said conclusion, which is
an exception to the general rule, due to the peculiar circumstances of Provident Savings Bank at
the time.
a. The Superintendent of Banks, which was instructed to take charge of the assets of the bank
in the name of the Monetary Board, had no power to act as a receiver of the bank and carry
out the obligations specified in Sec. 29 of the Central Bank Act.
b. In this case, it is not disputed that Philippine Veterans Bank was placed under receivership
by the Monetary Board of the Central Bank pursuant to Section 29 of the Central Bank Act
on insolvency of banks.
c. Unlike Provident Savings Bank, there was no legal prohibition imposed upon herein
respondent to deter its receiver and liquidator from performing their obligations under the
law.
d. In this case, it is not disputed that Philippine Veterans Bank was placed under
receivership by the Monetary Board of the Central Bank by virtue of Resolution No. 364
on April 25, 1985, pursuant to Section 29 of the Central Bank Act on insolvency of
banks.
e. There is also no truth to respondent’s claim that it could not continue doing business
from the period of April 1985 to August 1992, the time it was under receivership.
f. As correctly pointed out by petitioner, respondent was even able to send petitioners a
demand letter, through Francisco Go, on August 23, 1985 for "accounts receivable in
the total amount of ₱6,345.00 as of August 15, 1984" for the insurance premiums
advanced by respondent bank over the mortgaged property of petitioners.
g. How it could send a demand letter on unpaid insurance premiums and not foreclose
the mortgage during the time it was "prohibited from doing business" was not
adequately explained by respondent.
h. Thus, the ruling laid down in the Provident case cannot apply in the case at bar.
i. THEREFORE, THE PERIOD WITHIN WHICH RESPONDENT BANK WAS PLACED UNDER
RECEIVERSHIP AND LIQUIDATION PROCEEDINGS DOES NOT CONSTITUTE A
FORTUITOUS EVENT WHICH INTERRUPTED THE PRESCRIPTIVE PERIOD IN BRINGING
ACTIONS.
4. Liquidation
Sec. 30, NCBA
D. Effect of Actions of the BSP in

Conservatorship and Receivership
- it is immediately final and executory (the principle of close now, hear later), exercise of the
state.
NOTE: SEC. 30 OF THE NCBA WAS ALREADY AMENDED BY R.A. No. 11211.
Sec. 30, NCBA - Proceedings in Receivership and Liquidation. _ Whenever, upon report of the head of
the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That
this shall not include inability to pay caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts
or transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the
banking institution.
For a quasi-bank, any person of recognized competence in banking or finance may be designated as
receiver.
The receiver shall immediately gather and take charge of all the assets and liabilities of the
institution, administer the same for the benefit of its creditors, and exercise the general powers of
a receiver under the Revised Rules of Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the transfer or disposition of any asset of
the institution: Provided, That the receiver may deposit or place the funds of the institution in
nonspeculative investments. The receiver shall determine as soon as possible, but not later than ninety
(90) days from take-over, whether the institution may be rehabilitated or otherwise placed in such a
condition so that it may be permitted to resume business with safety to its depositors and creditors and
the general public: Provided, That any determination for the resumption of business of the institution
shall be subject to prior approval of the Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or permitted to resume
business in accordance with the next preceding paragraph, the Monetary Board shall notify in writing
the board of directors of its findings and direct the receiver to proceed with the liquidation of the
institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any
other action, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan
adopted by the Philippine Deposit Insurance Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted by the Monetary Board. Upon acquiring
jurisdiction, the court shall, upon motion by the receiver after due notice, adjudicate disputed claims
against the institution, assist the enforcement of individual liabilities of the stockholders, directors and
officers, and decide on other issues as may be material to implement the liquidation plan adopted. The
receiver shall pay the cost of the proceedings from the assets of the institution.
(2) convert the assets of the institution to money, dispose of the same to creditors and other
parties, for the purpose of paying the debts of such institution in accordance with the rules on
concurrence and preference of credit under the Civil Code of the Philippines and he may, in the name of
the institution, and with the assistance of counsel as he may retain, institute such actions as may be
necessary to collect and recover accounts and assets of, or defend any action against, the institution. The
assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of
the receiver and shall, from the moment the institution was placed under such receivership or
liquidation, be exempt from any order of garnishment, levy, attachment, or execution.
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final
and executory, and may not be restrained or set aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders
of record representing the majority of the capital stock within ten (10) days from receipt by the board of
directors of the institution of the order directing receivership, liquidation or conservatorship.
The designation of a conservator under Section 29 of this Act or the appointment of a receiver under this
section shall be vested exclusively with the Monetary Board. Furthermore, the designation of a
conservator is not a precondition to the designation of a receiver.
BSP Monetary Board v. Antonio-Valenzuela

(2009)
BSP Monetary Board v. Antonio-Valenzuela

GR. No. 184778
DOCTRINE:
1. The issuance by the RTC of writs of preliminary injunction is an unwarranted interference

with the powers of the MB.
2. Secs. 29 and 30 of RA 7653 refer to the appointment of a conservator or a receiver for a bank,
which is a power of the MB for which they need the REPORT OF EXAMINATION (ROEs) done by
the supervising or examining department.
3. The writs of preliminary injunction issued by the trial court hinder the MB from fulfilling its
function under the law.
4. The actions of the MB under Secs. 29 and 30 of RA 7653 "may not be restrained or set aside by
the court except on petition for certiorari on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction."
5. The writs of preliminary injunction order are precisely what cannot be done under the law by
preventing the MB from taking action under either Sec. 29 or Sec. 30 of RA 7653.
FACTS:
1. The Supervision and Examination Department (SED) of the Bangko Sentral ng Pilipinas (BSP)
conducted examinations of the books of the respondent banks and it found that these banks
had deficiencies in their capital.
2. These banks were then required to undertake the remedial measures but they failed to carry
out such measures.
3. The banks requested extension of time to comply with the remedial measures and noted that none
of them had received the Report of Examination (ROE) which finalizes the audit findings.
4. Thereafter, respondent banks then filed before the RTC an action to nullify the ROE and
issuance of restraining order contending that their right to due process was violated because
they were not furnished with ROE.
5. They further contend that the sanction of closure that the MB might impose upon the receipt of
ROE will result in irreparable damage to them as well as to the public.
6. The RTC ruled in favor of the respondent banks and this was affirmed by the CA.
7. BSP then files this Petition for Review on Certiorari under Rule 45 with Prayer for Issuance
of a Temporary Restraining Order (TRO)/Writ of Preliminary Injunction, questioning the
Decision of the CA which upheld RTC’s order in issuing writs of preliminary injunction.
8. SC issued a restraining order on the RTC and CA decision.
9. By reason of such restraining order, the SED was able to submit their Report on Examination to
the Monetary Board.
10.The MB then prohibited the respondent banks from transacting business and placed them under
receivership with the Philippine Deposit Insurance Corporation (PDIC) as the appointed receiver.
11.Now the main petition is resolved by SC
ISSUES:
1. Whether the writ of preliminary injunction may be issued in this case in favor of the respondent
banks. (NO.)
2. Whether the respondent banks were entitled to the copy of the Report on Examination made by
the BSP before its submission to the Monetary Board. (NO.)
3. Whether due process has been violated by the failure of SED to send a copy of the ROE to the
respondent banks. (NO.)
RULING:
1. NO.
a. The requisites for preliminary injunctive relief are:
i. the invasion of right sought to be protected is material and substantial;
ii. the right of the complainant is clear and unmistakable; and
iii. there is an urgent and paramount necessity for the writ to prevent serious damage.
b. But these requirements are absent in the present case.
c. AS TO THE THIRD REQUIREMENT, THE LAW PROVIDES THAT THE SANCTION OF CLOSURE
COULD BE IMPOSED UPON A BANK BY THE BSP EVEN WITHOUT NOTICE AND HEARING.
d. THIS "CLOSE NOW, HEAR LATER" SCHEME IS GROUNDED ON PRACTICAL AND LEGAL
CONSIDERATIONS TO PREVENT UNWARRANTED DISSIPATION OF THE BANK’S ASSETS AND
AS A VALID EXERCISE OF POLICE POWER TO PROTECT THE DEPOSITORS, CREDITORS,
STOCKHOLDERS, AND THE GENERAL PUBLIC.
e. The writ of preliminary injunction cannot, thus, prevent the MB from taking action.
f. Furthermore, the issuance by the RTC of writs of preliminary injunction is an unwarranted
interference with the powers of the MB.
g. The actions of the MB under Secs. 29 and 30 of RA 7653 "may not be restrained or set aside by
the court except on petition for certiorari on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction."
2. NO.
a. There was no provision of law, no section in the procedures of the BSP that shows that the
BSP is required to give copies of the Report on Examination to banks.
b. Sec. 28 of RA 7653, or the New Central Bank Act, which governs examinations of banking
institutions, provides that the Report on Examination shall be submitted to the MB; the
bank examined is not mentioned as a recipient of the Report on Examination.
c. Therefore, the respondent banks cannot claim a violation of their right to due process if they
are not provided with copies of the such report.
3. NO.
a. The respondent banks were already made aware of the contents of the ROE since the ROEs are
based on the lists of findings/exceptions containing the deficiencies found by the SED
examiners when they examined the books of the respondent bank.
b. These lists of findings/exceptions were furnished to the officers or representatives of the
respondent banks.
c. Since the banks are already aware of the contents of the ROEs, they cannot say that fairness
and transparency are not present.
d. The ROEs would then be superfluities to the respondent banks if they were given copies.
e. BSP Monetary Board vs Antonio-Valenzuela, GR No. 184778 “It is well-settled that the closure
of a bank may be considered as an exercise of police power.
f. The action of the MB on this matter is final and executory.
g. Such exercise may nonetheless be subject to judicial inquiry and can be set aside if found to be
in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction.
h. Courts are hereby reminded to take greater care in issuing injunctive relief to litigants, that it
would not violate any law.
i. The grant of a preliminary injunction in a case rests on the sound discretion of the court with
the caveat that it should be made with great caution.
j. Thus, the issuance of the writ of preliminary injunction must have basis in and be in
accordance with law.
k. All told, while the grant or denial of an injunction generally rests on the sound discretion of the
lower court, this Court may and should intervene in a clear case of abuse.”
XI. THE BANGKO SENTRAL NG PILIPINAS
*BSP and not Central Bank is the correct term because with the passage of RA 7653, NCBA, the
independent central monetary authority in this jurisdiction is referred to as the BSP.
*The BSP has Constitutional basis found in Sec 20, Art XII, 1987 Constitution - The Congress shall establish
an independent central monetary authority, the members of whose governing board must be natural-
born Filipino citizens, of known probity, integrity, and patriotism, the majority of whom shall
come from the private sector.
They shall also be subject to such other qualifications and disabilities as may be prescribed by law.
The authority shall provide policy direction in the areas of money, banking, and credit.
It shall have supervision over the operations of banks and exercise such regulatory powers as may be
provided by law over the operations of finance companies and other institutions performing similar
functions.
Until the Congress otherwise provides, the Central Bank of the Philippines operating under existing laws,
shall function as the central monetary authority.
*From the Constitutional basis, an enabling law was passed - RA 7653 (NCBA)
A. Creation
Sec. 2, NCBA - Creation of the Bangko Sentral.

_ There is hereby established an independent central monetary authority, which shall be a body
corporate known as the Bangko Sentral ng
Pilipinas, hereafter referred to as the Bangko Sentral.
The capital of the Bangko Sentral shall be Fifty billion pesos (P50,000,000,000), to be fully subscribed
by the Government of the Republic, hereafter referred to as the Government, Ten billion pesos
(P10,000,000,000) of which shall be fully paid for by the Government upon the effectivity of this
Act and the balance to be paid for within a period of two (2) years from the effectivity of this Act in
such manner and form as the Government, through the Secretary of Finance and the Secreta
*note: the BSP is the independent central monetary authority in this jurisdiction
>it is fully subscribed or owned by the Republic of the Philippines
*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 - Responsibility and Primary Objective. _ The Bangko Sentral shall provide policy
directions in the areas of money, banking, and credit. It shall have supervision over the
operations of banks and exercise such regulatory powers as provided in NCBA and other pertinent
laws over the operations of finance companies and non-bank financial institutions performing quasi-
banking functions, hereafter referred to as quasibanks, and institutions performing similar functions.
The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced
and sustainable growth of the economy. It shall also promote and maintain monetary stability and the
convertibility of the peso.
*what are the responsibilities of the BSP?

1.provide policy directions in the areas of money, banking, and credit
2.exercise supervision over the operations of banks and quasi-banks
3. exercises regulatory powers over banks and quasi-banks
C. Composition of the Monetary Board
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 a Cabinet/Department
*the President appoints the members of the MB
D. Vacancies
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.
E. Qualifications
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.
*the only difference is as regards to age
*all of them shall be natural-born citizens of the Philippines
*they should be of good moral character, of unquestionable integrity, of known probity and patriotism,
and with recognized competence in social and economic
disciplines.
F. Disqualifications
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.
*first disqualification is found in RA 7613 - Ethical Conduct of Public Officers:
*what will happen if the appointed member of the MB is a stockholder of a bank or a quasi-bank under
the supervision by the BSP?
>he shall resign from, and divest himself of any and all interests in 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
Term is distinguished from tenure in that an officer's "tenure' represents the term during which the
incumbent actually holds office.
The tenure may be shorter – actual holding of office. (or, in case of holdover, longer) than the term for
reasons within or beyond the power of the incumbent.
G. Removal
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 - 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 2 (SEB)

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 voting of the MB
*how many votes is needed for a special examination?

>there should be at least 5 votes of the member of the MB
*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
I. Supervisory Powers
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.
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."
J. Injunction
Sec 25, NCBA as amended by RA 11211 -
K. Money Function of the BSP
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 - 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 not 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 (that is backed
up by the government of the republic of the Philippines)
TRUTH IN LENDING
I. DUTY TO DISCLOSE
Sec. 4, RA 3765 “Truth in Lending Act”
Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of
the transaction, a clear statement in writing setting forth, to the extent applicable and in
accordance with rules and regulations prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in connection with
the transaction but which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of the obligation.
*the creditor shall furnish the borrower or the buyer on installments before the consummation of the
transaction the disclosure statements
*what are the contents of a disclosure statements?

>(1) to (7)
*finance charge: Sec 3, RA 3765 - "Finance charge" includes interest, fees, service charges, discounts, and
such other charges incident to the extension of credit as the Board may be regulation prescribe.
>is also referred to as service charge
*what will happen if the items found in Sec 4 of RA 3765 was not provided to the borrower?
>effect: you cannot collect the same
*failure to communicate the items in Sec 4 of RA 3765 does not render the contract void. The contract is
still valid, the only effect is that you cannot collect or enforce the charges which you intend to collect from
the borrower
II. EFFECT OF NON-COMPLIANCE
Silors v. PNB (2014)
DOCTRINE:
1. Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be
furnished prior to the consummation of the transaction.
2. The rationale of this provision is to protect users of credit from a lack of awareness of the true cost
thereof, proceeding from the experience that banks are able to conceal such true cost by hidden
charges, uncertainty of interest rates, deduction of interests from the loaned amount, and the like.
3. The law thereby seeks to protect debtors by permitting them to fully appreciate the true cost of
their loan, to enable them to give full consent to the contract, and to properly evaluate their
options in arriving at business decisions.
4. Upholding UCPB’s claim of substantial compliance would defeat these purposes of the Truth in
Lending Act.
5. The belated discovery of the true cost of credit will too often not be able to reverse the ill effects of
an already consummated business decision.
New Sampaguita Builders Construction, Inc. v.

PNB (2004)
DOCTRINE:
1. No penalty charges or increases thereof appear either in the Disclosure Statements or in any of the
clauses in the second and the third Credit Agreements earlier discussed.
2. While a standard penalty charge of 6 percent per annum has been imposed on the amounts stated
in all three Promissory Notes still remaining unpaid or unrenewed when they fell due, there is no
stipulation therein that would justify any increase in that charges.
3. The effect, therefore, when the borrower is not clearly informed of the Disclosure Statements
-- prior to the consummation of the availment or drawdown -- is that the lender will have no
right to collect upon such charge or increases thereof, even if stipulated in the Notes.
4. The time is now ripe to give teeth to the often ignored forty-one-year old "Truth in Lending Act"
and thus transform it from a snivelling paper tiger to a growling financial watchdog of hapless
borrowers.
DBP v. Arcilla (2005)
DOCTRINE:
1. It must be stressed that the Truth in Lending Act (R.A. No. 3765), was enacted primarily "to
protect its citizens from a lack of awareness of the true cost of credit to the user by using a full
disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of
the national economy" (Emata v. Intermediate Appellate Court, 174, SCRA 464 [1989]; Sec. 2, R.A.
No. 3765).
2. Contrary to appellee's claim that he was not sufficiently informed of the details of the loan, the
records disclose that the required informations were readily available in the three (3) promissory
notes he executed.
3. Precisely, the said promissory notes were executed to apprise appellee of the remaining balance
on his loan when the same was converted into a regular housing loan.
4. And on its face, the promissory notes signed by no less than the appellee readily shows all the data
required by the Truth in Lending Act (R.A. No. 3765).
5. Apropos, We agree with the appellant that appellee, a lawyer, would not be so gullible or negligent
as to sign documents without knowing fully well the legal implications and consequences of his
actions, and that appellee was a former employee of appellant.
6. As such employee, he is as well presumed knowledgeable with matters relating to appellant's
business and fully cognizant of the terms of the loan he applied for, including the charges that had
to be paid.
7. It might have been different if the borrower was, say, an ordinary employee eager to buy his first
house and is easily lured into accepting onerous terms so long as the same is payable on
installments.
8. In such cases, the Court would be disposed to be stricter in the application of the Truth in Lending
Act, insisting that the borrower be fully informed of what he is entering into.
9. But in the case at bar, considering appellee's education and training, We must hold, in the light of
the evidence at hand, that he was duly informed of the necessary charges and fully understood
their implications and effects.
10.Consequently, the trial court's annulment of the rescission anchored on this ground was
unjustified.
Consolidated Bank v. CA (1995)
DOCTRINE:
1. TRUTH IN LENDING ACT; REQUIRES THAT THE TRUE AND EFFECTIVE COST OF BORROWING BE
AN INTEGRAL PART OF EVERY LOAN CONTRACT. —
2. As to handling charges, banks are authorized under Central Bank Circular No. 504 to collect such
charges on loans over P500,000.00 with a maturity of 730 days or less at the rate of 2% per
annum, on the principal or the outstanding balance thereof, whichever is lower; 1.75% on loans
over P500,000.00 but not over P1,000,000.00; 1.50% on loans over P1,000,000.00 but not over
2,000,000.00, etc. Section 7 of the same Circular, however, provides that all banks and non-bank
financial intermediaries authorized to engage in quasi-banking functions are required to strictly
adhere to the provisions of Republic Act No. 3765 otherwise known as the "Truth in Lending Act"
and shall make the true and effective cost of borrowing an integral part of every loan contract. The
promissory notes signed by private respondents do not contain any stipulation on the
payment of handling charges. Petitioner bank cannot, therefore, charge private respondents
such handling charges.
UCPB v. Beluso (2007)
DOCTRINE:
1. In the case at bar, the violation of the Truth in Lending Act allegedly occurred not when the
parties executed the Credit Agreement, where no interest rate was mentioned, but when the
parties executed the promissory notes, where the allegedly offending interest rate was
stipulated.
2. Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be
furnished prior to the consummation of the transaction.
3. The rationale of this provision is to protect users of credit from a lack of awareness of the
true cost thereof, proceeding from the experience that banks are able to conceal such true
cost by hidden charges, uncertainty of interest rates, deduction of interests from the loaned
amount, and the like.
4. The law thereby seeks to protect debtors by permitting them to fully appreciate the true cost
of their loan, to enable them to give full consent to the contract, and to properly evaluate
their options in arriving at business decisions.
5. Upholding UCPB’s claim of substantial compliance would defeat these purposes of the Truth in
Lending Act.
6. The belated discovery of the true cost of credit will too often not be able to reverse the ill effects of
an already consummated business decision.
ANTI-MONEY LAUNDERING
I. Governing Laws
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 State Policy – Sec. 2,

AMLA
II. DECLARATION OF POLICY

LEGAL BASIS: SEC. 2, AMLA as amended by R.A. No. 11521 (January 29, 2021)
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 wherever committed,
as well as in the implementation of targeted financial sanctions related to the financing of the
proliferation of weapons of mass destruction, terrorism, and financing of terrorism, pursuant to the
resolution of the United Nations Security Council.
Q. What is the two-fold purpose of the AMLA?
A. The following:
1. STATE POLICY:
a. to protect and preserve the integrity and confidentiality of bank accounts; and
b. to ensure that the Philippines shall not be used as a money laundering site for the
proceeds of any unlawful activity.
2. FOREIGN POLICY:
a. Extend cooperation in transnational investigations and prosecutions of persons involved in
money laundering activities whenever committed;
b. In the implementation of targeted financial sanctions related to the financing of the
proliferation of
i. weapons of mass destruction,
ii. terrorism, and
iii. financing of terrorism, pursuant to the resolution of the United Nations Security Council.
Q. Targeted financial sanctions.
A. The following:
1. both asset freezing; and
2. prohibition to prevent funds or other assets from being made available, directly or indirectly
3. for the benefit of any
a. individual,
i. natural or
ii. legal persons or
b. entity designated pursuant to relevant United Nations Security Council resolution and its
designation processes.
Q. Proliferation financing.
A. A person:
1. Makes available an asset; or

2. Provides a financial service; or
3. Conducts a financial transaction; and
4. the person knows that, or is reckless as to whether, the asset, financial service or financial
transaction is intended to, in whole or in part, facilitate proliferation of weapons of mass
destruction in relation to UN Security Council Resolution Number 1718 0f 2006 and 2231 of
2015."
Q. What are the Exceptions from bank secrecy under the AMLA?
A. The following:
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, R.A. No.

10365
III. MONEY LAUNDERING –

LEGAL BASIS: SEC. 4, R.A. No. 9160 as amended by 10365
Q. How is Money Laundering committed.
A. Money laundering is committed by:
1. ANY PERSON
a. Has knowledge of any monetary instrument or property
b. Which represents, involves, or relates to the proceeds of any unlawful activity.
2. any COVERED PERSON
a. has knowledge of a covered or suspicious transaction
b. Which is required under AMLA to be reported to the Anti-Money Laundering Council
(AMLC), fails to do so.
Q. Monetary instrument.
A. It 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 [Sec. 3 (c), R.A. No. 9160].

Q. Unlawful activity (in relation to the crime of Money Laundering).
NOTE: The 36 predicate crimes are separate from the crime of money laundering.
A. It refers to the following:
1. transacts said monetary instrument or property;
2. converts, transfers, disposes of, moves, acquires, possesses or uses said monetary instrument
or property;
3. conceals or disguises the true nature, source, location, disposition, movement or ownership
of or rights with respect to said monetary instrument or property;
4. attempts or conspires to commit money laundering offenses referred to in paragraphs (1), (2)
or (3);
5. aids, abets, assists in or counsels the commission of the money laundering offenses referred
to in paragraphs (1), (2) or (3) above; and
6. performs or fails to perform any act as a result of which he facilitates the offense of money
laundering referred to in paragraphs (1), (2) or (3) above (SEC. 4, R.A. No. 9160 as amended by
R.A. No. 10365).
Q. Covered person.
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. The following:
a. securities dealers, brokers, salesmen, investment houses and other similar persons
managing securities or rendering services as investment agent, advisor, or consultant,
b. mutual funds, close-end investment companies, common trust funds, and other similar
persons, and
c. 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
6. company service providers which, as a business, provide any of the following services to third
parties:
a. acting as a formation agent of juridical persons;
b. 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;
c. 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
d. acting as (or arranging for another person to act as) a nominee shareholder for another
person; and
NOTE: promoter: starts the corporation.
7. persons who provide any of the following services:

a. managing of client money, securities or other assets;
b. management of bank, savings or securities accounts;
c. organization of contributions for the creation, operation or management of
companies; and
d. creation, operation or management of juridical persons or arrangements, and buying
and selling business entities.
8. casinos, including internet and ship-based casinos, with respect to their casino cash
transactions related to the gaming operations
9. Real estate developers and brokers; and
10.Offshore gaming operation, as well as their service providers, supervised, accredited or
regulated by the Philippine Amusement and Gaming Corporation (PAGCOR) or any government
agency [Sec. 3 (a), R.A. No. 9160 as amended R.A. No. 10365, further amended by R.A. No.
10927, further amended by R.A. No. 11521].
Q. Real estate developer.
A. The following:
1. Any natural or juridical person
2. engaged in the business of developing real estate development project for the account of the
developer; and
3. offering them for sale or lease [R.A. No. 11521].
Q. Real estate broker.
A. The following:
1. A duly registered and licensed natural person who,
2. for a professional fee, omission or other valuable consideration,
3. acts as an agent of a party in a real estate transaction to
a. offer,
b. advertise,
c. solicit,
d. list,
e. promote,
f. mediate,
g. negotiate, or
h. effect the meeting of the minds on the sale, purchase, exchange, mortgage, lease or joint
venture, or other similar transaction on real estate or any interest therein [R.A. No.
11521].
Q. EXCLUSION FROM COVERED PERSONS.
A. The following:
1. LAWYERS AND ACCOUNTANTS ACTING AS INDEPENDENT LEGAL PROFESSIONALS
2. in relation to information concerning their clients or where disclosure of information would
compromise client confidences or the attorney-client relationship:
NOTE: These lawyers and accountants must be 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.
Q. Covered transaction.
A. The following:
1. A transaction in:
a. cash or
b. other equivalent monetary instrument
2. involving:
a. a total amount in excess of Five hundred thousand pesos (₱500,000.00)
b. within one (1) banking day;
3. for covered persons under [Section 3(a)(8) - casinos, including internet and ship-based
casinos], a single casino transaction:
b. involving an amount in excess of Five million pesos (₱5,000,000.00) or
c. its equivalent in any other currency
4. For covered persons under [Section 3(a)(9) – real estate developers and brokers] herein, a
single cash transaction
a. involving an amount in excess of Seven million five hundred thousand pesos
(P7,500,000.00) or
b. its equivalent in any other currency. [Sec. 3 (b) R.A. No. 9160 as amended by R.A. No.
10365, further amended by R.A. No. 10927, further amended by R.A. No. 11521].
Q. Suspicious transaction.
A. Transactions with covered persons, regardless of the amounts involved, where any of the following
circumstances exist:
1. No underlying legal or trade obligation, purpose or economic justification;
2. Client is not properly identified;
3. 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 circumstance relating to the transaction which is observed to deviate from the profile of the
client and/or the client’s past transactions with the covered person (this was previously
INSTITUTION);
6. Transaction is in any way related to an unlawful activity or offense under this Act that is about to
be, is being or has been committed; or
7. Any transaction that is similar or analogous to any of the foregoing. [Sec. 3 (b-1), R.A. No. 9160,
as amended by R.A. No. 9194, further amended by R.A. No. 11521].
Q. Covered institutions.
A. The following:
1. banks, non-banks, quasi-banks, trust entities, and all other institutions and their subsidiaries
and affiliates supervised or regulated by the Bangko Sentral ng Pilipinas (BSP);
2. insurance companies and all other institutions supervised or regulated by the Insurance
Commission; and
3. The following:
a. securities dealers, brokers, salesmen, investment houses and other similar entities
b. mutual funds, closed-end investment companies, common trust funds, pre-need
companies and other similar entities,
c. foreign exchange corporations, money changers, money payment, remittance, and
transfer companies and other similar entities, and
d. 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 Securities and Exchange Commission.
DISCUSSION:
- 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
A. PERSONS LIABLE
Q. Persons liable in the crime of money laundering.
A. The following:
1. Any person;
2. Any covered person.
B. ELEMENTS
Q. Elements of the crime of money laundering.
A. The following:
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.
4. Conspired with money launderer
IV. Unlawful Activities/ Predicate Crimes – Sec. 3

(i), AMLA, as amended (Sec. 2, RA 10365)
IV. UNLAWFUL ACTIVITIES/ PREDICATE CRIMES of Money Laundering (Criminal case)

LEGAL BASIS: SEC.3 (i), R.A. No. 9160 as amended by (SEC. 2, RA 10365), further amended by R.A.
No. 11521
DISCUSSIONS:
1. Classified as a DERIVATIVE CRIME; ITS PROSECUTION RELIES FROM ANOTHER CRIME
2. There is no prosecution under AMLA unless you have committed the predicate crimes
enumerated in the law.
3. Iota (an extremely small amount) of proof in the commission of these activities
4. 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 (Sec. 6, R.A. No. 9160 as amended by R.A. No.
10365).
Q. Unlawful activities/ predicate crimes under AMLA.
A. It refers to any act or omission or series or combination thereof involving or having direct relation
to the following:
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;
5. Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal
Code, as amended;
7. Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No.
532;
9. Swindling under Article 315 and Other Forms of Swindling under Article 316 of the Revised Penal
Code, as amended;
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
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
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 practice and other violations under Republic Act No. 8799, otherwise known as
"The Securities Regulation Code of 2000;
34. Violation of Section 9 (a)(3) of Republic Act No. 10697, otherwise known as the "Strategic
Trade Management Act", in relation to the proliferation of weapons of mass destruction and its
financing pursuant to United Nations Security Council Resolution Numbers 1718 of 2006 and
2231 of 2015";
35. Violation of Section 254 of Chapter II, Title X of the National Internal Revenue Code of 1997,
as amended, where the deficiency basic tax due in the final assessment is in excess of Twenty-five
million pesos (P25,000,000.00) per taxable year, for each tax type covered and there has been a
finding of probable cause by the competent authority:
a. there must be a finding of
i. fraud,
ii. willful misrepresenting or
iii. malicious intent on the part of the taxpayer
b. in no case shall the AMLC institute forfeiture proceedings to recover monetary
instruments, property or proceeds representing, involving, or relating to a tax crime, if
the same has already been recovered or collected by the Bureau of Internal Revenue
(BIR) in a separate proceeding and
36. Felonies and offenses of a similar nature that are punishable under the penal laws of other
countries [Sec. 3(i), R.A. No. 9160 as amended by R.A. No. 10365, further amended by R.A.
No. 11521].
V. Covered Person – Sec. 3 (a), AMLA, as

amended (Sec. 4, RA 10365)
V. COVERED PERSON – SEC. 3 (a), AMLA AS AMENDED (SEC. 1, RA 10365)
Q. Covered person.
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. The following:
a. securities dealers, brokers, salesmen, investment houses and other similar persons
b. mutual funds, close-end investment companies, common trust funds, and other similar
persons, and
c. other entities administering or otherwise dealing in currency, commodities or
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
5. jewelry dealers in precious stones, who, as a business, trade in precious stones, for transactions
6. company service providers which, as a business, provide any of the following services to third
parties:
a. acting as a formation agent of juridical persons;
b. 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;
c. 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
d. acting as (or arranging for another person to act as) a nominee shareholder for another
person; and
NOTE: promoter: starts the corporation.
7. persons who provide any of the following services:

a. managing of client money, securities or other assets;
b. management of bank, savings or securities accounts;
c. organization of contributions for the creation, operation or management of
companies; and
d. creation, operation or management of juridical persons or arrangements, and buying
and selling business entities.
8. casinos, including internet and ship-based casinos, with respect to their casino cash
transactions related to the gaming operations
9. Real estate developers and brokers; and
10.Offshore gaming operation, as well as their service providers, supervised, accredited or
regulated by the Philippine Amusement and Gaming Corporation (PAGCOR) or any government
agency [Sec. 3 (a), R.A. No. 9160 as amended R.A. No. 10365, further amended by R.A. No.
10927, further amended by R.A. No. 11521].
Q. Real estate developer.
A. The following:
1. Any natural or juridical person
2. engaged in the business of developing real estate development project for the account of the
developer; and
3. offering them for sale or lease [R.A. No. 11521].
Q. Real estate broker.

A. The following:
1. A duly registered and licensed natural person who,
2. for a professional fee, omission or other valuable consideration,
3. acts as an agent of a party in a real estate transaction to
a. offer,
b. advertise,
c. solicit,
d. list,
e. promote,
f. mediate,
g. negotiate, or
h. effect the meeting of the minds on the sale, purchase, exchange, mortgage, lease or joint
venture, or other similar transaction on real estate or any interest therein [R.A. No.
11521].
Q. EXCLUSION FROM COVERED PERSONS.
A. The following:
1. LAWYERS AND ACCOUNTANTS ACTING AS INDEPENDENT LEGAL PROFESSIONALS
2. in relation to information concerning their clients or where disclosure of information would
compromise client confidences or the attorney-client relationship:
NOTE: These lawyers and accountants must be 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.
VI. Anti-Money Laundering Council “AMLC” – Sec. 7, RA

9160 as amended by Sec. 5, RA 9194; Sec. 6, RA 10365
VI. ANTI-MONEY LAUNDERING COUNCIL “AMLC”

LEGAL BASIS: SEC. 7, R.A. No. 9160, as amended by R.A. No. 9194, further amended by R.A. No.
10365, further amended by R.A. No. 11521
Q. Composition of AMLC.
A. It shall be composed of:
1. Chairman (1):
a. Governor of the Bangko Sentral ng Pilipinas
2. Members (2):
a. Commissioner of the Insurance Commission; and
b. Chairman of the Securities and Exchange Commission
NOTE: The AMLC shall act unanimously in the discharge of its functions.
Q. Functions of AMLC.
A. The following:
1. to investigate
a. suspicious transactions and
b. covered transactions deemed suspicious after determination by AMLC,
c. money laundering activities and
d. other violations of this Act;
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;
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."
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;
13. in the conduct of its investigation, the
a. AMLC shall apply for the issuance of a search and seizure order with any competent
court;
14. in the conduct of its investigation,
a. the AMLC shall apply for the issuance of
i. subpoena ad testificandum and/or
ii. subpoena duces tecum with any competent court;
15. to implement
a. targeted financial sanctions in relation to
i. proliferation of weapons of mass destruction and its financing,
ii. including ex parte freeze, without delay, against all funds and other assets that are
owned and controlled, directly or indirectly,
iii. including funds and assets derived or generated therefrom, by
1. individuals or
2. entities designated and listed under United Nations Security Council
Resolution Numbers 1718 of 2006 and 2231 of 2015 and
3. their successor resolutions
4. as well as any binding resolution of the Security Council; and
16. to preserve, manage or dispose assets pursuant to a
a. freeze order,
b. asset preservation order, or
c. judgment of forfeiture:
i. pending their turnover to the national government, all expenses incurred in relation
to the duties herein mentioned shall be deducted from the amount to be turned over
to the national government."
VII. Prevention of Money Laundering
Q. How is money laundering prevented?

A. The following:
1. Customer identification;
2. Record keeping; and
3. Reporting of Covered transactions [Sec. 9 (a-c), R.A. No. 9160].
A. CUSTOMER IDENTIFICATION
LEGAL BASIS: SEC. 9, (a), RA 9160
Q. How is customer identification done?
A. COVERED INSTITUTIONS shall establish and record the true identity of its clients based on official
documents.
1. They shall maintain a system of verifying the true identity of their clients and,
2. 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 [Sec. 9 (a), RA 9160].
Q. Covered institutions.
A. The following:
1. banks, non-banks, quasi-banks, trust entities, and all other institutions and their subsidiaries
and affiliates supervised or regulated by the Bangko Sentral ng Pilipinas (BSP);
2. insurance companies and all other institutions supervised or regulated by the Insurance
Commission; and
3. The following:
a. securities dealers, brokers, salesmen, investment houses and other similar entities
b. mutual funds, closed-end investment companies, common trust funds, pre-need
companies and other similar entities,
c. foreign exchange corporations, money changers, money payment, remittance, and
transfer companies and other similar entities, and
d. other entities administering or otherwise dealing in currency, commodities or
monetary instruments or property supervised or regulated by Securities and Exchange
Commission.
Q. Are ANONYMOUS ACCOUNTS, ACCOUNTS UNDER FICTITIOUS NAMES, AND ALL OTHER SIMILAR
ACCOUNTS allowed in the Philippines?
A. NO. The following shall be absolutely prohibited, notwithstanding the provisions of existing laws:
1. anonymous accounts,
2. accounts under fictitious names, and
3. all other similar accounts [Sec. 9 (a), RA 9160].
Q. Are PESO AND FOREIGN CURRENCY NON-CHECKING NUMBERED ACCOUNTS allowed?
A. YES. The BSP may conduct annual testing solely limited to the determination of the existence and
true identity of the owners of such accounts [Sec. 9 (a), RA 9160].
NOTE: Screen name is allowed (a.k.a. _____) as long as you can establish the identity of the particular
person.
B. RECORD KEEPING
LEGAL BASIS: SEC. 9 (b), RA 9160
Q. How is record keeping done.
A. The following:
1. All records of all transactions of covered institutions:
a. maintained and safely stored
b. for five (5) years from the date of transactions.

2. For closed accounts (records on customer identification, account files and business
correspondence):
a. shall be preserved and safely stored
b. for at least five (5) years from the dates when they were closed.
NOTE: The records may be culled after five years. Culling means they should be digitized.
C. REPORTING OF COVERED AND SUSPICIOUS TRANSACTION

LEGAL BASIS: SEC. 9(c), RA 9160
Q. Reporting of Covered and Suspicious Transactions.
A. As a GENERAL RULE, covered persons shall report to the AMLC:
1. ALL covered transactions and suspicious transactions
2. within five (5) working days from occurrence thereof,
As an EXCEPTION to the 5 working days:
- AMLC prescribes a different period not exceeding fifteen (15) working days.
As an EXCEPTION to the GENERAL RULE:
1. The following persons acting as independent legal professionals are not required to report
covered and suspicious transactions:
a. Lawyers and
b. accountants
 If the relevant information was obtained in circumstances
 where they are subject to PROFESSIONAL SECRECY or LEGAL PROFESSIONAL
PRIVILEGE.
NOTE: Should a transaction be determined to be BOTH A COVERED TRANSACTION AND A
SUSPICIOUS TRANSACTION, the covered institution shall be required to REPORT THE SAME AS A
SUSPICIOUS TRANSACTION.
Q. When does an Attorney–client relationship exist?
A. The following:
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
LEGAL BASIS: SEC. 3(b), RA 9160 AS AMENDED (SEC. 1, RA 9194); further amended by RA 10365
and further amended by R.A. No. 10927, further amended by R.A. No. 11521
Q. Covered transaction.
A. The following:
1. A transaction in:
a. cash or
b. other equivalent monetary instrument
2. involving:
a. a total amount in excess of Five hundred thousand pesos (₱500,000.00)
b. within one (1) banking day;
3. for covered persons under [Section 3(a)(8) - casinos, including internet and ship-based
casinos], a single casino transaction:
a. involving an amount in excess of Five million pesos (₱5,000,000.00) or
b. its equivalent in any other currency
5. For covered persons under [Section 3(a)(9) – real estate developers and brokers] herein, a
single cash transaction
a. involving an amount in excess of Seven million five hundred thousand pesos
(P7,500,000.00) or
b. its equivalent in any other currency. [Sec. 3 (b) R.A. No. 9160 as amended by R.A. No.
10365, further amended by R.A. No. 10927, further amended by R.A. No. 11521].
DISCUSSION:
1. Casino? – more than 5M
2. Single 500k transaction but if more than one transaction it falls under suspicious
transaction.
3. No automatic prosecution for money laundering, the transaction will only be reported
regardless of amount
IX. Suspicious Transaction - SECTION 3 (B 1), as amended

(Sec. 2, RA 9194); Rule 3 (H), AMLA IRR
LEGAL BASIS: SECTION 3 (B 1), as amended (Sec. 2, RA 9194); Rule 3 (H), AMLA IRR; as amended
by R.A. No. 11521
Q. Suspicious transaction.
A. Transactions with covered persons, regardless of the amounts involved, where any of the following
circumstances exist:
1. No underlying legal or trade obligation, purpose or economic justification;
2. Client is not properly identified;

3. 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 circumstance relating to the transaction which is observed to deviate from the profile of the
client and/or the client’s past transactions with the covered person (this was previously
INSTITUTION);
6. Transaction is in any way related to an unlawful activity or offense under this Act that is about to
be, is being or has been committed; or
7. Any transaction that is similar or analogous to any of the foregoing. [Sec. 3 (b-1), R.A. No. 9160,
as amended by R.A. No. 9194, further amended by R.A. No. 11521].
X. Safe Harbor – Sec. 9, 2nd paragraph, R.A. No. 9160
LEGAL BASIS: SEC. 9, 2ND PARGRAPH, RA NO. 9160

Q. Persons covered under the Safe Harbor Provision in the AMLA.
A. The following:
1. Covered institutions;
2. their officers;
3. employees;
4. representatives;
5. agents;
6. advisors;
7. consultants; or
8. associates.
Q. Safe harbor provision in the AMLA.
A. Covered institutions and their officers, employees, representatives, agents, advisors, consultants or
associates when reporting covered transactions to the AMLC, shall not be deemed to have violated:
1. Republic Act No. 1405 (Bank Secrecy Law), as amended;
2. Republic Act No. 6426 (Foreign Currency Deposit Act), as amended;
3. Republic Act No. 8791 (General Banking Law) and other similar laws,
NO ADMINISTRATIVE, CRIMINAL OR CIVIL PROCEEDINGS shall lie against any person for having
made a covered transaction report in:
1. the regular performance of his duties; and
2. in good faith,
whether or not such reporting results in any criminal prosecution under the AMLA or any other
Philippine law.
Q. Prohibition or limitation in the safe harbor provision.
A. The persons enumerated are prohibited from:

1. communicating, directly or indirectly,
2. in any manner or by any means,
3. to any person the fact that a
a. covered transaction report was made,
b. the contents thereof, or
c. any other information in relation thereto.
Q. In case of violation of the prohibition in the safe harbor provision.
A. The persons enumerated shall be criminally liable.
Q. Limitation of liability in case of violation of the prohibition.
A. NO ADMINISTRATIVE, CRIMINAL OR CIVIL PROCEEDINGS, shall lie against any person for having
made a covered transaction report in:
1. the regular performance of his duties and
2. in good faith
whether or not such reporting results in any criminal prosecution under this Act or any other
Philippine law.
DISCUSSION:
1. Reporting in good faith of STR or CTR.
2. Good faith is a conclusion. It is circumstantial.
3. It does not cover telling it to other people, “chismis”
XI. Authority to inquire into Bank Deposits – Sec. 11, R.A.

No. 9160 as amended by R.A. No. 10167
LEGAL BASIS: Sec. 11, R.A. No. 9160 as amended by R.A. No. 10167
DISCUSSIONS:
1. As a rule, it should be with a prior court order.
2. Be careful with the case of Republic vs. Ligot. It is said that bank inquiry cannot be done ex-
parte.
3. Now, Sec. 11- ex parte inquiry is now allowed.
NOTE: The procedure for the ex parte application of the ex parte court order for the principal
account shall be the same with that of the related accounts.
Q. What is the authority of AMLC to inquire into bank deposits?
A. Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as
amended; Republic Act No. 8791; and other laws, the AMLC may inquire into or examine any
particular deposit or investment, including related accounts, with any banking institution or non-
bank financial institution upon:
1. ORDER of any competent court BASED ON AN EX PARTE APPLICATION

a. in cases of violations of this Act,
b. when it has been established that there is PROBABLE CAUSE THAT THE DEPOSITS OR
INVESTMENTS, INCLUDING RELATED ACCOUNTS INVOLVED,
i. are related to an unlawful activity as defined in Section 3(i) hereof or
ii. a money laundering offense under Section 4 hereof;
2. NO COURT ORDER SHALL BE REQUIRED in cases involving activities defined in:

a. Section 3(i)(1) - Kidnapping for ransom;
b. Sec. 3(i)(2) - Dangerous Drugs Act of 1972;
c. Sec. (3)(i)(12) - Hijacking and other violations, destructive arson and murder; and
d. felonies or offenses of a nature similar to those mentioned in Section 3(i)(1), (2), and (12),
which are Punishable under the penal laws of other countries, and terrorism and
conspiracy to commit terrorism as defined and penalized under Republic Act No. 9372
(Sec. 11, Anti-Money Laundering Act as amended by R.A. No. 10167).
Q. Related accounts.
A. Refer to accounts, the funds and sources of which originated from and/or are materially linked to the
monetary instrument(s) or property(ies) subject of the freeze order(s).
Q. Constitutional compliance of the authority to inquire.

A. The authority to inquire into or examine the main account and the related accounts shall comply with
the requirements of Article III of the 1987 Constitution:
1. SECTION 2. (RIGHT AGAINST UNREASONABLE SEARCHES AND SEIZURES)
a. The right of the people to be secure in their persons, houses, papers, and effects against
unreasonable searches and seizures of whatever nature and for any purpose shall be
inviolable, and no search warrant or warrant of arrest shall issue except upon probable cause
to be determined personally by the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly describing the place to be
searched and the persons or things to be seized.
2. SECTION 3. (PRIVACY OF COMMUNICATION AND CORRESPONDENCE)
a. The privacy of communication and correspondence shall be inviolable except upon lawful
order of the court, or when public safety or order requires otherwise as prescribed by law.
b. Any evidence obtained in violation of this or the preceding section shall be inadmissible for
any purpose in any proceeding.
Q. Period of time within which the Court of Appeals should act on the application to inquire into or
examine any deposit or investment with any banking institution or non-bank financial
institution?
A. It should act within twenty-four (24) hours from filing of the application (Sec. 11, Anti-Money
Q. Role of the Bangko Sentral to ensure compliance of the AMLA.

A. The Bangko Sentral ng Pilipinas may:
1. in the course of a periodic or special examination,

2. check the compliance of a Covered institution with
a. the requirements of the AMLA and
b. its implementing rules and regulations (Sec. 11, Anti-Money Laundering Act as
amended by R.A. No. 10167).
XII. Bank Inquiry without court order
LEGAL BASIS: Sec. 3 (i) in relation to Section 11 of R.A. No. 9160 as amended by R.A. No. 10167;
Rule IX (B), AMLA Revised IRR
Q. Bank inquiry without court order.
A. NO COURT ORDER SHALL BE REQUIRED in cases involving activities defined in:

1. Section 3(i)(1) - Kidnapping for ransom;
2. Sec. 3(i)(2) - Dangerous Drugs Act of 1972;
3. Sec. (3)(i)(12) - Hijacking and other violations, destructive arson and murder; and
4. felonies or offenses of a nature similar to those mentioned in Section 3(i)(1), (2), and (12), which
are Punishable under the penal laws of other countries, and terrorism and conspiracy to
commit terrorism as defined and penalized under Republic Act No. 9372 (Sec. 11, Anti-Money
XIII. Jurisdiction over Money Laundering
LEGAL BASIS: Sec. 5, R.A. No. 9160

Q. Jurisdiction of Money Laundering Cases.
A. The following:
1. RTC: all cases on money laundering.
2. SANDIGANBAYAN:
a. Those committed by public officers and
b. private persons who are in conspiracy with such public officers.
XIV. Freeze Order
LEGAL BASIS: Sec. 10, R.A. No. 9160 as amended by R.A. No. 10365, further amended by R.A. No.
10927, further amended by R.A. No. 11521
Q. Elements of a freeze order by the Court of Appeals.
A. The following:
1. Upon verified ex parte petition by the AMLC and

2. 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.
NOTE: The unlawful activity refers to the 36 predicate crimes enumerated under the AMLA.
Q. What court may issue a freeze order?
A. The Court of Appeals. It shall be effective immediately.
Q. Period of freeze order.
A. Twenty (20) days unless extended by the court.
Q. Summary hearing within the 20-day period.

A. The Court of Appeals shall conduct a summary hearing, with notice to the parties, to determine:
1. whether or not to modify;
2. lift the freeze order; or
3. extend its effectivity.
Q. Total period of the freeze order.
A. It shall not exceed six (6) months.
NOTE:
1. This is without prejudice to an ASSET PRESERVATION ORDER (APO) THAT THE REGIONAL
TRIAL COURT having jurisdiction over the appropriate anti-money laundering case or civil
forfeiture case may issue on the same account depending upon the circumstances of the case,
where the Court of Appeals will remand the case and its records:
Q. Ipso facto lifting of a freeze order.
A. The following:
1. If there is no case filed against a person
2. whose account has been frozen within the period determined by the Court of Appeals, not
exceeding six (6) months.
NOTE: This new rule shall not apply to pending cases in the courts (R.A. No. 10927 was enacted in
July 2, 2016).
Q. Period of time to act on a petition to freeze.
A. GENERAL RULE:
The Court of Appeals should act on the petition to freeze within twenty-four (24) hours from
filing of the petition.
EXCEPTION:
Filed a day before a non-working day – twenty-four (24)-hour period shall exclude the
nonworking days.
Q. Scope of the freeze order or asset preservation order.
A. The following:
1. Limited only to the amount of:
a. Cash;
b. monetary instrument; or
c. value of property
2. There must be a probable cause to be considered as proceeds of a predicate offense; and
3. It shall not apply to amounts in the same account in excess of the amount or value of the proceeds
of the predicate offense (as amended by R.A. No. 10927).
Q. Motion to lift the freeze order.
A. The following:
1. WHO MAY FILE: It is filed by the person whose account has been frozen.
2. PERIOD TO RESOLVE THE MOTION: before the expiration of the freeze order.
Q. Prohibition of TRO or a writ of injunction against any FREEZE ORDER; EXCEPTION.
A. No court shall issue a temporary restraining order or a writ of injunction against any freeze order,
except the Supreme Court (as amended by R.A. No. 10365).
FREEZE ORDER FOR TARGETED FINANCIAL SANCTIONS
LEGAL BASIS: Sec. 10 (b), R.A. No. 9160 as amended by R.A. No. 11521
Q. Ex parte freeze order in implementing targeted financial sanctions.
A. AMLC shall have the power to issue, an ex parte order to freeze without delay for purposes of:
1. implementing targeted financial sanctions
2. in relation to proliferation of weapons of mass destruction and its financing, as provided under
Section 3(15).
Q. Effectivity of freeze order in relation to targeted financial sanctions.
A. Effective until the basis for its issuance shall have been lifted.
Q. Basis of the petition.
A. According to the principle of effective judicial protection.
Q. Period to file petition to determine the basis of the freeze order during its effectivity.
A. Aggrieved party may, within twenty (20) days from issuance.

Q. Where to file a petition to determine the basis of the freeze order in relation to targeted
financial sanctions.
A. Court of Appeals
Q. May a person whose property or funds have been frozen withdraw funds? If yes, what are the
requirements.
A. Yes. Provided that the AMLC determines to be reasonably needed for
1. monthly family needs and
2. sustenance including:
a. services of counsel and
b. family medical needs of such person.
Q. May the AMLC initiate civil forfeiture proceedings? If yes, what are the reasons?
A. YES. The AMLC, if circumstance warrant, may initiate civil forfeiture proceedings to
1. preserve the assets and
2. to protect it from dissipation.
Q. Prohibition of TRO or a Writ of Injunction against the freeze order.
A. GENERAL RULE: No court shall issue a temporary restraining order or a writ of injunction against the
freeze order
EXCEPTION: Court of Appeals or the Supreme Court may issue a TRO or a writ of injunction.
A. ELEMENTS
Q. Elements of a freeze order by the Court of Appeals.
A. The following:
1. Upon VERIFIED EX PARTE PETITION by the AMLC and

2. 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.
NOTE: The unlawful activity refers to the 36 predicate crimes enumerated under the AMLA.
1. Ex-Parte Petition
LEGAL BASIS: Sec. 7 (6) in relation to Sec. 10, RA 9160, as amended by R.A. No. 10927.
SEC. 7. Creation of Anti-Money Laundering Council (AMLC). x x x Functions of AMLC:
xxx
(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) of AMLA.

(REFER TO THE XIV. Freeze Order for more discussion on the topic)
2. PROBABLE CAUSE
LEGAL BASIS:
1. Ligot v. Republic, GR No. 176944;
2. Subido Pagente Ceteza Mendoza & Binay Law Offices v. CA GR No. 216914
Q. Probable cause in a Freeze order.
A. Probable Cause refers to such facts and circumstances which would lead a reasonably discreet,
prudent, or cautious man to believe that:
1. any monetary instrument or property sought to be frozen, inquired into or preserved is in any
way related to any unlawful activity or money laundering offense; or
2. money laundering or terrorism financing has been committed and
3. that the respondent is probably guilty of it (2018 IRR).
Ligot v. Republic, GR No. 176944;

FACTS:
1. In 2005, the AMLC filed an urgent ex-parte application for the issuance of a freeze order against Lt.
Gen. Jacinto Ligot’s monetary instruments and properties.
2. In his 2003 SALN, Ligot declared total assets of Php3,848,003.
3. In 1982, he only declared Php105,000.
4. The Ombudsman’s investigation revealed that Ligot and his family had undeclared assets
amounting to Php54,001,217, including properties allegedly owned by Edgardo Yambao who
the Ombudsman believed was Ligot’s dummy, having declared certain properties that actually
belonged to Ligot.
5. The CA granted the freeze order, ruling that probable cause existed that an unlawful activity or
money laundering offense had been committed by Ligot and his family.
6. The basis of the freeze order were 4 cases (plunder, perjury, violation of RA 3019, and malicious
mischief) being investigated by the Ombudsman.
7. The freeze order was to be valid or 20 days.
8. Later, the Republic filed an urgent motion for extension,
a. arguing that if the bank accounts and properties were not continuously frozen, they could be
placed beyond the reach of law enforcement authorities and the government’s efforts would be
frustrated.
9. The CA also granted the extension.
10.Thus, the freeze order was to be effective until after all the appropriate proceedings or
investigations are terminated.
11.The Ligots filed a motion to lift the freeze order, arguing that
a. there was no evidence to support the extension,
b. they were deprived of their property without due process, and
c. they were punished before their guilt could be proven.

12.The CA denied the motion.
13. Over a month after the denial, the Rule in Civil Forfeiture Cases took effect on December 15,
2005.
14. Here, a freeze order could be extended for a maximum of 6 months only.
15.Thus, the Ligots filed a MR, insisting that the freeze order should now be lifted because 6 months
have lapsed since its issuance (July 5, 2005).
16.The MR was filed on January 31, 2006.
17.The Republic argued that the Rule in Civil Forfeiture does not apply because the CA’s
resolution extending the freeze order was issued before such Rule took effect.
FIRST ISSUE: Does the 6-month extension period in the Rule of Civil Forfeiture apply in this case
involving a freeze order under the AMLA?
RULING:
1. Yes. While it is true that the order for extension was issued before the Rule’s effectivity (issuance
was on September 20, 2005; effectivity of the Rule was on December 15, 2005), the Ligots filed an
opposing motion on the extension which was still pending when the Rule took effect.
2. The motion was only denied on January 4, 2006.
3. Thus, the provisions of the Civil Procedure limiting an extension of a freeze order to 6 months
only, should apply to this case.
SECOND ISSUE: Was there probable cause?
RULING:
1. Yes. There are two requisites for the issuance of a freeze order:
a. Application ex parte by thee AMLC; and
b. Determination of probable cause by the CA.
2. This probable cause for freeze orders differs from probable cause in criminal actions.
3. The probable cause in freeze orders means such facts and circumstances which would lead a
reasonably discreet, prudent, or cautious man to believe that
a. an unlawful activity or money laundering offense is about to be, is being, or has been
committed and
b. that the subject of the order is in any way related to said unlawful activity.
4. Thus, in determining probable cause in freeze orders, the question is not whether there was
probable commission of an unlawful activity, but rather whether the assets sought to be frozen
are in any way related to any of the illegal activities under the AMLA.
5. A freeze order is not dependent on a separate criminal charge, nor is it dependent on a conviction.
Going back to first issue:
1. So even if there was probable cause for the issuance, the freeze order must be lifted.
2. A freeze order cannot be issued for an indefinite period.
3. It is meant to have a temporary effect.
4. It is pre-emptive, which means it is issued to prevent an owner from disposing of his property
and thwarting the State’s effort in building its case.
5. The 6-month maximum period of extension is reasonable and enough time to build a case.
6. Here it has already been 6 years since the freeze order. Hence, it must be lifted.
Subido Pagente Ceteza Mendoza & Binay Law Offices v. Court of Appeals
GR No. 216914
Facts:
1. In 2015, the Ombudsman and Senate conducted investigations and inquiries on the “supposed
disproportionate wealth” of then VP Jejomar Binay and his family.
2. The Manila Times published an article stating that the AMLC has asked the CA to allow
examination of the bank accounts of the Binays, their corporations, and SPCMB Law Offices
where the VP’s daughter was a former partner.
3. The law office wrote to CA Justice Andres Reyes, requesting for a comment on the presumed
petition for bank inquiry.
4. They wanted a verification from Justice Reyes, as well as copies of relevant documents.
5. Justice Reyes denied the request, reasoning that the petition is strictly confidential.
6. Days later, the Manila Times published another article reporting that the CA has granted the
AMLC’s application to examine the accounts of the Binays, including the law office.
7. The law office then filed a petition for certiorari and prohibition in the SC, arguing that
Section 11 of the AMLA is unconstitutional because:
a. It violates the right to due process;
b. It violates the right to privacy;
c. Even if it is constitutional, the CA committed grave abuse of discretion because:
i. it refused to provide a copy of the AMLCs ex-parte application, violating its right to
due process;
ii. the carte blanche authority to examine the law office’s accounts would violate
attorney-client privilege;
iii. the blanket authority to examine all transactions, partakes the nature of a general
warrant for a mere fishing expedition;
iv. there is nothing in the AMLA that justifies withholding of records especially if the
application for bank inquiry was already granted;
v. the law office did not commit any predicate crime that would justify inquiry; and
vi. this is a form of political persecution or harassment.
First issue: Does Section 11 violate substantive due process?
Ruling:
1. NO. Section 11 of the AMLA providing for ex-parte application and inquiry by the AMLC into
certain bank deposits and investments does not violate substantive due process, there being
no physical seizure of property involved at that stage.
2. A bank inquiry order under Section 11 DOES NOT NECESSITATE ANY FORM OF PHYSICAL
SEIZURE OF PROPERTY OF THE ACCOUNT HOLDER.
3. What the bank inquiry order authorizes is the examination of the particular deposits or
investments in banking institutions or non-bank financial institutions.
4. The monetary instruments or property deposited with such banks or financial institutions are not
seized in a physical sense, but are examined on particular details such as the account holder's
record of deposits and transactions.
5. Unlike the assets subject of the freeze order, the records to be inspected under a bank
inquiry order cannot be physically seized or hidden by the account holder.
Second issue: Does Section 11 violate procedural due process?
Ruling:
1. NO. The AMLC is not an adjudicatory body, but merely an investigatory one.
2. Its investigation of money laundering offenses and its determination of possible money laundering
offenses, specifically its inquiry into certain bank accounts allowed by court order, does not
transform it into an investigative body exercising quasi-judicial powers.
3. Hence, Section 11 of the AMLA, authorizing a bank inquiry court order, cannot be said to violate
SPCMB's constitutional right to procedural due process.
Third issue: Does Section 11 violate the constitutional right to privacy?
Ruling:
1. NO. BANK INQUIRY BY THE AMLC, UPON COURT ORDER, IS ONE OF THE EXCEPTIONS TO THE
GENERAL RULE OF CONFIDENTIALITY OF BANK DEPOSITS.
2. The general rule of absolute confidentiality of bank deposits is simply statutory, i.e. not
specified in the Constitution.
3. Exceptions to the general rule of absolute confidentiality have been carved out by the
Legislature.
4. One such legislated exception is Section 11 of the AMLA.
5. Moreover, there are SAFEGUARDS BEFORE A BANK INQUIRY ORDER IS ISSUED, ensuring
adherence to the general state policy of preserving the absolutely confidential nature of
Philippine bank accounts:
a. The AMLC is required to establish probable cause as basis for its ex-parte application for bank
inquiry order;
b. The CA itself makes a finding of probable cause, independent from the AMLC’s finding, that the
deposits or investments are related to an unlawful activity or a money laundering offense;
c. A bank inquiry court order ex-parte for related accounts is preceded by a bank inquiry
court order ex-parte for the principal account which court order ex-parte for related
accounts is separately based on probable cause that such related account is materially
linked to the principal account inquired into; and
d. The authority to inquire into or examine the main or principal account and the related
accounts shall comply with the requirements of Article III, Sections 2 and 3 of the
Constitution.
6. Those safeguards provide well-defined limits, and demonstrate that the inquiry into the bank
account is not undertaken whimsically and solely based on the investigative discretion of the
AMLC.
7. Further, there is nothing in Section 11 nor the IRR which prohibits the owner of the bank account
to ascertain from the CA, post issuance of the bank inquiry order, if his account is indeed the
subject of an examination.
8. There is nothing in the law which precludes the owner of the account from challenging the
basis for the issuance of the order.
Fourth issue: Does a bank inquiry partake the nature of a general warrant?
Ruling:
1. NO. The Constitution and the Rules of Court prescribe particular requirements attaching to search
warrants that are not imposed by the AMLA with respect to bank inquiry orders.
2. A constitutional warrant requires that the judge personally examine under oath or affirmation the
complainant and the witnesses he may produce, such examination being in the form of searching
questions and answers.
3. Those are impositions which the legislative did not specifically prescribe as to the bank inquiry
order under the AMLA and we cannot find sufficient legal basis to apply them to Section 11 of the
AMLA.
4. Simply put, a bank inquiry order is not a search warrant or warrant of arrest as it
contemplates a direct object but not the seizure of persons or property.
a. Duration
LEGAL BASIS: Sec. 10, R.A. No. 9160 as amended by R.A. No. 10927.
Q. Period of freeze order.
A. Twenty (20) days unless extended by the court.
Q. Summary hearing within the 20-day period.

A. The Court of Appeals shall conduct a summary hearing, with notice to the parties, to determine:
1. whether or not to modify;
2. lift the freeze order; or
3. extend its effectivity.
Q. Total period of the freeze order.
A. It shall not exceed six (6) months.
Q. Ipso facto lifting of a freeze order.
A. The following:
1. If there is no case filed against a person
2. whose account has been frozen within the period determined by the Court of Appeals, not
exceeding six (6) months.
NOTE: This new rule shall not apply to pending cases in the courts (R.A. No. 10927 was enacted in
July 2, 2016).
Q. Period of time to act on a petition to freeze.
A. GENERAL RULE:
The Court of Appeals should act on the petition to freeze within twenty-four (24) hours from
filing of the petition.
EXCEPTION:
Filed a day before a non-working day – twenty-four (24)-hour period shall exclude the
nonworking days.
b. Injunction
LEGAL BASIS: Sec. 10, R.A. No. 9160 as amended by R.A. No. 10365.
Q. Prohibition of TRO or a writ of injunction against any FREEZE ORDER; EXCEPTION.
A. No court shall issue a temporary restraining order or a writ of injunction against any freeze order,
except the Supreme Court (Sec. 10, R.A. No. 9160 as amended by R.A. No. 10365).
c. Remedy
LEGAL BASIS: Sec. 57, A.M. No. 05-11-04-SC (Rules of Procedure in Cases of Civil Forfeiture, Asset
Preservation under R.A. 9160)
Q. Remedy of a freeze order issued by the Court of Appeals.
A. The following:
1. Any party aggrieved by the decision or ruling of the court may appeal to the Supreme Court by
petition for review on certiorari under Rule 45 of the Rules of Court.
NOTE: The appeal shall not stay the enforcement of the subject decision or final order unless the
Supreme Court directs otherwise.
B. CIVIL FORFEITURE
LEGAL BASIS: Sec. 12 (a-d), R.A. No. 9160 as amended by R.A. No. 10365, further amended by R.A.
No. 11521
Q. Requisites in the filing of a civil forfeiture.
A. The AMLC shall file with the appropriate court through the Office of the Solicitor General:
1. a verified ex-parte petition for forfeiture.
2. Upon determination by the AMLC that probable cause exists that
a. any monetary instrument or property
b. is in any way related to an unlawful activity
i. as defined in Section 3(i) or
ii. a money laundering offense under Section 4 hereof,
Q. What is included in the forfeiture?
A. The forfeiture shall include
1. Other monetary instrument;
2. Property having an equivalent value to that of the monetary instrument; or

3. Property found to be related in any way to an unlawful activity or a money laundering offense.
NOTE: When with due diligence, the former cannot be located, or it has been substantially altered,
destroyed, diminished in value or otherwise rendered worthless by any act or omission, or it has been
concealed, removed, converted, or otherwise transferred, or it is located outside the Philippines or
has been placed or brought outside the jurisdiction of the court, or it has been commingled with other
monetary instrument or property belonging to either the offender himself or a third person or entity,
thereby rendering the same difficult to identify or be segregated for purposes of forfeiture [Sec. 12
(a)].
Q. Claim on Forfeited Assets in a criminal prosecution for any money laundering offense (Sec. 4,
AMLA) by the offender or any other person claiming an interest therein.
A. The offender or any other person claiming an interest therein may apply, by verified petition, for
a declaration that:
1. The same legitimately belongs to him; and
2. for segregation or exclusion of the monetary instrument or property corresponding thereto
[Sec. 12 (b)].
Q. Place and period to file the verified petition for the claim on forfeited assets.
A. The following:
1. PLACE: filed with the court which rendered the judgment of forfeiture
2. PERIOD: within fifteen (15) days from the date of the finality of the order of forfeiture,
a. in default of which the said order shall become final and executory [Sec. 12 (b)].
NOTE: This shall apply in both civil and criminal forfeiture.

Q. Payment in Lieu of Forfeiture of the monetary instrument or property subject of a money
laundering offense (Sec. 4, AMLA).
A. The court may, instead of enforcing the order of forfeiture of the monetary instrument or property or
part thereof or interest therein, accordingly order the convicted offender to pay an amount equal to the
value of said monetary instrument or property [Sec. 12 (c)].
NOTE: This provision shall apply in both civil and criminal forfeiture.
Q. Reasons why there is payment in lieu of forfeiture of monetary instrument or property subject
of a money laundering offense (Sec. 4 of AMLA).
A. Said order cannot be enforced because ANY MONETARY INSTRUMENT OR PROPERTY SUBJECT OF
A MONEY LAUNDERING OFFENSE:
1. cannot with due diligence, be located, or
2. it has been substantially altered, destroyed, diminished in value or
3. otherwise rendered worthless by any act or omission, directly or indirectly, attributable to
the offender, or
4. it has been concealed, removed, converted, or otherwise transferred to prevent the same
from being found or to avoid forfeiture thereof, or

5. it is located outside the Philippines or
6. has been placed or brought outside the jurisdiction of the court, or
7. it has been commingled with other monetary instruments or property belonging to either
the offender himself or a third person or entity, thereby rendering the same difficult to identify
or be segregated for purposes of forfeiture [Sec. 12 (c)].
Q. Prohibition on TRO or a writ of injunction against any Provisional asset preservation order or
asset preservation.
A. GENERAL RULE: No court shall issue a temporary restraining order (TRO) or a writ of injunction
against any provisional asset preservation order or asset preservation,
EXCEPTION: Court of Appeals or the Supreme Court [Sec. 12 (d), included by R.A. 11521].
DISCUSSIONS:
1. only the forfeiture of the amount considered to be the proceeds of an unlawful activity.
2. REMEDY:
a. Section12 (b) –
i. apply a verified petition that the same belongs to him.
ii. Within 15 days from the date of finality of the judgment of forfeiture.
3. Section 12 (c) –
a. you can pay the value in the forfeiture order instead when it cannot be allocated, or
substantially altered.
C. PROSECUTION OF MONEY LAUNDERING
LEGAL BASIS: Sec. 6, R.A. No. 9160 as amended by R.A. No. 10365
DISCUSSION:
1. Dismissed for a predicate crime: it does not follow that the crime of money laundering
follows.
2. Probable cause for indictment
3. Three kinds of probable cause
4. Define probable cause.
Q. Prosecution of Money Laundering.
A. The following:
1. Any person may be charged with and convicted of both:
a. offense of money laundering and
b. unlawful activity as herein defined.
2. The prosecution of any offense or violation under this Act SHALL PROCEED INDEPENDENTLY OF
ANY PROCEEDING RELATING TO THE UNLAWFUL ACTIVITY (Sec. 6, R.A. No. 9160 as amended
by R.A. No. 10365).
SHORTCUT:
Republic v. Glasgow Credit and Collection Services, lnc.,

G.R. No. 170281
FACTS:
1. The AMLC filed a complaint in RTC Manila for civil forfeiture with urgent TRO against Glasgow’s
bank deposits in City State Savings Bank, Inc.
2. A 72-hour TRO was granted, but the RTC ultimately ruled in favor of Glasgow.
ISSUE: Is a criminal conviction for an unlawful activity or crime a prerequisite for the institution of a civil
forfeiture proceedings?
RULING:
1. No. A finding of guilt for an unlawful activity is not an essential element of civil forfeiture.
2. The Rule on Civil Forfeiture provides that a prior criminal charge, pendency of, or conviction for
an unlawful activity is not necessary to commence civil forfeiture.
3. It may be separately and independently prosecuted and resolved regardless of the absence,
pendency, or outcome of a criminal prosecution for the unlawful activity or for money
laundering.
REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEY LAUNDERING COUNCIL v.

GLASGOW CREDIT AND COLLECTION SERVICES, INC. and CITYSTATE SAVINGS BANK, INC.
G.R. No. 170281; January 18, 2008
FACTS:
1. The Republic filed a complaint in the RTC Manila for civil forfeiture of assets (with urgent plea for
issuance of temporary restraining order [TRO] and/or writ of preliminary injunction) against the
bank deposits maintained by Glasgow in CSBI.
2. The case was filed pursuant to RA 9160 or the Anti-Money Laundering Act of 2001.
3. As events have proved, aforestated bank account is related to the unlawful activities of Estafa and
violation of Securities Regulation Code.
4. The deposit has been subject of Suspicious Transaction Reports.
5. After appropriate investigation, the AMLC issued Resolutions No. 094 directing the issuance of
freeze orders against the bank accounts of Glasgow.
6. Pursuant to said AMLC Resolutions, Freeze Orders Nos. 008-010, 011 and 013 were issued on
different dates, addressed to the concerned banks.
7. The facts and circumstances plainly showing that defendant Glasgow’s bank account and deposit
are related to the unlawful activities of Estafa and violation of Securities Regulation Code, as well
as to a money laundering offense [which] [has] been summarized by the AMLC in its Resolution.
8. Because defendant Glasgow’s bank account and deposits are related to the unlawful activities of
Estafa and violation of Securities Regulation Code, as well as to money laundering offense as
aforestated, and being the subject of covered transaction reports and eventual freeze orders, the
same should properly be forfeited in favor of the government in accordance with Section 12, R.A.
9160, as amended.
9. Acting on the Republic’s urgent plea for the issuance of a TRO, the executive judge of RTC Manila
issued a 72-hour TRO .
10.After hearing, the trial court issued an order granting the issuance of a writ of preliminary
injunction.
11.Meanwhile, summons to Glasgow was returned "unserved" as it could no longer be found at its
last known address.
12.The Republic filed a verified omnibus motion for
a. issuance of alias summons and
b. leave of court to serve summons by publication.
13.In an order, the trial court directed the issuance of alias summons.
14.However, no mention was made of the motion for leave of court to serve summons by publication.
15.The trial court archived the case allegedly for failure of the Republic to serve the alias summons.
16.The Republic filed an ex parte omnibus motion to
a. reinstate the case and
b. resolve its pending motion for leave of court to serve summons by publication.
17.In an order dated May 31, 2004, the trial court ordered the reinstatement of the case and directed
the Republic to serve the alias summons on Glasgow and CSBI within 15 days.
18.However, it did not resolve the Republic’s motion for leave of court to serve summons by
publication declaring:
19.Until and unless a return is made on the alias summons, any action on [the Republic’s] motion for
leave of court to serve summons by publication would be untenable if not premature.
20.Sometime in 2004, the trial court ordered the reinstatement of the case directing the petitioner to
serve the alias summons to the respondent within 15 days.
21.A month later, the petitioner received a copy of the sheriff's return stating that the alias summons
was returned "unserved".
22.In 2005, the petitioner filed a manifestation and ex parte motion to resolve its motion for leave of
court to serve summons by publication. The OSG received a copy of GLASGOW's motion to dismiss
by way of special appearance alleging that:
a. That this court has no jurisdiction over the person of Glasgow considering that no summons
has been served upon it, and it has not entered its appearance voluntarily;
b. That the complaint for forfeiture is premature because of the absence of a prior finding by any
tribunal that Glasgow was engaged in unlawful activity: in connection therewith, Glasgow
argues that the complaint states no cause of action; and
c. That there is failure to prosecute, in that, up to now, summons has yet to be served upon
Glasgow.
23.On October 17, 2005, the trial court dismissed the case on the grounds of
a. Improper venue
b. Insufficiency of the complaint in form and substance; and
c. Failure to prosecute
ISSUE: Whether the complaint for civil forfeiture was correctly dismissed on grounds of improper venue,
insufficiency in form and substance and failure to prosecute.
RULING:
1. No, the court ruled with the Republic.

2. The October 27, 2005 order of the Regional Trial Court of Manila, Branch 47, in Civil Case No. 03-
107319 was set aside.
3. The August 11, 2005 motion to dismiss of Glasgow Credit and Collection Services, Inc. is denied.
And the complaint for forfeiture of the Republic of the Philippines, represented by the Anti-Money
Laundering Council, is reinstated.

4. The Complaint Was Filed In The Proper Venue
5. At any rate, the trial court was a proper venue.
6. Section 3, Title II (Civil Forfeiture in the Regional Trial Court) of the Rule of Procedure in
Cases of Civil Forfeiture provides:
a. Sec. 3. Venue of cases cognizable by the regional trial court. – A petition for civil forfeiture
shall be filed in any regional trial court of the judicial region where the monetary
instrument, property or proceeds representing, involving, or relating to an unlawful
activity or to a money laundering offense are located; provided, however, that where all
or any portion of the monetary instrument, property or proceeds is located outside the
Philippines, the petition may be filed in the regional trial court in Manila or of the judicial
region where any portion of the monetary instrument, property, or proceeds is located, at
the option of the petitioner. (emphasis supplied)
7. Under Section 3, Title II of the Rule of Procedure in Cases of Civil Forfeiture, therefore, the venue
of civil forfeiture cases is any RTC of the judicial region where the monetary instrument, property
or proceeds representing, involving, or relating to an unlawful activity or to a money laundering
offense are located. Pasig City, where the account sought to be forfeited in this case is situated, is
within the National Capital Judicial Region (NCJR). Clearly, the complaint for civil forfeiture of the
account may be filed in any RTC of the NCJR. Since the RTC Manila is one of the RTCs of the NCJR, it
was a proper venue of the Republic’s complaint for civil forfeiture of Glasgow’s account.
8. The Complaint Was Sufficient In Form And Substance
a. In this connection, Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture
provides:
i. Sec. 4. Contents of the petition for civil forfeiture. - The petition for civil forfeiture
shall be verified and contain the following allegations:
1. The name and address of the respondent;
2. A description with reasonable particularity of the monetary instrument,
property, or proceeds, and their location; and
3. The acts or omissions prohibited by and the specific provisions of the Anti-
Money Laundering Act, as amended, which are alleged to be the grounds
relied upon for the forfeiture of the monetary instrument, property, or
proceeds; and
4. The reliefs prayed for.
9. Here, the verified complaint of the Republic contained the following allegations:
a. the name and address of the primary defendant therein, Glasgow;
b. a description of the proceeds of Glasgow’s unlawful activities with particularity, as well as
the location thereof, account no. CA-005-10-000121-5 in the amount of P21,301,430.28
maintained with CSBI;
c. the acts prohibited by and the specific provisions of RA 9160, as amended, constituting the
grounds for the forfeiture of the said proceeds. In particular, suspicious transaction reports
showed that Glasgow engaged in unlawful activities of estafa and violation of the Securities
Regulation Code (under Section 3(i)(9) and (13), RA 9160, as amended); the proceeds of
the unlawful activities were transacted and deposited with CSBI in account no. CA-005-10-
000121-5 thereby making them appear to have originated from legitimate sources; as such,
Glasgow engaged in money laundering (under Section 4, RA 9160, as amended); and the
AMLC subjected the account to freeze order and
d. the reliefs prayed for, namely, the issuance of a TRO or writ of preliminary injunction and
the forfeiture of the account in favor of the government as well as other reliefs just and
equitable under the premises.

10.The form and substance of the Republic’s complaint substantially conformed with Section 4, Title
II of the Rule of Procedure in Cases of Civil Forfeiture.
a. Moreover, Section 12(a) of RA 9160, as amended, provides:
i. SEC. 12. Forfeiture Provisions. –
1. Civil Forfeiture. – When there is a covered transaction report made, and the
court has, in a petition filed for the purpose ordered seizure of any monetary
instrument or property, in whole or in part, directly or indirectly, related to
said report, the Revised Rules of Court on civil forfeiture shall apply.
ii. In relation thereto, Rule 12.2 of the Revised Implementing Rules and Regulations of
RA 9160 as amended, and its implementing rules and regulations lay down two
conditions when applying for civil forfeiture:
1. when there is a suspicious transaction report or a covered transaction report
deemed suspicious after investigation by the AMLC and
2. the court has, in a petition filed for the purpose, ordered the seizure of any
monetary instrument or property, in whole or in part, directly or indirectly,
related to said report.
11.It is the preliminary seizure of the property in question which brings it within the reach of the
judicial process.
12.It is actually within the court’s possession when it is submitted to the process of the court.
13.The injunctive writ issued on August 8, 2003 removed account no. CA-005-10-000121-5 from the
effective control of either Glasgow or CSBI or their representatives or agents and subjected it to
the process of the court.
14.Since account no. CA-005-10-000121-5 of Glasgow in CSBI was
a. covered by several suspicious transaction reports and
b. placed under the control of the trial court upon the issuance of the writ of preliminary
injunction, the conditions provided in Section 12(a) of RA 9160, as amended, were
satisfied.
15.Hence, the Republic, represented by the AMLC, properly instituted the complaint for civil
forfeiture.
16.Whether or not there is truth in the allegation that account no. CA-005-10-000121-5 contains the
proceeds of unlawful activities is an evidentiary matter that may be proven during trial.
17.The complaint, however, did not even have to show or allege that Glasgow had been implicated in
a conviction for, or the commission of, the unlawful activities of estafa and violation of the
Securities Regulation Code.
18.A criminal conviction for an unlawful activity is not a prerequisite for the institution of a civil
forfeiture proceeding.
19.Stated otherwise, a finding of guilt for an unlawful activity is not an essential element of civil
forfeiture.
a. Section 6 of RA 9160, as amended, provides:
i. SEC. 6. Prosecution of Money Laundering. –
1. Any person may be charged with and convicted of both the offense of money
laundering and the unlawful activity as herein defined;
2. Any proceeding relating to the unlawful activity shall be given precedence
over the prosecution of any offense or violation under this Act without
prejudice to the freezing and other remedies provided. (emphasis
supplied)
b. Rule 6.1 of the Revised Implementing Rules and Regulations of RA 9160, as amended,
states:
i. Rule 6.1. Prosecution of Money Laundering –
1. Any person may be charged with and convicted of both the offense of money
laundering and the unlawful activity as defined under Rule 3(i) of the AMLA.
2. Any proceeding relating to the unlawful activity shall be given precedence
over the prosecution of any offense or violation under the AMLA without
prejudice to the application ex-parte by the AMLC to the Court of Appeals
for a freeze order with respect to the monetary instrument or property
involved therein and resort to other remedies provided under the AMLA,
the Rules of Court and other pertinent laws and rules. (emphasis
supplied)
20.There Was No Failure To Prosecute
a. In Marahay v. Melicor,18 this Court ruled:
i. While a court can dismiss a case on the ground of non prosequitur, the real test for
the exercise of such power is whether, under the circumstances, plaintiff is
chargeable with want of due diligence in failing to proceed with reasonable
promptitude.
ii. In the absence of a pattern or scheme to delay the disposition of the case or a
wanton failure to observe the mandatory requirement of the rules on the part
of the plaintiff, as in the case at bar, courts should decide to dispense with
rather than wield their authority to dismiss. (emphasis supplied)
21.We see no pattern or scheme on the part of the Republic to delay the disposition of the case or a
wanton failure to observe the mandatory requirement of the rules. The trial court should not have
so eagerly wielded its power to dismiss the Republic’s complaint.
FINANCIAL REHABILITATION AND INSOLVENCY ACT OF 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.
2. Verified petition.
3. Allege insolvency and viability of rehabilitation. (these are necessary)
4. 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
 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
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” – 2 nd

paragraph, Sec. 64 FRIA; Sec. 62, Rule 2, A.M. 12-12-11-SC.

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SPECIAL COMMERCIAL LAWS NOTES

(based on Atty. Gumabon’s syllabus and discussions)

SPECIAL COMMERCIAL LAW

Questions usually from FRIA

BANKING AND ALLIED LAWS

I. NATURE AND CONCEPT OF BANKING LAWS

2 Primary Laws in Banking Laws

1. “The General Banking Act of 2000” (GBL) or RA 337, as amended by RA 8791

🡪BDO, BPI, RCBI, LBP

*banks are highly regulated institution

Primary business of a banks is to lend money.

The fund of the bank come from deposits of the public.

A bank must be distinguished from a quasi-bank

🡪both has the purpose of lending money to the public

*a quasi-bank’s funds came from the public through a deposit substitute

🡪defined in Lending Company Regulation Act of 2007 (RA 9474) –

PDIC v. Citibank (2012)

Can a bank operate as sole proprietorship?

Can a bank operate as partnership?

8.1. That the entity is a stock corporation;

*all banks are stock corporations

Stock corporation v. Non-stock corporation

All other corporations are nonstock corporations (Sec. 3, RA 11232).

Sec. 14, GBL - Certificate of Authority to Register. —

thereto, unless accompanied by a certificate of authority from the Bangko Sentral.

Provided, That banks shall issue par value stocks only.

*no par value has issued value

Can a bank acquire/purchase treasury shares?

Yes, subject to conditions:

2. Degree of care of bank in view of fiduciary nature of banking

Default degree of diligence is the diligence of a good father of a family

Alano v. Planter’s Development Bank (2011)

China Banking Corp. v. Lagon (2006)

Sps. Jalbay v. PNB (2015)

(should be compared with Alano v. Planter’s Development Bank)

Citibank v. Cabamongan (2006)

BPI Family Savings Bank, Inc. v. First Metro

Go v. Metropolitan Bank and Trust and Co.

*limitation of cross check: it is for deposit and not for encashment.

Firestone Tire & Rubber Company of the

BPI v. Tarcila Fernandez (2015)

Prudential Bank v. CA (1993)

Prudential Bank v. Lim (2005)

transactions like the issuance or encashment of checks.

Metropolitan Bank v. Custodio (2011)

PCI Bank v. CA (1996)

BPI v. Casa Montessori Internationale (2004)

3. Strikes and Lockouts

If the stoppage of work is initiated by the workers or employees, there is a strike.

If the stoppage of work is initiated by the employer, there is a lockout.

What will happen if there is a strike or a lockout in banks?

What is the reason of assumption of jurisdiction?

II. CLASSIFICATION OF BANKS

Sec 3.2, GBL - Banks shall be classified into:

● Why are banks classified as such?

- because banks are classified according to capitalization

RA 7906 or “Thrift Banks Act of 1995”

RA 7353 or “Rural Bank Act of 1992”

- It will depend on the extent of operation of the bank

● AS TO THE APPOINTMENT AN APPOINTIVE ELECTIVE PUBLIC OFFICER AS PART OF THE

NOTE: AN EX OFFICIO POSITION - automatically becomes a member of the board of directors by

● AS TO INITIAL PUBLIC OFFERING (IPO)

THERE ARE SEVEN CLASSIFICATIONS OF A BANK