Banking & Allied Laws | Atty.
Jhoel Raquedan
BANKING
BANKS & OTHER FINANCIAL INTERMEDIARIES
- Indispensable to our economy
- One of the most highly regulated sectors in the PH economy
Financial Intermediaries
- Medium
- May be banks or non-banks
- Components of a financial market that move funds from
people who save to people who have productive investment
opportunities
- Persons or entities whose principal functions include the
lending, investing or placement of funds or evidences of
indebtedness or equity deposited with them, acquired by them,
or otherwise coursed through them either for their own
account or for the account of others
Financial Markets
- An agglomeration of financial transactions in securities
performed by market participants that works to transfer the
funds from the surplus units
BDO vs. RCBC
- Financial markets provide the channel through which funds
from the surplus units (households and business firms that
have savings or excess funds) flow to the deficit units (mainly
business firms and government that need funds to finance their
operations or growth). They bring suppliers and users of funds
together and provide the means by which the lenders
transform their funds into financial assets, and the borrowers
receive these funds now considered as their financial
liabilities. The transfer of funds is represented by a security,
such as stocks and bonds. Fund suppliers earn a return on their
investment; the return is necessary to ensure that funds are
supplied to the financial markets.
- The financial markets that facilitate the transfer of debt
securities are commonly classified by the maturity of the
securities[,]" namely: (1) the money market, which facilitates
the flow of short-term funds (with maturities of one year or
less); and (2) the capital market, which facilitates the flow of
long-term funds (with maturities of more than one year).
- Whether referring to money market securities or capital
market securities, transactions occur either in the primary
market or in the secondary market.
- Primary markets facilitate the issuance of new securities.
- Secondary markets facilitate the trading of existing
securities, which allows for a change in the ownership of the
securities." The transactions in primary markets exist between
issuers and investors, while secondary market transactions
exist among investors.
- Over time, the system of financial markets has evolved from
simple to more complex ways of carrying out financial
transactions." Still, all systems perform one basic function: the
quick mobilization of money from the lenders/investors to the
borrowers.
- Fund transfers are accomplished in three ways:
- (1) direct finance;
- (2) semidirect finance; and
- (3) indirect finance.
- With direct financing, the "borrower and lender meet each
other and exchange funds in return for financial assets" (e.g.,
purchasing bonds directly from the company issuing them).
This method provides certain limitations such as: (a) "both
borrower and lender must desire to exchange the same amount
of funds at the same time"[;] and (b) "both lender and
borrower must frequently incur substantial information costs
simply to find each other."
- Semidirect financing, a securities broker or dealer brings
surplus and deficit units together, thereby reducing
information costs.
- A Broker is "an individual or financial institution who
provides information concerning possible purchases and sales
of securities. Either a buyer or a seller of securities may
contact a broker, whose job is simply to bring buyers and
sellers together."
- A dealer “also serves as a middleman between buyers and
sellers, but the dealer actually acquires the seller’s securities in
the hope of selling them at a later time at a more favorable
price.” Frequently, “a dealer will split up a large issue of
primary securities into smaller units affordable by . . .
buyers . . . and thereby expand the flow of savings into
investment.” In semi direct financing, “[t]he ultimate lender
still winds up holding the borrower’s securities, and therefore
CruzAR | JD 3 | AUF-SOL (2020)
the lender must be willing to accept the risk, liquidity, and
maturity characteristics of the borrower’s [debt security].
There still must be a fundamental coincidence of wants and
needs between [lenders and borrowers] for semidirect
financial transactions to take place.”
Fidelity Savings and Mortgage Bank vs. Cenzon
- 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.
- 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.
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. Conventional wisdom dictates this inexorable fair and
just conclusion. And it can be said that all who deposit money
in banks are aware of such a simple economic proposition.
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.
- If the bank stops its operations, the interest also stops. This is
based on equity.
KINDS OF FINANCIAL INTERMEDIARIES:
1) Lending Companies
- Engaged in granting loans from its own capital funds or
from funds sourced from not more than 19 persons
- Synonymous to lending investors
- NOT include banking institutions, investment houses,
savings & loan associations, financing companies,
pawnshops, insurance companies, cooperatives and other
credit institutions already regulated by law
2) Savings and Loan Associations
- Non-stock, non-profit corporation engaged in the business
of accumulating the savings of its members and using such
accumulations for loans to members to service the needs of
households by providing long-term financing for home
building and development and for personal finance
- NOT allowed to transact with the general public, only to its
members
- Funds from members ONLY → What differs from bank
3) Financing Companies
- Primarily organised for the purpose of extending credit
facilities to consumers and to industrial, commercial or
agricultural enterprises, either by direct lending or by
discounting or factoring commercial papers or accounts
receivable, or by buying and selling contracts, leases,
chattel mortgages, or other evidences of indebtedness, or
by financial leasing of movable as well as immovable
property
- NOT include banks, investment houses, savings and loan
associations, insurance companies, cooperatives and other
financial institutions organised or operating under other
special laws
4) Insurance Companies
- Part of the total premiums paid by the policyholders is
invested in different activities subject to pertinent
regulations
5) Investment Houses
- Power includes:
(a) To arrange to distribute on a guaranteed basis securities
of other corporations and of the Government or its
instrumentalities
(b) To participate un a syndicate undertaking to purchase
and sell, distribute or arrange to distribute on a
guaranteed basis securities of other corporations and of
the Government or its instrumentalities
(c) To arrange to distribute or participate in a syndicate
undertaking to purchase and sell on a best-efforts basis
securities of other corporations and of the Government
or its instrumentalities
(d) Subject to prior approval by the Monetary Board, to
engage in foreign exchange operations
"1
Banking & Allied Laws | Atty. Jhoel Raquedan
6) Investment Company
- Primarily engaged or holds itself out as being engaged
primarily, or proposes to engage, in the business of
investing, reinvesting and trading in securities
7) Pawnshop
- Engaged in the business of lending money on personal
property delivered as security for loans
- Personal property is the main consideration
- As against banks, where the personal property is only
for security and collateral, as fallback in case of default.
8) Quasi-banks
- Engaged in the borrowing of funds through the issuance,
endorsement or assignment with recourse or acceptance of
deposit substitutes for purposes of relending or purchasing
of receivables and other obligations
- Do NOT accept deposits
- Source is deposit substitutes or other obligations.
- As against banks, where the source is deposit of its
depositors.
9) Trust Corporations
- Authorised by the BSP to engage in trust and other
fiduciary business
BANKS
- Entities engaged in the lending of funds obtained in the form
of deposits
- Requisites:
1) Stock corporation; and
2) Its funds must be obtained from the public (deposits for
20 or more persons)
- 2-fold purpose of its regulation:
1) To protect the public that banks serve; and
2) To attain and preserve a dependable and sound banking
system, thereby promoting a stable and robust economy
- BUSINESS: To have a place where deposits are received and
paid out and where money is loaned on security
- Remember: Even if the entity is referred to by a different
name, it is still considered a bank if it performs such basic
functions.
- CORE FUNCTIONS:
1) Deposit-taking
2) Lending
- NOTE: If the core functions are not present, it CANNOT
be considered as a bank.
- But there are additional functions of the bank, such as
payment functions and other functions depending on the type
of bank (quasi-banking, provider of safety deposit boxes, etc.)
NOTE: There are so many financial intermediaries (as discussed
above), and the bank is only one of them.
Banas vs. Asia Pacific
- Indubitably, what is prohibited by law is for investment
companies to lend funds obtained from the public through
receipts of deposit, which is a function of banking institutions.
But here, the funds supposedly “lent” to petitioners have not
been shown to have been obtained from the public by way of
deposits, hence, the inapplicability of banking laws.
- The transaction between petitioners and respondent was one
involving not a loan but purchase of receivables at a discount,
well within the purview of "investing, reinvesting or trading in
securities" which an investment company is authorized to
perform and does not constitute a violation of the General
Banking Act.
- Banking laws are inapplicable in this case because it was not
established that respondent was engaged in banking functions.
Central Bank of the Philippines vs. CA
- There was neither arbitrariness nor bad faith in the issuance of
MB Resolutions Nos. 649 and 751 (which refer to a
recommended rehabilitation plan). It must be stressed in this
connection that the banking business is properly subject to
reasonable regulation under the police power of the state
because of its nature and relation to the fiscal affairs of the
people and the revenues of the state. Banks are affected with
public interest because they receive funds from the general
public in the form of deposits. Due to the nature of their
transactions and functions, a fiduciary relationship is created
between the banking institutions and their depositors.
Therefore, banks are under the obligation to treat with
CruzAR | JD 3 | AUF-SOL (2020)
meticulous care and utmost fidelity the accounts of those who
have reposed their trust and confidence in them.
- It is then Government's responsibility to see to it that the
financial interests of those who deal with banks and banking
institutions, as depositors or otherwise, are protected. In this
country, that task is delegated to the Central Bank which,
pursuant to its Charter, is authorized to administer the
monetary, banking and credit system of the Philippines. Under
both the 1973 and 1987 Constitutions, the Central Bank is
tasked with providing policy direction in the areas of money,
banking and credit; corollarily, it shall have supervision over
the operations of banks. Under its charter, the CB is further
authorized to take the necessary steps against any banking
institution if its continued operation would cause prejudice to
its depositors, creditors and the general public as well.
- Unless adequate and determined efforts are taken by the
government against distressed and mismanaged banks, public
faith in the banking system is certain to deteriorate to the
prejudice of the national economy itself, not to mention the
losses suffered by the bank depositors, creditors, and
stockholders, who all deserve the protection of the
government. The government cannot simply cross its arms
while the assets of a bank are being depleted through
mismanagement or irregularities. It is the duty of the Central
Bank in such an event to step in and salvage the remaining
resources of the bank so that they may not continue to be
dissipated or plundered by those entrusted with their
management.
GENERAL BANKING LAW OF 2000 (RA 8791)
- Effectivity: June 13, 2000
- Provides for the regulation of the organization and operation
of banks, quasi-banks, trust entities, and other purposes
NEW CENTRAL BANK ACT (RA 7653)
- Passage: June 14, 1993
- Another law which contains provisions on regulations of
banks
In re: Petition for Assistance in the Liquidation of the Rural
Bank of Bokod (Benguet), Inc.
- It is conceded that the SEC has the authority to order the
dissolution of a corporation pursuant to Section 121 of BP 68,
otherwise known as the Corporation Code of the Philippines.
- The Corporation Code, however, is a general law applying to
all types of corporations, while the New Central Bank Act
regulates specifically banks and other financial institutions,
including the dissolution and liquidation thereof. As between a
general and special law, the latter shall prevail – generalia
specialibus non derogant.
CLASSIFICATION OF BANKS
UNIVERSAL BANKS
- Banks that have the authority to exercise, in addition to the
powers of a commercial bank, the powers of an investment
house and the power to invest in non-allied enterprises
- Commercial + Investment house + Invest in non-allied
enterprises
INVESTMENT HOUSE
- Engages or purports to engage, whether regularly to on an
isolated basis, in underwriting of securities of another person
or enterprise, including securities of the Government and its
instrumentalities
COMMERCIAL BANKS
- Banks that are given, in addition to the general powers
incident to corporations, all such powers as may be necessary
to carry on the business of commercial banking
- Powers include:
1) Accepting drafts
2) Issuing letters of credit
3) Discounting and negotiating promissory notes, drafts,
bills of exchange, and other evidences of debt
4) Accepting or creating demand deposits
5) Receiving other types of deposits and deposit substitutes
6) Buying and selling foreign exchange and gold or silver
bullion
7) Acquiring marketable bonds and other debt securities
8) Extending credit
9) Invest in the equities of allied enterprises
10) Purchase, hold and convey real estate
11) Receive in custody funds, documents and valuable
objects
"2
Banking & Allied Laws | Atty. Jhoel Raquedan
12) Act as financial agent and buy and sell, by order of and
for the account of customers, shares, evidence of
indebtedness and all types of securities
13) Make collections and payments for the account of others
and perform such other services for their customers as
are not incompatible with banking business
14) Act as managing agent, adviser, consultant or
administrator of investment management/advisory/
consultancy accounts
15) Engage in quasi-banking functions
COOPERATIVE BANKS
- Organised for the primary purpose of providing a wide range
of financial services to cooperatives and their members (may
also provide services to non-members)
- May also perform other functions that are being performed by
other banks subject to prior approval of BSP
RURAL BANKS
- To make needed credit available and readily accessible in the
rural areas on reasonable terms
- To help the underdeveloped
THRIFT BANKS
- Include savings and mortgage banks, private development
banks, and stock savings and loans associations organized
under existing laws, and any banking corporation that may be
organized for the following purposes:
1) Accumulating the savings of depositors and investing
them, together with capital loans secured by bonds,
mortgages in real estate and insured improvements
thereon, chattel mortgage, bonds and other forms of
security or in loans for personal or household finance,
whether secured or unsecured, or in financing for
homebuilding and home development; in readily
marketable and debt securities; in commercial papers
and accounts receivables, drafts, bills of exchange,
acceptances or notes arising out of commercial
transactions; and in such other investments and loans
which the Monetary Board may determine as necessary
in the furtherance of national economic objectives;
2) Providing short-term working capital, medium- and
long-term financing, to businesses engaged in
agriculture, services, industry and housing; and
3) Providing diversified financial and allied services for its
chosen market and constituencies specially for small
and medium enterprises and individuals.
- State policies:
1) Recognize the indispensable role of the private sector, to
encourage private enterprise, and to provide incentives
to needed investments;
2) Promote economic development pursuant to the
socioeconomic program of the government, to expand
industrial and agricultural growth, to encourage the
establishment of more private thrift banks in order to
meet the needs for capital, personal and investment
credit or medium- and long-term loans for Filipino
entrepreneurs;
3) Encourage and assist the establishment of thrift bank
system which will promote agriculture and industry and
at the same time place within easy reach of the people
the medium-and long-term credit facilities at reasonable
cost;
4) Encourage industry, frugality and the accumulation of
savings among the public, and the members and
stockholders of thrift banks; and
5) Regulate and supervise the activities of thrift banks in
order to place their operations on a sound, stable and
efficient basis and to curtail or prevent acts or practices
which are prejudicial to the public interest.
ISLAMIC BANKS
- To promote and accelerate the socio-economic development of
the Autonomous Region by performing banking, financing and
investment operations and to establish and participate in
agricultural, commercial and industrial ventures based on the
Islamic concept of banking.
- Operates within a legal framework permitting the investors or
participants the rights to equitable or beneficial share in the
profits realised from financing productive activities and other
operations
OTHER SPECIAL BANKS
- GOCCs and those created by special laws for specific purpose
- ex. Landbank of the PH, DBP, Philippine Veterans Bank
CruzAR | JD 3 | AUF-SOL (2020)
FOREIGN BANKS
- Rule: In all matters not specifically covered by special
provisions applicable only to foreign bank or its branches and
other offices in the PH, any foreign bank licensed to do
business in the PH shall be bound by the provisions of the
GBL, all other laws, rules and regulations applicable to banks
organised under the laws of the PH of the same class.
Republic vs. Security Credit
- Argument of Security Credit: That although it has not secured
the requisite authority to engage in banking, it denies that its
transactions partake of the nature of banking operations. It is
conceded, however, that, in consequence of a propaganda
campaign therefor, a total of 59,463 savings account deposits
have been made by the public with the corporation and its 74
branches, with an aggregate deposit of P1,689,136.74, which
has been lent out to such persons as the corporation deemed
suitable therefor.
- SC: Defendant corporation has violated the law by engaging in
banking without securing the administrative authority required
in Republic Act No. 337.
- That the illegal transactions thus undertaken by defendant
corporation warrant its dissolution is apparent from the fact
that the foregoing misuser of the corporate funds and franchise
affects the essence of its business, that it is willful and has
been repeated 59,643 times, and that its continuance inflicts
injury upon the public, owing to the number of persons
affected thereby.
- Since banking is imbued with public interest, it needs to be
regulated. Or else, there is a presumption of illegality.
DEPOSIT FUNCTION
- Remember: Although you may extend loan, you will NOT be
considered performing banking business if you don’t accept
deposits from the public.
NATURE OF RELATIONSHIP
- FIDUCIARY, founded on trust
- Hence, the degree of diligence required for deposits are:
1) Highest degree of diligence
2) More than ordinary prudent person
3) Meticulous care
4) Utmost fidelity
Westmont Bank vs. Dela Rosa-Ramos
- Liable for the altered checks? YES.
- It must be remembered that public interest is intimately carved
into the banking industry because the primordial concern here
is the trust and confidence of the public. This fiduciary nature
of every bank’s relationship with its clients/depositors impels
it to exercise the highest degree of care, definitely more than
that of a reasonable man or a good father of a family. It is,
therefore, required to treat the accounts and deposits of these
individuals with meticulous care.
- Considering that banks can only act through their officers and
employees, the fiduciary obligation laid down for these
institutions necessarily extends to their employees. Thus,
banks must ensure that their employees observe the same high
level of integrity and performance for it is only through this
that banks may meet and comply with their own fiduciary
duty.It has been repeatedly held that "a bank’s liability as an
obligor is not merely vicarious, but primary"since they are
expected to observe an equally high degree of diligence, not
only in the selection, but also in the supervision of its
employees. Thus, even if it is their employees who are
negligent, the bank’s responsibility to its client remains
paramount making its liability to the same to be a direct one.
- When you are talking with the bank employees, you are
talking with the bank itself.
Philippine Banking Corp. vs. Dy
- Mortgagee in good faith? YES.
- The doctrine of “mortgagee in good faith” is based on the rule
that all persons dealing with property covered by a Torrens
Certificate of Title are not required to go beyond what appears
on the face of the title. This is in deference to the public
interest in upholding the indefeasibility of a certificate of title
as evidence of lawful ownership of the land or of any
encumbrance thereon.In the case of banks and other financial
institutions, however, greater care and due diligence are
required since they are imbued with public interest, failing
which renders the mortgagees in bad faith. Thus, before
"3
Banking & Allied Laws | Atty. Jhoel Raquedan
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 genuineness of
the title to determine the real owner(s) thereof. The apparent
purpose of an ocular inspection is 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 thereto.
- In this case, while Philbank failed to exercise greater care in
conducting the ocular inspection of the properties offered for
mortgage,its omission did not prejudice any innocent third
parties. In particular, the buyer did not pursue her cause and
abandoned her claim on the property. On the other hand, Sps.
Delgado were parties to the simulated sale in favor of the Dys
which was intended to mislead Philbank into granting the loan
application. Thus, no amount of diligence in the conduct of the
ocular inspection could have led to the discovery of the
complicity between the ostensible mortgagors (the Dys) and
the true owners (Sps. Delgado). In fine, Philbank can hardly
be deemed negligent under the premises since the ultimate
cause of the mortgagors' (the Dys') defective title was the
simulated sale to which Sps. Delgado were privies.
PCIB vs. Balmaceda
- Liable? YES.
- Despite Balmaceda’s gross violations of bank procedures –
mainly in the processing of the applications for Manager’s
checks and in the releasing of the Manager’s checks –
Balmaceda’s co-employees not only turned a blind eye to his
actions, but actually complied with his instructions. In this
way, PCIB’s own employees were unwitting accomplices in
Balmaceda’s fraud.
- Another telling indicator of PCIB’s negligence is the fact that
it allowed Balmaceda to encash the Manager’s checks that
were plainly crossed checks. A crossed check is one where two
parallel lines are drawn across its face or across its corner.
Based on jurisprudence, the crossing of a check has the
following effects: (a) the check may not be encashed but only
deposited in the bank; (b) the check may be negotiated only
once — to the one who has an account with the bank; and (c)
the act of crossing the check serves as a warning to the holder
that the check has been issued for a definite purpose and he
must inquire if he received the check pursuant to this purpose;
otherwise, he is not a holder in due course. In other words, the
crossing of a check is a warning that the check should be
deposited only in the account of the payee. When a check is
crossed, it is the duty of the collecting bank to ascertain that
the check is only deposited to the payee’s account. In complete
disregard of this duty, PCIB’s systems allowed Balmaceda to
encash 26 Manager’s checks which were all crossed checks, or
checks payable to the “payee’s account only.”
- The General Banking Law of 2000 requires of banks the
highest standards of integrity and performance. The banking
business is impressed with public interest. Of paramount
importance is the trust and confidence of the public in general
in the banking industry. Consequently, the diligence required
of banks is more than that of a Roman pater familias or a good
father of a family. The highest degree of diligence is expected.
Gonzales vs. PCIB
- Liable? YES.
- Gonzales suffered from the negligence and bad faith of PCIB.
From the testimonies of Gonzales’ witnesses, particularly
those of Dominador Santos and Freddy Gomez, the
embarrassment and humiliation Gonzales has to endure not
only before his former close friend Unson but more from the
members and families of his friends and associates in the
PCA, which he continues to experience considering the
confrontation he had with Unson and the consequent loss of
standing and credibility among them from the fact of the
apparent bouncing check he issued. Credit is very important to
businessmen and its loss or impairment needs to be recognized
and compensated.
- Not only did PCIB fail to give prior notice to Gonzales about
the Offering Ticket for the process of termination, suspension,
or revocation of the credit line under the COHLA, but PCIB
likewise failed to inform Gonzales of the fact that his credit
line has been terminated. Thus, we find PCIB grossly
negligent in the termination, revocation, or suspension of the
credit line under the COHLA. While PCIB invokes its right on
the so-called “cross default provisions,” it may not with
impunity ignore the rights of Gonzales under the COHLA.
- Indeed, the business of banking is impressed with public
interest and great reliance is made on the bank’s sworn
profession of diligence and meticulousness in giving
irreproachable service. Like a common carrier whose business
CruzAR | JD 3 | AUF-SOL (2020)
is imbued with public interest, a bank should exercise
extraordinary diligence to negate its liability to the depositors.
In this instance, PCIB is sorely remiss in the diligence
required in treating with its client, Gonzales. It may not
wantonly exercise its rights without respecting and honoring
the rights of its clients.
Equitable PCI Bank vs. Tan
- Liable? YES.
- Confusion on whether the check was dated May 3 or May 30
because of the "/" which allegedly separated the number “3”
from the “0.”
- The check was postdated to May 30, 1992 and appellee Bank
or its personnel erred in debiting the amount of the check from
appellant’s account even before the check’s due date.
Undoubtedly, had not appellee bank prematurely debited the
amount of the check from appellant’s account before its due
date, the two other checks successively dated May 9, 1992 and
May 16, 1992 which were paid by appellant to ASELCO and
ANECO, respectively, would not have been dishonored and
the said payees would not have disconnected their supply of
electric power to appellant’s sawmills, and the latter would not
have suffered losses.
- The diligence required of banks, therefore, is more than that of
a good father of a family.In every case, the depositor expects
the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of
millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any
given time the amount of money the depositor can dispose of
as he sees fit, confident that the bank will deliver it as and to
whomever he directs. From the foregoing, it is clear that
petitioner bank did not exercise the degree of diligence that it
ought to have exercised in dealing with its client.
Simex International vs. CA
- Liable? YES.
- It is true that the dishonored checks were “eventually” paid.
However, this took almost a month when, properly, the checks
should have been paid immediately upon presentment.
- 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.
- The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of
their relationship. In the case at bar, it is obvious that the
respondent bank was remiss in that duty and violated that
relationship.
Reyes vs. CA
- The degree of diligence required of banks, is more than that of
a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. In other words,
banks are duty bound to treat the deposit accounts of their
depositors with the highest degree of care. But the said ruling
applies only to cases where banks act under their fiduciary
capacity, that is, as depositary of the deposits of their
depositors. But the same higher degree of diligence is not
expected to be exerted by banks in commercial transactions
that do not involve their fiduciary relationship with their
depositors.
- Considering the foregoing, the respondent bank was not
required to exert more than the diligence of a good father of a
family in regard to the sale and issuance of the subject foreign
exchange demand draft. The case at bar does not involve the
handling of petitioners' deposit, if any, with the respondent
bank. Instead, the relationship involved was that of a buyer
and seller, that is, between the respondent bank as the seller of
the subject foreign exchange demand draft, and PRCI as the
buyer of the same, with the 20 Asian Racing conference
Secretariat in Sydney, Australia as the payee thereof. As earlier
mentioned, the said foreign exchange demand draft was
intended for the payment of the registration fees of the
"4
Banking & Allied Laws | Atty. Jhoel Raquedan
petitioners as delegates of the PRCI to the 20 Asian Racing
Conference in Sydney.
- NOTE: Aquino disagrees with this ruling. However, this is
case law.
China Banking Corp. vs. CA
- Chinabank contends that the Citibank dollar checks with both
Jose Gotianuy and/or Mary Margaret Dee as payees, deposited
with China Bank, may not be looked into under the law on
secrecy of foreign currency deposits.
- Correct? 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.
- Protection of the bank of its clients is NOT releasing
information of its depositors.
BPI vs. IAC
- Liable? YES.
- 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.
- The bank is not expected to be infallible but, as correctly
observed by respondent Appellate Court, in this instance, it
must bear the blame for not discovering the mistake of its
teller despite the established procedure requiring the papers
and bank books to pass through a battery of bank personnel
whose duty it is to check and countercheck them for possible
errors. Apparently, the officials and employees tasked to do
that did not perform their duties with due care, as may be
gathered from the testimony of the bank's lone witness,
Antonio Enciso, who casually declared that “the approving
officer does not have to see the account numbers and all those
things. Those are very petty things for the approving manager
to look into”. Unfortunately, it was a “petty thing,” like the
incorrect account number that the bank teller wrote on the
initial deposit slip for the newly-opened joint current account
of the Canlas spouses, that sparked this half-a-million-peso
damage suit against the bank.
BPI vs. CA
- Liable? YES.
- The banking business is affected with public interest. 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.” As
such, in dealing with its depositors, a bank should exercise its
functions not only with the diligence of a good father of a
family but it should do so with the highest degree of care.
- While it is true that private respondent's having signed a blank
withdrawal slip set in motion the events that resulted in the
withdrawal and encashment of the counterfeit check, the
negligence of petitioner's personnel was the proximate cause
of the loss that petitioner sustained.
Consolidated Bank and Trust Corporation vs. CA
- 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.
Banks must observe “high standards of integrity and
performance” in servicing their depositors.
- 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.
CruzAR | JD 3 | AUF-SOL (2020)
Citibank vs. Sabeniano
- As a bank, you have the obligation to maintain the money
placements of your depositors.
Cadiz vs. CA
- Disturbing though is the labor arbiter’s willingness to acquit
petitioners of culpability on account of the purported
negligence of the bank. It is similar to concluding that the
bank guards, and not the burglars, bear primary culpability for
a bank robbery. Whatever liability or responsibility was
expected of the bank stands as an issue separate from the
liability of the recreant bank employees. Even assuming that
the bank observed less-than-ideal controls over the security of
its operations, such laxity does not serve as the carte blanche
signal for the bank employees to take advantage of safeguard
control lapses and perpetrate chicanery on their employer.
- Moreover, it cannot be discounted that as bank employees, the
responsibilities of petitioners are impressed with a high degree
of public interest. Private persons entrust their fortunes to
banks, and it would cause a breakdown of the financial order if
the judicial system were to leave unsanctioned bank
employees who treat depositor’s accounts as their own private
kitty.
- It would simply be temerarious for the Court to sanction the
reinstatement of bank employees who have clearly engaged in
anomalous banking practices. The particular fiduciary
responsibilities reposed on banks and its employees cannot be
emphasized enough. The fiduciary nature of banking is
enshrined in Republic Act No. 8791 or the General Banking
Law of 2000. Section 2 of the law specifically says that the
State recognizes the "fiduciary nature of banking that requires
high standards of integrity and performance." The bank must
not only exercise "high standards of integrity and
performance," it must also ensure that its employees do
likewise because this is the only way to ensure that the bank
will comply with its fiduciary duty
Far East Bank vs. Pacilan
- The bank has the right to close the account of the respondent
based on the following provisions of its Rules and Regulations
Governing the Establishment and Operation of Regular
Demand Deposits:
- 10) The Bank reserves the right to close an account if the
depositor frequently draws checks against insufficient
funds and/or uncollected deposits.
- However, it is clearly understood that the depositor is not
entitled, as a matter of right, to overdraw on this deposit and
the bank reserves the right at any time to return checks of the
depositor which are drawn against insufficient funds or for any
other reason.
- Further, petitioner bank showed that in 1986, the current
account of the respondent was overdrawn 156 times due to his
issuance of checks against insufficient funds.In 1987, the said
account was overdrawn 117 times for the same reason.Again,
in 1988, 26 times.There were also several instances when the
respondent issued checks deliberately using a signature
different from his specimen signature on file with petitioner
bank.All these circumstances taken together justified the
petitioner bank’s closure of the respondent’s account on April
4, 1988 for “improper handling.”
- No bad faith, since it was only following rules and regulations.
KYC PRODECURE
- You have to know sino ang kausap mo, in the exercise of
highest degree of diligence, since you will be dealing with
him.
- You should take reasonable measures to establish and record
the true identity of your clients, based on official or other
reliable documents and records.
- Basic rule: Depositor to submit the necessary specimen
signatures and proper documents for identification
- Banking regulations, esp. prior to account opening or the
commencement of banking relationship, require FACE-TO-
FACE contact and personal interview of the customer.
- Accounts you normally encounter:
1) Joint Accounts
- 2 or more persons
- and/or = Even if only 1 signs
- and = Signed together
2) ITF/FAO Accounts
- ITF = In Trust For
- FAO = For the Account Of
- Ex. Incapacitated
"5
Banking & Allied Laws | Atty. Jhoel Raquedan
- BUT it is not necessary that beneficial owner be
incapacitated. Only establish your authority.
3) Anonymous
- NOT allowed, based on AMLA
4) Numbered Accounts
- Allowed
- For convenience and easy business
- Depositor must have CAPACITY TO ACT, as one who enters
into a contract.
- GR: Incapacitated persons are not allowed to open an
account with the bank
 - If the process had already commenced (and pagtatago nalang
EXP: Minor depositor
- Allowed under PD 734 for minors to open, in their own
right, savings and time deposits.
- Requisites:
1) At least 7yrs old
2) Able to read and write
3) Have sufficient discretion
4) Not otherwise disqualified by any other incapacity
- CORPORATIONS → Power to open bank accounts or to
deposit money in the bank is part of the general powers of the
corporation
Philippine Bank of Commerce vs. CA
- The bank's teller, Ms. Azucena Mabayad, was negligent in
validating, officially stamping and signing all the deposit slips
prepared and presented by Ms. Yabut, despite the glaring fact
that the duplicate copy was not completely accomplished
contrary to the self-imposed procedure of the bank with
respect to the proper validation of deposit slips, original or
duplicate, as testified to by Ms. Mabayad herself
- Rather than readily validating the incomplete duplicate copy,
she should have proceeded more cautiously by being more
probing as to the true reason why the name of the account
holder in the duplicate slip was left blank while that in the
original was filled up. She should not have been so naive in
accepting hook, line and sinker the too shallow excuse of Ms.
Irene Yabut to the effect that since the duplicate copy was only
for her personal record, she would simply fill up the blank
space later on. A “reasonable man of ordinary prudence”
would not have given credence to such explanation and would
have insisted that the space left blank be filled up as a
condition for validation. Unfortunately, this was not how bank
teller Mabayad proceeded thus resulting in huge losses to the
private respondent.
- Negligence here lies not only on the part of Ms. Mabayad but
also on the part of the bank itself in its lackadaisical selection
and supervision of Ms. Mabayad. This was exemplified in the
testimony of Mr. Romeo Bonifacio, then Manager of the Pasig
Branch of the petitioner bank and now its Vice-President, to
the effect that, while he ordered the investigation of the
incident, he never came to know that blank deposit slips were
validated in total disregard of the bank's validation procedures.
Citytrust vs. Cruz
- Petitioner, being a banking institution, had the direct
obligation to supervise very closely the employees handling its
depositors’ accounts, and should always be mindful of the
fiduciary nature of its relationship with the depositors. Such
relationship required it and its employees to record accurately
every single transaction, and as promptly as possible,
considering that the depositors’ accounts should always reflect
the amounts of money the depositors could dispose of as they
saw fit, confident that, as a bank, it would deliver the amounts
to whomever they directed. If it fell short of that obligation, it
should bear the responsibility for the consequences to the
depositors, who, like the respondent, suffered particular
embarrassment and disturbed peace of mind from the
negligence in the handling of the accounts.
- You cannot afford to even commit an accidental closure of the
account because you know your client. You are the bank.
Kung ano ang sinabi niyang i-close, ‘yun ang i-close mo.
NATURE OF FUNDS DEPOSITED
- Contract between the BANK and the DEPOSITOR =
CONTRACT OF LOAN = SIMPLE LOANS
- But, unlike simple loans, bank deposits are subject to
special rules provided in special laws and BSP regulations
- Nature of contract: VOLUNTARY
- Hence, banks cannot be compelled to accept deposits.
- DEPOSITS
- Under the Civil Code, when you give something, you
should get the same thing.
CruzAR | JD 3 | AUF-SOL (2020)
- For the BANKS, deposit = simple loan. Hence, you get
NOT the same thing, but only the equivalent amount.
- Bank has no obligation to return the same money, but has
the obligation to return the amount deposited.
- Money received by the bank is NOT being held for
safekeeping for the depositor.
- Relationship between the depositor and the bank is one of
CREDITOR-DEBTOR, bank as the debtor.
- Hence, it is NOT misappropriation of funds if the bank will
use the amount deposited for its own purpose.
ng pera ang hindi nagagawa), it’s already the money of the
bank. Upon signing of the withdrawal/deposit slip, there’s
already transfer of ownership.
- RULES ON THE DEBTOR-CREDITOR
R E L AT I O N S H I P B E T W E E N T H E B A N K &
DEPOSITOR:
1) The bank can make use as its own the money
deposited. Said money is NOT being held in trust for
the depositor nor is it being held for safekeeping.
2) The officers of the bank CANNOT be held liable for
estafa if they authorised the use of the money
deposited by the depositor. There would be no liability
for estafa under Art. 315(1)(b) of the RPC even if the
bank failed to return the amount deposited. The money
that is deposited is not help in trust by the bank.
3) If an employee who is entrusted with possession of
the money deposited takes the same money, the crime
committed by the employee is QUALIFIED THEFT.
4) The bank has the right to legal compensation. It can
set off the deposits with the indebtedness of the
depositor that is due and demandable. It can likewise set
off the value of dishonoured checks that were
previously credited.
5) 3rd persons who may have a right to the money
deposited cannot hold the bank responsible unless
there is a court order or garnishment. The duty of the
bank is to its creditor-depositor and not to 3rd persons.
If a 3rd person has a valid right over the money
deposited, he must prove the same before a court of
competent jurisdiction.
Tan Tiock Tick vs. American Apothecaries
- In accordance with Article 309 of the Code of Commerce, the
so-called current account and savings deposits have lost the
character of deposits properly so-called, and are converted into
simple commercial loans, because the bank disposed of the
funds deposited by the claimant for its ordinary transactions
and for the banking business in which it was engaged. That the
bank had the authority of the claimant to make use of the
money deposited on current and savings account is deducible
from the fact that the bank has been paying interest on both
deposits, and the claimant himself asks that he be allowed
interest up to the time when the bank ceased its operations.
Moreover, according to section 125 of the Corporation Law
and 9 of Act No. 3154, said bank is authorized to make use of
the current account, savings, and fixed deposits provided it
retains in its treasury a certain percentage of the amounts of
said deposits.
- Therefore, the bank, without the necessity of the claimant
consent, was by law authorized to dispose of the deposits,
subject to the limitations indicated.
BDO vs. Republic
- Banks are entities engaged in the lending of funds obtained
from the public in the form of deposits. Deposits of money in
banks and similar institutions are considered simple loans.
Hence, the relationship between a depositor and a bank is that
of creditor and debtor. The ownership of the amount deposited
is transmitted to the bank upon the perfection of the contract
and it can make use of the amount deposited for its own
transactions and other banking operations. Although the bank
has the obligation to return the amount deposited, it has no
obligation to return or deliver the same money that was
deposited.
Gempesaw vs. CA
- There is no question that there is a contractual relation
between petitioner as depositor (obligee) and the respondent
drawee bank as the obligor. In the performance of its
obligation, the drawee bank is bound by its internal banking
rules and regulations which form part of any contract it enters
into with any of its depositors. When it violated its internal
rules that second endorsements are not to be accepted without
the approval of its branch managers and it did accept the same
upon the mere approval of Boon, a chief accountant, it
"6
Banking & Allied Laws | Atty. Jhoel Raquedan
contravened the tenor of its obligation at the very least, if it
were not actually guilty of fraud or negligence.
- Furthermore, the fact that the respondent drawee Bank did not
discover the irregularity with respect to the acceptance of
checks with second indorsement for deposit even without the
approval of the branch manager despite periodic inspection
conducted by a team of auditors from the main office
constitutes negligence on the part of the bank in carrying out
its obligations to its depositors.
BPI vs. Casa Montessori
- For allowing payment on the checks to a wrongful and
fictitious payee, BPI — the drawee bank — becomes liable to
its depositor-drawer. Since the encashing bank is one of its
branches, BPI can easily go after it and hold it liable for
reimbursement. It “may not debit the drawer’s account and is
not entitled to indemnification from the drawer.” In both law
and equity, when one of two innocent persons “must suffer by
the wrongful act of a third person, the loss must be borne by
the one whose negligence was the proximate cause of the loss
or who put it into the power of the third person to perpetrate
the wrong.”
- DEPOSIT
- Bank = Debtor
- Person = Creditor
- BANK LOAN
- Bank = Creditor
- Person = Creditor
ESTAFA
Guingona vs. City Fiscal of Manila
- Liable for estafa? NO.
- 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.
- Hence, 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. And, the failure of
the Bank to return the amount deposited will not constitute
estafa through misappropriation punishable under Article 315,
par. l(b) of the Revised Penal Code, but it will only give rise to
civil liability over which the public respondents have no-
jurisdiction.
- In order that a person can be convicted under the above-quoted
provision, it must be proven that he has the obligation to
deliver or return the some money, goods or personal property
that he received. Petitioners had no such obligation to return
the same money, i.e., the bills or coins, which they received
from private respondents.
Serrano vs. Central Bank
- 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.
People vs. Go
- Estafa was committed? YES.
- The elements of estafa through abuse of confidence under
Article 315, par. 1(b) of the Revised Penal Code are: "(a) that
money, goods or other personal property is received by the
offender in trust or on commission, or for administration, or
under any other obligation involving the duty to make delivery
of or to return the same; (b) that there be misappropriation or
conversion of such money or property by the offender, or
CruzAR | JD 3 | AUF-SOL (2020)
denial on his part of such receipt; (c) that such
misappropriation or conversion or denial is to the prejudice of
another; and (d) there is demand by the offended party to the
offender.”
- Obviously, a bank takes its depositors’ money as a loan, under
an obligation to return the same; thus, the term “demand
deposit.”
- In Soriano v. People, it was held that the President of a bank is
a fiduciary with respect to the bank’s funds, and he holds the
same in trust or for administration for the bank’s benefit. From
this, it may beinferred that when such bank president makes it
appear through falsification that an individual or entity applied
for a loan when in fact such individual or entity did not, and
the bank president obtains the loan proceeds and converts the
same, estafa is committed.
- Next, regarding misappropriation, the evidence tends to
extablish that Manager’s Check Nos.0000003340 and
0000003347 were encashed, using the bank’s funds which
clearly belonged to OCBC’s depositors, and then deposited in
Go’s OCBC Savings Account No. 00810-00108-0 at OCBC
Recto Branch – although he was not the named payee therein.
Next, the money was automatically transferred to Go’s OCBC
Current Account No. 008-00-000015-0 and used to fund his
seven previously-issued personal checks totaling
₱145,488,274.48, which checks were dishonored the day
before. Simply put, the evidence strongly indicates that Go
converted OCBC funds to his own personal use and benefit.
“The words ‘convert’ and ‘misappropriate’ connote an act of
using or disposing of another’s property as if it were one’s
own, or of devoting it to a purpose or use different from that
agreed upon. To misappropriate for one’s own use includes not
only conversion to one’s personal advantage, but also every
attempt to dispose of the property of another without right. x x
x In proving the element of conversion or misappropriation, a
legal presumption of misappropriation arises when the accused
fails to deliver the proceeds of the sale or to return the items to
be sold and fails to give an account of their whereabouts.Thus,
the merepresumption of misappropriation or conversion is
enough to conclude thata probable cause exists for the
indictment x x x.”
- As to the third element of estafa, there is no question that as a
consequence of the misappropriation of OCBC’s funds, the
bank and its depositors have been prejudiced; the bank has
been placed under receivership, and the depositors’ money is
no longer under their unimpeded disposal.
- Finally, on the matter of demand, while it has not been shown
that the bank demanded the return of the funds, it has
nevertheless been held that "[d]emand is not an element of the
felony or a condition precedent to the filing of a criminal
complaint for estafa. Indeed, the accused may be convicted of
the felony under Article 315, paragraph 1(b) of the Revised
Penal Code if the prosecution proved misappropriation or
conversion by the accused of the money or property subject of
the Information. In a prosecution for estafa, demand is not
necessary where there is evidence of misappropriation or
conversion.” Thus, strictly speaking, demand is not an element
of the offense of estafa through abuse of confidence; even a
verbal query satisfies the requirement. Indeed, in several past
rulings of the Court, demand was not even included as
anelement of the crime of estafa through abuse of confidence,
orunder paragraph 1(b).
- What the trial and appellate courts disregarded, however, is
that the OCBC funds ended up in the personal bank accountsof
respondent Go, and were used to fund his personal checks,
even as he was not entitled thereto. These, if not rebutted, are
indicative ofestafa, as may be seen from the afore-cited
Sorianocase.
- The bank money (amounting to ₱8million) 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 ₱8 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
infact 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 ₱8 million. Thus,
petitioner remained the bank’s fiduciary with respect to that
money, which makes it capable of misappropriation or
conversion in his hands.
"7
Banking & Allied Laws | Atty. Jhoel Raquedan
QUALIFIED THEFT
- Through taking of the amounts deposited by the employees of
the bank
- Reason: The employees of the bank, who are entrusted with
the possession of money deposited in a bank, occupy positions
of CONFIDENCE.
- Elements of Qualified Theft:
1) Taking of personal property
2) Property belongs to another
3) Intent to gain
4) Without the owner’s consent
5) Without the use of violence, intimidation or force
6) Done with grave abuse of confidence
People vs. Puig
- Informations:
- That on or about the 1st day of August, 2002, in the
Municipality of Pototan, Province of Iloilo, Philippines,
and within the jurisdiction of this Honorable Court, above-
named [respondents], conspiring, confederating, and
helping one another, with grave abuse of confidence,
being the Cashier and Bookkeeper of the Rural Bank of
Pototan, Inc., Pototan, Iloilo, without the knowledge and/or
consent of the management of the Bank and with intent of
gain, did then and there willfully, unlawfully and
feloniously take, steal and carry away the sum of FIFTEEN
THOUSAND PESOS (P15,000.00), Philippine Currency,
to the damage and prejudice of the said bank in the
aforesaid amount.
- Sufficient? YES.
- It is beyond doubt that tellers, Cashiers, Bookkeepers and
other employees of a Bank who come into possession of the
monies deposited therein enjoy the confidence reposed in them
by their employer. Banks, on the other hand, where monies are
deposited, are considered the owners thereof. The relationship
between banks and depositors has been held to be that of
creditor and debtor.
- In a long line of cases involving Qualified Theft, this Court
has firmly established the nature of possession by the Bank of
the money deposits therein, and the duties being performed by
its employees who have custody of the money or have come
into possession of it. The Court has consistently considered the
allegations in the Information that such employees acted with
grave abuse of confidence, to the damage and prejudice of the
Bank, without particularly referring to it as owner of the
money deposits, as sufficient to make out a case of Qualified
Theft.
- The Bank acquires ownership of the money deposited by its
clients; and the employees of the Bank, who are entrusted with
the possession of money of the Bank due to the confidence
reposed in them, occupy positions of confidence. The
Informations, therefore, sufficiently allege all the essential
elements constituting the crime of Qualified Theft.
Roque vs. People
- In the present case, what is involved is the possession of
money in the capacity of a bank teller. In People v.
Locson,cited above, this Court considered deposits received
by a teller in behalf of a bank as being only in the material
possession of the teller. This interpretation applies with equal
force to money received by a bank teller at the beginning of a
business day for the purpose of servicing withdrawals. Such is
only material possession. Juridical possession remains with the
bank. In line with the reasoning of the Court in the above-cited
cases, beginning with People v. De Vera, if the teller
appropriates the money for personal gain then the felony
committed is theft and not estafa. Further, since the teller
occupies a position of confidence, and the bank places money
in the teller's possession due to the confidence reposed on the
teller, the felony of qualified theft would be committed.
People vs. Locsin
- Liable for QT? YES.
- The money was in the possession of the defendant as receiving
teller of the bank, and the possession of the defendant was the
possession of the bank. When the defendant, with a grave
abuse of confidence, removed the money and appropriated it
to his own use without the consent of the bank, there was the
taking or apoderamiento contemplated in the definition of the
crime of theft.
- It is well to remember the essential elements of the crime of
theft, as expounded in the textbooks, which are as follows:
First, the taking of personal property; second, that the property
belongs to another; third, that the taking away be done with
CruzAR | JD 3 | AUF-SOL (2020)
intent of gain; fourth, that the taking away be done without the
consent of the owner; and fifth, that the taking away be
accomplished without violence or intimidation against persons
or force upon things.
- The commentators on the Spanish Penal Code, from which
ours was adopted, lay great stress on the first element, which
is the taking away, that is, getting possession, laying hold of
the thing, so that, as Viada says, if the thing is not taken away,
but received and then appropriated or converted without the
consent of the owner, it may be any other crime, that of estafa
for instance, but in no way that of theft, which consists in the
taking away of the thing, that is, in removing it from the place
where it is kept by the legal owner, without the latter's consent,
that is, without obtaining for the purpose the consent of the
legitimate owner.
People vs. Sison
- Liable for QT? YES.
- The crime committed by the accused is qualified theft, defined
and penalized under Article 310 of the RPC. His key position
in the PCI Bank being its operations officer in the Luneta
Branch create a relation of dependence between him and his
employer. Such relation in turn established a high degree of
trust and confidence in him by the Bank, which he gravely
abused when, taking advantage of his position and with intent
to gain, he took from the cash vault, carried away and
appropriated the aggregate cash amount of P6M, without the
knowledge and consent of his employer and to its damage and
prejudice.
- The situation of the accused is not far removed from that of a
bank receiving teller who was adjudged guilty of qualified
theft when he, taking advantage of his position appropriated
the money of the bank in his possession The Supreme Court
held that there was grave abuse of confidence, because as
receiving teller, his possession of the money was the
possession of the bank, as he had only the physical, not
juridical, possession of the amount. . . . In the case under
consideration, the possession of the accused of the money kept
in the cash vault was the possession of the PCI Bank. He had
only physical, not juridical, possession of the cash money kept
in said vault.
- The crime perpetuated by appellant against his employer, the
PCIB, is qualified theft. Appellant could not have committed
the crime had he not been holding the position of Luneta
Operation Officer which gave him not only sole access to the
bank vault but also control of the access of all bank employees
in that branch, except the Branch Manager, to confidential and
highly delicate computerized security systems designed to
safeguard, among others, the integrity of telegraphic fund
transfers and account names of bank clients. The management
of the PCIB reposed its trust and confidence in the appellant as
its Luneta Branch Operation Officer, and it was this trust and
confidence which he exploited to enrich himself to the damage
and prejudice of PCIB in the amount of P6M.
- Indicative more of his guilt was that the cash vault has two
different keys. The accused, as the Branch Operation Officer,
had custody of one of them, while the other key was entrusted
to the possession of Mario Caballero, as Branch Cashier at the
time. To open the cash vault the two keys must be used
simultaneously. One without the other cannot open the cash
vault. However, on January 16, 1992, the accused relieved
Mario Caballero of his duties as Branch Cashier and assigned
him to the Accounting Department, where he stayed up to
February 16, 1992, on account of alleged but unspecified
backlogs in the said Department. Upon instruction of the
accused, Mario Caballero turned over his key to the cash vault
to the former. From that date said accused had exclusive and
absolute access and control of the cash vault. Although he
designated Prudencio Villar as Acting Branch Cashier vice
Mario Caballero, he did not turn over the cashier's key to the
cash vault to Prudencio Villar.
SET-OFF
- Mode of extinguishing an obligation
- Ability to set-off whenever there is MUTUAL DEBTOR-
CREDITOR RELATIONSHIP.
- Art. 1278 of CC: Compensation shall take place when two
persons, in their own right, are creditors and debtors of each
other.
- Requisites in order for legal compensation to take place
(Art. 1279 of CC):
1) Each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
"8
Banking & Allied Laws | Atty. Jhoel Raquedan
2) Both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also
of the same quality if the latter has been stated;
3) The 2 debts be due;
4) They be liquidated and demandable;
5) Over neither of them there be any retention or
controversy, commenced by 3rd persons and
communicated in due time to the debtor.
- RULE: A bank has the right to set off the deposit in its hands
for the payment of the indebtedness of the depositor, provided
the requisites are present.
- Presupposes the existence of a valid and demandable
obligation
- Kinds:
1) CONVENTIONAL - by agreement by the parties
2) LEGAL - under the Civil Code
Gullas vs. PNB
- GR: A bank has a right of set off of the deposits in its hands
for the payment of any indebtedness to it on the part of a
depositor.
- 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.
- Gullas was merely an indorser; hence, the actions of the bank
were prejudicial to him.
Philippine Banking Corporation vs. CA
- The BANK is liable to Marcos for offsetting his time deposits
with a fictitious promissory note. The existence of Promissory
Note No. 20-979-83 could have been easily proven had the
BANK presented the original copies of the promissory note
and its supporting evidence. In lieu of the original copies, the
BANK presented the “machine copies of the duplicate” of the
documents. These substitute documents have no evidentiary
value. The BANK’s failure to explain the absence of the
original documents and to maintain a record of the offsetting
of this loan with the time deposits bring to fore the BANK’s
dismal failure to fulfill its fiduciary duty to Marcos.
Traders Royal Bank vs. Castañares
- On the issue of the $4,220.00 telegraphic transfer which was
applied by the petitioner to the loan account of respondents,
we hold that the CA erred in holding that petitioner had no
authority to do so by way of compensation or set off. In this
case, the parties stipulated on the manner of such set off in
case of non-payment of the amount due under each promissory
note. The subject promissory notes thus provide:
- In case of non-payment of this note or any installments
thereof at maturity, I/We jointly and severally, agree to pay
an additional amount equivalent to two per cent (2%) per
annum of the amount due and demandable as penalty and
collection charges, in the form of liquidated damages, until
fully paid; and the further sum of ten per cent (10%)
thereof in full, without any deduction, as and for attorney’s
fees whether actually incurred or not, exclusive of costs
and judicial/extrajudicial expenses; moreover, I/We, jointly
and severally, further empower and authorize the
TRADERS ROYAL BANK, at its option, and without
notice, to set-off or to apply to the payment of this note any
and all funds, which may be in its hands on deposit or
otherwise belonging to anyone or all of us, and to hold as
security therefor any real or personal property, which may
be in its possession or control by virtue of any other
contract.
- Agreements for compensation of debts or any obligations
when the parties are mutually creditors and debtors are
allowed under Art. 1282 of the Civil Code even though not all
the legal requisites for legal compensation are present.
Voluntary or conventional compensation is not limited to
obligations which are not yet due. The only requirements for
conventional compensation are (1) that each of the parties can
fully dispose of the credit he seeks to compensate, and (2) that
they agree to the extinguishment of their mutual credits.
Consequently, no error was committed by the trial court in
holding that petitioner validly applied, by way of
compensation, the $4,220.00 telegraphic transfer remitted by
respondents’ foreign client through the petitioner.
ADVERSE CLAIM
- Claims of 3rd person/s to the money of the depositor
- Remember: Duty of the bank is to its creditor-depositor.
CruzAR | JD 3 | AUF-SOL (2020)
- NOT to 3rd persons
- Hence, if a 3rd persons has a valid claim over the money
deposited, he must PROVE the same before a court of
competent jurisdiction.
- NOTE: No duty on the banks to freeze the deposit upon mere
notice of adverse claim; banks first require either a:
1) Court order; or
2) Indemnity bond
Fulton Iron Works vs. China Banking Corp.
- The specialized function of bank is to serve as a place of
deposit for money, to keep it safely while on deposit, and to
pay it out, upon demand to the person who effected the deposit
or upon his order. A bank is not a guardian of trust funds
deposited with it in the sense that it must see to their proper
application nor is it its business to pry into the uses to which
moneys on deposit in its vault are being put; and so long as it
serves its function and pays the money out in good faith to the
person who deposited it, or upon his order, without knowledge
or notice that it is in fact assisting in the misappropriation of
the fund, the bank will be protected.
- The duty of the bank is to its depositor, not to 3rd persons.
BPI-FB vs. Amado Franco
- BPI-FB does not have a unilateral right to freeze the accounts
of Franco based on its mere suspicion that the funds therein
were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant BPI-FB, or any bank for that
matter, the right to take whatever action it pleases on deposits
which it supposes are derived from shady transactions, would
open the floodgates of public distrust in the banking industry.
- Verily, it was premature for BPI-FB to freeze Franco’s
accounts without even awaiting service of the Makati RTC’s
Notice of Garnishment on Franco.
- The bank CANNOT unilaterally freeze Franco’s account. It
has the obligation to pay Franco when he deposited.
- Reason: Fiduciary relationship with depositors
- The movable property mentioned in Article 559 of the Civil
Code pertains to a specific or determinate thing. A determinate
or specific thing is one that is individualized and can be
identified or distinguished from others of the same kind.
- In this case, the deposit in Franco’s accounts consists of
money which, albeit characterized as a movable, is generic
and fungible. The quality of being fungible depends upon the
possibility of the property, because of its nature or the will of
the parties, being substituted by others of the same kind, not
having a distinct individuality.
- Significantly, while Article 559 permits an owner who has lost
or has been unlawfully deprived of a movable to recover the
exact same thing from the current possessor, BPI-FB simply
claims ownership of the equivalent amount of money, i.e., the
value thereof, which it had mistakenly debited from FMIC’s
account and credited to Tevesteco’s, and subsequently traced
to Franco’s account. In fact, this is what BPI-FB did in filing
the Makati Case against Franco, et al. It staked its claim on the
money itself which passed from one account to another,
commencing with the forged Authority to Debit.
- It bears emphasizing that money bears no earmarks of peculiar
ownership, and this characteristic is all the more manifest in
the instant case which involves money in a banking
transaction gone awry. Its primary function is to pass from
hand to hand as a medium of exchange, without other
evidence of its title. Money, which had passed through various
transactions in the general course of banking business, even if
of traceable origin, is no exception.
Sps. Serfino vs. Far East Bank
- The spouses Serfino invoke American common law that
imposes a duty upon a bank receiving a notice of adverse
claim to the fund in a depositor’s account to freeze the account
for a reasonable length of time, sufficient to allow the adverse
claimant to institute legal proceedings to enforce his right to
the fund. In other words, the bank has a duty not to release the
deposits unreasonably early after a third party makes known
his adverse claim to the bank deposit. Acknowledging that no
such duty is imposed by law in this jurisdiction, the spouses
Serfino ask the Court to adopt this foreign rule.
- To adopt the foreign rule, however, goes beyond the power of
this Court to promulgate rules governing pleading, practice
and procedure in all courts. The rule reflects a matter of policy
that is better addressed by the other branches of government,
particularly, the Bangko Sentral ng Pilipinas, which is the
agency that supervises the operations and activities of banks,
and which has the power to issue “rules of conduct or the
establishment of standards of operation for uniform
application to all institutions or functions covered[.]” To adopt
"9
Banking & Allied Laws | Atty. Jhoel Raquedan
this rule will have significant implications on the banking
industry and practices, as the American experience has shown.
Recognizing that the rule imposing duty on banks to freeze the
deposit upon notice of adverse claim adopts a policy adverse
to the bank and its functions, and opens it to liability to both
the depositor and the adverse claimant, many American states
have since adopted adverse claim statutes that shifted or, at
least, equalized the burden. Essentially, these statutes do not
impose a duty on banks to freeze the deposit upon a mere
notice of adverse claim; they first require either a court order
or an indemnity bond.
- In the absence of a law or a rule binding on the Court, it has no
option but to uphold the existing policy that recognizes the
fiduciary nature of banking. It likewise rejects the adoption of
a judicially-imposed rule giving third parties with unverified
claims against the deposit of another a better right over the
deposit. As current laws provide, the bank’s contractual
relations are with its depositor, not with the third party; “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.” In the absence of any
positive duty of the bank to an adverse claimant, there could
be no breach that entitles the latter to moral damages.
- Q: Suppose there was assignment of receivables in the
contract, can the bank now unilaterally freeze?
- A: NO. There should be COURT ORDER.
GARNISHMENT
- Coercive process that allows the Court to take properties for
satisfaction of judgment
Salvacion vs. Central Bank of the Philippines
- 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. Greg Bartelli, as stated, is just a tourist or a transient. He
deposited his dollars with respondent China Banking
Corporation only for safekeeping during his temporary stay in
the Philippines.
- Thus, 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.
- It would be unthinkable, that the questioned Section 113 of
Central Bank No. 960 would be used as a device by accused
Greg Bartelli for wrongdoing, and in so doing, acquitting the
guilty at the expense of the innocent.
- Call it what it may — but is there no conflict of legal policy
here? Dollar against Peso? Upholding the final and executory
judgment of the lower court against the Central Bank Circular
protecting the foreign depositor? Shielding or protecting the
dollar deposit of a transient alien depositor against injustice to
a national and victim of a crime? This situation calls for
fairness against legal tyranny.
- We definitely cannot have both ways and rest in the belief that
we have served the ends of justice. #SanaAlways
- NOTE: This is a sui generis case. It was decided as such since
it will result to great injustice if otherwise.
Republic vs. Villasor
- Tried to garnish the money of AFP, but such funds are public.
- Money in the hands of public officers, although it may be due
government employees, is not liable to the creditors of these
employees in the process of garnishment. One reason is, that
the State, by virtue of its sovereignty, may not be sued in its
own courts except by express authorization by the Legislature,
and to subject its officers to garnishment would be to permit
indirectly what is prohibited directly. Another reason is that
moneys sought to be garnished, as long as they remain in the
hands of the disbursing officer of the Government, belong to
the latter, although the defendant in garnishment may be
entitled to a specific portion thereof. And still another reason
which covers both of the foregoing is that every consideration
of public policy forbids it.
RCBC vs. De Castro
- PVTA claims that the manner in which the bank complied with
the Sheriffs Notice of Garnishment indicated breach of trust
and dereliction of duty on the part of the bank as custodian of
government funds. It insistently urges that the premature
delivery of the garnished amount by RCBC to the special
sheriff even in the absence of a demand to deliver made by the
CruzAR | JD 3 | AUF-SOL (2020)
latter, before the expiration of the five-day period given to
reply to the Notice of Garnishment, without any reply having
been given thereto nor any prior authorization from its
depositor, PVTA and even if the court's order of January 27,
1970 did not require the bank to immediately deliver the
garnished amount constitutes such lack of prudence as to make
it answerable jointly and severally with the plaintiff for the
wrongful release of the money from the deposit of the PVTA.
- Correct? NO.
- In the first place, RCBC did not deliver the amount on the
strength solely of a Notice of Garnishment; rather, the release
of the funds was made pursuant to the Order of January 27,
1970. While the Notice of Garnishment contained no demand
of payment as it was a mere request for petitioner to withold
any funds of the PVTA then in its possession, the Order
categorically required the delivery in check of the amount
garnished to the special sheriff, Faustino Rigor.
- In the second place, the bank had already filed a reply to the
Notice of Garnishment stating that it had in its custody funds
belonging to the PVTA, which, in fact was the basis of the
plaintiff in filing a motion to secure delivery of the garnished
amount to the sheriff.
- Lastly, the bank, upon the receipt of the Notice of
Garnishment, duly informed PVTA thereof to enable the latter
to take the necessary steps for the protection of its own
interest.
- There was nothing irregular in the delivery of the funds of
PVTA by check to the sheriff, whose custody is equivalent to
the custody of the court, he being a court officer. The order of
the court was composed of two parts, requiring: 1) RCBC to
deliver in check the amount garnished to the designated sheriff
and 2) the sheriff in turn to cash the check and deliver the
amount to the plaintiffs representative and/or counsel on
record. It must be noted that in delivering the garnished
amount in check to the sheriff, the RCBC did not thereby
make any payment, for the law mandates that delivery of a
check does not produce the effect of payment until it has been
cashed. [Article 1249, Civil Code.]
- Moreover, by virtue of the order of garnishment, the same was
placed in custodia legis and therefore, from that time on,
RCBC was holding the funds subject to the orders of the court
a quo. That the sheriff, upon delivery of the check to him by
RCBC encashed it and turned over the proceeds thereof to the
plaintiff was no longer the concern of RCBC as the
responsibility over the garnished funds passed to the court.
Thus, no breach of trust or dereliction of duty can be attributed
to RCBC in delivering its depositor's funds pursuant to a court
order which was merely in the exercise of its power of control
over such funds.
- The garnishment of property to satisfy a writ of execution
operates as an attachment and fastens upon the property a lien
by which the property is brought under the jurisdiction of the
court issuing the writ. It is brought into custodia legis, under
the sole control of such court
China Bank vs. Ortega
- Argument of petitioners: The bank deposit of judgment debtor
B & B Forest Development Corporation cannot be subject to
garnishment to satisfy a final judgment against it in view of
RA 1405.
- Correct? NO.
- The lower court did not order an examination of or inquiry
into the deposit of B & B Forest Development Corporation, as
contemplated in the law. It merely required Tan Kim Liong to
inform the court whether or not the defendant B & B Forest
Development Corporation had a deposit in the China Banking
Corporation only for purposes of the garnishment issued by it,
so that the bank would hold the same intact and not allow any
withdrawal until further order.
- 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. 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. 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.
WITHDRAWAL
- Taking OUT of funds from the bank
- Opposite of deposit
- May be done through a representative
"10
Banking & Allied Laws | Atty. Jhoel Raquedan
- Generally, through the use of withdrawal slips. There are also
ATMs for withdrawal using electronic cards. Withdrawal of
funds may also be made through electronic instructions or
messages.
- Banks are expected to ensure that the depositor’s funds shall
only be given to him or his authorised representative.
- If the bank allows unauthorised withdrawals, it can be required
to RETURN THE AMOUNT that was illegally withdrawn +
interest at the rate stipulated (if none, 6% as legal rate).
BPI vs. Lifetime Marketing
- The reversal of the transactions in question was unilaterally
undertaken by BPI's tellers without following normal banking
procedure which requires them to ensure that all copies of the
deposit slips are surrendered by the depositor. The machine-
validated deposit slips do not show that the transactions have
been cancelled, leading LMC to rely on these slips and to
consider Alice Laurel's account as already paid.
- Even after reversal, the bank did NOT take the deposit slip, so
Alice had something to give to LMC to defraud it.
Firestone vs. CA
- The initial transaction in this case was between petitioner and
Fojas-Arca, whereby the latter purchased tires from the former
with special withdrawal slips drawn upon Fojas-Arca's special
savings account with respondent bank. Petitioner in turn
deposited these withdrawal slips with Citibank. The latter
credited the same to petitioner's current account, then
presented the slips for payment to respondent bank. Citibank
informed petitioner that special withdrawal slips were refused
payment by respondent bank due to insufficiency of Fojas-
Arca's funds on deposit.
- Citibank, with the knowledge that respondent Luzon
Development Bank, had honored and paid the previous
withdrawal slips, automatically credited petitioner's current
account with the amount of the subject withdrawal slips, then
merely waited for the same to be honored and paid by
respondent bank. It presumed that the withdrawal slips were
“good.” The withdrawal slips deposited with petitioner's
current account with Citibank were not checks, as petitioner
admits. Citibank was not bound to accept the withdrawal slips
as a valid mode of deposit. But having erroneously accepted
them as such, Citibank — and petitioner as account-holder —
must bear the risks attendant to the acceptance of these
instruments.
- 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.
- The account of Firestone should be SACRED to Citibank. You
cannot just withdraw from it.
BPI vs. CA
- Liable for the withdrawal? YES.
- The withdrawal slip contains a boxed warning that states:
"This receipt must be signed and presented with the
corresponding foreign currency savings passbook by the
depositor in person. For withdrawals thru a representative,
depositor should accomplish the authority at the back." The
requirement of presentation of the passbook when
withdrawing an amount cannot be given mere lip service even
though the person making the withdrawal is authorized by the
depositor to do so. This is clear from Rule No. 6 set out by
petitioner so that, for the protection of the bank's interest and
as a reminder to the depositor, the withdrawal shall be entered
in the depositor's passbook. The fact that private respondent's
passbook was not presented during the withdrawal is
evidenced by the entries therein showing that the last
transaction that he made with the bank was on September 3,
1984, the date he deposited the controversial check in the
amount of $2,500.00.
- Petitioner's personnel allowed the withdrawal of an amount
bigger than the original deposit of $750.00 and the value of the
check deposited in the amount of $2,500.00 although they had
not yet received notice from the clearing bank in the United
States on whether or not the check was funded. Reyes'
contention that after the lapse of the 35-day period the amount
of a deposited check could be withdrawn even in the absence
of a clearance thereon, otherwise it could take a long time
before a depositor could make a withdrawal, is untenable. Said
practice amounts to a disregard of the clearance requirement
of the banking system.
CruzAR | JD 3 | AUF-SOL (2020)
- While it is true that private respondent's having signed a blank
withdrawal slip set in motion the events that resulted in the
withdrawal and encashment of the counterfeit check, the
negligence of petitioner's personnel was the proximate cause
of the loss that petitioner sustained.
Producers Bank vs. CA
- Although the savings account was in the name of Sterela, the
bank records disclose that the only ones empowered to
withdraw the same were Inocencia Vives and Angeles B.
Sanchez.
- Moreover, the transfer of fund was done without the passbook
having been presented. It is an accepted practice that whenever
a withdrawal is made in a savings deposit, the bank requires
the presentation of the passbook. In this case, such recognized
practice was dispensed with. The transfer from the savings
account to the current account was without the submission of
the passbook which Atienza had given to Mrs. Vives. Instead,
it was made to appear in a certification signed by Estrella
Dumagpi that a duplicate passbook was issued to Sterela
because the original passbook had been surrendered to the
Makati branch in view of a loan accommodation assigning the
savings account. Atienza, who undoubtedly had a hand in the
execution of this certification, was aware that the contents of
the same are not true. He knew that the passbook was in the
hands of Mrs. Vives for he was the one who gave it to her.
Besides, as assistant manager of the branch and the bank
official servicing the savings and current accounts in question,
he also was aware that the original passbook was never
surrendered. He was also cognizant that Estrella Dumagpi was
not among those authorized to withdraw so her certification
had no effect whatsoever.
- The circumstance surrounding the opening of the current
account also demonstrate that Atienza’s active participation in
the perpetration of the fraud and deception that caused the
loss. The records indicate that this account was opened three
days later after the P200k was deposited. In spite of his
disclaimer, the Court believes that Atienza was mindful and
posted regarding the opening of the current account
considering that Doronilla was all the while in “coordination”
with him. That it was he who facilitated the approval of the
authority to debit the savings account to cover any
overdrawings in the current account is not hard to
comprehend. Clearly Atienza had committed wrongful acts
that had resulted to the loss subject of this case.
Oliver vs. Philippine Savings Bank
- Aside from Castro, PSBank must also be held liable because it
failed to exercise utmost diligence in the improper withdrawal
of the P7 million from Oliver's bank account.
- The usual banking procedure was that withdrawals of savings
deposits could only be made by persons whose authorized
signatures were in the signature cards on file with the bank.
Ordinarily, banks allow withdrawal by someone who is not the
account holder so long as the account holder authorizes his
representative to withdraw and receive from his account by
signing on the space provided particularly for such
transactions, usually found at the back of withdrawal slips.
- PSBank's failure to exercise the degree of diligence that it
ought to have exercised in dealing with its clients. It could not
prove that the withdrawal of P7 million was duly authorized
by Oliver. As a banking institution, PSBank was expected to
ensure that such substantial amount should only be transacted
with the consent and authority of Oliver. PSBank, however,
reneged on its fiduciary duty by allowing an encroachment
upon its depositor's account without the latter's permission.
Hence, PSBank must be held liable for such improper
transaction.
Citibank vs. Sps. Cabamongan
- 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
"11
Banking & Allied Laws | Atty. Jhoel Raquedan
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.
- All red flags are up, yet the bank pre terminated the deposit;
hence, the bank is liable.
PNB vs. Pike
- It bears emphasizing that negligence of banking institutions
should never be countenanced. The negligence here lies in the
lackadaisical attitude exhibited by employees of petitioner
PNB in their treatment of respondent Pike’s US Dollar
Savings Account that resulted in the unauthorized withdrawal
of $7,500.00. Nevertheless, though its employees may be the
ones negligent, a bank’s liability as an obligor is not merely
vicarious but primary, as banks are expected to exercise the
highest degree of diligence in the selection and supervision of
their employees, and having such obligation, this Court cannot
ignore the circumstances surrounding the case at bar – how the
employees of petitioner PNB turned their heads, nay, closed
their eyes to the suspicious circumstances enfolding the two
withdrawals subject of the case at bar. It may even be said that
they went out of their ways to disregard standard operating
procedures formulated to ensure the security of each and every
account that they are handling. Petitioner PNB does not deny
that the withdrawal slips used were in breach of standard
operating procedures of banks in the ordinary and usual course
of banking operations as testified to by one of its witnesses,
Mr. Lorenzo T. Bal, Assistant Vice President of Petitioner
PNB’s Buendia branch.
- Having admitted that pre-signed withdrawal slips do not
constitute the normal procedure with respect to withdrawals by
representatives should have already put petitioner PNB’s
employees on guard. Rather than readily validating and
permitting said withdrawals, they should have proceeded more
cautiously. Clearly, petitioner bank’s employee, Lorenzo T.
Bal, an Assistant Vice President at that, was exceedingly
careless in his treatment of respondent Pike’s savings account.
Cagungun vs. Planters Development Bank
- Involves an unauthorized withdrawals amounting to ₱220,000.
- The fact that petitioners left the custody of their passbooks to
respondent, through its employee O-I-C Ruperto Reyes, and
that they entrusted to Bong or Ding their deposits will not
excuse respondent from being liable. Petitioners did these
things because they trusted and depended on respondent to
take care of their accounts with it. If respondent bank was
really strict in enforcing the banking rule that the passbook
must be kept by the depositor, why did it not do so? For its
failure, any anomaly or damage that might result therefrom
should be borne by it.
- The bank was indeed grossly negligent when it allowed the
sum of ₱220,000.00 to be withdrawn through falsified
withdrawal slips without petitioners’ authority and knowledge
and its failure to comply with petitioners’ instruction to apply
their deposits on their loan. In so doing, respondent bank
breached the trust that petitioners reposed on it.
FEBTC vs. Chante
- Although there was no question that Chan had the physical
possession of Far East Card No. 05-01120-5-0 at the time of
the withdrawals, the exclusive possession of the card alone did
not suffice to preponderantly establish that he had himself
made the withdrawals, or that he had caused the withdrawals
to be made.
- As a banking institution, FEBTC had the duty and
responsibility to ensure the safety of the funds it held in trust
for its depositors. It could not avoid the duty or evade the
responsibility because it alone should bear the price for the
fraud resulting from the system bug on account of its exclusive
control of its computer system.
DORMANT ACCOUNTS
1) Current or checking accounts showing no deposit or
withdrawal for a period of 1 year
2) Savings account showing no deposit or withdrawal for a
period of 2 years
CruzAR | JD 3 | AUF-SOL (2020)
- Banks should exert all efforts to PREVENT deposit accounts
from becoming dormant.
- Give 60-day notice to a depositor of the potential dormancy of
his/her/its account before the commencement of the dormancy
period
- Includes information on:
1) Transfer the account from active to dormant
2) How to reactivate the account
3) Reminder that the account will be included in the list of
unclaimed balances to be submitted to the Treasurer of
the PH for escheat (in case the account has no activity
for 10 years.
- Dormancy fee - imposed on deposit account 5 years after the
last activity
- Conditions:
1) The balance falls below the minimum monthly average
daily balance (ADB), if any;
2) The monthly dormancy fee shall not exceed P30;
3) The bank complied with the two-notice requirement:
(a) Notice of potential dormancy of the account 60
days prior to the commencement of the dormancy
period; and
(b) Notice when an account is about to be subject to
dormancy fee at least 60 days prior to the
imposition of the fee.
UNCLAIMED BALANCES
- Deposits that have become dormant for a period of 10 YEARS
may be escheated in favour of the government.
- What are unclaimed balances?
1) Dormant (no activity) for at least 10 years + No
claimant
2) Dead + No claimant
- Remember: It is NOT enough that you are dead or your
account has no activity. There must be NO ONE CLAIMING.
Republic vs. CA
- 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.
- The fact that the government is in a tight financial situation is
not a justification for this Court to dispense with the
elementary rule of due process.
- As declared by the trial court in its Order dated August 1,
1989, the dismissal of the petition for escheat is without
prejudice. In other words, the State can refile the said petition,
notwithstanding the lapse of time. Prescription of action does
not run against the government.
RCBC vs. Hi-Tri Development Corp.
- Insofar as banks are concerned, service of processes is made
by delivery of a copy of the complaint and summons upon the
president, cashier, or managing officer of the defendant bank.
On the other hand, as to depositors or other claimants of the
unclaimed balances, service is made by publication of a copy
of the summons in a newspaper of general circulation in the
locality where the institution is situated. A notice about the
forthcoming escheat proceedings must also be issued and
published, directing and requiring all persons who may claim
any interest in the unclaimed balances to appear before the
court and show cause why the dormant accounts should not be
deposited with the Treasurer.
- Accordingly, the CA committed reversible error when it ruled
that the issuance of individual notices upon respondents was a
jurisdictional requirement, and that failure to effect personal
service on them rendered the Decision and the Order of the
RTC void for want of jurisdiction. Escheat proceedings are
actions in rem,10 whereby an action is brought against the thing
itself instead of the person.11 Thus, an action may be instituted
and carried to judgment without personal service upon the
depositors or other claimants.12 Jurisdiction is secured by the
power of the court over the res.13 Consequently, a judgment of
escheat is conclusive upon persons notified by advertisement,
as publication is considered a general and constructive notice
to all persons interested.
"12
Banking & Allied Laws | Atty. Jhoel Raquedan
ESCHEAT PROCEEDINGS
- Vehicle of the government to procure the unclaimed balances
- There is NO automatic transfer of the unclaimed balances
from the bank accounts to the Government
- REQUIREMENTS:
1) There is a credit or deposit of money, or other evidence
of indebtedness of any kind with banks;
2) Such credit, deposit or evidence of indebtedness has a
balance;
3) The balance has been unclaimed for a period of 10 years
or more;
4) Notice should be given to the depositor;
5) After due notice to the depositor a sworn statement with
the Treasurer should be filed stating the list of
depositors with unclaimed balances;
6) There must be publication of a list of unclaimed
balances;
7) The escheat proceedings is commenced; and
8) Escheat proceedings should be filed by the State
through the SolGen.
Republic vs. CFI (1975)
- Contention of Republic: That the "real party in interest" are
the depositors or creditors themselves whose dormant bank
accounts are directly affected by the escheat proceedings.
- Correct? YES.
- The depositors or creditors of the respondent Republic Bank
are the real party in interest who can move for the dismissal of
the complaint for escheat inasmuch as what are being
escheated in favor of the Government are their own unclaimed
or dormant deposits and not the money of the respondent
Republic Bank.
- Of course, it may be contended that the summons and notice
duly served on and received by the depositors or creditors of
the provincial branches of respondent Republic Bank pursuant
to Section 3 of Act No. 3936, were published only in Manila
and not in the locality where the branches are located.
However, Act No. 3936 allows publications of the summons
and notice in the City of Manila, if, in the locality where the
defendant bank or banks are situated, there are no publications
of at least two newspapers of general circulation, one in
English and another in Spanish. It can hardly be disputed that
in the provinces where the provincial branches of the
respondent Republic Bank are located, there are no
newspapers of general circulation published in Spanish. Such
being the case, the publication of the subject summons and
notice in the City of Manila is permissible under Act No.
3936. Besides, there is nothing in the records to show that the
depositors or creditors of the provincial branches of
respondent Republic Bank have moved for the dismissal of the
complaint for escheat. Likewise, respondent Republic Bank
and its depositors or creditors have filed no answer to the
complaint for escheat, despite the order of the lower court of
November 18, 1968 requiring the defendant banks, including
the respondent Republic Bank and its depositors or creditors to
file their answers to the complaint within fifteen (15) days
from receipt thereof.
Republic vs. CFI (1988)
- Bank is a real party-in-interest? YES.
- A "real party in interest" has been defined as the party who
would be benefitted or injured by the judgment of the suit or
the party entitled to avail of the suit. 1 There can be no doubt
that private respondent bank falls under this definition for the
escheat of the dormant deposits in favor of the government
would necessarily deprive said bank of the use of such
deposits. It is in this sense that it stands to be "injured by the
judgment of the suit;" and it is for this reason that Section 3 of
Act No. 3936 specifically provides that the bank shall be
joined as a party in the action for escheat, thus:
- Section 3. Whenever the Attorney General shall be
informed of such unclaimed balances, he shall commence
an action or actions in the name of the People of the
Philippines in the Court of First Instance of the province
where the bank is located, in which shall be joined as
parties the bank and such creditors or depositors. All or
any member of such creditors or depositors or banks, may
be included in one action.
- Indeed, if the bank were not a real party in interest, the
legislature would not have provided for its joining as a party in
the escheat proceedings. Besides, under Section 2, Rule 3 of
the Rules of Court, private respondent bank is a real party in
interest as its presence in the action is necessary for a
complete determination and settlement of the questions
CruzAR | JD 3 | AUF-SOL (2020)
involved therein. Private respondent bank being a real party in
interest, it may and can file a motion to dismiss on the ground
of improper venue.
- Correct venue? YES.
- The first sentence of Section 3 of Act No. 3936 directs the
Attorney General, now Solicitor General, to commence an
action or actions in the name of the People of the Philippines
in the Court of First Instance of the province where the bank is
located. The phrase "or actions" in this section is very
significant. It manifests awareness on the part of the legislators
that a single action to cover all banks wherever located in the
Philippines would not be legally feasible in view of the venue
prescribed for such action under the same section, i.e., the
province where the bank is located. Thus, the addition of the
last sentence, which the lower court had correctly interpreted
to mean "that for escheat of unclaimed bank balances all banks
located in one and the same province where the Court of First
Instance concerned is located may be made parties defendant
"in one action" was clearly intended to save on litigation and
publication expenses, but certainly not as authority for the
lumping together of all banks wherever found in the
Philippines in one single escheat proceedings.
RCBC vs. Hi-Tri Development Corp., supra
- 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.” 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.
- The law sets a detailed system for notifying depositors of
unclaimed balances. This notification is meant to inform them
that their deposit could be escheated if left unclaimed.
Accordingly, before filing a sworn statement, banks and other
similar institutions are under obligation to communicate with
owners of dormant accounts. The purpose of this initial notice
is for a bank to determine whether an inactive account has
indeed been unclaimed, abandoned, forgotten, or left without
an owner. If the depositor simply does not wish to touch the
funds in the meantime, but still asserts ownership and
dominion over the dormant account, then the bank is no longer
obligated to include the account in its sworn statement. It is
not the intent of the law to force depositors into unnecessary
litigation and defense of their rights, as the state is only
interested in escheating balances that have been abandoned
and left without an owner.
- In case the bank complies with the provisions of the law and
the unclaimed balances are eventually escheated to the
Republic, the bank “shall not thereafter be liable to any person
for the same and any action which may be brought by any
person against in any bank xxx for unclaimed balances so
deposited xxx shall be defended by the Solicitor General
without cost to such bank.” Otherwise, should it fail to comply
with the legally outlined procedure to the prejudice of the
depositor, the bank may not raise the defense provided under
Section 5 of Act No. 3936, as amended.
DECEASED DEPOSITOR
- In case of death of one of the depositors in a joint account, it is
presumed that the depositors own the account SHARE AND
SHARE-ALIKE; hence, if there are 2 depositors:
- Half of the deposit → Estate of the deceased depositor
- Other half of the deposit → Surviving co-depositor
- To avoid inconvenience of settling the estate of the deceased
co-depositor, the depositors may enter into a survivorship
agreement.
- Survivorship agreements are deemed valid in this jurisdiction
because they are considered as aleatory contracts.
"13
Banking & Allied Laws | Atty. Jhoel Raquedan
SURVIVORSHIP AGREEMENT
- An aleatory contract1 supported by consideration where the
joint depositors agree to permit either of them to withdraw
the whole deposit during their lifetime and transferring the
balance to the survivor upon the death of one of them.
Ana Rivera vs. PBTC
- Housekeeper is the owner of the remaining balance.
- Survivorship agreement valid? YES.
- Nag work si Ana kay Edgar for years and no sweldo. The fact
that subsequently Stephenson transferred the account to the
name of himself and/or Ana Rivera and executed with the
latter the survivorship agreement in question although there
was no relation of kinship between them but only that of
master and servant, nullifies the assumption that Stephenson
was the exclusive owner of the bank account. In the absence,
then, of clear proof of the contrary, we must give full faith and
credit to the certificate of deposit, which recites in effect that
the funds in question belonged to Edgar Stephenson and Ana
Rivera; that they were joint owners thereof; and that either of
them could withdraw any part or the whole of said account
during the lifetime of both, and the balance, if any, upon the
death of either, belonged to the survivor.
- Is the survivorship agreement valid? Prima facie, we think it
is valid. It is an aleatory contract supported by law a lawful
consideration - the mutual agreement of the joint depositors
permitting either of them to withdraw the whole deposit
during their lifetime, and transferring the balance to the
survivor upon the death of one of them.
- But although the survivorship agreement is per se not
contrary to law, its operation or effect may be violative of the
law. For instance, if it be shown in a given case that such
agreement is a mere cloak to hide an inofficious donation, to
transfer property in fraud of creditors, or to defeat the legitime
of a forced heir, it may be assailed and annulled upon such
grounds. No such vice has been imputed and established
against the agreement involved in the case.
- GR: Survivorship agreement is valid
 cases involving unexplained wealth under the Anti-
EXP:
1) Fraud/vitiated consent in the making of the SA
2) Used to circumvent the laws
- ex. Inofficious donations, in fraud of creditors
Vitug vs. CA
- Survivorship agreement valid? YES.
- SA is neither a donation mortis causa nor inter vivos.
- Why?
- Not inter vivos because it has to take effect after one or
both of the party dies
- Why not considered as donation to the spouse?
- Not identified if a particular portion belongs to the
husband/wife. Hence, the spouse can pool it and invest it.
- No badge of fraud
- 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. 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.
- 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.
Such agreements are permitted by the Civil Code.
- Under Art. 2010 of CC, the fulfillment of an aleatory contract
depends on either the happening of an event which is (1)
"uncertain," (2) "which is to occur at an indeterminate time."
A survivorship agreement, the sale of a sweepstake ticket, a
transaction stipulating on the value of currency, and insurance
have been held to fall under the first category, while a contract
for life annuity or pension under Article 2021, et sequentia,
has been categorized under the second. 25 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.
- However, as we have warned:
- xxx xxx xxx
- But although the survivorship agreement is per se not
contrary to law its operation or effect may be violative of
the law. For instance, if it be shown in a given case that
such agreement is a mere cloak to hide an inofficious
donation, to transfer property in fraud of creditors, or to
defeat the legitime of a forced heir, it may be assailed and
1 An agreement whereby the parties involved do not have to perform a particular action until a specific, triggering event occurs. Events are those that cannot be controlled by
either party, such as natural disasters and death.
CruzAR | JD 3 | AUF-SOL (2020)
annulled upon such grounds. No such vice has been
imputed and established against the agreement involved in
this case.
- There is no demonstration here that the survivorship
agreement had been executed for such unlawful purposes, or,
as held by the respondent court, in order to frustrate our laws
on wills, donations, and conjugal partnership.
SECRECY OF BANK DEPOSITS
- RA 1405
- RULE: All deposits of whatever nature with banks or banking
institutions are considered as of an ABSOLUTELY
CONFIDENTIAL NATURE and may not be examined,
inquired or looked into by any person, government official,
bureau or office, and any official or employee of a banking
institution may not disclose to any person any information
concerning said deposits.
- Used as the pillar of our banking system
- Ratio: Walang perang umiikot sa economy kapag tinago mo
lang. So to encourage other people to keep it in the bank and
so the money could circulate, the information that they give
should not be divulged.
- Covered deposits: ALL bank accounts of WHATEVER
NATURE are absolutely confidential.
- GR: Absolutely confidential
- EXP: (so as not to use the law to shield from illegal acts)
1) When there is a written permission of the depositor or
investor
2) Impeachment cases
3) Upon the order of a competent court in cases of
bribery or dereliction of duty of public officials
4) Upon the order of a competent court in cases where
the money deposited or invested is the subject of
litigation
5) Upon order of the competent court or tribunal in
Graft and Corrupt Practices Act
6) Upon inquiry by the CIR for the purpose of
determining the net estate of a deceased depositor
7) Report to the Anti-Money Laundering Council
(AMLC) by banks of covered and suspicious
transactions
8) Examination by the AMLC, upon the order of the
CA, where there is probable cause of money
laundering
9) Examination by the AMLC even without court order,
in the 3 cases mentioned in Sec. 11 of AMLA
* Note: Can’t find the 3 cases mentioned
10) Disclosure to the Treasurer of the PH for dormant
deposits for at least 10 years under the Unclaimed
Balances Act
11) Disclosure to the BSP in the course of examination to
ensure compliance with the AMLA
12) Examination upon order of the CA when there is
probable cause under the Human Security Act
13) Investigation under Sec. 10 of RA 10168 where
AMLC is authorised to inquire into or examine
deposits and investments w/ any banking institution or
non-bank financial institution and their subsidiaries and
affiliates without a court order
14) PDIC’s inquiry into and examination of deposit
account and all information related thereto in case there
is a finding of unsafe or unsound banking practicee
under the 8th paragraph of Sec. 8 of RA 3591, as
amended by RA 9576
15) Disclosure to the rehabilitation receiver upon the
issuance of the Commencement Order in a
Rehabilitation Proceeding
Banco Filipino vs. Purisima
- Manuel Caturla & others were accused of graft and
corruption. In line with this, the Tanodbayan issued subpoena
duces tecum to the Banco Filipino to furnish copies of loans,
deposits and other banking transactions in the name of Caturla
and his family. Caturla moved to quash the subpoena raging
that such is in violation of the Bank Secrecy Law. Banco
Filipino, on the other hand, argued that such was in the nature
of a fishing expedition and assuming that such was allowed,
it’s only for public officials and not to private individuals.
- SC: Allowed the examination of the bank records
"14
Banking & Allied Laws | Atty. Jhoel Raquedan
- 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. 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.
- The inquiry into illegally acquired property — or property
NOT "legitimately acquired" — extends to cases where such
property is concealed by being held by or recorded in the
name of other persons. This proposition is made clear by R.A.
No. 3019 which quite categorically states that the term,
"legitimately acquired property of a public officer or
employee shall not include .. property unlawfully acquired by
the respondent, but its ownership is concealed by its being
recorded in the name of, or held by, respondent's spouse,
ascendants, descendants, relatives or any other persons."
- To sustain the petitioner's theory, and restrict the inquiry only
to property held by or in the name of the government official
or employee, or his spouse and unmarried children is
unwarranted in the light of the provisions of the statutes in
question, and would make available to persons in government
who illegally acquire property an easy and fool-proof means
of evading investigation and prosecution; all they would have
to do would be to simply place the property in the possession
or name of persons other than their spouse and unmarried
children. This is an absurdity that we will not ascribe to the
lawmakers.
- Why did Banco Filipino filed this case? Hindi naman siya
young kinakasuhan?
- Because the bank will be the one to be held liable in
divulging the information.
- That’s why the bank is always proactive in cases like this
to protect its officers.
Ejercito vs. Sandiganbayan
- In a case for plunder filed against Joseph Ejercito, the
prosecution filed before the SB requests for the issuance of
subpoena duces tecum for the production of documents
concerning the trust accounts, savings accounts, and
manager’s check of Ejercito with EIB. Such requests were
granted by the SB. Ejercito filed MTQ the subpoenas
claiming that the accounts are covered by the Bank Secrecy
Law; hence, their disclosure is illegal. The prosecution
however contends that the accounts may be inquired into
because it is not contemplated in law.
- SC: Allowed the examination of the bank records
- PLUNDER = BRIBERY, since the essence of both laws are
the same.
- The crime of bribery and the overt acts constitutive of plunder
are crimes committed by public officers, and in either case the
noble idea 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" applies with equal force. Plunder being
thus analogous to bribery, the exception to R.A. 1405
applicable in cases of bribery must also apply to cases of
plunder.
- Re: Fruit of the poisonous tree
- Argument: No case filed yet, so the information about his
bank accounts were acquired illegally; hence, it may not
be lawfully used to facilitate a subsequent inquiry into the
same bank accounts.
- NO. RA 1405 does not provide that an unlawful
examination of bank accounts shall render the evidence
the evidence obtained therefrom inadmissible in evidence.
- The Marquez ruling notwithstanding, the above-described
examination by the Ombudsman of petitioner’s bank
accounts, conducted before a case was filed with a court of
competent jurisdiction, was lawful. For the Ombudsman
issued the subpoenas bearing on the bank accounts of
petitioner about four months before Marquez was
promulgated on June 27, 2001.
- The Marquez ruling that there must be a pending case in
order for the Ombudsman to validly inspect bank records
in camera thus reversed a prevailing doctrine. Hence, it
may not be retroactively applied.
- If it happens today, MARQUEZ RULING. There should
be a case filed.
China Banking Corp. vs. CA
- Jose Gotianuy filed a complaint against his daughter,
Margaret Dee, and his husband, George Dee, for allegedly
taking his Citibank dollar deposits which she deposited at
CruzAR | JD 3 | AUF-SOL (2020)
Chinabank. The TC then issued a subpoena to employees of
Chinabank to testify on the case. China bank invokes the
absolute confidentiality of the deposits.
- SC: Jose is a co-payee (with Margaret). Hence, there’s
consent/waiver. Co-owner siya.
- 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. On that
basis, no written consent from Mary Margaret Dee is
necessitated.
Bangayan vs. RCBC
- Argument of Bangayan: There was a wrongful disclosure by
respondents RCBC and Philip Saria of confidential
information regarding his bank accounts in violation of the
Bank Secrecy Act.
- SC: No violation
- Bangayan failed to identify specific information that was
divulged by Saria despite being confidential before the BOC
that would make them liable under the said law. The only
information given was the function of Saria.
- Nothing in respondent Saria’s Affidavit before the BOC
showed that details of petitioner Bangayan’s bank accounts
with respondent bank was disclosed. If at all, respondent Saria
merely discussed his functions as an account officer in
respondent bank and identified petitioner as the one who had
guaranteed the payment or obligations of the importers under
the Surety Agreement.
- Kung may pinakitang ibang information si Bangayan, patay.
- If you invoke violation of secrecy, you should provide
evidence that the details of your bank accounts were divulged
by the bank.
Sanico vs. Colipano
- For there to be a valid waiver, the following requisites are
essential:
1) that the person making the waiver possesses the right;
2) that he has the capacity and power to dispose of the
right;
3) that the waiver must be clear and unequivocal although
it may be made expressly or impliedly; and
4) that the waiver is not contrary to law, public policy,
public order, morals, good customs or prejudicial to a
third person with a right recognized by law.
- If the depositor consents or waives his right, his bank account
can be examined.
- You cannot just say I’m waiving my right.
- Waiver should not be prejudicial to the rights of a 3rd person.
Dona Adela vs. Trade and Investment Corp.
- Joint Agreement by TIDCORP and BPI with waiver of
confidentiality by Dona Adela.
- Valid waiver? NO.
- The Joint Motion to Approve Agreement was executed by BPI
and TIDCORP only. There was no written consent given by
petitioner or its representative, Epifanio Ramos, Jr., that
petitioner is waiving the confidentiality of its bank deposits.
The provision on the waiver of the confidentiality of
petitioner’s bank deposits was merely inserted in the
agreement. It is clear therefore that petitioner is not bound by
the said provision since it was without the express consent of
petitioner who was not a party and signatory to the said
agreement.
- Why can’t you be barred when you did not object during the
proceedings?
- It should be EXPRESS. It must be properly demonstrated.
Implied waiver cannot be countenanced.
- The norm is that a waiver must not only be voluntary, but
must have been made knowingly, intelligently, and with
sufficient awareness of the relevant circumstances and
likely consequences. There must be persuasive evidence to
show an actual intention to relinquish the right. Mere
silence on the part of the holder of the right should not be
construed as a surrender thereof; the courts must indulge
every reasonable presumption against the existence and
validity of such waiver.
- As a lawyer, you are only as good as your proof. Unless you
have proof of the waiver (paper signed by the one waiving),
you cannot invoke such. You must show that there is a
positive act.
Marquez vs. Desierto
- Inspection in camera in a case pending in the Ombudsman
- No case yet filed in a court of competent jurisdiction. Hence,
invalid inspection.
"15
Banking & Allied Laws | Atty. Jhoel Raquedan
- 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.
- Before an in camera inspection may be allowed, there must be
a pending case before a court of competent jurisdiction.
Further, the account must be clearly identified, the inspection
limited to the subject matter of the pending case before the
court of competent jurisdiction. The bank personnel and the
account holder must be notified to be present during the
inspection, and such inspection may cover only the account
identified in the pending case.
- This is a landmark case.
- Atty. Raquedan: Paano mo malalaman if he stole from the
cookie jar if you cannot know?
- It ties the hands of OMB. Now, it has to look for other
evidence other than the bank accounts in order to file a
case.
- Marquez - OMB order in 2001
 - Cases of unexplained wealth are similar to cases of bribery or
Ejercito - OMB order in 1998
Unionbank vs. CA
- P1,000,000 - undercoded as P1,000
- Violation of Bank Secrecy Act? YES.
- Petitioner 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.
Petitioner 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). . . .
- On the other hand, the petition reveals that the true purpose
for the examination is to aid petitioner in proving the extent of
Allied Bank's liability.
- In short, 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. 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 RA 1405, the "money
deposited" itself should be the subject matter of the litigation.
- Cause of action against Allied Bank is the NEGLIGENCE of
the bank.
BSB Group vs. Sally Go
- Argument of petitioner: The Metrobank account was relevant
on the ground that the complaint-affidavit showed that there
were two checks which respondent allegedly deposited in an
account with the said bank. The account maintained by
respondent with Security Bank contains the proceeds of the
checks that she has fraudulently appropriated to herself and,
thus, falls under one of the exceptions in Section 2 of R.A.
No. 1405 — that the money kept in said account is the subject
matter in litigation.
- Respondent filed MTQ invoking the absolutely confidential
nature of the Metrobank account.
- The examination is irrelevant.
- 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. In the criminal
Information filed with the TC, 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. 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.
- In other words, it can hardly be inferred from the indictment
itself that the Security Bank account is the ostensible subject
of the prosecution’s inquiry. Without needlessly expanding the
scope of what is plainly alleged in the Information, the subject
matter of the action in this case is the money amounting to
₱1,534,135.50 alleged to have been stolen by respondent, and
not the money equivalent of the checks which are sought to be
CruzAR | JD 3 | AUF-SOL (2020)
admitted in evidence. Thus, it is that, which the prosecution is
bound to prove with its evidence, and no other.
- 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.
- Theft - taking of personal property with intent to gain (in this
case, cash)
- No need to show that you converted it into something
other than cash
- Would it be different that instead of theft of cash, theft of
bundle of checks? NO.
PNB vs. Gancayco
- Why did they say that there’s an intent to amend Bank
Secrecy Law?
- Anti-Graft and Corrupt Practices Act is now one of the
exceptions of the Bank Secrecy Law. They are so against
with each other.
dereliction of duty and no reason is seen why these two classes
of cases cannot be excepted from the rule making bank
deposits confidential. The policy as to one cannot be different
from the policy as to the other. This policy express the motion
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.
Intengan vs. CA
- In Lim’s (VP of Citibank) affidavit , it said that:
- “The investigation in which I was asked to participate…It
was found that with the use of two (2) companies in which
they have personal financial interest, namely Torrance
Development Corporation and Global Pacific Corporation,
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.”
- As evidence, Lim annexed bank records purporting to
establish the deception practiced by Santos and Genuino.
Some of the documents pertained to the dollar deposits of
petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and Rita P.
Brawner.
- Violation of Bank Secrecy Law? YES.
- 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.” 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 AMLA.
- Lim and Reyes admitted that they had disclosed details of
petitioners’ dollar deposits without the latter’s written
permission. It does not matter if that such disclosure was
necessary to establish Citibank’s case against Dante L. Santos
and Marilou Genuino. 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.
- BUT, it has already prescribed.
PCIB vs. CA
- The N:RC issued a decision in favour of a group of labourers
and against Marinduque Mining, ordering the latter to pay the
labourers back wages amounting to P205k. The NLRC issued
a writ of execution to enforce such judgment.
- The sheriff prepared a Notice of Garnishment addressed to 6
banks, including PCIB. When the lawyer of Marinduque
Mining learned about it from a tip given to him, he
communicated with the manager of PCIB to withhold any
release of its deposit with PCIB.
- Later, the sheriff presented the notice to the manager. Assured
that there’s no TRO from the NLRC, the manager issued a
manager’s check amounting to the balance of Marinduque
Mining’s account with PCIB, and later allowed the
encashment of the check.
- Marinduque Mining filed a complaint against PCIB and its
manager and the sheriff for the garnishment of its deposit
despite the unauthorised disclosure of its current deposit.
"16
Banking & Allied Laws | Atty. Jhoel Raquedan
- Violated the Bank Secrecy Law? NO.
- 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. Indeed there is
no real inquiry in such a case, and if existence of the deposit is
disclosed the disclosure is purely incidental to the execution
process.
- Since there is no evidence that the petitioners themselves
divulged the information that the private respondent had an
account with the petitioner bank and it is undisputed that the
said account was properly the object of the notice of
garnishment and writ of execution carried out by the deputy
sheriff, a duly authorized officer of the court, we can not
therefore hold the petitioners liable under R.A. 1405.
FOREIGN CURRENCY DEPOSIT
- To allow foreigners to deposit in our banking system
- Same as RA 1405
- GR: Absolutely confidential
- It only has ONE EXCEPTION (under FCDA): When the
depositor himself consents to the examination of his
accounts
- OTHER EXCEPTIONS (from special laws):
1) When there is probable cause of money laundering as
provided under Sec. 11 of AMLA
2) Upon order of the CA under Sec. 27 when there is
probable cause of Terrorism under the Human
Security Act
3) Under Sec. 10 of RA 10168 where AMLC is
authorised 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
4) Examination by and disclosure to the CIR under Sec.
6(F) of NIRC
5) Disclosure to the BSP in the course of examination to
ensure compliance with the AMLA
6) PDIC’s inquiry into and examination of deposit
accounts and all information related thereto in case there
is a finding of unsafe or unsound banking practice
- NOTE: FCDA does NOT distinguish if the depositor is an
alien or a Filipino.
- Hence, confidentiality rule applies to ALL foreign currency
deposits.
GSIS vs. CA
- Yes to quashal of the subpoena absent the consent of the
depositor
- FCDA applies in this case
- FCDA (1974) is a special law, while Bank Secrecy Act
(1955) is a general law.
- FCDA - intended to encourage deposits from foreign
lenders and investors. It is a special law designed
especially for foreign currency deposits in the
Philippines.
- Bank Secrecy Law - enacted for the purpose of giving
encouragement to the people to deposit their money in
banking institutions and to 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. It covers all bank deposits in the
Philippines and no distinction was made between
domestic and foreign deposits.
- Between 1955 and 1974, if I have a foreign deposit account
and I was charged of graft and corruption, can my account
be examined? YES.
- Under FCDA, absent the written permission from Domsat,
Westmont Bank cannot be legally compelled to disclose the
bank deposits of Domsat, otherwise, it might expose itself to
criminal liability under the same act.
- Purpose of the loan being contested
- GSIS is like the guarantor of DOMSAT. Bakit ayaw
magbayad ni GSIS? Because GSIS is guarantor only for
the lease of the Russians.
- So the Court went to the purpose of the loan. They have to
know where the money went. So they have to examine the
accounts.
Salvacion vs. Central Bank
- Greg Bartelli - rapist of Karen who he asked to be “tutor” of
his alleged niece. Then Court issued a judgment to pay
Karen’s families damages. His accounts were garnished.
- Chinabank opposed by reason of absolute confidentiality of
his accounts.
CruzAR | JD 3 | AUF-SOL (2020)
- Can be garnished? YES, denial of which would result to
injustice. Also, he is a transient.
- GR: Only written consent from the depositor (only exception)

EXP: This case
- This is a sui generis case. Kung batas lang ang pag-uusapan,
mali ang decision. But this is an EQUITABLE DECISION.
- This is a very peculiar decision and will not be applicable
to future decisions, UNLESS same circumstances and
gravity in this case.
Cancio vs. CA
- WON the foreign currencies in question should be forfeited?
NO.
- Argument of petitioners (and why SC believed them): She was
NOT advised by the bank to secure the requirement. The law
provides that there should have no restriction in the
withdrawability and transferability of the foreign currency
deposits.
- Petitioner is a foreign currency depositor. Relevant and
applicable to her is the following provision of the FCDA.
- The transferability abroad of foreign currency deposits is
unrestricted. Only one exception is provided for therein, which
is, any restriction “from the contract between the depositor and
the bank.” Neither is a Central Bank authority required for the
transferability abroad of foreign currency deposits.
DEPOSIT INSURANCE
- via RA 3591, establishing PDIC
- Purpose of the law: to create the PDIC
- PDIC’s 3 roles:
1. Deposit insurer
2. Co-regulator of banks and BSP
3. Appointed as receiver or liquidator of distressed banks
[PDIC vs. Philippine Countryside Rural Bank]
- Aimed to protect the depositors
- Provides a safety net to depositors against the risk of losing
the amount they deposited with a bank
- Prevents bankruns in times of financial instability
- Risks insured by the deposit insurance:
1) Closure of the bank
2) Expiration of the bank’s corporate term
3) Revocation of the bank’s corpsrate term
- Banks CANNOT refuse to be covered by the deposit
insurance. They are mandatorily insured with the PDIC.
- Banks, not the depositor, are obligated to pay the prescribed
insurance assessment or premium that is payable to PDIC.
- INSURANCE - NOT exceeding P500k per deposit
- P500k
- Aggregated = Sum of ALL deposits in all branches in
the Philippines
- If may time deposit, savings, etc., one P500k only.
- If joint, one P500k only.
- If joint + another joint, one P500k only
- If joint + another account, according to Atty. Raquedan,
separate.
- Deposit - unpaid balance of money or its equivalent received
by a bank
- NOT covered by the deposit insurance:
1. Investment products
2. Fictitious or fraudulent, or unfunded
3. From unsafe and unsound banking practice/s
4. Proceeds of an unlawful activity
5. Deposit in foreign branches (of the same bank)
6. Accounts that resulted from splitting of deposits
7. Amount in excess of P500k
- PROCEDURE:
1) PDIC shall commence the determination of insured
deposits due the depositors of a closed bank upon its
actual takeover of the closed bank.
2) Notice shall be published in a newspaper of general
circulation that the depositor is already required to file a
claim.
3) There depositor is required to file a claim WITHIN 2
YEARS from actual takeover of the bank.
4) If such claim is made, PDIC is required to pay the
depositor or settle the claim within 6 months from the
filing of the claim.
- Settlement of claim is made either by:
(a) Cash; or
(b) Making available to each depositor a
transferred deposit in another insured bank in
an amount equal to insured deposit of such
depositor
"17
Banking & Allied Laws | Atty. Jhoel Raquedan
- NOTE: No appeal is given under law on the denial of an
insurance claim by PDIC. Such is final and executory.
- Remedy: Certiorari under Rule 65
- If PDIC paid an insurance claim of P500k but the deposit is
more than such amount, the depositor may claim the balance
from the remaining assets upon liquidation of the closed bank.
PDIC vs. Citibank
- Money placements from head office and foreign branches
- Insurable deposits? NO.
- Citibank and BA both did not incorporate a separate domestic
corporation to represent its business interests in the
Philippines. Their Philippine branches are, as the name
implies, merely branches, without a separate legal personality
from their parent company, Citibank and BA. Thus, being one
and the same entity, the funds placed by the respondents in
their respective branches in the Philippines should not be
treated as deposits made by third parties subject to deposit
insurance under the PDIC Charter.
- The purpose of the PDIC is to protect the depositing public in
the event of a bank closure. The head office shall answer for
the liabilities of its branch. Suppose the Philippine branch of
Citibank suddenly closes for some reason. Citibank N.A.
would then be required to answer for the deposit liabilities of
Citibank Philippines.
- Sec. 5(g) of RA 3591
- “…Provided, that any obligation of a bank which is
payable at the office of the bank located outside of the
Philippines shall not be a deposit for any of the purposes of
this Act or included as part of the total deposits or of the
insured deposits.”
- Why not considered as insurable deposits? The purpose of the
law is to protect the deposits in the Philippines. Wala tayong
pake sa kanila. :)
PDIC vs. Philippine Countryside Rural Bank
- Investigation vs Examination
- Argument of PDIC: Its power of examination is different from
its power of investigation, in such that the former requires
prior approval of the Monetary Board while the latter requires
merely the approval of the PDIC Board. It further claims that
the power of examination cannot be exercised within twelve
(12) months from the last examination conducted, whereas the
power of investigation is without limitation as to the frequency
of its conduct. It states that the purpose of the PDIC’s power
of examination is merely to look into the condition of the
bank, whereas the power of investigation aims to address
fraud, irregularities and anomalies based on complaints from
depositors and other government agencies or upon reports of
examinations conducted by the PDIC itself or by the BSP.
- PDIC conducted an investigation without prior MB approval.
- Valid? YES.
- EXAMINATION
- An evaluation of the current status of a bank and
determines its compliance with the set standards regarding
solvency, liquidity, asset valuation, operations, systems,
management, and compliance with banking laws, rules and
regulations
- A review of essentially all the functions and facets of a
bank and its operation
- Necessitates poring through voluminous documents, and
requires a detailed evaluation thereof
- involves an intrusion into a bank’s records
- INVESTIGATION
- Conducted based on specific findings of certain acts or
omissions which are subject of a complaint or a Final
Report of Examination
- Not involve a general evaluation of the status of a bank
- Zeroes in on specific acts and omissions uncovered via an
examination, or which are cited in a complaint.
Sps. Chugani vs. PDIC
- Sps. Chugani came to know that the Monetary Board of the
BSP placed RBMI under receivership and thereafter closed the
latter, then filed claims for insurance of their time deposits.
PDIC denied the claims of the spouses
- SC: Correct, not in the usual course of business.
- Deposit means the unpaid balance of money or its equivalent
received by a bank in the usual course of business and for
which it has given or is obliged to give credit to a commercial,
checking, savings, time or thrift account, or issued in
accordance with Bangko Sentral rules and regulations and
other applicable laws, together with such other obligations of a
bank, which, consistent with banking usage and practices.
- Here, upon investigation by the PDIC, it was discovered that
1) the money allegedly placed by the petitioners in RBMI was
CruzAR | JD 3 | AUF-SOL (2020)
in fact credited to the personal account of Garan, hence, they
could not be construed as valid liabilities of RBMI to
petitioners; 2) based on bank records and the certified list of
the bank's outstanding deposit liabilities, the alleged deposits
of petitioners are not part of RBMI's outstanding liabilities;
and 3) the CTDs are not validly issued by RBMI, but were
mere replicas of the unissued and unused CTDs still included
in the inventory of RBMI. Further, the act of petitioners in
opening Time Deposits and thereafter depositing several
amounts of money through inter-branch deposits with
Metrobank and China Bank for the account of RBMI can
hardly be considered as in the ordinary course of business.
- PDIC performs QUASI-JUDICIAL FUNCTIONS.
- Application of law in certain set of facts.
- A "quasi-judicial function" is a term which applies to the
action, discretion, etc. of public administrative officers or
bodies, who are required to investigate facts, or ascertain
the existence of facts, hold hearings, and draw conclusions
from them, as a basis for their official action and to
exercise discretion of a judicial nature.
- PDIC has the power to prepare and issue rules and
regulations to effectively discharge its responsibilities. The
power of the PDIC as to whether it will deny or grant the
claim for deposit insurance based on its rules and
regulations partakes of a quasi-judicial function. Also, the
fact that decisions of the PDIC as to deposit insurance shall
be final and executory, such that it can only be set aside by
a petition for certiorari evinces the intention of the
Congress to make PDIC as a quasi-judicial agency.
So vs. PDIC
- WON RTC has jurisdiction over the petition for certiorari
assailing the PDIC's denial of a deposit insurance claim
- SC: NONE, RTC has no jurisdiction.
- PDIC exercises quasi-judicial functions. PDIC exercises
judicial discretion and judgment in determining whether a
claimant is entitled to a deposit insurance claim, which
determination results from its investigation of facts and
weighing of evidence presented before it. Noteworthy also is
the fact that the law considers PDIC's action as final and
executory and may be reviewed only on the ground of grave
abuse of discretion.
- CA has jurisdiction. Sec. 4, Rule 65 of the ROC provides that
if the petition involves an act or an omission of a quasi-
judicial agency, unless otherwise provided by law or these
rules, the petition shall be filed with and be cognizable only by
the Court of Appeals.
- Why did the petitioner insist on the jurisdiction of the RTC?
Invoking the plenary powers of the RTC.
- PDIC Law: Court of Appeals
ANTI-MONEY LAUNDERING
- To deter the commission of the crimes
- To make it difficult for the proceeds of the crime to become
clean
- To stop not only the practice of money laundering in all stages
but more importantly the crimes that generated the proceeds
that are being laundered
- Not really the laundering of money that is prohibited, but the
proliferation of crimes in connection with such money
- The banking system is not the only way to launder money, but
it is one of the easiest.
- RA 9160, provides for AMLC which is the watchdog against
money laundering
- Jewellery stores, casinos are now covered
- As of now, no regulation yet as to cars
- But if you bought a car beyond P1M, you are flagged by
the BIR
STAGES OF MONEY LAUNDERING:
1) Placement stage - proceeds of the crime are deposited in a
financial institution
2) Layering stage - proceeds are moved (through a series of
transactions) to sever any audit trail to make the tracing of
the source harder
3) Integration stage - criminal resumes control of the proceeds,
free from any link to the criminal source
WAYS TO COMMIT MONEY LAUNDERING:
By any person who, knowing that any monetary instrument or
property represents, involves, or relates to the proceeds of any
unlawful activity:
(1) Transacts said monetary instrument or property;
"18
Banking & Allied Laws | Atty. Jhoel Raquedan
(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 Items (1), (2) or (3) above;
(5) Aids, abets, assists in or counsels the commission of the
money laundering offenses referred to in Items (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
Items (1), (2) or “(3)” above.
(7) Knowing that a covered or suspicious transaction is required
to be reported to the Anti-Money Laundering Council
(AMLC) under any of the provisions of the AMLA, as
amended, its RIRR, or this Part, fails to do so.
SUSPICIOUS TRANSACTIONS, if any of the following
circumstances exist:
1) There is no underlying legal or trade obligation, purpose
or economic justification;
2) The client is not properly identified;
3) The amount involved is not commensurate with the
business or financial capacity of the client;
4) Taking into account all known circumstances, it may be
perceived that the client’s transaction is structured in
order to avoid being the subject of reporting
requirements under the Act;
5) Any 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
institution;
6) The 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.
- Report of suspicious transactions should be made from the
occurrence thereof, i.e., date of determination of the suspicious
nature of the transactions, made not exceeding 10 calendar
days from the date of transaction.
UNLAWFUL ACTIVITY, if involving or having direct relation
to the following:
1) Kidnapping for ransom under Article 267 of Act No.
3815, otherwise known as the Revised Penal Code, as
amended;
2) Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of
Republic Act No. 9165, otherwise known as the
Comprehensive Dangerous Drugs Act of 2002;
3) Section 3 paragraphs B, C, E, G, H and I of Republic
Act No. 3019, as amended, otherwise known as the
Anti-Graft and Corrupt Practices Act;
4) Plunder under Republic Act No. 7080, as amended;
5) Robbery and extortion under Articles 294, 295, 296,
299, 300, 301 and 302 of the Revised Penal Code, as
amended;
6) Jueteng and Masiao punished as illegal gambling under
Presidential Decree No. 1602;
7) Piracy on the high seas under the Revised Penal Code,
as amended and Presidential Decree No. 532;
8) Qualified theft under Article 310 of the Revised Penal
Code, as amended;
9) Swindling under Article 315 and Other Forms of
Swindling under Article 316 of the Revised Penal Code,
as amended;
10) Smuggling under Republic Act Nos. 455 and 1937;
11) Violations of Republic Act No. 8792, otherwise known
as the Electronic Commerce Act of 2000;
12) Hijacking and other violations under Republic Act No.
6235; destructive arson and murder, as defined under
the Revised Penal Code, as amended;
13) Terrorism and conspiracy to commit terrorism as
defined and penalized under Sections 3 and 4 of
Republic Act No. 9372;
14) Financing of terrorism under Section 4 and offenses
punishable under Sections 5, 6, 7 and 8 of Republic Act
No. 10168, otherwise known as the Terrorism Financing
Prevention and Suppression Act of 2012:
15) Bribery under Articles 210, 211 and 211-A of the
Revised Penal Code, as amended, and Corruption of
Public Officers under Article 212 of the Revised Penal
Code, as amended;
CruzAR | JD 3 | AUF-SOL (2020)
16) Frauds and Illegal Exactions and Transactions under
Articles 213, 214, 215 and 216 of the Revised Penal
Code, as amended;
17) Malversation of Public Funds and Property under
Articles 217 and 222 of the Revised Penal Code, as
amended;
18) Forgeries and Counterfeiting under Articles 163, 166,
167, 168, 169 and 176 of the Revised Penal Code, as
amended;
19) Violations of Sections 4 to 6 of Republic Act No. 9208,
otherwise known as the Anti-Trafficking in Persons Act
of 2003;
20) Violations of Sections 78 to 79 of Chapter IV, of
Presidential Decree No. 705, otherwise known as the
Revised Forestry Code of the Philippines, as amended;
21) Violations of Sections 86 to 106 of Chapter VI, of
Republic Act No. 8550, otherwise known as the
Philippine Fisheries Code of 1998;
22) Violations of Sections 101 to 107, and 110 of Republic
Act No. 7942, otherwise known as the Philippine
Mining Act of 1995;
23) Violations of Section 27(c), (e), (f), (g) and (i), of
Republic Act No. 9147, otherwise known as the Wildlife
Resources Conservation and Protection Act;
24) Violation of Section 7(b) of Republic Act No. 9072,
otherwise known as the National Caves and Cave
Resources Management Protection Act;
25) Violation of Republic Act No. 6539, otherwise known
as the Anti-Carnapping Act of 2002, as amended;
26) Violations of Sections 1, 3 and 5 of Presidential Decree
No. 1866, as amended, otherwise known as the decree
Codifying the Laws on Illegal/Unlawful Possession,
Manufacture, Dealing In, Acquisition or Disposition of
Firearms, Ammunition or Explosives;
27) Violation of Presidential Decree No. 1612, otherwise
known as the Anti-Fencing Law;
28) Violation of Section 6 of Republic Act No. 8042,
otherwise known as the Migrant Workers and Overseas
Filipinos Act of 1995, as amended by Republic Act No.
10022;
29) Violation of Republic Act No. 8293, otherwise known
as the Intellectual Property Code of the Philippines;
30) Violation of Section 4 of Republic Act No. 9995,
otherwise known as the Anti-Photo and Video
Voyeurism Act of 2009;
31) Violation of Section 4 of Republic Act No. 9775,
otherwise known as the Anti-Child Pornography Act of
2009;
32) Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11,
12 and 14 of Republic Act No. 7610, otherwise known
as the Special Protection of Children Against Abuse,
Exploitation and Discrimination;
33) Fraudulent practices and other violations under
Republic Act No. 8799, otherwise known as the
Securities Regulation Code of 2000; and
34) Felonies or offenses of a similar nature that are
punishable under the penal laws of other countries.
- If the transaction is in any way related to, or the person
transacting is involved in or connected to, an unlawful activity
or money laundering offense, in the report of suspiciouss
transaction, the 10-day period for determination should be
reckined from the date the covered person knew or should
have known the suspicious transaction indicator.
JURISDICTION over money laundering cases:
(a) RTC - If by private individuals & public officers not covered
by the jurisdiction of the Sandiganbayan
(b) SANDIGANBAYAN - If by public officers and private
persons who are in conspiracy with such public officers
2 types of examination by AMLC: (See Sec. 11 of AMLA)
1) Examination with prior CA Order
2) Examination without prior CA Order
- NOTE: The inquiry made by AMLC is NOT an exercise of
quasi-judicial functions but is merely the performance of
its task as an investigative body.
3 stages of determination:
1) AMLC - investigates possible ML offences and initially
determines whether there is probable cause to charge any
person with a ML offence
2) DOJ or Ombudsman - conducts a prelimminary
investigation proceedings and if after due notice and hearing
finds probable cause for ML offences, file the necessary
information
3) RTC or Sandiganbayan - try the cases
"19
Banking & Allied Laws | Atty. Jhoel Raquedan
FREEZING OF MONETARY INSTRUMENT OR
PROPERTY:
1) Upon filing of verified ex party 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
- Issued by the CA, effective immediately for a period of 20
days, subject to extension.
- Total period of the freeze order shall NOT exceed 6 months.
Subido vs. CA
- Constitutionality of Sec. 11 of AMLA
- Argument of lawyers: Their properties were confiscated
without them having immediate remedy (violation of
substantive due process)
- Sec. 11 - ex parte inquiry, not seizure (and they will remain
confidential)
- Section 11 of the AMLA has three elements: (1) ex-parte
application by the AMLC; (2) determination of probable cause
by the CA; and (3) exception of court order in cases involving
unlawful activities defined in Sections 3(i)(1), (2), and (12).
- Power exercised by AMLC: Investigative duties only, not
quasi-judicial
- Lawyers can question the examination of the accounts. You
have the right to participate.
- The principal account holder and the other are entitled to
NOTICE, because they have the right to contest. Entitled even
to prelude to the freezing of the account.
Republic vs. Bolante
- Involves the accounts of AGS, LIVECOR and Molugan.
- Fertiliser Fund Scam
- Found probable cause that their accounts were connected to
the FFS. So their accounts were frozen.
- SC: NO PROBABLE CAUSE
- Senate Committee Report No. 54 only provided the AMLC
with a description of the alleged unlawful activity, which is the
fertilizer fund scam. No details what Bolante did. Bolante had
ceased to be a member of the board of trustees of LIVECOR
for 14 months before the latter even made the initial
transaction, which was the subject of the suspicious
transaction reports. Also used was the testimony of the
secretary.
- Lesson: Find competent evidence, details, numbers, figures,
dates, paper trail. You cannot just rely on proceedings of the
Senate.
Ligot vs. People
- Appeal of the Ligots on the extension of the freezing of their
account
- Allegedly they had more properties than they declared
- WON freeze order can be applied even though they were not
convicted of crime yet
- YES. Probable cause is different from that used in criminal
cases. It is done so that it cannot be out of reach of the law.
- Is there a taking already? NONE. Freeze only, not taking.
- Why did the SC, despite the probable cause, allow them to
enjoy their money?
- Passage of the Rule in Civil Forfeiture Cases providing for
a limit of freezing of up to 6 months only.
- DUE PROCESS
- The sheer length of time that the government was not able
to find basis to indict the Ligots is not anymore the fault of
the Ligots.
- A freeze order is an extraordinary and interim relief issued by
the CA to prevent the dissipation, removal, or disposal of
properties that are suspected to be the proceeds of, or related
to, unlawful activities as defined in Section 3(i) of RA No.
9160, as amended. The primary objective of a freeze order is
to temporarily preserve monetary instruments or property that
are in any way related to an unlawful activity or money
laundering, by preventing the owner from utilizing them
during the duration of the freeze order. The relief is pre-
emptive in character, meant to prevent the owner from
disposing his property and thwarting the State’s effort in
building its case and eventually filing civil forfeiture
proceedings and/or prosecuting the owner.
- A freeze order is meant to have a temporary effect; it was
never intended to supplant or replace the actual forfeiture
cases where the provisional remedy - which means, the
remedy is an adjunct of or an incident to the main action – of
asking for the issuance of an asset preservation order from the
court where the petition is filed is precisely available. For
emphasis, a freeze order is both a preservatory and preemptive
remedy.
CruzAR | JD 3 | AUF-SOL (2020)
- To stress, the evils caused by the law’s silence on the freeze
order’s period of effectivity compelled this Court to issue the
Rule in Civil Forfeiture Cases. Specifically, the Court fixed
the maximum allowable extension on the freeze order’s
effectivity at six months. In doing so, the Court sought to
balance the State’s interest in going after suspected money
launderers with an individual’s constitutionally-protected right
not to be deprived of his property without due process of law,
as well as to be presumed innocent until proven guilty.
- To our mind, the six-month extension period is ordinarily
sufficient for the government to act against the suspected
money launderer and to file the appropriate forfeiture case
against him, and is a reasonable period as well that recognizes
the property owner’s right to due process. In this case, the
period of inaction of six years, under the circumstances,
already far exceeded what is reasonable.
- As a rule, the effectivity of a freeze order may be extended by
the CA for a period not exceeding six months. Before or upon
the lapse of this period, ideally, the Republic should have
already filed a case for civil forfeiture against the property
owner with the proper courts and accordingly secure an asset
preservation order or it should have filed the necessary
information. Otherwise, the property owner should already be
able to fully enjoy his property without any legal process
affecting it. However, should it become completely necessary
for the Republic to further extend the duration of the freeze
order, it should file the necessary motion before the expiration
of the six-month period and explain the reason or reasons for
its failure to file an appropriate case and justify the period of
extension sought. The freeze order should remain effective
prior to the resolution by the CA, which is hereby directed to
resolve this kind of motion for extension with reasonable
dispatch.
Republic vs. Glasgow
- Conviction is not a prerequisite for a civil forfeiture case.
- Why? Why not know first if guilty or not? Why do we
have to rush? Why do we have to finish the prosecution
first?
- By the time na natapos na and criminal proceedings (sa
tagal lol), the money might be taken or used or withdrawn
already. Na-convict mo nga, wala ka naman makukuha.
- 2 conditions when applying for civil forfeiture under RA 9160:
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.
LOAN FUNCTION
- Simple act of lending money
- Banks are not only for safekeeping but also a business/
enterprise, and part of its business is lending money.
- Interest - income of the bank
- There will be requirements on:
- System for lending (financially sound and safeguards the
money of the depositors)
- Amount
- Creditworthiness of the borrower (capacity to pay)
- Signatories
- Interest rate
- DOSRI
- BSP is responsible, as regulator, to ensure that in taking credit
risks to maximise profits, banks nonetheless operate within the
bounds of safety so as not to undermine the greater public
interest.
Remember: Every banking system has their own system of
lending and the banks have their own criteria of lending.
- But each bank’s credit policy should include:
1) Credit approval process
2) Credit-granting criteria and credit analysis
3) Credit limits/loan portfolio
4) Types of credits
5) Acceptable security
6) Terms and conditions of loans
7) Clear policy on credits granted to related parties
(DOSRI)
- To a banking institution, well-defined lending policies and
sound lending practices are essential to perform its lending
function effectively and minimise the risk inherent in any
extension of credit.
"20
Banking & Allied Laws | Atty. Jhoel Raquedan
REQUIREMENTS
AMOUNT
- Only in amounts and for periods of time essential to the
effective completion of operations to be financed
- Purpose of the loan must be stated in the application,
documentation, and in the contract between the bank and the
borrower.
- If bank finds that the proceeds of the loan were used,
without its approval, for a purpose other than those agreed
upon, the bank has the right to:
1) Terminate the loan or other credit accommodation;
and
2) Demand immediate repayment of the obligation.
- Limit: SINGLE BORROWER’S LIMIT
- The bank can lend to ONE PERSON (natural or juridical)
25% of the net worth of the bank.
- May be increased by 10% of the net worth of the bank,
provided the additional liabilities of any borrower are
adequately secured.
- Minimizes the exposure of the bank
- Because if there is no limit to one person, and that person
took a loan of a huge amount, kapag tinakbuhan niya and
bank, taob ang bank.
New Sampaguita Builders vs. PNB
- Loan of NSB then PNB foreclosed and said that there was
deficiency.
- Why did the SC did not allow the PNB to recover the alleged
deficiency?
- Because such amounts were due to the exorbitant increase
of the interest rates by PNB.
- Isn’t there a disclosure statement stating that the interest
rates will be increased?
- If it is not included in the terms of loan na hindi tataasan
ang interest rates, hindi pwedeng taasan ang interest rates.
The disclosure statements are NOT contracts, only the
terms of your loan ganon.
- SC: In sum, the three disclosure statements, as well as the
two credit agreements considered by this Court, did not
provide for any increase in the specified interest rates.
Thus, none would now be permitted.
- Banks must abide by the terms of the loan especially the
amount agreed upon.
- Unilateral determination of interest rates is against the
Doctrine of Mutuality of Contracts under the Constitution.
One-sided impositions do not have the force of law between
the parties, because such impositions are not based on the
parties' essential equality.
CREDITWORTHINESS
- How liquid are you and your assets
- Ascertainment that the borrower is capable of fulfilling his
commitments to the bank
- This is a PRE-CONDITION to the grant of the loan.
- Requirements:
1) ITRs of the borrower duly stamped as received by the
BIR
2) Supporting financial statements
3) Waiver of confidentiality of client information and/or an
authority of the FI to conduct random verification with
the BIR
SIGNATORIES
- Signature of the principal borrower + 1 co-maker (in case of
unsecured loans and other credit accommodations to an
individual borrower)
- EXP: Principal borrower has financial capacity and good
track record of paying his obligations (no need for co-
maker signature)
- Signature of the borrower signifies consent to the agreement
DBP vs. Perez
- Perez: I will not pay the loan because 1) my signature was not
valid because tinakot mo ko!! :( and 2) it is a contract of
adhesion.
- WON promissory note is voidable for not having been
voluntarily signed by the respondents and for being a contract
of adhesion
CruzAR | JD 3 | AUF-SOL (2020)
- NO. The threat that you are alleging is a proper remedy of the
other party. It is a legal act. It is not an event that will vitiate
consent.
- SC: No evidence showing that the Perezes signed the new
promissory note through mistake, violence, intimidation,
undue influence, or fraud. They merely alleged that they were
forced to restructure their loan for fear of having their
mortgaged properties foreclosed. However, it is axiomatic that
this would not amount to vitiated consent.
- The last paragraph of Article 1335 of the New Civil Code
specifically states that a threat to enforce one’s claim
through competent authority, if the claim is just or legal,
does not vitiate consent. Foreclosure of mortgaged
properties in case of default in payment of a debtor is a
legal remedy afforded by law to a creditor. Hence, a threat
to foreclose the mortgage would not, per se, vitiate consent.
- CONTRACT OF ADHESION - its terms are prepared by only
one party while the other party merely affixes his signature
signifying his adhesion thereto
- Contracts of adhesion are not invalid per se; they are not
entirely prohibited. The one who adheres to the contract is
in reality free to reject it entirely; if he adheres, he gives his
consent.
- The fact that it is a contract of adhesion does not make it
invalid. To make it invalid, you have to prove that the parties
are not in equal footing with each other.
RCBC vs. CA
- There were checks given by Atty. Lustre, but 3 to 4 of them
were unsigned.
- Was the unsigned check the fault of the bank? YES.
- RCBC already debited the value of the unsigned check
from private respondent's account only to re-credit it much
later to him. Thereafter, RCBC encashed checks
subsequently dated, then abruptly refused to encash the last
two. More than a year after the date of the unsigned check,
RCBC, claiming delay and invoking paragraph 11,
demanded from private respondent payment of the value of
said check and that of the last two checks, including
liquidated damages.
- Even when the checks were delivered to RCBC, it did not
object to the unsigned check. In view of the lack of malice
or negligence on the part of private respondent, petitioner's
blind and mechanical invocation of paragraph 11 of the
contract of chattel mortgage was unwarranted.
- What kind of delay is it to penalise the borrower?
- It must be either MALICIOUS or NEGLIGENT.
- In this case, it was mere inadvertence.
- If you don’t have a signature in the document, that’s void. But
in this case, it is mere inadvertence and the check is not the
loan agreement, just the means of payment. So the loan is still
subsisting.
- If the loan agreement is not signed, then we can argue that
the loan is void.
Ocampo vs. Land Bank
- Ocampo's signature in the Deed of Real Estate Mortgage was
not forged. Ocampo and Tan failed to present any evidence to
disprove the genuineness or authenticity of their signatures. A
perusal of the Deed of Real Estate Mortgage revealed the
signatures of Gloria Ocampo and Teresita Tan as well as that
of Zenaida Dasig and Julita Orpiano. On the acknowledgment
portion were the names of Gloria Ocampo and Teresita Tan,
alongside their respective residence certificate numbers and
the places and dates of issue, together with the name of Atty.
Elmer Veloria, the notary public.
- It is well settled that a document acknowledged before a
notary public is a public document that enjoys the presumption
of regularity. It is a prima facie evidence of the truth of the
facts stated therein and a conclusive presumption of its
existence and due execution. To overcome this presumption,
there must be presented evidence that is clear and convincing.
Absent such evidence, the presumption must be upheld.
- Lesson: Assuming that you signed a blank document and you
allege fraud, you have to prove it. Also, do not sleep on your
rights. If there’s something wrong, then act on it, file a case.
Ruiz vs. CA
- WON deed of mortgage is valid despite the absence of the
husband’s signature
- YES. The title is registered in the name of Corazon alone
because the phrase "married to Rogelio Ruiz" is merely
descriptive of the civil status of Corazon and should not be
construed to mean that her husband is also a registered owner.
- WON contract of interest
"21
Banking & Allied Laws | Atty. Jhoel Raquedan
- CONTRACT OF ADHESION - contract solely prepared by
one party
- NOT all are void
- First, the Court will look at the circumstances of the parties
(ex. capacity to understand the contract)
- 3x ka pumirma ng PNs. Hence, you understand the contents of
the terms of the PNs.
INTEREST RATES
- REQUISITES:
1. In writing
2. Not excessive, unconscionable and iniquitous
- Usury Law right now is suspended and legally non-existent;
hence, the rate of interest is not subject to any regulatory
ceiling.
- Parties to the loan contract are at liberty to agree on the
applicable rate of interest.
- In the absence of stipulation = 6% per annum
Advocates for Truth in Lending vs. Bangko Sentral Monetary
Board
- WON CB Circular No. 905 was constitutional
- Usury Law is a law. Who needs to act if you need to amend/
repeal/change the law? CONGRESS.
- Did the Central Bank change a law? NO.
- It merely suspended the effectivity of the Usury Law.
- CB = Executive (enforce laws)
- Can the executive branch who is tasked to enforce the law
can suspend the enforcement of the law? YES.
- USURY LAW - imposes a ceiling in the interest rate that you
impose in forbearance of money
- When the CB suspended the Usury Law, it took out the
ceiling. What is the limit now?
- That it is NOT excessive, unconscionable, and iniquitous.
- How do you measure it?
- No standard. Case to case basis.
- But to have a guide, they pegged a legal interest rate
(6%), that when the interest rate you imposed is so far
from the legal interest rate that it is tantamount to a
taking of your property.
- Stipulations authorizing iniquitous or unconscionable interests
have been invariably struck down for being contrary to morals,
if not against the law. Indeed, under Article 1409 of the Civil
Code, these contracts are deemed inexistent and void ab initio,
and therefore cannot be ratified, nor may the right to set up
their illegality as a defense be waived. Nonetheless, the nullity
of the stipulation of usurious interest does not affect the
lender’s right to recover the principal of a loan, nor affect the
other terms thereof.
- While the Usury Law ceiling on interest rates was lifted by
C.B. Circular No. 905, nothing in the said circular grants
lenders carte blanche authority to raise interest rates to levels
which will either enslave their borrowers or lead to a
hemorrhaging of their assets.
Floreindo vs. Metrobank
- WON the escalation clause in the promissory note imposing
15.446% interest on the loan for the first 30 days subject to
upward/downward adjustment every 30 days thereafter is
illegal, excessive and arbitrary
- YES. The monthly upward/downward adjustment of interest
rate is left to the will of the bank alone. It violates the essence
of mutuality of the contract. Such escalation clause would
make the fulfillment of the contracts dependent exclusively
upon the uncontrolled will of the bank and is therefore void.
- The PN gives respondent bank authority to increase the
interest rate at will during the term of the loan. This stipulation
violates the principle of mutuality between the parties. It
would be converting the loan agreement into a contract of
adhesion where the parties do not bargain on equal footing, the
weaker party’s (petitioner’s) participation being reduced to the
alternative "to take it or leave it.
- ESCALATION CLAUSE - allows the increasing of the
payments and the interest rates in the contracts
- But you both signed it in the very beginning right? Why is
it now allowed?
- Because:
1) No rate given
2) Contract provided that there will be no advance
notice to the other party
- Escalation clauses are NOT void per se.
- An EC that partakes a nature of a potestative condition,
such is VOID.
CruzAR | JD 3 | AUF-SOL (2020)
Imperial vs. Jaucian
- Rule used by the Court to determine whether the stipulated
interest is void or not:
- In exercising this power to determine what is iniquitous &
unconscionable, courts must consider the circumstances of
each case. What may be iniquitous and unconscionable in
one may be totally just and equitable in another.
- In the present case, iniquitous and unconscionable was the
parties’ stipulated penalty charge of 5% per month or 60% per
annum, in addition to regular interests and attorney’s fees.
Huibonhoa vs. CA
- WON there is inflation that would justify the reformation of
the contract
- NONE. The inflation borne by the Filipinos in 1983 (when
Ninoy was assassinated) will NOT justify the delayed accrual
of monthly rental, the reduction of its amount and the
extension of the lease by 3 years.
- INFLATION
- when there is an increase in the volume of money and
credit relative to available goods resulting in a substantial
and continuing rise in the general price level
- the sharp increase of money or credit or both without a
corresponding increase in business transaction
- It is only when an extraordinary inflation supervenes that the
law affords the parties a relief in contractual obligations.
- EXTRAORDINARY INFLATION - when there is a
decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency, and such
decrease or increase could not have been reasonably
foreseen or was manifestly beyond the contemplation of
the parties at the time of the establishment of the obligation
- In this case, no evidence was presented to justify EO inflation.
The burden of proving that there had been EO inflation or
deflation of the currency is upon the party that alleges it, by
submission of competent evidence. It cannot be merely
assumed.
- EO inflation CAN affect your contract.
- You can allege that it is a fortuitous event.
Singson vs. Caltex
- WON there existed an extraordinary inflation during the
period 1968 to 1983 that would justify an adjustment or
increase of the rentals between the parties
- NONE. The supervening of extraordinary inflation is never
assumed. The party alleging it must lay down the factual basis
for the application of Article 1250.
- In this case, no EO inflation but rather, it is a normal erosion
of the value of the Philippine peso which is a characteristic of
most currencies.
- The effects of extraordinary inflation are not to be applied
without an official declaration thereof by competent
authorities.
- REQUIREMENTS FOR EO INFLATION TO AFFECT
YOUR COMPLIANCE:
1) Proof of EO inflation (rising of prices, etc.)
2) Official declaration by competent authorities (BSP)
- In this case, while they presented proof of inflation, no official
declaration was provided.
- What if there’s a declaration from BSP, do you still have to
show proof of EO inflation?
- YES. EO inflation is never assumed and you must show
proof that it is the cause of your failure to comply with
your obligations.
- There might be other causes or reason why you failed to
comply with your obligation (ex. your negligence)
Ramos vs. CA
- Violation of the lease contract by the lessee (which entitled the
lessor to eject them)
- Lessee: Ang taas kasi ng renta mo! :(
- Argument: They failed to pay increased rent despite
supervening inflation or devaluation of the Philippine peso.
- WON there could be increase of rental by reason of inflation
- NO. The provision of Art. 1250 requires for its application a
declaration of inflation by the Central Bank. Without such
declaration creditors cannot demand an increase of what is due
them.
Sps. Juico vs. China Banking Corporation
- Escalation clause - that the bank could unilaterally increase the
interest rate without notice + no interest provided
- Why does the SC require notice?
- So they can express their conformity to it (payag or hindi)
"22
Banking & Allied Laws | Atty. Jhoel Raquedan
- Remember the elements of a contract: Consent, Object,
Cause
- In violation of mutuality of contracts
- Their assent to the modifications in the interest rates cannot be
implied from their lack of response.
- For indeed, one-sided impositions do not have the force of law
between the parties, because such impositions are not based on
the parties’ essential equality.
- It is now settled that an escalation clause is void where the
creditor unilaterally determines and imposes an increase in the
stipulated rate of interest without the express conformity of the
debtor. Such unbridled right given to creditors to adjust the
interest independently and upwardly would completely take
away from the debtors the right to assent to an important
modification in their agreement and would also negate the
element of mutuality in their contracts. While a ceiling on
interest rates under the Usury Law was already lifted under
Central Bank Circular No. 905, nothing therein "grants lenders
carte blanche authority to raise interest rates to levels which
will either enslave their borrowers or lead to a hemorrhaging
of their assets."
DOSRI
- Directos, Officers, Stockholders, and their Related Interests
- Why is there special rules for them?
- To protect public interest and prevent the abuse of the bank
- What do DOSRI have? They have CONFLICT OF
INTEREST. They are connected to the bank. They have
access to the inner workings of the bank.
- That’s why they have to be regulated when having
transactions with the bank they are part with.
- To prevent undue advantage to be granted to such bank
DOSRI in the grant of bank loans, credit accommodations,
and guarantees that may be extended, directly or indirectly,
by a bank
- Any loans must be coursed by a special procedure.
- Not illegal per se, but subject to certain restrictions.
- The account should be upon written approval of ALL the
directors of the lending bank, excluding the director
concerned + Recorded in the BSP
- REQUISITES:
1) The borrower is a DOSRI;
2) He contracts a loan or any form of financial
accommodation;
3) The loan or financial accommodation if from:
(a) His bank;
(b) A bank that is subsidiary of a bank holding
company of which both his bank and 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.
4) The loan or financial accommodation of the DOSRI 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.
- ARMS LENGTH RULE - The account should be upon terms
NOT LESS favourable to the bank than those offered to
others.
- Individual ceiling = The total outstanding loans, other credit
accommodations and guarantees to each of the bank’s DOSRI
shall be limited to an amount equivalent to their respective
unencumbered deposited and book value of their paid-in
capital contribution in the bank.
- Aggregate ceiling = The total outstanding loans, other credit
accommodations and guarantees to DOSRI shall NOT exceed
15% of the total loan portfolio of the bank or 100% of net
worth, whichever is lower.
Republic vs. Sandiganbayan
- WON there is a violation of the DOSRI and Single Borrower's
Limit Restrictions
- NONE.
- Cojuangco - President and CEO of UCPB
- He bought shares of San Miguel from Ayala, money from a
loan acquired in UCPB.
- Isn’t that DOSRI loan?
- But no evidence presented that the money he used in
acquiring shares was a loan acquired in UCPB.
- Is a DOSRI loan illegal or void?
- NOT PER SE, but subject to regulations.
- 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
CruzAR | JD 3 | AUF-SOL (2020)
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.
Soriano vs. Republic
- Soriano - former president of Rural Bank of Bulacan
- If you took a loan, when you are lent money, your obligation is
to pay. Is there a transfer of ownership of money when it is
lent to you? YES.
- Soriano: No estafa in this case dapat. I was given a loan, so
the money became mine. Hence, no misappropriation
because that’s my money, how can I misappropriate my
own.
- SC: Correct yan, if ikaw mismo ang pinautang. The one
who lent was one Carlos, NOT SORIANO.
- Is there DOSRI? YES.
- But isn’t it Carlos who took the loan?
- SC: What happened is INDIRECT BORROWING.
- 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, [49] from the
overborrowing of bank funds by bank officers, directors,
stockholders and related interests, as such overborrowing
may lead to bank failures.[50] 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”.
- DIRECT BORROWING - one that is made in the name of
the DOSRI himself or where the DOSRI is a named party
- INDIRECT BORROWING - one that is made by a third
party, but the DOSRI has a stake in the transaction
Go vs. BSP
- Contention: Use of words “and/or” in the information does
NOT constitute an offence; “and/or” meaning he was charged
for either being a borrower or a guarantor, or for being both a
borrower and guarantor.
- SC: Immaterial. Sec. 83(2) lists down the modes of
committing the offence and the 3rd one therein is a catch-all
phrase. The law is broad enough to encompass either act if
borrowing or guaranteeing or both.
- Under Section 83, RA 337, the following elements 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 second element merely lists down the various modes of
committing the offense. The third mode, by declaring that "[no
director or officer of any banking institution shall xxx] in any
manner be an obligor for money borrowed from the bank or
loaned by it," in fact serves a catch-all phrase that covers any
situation when a director or officer of the bank becomes its
obligor. The prohibition is directed against a bank director or
officer who becomes in any manner an obligor for money
borrowed from or loaned by the bank without the written
approval of the majority of the bank's board of directors. To
make a distinction between the act of borrowing and
guarantying is therefore unnecessary because in either
situation, the director or officer concerned becomes an obligor
"23
Banking & Allied Laws | Atty. Jhoel Raquedan
of the bank against whom the obligation is juridically
demandable.
- The essence of the crime is becoming an obligor of the bank
without securing the necessary written approval of the
majority of the bank's directors.
- If in any manner he became obligated to the bank, he becomes
liable under Sec. 83.
- 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.
COLLATERALS AND FORECLOSURE
- Loans can either be secured or unsecured
- Secured - meron ka makukuha, may collateral
- Unsecured - laway lang lol
- Allowed, but such is not the general norm for banks
- KINDS OF CONTRACTS OF SECURITY:
1) REAL - secured by an encumbrance on property or a
right on the creditor’s part to go after specific
property/ies of the debtor or a 3rd party for the
repayment of the loan obligation
2) PERSONAL - secured by the personal commitment
of another (guarantor or surety)
- Art. 414 of CC - real and personal property
- NOTE: Loans granted by the bank shall NOT EXCEED:
(a) 75% of the appraised value of the real property (plus
60% of the appraised value of the improvement); or
(b) 75% of the appraised value of the chattel securing the
loan obligation.
REQUIREMENTS FOR REAL SECURITY CONTRACT:
1) The estimated cash value of the collateral when sold can be
used to settle the loan obligation, both principal and accrued
interest, without legal impediment;
2) The collateral has an established market; AND
3) The valuation methodology used by the bank is sound.
* NOTE: If collateral is other than real property, the bank is
at liberty to determine the collateral/loan value of the
property offered as security in the absence of a cap. BUT,
still comply with the requisites.
REQUIREMENTS FOR PERSONAL SECURITY
CONTRACT:
1) The credit enhancement provider (guarantor or surety) itself
is of high credit quality, meaning it must have a minimum
credit rating of AA or its equivalent; OR
2) Said credit enhancement provider is considered to be of high
credit quality by the BSP.
FORECLOSURE
- Banks are required to adhere to the uniform rules of procedure
for foreclosure:
- JUDICIAL - Rule 68 of ROC
- EXTRAJUDICIAL - Act No. 3135
- Available only if the borrower failed to comply with his or her
obligation
Acme vs. CA
- Borrower initially borrowed from lender with chattel
mortgage. In the contract, it said that future obligations are
covered.
- Valid? NO.
- Chattel Mortgage Law provides that chattel mortgages can
only cover obligations existing at the time of execution of the
document.
- Reason: Being a movable property, it will be harder to
subject it to encumbrance since it can be moved from one
place to another. By reason of practicality.
- Essential condition that if the obligation becomes due and the
debtor defaults, then the property encumbered can be alienated
for the payment of the obligation, but that should the
obligation be duly paid, then the contract is automatically
extinguished proceeding from the accessory character of the
agreement.
CruzAR | JD 3 | AUF-SOL (2020)
- As the law so puts it, once the obligation is complied with,
then the contract of security becomes, ipso facto, null and
void.
- While a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long as these
future debts are accurately described, a chattel mortgage,
however, can only cover obligations existing at the time the
mortgage is constituted.
- In the chattel mortgage here involved, the only obligation
specified in the chattel mortgage contract was the P3M loan
which petitioner corporation later fully paid. By virtue of
Section 3 of the Chattel Mortgage Law, the payment of the
obligation automatically rendered the chattel mortgage void or
terminated.
Metro Concast Steel Corp. vs. Allied Bank
- Metro Concast, through its officers, herein individual
petitioners, obtained several loans from Allied Bank. By way
of security, the individual petitioners executed several
Continuing Guaranty/Comprehensive Surety Agreements in
favor of Allied Bank. Petitioners failed to settle their
obligations. Allied Bank filed a complaint for collection of
sum of money against petitioners before the RTC.
- They alleged that the economic reverses suffered by the
Philippine economy in 1998 as well as the devaluation of the
peso against the US dollar contributed greatly to the downfall
of the steel industry, directly affecting the business of Metro
Concast and eventually leading to its cessation. Hence, in
order to settle their debts with Allied Bank, petitioners offered
the sale of Metro Concast’s remaining assets, consisting of
machineries and equipment, to Allied Bank, which the latter,
however, refused. Instead, Allied Bank advised them to sell
the equipment and apply the proceeds of the sale to their
outstanding obligations. Accordingly, petitioners offered the
equipment for sale, but since there were no takers, the
equipment was reduced into ferro scrap or scrap metal over the
years. Peakstar expressed interest in buying the scrap metal.
During the negotiations with Peakstar, petitioners claimed that
Atty. Peter Saw, a member of Allied Bank’s legal department,
acted as the latter’s agent. Eventually, with the alleged
conformity of Allied Bank, through Atty. Saw, a Memorandum
of Agreement (MoA) was drawn between Metro Concast and
Peakstar, under which Peakstar obligated itself to purchase the
scrap metal for a total consideration of ₱34M. Unfortunately,
Peakstar reneged on all its obligations under the MoA
- Argument of petitioner: In the present case, petitioners
essentially argue that their loan obligations to Allied Bank had
already been extinguished due to Peakstar’s failure to perform
its own obligations to Metro Concast pursuant to the MoA.
- Extinguished loan obligations? NO.
- While it may be argued that Peakstar’s breach of the MoA was
unforseen by petitioners, the same us clearly not
"impossible"to foresee or even an event which is independent
of human will." Neither has it been shown that said occurrence
rendered it impossible for petitioners to pay their loan
obligations to Allied Bank and thus, negates the former’s force
majeure theory altogether. In any case, as earlier stated, the
performance or breach of the MoA bears no relation to the
performance or breach of the subject loan transactions, they
being separate and distinct sources of obligations. The fact of
the matter is that petitioners’ loan obligations to Allied Bank
remain subsisting for the basic reason that the former has not
been able to prove that the same had already been paid or, in
any way, extinguished.
DBP vs. Guariña Corporation
- Guariña applied for a loan from DBP to finance the
development of its resort complex. The loan was for the
amount of P3,387,000, and was secured by REM and chattel
mortgage. Guariña later demanded the release of the balance
of the loan, but DBP refused. Also, upon inspection, DBP
found that the construction works of the resort project had yet
to be completed. It then demanded Guariña to expedite the
completion of the project, or else it would initiate foreclosure
proceedings. For the inaction and objection of Guariña, DBP
initiated extrajudicial foreclosure proceedings and sold the
mortgaged properties at a public auction.
- Argument of DBP: Under the acceleration clause in their
contract, further loan releases would be terminated and the
account be due and demandable in the event of deviation from
the purpose of the loan.
- Was the extrajudicial foreclosure proper? NO.
- It is true that loans are often secured by a mortgage constituted
on real or personal property to protect the creditor's interest in
case of the default of the debtor. By its nature, however, a
mortgage remains an accessory contract dependent on the
"24
Banking & Allied Laws | Atty. Jhoel Raquedan
principal obligation, such that enforcement of the mortgage
contract will depend on whether or not there has been a
violation of the principal obligation.
- Considering that it had yet to release the entire proceeds of the
loan, DBP could not yet make an effective demand for
payment upon Guariña Corporation to perform its obligation
under the loan.
- Guariña Corporation would not incur in delay before DBP
fully performed its reciprocal obligation.
- Under the circumstances, DBP's foreclosure of the mortgage
and the sale of the mortgaged properties at its instance were
premature, and, therefore, void and ineffectual.
- Indeed, if a party in a reciprocal contract like a loan does not
perform its obligation, the other party cannot be obliged to
perform what is expected of it while the other's obligation
remains unfulfilled. In other words, the latter party does not
incur delay.
- Obligation of the lender: To lend money
 did not honor its letter dated August 22, 1996. Moreover,
Obligation of the borrower: To pay
- How can the borrower pay when you have not yet completed
your obligation
- Can’t DBP ask for the amount that it had released already?
- NO. Because under their contract, there is a specified
amount to be released. Also, you can’t under the Truth in
Lending Act.
Unionbank vs. CA
- Spouses Gonzalo and Trinidad Vincoy mortgaged their
residence in favor of petitioner to secure the payment of a loan
to Delco Industries in the amount of P2M. For failure of the
respondents to pay the loan at its date of maturity, petitioner
extrajudicially foreclosed the mortgage and scheduled the
foreclosure sale. The spouses filed a complaint for annulment
of mortgage, alleging that the subject property mortgaged to
petitioner had in fact been constituted as a family home, and
Art. 158 of FC prohibits the execution, forced sale, attachment
or any other encumbrance of a family home w/o the written
consent of majority of the beneficiaries thereof of legal age.
- Argument of petitioner: The mortgaged property of the
respondents could not be legally constituted as a family home
because its actual value P300k, the maximum value for a
family home in urban areas as stipulated in Art. 157 of FC.
Also, respondents had already lost their right to redeem the
foreclosed property when they failed to exercise their right of
redemption by paying the redemption price within the period
provided by law.
- Factual determination that the value of the house is more than
300k, so it could not be a family home.
- Not being a family home, can it be foreclosed? YES.
- Can it be redeemed? YES, so long as they can exercise their
right within the 1-yr redemption period.
- Reckoning period: Time of registration
- A mortgagor whose real property has been sold at a public
auction, judicially or extrajudicially, for the full or partial
payment of an obligation to any bank, shall have the right,
within one year after the sale of the real estate to redeem
the property. The one-year period is actually to be reckoned
from the date of registration of the sale.
- Clearly therefore, respondents had only until May 8, 1992
to redeem the subject foreclosed property. Their failure to
exercise the right of redemption by paying the redemption
price within the period prescribed by the law effectively
divested them of said right. It bears reiterating that during
the one year redemption period, respondents never
attempted to redeem the subject property but instead
persisted in their theory that the mortgage is null and void.
To allow them now to redeem the same property would, as
petitioner aptly puts it, be letting them have their cake and
eat it too.
- The period of redemption is not interrupted by the filling of
an action assailing the validity of the mortgage, so that at
the expiration thereof, the mortgagee who acquires the
property at the foreclosure sale can proceed to have the title
consolidated in his name and a writ of possession issued in
his favor. To rule otherwise, and allow the institution of an
action questioning the validity of a mortgage to suspend
the running of the one year period of redemption would
constitute a dangerous precedent. A likely off shoot of such
a ruling is\ the institution of frivolous suits for annulment
of mortgage intended merely to give the mortgagor more
time to redeem the mortgaged property.
Games and Garments vs. Allied Banking
- Borrower = Bienvenida
- Purpose of the loan = Construction of the 2-storey building
- Lender = Allied Banking
CruzAR | JD 3 | AUF-SOL (2020)
- Bienvenida purchased a land from GGDI and was used as a
security. Land = P20M, Allied Bank said it would pay the
P7M, but it was given to Bienvenida (not GGDI).
- Foreclosure done by the bank is NULL AND VOID.
- The sale was not yet completed, hence the contract can still be
rescinded.
- Allied Bank was well aware that the subject property was not
yet fully paid for and that the balance of the purchase price
was to be paid for from the proceeds of Bienvenida's approved
loan from the bank.
- NOT mortgagee in good faith
- While it is true that on its face, Bienvenida's TCT No.
206877 appeared clean, Allied Bank knew of the
possibility that the sale of the subject property by GGDI to
Bienvenida could be rescinded for nonpayment of the
balance of the purchase price and, worse, that the bank
itself was partly responsible for the nonpayment because it
despite the repeated notices and demands for payment
made by GGDI upon Allied Bank as early as November 21,
1996, the bank proceeded with the foreclosure on the
mortgage and public auction sale of the subject property on
March 19, 1998.
- Hence, foreclosure is considered null and void.
International Finance Corporation vs. Imperial
- IFC and PPIC entered into a loan agreement wherein IFC
extended to PPIC a loan of US$7M. Then a Guarantee
Agreement was executed where ITM and Grandtex agreed to
guarantee PPIC's obligations under the loan agreement. PPIC
defaulted despite demand. IFC applied for the extrajudicial
foreclosure of mortgages and sold the properties. The
outstanding loan, however, amounted to US$8,083,967 thus
leaving a balance of US$2,833,967. PPIC failed to pay the
remaining balance. IFC demanded ITM and Grandtex, as
guarantors of PPIC, to pay the outstanding balance. However,
despite the demand made by IFC, the outstanding balance
remained unpaid.
- Argument of IFC: Under the Guarantee Agreement, ITM
bound itself as a surety to PPIC's obligations proceeding from
the Loan Agreement.
- Argument of ITM: By the terms of the Guarantee Agreement,
it was merely a guarantor and not a surety. Moreover, any
ambiguity in the Agreement should be construed against IFC -
- the party that drafted it.
- Surety or Guarantor? SURETY.
- Guaranty - liable if the borrower CANNOT pay
- Surety - liable if the borrower DOES NOT pay
- While referring to ITM as a guarantor, the Agreement
specifically stated that the corporation was "jointly and
severally" liable. To put emphasis on the nature of that
liability, the Contract further stated that ITM was a primary
obligor, not a mere surety. Those stipulations meant only one
thing: that at bottom, and to all legal intents and purposes, it
was a surety. Indubitably therefore, ITM bound itself to be
solidarily liable with PPIC for the latter's obligations under the
Loan Agreement with IFC. ITM thereby brought itself to the
level of PPIC and could not be deemed merely secondarily
liable.
Register of Deeds vs. China Banking Corp.
- Alfonso Pangilinan and one Guillermo Chua were charged
with qualified theft, the money involved amounting to P275k.
- Land as payment for civil liability arising from crime. CBC
was the employer of the accused. Pangilinan and his wife,
Belen Sta. Ana, executed a public instrument entitled DEED
OF TRANSFER whereby, after admitting his civil liability in
favor of his employer, the China Banking Corporation, in
relation to the offense aforesaid, he ceded and transferred to
the latter, in satisfaction thereof, a parcel of land located in the
City of Manila. The deed was presented for registration to the
Register of Deeds of the City of Manila, but because the
transferee — the China Banking Corporation — was alien-
owned and, as such, barred from acquiring lands in the
Philippines
- Accused: “Sir wag mo na kami kasuhan, kuhanin mo nalang
itong lupa namin.”
- Chinabank can acquire ownership of the residential lot? NO.
- Section 25 of Republic Act 337 which read as follows: .
- SEC. 25. Any commercial bank may purchase, hold, and
convey real estate for the following purposes:
- (c) Such shall be conveyed to it in satisfaction of debts
previously contracted in the course of its dealings;
- (d) Such as it shall purchase at sales under judgments,
decrees, mortgages, or trust deeds held by it and such as
it shall purchase to secure debts due to it.
"25
Banking & Allied Laws | Atty. Jhoel Raquedan
- But no such bank shall hold the possession of any real
estate under mortgage or trust deed, or the title and
possession of any real estate purchased to secure any debt
due to it, for a longer period than five years.
- Paragraph (c), Section 25 of Republic Act 337 allows a
commercial bank to purchase and hold such real estate as shall
be conveyed to it in satisfaction of debts previously contracted
in the course of its dealings, We deem it quite clear and free
from doubt that the "debts" referred to in this provision are
only those resulting from previous loans and other similar
transactions made or entered into by a commercial bank in the
ordinary course of its business as such. Obviously, whatever
"civil liability" — arising from the criminal offense of
qualified theft — was admitted in favor of appellant bank by
its former employee, Alfonso Pangilinan, was not a debt
resulting from a loan or a similar transaction had between the
two parties in the ordinary course of banking business.
- Neither do the provisions of paragraph (d) of the Same section
apply to the present case because the deed of transfer in
question can in no sense be considered as a sale made by
virtue of a judgment, decree, mortgage, or trust deed held by
appellant bank. In the same manner it cannot be said that the
real property in question was purchased by appellant "to
secure debts due to it", considering that, as stated heretofore,
the term debt employed in the pertinent legal provision can
logically refer only to such debts as may become payable to
appellant bank as a result of a banking transaction.
- Chinabank cannot own the residential lot since it is a foreign
bank.
- Why are foreign banks allowed to hold lands by reason of
foreclosures but not by reason of payment?
- Key: What are the means for the bank to acquire lands?
- Reason: Because they are remedies allowed by the law for
the foreign banks. Kung wala yun, you are cutting off ties
of the foreign banks.
Paredes vs. CA
- Borrower = MICC
- Lender = Banco Filipino
- Secured by a REM over 21 registered parcels of land in
favour of Banco Filipino
- MICC sold the land to Sps. Paredes that was mortgaged, and
another to Sps. Bergado.
- For failure of MICC to settle its obligations, Banco Filipino
filed a verified Petition for the extrajudicial foreclosure of
MICC’s mortgage. Banco Filipino was declared the highest
bidder. A Certificate of Sale was issued in its favor which was
registered with the Registry of Deeds and annotated on the
corresponding TCTs.
- Copies of Writ of Possession with notice to voluntarily vacate
the premises within 7 days from receipt thereof, were served
on petitioners
- Who has superior right? BANCO FILIPINO.
- That petitioners purchased their properties from MICC in good
faith is of no moment. The purchases took place after MICC’s
mortgage to Banco Filipino had been registered in accordance
with Article 2125 of the Civil Code and the provisions of P.D.
1529. As such, under Articles 1312 and 2126 of the Civil
Code, a real right or lien in favor of Banco Filipino had
already been established, subsisting over the properties until
the discharge of the principal obligation, whoever the
possessor(s) of the land might be.
- If you are Paredes, will you buy that? NO. Banco Filipino has
a superior right because the mortgage was inscripted in the
title of the land.
- Buyer then steps into the shoes of the mortgagor.
- When you constitute a security on a property, it constitutes a
lien. So whoever owns it, the property is burdened of the
security.
- The buyer in a foreclosure sale becomes the absolute owner of
the property purchased if it is not redeemed during the period
of one year after the registration of the sale. As such, he is
entitled to the possession of the said property and can demand
it at any time following the consolidation of ownership in his
name and the issuance to him of a new transfer certificate of
title. The buyer can in fact demand possession of the land even
during the redemption period except that he has to post a bond
in accordance with Section 7 of Act No. 3135 as amended. No
such bond is required after the redemption period if the
property is not redeemed. Possession of the land then becomes
an absolute right of the purchaser as confirmed owner. Upon
proper application and proof of title, the issuance of the writ of
possession becomes a ministerial duty of the court.
CruzAR | JD 3 | AUF-SOL (2020)
Banco Filipino vs. CA
- Borrower paid 50k, “Mr. Banco Filipino eto 50k gusto kong
bilhin ang property ko!” Banco Filipino accepted, but not for
the redemption, but for the postponement of the consolidation
of the title of the property.
- Registration of cert. of sale = Jan. 21, 1991
- Offer = Jan. 20, 1993
- The right of redemption should be exercised within the
specified time limit, which is one year from the date of
registration of the certificate of sale. The redemptioner should
make an actual tender in good faith of the full amount of the
purchase price as provided above, i.e., the amount fixed by the
court in the order of execution or the amount due under the
mortgage deed, as the case may be, with interest thereon at the
rate specified in the mortgage, and all the costs, and judicial
and other expenses incurred by the bank or institution
concerned by reason of the execution and sale and as a result
of the custody of said property less the income received from
the property.
- In case of disagreement over the redemption price, the
redemptioner may preserve his right of redemption through
judicial action which in every case must be filed within the
one-year period of redemption. The filing of the court action to
enforce redemption, being equivalent to a formal offer to
redeem, would have the effect of preserving his redemptive
rights and "freezing" the expiration of the one-year period. In
this case, the period of redemption expired on January 21,
1992. The complaint was filed on December 20, 1992.
- Assuming arguendo that the period for redemption had been
extended, i.e., up to end of March 1992, still private
respondent failed to exercise its right within said period. This
is shown by private respondent’s allegation under paragraph 8
of its complaint that in a letter dated January 20, 1993, private
respondent’s President amended his first offer and made an
offer of ₱1 million as redemption price. Notably, such offer
was made beyond the end of the March 1992 alleged extended
period. Thus, private respondent has no more right to seek
redemption by force of law which petitioner was bound to
accept.
- No amount of intention can save you or redeem your property.
It is the valid tender of payment of the redemption price within
the redemption period.
Tanchan vs. Allied Banking
- Cebu Foremost issued several PNs in favour of Allied Bank
covering its various loans. All of the PNs are secured by 2
Continuing Guaranty/Comprehensive Surety Agreements (CG/
CSA) executed in the personal capacities of Spouses Tanchan
and Santiago. The PNs also secured by REM over the
properties of Sps. Tanchan and Sps. Lim. Foremost defaulted.
Allied Banking instituted an extrajudicial foreclosure of the
REM to satisfy its claim in the aggregate amount of
P55,578,826.77 against Foremost and the properties were sold
in favour of Aliied Banking for P37,745,283.67. It also later
filed a complaint for collection of sum of money against
Foremost, Sps. Tanchan and Santiago for the payment of the
PNs.
- Argument of petitioners: Allied Banking is barred from
claiming any amount under the Promissory Notes, Exhibits
"G" and "H", because it had already elected to foreclose on the
mortgage security, and it failed to allege in its pleadings that a
deficiency remained after the public auction sale of the
securities and that what it is seeking is the payment of such
deficiency.
- Allied Banking can claim for deficiency? YES.
- There is no question that a mortgage creditor has a single
cause of action against a mortgagor debtor, which is to recover
the debt; but it has the option of either filing a personal action
for collection of sum of money or instituting a real action to
foreclose on the mortgage security. An election of the first bars
recourse to the second; otherwise, there would be multiplicity
of suits in which the debtor would be tossed from one venue to
another, depending on the location of the mortgaged properties
and the residence of the parties.On the other hand, a creditor
who elects to foreclose on the mortgage may yet file an
independent civil action for recovery of whatever deficiency
may remain in the outstanding obligation of the debtor, after
deducting the price obtained in the sale of the mortgaged
properties at public auction. The complaint, though, must
specifically allege that what is being sought is the recovery of
the deficiency, or that in the pre-trial, such claim be raised as
an issue.
- It is clear from the allegations in the Complaint that what
respondent sought was the payment of the deficiency amount
under the subject promissory notes. In particular, while the
Promissory Note, Exhibit "H", is for the amount of
"26
Banking & Allied Laws | Atty. Jhoel Raquedan
Php16,500,000.00, what respondent sought to recover was
only Php7,582,945.85, consistent with the fact that part of said
promissory note has been satisfied from the proceeds of the
extra-judicial foreclosure. While the exact phrase "deficiency
account" is not employed in the Complaint, the intention of
respondent to recover the same is borne out by its allegations.
Garrido vs. Tuason
- Jose Garrido commenced a civil case for the foreclosure of a
chattel mortgage (car), executed in his favor by defendant,
Pilar G. Tuason, to guarantee the payment of a debt in the sum
of P1,000. A decision was rendered in his favour, ordering the
defendant to pay to plaintiff the sum of P1,000 with interest
thereon, and in compliance with a writ of execution after this
decision had become final, a car of the defendant was sold, by
the Provincial Sheriff of Rizal, at public auction, to the
plaintiff, as the highest bidder, for the sum of P550.
- Later, Garrido filed a civil case against the same defendant for
the recovery of said alleged balance of P1,290.58.
- Garrido is entitled to recover the unsatisfied portion of the
obligation? NO.
- The CFI would seem to have acted under the impression, that,
since the first case was one for the foreclosure of a chattel
mortgage, the decision therein rendered was for such
foreclosure; but such was not the nature of said decision, for it
merely ordered the defendant to pay the sum of P1,000, with
interest thereon, in addition to attorney's fees and the costs. It
did not order the sale of the property mortgaged to the plaintiff
or of any other particular property, for the satisfaction of his
credit against the defendant. It did not purport to enforce
plaintiff's lien over the mortgaged property. In other words, it
was an ordinary money judgment, to which said Articles 2115
and 2141 were absolutely irrelevant.
- Who got the car eventually? Public auction.
- Isn’t that foreclosure? NO.
- He won a case for sum of money, and the property
executed.
- It was not a foreclosure hence you cannot run after the
deficiency.
PCI Leasing vs. Trojan
- Trojan Metal Industries, Inc. (TMI) came to PCI Leasing and
Finance, Inc. (PCILF) to seek a loan. Instead of extending a
loan, PCILF offered to buy various equipment TMI owned.
PCILF and TMI immediately executed deeds of sale
evidencing TMI’s sale to PCILF of the various equipment in
consideration of the total amount of P2,865,070. Then PCILF
and TMI entered into a lease agreement, whereby the latter
leased from the former the various equipment it previously
owned. To obtain additional loan from another financing
company, TMI used the leased equipment as temporary
collateral. PCILF considered the second mortgage a violation
of the lease agreement. PCILF sent TMI a demand letter for
the payment of the latter’s outstanding obligation. PCILF’s
demand remained unheeded.
- Financial lease or a loan secured by chattel mortgage?
- SC: This is a LOAN SECURED BY CHATTEL
MORTGAGE, not financial lease.
- FINANCIAL LEASING - a mode of extending credit
through a non-cancelable contract under which the lessor
purchases or acquires at the instance of the lessee heavy
equipment, motor vehicles, industrial machinery, appliances,
business and office machines, and other movable property in
consideration of the periodic payment by the lessee of a fixed
amount of money sufficient to amortize at least 70% of the
purchase price or acquisition cost, including any incidental
expenses and a margin of profit, over the lease period
- Do you owe the creditor anything? YES, for payment of
the rent. (No loan, no amortization)
- In a true financial leasing, whether under RA 5980 or RA
8556, a finance company purchases on behalf of a cash-
strapped lessee the equipment the latter wants to buy but, due
to financial limitations, is incapable of doing so. The finance
company then leases the equipment to the lessee in exchange
for the latter’s periodic payment of a fixed amount of rental.
- In this case, however, TMI already owned the subject
equipment before it transacted with PCILF. Therefore, the
transaction between the parties in this case cannot be deemed
to be in the nature of a financial leasing as defined by law.
- Since the transaction between PCILF and TMI involved
equipment already owned by TMI, it cannot be considered as
one of financial leasing, as defined by law, but simply a loan
secured by the various equipment owned by TMI.
- Hence, had the true transaction between the parties been
expressed in a proper instrument, it would have been a simple
loan secured by a chattel mortgage, instead of a simulated
CruzAR | JD 3 | AUF-SOL (2020)
financial leasing. Thus, upon TMI’s default, PCILF was
entitled to seize the mortgaged equipment, not as owner but as
creditor-mortgagee for the purpose of foreclosing the chattel
mortgage. PCILF’s sale to a third party of the mortgaged
equipment and collection of the proceeds of the sale can be
deemed in the exercise of its right to foreclose the chattel
mortgage as creditor-mortgagee.
- Why was it important to define financial leasing?
- Re: Ownership
Commercial!!! :)
Always remember:
DEPOSIT-TAKING & LENDING
- Primary functions of banks
- Payment - pwedeng wala, some banks have no payment
facility
REDEMPTION PERIOD
- Natural persons: 1 YEAR AFTER THE SALE OF THE
PROPERTY
- Juridical persons: WITHIN 3 MONTHS AFTER
FORECLOSURE + BEFORE REGISTRATION OF THE
CERTIFICATE OF FORECLOSURE SALE W/
REGISTER OF DEEDS
- The statutory period of redemption can be EXTENDED by
agreement of the parties.
- NOTE: A TRO or a Writ of Preliminary Injunction in a
baseless action will NOT toll the running of the redemption
period.
- Redemption price = Amount due under the mortgage deed +
Interest + (Cost and expenses incurred by the bank or
institution from the sale and custody of the property - Income
derived therefrom)
Rules on the Participation of FOREIGN BANKS in
foreclosure proceedings:
1) Allowed to bid and take part in foreclosure sales of real
property mortgaged to them;
2) Allowed to avail of enforcement and other proceedings,
and accordingly take possession of the mortgaged
property for a period NOT exceeding 5years from actual
possession.
3) In case FB is the winning bidder, it shall, during the 5-yr
period, transfer its rights to a qualified PH national
- Failure to transfer = Penalised 1/2 of 1% per annum
of the price at which the property was foreclosed,
until it is able to transfer the property to a qualified
PH national
MORTGAGEE IN GOOD FAITH
- RULE: When you are transacting with a title, you don’t have
to look beyond the torrens certificate.
- This rule applies only to innocent purchasers for value and in
good faith. It does NOT apply to banks.
- Why? Connected with the duty of the bank to exercise
extraordinary diligence.
- The nature of the business of banks demands due care in
accepting properties as security for the obligations of its
borrowers.
- What should the bank do? Before approving a loan, send
representatives to the premises of the land offered as
collateral and to investigate who are the real owners
thereof.
- If a bank fails to follow this standard procedure, it
CANNOT be considered a mortgagee in good faith.
Agag vs. Alpha Financing Corporation
- Agag bought the land - March 15, 1977
- Why is it not able to register? Castro (seller) was not able to
deliver the title despite full payment and demands.
- January 30, 1997 - Alpha: Property is mine. Alpha got it from
a foreclosure sale after Castro mortgaged it.
- SC: Agag has a better right.
- Mortgagee in good faith - no knowledge of any defect in the
title
- As a general rule, where there is nothing on the certificate of
title to indicate any cloud or vice in the ownership of the
property, or any encumbrance thereon, the purchaser is not
required to explore further than what the Torrens Title
indicates on its face, in quest for any hidden defect or inchoate
"27
Banking & Allied Laws | Atty. Jhoel Raquedan
right that may subsequently defeat his right thereto. This rule,
however, applies only to innocent purchasers for value and in
good faith.
- Nevertheless, we have to deviate from the general rule because
of the failure of petitioner in this case to take the necessary
precautions to ascertain if there was any flaw in the title of the
Nolascos and to examine the condition of the property they
sought to mortgage. The petitioner is an investment and
financing corporation.
- Rule applicable to ordinary person: You rely on the title only.
- Rule applicable to a financial institution: Higher diligence; go
beyond the title (investigation, inspection, check other data) to
fully insure and assure themselves that the title of the property
is fully unblemished
- Respondent, being a financial institution, cannot claim good
faith considering that neither it nor the alleged mortgagee bank
was in possession of the lots prior and after the foreclosure
sale. Had respondent conducted an ocular inspection of the
premises, this being the standard practice in the real estate
industry, it would have discovered that the land is occupied by
petitioner. The failure of respondent to take such precautionary
steps is considered negligence on its part and would thereby
preclude the defense of good faith.
Gatioan vs. Gaffud
- The land in question was originally registered in the name of
Rufina Permison on the basis of a free patent. In the year
1948, Permison sold it to Sibreno Novesteras, who in turn,
conveyed it to Encarnacion Gatioan. Gatioan obtained a loan
in the amount of P900.00 from the PNB, and as a security,
mortgaged the land. The loan was paid, and Gatioan obtained
another 2 loans from PNB and mortgaged the same property.
The 3rd loan not yet paid, she secured an additional loan from
the same bank, for which she, however, gave as collateral,
another parcel of land. In the meantime, Sps. Gaffud procured
a free patent covering the identical parcel of land with the land
in question. The spouses also obtained loans from PNB,
secured by the same land.
- PNB holds the same set of documents from the one who
loaned with collateral and one who mortgaged.
- Bank = NOT a mortgagee in good faith
- Before a bank grants a loan on the security of land, it first
undertakes a careful examination of the title of the applicant as
well as a physical and on-the-spot investigation of the land
itself offered as security. Undoubtedly, had herein PNB taken
such a step which is demanded by the most ordinary prudence,
it would have easily discovered the flaw in the title of the
defendant spouses; and if it did not conduct such examination
and investigation, it must be held to be guilty of gross
negligence in granting them the loans in question. In either
case, PNB cannot be considered as a mortgagee in good faith
within the contemplation of the law.
- What if respondents got a loan from another bank?
- Bank 2 can now claim mortgagee in good faith? NO. It has
a duty to investigate. Ocular inspection.
Cavite Development Bank vs. Sps. Lim
- CDB = NOT a mortgagee in good faith
- CDB never acquired a valid title to the property because the
foreclosure sale, by virtue of which, the property had been
awarded to CDB as highest bidder, is likewise void since the
mortgagor was not the owner of the property foreclosed.
- There is, however, 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"
based on the rule that all persons dealing with property
covered by a Torrens Certificate of Title, as buyers or
mortgagees, are not required to go beyond what appears on the
face of the title. The public interest in upholding the
indefeasibility of a certificate of title, as evidence of the lawful
ownership of the land or of any encumbrance thereon, protects
a buyer or mortgagee who, in good faith, relied upon what
appears on the face of the certificate of title.
- Lower court already annulled their title, so the mortgage was
void, the foreclosure was void. But despite this, the bank still
negotiated for a sale of the property.
DBP vs. CA
- Where the certificate of title is in the name of the mortgagor
when the land is mortgaged, the innocent mortgagee for value
has the right to rely on what appears on the certificate of title.
In the absence of anything to excite suspicion, said mortgagee
is under no obligation to look beyond the certificate and
investigate the title of the mortgagor appearing on the face of
CruzAR | JD 3 | AUF-SOL (2020)
said certificate. Although Article 2085 of the Civil Code
provides that absolute ownership of the mortgaged property by
the mortgagor is essential, the subsequent declaration of a title
as null and void is not a ground for nullifying the mortgage
right of a mortgagee in good faith.
- The evidence before us, however, indicates that petitioner is
not a mortgagee in good faith. To be sure, an innocent
mortgagee is not expected to conduct an exhaustive
investigation on the history of the mortgagor's title.
Nonetheless, especially in the case of a banking institution, a
mortgagee must exercise due diligence before entering into
said contract. Judicial notice is taken of the standard practice
for banks, before approving a loan, to send representatives to
the premises of the land offered as collateral and to investigate
who are the real owners thereof. Banks, their business being
impressed with public interest, are expected to exercise more
care and prudence than private individuals in their dealings,
even those involving registered lands.
- In this case, petitioner's representative, Patton R. Olano,
admitted that he came to know of the property for the first
time in 1979 when he inspected it to determine whether the
portion occupied by private respondent and mortgaged by the
latter to petitioner was included in TCT No. 10101. This
means that when the land was mortgaged by the spouses
Beduya in 1972, no investigation had been made by petitioner.
It is clear, therefore, that petitioner failed to exercise due care
and diligence in establishing the condition of the land as
regards its actual owners and possessors before it entered into
the mortgage contract in 1972 with the Beduyas. Had it done
so, it would not have failed to discover that private respondent
was occupying the disputed portion of 19.4 hectares. For this
reason, petitioner cannot be considered an innocent purchaser
for value when it bought the land covered by TCT No. 10101
in 1985 at the foreclosure sale.
- How big was the property? 19.4 hectares claimed by Kahez.
- 151 hectares - titled to Alvarez
- Isn’t that harsh to ask them to inspect that much land?
- NO. You have to look at every corner of the property to
determine who is the owner. The law is the law. *DDS
intensifiesssssss* char
- 2 circumstances negate petitioner's claim that it was an
innocent purchaser for value when it bought the land in
question, including the portion occupied by private
respondent: (1) petitioner was already informed by Gaudencio
Beduya that private respondent occupied a portion of the
property covered by TCT No. 10101; and (2) petitioner's
representative conducted an investigation of the property in
1979 to ascertain whether the land mortgaged by private
respondent was included in TCT No. 10101. In other words,
petitioner was already aware that a person other than the
registered owner was in actual possession of the land when it
bought the same at the foreclosure sale. A person who
deliberately ignores a significant fact which would create
suspicion in an otherwise reasonable man is not an innocent
purchaser for value. "It is a well-settled rule that a purchaser
cannot close his eyes to facts which should put a reasonable
man upon his guard, and then claim that he acted in good faith
under the belief that there was no defect in the title of the
vendor.”
- The same property is mortgaged to the same bank!!!
PH Banking Corp. vs. Dy
- Who owned the land? Delgados.
- Delgados sold the land sold to Cecilia Tan. Tan occupied
the property. Then Delgados also sold the land to Dys. Dys
mortgaged the property to PhilBank.
- PhilBank = Mortgagee in good faith
- This case is very unusual. This is an anomaly.
- GR: Bank should exercise EO diligence (investigate) and if
there’s imperfection, you should be put on guard.
- But in this case, the bank went to the property and saw the
bihon property of Tan.
- SC: Mortgagee in good faith. There’s no claimant in the
property (walang sinabi si Tan na akin yan). Nobody is
being prejudiced by the mortgage in the bank.
- Eh dapat ang makikita mo dun, mapprejudice.
- Atty. R: There should have no qualification. If someone’s
there already, that should have put you on guard already.
Be careful about this case.
JOINT AND SOLIDARY SIGNATURE
- Where a corporate officer binds himself personally to answer
for a corporate debt
"28
Banking & Allied Laws | Atty. Jhoel Raquedan
Sps. Toh vs. Solid Bank Corp.
- FBPC took an omnibus line credit facility worth P10M from
Solid Bank. Among those submitted by FBPC was a
Continuing Guaranty for any and all amounts signed by
petitioner-spouses Luis Toh and Vicky Tan Toh, and
respondent-spouses Kenneth and Ma. Victoria Ng Li. The
spouses Luis Toh and Vicky Tan Toh were then Chairman of
the Board and Vice-President, respectively, of FBPC, while
respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li
were President and General Manager, respectively, of the same
corporation.
- Argument of Sps. Toh: The Continuing Guaranty is not legally
valid and binding against them for having been executed long
after they had withdrawn from FBPC.
- Sps. Toh liable? YES SANA, but because of the illicit
extensions, they were relieved from liability.
- Isn’t there doctrine of limited liability in corporations?
- Sps. Toh signed a continuing guarantee agreement. They
agreed to be liable. They agreed to be solidarily liable with
the FBPC.
- There is no law that prohibits a corporate officer from
binding himself personally to answer for a corporate debt.
While the limited liability doctrine is intended to protect
the stockholder by immunizing him from personal liability
for the corporate debts, he may nevertheless divest himself
of this protection by voluntarily binding himself to the
payment of the corporate debts. The petitioner cannot
therefore take refuge in this doctrine that he has by his own
acts effectively waived.
- Why were not they able to be held liable?
- Illegal extensions.
- Prohibited under Art. 2079 of the Civil Code, "[a]n
extension granted to the debtor by the creditor without the
consent of the guarantor extinguishes the guaranty." This
act of the Bank is not mere failure or delay on its part to
demand payment after the debt has become due, as was the
case in unpaid 5 letters of credit which the Bank did not
extend, defer or put off, but comprises conscious, separate
and binding agreements to extend the due date, as was
admitted by the Bank itself.
- The extensions of the letters of credit made by respondent
Bank without observing the rigid restrictions for exercising
the privilege are not covered by the waiver stipulated in the
Continuing Guaranty.
Security Bank vs. Cuenca
- 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.
- 2 REASONS:
- 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.
- Para may mahahabol ka pa. Additional security on
the part of the lender.
- 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.
- Reason: If you ensure that the agreement will be
followed, the protection is mutual. He will make
sure that the purpose will be achieved.
- 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.
- Indeed, the stipulation in the 1989 Loan Agreement providing
for the surety of respondent, without even informing him,
smacks of negligence on the part of the bank and bad faith on
that of the principal debtor. Since that Loan Agreement
constituted a new indebtedness, the old loan having been
already liquidated, the spirit of fair play should have impelled
Sta. Ines to ask somebody else to act as a surety for the new
loan.
- In the same vein, a little prudence should have impelled the
bank to insist on the JSS of one who was in a position to
ensure the payment of the loan. Even a perfunctory attempt at
credit investigation would have revealed that respondent was
CruzAR | JD 3 | AUF-SOL (2020)
no longer connected with the corporation at the time. As it is,
the bank is now relying on an unclear Indemnity Agreement in
order to collect an obligation that could have been secured by
a fairly obtained surety. For its defeat in this litigation, the
bank has only itself to blame.
PERSONAL PROPERTY SECURITY ACT
- New law signed in 2018
- Established a unified and modern legal framework for
securing obligations with personal property
- Intention: To replace the Chattel Mortgage Law and some
provisions in Civil Code
- Some of the personal properties include DEPOSITS.
- This may be used to secure loans.
- Transitional period: A prior interest that was perfected under
prior law continues to be perfected until the earlier of:
1) The time the prior interest would cease to be perfected
under prior law; and
2) The expiration of the transitional period (date of
effectivity of PPSA until the date when the Registry has
been established and operational)
- Now, still setting up the registry system.
TRUTH IN LENDING ACT
- RA 3765
- Assures full disclosure by requiring the lender to give the
borrower ALL the details regarding the transaction
- Rationale: Designed to protect the general public from
unnecessary charges by banks and other financial institutions
- To protect users of credit from a lack of awareness of the
true cost thereof
- 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
- Pag nagpautang ka, sasabihin mo lahat ng nangungutang sa’yo
lahat ng sisingilin mo.
- NO HIDDEN CHARGES
- That’s bawal. You can be kulong. (Atty. Raquedan, 2020)
DISCLOSURE REQUIREMENT:
A clear statement in writing setting forth 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 downpayment and/or
trade-in;
3) The difference between the amounts set forth under (1) and
(2);
4) The charges, individually itemised, 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.
Transactions OUTSIDE the scope of TILA:
1) Credit transactions which do not involve payment of
any finance charge by the debtor
2) Credit transactions in which the debtor is the one
specifying a definite and fixed set of credit terms such
as bank deposits, insurance contracts, sale of bonds, etc.
REMEDIES:
(a) CIVIL
- Any creditor who fails to disclose information in violation
of TILA or any regulation issued thereunder
- Liable in the amount of P100 or in an amount equal to
twice the finance charged required by such creditor,
whichever is higher, but not exceeding P2000
- Must be brought within 1 year from the date of the
occurrence of the violation
(b) CRIMINAL
- Any person who willfully violates any provision of TILA
or any regulation issued thereunder
- Fined by not less than P1000 or more than P5000, or
imprisonment for not less than 6 months, nor more than 1
year, or both
"29
Banking & Allied Laws | Atty. Jhoel Raquedan
Prescriptive period: 1 YEAR FROM DEMAND (Violation)
- Why demand? Kasi meron ka ngang hindi alam, pero hindi ka
naman sinisingil. Not kasama.
UCPB vs. Sps. Beluso
- Provision: “Interest rate indicate of the bank’s retail rate or as
determined by the Branch Head”
- WON TILA was violated
- YES. Interest rate is upon the will of only one of the parties.
Subjective yung sa branch head.
- Under such provision, petitioner UCPB has two choices on
what the interest rate shall be: (1) a rate indicative of the
DBD retail rate; or (2) a rate as determined by the Branch
Head. As UCPB is given this choice, the rate should be
categorically determinable in both choices. If either of
these two choices presents an opportunity for UCPB to fix
the rate at will, the bank can easily choose such an option,
thus making the entire interest rate provision violative of
the principle of mutuality of contracts.
- Not just one, but rather both, of these choices are
dependent solely on the will of UCPB. Clearly, a rate "as
determined by the Branch Head" gives the latter unfettered
discretion on what the rate may be. The Branch Head may
choose any rate he or she desires. As regards the rate
"indicative of the DBD retail rate," the same cannot be
considered as valid for being akin to a "prevailing rate" or
"prime rate" allowed by this Court
- You are not telling the borrower how much he/she will pay.
- UCPB's contention that this action to recover the penalty for
the violation of the Truth in Lending Act has already
prescribed is without merit. The penalty for the violation of
the act is P100 or an amount equal to twice the finance charge
required by such creditor in connection with such transaction,
whichever is greater, except that such liability shall not exceed
P2,000 on any credit transaction. As this penalty depends on
the finance charge required of the borrower, the borrower's
cause of action would only accrue when such finance charge is
required. In the case at bar, the date of the demand for
payment of the finance charge is 2 September 1998, while the
foreclosure was made on 28 December 1998. The filing of the
case on 9 February 1999 is therefore within the one-year
prescriptive period.
- UCPB further argues that since the spouses Beluso were duly
given copies of the subject promissory notes after their
execution, then they were duly notified of the terms thereof, in
substantial compliance with the Truth in Lending Act.
- SC: NOPE. 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. 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. Upholding UCPB's claim of
substantial compliance would defeat these purposes of the
Truth in Lending Act. 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.
- In addition, the promissory notes, the copies of which were
presented to the spouses Beluso after execution, are not
sufficient notification from UCPB. As earlier discussed, the
interest rate provision therein does not sufficiently indicate
with particularity the interest rate to be applied to the loan
covered by said promissory notes.
DBP vs. Arcilla
- DBP failed to disclose the requisite information in the
disclosure statement form authorized by the Central Bank, but
did so in the loan transaction documents between it and
Arcilla. There is no evidence on record that DBP sought to
collect or collected any interest, penalty or other charges, from
Arcilla other than those disclosed in the said deeds/documents.
- DBP was not strictly in compliance with the TILA, but SC
said that it was substantially compliant.
- Although not in compliance with the forms that BSP required,
it is set forth naman in other documents.
- The required informations were readily available in the 3
promissory notes he executed. 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. 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
- CB Circular alleged - pertinent to collection only
CruzAR | JD 3 | AUF-SOL (2020)
- Consequence of violation of TILA - civil and criminal liability
- CIVIL - any creditor who fails to disclose any information;
this includes negligence (you did not mean to violate)
- CRIMINAL - if willfully violates (knowingly and with
intent)
BPI vs. Yu
- Although BPI failed to state the penalty charges in the
disclosure statement, the promissory note that the Yus signed,
on the same date as the disclosure statement, contained a
penalty clause that said: "I/We jointly and severally, promise
to further pay a late payment charge on any overdue amount
herein at the rate of 3% per month." The promissory note is an
acknowledgment of a debt and commitment to repay it on the
date and under the conditions that the parties agreed on. It is a
valid contract absent proof of acts which might have vitiated
consent.
- Compare with New Sampaguita case
- New Sampaguita - walang nilagay at all
- In this case, the creditor put the sisingilin in the PNs
- Apparently, pwede ang substantial compliance. If nalagay mo
sa loan documents or PNs, pwede na rin.
- Why? Rationale of TILA is to protect the debtor. When does
the law protect the debtor? From the time they enter into
contract. These documents are signed at the start of the
document, hence you are apprised with the terms.
- If the PN is signed months after the execution of document,
NO MORE SUBSTANTIAL COMPLIANCE. Debtor is
already paying interests, etc.
CONSUMER ACT
- Provisions regarding consumer credits, to protect consumers
from unnecessary charges
- POLICY: To protect the consumer from lack of awareness of
the true cost of credit to the user, the State shall assure the full
disclosure of the true cost of credit.
- Before opening an account under an open-end consumer credit
plan, the creditor shall disclose the following information:
1) The conditions under which a finance charge may be
imposed, including the time period, if any, within which
any credit extended may be repaid without incurring a
finance charge;
2) The method of determining the balance upon which a
finance charge may be imposed;
3) The method of determining the amount of the finance
charges, including any minimum or fixed amount
imposed as a finance charge;
4) Where one or more periodic rates may be used to
compute a finance charge, each such rate, the range of
balances to which it is applicable, and the corresponding
simple annual rate;
5) The conditions under which the creditor may impose a
security lien and a description of the goods to which
such lien may attach.
PAYMENT FUNCTION
- There are banks that have NO payment function.
- This is usually the complicated function of the bank. This is
where they earn.
- Instruction from a person to his bank to transfer funds.
- Because of the advancement of technology, the jurisprudence
lags behind which still deals with some archaic systems.
- The payment function of the bank is somehow dictated by
the sophistication of technology.
- Some payment systems:
1) Automatic debiting account
2) POS - transaction happens at the point of sale
3) Mobile payment services
4) Fund transfer
5) Money order - telegraphic transfer; usually inter-country
transactions
To simplify:
DEPOSIT LOAN PAYMENT
One who owns the
Use the money money tells you to
Hold the money
held do this with his
money
"30
Banking & Allied Laws | Atty. Jhoel Raquedan
BANK DEBIT SYSTEM
POS
- The instruction to debit is given through debit cards that
electronically transmit messages through the network to the
buyer’s bank and the seller’s bank.
- Fund transfer at the point of sale
MOBILE PAYMENT SERVICES
- Extensions of the online financial services which are offered
by the BSFI and accessible from the Internet via computers,
laptops and similar devices
FUND TRANSFER
- Either:
(a) Credit Transfers - “push” of funds by the originator to
the beneficiary; the instruction is for the bank to credit
the account of the payee or beneficiary
(b) Debit Transfers - “pull” of funds by the beneficiary
from the originator; the beneficiary conveys instructions
to his bank to collect funds from the originator
MONEY ORDER TRANSFERS
- When a bank depositor instructs his or her bank to debit his
account and to transmit the same to a 3rd person or the latter’s
account
Republic vs. PNB (important)
- RP filed a complaint for scheat of certain unclaimed bank
deposits balances against several banks, among them the First
National City Bank of New York.
- TELEGRAPHIC TRANSFERS - simple purchase and sale
transaction
- Why?
- You go to a bank, and then buy telegraphic transfer, then
bank will give it to another bank, and the 2nd back will
give it to the person named.
- The purchaser of a telegraphic transfer upon making
payment completes the transaction insofar as he is
concerned, though insofar as the remitting bank is
concerned the contract is executory until the credit is
established.
- If the latter choose to demand payment ok their telegraphic
transfers at the time the same was (were) received by the
defendant bank, there could be no question that this bank
would have to pay them. Now, the question is, if the payees
decide to have their money remain for; sometime in the
defendant bank, can the latter maintain that the ownership
of said telegraphic payment orders is now with the drawer
bank? The latter, was already paid the value of the
telegraphic payment orders otherwise it would not have
transmitted the same to the defendant bank. Hence, it is
absurd to say that the drawer banks are still the owners of
said telegraphic payment orders.
- Thus, once the amount represented by the telegraphic
transfer order is credited to the account of the payee or
appears in the name of the payee in the books of the
receiving bank, the ownership of the telegraphic transfer
order is deemed to have been transmitted to the receiving
bank. The local bank is deemed to have fully executed the
telegraphic transfer and is no longer the owner of this
telegraphic transfer order.
- The amounts are not anymore owned by the bank (bought
by the person), hence can be subject to escheat.
Chinatrust Commercial Bank vs. Turner
- Client wanted a refund, but bank refused.
- Was the bank negligent? NO. Obligation of Chinatrust has
already been terminated. It already transferred the amount.
- Why not the discrepancy notice matter?
- The money was already credited days later.
- It was established that the amount of US$430.00 was
actually credited to the account of Min Travel on
September 15, 2004, or merely 2 days after respondent
applied for the telegraphic transfer and even before
petitioner received its "discrepancy notice" on September
17, 2004. Chinatrust is, thus, deemed to have fully
executed the telegraphic transfer agreement and its
CruzAR | JD 3 | AUF-SOL (2020)
obligation to respondent was extinguished.Hence,
respondent could no longer ask for rescission of the
agreement' on September 22, 2004.
- The discrepancy notice does not mean that the funds were not
received by the beneficiary bank. On the contrary, what it
implies is that these funds were actually received by Citibank-
Cairo but it could not apply it because the account name of the
beneficiary indicated in the telex instruction does not match
the account name in its books. In short, it cannot find in its file
the beneficiary account name "Min Travel/Esmat Azmy"
pursuant to the telex instruction, for which reason, Citibank-
Cairo asked for clarifications. Petitioner, in turn, had to clarify
from respondent, because it was respondent himself, upon
instruction of his travel agency, who indicated such
beneficiary's name in his telegraphic transfer form. True
enough, as later shown, the beneficiary account name was not
'"Min Travel/Esmat Azmy" but only "Min Travel." Petitioner,
therefore, had nothing to do with the mismatch of the
beneficiary name and could not be made liable for it.
SWIFT
- Short for: Society for Worldwide Interbank Financial
Telecommunications
- Bank identification system/code
- NOT a bank, but just a group of persons/cooperative that
secures the code.
- Management of the code that a bank subscribes to
- Facilitates the transmission of instructions to effect
transactions between banks
- Helps provide security to transactions by providing a reliable
means of confirmation that is safer than telex
REMITTANCE SERVICE
- Can be made through a branch and/or a remittance centre-
subsidiary of a bank
- Money is sent in real time to the beneficiary
- The task is to transmit the funds to the account of the
beneficiary or to release the amount directly to the beneficiary
PNB vs. Custodio
- Instruction to change the beneficiary, but bank failed to do
that. Isn’t that a violation? In this case, NO.
- PCIB is not negligent. PCIB received the amendatory request
after the set-off. Gliane and Custodio argue that "it is of
standard operating policy of any banking institutions that the
regular "holding period" of money transfers is more or less
three (3) days.” They failed to prove, however, that PCIB had
that policy, or that the contract under the Express Padala
service of PCIB provided for a three-day holding period.
- PCIB is required to act SWIFTLY, so it cannot be faulted for
the dispatch with which it credited the US$42,300 to
Francisco’s account.
- The services offered by a banking institution are imbued with
public interest. It is precisely with this principle in mind that
Equitable effected the transfer of funds the quickest time
practicable. Equitable is mindful of the fact that any delay in
the remittance of money could be disastrous for the
beneficiaries interest.
CREDIT CARD
- A device
- Any card, plate, coupon book, or other credit device existing
for the purpose of obtaining money, goods, property, labor or
services or any thing of value on credit
-
Data is encoded inside and the bank will read the card.
- Any tampering, misuse, etc., you will be penalised under
Access Devices Regulation Act of 1998.
- Not RPC (prove intent pa)
- Mere illegal use of the card is a malum prohibitum
-
Resurgence of fraud because of migration from another system
- FRIENDLY ADVICE: If you know that security code at the
back of the card, takpan mo na.
- Gray Doctrine: From the time the bank issues you the card,
there is already a contractual relationship, even if you are not
using it.
- This is the doctrine we adhere in our jurisdiction.
- Recognising the relationship between the credit card issuer
and the credit card holder as a contractual one that is
governed by the terms and conditions found in the card
membership agreement
"31
Banking & Allied Laws | Atty. Jhoel Raquedan
Pantaleon vs. Amex International
- 2 claims:
- Amex breached its obligations to approve his credit card
- Amex is guilty of delay (45-min delay), caused him a lot of
inconvenience and embarrassment.
- RAQUEDAN DOCTRINE: Too literal ruling, by strictly saying
that the bank had the right to deny the transaction anytime.
Wrong. Bank has no right to deny you anytime, since you have
a contractual relationship.
- In this case, Amex had reasons to deny. There was
justifications for Amex’ action. The card was used many
times abroad (ilang beses ka bang nasa abroad?), he was
buying using big money.
- If the bank has reasons to analyse your spending pattern
and circumstances to delay your transactions, then that is
justified.
- Generally, the relationship between a credit card provider and
its card holders is that of creditor-debtor, with the card
company as the creditor extending loans and credit to the card
holder, who as debtor is obliged to repay the creditor.
- Why no delay?
- Because under their agreement, wala namang oras. If there
is no period stipulated, you decide WON there is delay
under the circumstances.
- While it is true that the Cardmembership Agreement,
which defendant prepared, is silent as to the amount of
time it should take defendant to grant authorization for a
charge purchase, defendant acknowledged that the normal
time for approval should only be three to four seconds.
Specially so with cards used abroad which requires
"special handling", meaning with priority. Otherwise, the
object of credit or charge cards would be lost; it would be
so inconvenient to use that buyers and consumers would be
better off carrying bundles of currency or traveller’s
checks, which can be delivered and accepted quickly. Such
right was not accorded to plaintiff in the instances
complained off for reasons known only to defendant at that
time. This, to the Court’s mind, amounts to a wanton and
deliberate refusal to comply with its contractual
obligations, or at least abuse of its rights, under the
contract.
- 3 contracts involved in a credit card issuance (!!!)
1) Cardholder and card issuer (usually bank) - loan
agreement; contractual “i am issuing you this card and i
am undertaking to pay for your purchases”
2) Cardholder and merchant/seller - contract of sale
3) Card issuer and merchant/seller - promise to pay
- Independence Principle applies.
- EXP: If there is attending fraud.
Bankard vs. Alarte
- Claim: Mr. Defendant, you have not paid your credit card.
- What should I show? Sufficient evidence that debtor has a
debt.
- Just show the trail of the accounts from the time of purchase to
when the the debtor failed to pay.
- A perusal of the July 9, 2006 Statement of Account sent to
respondent would indeed show that it does not contain the
particulars of purchase transactions entered into by the latter.
However, the manner in which the statement of account is
worded indicates that it is a running balance, a continuing and
mounting bill of charges consisting of a combined principal
amount with finance and penalty charges imposed, which
respondent appears to have failed to pay in the past.
LETTERS OF CREDIT
- Engagement by a bank or other person made at the request of a
customer that the issuer will know drafts or other demands for
payment upon compliance with the conditions specified in the
credit
- Usually used in the transportation of goods and merchandise
- Instrument which allows a seller to part with his goods in
consideration of a promise of bank to pay through the letters
of credit, and ship his goods to the buyer.
- Buyer doesn’t want to part with his money until he sees the
goods.
- Seller doesn’t want to part with his goods unless he is
secured that he will be paid.
- A circuitous way of paying goods.
KINDS OF LETTERS OF CREDIT:
1) Confirmed LC - beneficiary stipulates that the obligation of
the opening bank shall also be made the obligation of another
bank (also bank that notifies) to himself
CruzAR | JD 3 | AUF-SOL (2020)
2) Irrevocable LC - issuing bank cannot revoke his
undertaking to pay; a definite undertaking on the part of the
issuing bank and constitutes the engagement of that bank to
the beneficiary and bona fide holders of drafts drawn and/or
documents presented thereunder, that the provisions for
payment, acceptance or negotiation contained in the credit
will be duly fulfilled, provided that all the terms and
conditions of the credit are complied with
3) Revolving LC - buyer is a special client; provides for
renewed credit to become available as soon as the opening
bank has advised the negotiating or paying bank that the
drafts already drawn by the beneficiary have been
reimbursed to the opening bank by the buyer.
4) Back-to-Back LC - a credit with identical documentary
requirements and covering the same merchandise as another
LC; the 2nd LC can be negotiated only after the 1st is
negotiated
5) Standby LC - always a ready funding; a security
arrangement for the performance of certain obligations
CONTRACTS:
1) Buyer and seller - contract of sale
2) Buyer and the issuing bank
3) Letter of credit itself
- Independence Principle - these 3 contracts are
independent from one another
- Implication: Defect in one contract will not affect the
other contracts
- EXP: Fraud
- If any of the contracts is attended with fraud, the
Independence Principle will not be applied.
Doctrine of Strict Compliance
- the Issuing Bank or the Confirming Bank, as the case may be,
must examine the Tender Documents and must make sure that
the terms and conditions of the LC are strictly complied with
HSBC vs. NSC
- Buyer - Klockner
- Seller - NSC
- Issued LC - HSBC
- Upon presentment of the document, it will pay NSC.
- NSC collected thru City Trust as agent.
- City Trust issued a document that the collection is
governed by URC 322. So HSBC refused to pay (collecting
bank only, not saying bank).
- Why not URC 322?
- SC: UCP 400 should govern. And no evidence that 322 is a
customary practice among merchants. HSBC is not just a
collecting bank, but a lying bank. Also, bank is always
governed by the principle that it should act with the highest
degree of care, so SC disregarded its flimsy defenses.
- LETTER OF CREDIT - a financial device developed by
merchants as a convenient and relatively safe mode of dealing
with sales of goods to satisfy the seemingly irreconcilable
interests of a seller, who refuses to part with his goods before
he is paid, and a buyer, who wants to have control of the goods
before paying." Through a letter of credit, a buyer obtains the
credit of a third party, usually a bank, to provide assurance of
payment.
Keng Hua Paper Products vs. CA
- Why did the SC go through the discussion of Independence
Principle?
- Because Keng Hua raises the defence as to breach in the
contract of carriage.
- Contract of carriage - seller, consignee, carrier
- Governed by the bill of lading
- Letter of credit - seller, buyer, issuing bank
- Governed by the letter of credit
- In a letter of credit, there are three distinct and independent
contracts: (1) the contract of sale between the buyer and the
seller, (2) the contract of the buyer with the issuing bank, and
(3) the letter of credit proper in which the bank promises to
pay the seller pursuant to the terms and conditions stated
therein. "Few things are more clearly settled in law than that
the three contracts which make up the letter of credit
arrangement are to be maintained in a state of perpetual
separation." A transaction involving the purchase of goods
may also require, apart from a letter of credit, a contract of
transportation specially when the seller and the buyer are not
in the same locale or country, and the goods purchased have to
be transported to the latter.
- Hence, the contract of carriage, as stipulated in the bill of
lading in the present case, must be treated independently of the
contract of sale between the seller and the buyer, and the
"32
Banking & Allied Laws | Atty. Jhoel Raquedan
contract for the issuance of a letter of credit between the buyer
and the issuing bank. Any discrepancy between the amount of
the goods described in the commercial invoice in the contract
of sale and the amount allowed in the letter of credit will not
affect the validity and enforceability of the contract of carriage
as embodied in the bill of lading. As the bank cannot be
expected to look beyond the documents presented to it by the
seller pursuant to the letter of credit, neither can the carrier be
expected to go beyond the representations of the shipper in the
bill of lading and to verify their accuracy vis-a-viz the
commercial invoice and the letter of a credit. Thus, the
discrepancy between the amount of goods indicated in the
invoice and the amount in the bill of lading cannot negate
petitioner's obligation to private respondent arising from the
contract of transportation. Furthermore, private respondent, as
carrier, had no knowledge of the contents of the container. The
contract of carriage was under the arrangement known as
"Shipper's Load And Count," and shipper was solely
responsible for the loading of the container while carrier was
oblivious to the contents of the shipment. Petitioner's remedy
in case of overshipment lies against the seller/ shipper, not
against the carrier.
Feati Bank vs. CA
- Why was Feati Bank not liable?
- It was merely a notifying bank, its responsibility is only to
notify, as against an Issuing and Confirming.
- An irrevocable credit refers to the duration of the letter of
credit. What is simply means is that the issuing bank may not
without the consent of the beneficiary (seller) and the
applicant (buyer) revoke his undertaking under the letter. The
issuing bank does not reserve the right to revoke the credit. On
the other hand, a confirmed letter of credit pertains to the kind
of obligation assumed by the correspondent bank. In this case,
the correspondent bank gives an absolute assurance to the
beneficiary that it will undertake the issuing bank's obligation
as its own according to the terms and conditions of the credit.
- Hence, the mere fact that a letter of credit is irrevocable does
not necessarily imply that the correspondent bank in accepting
the instructions of the issuing bank has also confirmed the
letter of credit.
- In case of a notifying bank, the correspondent bank assumes
no liability except to notify and/or transmit to the beneficiary
the existence of the letter of credit. A negotiating bank, on the
other hand, is a correspondent bank which buys or discounts a
draft under the letter of credit. Its liability is dependent upon
the stage of the negotiation. If before negotiation, it has no
liability with respect to the seller but after negotiation, a
contractual relationship will then prevail between the
negotiating bank and the seller.
Transfield vs. Luzon Hydro
- The engagement of the issuing bank is to pay the seller or
beneficiary of the credit once the draft and the required
documents are presented to it. The so-called "independence
principle" assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and
precludes the issuing bank from determining whether the main
contract is actually accomplished or not. Under this principle,
banks assume no liability or responsibility for the form,
sufficiency, accuracy, genuineness, falsification or legal effect
of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed
thereon, nor do they assume any liability or responsibility for
the description, quantity, weight, quality, condition, packing,
delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions,
solvency, performance or standing of the consignor, the
carriers, or the insurers of the goods, or any other person
whomsoever.
- The independent nature of the letter of credit may be: (a)
independence in toto where the credit is independent from the
justification aspect and is a separate obligation from the
underlying agreement like for instance a typical standby; or
(b) independence may be only as to the justification aspect like
in a commercial letter of credit or repayment standby, which is
identical with the same obligations under the underlying
agreement. In both cases the payment may be enjoined if in
the light of the purpose of the credit the payment of the credit
would constitute fraudulent abuse of the credit.
- Was the IP applied?
- YES.
- Why cannot use fraud as an exception?
- Can you presume fraud by the mere fact of delay? NO,
it can be honest mistake or force majeure.
- An LC can answer for contingency, not just goods.
CruzAR | JD 3 | AUF-SOL (2020)
PNB vs. Pineda
- Contention: Bayad na po kami, kinuha niyo na po binili namin
eh!
- WON TCC's liability has been extinguished by the
repossession of PNB of the imported cement plant machinery
and equipment
- NO. PNB took possession of the imported cement plant
machinery and equipment pursuant to the trust receipt
agreement executed by and between PNB and TCC giving the
former the unqualified right to the possession and disposal of
all property shipped under the Letter of Credit until such time
as all the liabilities and obligations under said letter had been
discharged.
- A letter of credit-trust receipt arrangement is endowed with its
own distinctive features and characteristics. Under that set- up,
a bank extends a loan covered by the Letter of Credit, with the
trust receipt as a security for the loan. In other words, the
transaction involves a loan feature represented by the letter of
credit, and a security feature which is in the covering trust
receipt.
- A trust receipt, therefore, is a security agreement, pursuant to
which a bank acquires a "security interest" in the goods.It
secures an indebtedness and there can be no such thing as
security interest that secures no obligation. As defined in our
laws:
- (h) "Security interest" means a property interest in goods,
documents or instruments to secure performance of some
obligations of the entrustee or of some third persons to the
entruster and includes title, whether or not expressed to be
absolute, whenever such title is in substance taken or
retained for security only.
- Why can’t the bank just sell the machinery and say “oh bayad
ka na!”??? Pactum commissorium.
- Usually in LC there is an accompanying trust receipt
(security). But they are 2 different things, don’t get them
mixed up.
CHECKS
- A bill of exchange payable on demand drawn on a bank
- Payable on demand, because the contract between the bank
and the customer is that the money is needed on demand
- KINDS:
1) Ordinary check
2) Crossed check
3) Certified check
4) Memorandum check
5) Manager’s check
6) Cashier’s check
BDO vs. Equitable
- Why is Equitable made liable?
- Warranties through the stamp that all prior indorsements
are guaranteed.
- Meaning, that the check is valid and regular.
- The petitioner having stamped its guarantee of "all prior
endorsements and/or lack of endorsements" is now estopped
from claiming that the checks under consideration are not
negotiable instruments. The checks were accepted for deposit
by the petitioner stamping thereon its guarantee, in order that
it can clear the said checks with the respondent bank. By such
deliberate and positive attitude of the petitioner it has for all
legal intents and purposes treated the said cheeks as negotiable
instruments and accordingly assumed the warranty of the
endorser when it stamped its guarantee of prior endorsements
at the back of the checks. It led the said respondent to believe
that it was acting as endorser of the checks and on the strength
of this guarantee said respondent cleared the checks in
question and credited the account of the petitioner. Petitioner
is now barred from taking an opposite posture by claiming that
the disputed checks are not negotiable instrument.
- Checks = negotiable instruments
- Holder in due course is guaranteed to be paid
MANAGER’S & CASHIER’S CHECKS
- Bank is NOT a mere drawee. It is BOTH the drawer and the
drawee.
- In reality the bank’s own check.
- May be treated as a promissory note with the bank as the
maker
- A bill of exchange is drawn by a bank upon itself, and is
accepted by its issuance.
- Becomes the primary obligation of the bank which issues it
and constitutes a written promise to pay upon demand
"33
Banking & Allied Laws | Atty. Jhoel Raquedan
- Manager’s check = Signed by the manager
- Cashier’s check = Signed by the cashier
Republic vs. PNB
- A demand draft Is very different from a cashier's or manager's
check, contrary to appellant's pretense for it has been held that
the latter is a primary obligation of the bank which issues It
and constitutes its written promise to pay upon demand.
- "A cashier's check issued by a bank, however, is not an
ordinary draft. The latter is a bill of exchange payable on
demand. It is an order upon a third party purporting to be
drawn upon a deposit of funds.
- A cashier's check is of a very different character. It is the
primary obligation of the bank which issues it) and constitutes
its written promise to pay upon demand.
- A cashier's check is a check of the bank's cashier on his or
another bank. It is in effect a bill of exchange drawn by a bank
on itself and accepted in advance by the act of its issuance.
- A cashier's check issued a depositor is fche substantial on
request of equivalent of a certified check and the deposit
represented by the check passes to the credit of the
checkholder, who is thereafter a depositor to that amount".
- "A cashier's check, being merely a bill of exchange drawn by a
bank on itself, and accepted in advance by the fact of its
issuance, is not subject to countermanaby the payee after
indorsement, and has the same legal effects as a certificate of
deposit or a certified check”.
- A demand draft is not therefore of the same category as a
cashier's check which should come within the purview of the
law.
- Manager’s check/Cashier’s check
- Go to a bank and say can i buy c/m check, and you will be
asked on what account it would be credited. Then bank will
issue its OWN check. The name in the check is the bank’s.
- That piece of paper is good as cash.
- Owner = One who bought it
BPI vs. Roxas
- Presented the check but dishonored. He was then given a
cashier’s check, but dishonoured again.
- Why is BPI liable?
- The disputed check is a cashier’s check. In International
Corporate Bank v. Spouses Gueco, this Court held that a
cashier’s check is really the bank’s own check and may be
treated as a promissory note with the bank as the maker.
The check becomes the primary obligation of the bank
which issues it and constitutes a written promise to pay
upon demand. In New Pacific Timber & Supply Co. Inc. v.
Señeris,this Court took judicial notice of the "well-known
and accepted practice in the business sector that a cashier’s
check is deemed as cash." This is because the mere
issuance of a cashier’s check is considered acceptance
thereof.
CERTIFIED CHECKS
- Drawn by a depositor upon funds to his credit in a bank which
a proper officer of the bank certifies will be paid when duly
presented for payment
CROSSED CHECKS
- By writing 2 parallel lines diagonally on the left top portion of
the checks
- TYPES:
(a) Special - name of a bank or a business institution is
written between the 2 parallel lines (meaning: pay only
with the intervention of that company), or “For Deposit
Only” is written between the lines
(b) General - words written between the 2 parallel lines are
“and Co.” or “For payee’s account only”
- SPECIFIC EFFECTS:
1) The check may not be encased but only deposited in the
bank;
2) The check may be negotiated only once—to one who
has an account with the bank;
3) The act of crossing serves as a warning to the holder
that the check has been issued for a definite purpose so
that he must inquire if he has received the check
pursuant to that purpose.
Associated Bank vs. CA
- Crossing a check is done by writing two parallel lines
diagonally on the left top portion of the checks. The crossing
is special where the name of a bank or a business institution is
written between the two parallel lines, which means that the
drawee should pay only with the intervention of that company.
3 The crossing is general where the words written between the
CruzAR | JD 3 | AUF-SOL (2020)
two parallel lines are "and Co." or "for payee's account only,"
as in the case at bar. This means that the drawee bank should
not encash the check but merely accept it for deposit.
- The effects of crossing a check are: (1) that the check may not
be encashed but only deposited in the bank; (2) that the check
may be negotiated only once –– to one who has an account
with a bank; and (3) that the act of crossing the check serves
as a warning to the holder that the check has been issued for a
definite purpose so that he must inquire if he has received the
check pursuant to that purpose.
- Who can only negotiate? PAYEE of the check.
- The effects therefore of crossing a check relate to the mode
of its presentment for payment. Under Sec. 72 of the
Negotiable Instruments Law, presentment for payment, to
be sufficient, must be made by the holder or by some
person authorized to receive payment on his behalf. Who
the holder or authorized person is depends on the
instruction stated on the face of the check.
Salazar vs. JY Brothers
- Petitioner also contends that the acceptance of the Solid Bank
check, a non-negotiable check being a crossed check, which
replaced the dishonored Prudential Bank check, a negotiable
check, is a new obligation in lieu of the old obligation arising
from the issuance of the Prudential Bank check, since there
was an essential change in the circumstance of each check.
- SC: NOPE.
- Among the different types of checks issued by a drawer is the
crossed check. The Negotiable Instruments Law is silent with
respect to crossed checks, although the Code of
Commercemakes reference to such instruments. We have
taken judicial cognizance of the practice that a check with two
parallel lines in the upper left hand corner means that it could
only be deposited and could not be converted into cash.
- Thus, the effect of crossing a check relates to the mode of
payment, meaning that the drawer had intended the check for
deposit only by the rightful person, i.e., the payee named
therein.
- The change in the mode of paying the obligation was not a
change in any of the objects or principal condition of the
contract for novation to take place.
- Considering that when the Solid Bank check, which replaced
the Prudential Bank check, was presented for payment, the
same was again dishonored; thus, the obligation which was
secured by the Prudential Bank check was not extinguished
and the Prudential Bank check was not discharged. Thus, we
found no reversible error committed by the CA in holding
petitioner liable as an accommodation indorser for the
payment of the dishonored Prudential Bank check.
- Why were they arguing novation? (Case is estafa and BP 22)
- Estafa there should be deceit and damage. If novation
(tinanggap mo ang replacement check = new contract),
nawawala ang deceit. Nagiging civil liability nalang.
- Replacement of check, only for the mode of payment, to
the presentment. May utang pa rin. It doesn’t change a
thing.
Bataan Cigar vs. CA
- SIHI was not paid because it acquired the crossed checks NOT
in good faith.
- In order to preserve the credit worthiness of checks,
jurisprudence has pronounced that crossing of a check should
have the following effects: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be
negotiated only once — to one who has an account with a
bank; (c) and the act of crossing the check serves as warning
to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due
course.
- The three checks in the case at bar had been crossed generally
and issued payable to New Sikatuna Wood Industries, Inc.
which could only mean that the drawer had intended the same
for deposit only by the rightful person, i.e. the payee named
therein. Apparently, it was not the payee who presented the
same for payment and therefore, there was no proper
presentment, and the liability did not attach to the drawer.
Thus, in the absence of due presentment, the drawer did not
become liable. Consequently, no right of recourse is available
to petitioner (SIHI) against the drawer of the subject checks,
private respondent wife (Anita), considering that petitioner is
not the proper party authorized to make presentment of the
checks in question.
- That the subject checks had been issued subject to the
condition that private respondents (Anita and her husband) on
due date would make the back up deposit for said checks but
"34
Banking & Allied Laws | Atty. Jhoel Raquedan
which condition apparently was not made, thus resulting in the
non-consummation of the loan intended to be granted by
private respondents to New Sikatuna Wood Industries, Inc.,
constitutes a good defense against petitioner who is not a
holder in due course.
- It is then settled that crossing of checks should put the holder
on inquiry and upon him devolves the duty to ascertain the
indorser's title to the check or the nature of his possession.
Failing in this respect, the holder is declared guilty of gross
negligence amounting to legal absence of good faith, contrary
to Sec. 52(c) of the Negotiable Instruments Law,and as such
the consensus of authority is to the effect that the holder of the
check is not a holder in due course.
- In the present case, BCCFI's defense in stopping payment is as
good to SIHI as it is to George King. Because, really, the
checks were issued with the intention that George King would
supply BCCFI with the bales of tobacco leaf. There being
failure of consideration, SIHI is not a holder in due course.
Consequently, BCCFI cannot be obliged to pay the checks.
- The foregoing does not mean, however, that respondent could
not recover from the checks. The only disadvantage of a
holder who is not a holder in due course is that the instrument
is subject to defenses as if it were non-negotiable. Hence,
respondent can collect from the immediate indorser, in this
case, George King.
MEMORANDUM CHECKS
- In the form of an ordinary check, with the word
“memorandum,” “memo,” or “mem” written across its face
- Pay the bona fide holder absolutely, without any condition
concerning its presentment
People vs. Nitafan
- WON memorandum checks is outside the purview of BP22
- NO. A memorandum check is in the form of an ordinary
check, with the word "memorandum", "memo" or "mem"
written across its face, signifying that the maker or drawer
engages to pay the bona fide holder absolutely, without any
condition concerning its presentment. 6 Such a check is an
evidence of debt against the drawer, and although may not be
intended to be presented, 7 has the same effect as an ordinary
check, and if passed to the third person, will be valid in his
hands like any other check.
- From the above definition, it is clear that a memorandum
check, which is in the form of an ordinary check, is still drawn
on a bank and should therefore be distinguished from a
promissory note, which is but a mere promise to pay. If private
respondent seeks to equate memorandum check with
promissory note, as he does to skirt the provisions of B.P. 22,
he could very well have issued a promissory note, and this
would be have exempted him form the coverage of the law. In
the business community a promissory note, certainly, has less
impact and persuadability than a check.
- A memorandum check must therefore fall within the ambit of
B.P. 22 which does not distinguish but merely provides that
"[a]ny person who makes or draws and issues any check
knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank . . . which check is
subsequently dishonored . . . shall be punished by
imprisonment . . .”
- A memorandum check, upon presentment, is generally
accepted by the bank. Hence it does not matter whether the
check issued is in the nature of a memorandum as evidence of
indebtedness or whether it was issued is partial fulfillment of a
pre-existing obligation, for what the law punishes is the
issuance itself of a bouncing check 15 and not the purpose for
which it was issuance. The mere act of issuing a worthless
check, whether as a deposit, as a guarantee, or even as an
evidence of a pre-existing debt, is malum prohibitum.
TRAVELLER’S CHECK
- Instruments purchased from banks, express companies, or the
like, in various denominations, which can be used like cash
upon second signature by the purchaser.
- Requires the signature of the purchaser at the time he buys it
AND at the time he uses it
SPECIAL BANKING FUNCTIONS
SAFETY DEPOSIT BOXES
- Rented by different people
- 2 keys (manager and you), then put money there.
2 A contract or provision in a contract that confers a benefit on a third-party beneficiary
CruzAR | JD 3 | AUF-SOL (2020)
- Articles of value can also be stored that cannot be given
deposit slip
CA Agro-Industrial vs. CA
- Not an ordinary contract of lease, and also not strictly
governed by the CC provisions on deposit. It is a special kind
of deposit.
- Why not ordinary contract of lease?
- Lessee has NO control. It’s the bank that controls it.
- The full possession and control of the safety deposit box is
not given to the renters.
- Relationship between the bank and renter is one of BAILEE
and BAILOR.
- Why is the bank not liable when the title inside the box was
lost?
FOREIGN EXCHANGE OPERATIONS
- RAQUEDAN DOCTRINE: Unfair! Present evidence dapat
that the bank is negligent!
- Buying dollars/euros, etc.
- “Bibili” - if peso to dollar, etc.
- “Palit” - if dollar, etc. to peso
- Banks make money out of that when they play with exchange
rates.
DISCOUNTING
- But there are BLACK MARKETS
- Not paying taxes
- A commercial bank is authorised to acquire marketable bonds
and other debt securities, and also allowed to discount PNs,
drafts, bills of exchange, and other evidence of debt.
- A bank CANNOT sell, discount, assign or negotiate any notes,
receivables, loans, debt instruments and any type of financial
QUASI-BANKING
assets or claims, except government securities, on a without-
recourse basis, UNLESS such are registered with SEC.
- The bank dealing with deposit substitutes
- Not actually dealing with money as deposits
- It deals with instruments.
- Alternative form of obtaining funds from the public, other than
deposits, through the issuance, endorsements, or acceptance of
debt instruments from borrower’s own account, for the
purpose of relending or purchasing of receivables or other
obligations
BDO vs. Republic
- Are the PEACe bonds are deposit substitutes and subject 20%
withholding tax?
- NO.
- A bond is similar to a bank deposit in the sense that the
investor lends money to the issuer and the issuer pays interest
on the invested amount. However, unlike bank deposits, bonds
are marketable securities. The market mechanism provides
quick mobility of money and securities. Thus, bondholders can
sell their bonds before they mature to other investors, in turn
converting their financial assets to cash. In contrast, deposits,
in the form of savings accounts for instance, can only be
redeemed by the issuing bank.
CORRESPONDENT BANKING
- Deals with another bank from another territory
- A bank in another country (foreign bank) enters into an
arrangement with a local bank (correspondent bank) whereby
the foreign bank can ask the correspondent bank to pay
amounts to a 3rd party.
- Upon payment to the 3rd party by the correspondent bank, CB
is entitled to bill the foreign bank for reimbursement.
- Nature of contract: Agreement pour autrui 2
Bank of America vs. IAC
- Correspondent bank = Bank of America
- Arrangement of Bank of America is with Kyowa Bank. ACTC
cannot question, since not privy to the contract.
- When Kyowa asked Bank of America to pay an amount to a
beneficiary (either ACTC or Minami), the contract was
"35
Banking & Allied Laws | Atty. Jhoel Raquedan CruzAR | JD 3 | AUF-SOL (2020)

between Kyowa and Bank of America and it had a stipulation

pour autrui.

PNB vs. CA
- Is compensation applicable in this case? NO.
- Can PNB intercept money intended for the depositor?
- NO. Correspondent bank’s only obligation is to remit. It
cannot act as a creditor at the same time.
- Even if the beneficiary is indebted to the correspondent bank,
the latter cannot do a shortcut and simply intercept funds
coursed through it, for transmittal to another bank, and
eventually to be deposited to the account of the beneficiary.
The bank cannot invoke legal compensation such case.

INSURANCE

- Banks cannot enter into insurance contracts.

- But insurance companies can introduce their products inside
the bank premises.
- This is called BANCASSURANCE.
- Pwede partnership, to make payment easier. But it is NOT
the bank that will engage in insurance business.
- If the bank will act as surety as a business undertaking on a
regular basis, this may already be construed as a prohibited act
because it is considered “insurance business.”

TRUST FUNCTIONS

- Bank deals with money and in most instances the people trust
them to manage their funds.
- Manages funds of another
- But before a bank can engage in trust and other fiduciary
business, it must secure the prior approval of the Monetary
Board.
- And before it can secure prior approval from the Monetary
Board, the following pre-requisites must first be complied
with:
1) It must be duly licensed or incorporated as a bank or
created as such by special charter;
2) Its AoI or charter includes the power/purpose to act as
trustee or to administer any trust or hold property in
trust or on deposit for the use, or in behalf of others;
3) Its by-laws shall include provisions on the
organisational structure of its trust department which
shall perform its trust and fiduciary business, the
creation of a trust committee and the appointment of a
trust officer and other subordinate officers of the trust
unit, with their specific duties and responsibilities.

TRUST BUSINESS
- Any activity resulting from a trustor-trustee relationship
(trusteeship) involving the appointment of a trustee by a
trustor for the administration, holding, management of funds
and/or properties of the trustor by the trustee for the use,
benefit or advantage of the trustor or of others called
beneficiaries
- Creates trusteeship

OTHER FIDUCIARY BUSINESS

- Any activity of a trust-licensed bank resulting from a contract
or agreement whereby the bank binds itself to render services
or to act in a representative capacity such as in an agency,
guardianship, administratorship of wills, properties and
estates, executorship, receivership, and other similar services
which do not create or result in a trusteeship. It shall exclude
collecting or paying agency arrangements and similar
fiduciary services which are inherent in the use of the facilities
of the other operating departments of said bank
- Does NOT create trusteeship

— end—

The Lord will fight for you.

You need only to be still.

— Exodus 14:14

"36