SPCL Reviewer (11/08)
Group 4 Coverage: Banking Laws
Prohibitive Transactions + Cases
a. Single Borrower’s Limit
b. Restrictions of Bank Exposure to DOSRI
(Directors, Officers, Stockholders, and
their Related Interests)
- Go vs. Banko Sentral GR No.
178429
- Soriano vs. People GR No. 162336
- Republic vs. Sandiganbayan 648
SCRA 47
GENERAL BANKING LAW OF 2000
Republic Act No. 8791
Single Borrower’s Limit
Limitations imposed upon banks banks with
respect to its LOAN FUNCTIONS
General Rule: Single Borrower’s Limit – The total
amount of loans, credit accommodations, and
guarantees that the bank could grant should at no
time exceed 25% of the bank’s net worth.
Exceptions:
a. As the Monetary Board may otherwise
prescribe for reasons of national interest
b. Deposits of rural banks with GOCC financial
institutions like LBP, DBP, and PNB.
Related Provisions under General Banking Law
Sec. 35.2 Unless the Monetary Board prescribes
otherwise, the total amount of loans, credit
accommodations and guarantees prescribed in
the preceding paragraph 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 trust
receipts, shipping documents, warehouse
receipts or other similar documents transferring
or securing title covering readily marketable,
non-perishable goods which must be fully covered
by insurance.
Sec. 37 Loans and other Credit Accommodation
AGAINST REAL ESTATE — Except as the
Monetary Board may otherwise prescribe, loans
and other credit accommodations against real
estate shall not exceed seventy-five percent
(75%) of the appraised value of the respective
real estate security, plus sixty percent (60%) of
the appraised value of the insured
improvements, and such loans may be made to
the owner of the real estate or to his assignees.
Sec. 38 Loans and other Credit
Accommodations on SECURITY OF CHATTELS
AND INTANGIBLE PROPERTIES —- Except as
the Monetary Board may otherwise prescribe, loans
and other credit accommodations on security of
chattels and intangible properties such as, but
not limited to, patents, trademarks, trade
names, and copyrights shall not exceed
seventy-five percent (75%) of the appraised
value of the security, any such loans and other
credit accommodation may be made to the
title-holder of the chattels and intangible properties
or his assignees.
Section 44 Amortization on Loans and Other
Credit Accommodations — The amortization
schedule of bank loans and other credit
accommodations shall be adapted to the nature
of the operations to be financed. In case of loans
and other credit accommodations with maturities
of more than five (5) years, provisions must be
made for periodic amortization payments, but
such payments must be made at least annually:
Provided, however, That when the borrowed funds
are to be used for purposes which do not initially
produce revenues adequate for regular
amortization payments therefrom, the bank may
permit the initial amortization payment to be
deferred until such time as said revenues are
sufficient for such purpose, but in no case shall the
initial amortization date be later than five (5) years
from the date on which the loan or other credit
accommodation is granted. In case of loans and
other credit accommodations to micro finance
sectors, the schedule of loan amortization shall
take into consideration the projected cash flow
of the borrower and adopt this into the terms and
conditions formulated by banks.
→ Loans being contractual, the period of
payment may be subject to the stipulation by the
parties.
→ In the case of amortization, the
amortization schedule has no fixed period as it
depends on the project to be financed such that if it
was capable of raising revenues, it should be at
least once a year with a grace period of 3 years if
the project to be financed is not that profitable
which could be deferred up to 5 years if the project
is not capable of raising revenues.
Loans granted to DOSRI
1. Directors
2. Officers
3. Stockholders, having at least 1% ownership
over the bank
4. Related Interests, such as DOS’ spouses,
their relatives within the first degree,
whether by affinity or consanguinity,
partnership whereby DOS is a partner or a
corporation where DOS owns at least 20%
[Jose GO vs. Banko Sentral]
FACTS: Jose Go, the Director and the President
and Chief Executive Officer of the Orient
Commercial Banking Corporation (Orient Bank)
was charged before the RTC for violation of Section
83 of RA 337 or the General Banking Act. Go
allegedly borrowed the deposits/funds of the Orient
Bank and/or acting as guarantor, indorser of obligor
for loans to other persons. He then used the
borrowed deposits/funds in facilitating and granting
and/or of credit lines/loans to the New Zealand
Accounts loans in the total amount of PHP
2,754,905,857. He completed the alleged
transaction without the written approval of the
majority of the Board of Directors of said Orient
Bank.
Go then filed a motion to quash the Information. He
averred that the use of the word "and/or" meant
that he was charged for being either a borrower or
a guarantor, or for being both. Thus the charge do
not constitute an offense. That the Section 83 of RA
337 penalized only directors and officers xxx who
acted either as borrower or as guarantor, but not as
both. Also that the Information did not constitute an
offense since the information failed to state the
amount he purportedly borrowed. According to Go,
the second paragraph of Section 83, serves as an
exception to the first paragraph which allows the
banks to extend credit accommodations to their
directors, officers, and stockholders, provided it is
"limited to an amount equivalent to the respective
outstanding deposits and book value of the paid-in
capital contribution in the bank."
ISSUE/S:
1) Whether or not the allegation that Go acted as
borrower or gurantor rendered the information
defective? NO
2) Whether or not the failure to state that Go
borrowed beyond the limit of his outstanding
deposits and book value of the paid-in capital
contribution in the bank rendered the Information
defective? NO
RULING:
The following elements of violation of Section 83
of RA 337 which must be present to constitute a
violation of its first paragraph:
1. the offender is a director or officer of any
banking institution;
2. the offender, either directly or indirectly, for
himself or as representative or agent of another,
performs any of the following acts:
a. he borrows any of the deposits or funds
of such bank; or
b. he becomes a guarantor, indorser, or
surety for loans from such bank to others, or
c. he becomes in any manner an obligor for
money borrowed from bank or loaned by it;
3. the offender has performed any of such acts
without the written approval of the majority of
the directors of the bank, excluding the offender, as
the director concerned.
The language of the law is broad enough to
encompass either act of borrowing or
guaranteeing, or both. Banks were not created
for the benefit of their directors and officers;
they cannot use the assets of the bank for their
own benefit, except as may be permitted by law.
Congress has thus deemed it essential to impose
restrictions on borrowings by bank directors and
officers in order to protect the public, especially the
depositors. Hence, when the law prohibits directors
and officers of banking institutions from becoming
in any manner an obligor of the bank (unless with
the approval of the board), the terms of the
prohibition shall be the standards to be applied to
directors' transactions such as those involved in the
present case.
Credit accommodation limit is not an exception nor
is it an element of the offense as contrary to Go’s
claims.
Section 83 of RA 337 actually imposes three
restrictions: approval, reportorial, and ceiling
requirements.
The approval requirement (found in the first
sentence of the first paragraph of the law) refers to
the written approval of the majority of the
bank’s board of directors required before bank
directors and officers can in any manner be an
obligor for money borrowed from or loaned by
the bank. Failure to secure the approval renders
the bank director or officer concerned liable for
prosecution and, upon conviction, subjects him to
the penalty provided in the third sentence of first
paragraph of Section 83.
The reportorial requirement, on the other hand,
mandates that any such approval should be
entered upon the records of the corporation,
and a copy of the entry be transmitted to the
appropriate supervising department. The
reportorial requirement is addressed to the bank
itself, which, upon its failure to do so, subjects it to
quo warranto proceedings under Section 87 of RA
337.
The ceiling requirement under the second
paragraph of Section 83 regulates the amount of
credit accommodations that banks may extend
to their directors or officers by limiting these to
an amount equivalent to the respective
outstanding deposits and book value of the
paid-in capital contribution in the bank. Again,
this is a requirement directed at the bank. In this
light, a prosecution for violation of the first
paragraph of Section 83, such as the one involved
here, does not require an allegation that the loan
exceeded the legal limit. Even if the loan involved is
below the legal limit, a written approval by the
majority of the bank’s directors is still required;
otherwise, the bank director or officer who becomes
an obligor of the bank is liable. Compliance with the
ceiling requirement does not dispense with the
approval requirement.
Evidently, the failure to observe the three
requirements under Section 83 paves the way for
the prosecution of three different offenses, each
with its own set of elements. A successful
indictment for failing to comply with the approval
requirement will not necessitate proof that the other
two were likewise not observed.
[Hilario SORIANO vs. People, BSP, PDIC, et al]
A bank officer violates DOSRI Law when he
acquires bank funds for his personal benefit, even if
such acquisition was facilitated by a fraudulent loan
application. DOSRI cannot be allowed to interpose
the fraudulent nature of the loan as a defense to
escape culpability for their circumvention under
Sec. 83 of RA No. 337
Section 83. No director or officer of any banking
institution shall, either directly or indirectly, for
himself or as the representative or agent of others,
borrow any of the deposits of funds of such bank,
nor shall he become a guarantor, indorser, or surety
for loans from such bank to others, or in any
manner be an obligor for moneys 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 Superintendent of
Banks. The office of any director or officer of a bank
who violates the provisions of this section shall
immediately become vacant and the director or
officer shall be punished by imprisonment of not
less than one year nor more than ten years and by
a fine of not less than one thousand nor more than
ten thousand pesos.
In addition to the conditions established in the
preceding paragraph, no director of a building and
loan association shall engage in any of the
operations mentioned in said paragraph except
upon the pledge of shares of the association having
a total withdrawal value greater than the amount
borrowed.
FACTS: Sometime in 2000, the OSI (Office of
Special Investigation) of the BSP, through its
officers submitted a letter to Jovencito Zuno, Chief
State Prosec of DOJ. Said letter attached as
annexes 5 affidavits, which would allegedly serve
as a bases for filing criminal charges for Estafa thru
Falsification of Commercial Documents, in relation
to PD No. 1689, and for violation of Sec. 83 of RA
337, as amended, against petitioner Hilario
Soriano.
- Spouses Enrico and Amalia Carlos
appeared to have an outstanding loan of P8
million with the Rural Bank of San Miguel,
Bulacan but had never applied for nor
received such loan;
- That it was petitioner, who was then
president of RBSM, who had ordered,
facilitated, and received the proceeds of the
loan
- That the P8 million loan had never been
authorized by RBSM’s Board of Directors
and no report thereof had ever been
submitted to the Department of Rural
Banks, Supervision and Examination Sector
of the BSP.
The letter of the OSI, which was not subscribed
under oath, ended with a request that a preliminary
investigation be conducted and the corresponding
criminal charges be filed against petitioner at his
last known address.
State Prosecutor Albert R. Fonacier proceeded with
the PI. The investigating officer issued a Resolution
finding probable cause and correspondingly filed
two separate informations against petitioner before
the Regional Trial Court (RTC) of Malolos, Bulacan.
The first Information docketed as Criminal Case
No. 237-M2001, was for estafa through
falsification of commercial documents, under
Article 315, paragraph 1(b), in relation to Article 172
of the RPC and PD 1689. It basically alleged that
petitioner and his co-accused, in abuse of the
confidence reposed in them as RBSM officers,
caused the falsification of a number of loan
documents, making it appear that one Enrico
Carlos filled up the same, and thereby succeeded
in securing a loan and converting the loan proceeds
for their personal gain and benefit.
The Second Information docketed as Criminal
Case No. 238- M-2001, was for violation of
Section 83 of RA 337, as amended by PD 1795.
The said provision refers to the prohibition against
the so-called DOSRI loans. The information alleged
that, in his capacity as President of RBSM,
petitioner indirectly secured an P8 million loan
with RBSM, for his personal use and benefit,
without the written consent and approval of the
bank's Board of Directors, without entering the
said transaction in the bank's records, and without
transmitting a copy of the transaction to the
supervising department of the bank. His ruse was
facilitated by placing the loan in the name of an
unsuspecting RBSM depositor, one Enrico Carlos.
Petitioner’s Contention: Petitioner moved to
quash these informations on two grounds: that
the court had no jurisdiction over the offense
charged, and that the facts charged do not
constitute an offense.
Petitioner contended that the commission of
estafa under RPC is inherently incompatible
with the violation of DOSRI of RA 337, as
amended by PD 1795), hence a person cannot be
charged for both offenses. He argued that a
violation of DOSRI law requires the offender to
obtain a loan from his bank, without complying with
procedural, reportorial, or ceiling requirements. On
the other hand, estafa under RPC requires the
offender to misappropriate or convert something
that he holds in trust, or on commission, or for
administration, or under any other obligation
involving the duty to return the same.
Petitioner theorized that the characterization of
possession is different in the two offenses. If
petitioner acquired the loan as DOSRI, he owned
the loaned money and therefore, cannot
misappropriate or convert it as contemplated in the
offense of estafa. Conversely, if petitioner
committed estafa, then he merely held the money
in trust for someone else and therefore, did not
acquire a loan in violation of DOSRI rules.
RTC Ruling: Ruled in favor of the respondents.
CA RULING: The CA denied the petition on both
issues presented by petitioner.
Petitioners Motion for Reconsideration was likewise
denied for lack of merit. Hence, this petition.
ISSUE: 1. W/N a loan transaction within the ambit
of the DOSRI law could also be the subject of
Estafa under the RPC? YES
HELD: We have examined the two informations
against petitioner and we find that they contain
allegations which, if hypothetically admitted, would
establish the essential elements of the crime of
DOSRI violation and estafa thru falsification of
commercial documents.
Petitioner raises the theory that he could not
possibly be held liable for estafa in concurrence
with the charge for DOSRI violation. According to
him, the DOSRI charge presupposes that he
acquired a loan, which would make the loan
proceeds his own money and which he could
neither possibly misappropriate nor convert to the
prejudice of another, as required by the statutory
definition of estafa. On the other hand, if petitioner
did not acquire any loan, there can be no DOSRI
violation to speak of. Thus, petitioner posits that the
two offenses cannot co-exist. This theory does not
persuade us.
Petitioners theory is based on the false premises
that the loan was extended to him by the bank in
his own name, and that he became the owner of
the loan proceeds. Both premises are wrong.
The bank money (amounting to P8 million)
which came to the possession of petitioner was
money held in trust or administration by him for
the bank, in his fiduciary capacity as the
President of said bank. It is not accurate to say
that petitioner became the owner of the P8 million
because it was the proceeds of a loan. That would
have been correct if the bank knowingly extended
the loan to petitioner himself. But that is not the
case here. According to the information for estafa,
the loan was supposed to be for another person, a
certain Enrico Carlos; petitioner, through
falsification, made it appear that said Enrico Carlos
applied for the loan when in fact he (Enrico Carlos)
did not. Through such fraudulent device, petitioner
obtained the loan proceeds and converted the
same. Under these circumstances, it cannot be
said that petitioner became the legal owner of the
P8 million. Thus, petitioner remained the banks
fiduciary with respect to that money, which makes it
capable of misappropriation or conversion in his
hands.
The next question is whether there can also be,
at the same time, a charge for DOSRI violation
in such a situation wherein the accused bank
officer did not secure a loan in his own name,
but was alleged to have used the name of
another person in order to indirectly secure a
loan from the bank. We answer this in the
affirmative.
Section 83 of RA 337 reads: Section 83. No
director or officer of any banking institution shall,
either directly or indirectly, for himself or as the
representative or agent of others, borrow any of the
deposits of funds of such bank, nor shall he
become a guarantor, indorser, or surety for loans
from such bank to others, or in any manner be an
obligor for moneys 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 Superintendent of Banks. The office of any
director or officer of a bank who violates the
provisions of this section shall immediately become
vacant and the director or officer shall be punished
by imprisonment of not less than one year nor more
than ten years and by a fine of not less than one
thousand nor more than ten thousand pesos. x x x
The prohibition in Section 83 is broad enough
to cover various modes of borrowing. It covers
loans by a bank director or officer (like herein
petitioner) which are made either: (1) directly, (2)
indirectly, (3) for himself, (4) or as the
representative or agent of others. It applies even
if the director or officer is a mere guarantor,
indorser or surety for someone else's loan or is in
any manner an obligor for money borrowed from
the bank or loaned by it. The covered transactions
are prohibited unless the approval, reportorial and
ceiling requirements under Section 83 are complied
with.
The prohibition is intended to protect the public,
especially the depositors from the overborrowing of
bank funds by bank officers, directors, stockholders
and related interests, as such overborrowing may
lead to bank failures. It has been said that banking
institutions are not created for the benefit of the
directors [or officers]. While directors have great
powers as directors, they have no special privileges
as individuals. They cannot use the assets of the
bank for their own benefit except as permitted by
law. Stringent restrictions are placed about them so
that when acting both for the bank and for one of
themselves at the same time, they must keep within
certain prescribed lines regarded by the legislature
as essential to safety in the banking business.
A direct borrowing is obviously one that is made
in the name of the DOSRI himself or where the
DOSRI is a named party, while an indirect
borrowing includes one that is made by a third
party, but the DOSRI has a stake in the transaction.
The latter type indirect borrowing applies here.
The information in Criminal Case 238-M-2001
alleges that petitioner in his capacity as President
of Rural Bank of San Miguel San Ildefonso branch
x x x indirectly borrow[ed] or secure[d] a loan with
[RBSM] x x x knowing fully well that the same has
been done by him without the written consent and
approval of the majority of the board of directors x x
x, and which consent and approval the said
accused deliberately failed to obtain and enter the
same upon the records of said banking institution
and to transmit a copy thereof to the supervising
department of the said bank x x x by using the
name of one depositor Enrico Carlos x x x, the
latter having no knowledge of the said loan, and
once in possession of the said amount of eight
million pesos (P8 million), [petitioner] converted the
same to his own personal use and benefit.
The foregoing information describes the manner of
securing the loan as indirect; names petitioner as
the benefactor of the indirect loan; and states that
the requirements of the law were not complied with.
It contains all the required elements for a violation
of Section 83, even if petitioner did not secure the
loan in his own name.
The broad interpretation of the prohibition in
Section 83 is justified by the fact that it even
expressly covers loans to third parties where the
third parties are aware of the transaction (such as
principals represented by the DOSRI), and where
the DOSRIs interest does not appear to be
beneficial but even burdensome (such as in cases
when the DOSRI acts as a mere guarantor or
surety). If the law finds it necessary to protect the
bank and the banking system in such situations, it
will surely be illogical for it to exclude a case like
this where the DOSRI acted for his own benefit,
using the name of an unsuspecting person. A
contrary interpretation will effectively allow a
DOSRI to use dummies to circumvent the
requirements of the law.
… Soriano Case
DOCTRINE:
➔ The prohibition in Section 83 is broad
enough to cover various modes of
borrowing. It covers loans by a bank director
or officer which are made either: (1) directly,
(2) indirectly, (3) for himself, (4) or as the
representative or agent of others. It applies
even if the director or officer is a mere
guarantor, indorser or surety for someone
else's loan or is in any manner an obligor for
money borrowed from the bank or loaned by
it. The covered transactions are prohibited
unless the approval, reportorial and ceiling
requirements under Section 83 are
complied with.
➔ A direct borrowing is obviously one that is
made in the name of the DOSRI himself or
where the DOSRI is a named party, while
an indirect borrowing includes one that is
made by a third party, but the DOSRI has a
stake in the transaction.
[Republic vs. Sandiganbayan]
Firstly, as earlier pointed out, the Republic
adduced no evidence on the significant particulars
of the supposed loan, like the amount, the actual
borrower, the approving official, etc. It did not also
establish whether or not the loans were DOSRI or
issued in violation of the Single Borrower’s Limit.
Secondly, the Republic could not outrightly
assume that President Marcos had issued LOI 926
for the purpose of allowing the loans by the UCPB
in favor of Cojuangco. There must be competent
evidence to that effect. And, finally, the loans,
assuming that they were of a DOSRI nature or
without the benefit of the required approvals or in
excess of the Single Borrower’s Limit, would not be
void for that reason. Instead, the bank or the
officers responsible for the approval and grant of
the DOSRI loan would be subject only to sanctions
under the law.
FACTS: For over two decades, the issue of
whether the sequestered sizable block of
shares representing 20% of the outstanding
capital stock of San Miguel Corporation (SMC)
at the time of acquisition belonged to their
registered owners or to the coconut farmers has
remained unresolved.
The Republic argues and concludes that
Cojuangco took money from the bank entrusted by
law with the administration of coconut levy funds
and was placed treating the funds of UCPB and the
CIIF as his own personal capital to buy his SMC
shares. The republic suggests that Cojuangco had
been enabled to obtain the loans by the issuance of
LOI 926 exempting the UCPB from the DOSRI and
Single Borrower’s Limit restrictions.

ISSUE: Whether or not there was a violation of the

DOSRI and Single Borrower’s restriction. (NO)

RULING: The Republic’s lack of proof on the

source of the funds by which Cojuangco, et al. had
acquired their block of SMC shares has made it
shift its position, that it now suggests that
Cojuangco had been enabled to obtain the loans by
the issuance of LOI 926 exempting the UCPB from
the DOSRI and the Single Borrower’s Limit
restrictions. We reject the Republic’s suggestion.