Module 5

Regulatory Framework and Legal Issues in Business
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Bouncing Checks
(Batas Pambansa Blg. 22)
Philippine Deposit Insurance Corporation
(Republic Act No. 3591 as amended by
R.A. No. 10846)
Secrecy of Bank Deposits
(Republic Act No. 1405)
Truth in Lending Act
(Republic Act No. 3765)
Anti-Money Laundering Act
(Republic Act No. 9160 as amended by
R.A. 10365)
Accountancy Department
College of Business Administration and Accountancy
De La Salle University – Dasmariñas
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COURSE LEARNING OUTCOMES:
By the end of this course, students are expected to:
CLO1. Discuss the applicable Philippine laws covering various business

transactions, specifically on consumer protection, financial rehabilitation,
competition, government procurement, banking, insurance, and labor or
employment.
CLO2. Resolve the problems and conflicts arising from business transactions
through the application of pertinent Philippine laws.
CLO3. Explain the rights, duties, and obligations of the stakeholders as well as
the role of the government in handling the issues on business regulations.
CLO4. Identify the procedural requirements observed by the government
regulatory bodies in resolving conflicts or cases involving business
transactions.
CLO5. Correlate the Philippine regulatory laws on business transactions with
the work-related areas of the accountancy profession.
Bouncing Checks
AN ACT PENALIZING THE MAKING OR DRAWING AND ISSUANCE OF A
CHECK WITHOUT SUFFICIENT FUNDS OR CREDIT AND FOR OTHER
PURPOSES.
What are checks without sufficient funds?
Any person who makes or draws and issues any check to apply on
account or for value, knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment, which check is subsequently dishonored by
the drawee bank for insufficiency of funds or credit or would have been
dishonored for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment, shall be punished by imprisonment of not
less than thirty days but not more than one (1) year or by a fine of not less
than but not more than double the amount of the check which fine shall in no
case exceed Two Hundred Thousand Pesos, or both such fine and
imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who, having
sufficient funds in or credit with the drawee bank when he makes or draws and
issues a check, shall fail to keep sufficient funds or to maintain a credit to
cover the full amount of the check if presented within a period of ninety (90)
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days from the date appearing thereon, for which reason it is dishonored by the
drawee bank.
If the check is issued by a juridical entity, who will beheld liable?
Where the check is drawn by a corporation, company or entity, the

person or persons who actually signed the check in behalf of such drawer shall
be liable under this Act.
Evidence of knowledge of insufficient funds.
The making, drawing and issuance of a check payment of which is

refused by the drawee because of insufficient funds in or credit with such
bank, when presented within ninety (90) days from the date of the check,
shall be prima facie evidence of knowledge of such insufficiency of funds or
credit unless such maker or drawer pays the holder thereof the amount due
thereon, or makes arrangements for payment in full by the drawee of such check
within (5) banking days after receiving notice that such check has not been paid
by the drawee.
What is stop payment order?
Order made by the drawer of the check to the drawee bank ordering the
non-payment of the check issued.
What notice is necessary?
Notice of dishonor of check.
What is the duty of drawee?
It shall be the duty of the drawee of any check, when refusing to pay the
same to the holder thereof upon presentment, to cause to be written,
printed, or stamped in plain language thereon, or attached thereto, the
reason for drawee's dishonor or refusal to pay the same: Provided, That
where there are no sufficient funds in or credit with such drawee bank, such
fact shall always be explicitly stated in the notice of dishonor or refusal.
Usual grounds for dishonor of check due to funding.

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1. Account closed
2. Drawn against insufficient funds (DAIF)
Dishonored check, evidence of issuance and dishonor.
In all prosecutions under this Act, the introduction in evidence of any

unpaid and dishonored check, having the drawee's refusal to pay stamped or
written thereon or attached thereto, with the reason therefor as aforesaid, shall
be prima facie evidence of the making or issuance of said check, and the due
presentment to the drawee for payment and the dishonor thereof, and that the
same was properly dishonored for the reason written, stamped or attached by
the drawee on such dishonored check.
When stop payment order is made, is drawee still required to state if there
is no sufficient fund?
YES. Notwithstanding receipt of an order to stop payment, the drawee

shall state in the notice that there were no sufficient funds in or credit with
such bank for the payment in full of such check, if such be the fact.
Can there be estafa through issuance of check?
Yes, under the Revised Penal Code.
Article 315. Swindling (estafa). - Any person who shall defraud another

by any of the means mentioned herein below shall be punished by:
xxx
2. By means of any of the following false pretenses or fraudulent acts

executed prior to or simultaneously with the commission of the fraud:
xxx
(d) By post-dating a check, or issuing a check in payment of an

obligation when the offender therein were not sufficient to cover
the amount of the check. The failure of the drawer of the check to
deposit the amount necessary to cover his check within three (3)
days from receipt of notice from the bank and/or the payee or
holder that said check has been dishonored for lack of
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insufficiency of funds shall be prima facie evidence of deceit

constituting false pretense or fraudulent act.
xxx
Difference between Bouncing Checks under B.P. 22 and Estafa by issuance

of check.
Philippine Deposit Insurance Corporation
What is Philippine Deposit Insurance Corporation (PDIC)?
There is hereby created a Philippine Deposit Insurance Corporation

(PDIC) which shall insure the deposits of all banks which are entitled to the
benefits of insurance under the PDIC law.
PDIC shall, as a basic policy, promote and safeguard the interests of the
depositing public by providing insurance coverage on all insured deposits and
helping maintain a sound and stable banking system.
What is the purpose of the PDIC?

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The purpose of the PDIC (the Corporation) is to insure deposit of all

banks which are entitled to the benefits of insurance. It shall, is a basic policy,
promote and safeguard the interests of the depositing public by way of
providing permanent and continuing insurance coverage on all insured
deposits (Sec. 1, RA No. 3591, as amended). The purpose of the PDIC is to
protect the depositing public in the event of a bank closure (PDIC v. Citibank,
N.A., 669 SCRA 191, 11 April 2012). The primary purpose of the PDIC is to act
as insurer, as a co- regulator of banks, and as receiver and liquidator of closed
banks (PDIC v. Phil. Countryside Rural Bank, INC. 640 SCRA 322, 24 January
2011).
What is the risk insured against?
The risk insured against is bank closure.
What is a bank under the PDIC Law?
The term bank and banking institution shall be synonymous and

interchangeable and shall include banks, commercial banks, savings banks,
mortgage banks, rural banks, development banks, cooperative banks, stock
savings and loan associations and branches and agencies in the Philippines of
foreign banks and all other corporations authorized to perform banking
functions in the Philippines.
What are the types of deposits that are insured?
Savings account, current account, time deposits. Deposits in acceptable

foreign currencies are also insured pursuant to the Foreign Currency Deposit
Act of the Philippines (R.A. 6426). However, the PDIC will only pay those
deposits that are made in the usual course of business. (PDIC v. CA, 104 SCRA
194 [2003]). Trust funds were deleted from the coverage of insured deposits.
(PD No. 1974).
What is the liability of the PDIC for insured deposits?
The liability of the PDIC for insured deposits is statutory and under RA
NO. 3591, as amended, such liability rests upon the existence of deposits with
insured bank, NOT on the negotiability of the certificate evidencing the deposit
(PDIC v. CA, 283 SCRA 462 [1997[). The fact that the certificate states that the
certificates are insured by the PDIC does NOT ipso facto make the latter liable
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for the same should the contingency insured against arise. The deposit liability
of the PDIC is determined by the provisions of RA No. 3591, and the
statements in the certificates that the same are insured by the PDIC are
binding upon the latter (ibid.). In order that a claim for deposit insurance with
the PDIC may prosper, the law requires that a corresponding deposit be placed
in the insured bank. This is implicit from a reading of the provisions of RA
3591, i.e. Sections 1 and 10 © (ibid.).
What does the term “deposit” under the PDIC means?
The term deposit means the unpaid balance of money or its equivalent
received by a bank in the usual course of business and for which it has given
or is obliged to give credit to a commercial, checking, savings, time or thrift
account, evidenced by a passbook, certificate of deposit, or other evidence of
deposit issued in accordance with Bangko Sentral ng Pilipinas rules and
regulations and other applicable laws, together with such other obligations of a
bank, which, consistent with banking usage and practices, the Board of
Directors shall determine and prescribe by regulations to be deposit liabilities
of the bank: Provided, That any obligation of a bank which is payable at the
office of the bank located outside of the Philippines shall not be a deposit for
any of the purposes of this Act or included as part of the total deposits or of
insured deposit: Provided, further, That subject to the approval of the Board of
Directors, any insured bank which is incorporated under the laws of the
Philippines which maintains a branch outside the Philippines may elect to
include for insurance its deposit obligations payable only at such branch.
The Corporation (PDIC) shall not pay deposit insurance for the following
accounts or transactions:
(1) Investment products such as bonds and securities, trust

accounts, and other similar instruments;
(2) Deposit accounts or transactions which are fictitious or

fraudulent as determined by the Corporation;
(3) Deposit accounts or transactions constituting, and/or

emanating from, unsafe and unsound banking practice/s, as
determined by the Corporation, in consultation with the Bangko
Sentral ng Pilipinas, after due notice and hearing, and publication
of a directive to cease and desist issued by the Corporation against
such deposit accounts, transactions or practices; and
(4) Deposits that are determined to be the proceeds of an unlawful

activity as defined under Republic Act No. 9160, as amended.
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Does deposits located outside the Philippines covered by the PDIC?
The term deposit does not cover any obligation of a bank which is
payable at the office of the bank located outside of the Philippines. However,
subject to the approval of the Board of the PDIC, any insured bank which
maintains a branch outside the Philippines may elect to include for insurance
its deposit obligations payable only at such branch (Sec. 4f, RA 3591 as
amended).
What is insured deposit?
The term insured deposit means the amount due to any bonafide
depositor for legitimate deposits in an insured bank as of the date of closure
but not to exceed Five hundred thousand pesos (P500,000.00). Such
amount shall be determined according to such regulations as the Board of
Directors may prescribe. In determining such amount due to any depositor,
there shall be added together all deposits in the bank maintained in the same
right and capacity for his or her benefit either in his or her own name or in the
name of others. A joint account regardless of whether the conjunction ‘and’, ‘or’,
‘and/or’ is used, shall be insured separately from any individually-owned
deposit account: Provided, That (1) if the account is held jointly by two or more
natural persons, or by two or more juridical persons or entities, the maximum
insured deposit shall be divided into as many equal shares as there are
individuals, juridical persons or entities, unless a different sharing is stipulated
in the document of deposit, and (2) if the account is held by a juridical person
or entity jointly with one or more natural persons, the maximum insured
deposit shall be presumed to belong entirely to such juridical person or entity:
Provided, further, That the aggregate of the interest of each co-owner over
several joint accounts, whether owned by the same or different combinations of
individuals, juridical persons or entities, shall likewise be subject to the
maximum insured deposit of Five hundred thousand pesos (P500,000.00):
Provided, furthermore, That the provisions of any law to the contrary
notwithstanding, no owner/holder of any passbook, certificate of deposit, or
other evidence of deposit shall be recognized as a depositor entitled to the
rights provided in this Act unless the passbook, certificate of deposit, or other
evidence of deposit is determined by the Corporation to be an authentic
document or record of the issuing bank: Provided, finally, That in case of a
condition that threatens the monetary and financial stability of the banking
system that may have systemic consequences, as defined in Section 22 hereof,
as determined by the Monetary Board, the maximum deposit insurance cover
may be adjusted in such amount, for such a period, and/or for such deposit
products, as may be determined by a unanimous vote of the Board of Directors
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in a meeting called for the purpose and chaired by the Secretary of Finance,
subject to the approval of the President of the Philippines.
How do we determine the amount due to a depositor?
In determining the amount due to any depositor, there shall be added

together all deposits in the bank maintained in the same right and capacity
for his benefit either in his own name in the name of others.
How do we treat joint accounts in determining the amount due?
A joint account regardless of whether the conjunction “and,” “or,”

“and/or” is used, shall be insured separately from any individually-owned
deposit account.
If the account is held jointly by two or more natural persons, or by two or

more juridical persons or entities, the maximum insured deposit shall be
divided into as many equal shares as there are individuals, juridical persons or
entities, unless a different sharing is stipulated in the document of deposit.
If the account is held by a juridical person or entity jointly with one or

more natural persons, the maximum insured deposit shall be presumed to
belong entirely to such juridical person or entity.
Payment of insured deposits.
Whenever an insured bank shall have been closed by the Monetary

Board pursuant to Section 30 of R.A. 7653, payment of the insured deposits on
such closed bank shall be made by the PDIC as soon as possible either:
(1) by cash, or
(2) by making available to each depositor a transferred deposit in
another insured bank in an amount equal to insured deposit of
such depositor.
What is the period to claim insured deposits?
Unless otherwise waived by the PDIC, if the depositor in the closed bank
shall fail to claim his insured deposits with the PDIC within two (2) years from
actual takeover of the closed bank by the receiver, or does not enforce his claim
filed with the PDIC within two (2) years after the two-year period to file a claim
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as mentioned hereinabove, all rights of the depositor against the PDIC with
respect to the insured deposit shall be barred; however , all rights of the
depositor against the closed bank and its shareholders or the receivership
estate to which the PDIC may have become subrogated, shall thereupon revert
to the depositor. Thereafter, the PDIC shall be discharged from any liability on
the insured deposit.
What is Splitting of insured deposits? Is it allowed?
Splitting of deposits occurs whenever a deposit account with an

outstanding balance of more than the statutory maximum amount of insured
deposit maintained under the name of natural or juridical persons is broken
down and transferred into two (2) or more accounts in the name/s of natural or
juridical persons or entities who have no beneficial ownership on transferred
deposits in their names within one hundred twenty (120) days immediately
preceding or during a bank declared bank holiday, or immediately preceding a
closure order issued by the Monetary Board of the Bangko Sentral ng Pilipinas
for the purpose of availing of the maximum deposit insurance coverage.
ILLUSTRATIVE EXAMPLES.
Single Depositor Account
How much is the effective insurance coverage if Juan Pablo has the following
accounts under his name in the closed ABCD Bank?
Account Type Balance

Acct #1 Savings Account P 480,000.00
Acct #2 Checking Account 250,000.00
Acct #3 Time Deposit 150,000.00
Total deposits 880,000.00
Insured deposits 500,000.00

Uninsured deposits 300,000.00
Explanation: The three accounts are owned by one person, Juan Pablo. Thus,
all accounts will be consolidated or added together as they are maintained in
the same right and capacity, regardless of account type. Total amount insured
cannot exceed P500,000.00
In Trust For (ITF) and By Accounts

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How much will the effective insurance be if Uno, Dos and Tres have the
following accounts under their names in the closed EFGH Bank?
Account Holder/s Balance

Acct #1 Uno P480,000.00
Acct #2 Uno ITF Dos 580,000.00
Acct #3 Uno by Tres 250,000.00
Uno
Acct #1 480,000.00
Acct #3 250,000.00

Explanation: Uno is the principal owner of Accounts #1 and #3. Thus, these
two (2) accounts will be consolidated as they are maintained in the same right
and capacity; and insurance is up to P500,000.00.
Dos
Acct #2 580,000.00

Explanation: Account #2 is owned by Dos with Uno acting as agent. Dos is

thus entitled to separate maximum limit of P500,000.00.
Tres: NONE
Explanation: Tres does not own any of the deposit. He acted as an agent of Uno
in Account #3
Joint Account
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How much is the insurance coverage if Juan, Jose and Pedro have the
following accounts in the closed IJKL Bank?
Account Holder/s Balance

Acct #1 Jose & Pedro P800,000.00
Acct #2 Juan &/or Jose 950,000.00
Jose Insured Share Uninsured Share
Acct #1 250,000.00 300,000.00

Acct #2 250,000.00 450,000.00
Juan Insured Share Uninsured Share

Acct #2 250,000.00 450,000.00
Pedro Insured Share Uninsured Share

Acct #1 250,000.00 300,000.00
Explanation: For deposits in excess of P500,000.00, the amount shared by the

co-depositor is only MDIC (maximum deposit insurance coverage) of the
account, thus for Account #1 , the share of Jose is 250,000.00, Likewise, for
Pedro. Under the new rules for joint ownership, each joint account is
considered equally shared among co-depositors unless otherwise indicated in
deposit document. Insurance coverage of P500,000.00 will apply to the sum of
shares of a depositor in the insured portion of each joint account.
Institutional Account
How much is the insurance coverage given the following accounts in the closed
MNOP Bank?
Account Holder Balance

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Acct #1 XXX, Inc. P 600,000.00

Acct #2 XXX, Inc. &/or Maria 800,000.00
Total deposits 1,400,000.00
XXX, Inc.

Maria: NONE
Explanation: Joint accounts held by juridical person with natural person will
be presumed to belong to the juridical person. Thus, Accounts #1 and #2 will
be consolidated. Total amount of insured deposits will be P500,000.00.
Single and Joint Accounts
How much is the insurance coverage if Arman, Buboy and Carlo have the
following accounts in the closed QRST Bank?
Account Holder Balance

Acct #1 Arman P 500,000.00
Acct #2 Arman and Buboy 800,000.00
Acct #3 Arman &/or Carlo 500,000.00
Acct #4 Arman or Buboy or Carlo 900,000.00
Arman (for single account)
Acct #1 500,000.00
Arman (for joint accounts)
Arman Insured Share Uninsured Deposits

Acct #2 250,000.00 300,000.00
Acct #3 250,000.00 0
Acct #4 0 400,000.00
Total insured deposits 500,000.00
Buboy Insured Share Uninsured Deposits

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Acct #2 250,000.00 300,000.00

Acct #4 166,666.00 400,000.00
Carlo Insured Share Uninsured Deposits

Acct #3 250,000.00 0
Acct #4 166,666.00 400,000.00
Explanation: Under the new rules, single account is insured separately to a

maximum coverage of P500,000.00. Thus, Account #1 owned by Arman is
insured for P500,000.00. For joint ownership, each joint account is considered
equally shared among co-depositors unless otherwise indicated in the deposit
document. Insurance coverage of P500,000.00 will apply to the sum of shares
of a depositor in the insured portion of each joint account.
SECRECY OF BANK DEPOSITS
State Policy on bank secrecy.
It is hereby declared to be the policy of the Government to give

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.
What is the purpose of RA 1405?
R.A. 1405 has two allied purposes. It hopes to discourage private

hoarding and the same time encourage the people to deposit their money in
banking institutions, so that it may be utilized by way of authorized loans and
thereby assist in economic development. Owing to this piece of legislation, the
confidentiality of bank deposits remains to be a basic state policy in the
Philippines. Section 2 of the law institutionalized this policy by characterizing
as absolutely confidential in general all deposits of whatever nature with banks
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and other financial institutions in the country (BSB Group Inc. v. Sally Go, GR
No. 168644, 16 February 2010).
What are deposits covered by the law?
All deposits of whatever nature with banks or banking institutions in the

Philippines including investments in bonds issued by the Government of the
Philippines, its political subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office,
except upon written permission of the depositor, or in cases of impeachment,
or upon order of a competent court in cases of bribery or dereliction of duty of
public officials, or in cases where the money deposited or invested is the
subject matter of the litigation.
Section 2 of RA 1405 is broad enough to cover trust accounts. The

phrase of “whatever nature” proscribes any restrictive interpretation of
“deposits.” Moreover, it is clear from Sec. 2 of RA 1405 that, generally, the law
applies not only to money which is deposited but also to those which are
invested. This further shows that the law was not intended to apply only to
“deposits” in the strict sense of the word. Otherwise, there would have been no
need to add the phrase “or invested” (Ejercito v. Sandiganbayan, GR Nos.
157294-95, 30 November 2006).
The term “deposits” as used in RA 1405 is used to be understood broadly

and not limited only to accounts which give rise to a creditor-debtor
relationship between the depositor and the bank. Said the Supreme Court.
“The contention that trust accounts are not covered by the term
“deposits” as used in RA 1405, by the mere fact that they do not entail a
creditor-debtor relationship between the trustor and the bank, does not lie. An
examination of the law shows that the term “deposits” used therein is to be
understood broadly and not limited only to accounts which give rise to a
creditor-debtor relationship between the depositor and the bank. The policy
behind the law is laid down in Section 1:
SECTION 1. It is hereby declared to be the policy of the

Government to give 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.
(Underscoring supplied)
What is prohibited under the bank secrecy law?

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It shall be unlawful for any official or employee of a banking institution

to disclose to any person other than those mentioned in Section two (covered
deposits) hereof any information concerning said deposits.
COVERED PESO DEPOSITS.
All deposits of whatever nature with banks or banking institutions in the

Philippines including investments in bonds issued by the Government of the
Philippines, its political subdivisions and is instrumentalities, are considered
absolutely confidential and may not be examined, inquired or looks into by any
person, government official, bureau or office (Sec. 2, R.A. No. 1405).
a.) EXCEPTIONS:
1) When there is 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 cases involving
unexplained wealth under the Anti-Graft and Corrupt Practices Act, R.A.
No. 3019 (Bangko Filipino v. Purisima, 161 SCRA 576);
6) Upon inquiry by the Commissioner of Internal Revenue for the
purpose of determining the net estate of a deceased depositor;
7) Upon the order of a competent court or in proper cases by the Anti-
Money Laundering Council where there is probable cause of money
laundering and in some instance even without court order (Sec. 11, R.A.
No. 9160)
8) Disclosure to the treasurer of the Philippines for dormant deposits for
at least ten (10) years under the Unclaimed Balances Act (Sec. 2, R.A. No.
3936)
9) Report of banks to Anti-Money Laundering Council (AMLC) of covered
and/or suspicious transactions (Sec. 9, R.A. No. 9160 as amended).
10) Upon order of the Court of Appeals, examination by law enforcement
officers in terrorism cases under the Human Security Act of 2007 (Sec.
27 and 28, R.A. No. 8372)
b) Non-disclosure without Court order of any information relative to the funds

or properties of its clients is also required (Sec. 55[b], GBL). However bank
deposits shall continue to be governed by the Law on Secrecy of Bank Deposits.
Example: A Bank cannot disclose matters relation to the trust accounts of the
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client with the bank both under Section 55(b) of the GBL and R.A. No. 1405
(Ejercito v. Sandiganbayan, 509 SCRA 140 [2006]).
COVERED FOREIGN CURRENCY DEPOSITS.
The above-enumerated exceptions do not apply to foreign currency

deposits/There is only one exception under the Foreign Currency Deposits Act
(Intengan v. Court of Appeals, G.R. No. 128996, February 15, 2002) although
another is provided for under the Anti-Money Laundering Law. Therefore, the
exceptions are:
a) When there is written consent of depositor under Section 8 of the Foreign

Currency Deposits Act; and
b) Under Section 11 of the Anti-Money Laundering Act;
c) Under Section 27 and 28 of the Human Security Act.
SECRECY OF DEPOSITS UNDER THE ANTI-MONEY LAUNDERING LAW.
The Anti-Money Laundering Council (AMLC) may inquire into deposits

upon order of the court when there is probable cause that the deposits are
related to the crime of unlawful activities defined in Section 3(1) and Section 4
of Republic Act No. 9160 as amended by the Republic Act No. 9194. However, a
court order is not even necessary when the offense or unlawful activity involved
is any of the following:
a) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise
known as the Revised Penal Code, as amended;
b) Sections 4,5,7,8,9,10,12,13,14,15 and 16 of Republic Act No. 9165
otherwise known as the Comprehensive Dangerous Drugs of 2002; and
c) Hi-jacking and other violations under Republic Act. No. 6235; destructive
arson and murder, as defined under the Revise Penal Code, as amended,
including those perpetrated by terrorists against non-combatant persons
and similar targets.
Does garnishment of bank deposit violate the bank secrecy law?
No, the prohibition against examination does not preclude its being
garnished for satisfaction of judgment. The disclosure is purely incidental to
the execution process and it was not the intention of the legislature to place
bank deposits beyond the reach of judgment creditor. (PCIB v. CA, G.R. No.
84526, Jan. 28, 1991)
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TRUTH IN LENDING
State Policy.
It is hereby declared to be the policy of the State to protect its citizens

from a lack of awareness of the true cost of credit to the user by assuring a full
disclosure of such cost with a view of preventing the uninformed use of credit
to the detriment of the national economy.
Definition of important terms.
Credit - means any loan, mortgage, deed of trust, advance, or discount; any
conditional sales contract; any contract to sell, or sale or contract of sale of
property or services, either for present or future delivery, under which part or
all of the price is payable subsequent to the making of such sale or contract;
any rental-purchase contract; any contract or arrangement for the hire,
bailment, or leasing of property; any option, demand, lien, pledge, or other
claim against, or for the delivery of, property or money; any purchase, or other
acquisition of, or any credit upon the security of, any obligation of claim arising
out of any of the foregoing; and any transaction or series of transactions having
a similar purpose or effect.
Finance charge - includes interest, fees, service charges, discounts, and such
other charges incident to the extension of credit as the Board may be
regulation prescribe.
Creditor - means any person engaged in the business of extending credit

(including any person who as a regular business practice make loans or sells or
rents property or services on a time, credit, or installment basis, either as
principal or as agent) who requires as an incident to the extension of credit, the
payment of a finance charge.
Person - means any individual, corporation, partnership, association, or other

organized group of persons, or the legal successor or representative of the
foregoing, and includes the Philippine Government or any agency thereof, or
any other government, or of any of its political subdivisions, or any agency of
the foregoing.
What should a creditor disclose?

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The law assures full disclosure by requiring the lender to give the
borrower all the details regarding the transactions. Under Section 4 of the law,
any creditor shall furnish to each person to whom credit is extended, prior to
the consummation of the transaction, a clear statement in writing setting forth,
to the extent applicable and in accordance with rules and regulation prescribed
by the Board, the following information:
1) The cash price or delivered price of the property of service to be

acquired;
2) The amounts, if any, to be credited as down payment and/or trade-in;
3) The difference between the amounts set forth under clauses (1) and
(2);
4) The charges, individually itemized, which are paid or to be paid by
such person in connection with the transaction but which are not
incident to the extension of credit;
5) The total amount to be financed;
6) The finance charge expressed in terms of pesos and centavos; and
7) The percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.
Note: The imposition of interest and finance charges is void if not covered by
the disclosure statement (Heirs of Espiritu v. Landrito, G.R. No. 169618, April 4,
2007). In addition, the exorbitant interest rate may be declared unconscionable
even if disclosed.
What is the rationale in mandating disclosure?
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 interest
from the loaned amount, and the like (United Coconut Planters Bank [UCPB] v.
Spouses Beluso, G.R. No. 159912, August 17, 2007).
Other considered violation of the law.
Escalation Clause. Truth in Lending Act may also be violated if the agreement
provides for an escalation clause on interest which is dependent solely on the
will of the bank (UCPB v. Spouses Beluso, ibid.).
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Example: the following provision is void; “The interest shall be at the rate
indicative of (the bank’s) retail rate or as determined by the Branch Head of the
Bank.”
Subsequent compliance. Subsequent compliance with the disclosure

requirement cannot be deemed in substantial compliance with the Truth in
Lending Act (UCPB v. Spouses Beluso, ibid.).
Example: The bank gave the details when only when demand for payment was
being made.
What is the penalty that may be imposed for violation of the law?
Violation of the Truth in Lending Act gives rise to both criminal and civil
liabilities (Section 6[c], TLA). The penalty therefor is an amount of P100 or in
amount equal to twice the finance charge required by the creditor in
connection with such transaction, whichever is greater, except that the liability
shall not exceed P2,000.00 on any credit transaction. The action to recover
such penalty may be instituted by the aggrieved private person separately and
independently from the criminal case for the same offense. (UCPB v. Spouses
Beluso, ibid.).
Anti-Money Laundering Act
What is the policy of the state as regards money laundering?
It is hereby declared the policy of the State to protect and preserve the
integrity and confidentiality of bank accounts and to ensure that the
Philippines shall not be used as a money laundering site for the proceeds of
any unlawful activity. Consistent with its foreign policy, the State shall extend
cooperation in transnational investigations and prosecutions of persons
involved in money laundering activities whenever committed.
What is money laundering?
- The act of transferring the monetary proceeds derived from illicit

activities into funds with an apparently legal source.
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- Laundering: Term used to describe investment or other transfer of

money flowing from racketeering, drug transactions, and other illegal
sources into legitimate channels so that its original source cannot be
traced.
- Money laundering is committed by any person who, knowing that any

monetary instrument or property represents, involves, or relates to
the proceeds of any unlawful activity:
(a) transacts said monetary instrument or property;

(b) converts, transfers, disposes of, moves, acquires, possesses or
uses said monetary instrument or property;
(c) conceals or disguises the true nature, source, location, disposition,
movement or ownership of or rights with respect to said monetary
instrument or property;
(d) attempts or conspires to commit money laundering offenses
referred to in paragraphs (a), (b) or (c);
(e) aids, abets, assists in or counsels the commission of the money
laundering offenses referred to in paragraphs (a), (b) or (c) above; and
(f) performs or fails to perform any act as a result of which he
facilitates the offense of money laundering referred to in paragraphs
(a), (b) or (c) above.
Money laundering is also committed by any covered person who,

knowing that a covered or suspicious transaction is required under
this Act to be reported to the Anti-Money Laundering Council (AMLC),
fails to do so.
What are the Three (3) Phases of money laundering?
(a) Placement or the stashing of funds into a financial institution.

(b) Layering: Money is moved from one institution to another in a
confusing trail.
(c) Integration: Taking of funds from various banks or covered
institution and invest in a legitimate business.
Who are the “covered persons” under the AMLA?

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"(a) Covered persons', natural or juridical refer to:
"(1) banks, non-banks, quasi-banks, trust entities, foreign exchange

dealers, pawnshops, money changers, remittance and transfer
companies and other similar entities and all other persons and their
subsidiaries and affiliates supervised or regulated by the Bangko Sentral
ng Pilipinas (BSP);
"(2) insurance companies, pre-need companies and all other persons

supervised or regulated by the Insurance Commission (IC);
"(3) (i) securities dealers, brokers, salesmen, investment houses and

other similar persons managing securities or rendering services as
investment agent, advisor, or consultant, (ii) mutual funds, close-end
investment companies, common trust funds, and other similar persons,
and (iii) other entities administering or otherwise dealing in currency,
commodities or financial derivatives based thereon, valuable objects,
cash substitutes and other similar monetary instruments or property
supervised or regulated by the Securities and Exchange Commission
(SEC);
"(4) jewelry dealers in precious metals, who, as a business, trade in

precious metals, for transactions in excess of One million pesos
(P1,000,000.00);
"(5) jewelry dealers in precious stones, who, as a business, trade in

precious stones, for transactions in excess of One million pesos
(P1,000,000.00);
"(6) company service providers which, as a business, provide any of the

following services to third parties: (i) acting as a formation agent of
juridical persons; (ii) acting as (or arranging for another person to act as)
a director or corporate secretary of a company, a partner of a
partnership, or a similar position in relation to other juridical persons;
(iii) providing a registered office, business address or accommodation,
correspondence or administrative address for a company, a partnership
or any other legal person or arrangement; and (iv) acting as (or arranging
for another person to act as) a nominee shareholder for another person;
and
"(7) persons who provide any of the following services:
(i) managing of client money, securities or other assets;
(ii) management of bank, savings or securities accounts;

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(iii) organization of contributions for the creation, operation or

management of companies; and
(iv) creation, operation or management of juridical persons or

arrangements, and buying and selling business entities.
"Notwithstanding the foregoing, the term ‘covered persons’ shall

exclude lawyers and accountants acting as independent legal
professionals in relation to information concerning their clients or
where disclosure of information would compromise client
confidences or the attorney-client relationship: Provided, That
these lawyers and accountants are authorized to practice in the
Philippines and shall continue to be subject to the provisions of
their respective codes of conduct and/or professional responsibility
or any of its amendments."
"(9) Real estate developers and brokers;
"(10) Offshore gaming operation, as well as their service providers,

supervised, accredited or regulated by the Philippine Amusement and
Gaming Corporation (PAGCOR) or any government agency;
What are the unlawful activities under AMLA?
"(i) 'Unlawful activity' refers to any act or omission or series or

combination thereof involving or having relation to the following:"
(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise
known as the Revised Penal Code, as amended;
"(2) Sections 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;
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"(6) Jueteng and Masiao punished as illegal gambling under Presidential

Decree No. 1602;
"(7) Piracy on the high seas under the Revised Penal Code, as amended
and Presidential Decree No. 532;
"(8) Qualified theft under Article 310 of the Revised Penal Code, as
amended;
"(9) Swindling under Article 315 and Other Forms of Swindling under
Article 316 of the Revised Penal Code, as amended;
"(10) Smuggling under Republic Act Nos. 455 and 1937;
"(11) Violations of Republic Act No. 8792, otherwise known as the

Electronic Commerce Act of 2000;
"(12) Hijacking and other violations under Republic Act No. 6235;
destructive arson and murder, as defined under the Revised Penal Code,
as amended;
"(13) Terrorism and conspiracy to commit terrorism as defined and

penalized under Sections 3 and 4 of Republic Act No. 9372;
"(14) Financing of terrorism under Section 4 and offenses punishable

under Sections 5, 6, 7 and 8 of Republic Act No. 10168, otherwise known
as the Terrorism Financing Prevention and Suppression Act of 2012:
"(15) Bribery under Articles 210, 211 and 211-A of the Revised Penal
Code, as amended, and Corruption of Public Officers under Article 212 of
the Revised Penal Code, as amended;
"(16) Frauds and Illegal Exactions and Transactions under Articles 213,
214, 215 and 216 of the Revised Penal Code, as amended;
"(17) Malversation of Public Funds and Property under Articles 217 and
222 of the Revised Penal Code, as amended;
"(18) Forgeries and Counterfeiting under Articles 163, 166, 167, 168, 169
and 176 of the Revised Penal Code, as amended;
"(19) Violations of Sections 4 to 6 of Republic Act No. 9208, otherwise

known as the Anti-Trafficking in Persons Act of 2003;
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"(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;

the Anti-Photo and Video Voyeurism Act of 2009;

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;
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"(33) Fraudulent practice and other violations under Republic Actr No.
8799, otherwise known as "The Securities Regulation Code of 2000;
"(34) Violation of Section 9 (a)(3) of Republic Act No. 10697, otherwise

known as the "Strategic Trade Management Act", in relation to the
proliferation of weapons of mass destruction and its financing pursuant
to United Nations Security Council Resolution Numbers 1718 of 2006
and 2231 of 2015";
"(35) Violation of Section 254 of Chapter II, Title X of the National

Internal Revenue Code of 1997, as amended, where the deficiency basic
tax due in the final assessment is in excess of Twenty-five million pesos
(P25,000,000.00) per taxable year, for each tax type covered and there
has been a finding of probable cause by the competent
authority: Provided,further, That there must be a finding of fraud, willful
misrepresenting or malicious intent on the part of the
taxpayer: Provided, finally, That in no case shall the AMLC institute
forfeiture proceedings to recover monetary instruments, property or
proceeds representing, involving, or relating to a tax crime, if the same
has already been recovered or collected by the Bureau of Internal
Revenue (BIR) in a separate proceeding and
"(36) Felonies and offenses of a similar nature that are punishable under
the penal laws of other countries.
May a person be charged and/or convicted both for money laundering

offense and unlawful activity?
Any person may be charged with and convicted of both the offense of
money laundering and the unlawful activity has herein defined. The
prosecution of any offense or violation under this Act shall proceed
independently of any proceeding relating to the unlawful activity.
What are the covered transaction under AMLA?
'Covered transactions' is a transaction in cash or other equivalent

monetary instrument involving a total amount in excess of Five hundred
thousand pesos (P500,000.00) within one (1) banking day; for covered persons
under Section 3(a)(8), a single casino cash transaction involving an amount in
excess of Five million pesos (P5,000,000.00) or its equivalent in any other
currency.
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"For covered persons under Section 3(a)(9) herein, a single cash

transaction involving an amount in excess of Seven million five hundred
thousand pesos (P7,500,000.00) or its equivalent in any other currency.
What are suspicious transactions under AMLA?
'Suspicious transactions' are transactions with covered persons,

regardless of the amounts involved, where any of the following
circumstances exist:
"1. There is no underlying legal or trade obligation, purpose or

economic justification;
"2. The client is not properly identified;
"3. The amount involved is not commensurate with the business or

financial capacity of the client;
"4. Taking into account all known circumstances, it may be

perceived that the client's transaction is structured in order to
avoid being the subject of reporting requirements under the Act
"5. Any circumstance relating to the transaction which is observed

to deviate from the profile of the client and/or the client's past
transactions with the covered person;
"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.
What are the measures under the AMLA to prevent money laundering?
(a) Customer Identification,
- Covered institutions shall establish and record the true identity of its
clients based on official documents. They shall maintain a system of
verifying the true identity of their clients and, in case of corporate clients,
require a system of verifying their legal existence and organizational
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structure, as well as the authority and identification of all persons

purporting to act on their behalf.
The provisions of existing laws to the contrary notwithstanding,

anonymous accounts, accounts under fictitious names, and all other
similar accounts shall be absolutely prohibited. Peso and foreign
currency non-checking numbered accounts shall be allowed. The BSP
may conduct annual testing solely limited to the determination of the
existence and true identity of the owners of such accounts.
(b) Record Keeping
– All records of all transactions of covered institutions shall be

maintained and safely stored for five (5) years from the date of
transactions. With respect to closed accounts, the records on customer
identification, account files and business correspondence, shall be
preserved and safety stored for at least five (5) years from the dates when
they were closed.
"(c) Reporting of Covered and Suspicious Transactions.
– Covered persons shall report to the AMLC all covered transactions and
suspicious transactions within five (5) working days from occurrence
thereof, unless the AMLC prescribes a different period not exceeding
fifteen (15) working days.
"Lawyers and accountants acting as independent legal professionals are

not required to report covered and suspicious transactions if the relevant
information was obtained in circumstances where they are subject to
professional secrecy or legal professional privilege.
What is freezing of monetary instrument made?
Upon a verified ex parte petition by the AMLC and after determination that

probable cause exists that any monetary instrument or property is in any way
related to an unlawful activity as defined in Section 3(i) hereof, the Court of
Appeals may issue a freeze order which shall be effective immediately, for a
period of twenty (20) days. Within the twenty (20) day period, the Court of
Appeals shall conduct a summary hearing, with notice to the parties, to
determine whether or not to modify or lift the freeze order, or extend its
effectivity.
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What is the period of effectivity of a freeze order?
The total period of the freeze order issued by the Court of Appeals under
this provision shall not exceed six (6) months. This is without prejudice to an
asset preservation order that the Regional Trial Court having jurisdiction over
the appropriate anti-money laundering case or civil forfeiture case may issue
on the same account depending on the circumstances of the case, where the
Court of Appeals will remand the case and its records: Provided, That if there is
no case filed against a person whose account has been frozen within the period
determined by the Court of Appeals, not exceeding six (6) months, the freeze
order shall be deemed ipso facto lifted:
Is the freeze order valid to the whole deposit?
"The freeze order or asset preservation order issued under this Act shall be
limited only to the amount of cash or monetary instrument or value of
property that court finds there is probable cause to be considered as
proceeds of a predicate offense, and the freeze order or asset preservation
order shall not apply to amounts in the same account in excess of the
amount or value of the proceeds of the predicate offense.
What is the basis in obtaining a freeze order?
- Upon a determination that probable cause exist that any monetary

instrument or property is in any way related to an unlawful activity.
What is safe harbor provision?
No administrative, criminal or civil proceedings shall lie against any

person for having made a covered transaction report in the regular
performance of his duties and in good faith, whether or not such reporting
results in any criminal prosecution under the AMLA or any other Philippine
law.

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Regulatory Framework and Legal Issues in Business

COURSE LEARNING OUTCOMES:

By the end of this course, students are expected to:

CLO1. Discuss the applicable Philippine laws covering various business

What are checks without sufficient funds?

If the check is issued by a juridical entity, who will beheld liable?

Where the check is drawn by a corporation, company or entity, the

Evidence of knowledge of insufficient funds.

The making, drawing and issuance of a check payment of which is

What is stop payment order?

What notice is necessary?

Notice of dishonor of check.

What is the duty of drawee?

Usual grounds for dishonor of check due to funding.

Dishonored check, evidence of issuance and dishonor.

In all prosecutions under this Act, the introduction in evidence of any

YES. Notwithstanding receipt of an order to stop payment, the drawee

Can there be estafa through issuance of check?

Yes, under the Revised Penal Code.

Article 315. Swindling (estafa). - Any person who shall defraud another

2. By means of any of the following false pretenses or fraudulent acts

(d) By post-dating a check, or issuing a check in payment of an

insufficiency of funds shall be prima facie evidence of deceit

Difference between Bouncing Checks under B.P. 22 and Estafa by issuance

Philippine Deposit Insurance Corporation

What is Philippine Deposit Insurance Corporation (PDIC)?

There is hereby created a Philippine Deposit Insurance Corporation

What is the purpose of the PDIC?

The purpose of the PDIC (the Corporation) is to insure deposit of all

What is the risk insured against?

The risk insured against is bank closure.

What is a bank under the PDIC Law?

The term bank and banking institution shall be synonymous and

What are the types of deposits that are insured?

Savings account, current account, time deposits. Deposits in acceptable

What is the liability of the PDIC for insured deposits?

What does the term “deposit” under the PDIC means?

(1) Investment products such as bonds and securities, trust

(2) Deposit accounts or transactions which are fictitious or

(3) Deposit accounts or transactions constituting, and/or

(4) Deposits that are determined to be the proceeds of an unlawful

Does deposits located outside the Philippines covered by the PDIC?

What is insured deposit?

How do we determine the amount due to a depositor?

In determining the amount due to any depositor, there shall be added

How do we treat joint accounts in determining the amount due?

A joint account regardless of whether the conjunction “and,” “or,”

If the account is held jointly by two or more natural persons, or by two or

If the account is held by a juridical person or entity jointly with one or

Payment of insured deposits.

Whenever an insured bank shall have been closed by the Monetary

What is the period to claim insured deposits?

What is Splitting of insured deposits? Is it allowed?

Splitting of deposits occurs whenever a deposit account with an

Single Depositor Account

Account Type Balance

Insured deposits 500,000.00

In Trust For (ITF) and By Accounts

Account Holder/s Balance

Insured deposits 500,000.00

Insured deposits 500,000.00

Explanation: Account #2 is owned by Dos with Uno acting as agent. Dos is

Account Holder/s Balance