I.
BANKING LAWS
A. NEW CENTRAL BANK ACT (R.A. NO. 7653, AS AMENDED BY R.A.
NO. 11211)
Bangko Sentral ng Pilipinas (BSP)
It is the state’s central monetary authority. It is the government
agency charged with the responsibility of administering the
monetary, banking and credit system of the country and is granted
the power of supervision and examination over bank and nonbank
financial institutions performing quasibanking functions, including
savings and loan associations (Busuego v. CA, G.R. No. L-48955,
June 30, 1987).
Bangko Sentral ng Pilipinas as an institution
The BSP is a government-owned corporation which enjoys fiscal
and administrative autonomy.
1. STATE POLICIES
Policy of the state with respect to the creation of the Bangko Sentral
ng Pilipinas
The State shall maintain a central monetary authority that shall
function and operate as an independent and accountable body
corporate in the discharge of its mandated responsibilities
concerning money, banking and credit (NCBA, Sec 2). While it is a
government owned corporation it enjoys fiscal and administrative
autonomy
2. MONETARY BOARD AND ITS POWERS AND FUNCTIONS
Monetary Board
It is the body through which the powers and functions of the BSP
are exercised (NCBA, Sec 6).
Powers and functions of the Monetary Board (RASBI)
1. Issue Rules and regulations it considers necessary for the
effective discharge of the responsibilities and exercise of its
powers.
2. Direct the management, operations, and Administration of the
BSP, reorganize its personnel, and issue such rules and
regulations as it may deem necessary or convenient for this
purpose.
3. Establish a human resource management System.
4. Adopt an annual Budget for and authorize such expenditures by
the BSP as are in the interest of the effective administration and
operations of the BSP in accordance with applicable laws and
regulations.
5. Indemnify its members and other officials of the BSP, including
personnel of the departments performing supervision and
examination functions against all costs and expenses reasonably
incurred by such persons in connection with any civil or criminal
action (NCBA, Sec 15).
NOTE: In the event of a settlement or compromise,
indemnification shall be provided only in connection with such
matters covered by the settlement as to which the BSP is advised
by external counsel that the person to be indemnified did not
commit any negligence or misconduct. The costs and expenses
incurred in defending the aforementioned action, suit or
proceeding may be paid by the BSP in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the member, officer, or employee
to repay the amount advanced should it ultimately be determined
by the Monetary Board that he is not entitled to be indemnified as
provided in this subsection (ibid.).
Liabilities of the members of the Monetary Board
Members of the Monetary Board, officials, examiners, and
employees of the BSP who:
1. Willfully violate RA 7653
2. Are guilty of negligence, abuses or acts of malfeasance or
misfeasance or
3. Fail to exercise extraordinary diligence in the performance of his
duties
Shall be held liable for any loss or injury suffered by the BSP or
other banking institutions as a result of such violation, negligence,
abuse, malfeasance, misfeasance or failure to exercise
extraordinary diligence (NCBA, Sec 16).
3. THE BANGKO SENTRAL NG PILIPINAS AND BANKS IN DISTRESS
The BSP and Bank in distress
● Illiquidity
This occurs when the bank is not liquid. It means that the bank
cannot meet its current liabilities. It is handled by
conservatorship.
● Liquidity
It is the ability of an asset to be converted into cash. An entity is
liquid when it is able to pay its liabilities when they fall due.
● Insolvency
This occurs when the actual market value of assets is
insufficient to pay its liabilities, not considering capital stock and
surplus which are not liabilities for such purpose. An entity is
insolvent when it is unable to meet current and long-term
obligations. It is handled by receivership or closure.
How BSP handles banks in distress
In case of a distressed bank, the BSP appoints a conservator or
receiver for closure of the bank.
3.A) CONSERVATORSHIP
Conservator (2006 Bar)
One appointed if the bank is in the state of illiquidity or the bank
fails or refuses to maintain a state of liquidity adequate to protect
its depositors and creditors. The bank still has more assets than its
liabilities but its assets are not liquid or not in cash thus it cannot
pay its obligation when it falls due. The bank, not the BSP, pays for
fees.
❖Powers of a conservator do not extend to the revocation of valid
and perfected contracts
❖ The duration of conservatorship shall not exceed 1 year.
Powers of a conservator (CARe BEAr)
1. Collect all monies and debts due to the said bank
2. To take charge of the Assets, liabilities, and the management
thereof
3. REorganize, the management thereof
4. And such other powers as the monetary Board deems necessary
5. Exercise all powers necessary to restore its viability, with the
power to overrule or revoke the actions of the previous
management and board of directors of the bank or quasi-bank
6. To bring court actions to Assail or Repudiate contracts entered
into by the bank. (First Philippine International Bank v. CA, G.R.
No. 115849, Jan. 24, 1996).
Powers of a conservator do not extend to the revocation of valid and
perfected contracts
The powers of a conservator cannot extend to post facto
repudiation of valid and perfected transactions. Thus, the law
merely gives the conservator power to revoke contracts that are
deemed to be defective- void, voidable, unenforceable or
 rescissible. Hence, the conservator merely takes the place of the
bank’s board. (First Philippine International Bank v. CA, supra.)
Termination of conservatorship
Conservatorship is terminated when the Monetary Board is
satisfied that the bank can operate on its own. BANKING LAWS
363
NOTE: When the Monetary Board, on the basis of the report of
the conservator or of its own findings, determine that the
continuance in business of the institution would involve probable
losses to its depositors or creditors, the bank will go under
liquidation.
3.B) CLOSURE
Grounds for closure of a bank or a quasi-bank
1. Cash Flow test
- Inability to pay liabilities as they become due in the ordinary
course of business (NCBA, Sec. 30 [a], 1997 Bar).
2. Balance sheet test
– Insufficiency of realizable assets to meet its liabilities (NCBA,
Sec 30 [b], 1997 Bar).
3. Inability to continue business without involving probable losses
to its depositors and creditors (NCBA, Sec 30 [c], 1997 Bar).
4. Willful violation of a cease and desist order under Section 37
that has become final, involving acts or transactions which
amount to fraud or a dissipation of the assets (NCBA, Sec 30 [d],
1997 Bar).
5. Notification to the BSP or public announcement of a bank
holiday (GBL, Sec 53).
6. Suspension of payment of its deposit liabilities continuously for
more than 30 days (GBL, Sec 53).
7. Persisting in conducting its business in an unsafe or unsound
manner (GBL, Sec 56).
Close now-hear later doctrine
It is to prevent unwarranted dissipation of the bank’s assets and as
a valid exercise of police power to protect the depositors,
creditors, stockholders and the general public. The law does not
contemplate prior notice and hearing before the bank may be
directed to stop operations and placed under receivership (Central
Bank of the Philippines v. CA, G.R. No. 76118 Mar. 30, 1993).
No prior hearing is necessary in appointing a receiver and in
closing the bank. It is enough that subsequent judicial review is
provided for. Indeed, to require such previous hearings would not
only be impractical but would tend to defeat the very purpose of
the law (Rural Bank of Lucena v. Arca, G.R. No. L-21146,
September 20, 1965).
BSP may order the closure of the bank even without prior hearing.
BSP may rely on the report of either the conservator, receiver or
the head of the supervising and examining department. It is not
required to conduct a thorough audit of the bank before ordering
its closure. The "close now, hear later’’ doctrine justifies BSP in
ordering bank closures even without prior hearing. Thus,
injunction does not lie against BSP in the exercise of the power
and function. A contrary rule may lead to dissipation of assets and
trigger bank run. Judicial review comes only after action of the
Monetary Board if the same was attended with bad faith and
grave abuse of discretion (Bangko Sentral ng Pilipinas v.
Valenzuela, G.R. No. 184778, October 2, 2009).
The closure and liquidation of a bank, which is considered an
exercise of police power may be the subject of judicial inquiry
The validity of such exercise of police power is subject to judicial
inquiry and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust or a denial or due
process and equal protection clauses of the Constitution (Central
Bank v. CA, G.R. No. L-50031-32, July 27, 1981).
The order of closure (receivership or conservatorship) may be
assailed: a) by the stockholders representing at least majority of
the outstanding capital stock; b) within ten days from receipt by
the board of directors of the order; c) thru a petition for certiorari
on the ground that the action taken by the BSP was in excess of
jurisdiction or with grave abuse of discretion as to amount to lack
of jurisdiction.
Under R.A .No. 7653, the power of the Monetary Board (MB) over
banks, including rural banks, was increased and expanded. The
Court, in several cases, upheld the power of the MB to take over
banks without need for prior hearing. It is not necessary inasmuch
as the law entrusts to the MB the appreciation and determination
of whether any or all of the statutory grounds for the closure and
receiver-ship of the erring bank are present. The MB, under R.A.
No. 7653, has been invested with more power of closure and
placement of a bank under receivership for insolvency or
illiquidity, or because the bank’s continuance in business would
probably result in the loss to depositors or creditors.
The doctrine is founded on practical and legal considerations to
obviate unwarranted dissipation of the bank’s assets and as a valid
exercise of police power to protect the depositors, creditors,
stockholders, and the general public. Swift, adequate and
determined actions must be taken against financially distressed
and mismanaged banks by government agencies lest the public
faith in the banking system deteriorate to the prejudice of the
national economy. (Vivas, on his behalf and on behalf of the
Shareholders of Eurocredit Community MERCANTILE LAW 364
Bank v. The Monetary Board of the Bangko Sentral ng Pilipinas,
G.R. No. 191424, August 07, 2013).
Q: Upon maturity of the time deposit, the bank failed to remit. By
reason of punitive action taken by Central Bank, the bank has
been prevented from performing banking operations. Is the bank
still obligated to pay the time deposits despite the fact that its
operations were suspended by the Central Bank?
A: YES, the suspension of operations of a bank cannot excuse non-
compliance with the obligation to remit the time deposits of
depositors which matured before the bank’s closure (Overseas
Bank of Manila v. CA, G.R. No. 45886, April 19, 1989).
Bank not liable to pay interest when closed
As a general rule, the bank is not liable to pay interest on DEPOSIT
once it is closed and ceased operations.
3.C) RECEIVERSHIP
Receiver (2006 Bar)
One appointed if the bank is already insolvent which means that
its liabilities are greater than its assets. The Court has no authority
to appoint a receiver for a bank if the latter will function as such
under BSP law. The power to appoint belongs to BSP.
NOTE: For banks, the receiver would be the Philippine Deposit
Insurance Corporation; for quasi-banks, it could be any person of
recognized competence in banking or finance (NCBA, Sec. 30).
Duties of a receiver
The receiver shall:
 1. Immediately gather and take charge of all the assets and
liabilities of the institution.
2. Administer the same for the benefit of the creditors, and
exercise the general powers of a receiver under the Revised
Rules of Court
3. Not, with the exception of administrative expenditures, pay or
commit any act that will involve the transfer or disposition of
any asset of the institution: Provided that the receiver may
deposit or place the funds of the institution in non-speculative
investments.
4. Within 90 days from the take-over, the receiver shall determine
whether the institution may be rehabilitated or otherwise
placed in such a condition that it may be permitted to resume
business with safety to its depositors and creditors and the
general public
5. If the receiver determines that the institution cannot be
rehabilitated or permitted to resume business, then the
Monetary Board shall notify in writing the board of directors of
the institution of its findings and direct the receiver to proceed
with liquidation of the institution (NCBA, Sec 30).
The insolvency of a bank and the consequent appointment of a
receiver restrict the bank's capacity to act, especially in relation to its
property.
Where upon the insolvency of a bank, a receiver therefor is
appointed, the assets of the bank pass beyond its control into
the possession and control of the receiver whose duty it is to
administer the assets for the benefit of the creditors of the
bank. Thus, the appointment of a receiver operates to suspend
the authority of the bank and of its directors and officers over
its property and effects, such authority being reposed in the
receiver. (Villanueva v. CA, G.R. No. 114870, May 26, 1995)
The receiver is not authorized to transact business in connection
with the bank’s assets and property
A receiver can only perform acts of administration and not acts of
dominion. The receiver cannot approve an option to purchase real
property. He has only the authority to administer the same for the
benefit of its creditors (Abacus Real Estate Development Center,
Inc. v. Manila Banking Corp, G.R. No. 162270, Apr. 6, 2005).
Nature of order of receivership
While resolutions of the Monetary Board forbidding a bank to do
business on account of a condition of insolvency and appointing a
receiver to take charge of the bank’s assets or determining
whether the bank may be rehabilitated or should be liquidated are
by law “final and executory.” However, they can be set aside by
the court on one specific ground - if the action is plainly arbitrary
and made in bad faith. Such contention can be asserted as an
affirmative defense or a counterclaim in the proceeding for
assistance in liquidation (Salud v. Central Bank, G.R. No. L-17630,
August 19, 1986).
3.D) LIQUIDATION
Liquidation of a bank
Acts of liquidation are those which constitute the conversion of
the assets of the banking institution to money or the sale,
assignment or disposition of the same to creditors and other
parties for the purpose BANKING LAWS 365 of paying debts of
such institution (Banco Filipino v. Central Bank, G.R. No. 70054,
December 11, 1991).
Liquidator of a distressed bank can prosecute and defend suits
against the bank
Prosecution of suits, collection and the foreclosure of mortgages
against debtors of the bank by the liquidator are among the usual
and ordinary transactions pertaining to the administration of a
bank (Banco Filipino v. Central Bank, ibid).
A liquidator may foreclose mortgages due to a bank while the issue
of receivership is pending
A liquidator can foreclose mortgages for and in behalf of the bank
even if the issue on receivership and liquidation is still pending
(Supra).
Q: An intra-corporate case was filed before RTC. On the other hand,
another complaint was filed before BSP to compel a bank to
disclose its stockholdings invoking the supervisory power of the
latter. Is there a forum shopping?
A: NONE. The two proceedings are of different nature praying for
different relief. The complaint filed with the BSP was an invocation
of its supervisory powers over banking operations which does not
amount to a judicial proceeding (Suan v. Monetary Board, A.C. No.
6377, March 12, 2007).
Commencement of liquidation proceedings bar the filing of a
separate action or petition to assail the order of closure
Once liquidation proceedings have been initiated, the majority
stockholders of the bank can no longer file a separate action or
petition to assail the order of closure. Instead, issues on validity of
closure should be raised as affirmative defenses in the liquidation
proceeding. This is necessary to prevent multiplicity of suits or
conflicting resolutions (Salud v. Central Bank of the Philippines,
G.R. No. L-17620, August 19, 1986).
Liquidation proceedings may be carried out with or without tax
clearance
Unlike in a voluntary dissolution of a corporation under the
Corporation Code, BSP can liquidate the bank with or without tax
clearance (GBL).
Banks under liquidation by the PDIC as ordered by the Monetary
Board constitute a special case governed by the special rules and
procedures provided under Section 30 of the New Central Bank
Act, which does not require that a tax clearance be secured from
the BIR. Only a final tax return is required to satisfy the interest of
the BIR in the liquidation of a closed bank. It is unreasonable for
the liquidation court to require that a tax clearance be first
secured as a condition for the approval of project of distribution of
a bank under liquidation. (PDIC v. BIR, G.R. No. 172892, June 13,
2013)
Filing of the claims against the insolvent bank
GR: All claims against the insolvent bank should be filed in the
liquidation proceeding. It is not necessary that a claim be initially
disputed in a court or agency before it is filed with the liquidation
court (Ong v. CA, G.R. No. 112830, Feb. 1, 1996).
XPN: Where it is the bank that files a claim against another person
or legal entity, the claim should be filed in the regular courts.
Reason: The judicial liquidation is intended to provide an orderly
mode for payment of all claims. In addition such petition is not in
the nature of a disputed claim against the bank.
Q: Aaron, a well-known architect, is suffering from financial reverses.
He has four creditors with a total claim of P 26 million. Despite his
intention to pay these obligations, his current assets are
insufficient to cover all of them. His creditors are about to sue
 him. Consequently, he was constrained to file a Petition for
Insolvency (Act 1956).
a. Since Aaron was merely forced by circumstances to petition the
court to declare him insolvent, can the judge properly treat the
petition as one for involuntary insolvency. Explain.
b. If Aaron is declared an insolvent by the court, what would be
the effect, if any, of such declaration on his creditors? Explain.
c. Assuming that Aaron has guarantors for his debts, are the
guarantors released from their obligations once Aaron is
discharged from his debts? Explain.
d. What remedies are available to the guarantors in case they are
made to pay the creditors? Explain. (2005 Bar)
A:
a. NO. In involuntary insolvency, it is the creditors who ask for the
declaration of the debtor’s insolvency. In this case, it is the
debtor who filed a petition for insolvency. The fact that Aaron
has the intention to pay his obligations and was just constrained
to file a petition as one for involuntary insolvency. MERCANTILE
LAW 366
b. A declaration of the court that the debtor is insolvent shall have
the following effects: (Sec. 59 of Insolvency Law):
i. All debtor’s assets placed in sheriff custody until a receiver or
assignee has been appointed;
ii. Payment to debtor of any debt due to him, or delivery of any
property due to him, and transfer or conveyance of any
property by him, are forbidden;
iii. Time and place is fixed for a meeting of creditors to select
the assignee in insolvency;
iv. And all civil proceedings against insolvent are stayed
c. NO. By virtue of the doctrine of excussion provided under Art.
2058, the creditor can go against the guarantor after the former
has exhausted all the properties of the principal debtor and has
resorted to all legal remedies against such debtor. In this case,
Aaron has insufficient property to discharge his obligations
prompting him to file a petition for insolvency which stays
claims against him. The fact that Aaron was declared insolvent
permits the creditor to enforce his claim against the guarantor.
d. The guarantor is entitled to be reimbursed by the debtor for the
following:
i. total amount of the debt paid;
ii. legal interest from the time payment was made known to the
debtor;
iii. expenses incurred after notifying debtor that demand to pay
was made upon him; and
iv. damages in accordance with law.
Bank deposits as a rule not preferred credits
The exception is when the deposits are covered by a cashier's
check purchased from the bank when the bank officers knew or
ought to have known that the bank is insolvent (Miranda v. PDIC,
G.R. No. 169334 September 8, 2006).
Rule of promissory estoppel
The BSP may not thereafter renege on its representation and
liquidate the bank after majority stockholders of the bank
complied with the conditions and parted with value to the profit
of CB, which thus acquired additional security for its own
advances, to the detriment of the bank’s stockholders, depositors
and other creditors (Ramos v. Central Bank of the Philippines, G.R.
No. L29352, Oct. 4, 1971).
A final and executory judgment against an insolvent bank may be
stayed
After the Monetary Board has declared that a bank is insolvent
and has ordered it to cease operations, the assets of the insolvent
bank are held in trust for the equal benefit of all creditors. One
cannot obtain an advantage or preference over another by
attachment, execution or otherwise. The final judgment against
the bank should be stayed as to execute the judgment would
unduly deplete the assets of the banks to the obvious prejudice of
other depositors and creditors (Lipana v. Development Bank of
Rizal, G.R. No. L-73884, Sept. 24, 1987).
Q: The Blue Star Corporation filed with the RTC a petition for
rehabilitation on the ground that it foresaw impossibility of paying
its obligations as they fall due. Finding the petition sufficient in
form and substance, the court issued an Order appointing a
rehabilitation receiver and staying the enforcement of all claims
against the corporation. What is the rationale for the Stay Order?
(2006 Bar)
A: The reason behind the indiscriminate suspension or stay order in
relation to the creditors’ claim is to expedite the rehabilitation of
the distressed corporation by enabling the management
committee or the rehabilitation receiver to effectively exercise
its/his powers free from any judicial or extrajudicial interference
that might unduly hinder or prevent the rescue of the debtor
company. It also recognizes the assets of a corporation under
rehabilitation held under trust for the equal benefit of all creditors
under the doctrine equality is equity, whereby all the creditors
ought to stand on equal footing, and not one of them should be
paid ahead of others.
B. GENERAL BANKING LAW OF 2000 (R.A. NO. 8791)
Policy of the state behind the General Banking Act (RA 8791)
The State recognizes the vital role of banks in providing an
environment conducive to the sustained development of the
national economy and the fiduciary nature of banking that
requires high standards of integrity and performance. In
furtherance thereof, the State shall promote and maintain a stable
and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a
developing economy (RA 8791, Sec 2).
1. DEFINITION AND CLASSIFICATION OF BANKS
Bank
A bank is an entity engaged in the lending of funds obtained from
the public in the form of deposits.
Elements for an entity to be considered doing business as a bank
1. The entity is engaged in the lending of funds
2. Funds obtained from the public with at least 20 depositors
3. Funds are in the form of deposits
NOTE: A transaction involving not a loan but purchase of
receivables at a discount within the purview of investing,
reinvesting, or trading in securities which an investment company
may perform is not banking.
Classifications of banks (2002, 2010 Bar)
1. Universal banks
- Primarily governed by the GBL. They can exercise the powers
of an investment house and invest in non-allied enterprises and
have the highest capitalization.
2. Commercial banks
- Ordinary banks governed by the GBL which have a lower
capitalization requirement than universal banks and can neither
exercise the powers of an investment house nor invest in non-
allied enterprises.
3. Thrift banks
- These are
a) Savings and mortgage banks;
b) Stock savings and loan associations; and
c) Private development banks, which are primarily governed by
the Thrift Banks Act (RA 7906).
4. Rural banks
- These are mandated to make needed credit available and
readily accessible in the rural areas on reasonable terms and
which are primarily governed by the Rural Banks Act of 1992
(RA 7353).
5. Cooperative banks
- Banks whose majority shares are owned and controlled by
cooperatives primarily to provide financial and credit services to
cooperatives. It shall include cooperative rural banks. They are
governed primarily by the Cooperative Code (RA 6938).
6. Islamic banks
- Banks whose business dealings and activities are subject to the
basic principles and rulings of Islamic Shari’ a, such as the Al
Amanah Islamic Investment Bank of the Philippines which was
created by RA 6848.
7. Other classification of banks as determined by the Monetary
Board of the BSP
2. DISTINCTION OF BANKS FROM QUASI-BANKS AND TRUST
ENTITIES
Quasi-bank
These are entities engaged in the borrowing of funds through the
issuance, endorsement or assignment with recourse or acceptance
of deposit substitutes for purposes of re-lending or purchasing of
receivables and other obligations (GBL, Sec 4). Unlike banks, quasi-
banks do not accept deposits. Neither are funds obtained insured
with the PDIC.
Trust entities
These are entities engaged in trust business that act as a trustee
or administer any trust or hold property in trust or on deposit for
the use, benefit, or behalf of others (GBL, Sec. 79). A bank does
not act as a trustee.
Financial intermediaries
Persons or entities whose principal functions include the lending,
investing, or placement of funds on pieces of evidence 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.
Pawnshops are non-bank financial intermediaries
Q: First Planters Pawnshop, Inc. (Pawnshop) contests the deficiency
value-added and documentary stamp taxes imposed upon it by
the Bureau of Internal Revenue (BIR) for the year 2000. The core
of petitioner's argument is that it is not a lending investor within
the purview of Section 108(A) of the National Internal Revenue
Code (NIRC), as amended, and therefore not subject to value-
added tax (VAT). Is Pawnshop’s contention correct?
A: NO. The tax treatment of pawnshops as non-bank financial
intermediaries is not without basis. Financial intermediaries are
defined as 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. It need not be elaborated that
pawnshops are non-banks/banking institutions. Moreover, the
nature of their business activities partakes that of a financial
intermediary in that its principal function is lending.
That pawnshops are to be treated as non-bank financial
intermediaries is further bolstered by the fact that pawnshops are
under the regulatory supervision of the Bangko Sentral ng Pilipinas
and covered by its Manual of Regulations for Non-Bank Financial
Institutions. (First Planters Pawnshop, Inc. v. CIR, G.R. No. 174134,
July 30, 2008)
Deposit substitutes
It is an alternative form of obtaining funds from the public, other
than deposits, through the issuance, endorsement, or acceptance
of debt instruments, for the borrower's own account, for the
purpose of relending or purchasing of receivables and other
obligations. These instruments may include, but need not be
limited to, banker’s acceptances, promissory notes, participations,
certificates of assignment and similar instruments with recourse,
and repurchase agreements.
Q: XYZ Corporation is engaged in lending funds to small vendors in
various public markets. To fund the lending, XYZ Corporation
raised funds through borrowings from friends and investors.
Which statement is most accurate? (2012 Bar)
a. XYZ Corporation is a bank.
b. XYZ Corporation is a quasi-bank.
c. XYZ Corporation is an Investment Company.
d. XYZ is none of the above.
A: b. XYZ Corporation is a quasi-bank
3. NATURE OF BANK FUNDS AND BANK DEPOSITS
Deposit function of banks
The function of the bank to receive a thing, primarily money, from
depositors with the obligation of safely keeping it and returning
the same.
Kinds of deposits between a bank and its depositors
1. As debtor-creditor:
2. Special Kinds of Deposits
a. Demand deposits – all those liabilities of banks which are
denominated in the Philippine currency and are subject to
payment in legal tender upon demand by representation of
checks.
b. Savings deposits – the most common type of deposit and is
usually evidenced by a passbook.
NOTE: The requirement of presentation of passbooks is
required by the Manual of Regulations for Banks. A bank is
negligent if it BANKING LAWS 381 allows the withdrawal
without requiring the presentation of passbook (BPI v. CA, GR
No. 112392, February 29, 2000).
c. Negotiable order of withdrawal account (NOWA) – Interest-
bearing deposit accounts that combine the payable on
 demand feature of checks and investment feature of saving
accounts.
d. Time deposit – an account with fixed term; payment of which
cannot be legally required within such a specified number of
days.
3. As trustee-trustor:
a. Trust account – a savings account, established under a trust
agreement containing funds administered by the bank for the
benefit of the trustor or another person or persons.
4. As agent-principal:
a. Deposit of checks for collection
b. Deposit for specific purpose
c. Deposit for safekeeping
Types of deposit accounts
1. Savings
2. Current
3. Time
Deposit accounts may also be classified as:
1. Individual; or
2. Joint:
a. “And” account – the signature of both codepositors are
required for withdrawals.
b. “And/or” account – either one of the codepositors may
deposit and withdraw from the account without the
knowledge consent and signature of the other.
Joint accounts may be subject of a survivorship agreement
whereby the co-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 (Vitug v. CA, G.R. No. 82027, March 29, 1990).
Anonymous account
GR: Anonymous accounts or those under fictitious names are
prohibited (R.A. 9160 as amended by R.A. 9194; BSP Circular No.
251, July 21, 2000).
XPN: In case where numbered accounts is allowed such as in
foreign currency deposits. However, banks/non-bank financial
institutions should ensure that the client is identified in an official
or other identifying documents (R.A. 6426 as amended, FCDA, Sec.
8).
Nature of a bank deposit
All kinds of bank deposits are loan. The bank can make use as its
own the money deposited. Said amount is not being held in trust
for the depositor nor is it being kept for safekeeping (Tang Tiong
Tick v. American Apothecaries, G.R. No. 43682, March 31, 1938).
Mandamus will not lie in the enforcement of obligations concerning
deposit
All kinds of deposit are loans. Thus, the relationship being
contractual in nature, mandamus cannot be availed of because
mandamus will not lie to enforce the performance of contractual
obligations (Lucman v. Alimatar Malawi, G.R. No. 159794, Dec. 19,
2006).
Contract between banks and depositors is not a trust agreement
The fiduciary nature of the bank-depositor relationship does not
convert the contract between banks and depositors to a trust
agreement. Thus, failure by the bank to pay the depositor is failure
to pay simple loan, and not a breach of trust (Consolidated Bank
and Trust Corp. v. CA, G.R. No. 138569, September 11, 2003).
Nature of safety deposit box
The contract for the use of a safety deposit box should be
governed by the law on lease.
In the case of Sia v. CA and Security Bank and Trust Company and
under the old banking law, a safety deposit box is a special
deposit. However, the new General Banking Law, while retaining
the renting of safe deposit box as one of the services that the bank
may render, deleted reference to depository function (Divina,
Handbook on Philippine Commercial Law).
Q: After procuring a checking account, the depositor issued several
checks. He was surprised to learn later that they had been
dishonored for insufficient funds. Investigation disclosed that
deposits made by the depositor were not credited to its account.
Is the bank liable for damages?
A: YES, the depositor expects the bank to treat his account with
utmost fidelity, whether such account consist only of a few
hundred pesos or of millions. The bank must record every single
transaction MERCANTILE LAW 382 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 the check without good reason,
can cause the depositor not a little embarrassment if not also
financial loss and perhaps even civil and criminal litigation (Simex
Intl. v. CA, G.R. No. 88013, March 19, 1990).
4. DILIGENCE REQUIRED OF BANKS
Nature of banking business and responsibility of banks
The banking system is an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and
commerce, banks have become an ubiquitous presence among
the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble
wage earner has not hesitated to entrust his life’s savings to the
bank of his choice, knowing that they will be safe in its custody
and will even earn some interest for him. The ordinary person,
with equal faith, usually maintains a modest checking account for
security and convenience in the settling of his monthly bills and
the payment of ordinary expenses. As for business entities, the
bank is a trusted and active associate that can help in the running
of their affairs, not only in the form of loans when needed but
more often in the conduct of their day-to-day transactions like the
issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a
few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo and as
promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will deliver it as
and to whomever he directs.
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under
obligations to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their
relationship. (Simex International Inc. v. Court of Appeals, G.R. No.
88013 March 19, 1990 as cited in the case of Land Bank of the
 Philippines vs. Emmanuel Oñate, G.R. No. 192371, January 15,
2014)
Degree of diligence required of banks in handling deposits
Banks are expected to exercise extraordinary diligence in its
dealings with depositors. Consequently, the diligence required of
banks is more than that of a Roman pater familias or a good father
of a family (PCI Bank v Balcameda G.R. No. 158143, September 21,
2011).
Q: FFCCI opened a savings/current and dollar savings account PNB at
its Timog Avenue Branch. Its President Felipe and
SecretaryTreasurer Angelita were the named signatories for the
said accounts. While Felipe and Angelita were thus out of the
country, applications for cashiers and managers checks bearing
Felipe’s signature were presented to and both approved by the
PNB. When Angelita returned to the country, she noticed the
deductions of P9,950,000.00 and P3,260,500.31. Claiming that
these were unauthorized and fraudulently made, FFCCI requested
PNB to credit back and restore to its account the value of the
checks. PNB refused, and thus constrained [FFCCI] filed the instant
suit for damages against the PNB and its own accountant Aurea
Caparas. On its part, PNB alleged that it exercised due diligence in
handling the account of FFCCI; that the applications for managers
check have passed through the standard bank procedures and it
was only after finding no infirmity that these were given due
course; that In fact, it was no less than Caparas, the accountant of
FFCCI, who confirmed the regularity of the transaction. Is PNB
guilty of negligence in handling FFCCI’s account?
A: As between a bank and its depositor, where the bank’s negligence
is the proximate cause of the loss and the depositor is guilty of
contributory negligence, the greater proportion of the loss shall be
borne by the bank. The bank was negligent because it did not
properly verify the genuineness of the signatures in the
applications for manager’s checks while the depositor was
negligent because it clothed its accountant/bookkeeper with
apparent authority to transact business with the Bank and it did
not examine its monthly statement of account and report the
discrepancy to the Bank. The court allocated the damages
between the bank and the depositor on a 60-40 ratio (Philippine
National Bank v. FF Cruz and Company, G.R. No. 173259, July 25,
2011, in Divina, 2014).
Degree of diligence required of banks with its other dealings
The diligence more than that of a Roman pater familias only
applies only to cases where banks act under their fiduciary
capacity, that is, as depositary of the deposits of their depositors.
The same degree of diligence is not expected to be exerted by
banks in commercial transactions (Reyes v CA G.R. No. 118492.
August 15, 2001).
Q: On Oct. 10, 2002, a check in the amount of P1,000,000.00 payable
to MMGI was presented for deposit and accepted at petitioner’s
Kawit Branch. The check, post-dated “Oct. 9, 2003”, was drawn
against the account of Silva with BPI Bel-Air Branch. MERCANTILE
LAW 380 The check was cleared by BPI and ABC credited the
account of MMGI with P1,000,000.00. On Oct. 22, 2002, MMGI’s
account was closed and all the funds therein were withdrawn. A
month later, Silva discovered the debit of P1,000,000.00 from his
account. In response to Silva’s complaint, BPI credited his account
with the aforesaid sum.
On March 21, 2003, respondent returned a photocopy of the
check to petitioner for the reason: “Postdated.” Petitioner,
however, refused to accept and sent back to respondent a
photocopy of the check. Thereafter, the check, or more accurately,
the Charge Slip, was tossed several times from ABC to BPI, and
back to ABC, until on May 6, 2003, BPI requested the PCHC to take
custody of the check. Acting on the request, PCHC directed BPI to
deliver the original check and informed it of PCHC’s authority
under CHOM No. 279 dated 06 September 1996 to split 50/50 the
amount of the check subject of a “Ping-Pong” controversy which
shall be implemented thru the issuance of Debit Adjustment
Tickets against the outward demands of the banks involved. PCHC
likewise encouraged respondent to submit the controversy for
resolution thru the PCHC Arbitration Mechanism. The latter
rendered its Decision in favor of ABC and against BPI. Respondent
filed a motion for reconsideration14 but it was denied by the
PCHC Board of Directors. The RTC affirmed with modification the
Arbitration Committee’s decision. By its Decision, the CA set aside
the RTC judgment and ruled for a 60-40 sharing of the loss as it
found petitioner guilty of contributory negligence in accepting
what is clearly a post-dated check.
A: A collecting bank is guilty of contributory negligence when it
accepted for deposit a postdated check notwithstanding that said
check had been cleared by the drawee bank which failed to return
the check within the 24-hour reglementary period. The collecting
bank which accepted a postdated check for deposit and sent it for
clearing and the drawee bank which cleared and honored the
check are both liable to the drawer for the entire face value of the
check (Allied Banking Corporation v. Bank of the Philippine Islands,
G.R. No. 188363, February 27, 2013, in Divina, 2014).
Being a banking institution, DBP, the mortgagee, owed it to
Guariña Corporation to exercise the highest degree of diligence, as
well as to observe the high standards of integrity and performance
in all its transactions because its business was imbued with public
interest. Yet, the bank failed in its duty to exercise the highest
degree of diligence by prematurely foreclosing the mortgages and
unwarrantedly causing the foreclosure sale of the mortgaged
properties despite the mortgagor not being yet in default (DBP V.
Guariña Agricultural and Realty Development Corporaiton,G.R. No.
160758, January 15, 2014, in Divina, 2014).
Effect when the teller gave the passbook to a wrong person
Banks must exercise a high degree of diligence in insuring that
they return the passbook only to the depositor of his authorized
representative. For failing to return the passbook to authorized
representative of the depositor, the bank presumptively failed to
observe such high degree of diligence in safeguarding the
passbook and insuring its return to the party authorized to receive
the same.
However, a bank’s liability may be mitigated by the depositor’s
contributory negligence such as allowing a withdrawal slip signed
by authorized signatories to fall into the hands of an impostor
(Consolidated Bank and Trust Corporation v. CA, GR No, 138569,
September 11, 2003).
The bank is liable when an employee encashed a check without the
required indorsement
The fiduciary nature of the relationship between the bank and the
depositors must always be of paramount concern (Philippine
Savings Bank v. Chowking, G.R. No. 177526, July 4, 2008).
5. PROHIBITED TRANSACTIONS BY BANK DIRECTORS AND OFFICERS
6. STIPULATION ON INTERESTS
Rules on stipulation of interests
OLD RULE 3.3. Trust accounts are included in the scope of the law.
1. Central Bank Circular 416
- 12% per annum in cases of: Meaning of the phrase "of whatever nature and kind"
a. Loans R.A.1405 is no longer limited to deposits governed by the law on
b. Forbearance of money, goods and credits loans giving rise to creditor-debtor relationship but it covers fund
c. Judgment involving such loan or forbearance, in the absence of of whatever nature so long as the bank may use and utilize it in
express agreement as to such rate of interest authorized loans.
2. Interest accruing from unpaid interest
- interest due shall earn interest from the time it is judicially Trust funds covered by the term “deposit”
demanded although the obligation may be silent upon this point. The money deposited under the trust agreement (“Trust
account”) is intended not merely to remain with the bank but to
be invested by it elsewhere. To hold that this type of account is
not protected by R.A. 1405 would encourage private hoarding of
NEW RULE funds that could otherwise be invested by banks in other ventures,
Through Circular No. 799, the Monetary Board declared that contrary to the policy behind the law (Ejercito v. Sandiganbayan,
effective July 1, 2013 the rate of interest for the loan or G.R. No. 157294-95, November 30, 2006).
forbearance of any money, goods or credits and the rate allowed
in judgments, in the absence of an express contract as to such rate NOTE: Despite such pronouncement that trust funds are
of interest, shall be 6% per annum (Section 1, Circular 799, Series considered deposits, trust funds remain not covered by PDIC.
of 2013 amending Section 2 of Circular No. 905, Series of 1982).
Confidentiality granted by RA 1405 does NOT extend to Letters of
This means that if the parties fail to state in writing the interest Credit and Trust Receipts
payable on any of the transactions mentioned, or on account of a The confidentiality granted by the law does NOT extend to other
court judgment involving a related money claim, the imposable documents and records like L/C’s, TR’s, bank drafts and promissory
interest is 6% every year. notes (Opinion of the Secretary of Justice No. 5, Series of 1982;
Opinion of the Secretary of Justice No. 126, Series of 1989).
A bank forbidden by Central Bank to do business is NOT obligated to
pay interest on deposit 4. EXCEPTIONS FROM COVERAGE
A bank lends money, engages in international transactions,
acquires foreclosed mortgaged properties or their proceeds and
generally engages in other banking and financing activities in
order that it can derive income therefrom. Therefore, unless a
bank can engage in those activities from which it can derive
income, it is inconceivable how it can carry on as a depository
obligated to pay interest on money deposited with it (Fidelity &
Savings and Mortgage Bank v. Cenzon, G.R. No. L46208, April 5,
1990).
C. SECRECY OF BANK DEPOSITS (R.A. NO. 1405, AS AMENDED, AND
R.A. NO. 6426, AS AMENDED)
1. PURPOSE
The purposes of RA 1405 are:
1.1. Encourage deposit in banking institutions; and
1.2. Discourage private hoarding so that banks may lend such funds
and assist in the economic development of the country

2. PROHIBITED ACTS
The following are the prohibited acts in RA 1405:
2.1. Examination/inquiry/looking into all deposits of whatever nature
with banks or banking institutions in the Philippines (including
investment in bonds issued by the government) by any person,
government official or office (RA 1405, Sec. 2).
2.2. Disclosure by any official or employee of any banking institution
to any unauthorized person of any information concerning said
deposit (RA 1405, Sec. 3).

The prohibition is not absolute. The rule allows several exceptions,

carved out by special laws and jurisprudence: (di ko mahanap
kasunod)

3. DEPOSITS COVERED
3.1. All deposits of whatever nature with banks or banking
institutions found in the Philippines; or
3.2. Investments in bonds issued by the Philippine government, its
branches, and institutions. (R.A. 1405, Sec. 2)
Instances where examination or disclosure of information about
deposits can be allowed MERCANTILE LAW 370 (1990-1992, 1994,
1995, 1997, 1998, 2000, 2001, 2004-2006 Bar)
1. Upon written consent of the depositor (RA 1405,Sec. 2)
2. In cases of impeachment (ibid)
3. Upon order of competent court in cases of bribery or dereliction
of duty of public officials (ibid)
4. In cases where the money deposited or invested is the subject
matter of the litigation (ibid)
5. Upon order of the Commissioner of Internal Revenue in respect of
the bank deposits of a decedent for the purpose of determining
such decedent’s gross estate (NIRC, Sec. 6[F][1])
6. Upon the order of the Commissioner of Internal Revenue in
respect of bank deposits of a taxpayer who has filed an application
for compromise of his tax liability by reason of financial incapacity
to pay his tax liability (ibid)
7. The Commissioner of Internal Revenue is authorized to inquire
into bank deposits of a specific taxpayer upon request for tax
information from a foreign tax authority pursuant to an
international convention or agreement on tax matters to which
the Philippines is a party (ibid)
8. In case of dormant accounts/deposits for at least 10 years under
the Unclaimed Balances Act (Act No. 3936, Sec. 2)
9. The prohibition against examination of bank deposit does not
preclude its garnishment to satisfy a judgment against the
depositor (Oñate v. Abrogar, G.R. No. 107303, February 21, 1994)
10. Presidential Commission on Good Government (PCGG) may
require the production of bank records material to its investigation
(Opinion of the Secretary of Justice, February 27, 1987)
11. The Anti-Money Laundering Council (AMLC) may inquire into any
deposit with any bank in case of violation of the RA 9160 or the
AMLA if there is probable cause that it is related to an unlawful
activity (RA 9160, as amended, Sec. 11)
12. The PDIC and the BSP may examine deposit accounts and all
information related to them in case of a finding of unsafe or
unsound banking practices (RA 3591, as amended, Sec. 8)
13. With court order:
a. In cases of unexplained wealth under Sec. 8 of the Anti-Graft
and Corrupt Practices Act (PNB v. Gancayco, L-18343,
September 30, 1965)
b. In cases filed by the Ombudsman and upon the latter’s
authority to examine and have access to bank accounts and
records (Marquez v. Desierto, GR 138569, September 11, 2003)
14. Without court order: If the AMLC determines that a particular
deposit or investment with any banking institution is related to the
following (HK-MADS):
a. Hijacking,
b. Kidnapping,
c. Murder,
d. Destructive Arson, and
e. Violation of the Dangerous Drugs Act.
f. Acts of Terrorism or in violation of Human Security Act.
15. In case the law is repealed, superseded or modified by any law to
the contrary.
Q: The Bank Secrecy Law (RA 1405) prohibits disclosing any
information about deposit records of an individual without court
order except –
a. in an examination to determine gross estate of a decedent.
b. in an investigation for violation of Anti-Graft and Corrupt
Practices.
c. in an investigation by the Ombudsman.
d. in an impeachment proceeding (2012 Bar)
A: C. In order that the Ombudsman may inspect a bank deposit:
1. there must be a case pending in court,
2. the account must be clearly identified,
3. the inspection must be limited to the subject matter of the
pending case,
4. the inspection may cover only the account identified, and
5. the bank personnel and the account holder must be notified to
be present during the inspection (Marquez v. Desierto, G.R. No.
135882, June 27, 2001; Office of the Ombudsman v. Ibay, G.R.
No. 137538, September 3, 2001).
Q: GP is suspected jueteng lord who is rumored to be enjoying police
and military protection. The envy of many drug lords who had not
escaped the dragnet of the law, GP was summoned to a hearing of
the Committee on Racketeering and Other Syndicated Crimes of
the House of Representatives, which was conducting
congressional investigation-in aid of legislation on the involvement
of police and military personnel, and possibly even of local
government officials, in the illegal activities of suspected gambling
and drug lords. Subpoenaed to attend the investigation were
officers of certain identified banks with a directive to them to
bring the records and documents of bank deposits of individuals
mentioned in the subpoenas, among them GP. BANKING LAWS
371 GP and the banks opposed the production of the bank records
of deposits on the ground that no such inquiry is allowed under
the Law on Secrecy of Bank Deposits (R.A. 1405 as amended). Is
the opposition of GP and the banks valid? Explain. (2010 Bar)
A: YES. The opposition is valid. GP is not a public official. The
investigation does not involve one of the exceptions to the
prohibition against the disclosure of any information concerning
bank deposits under the Law on Secrecy of Bank Deposits. The
Committee conducting the investigation is not a competent court
or the Ombudsman authorized under the law involving such
disclosure.
Q: An insurance company is deluded into releasing a check to A for
P35th o pay for Treasury Bills (T-Bills) which A claims to be en
route on board an armored truck from a government bank. The
check is delivered to A who deposits it to his account with XYZ
bank before the insurance company realizes it as a scam. Upon
such realization, the insurance company files an action against A
for recovery for the amount defrauded and obtains a writ of
preliminary attachment. In addition to the writ, the Bank is also
served a subpoena to examine the account records of A. The Bank
declines to provide any information in response to the writ and
moves to quash subpoena in invoking secrecy of bank deposits
under R.A. 1405 and a) not respond to the writ b) quash the
subpoena for examination? (1998 Bar)
A: YES. Whether the transaction is considered a sale of money
placement does not make the money subject matter of litigation
within the meaning of Section 2 of R.A. 1405 which prohibits the
disclosure or inquiry into bank deposits except “in cases where the
money deposited or invested is the subject matter of litigation”
nor will it matter whether the money was “swindled”.
Foreign currency deposits
Foreign currency deposits are covered by R.A. 6426 otherwise
known as the “Foreign Currency Deposits Act”.
Secrecy of foreign currency deposits
GR: Foreign currency deposits cannot be inquired or looked into.
All foreign currency deposits are absolutely confidential (RA 6426,
Sec. 8).
RA 6426 is a special law designed especially for foreign currency
deposits in the Philippines. RA 1405 which covers all bank deposits
in the Philippines is the general law which does not nullify the
 special law on foreign currency deposits. The surety which issued
a bond to secure the obligation of the principal debtor cannot
inquire into the foreign currency deposits of the debtor even if its
purpose is to determine whether or not the loan proceeds were
used for the purpose specified in the surety agreement. The
foreign currency deposits cannot be examined without the written
consent of the depositor. The subpoena issued by the bank should
be quashed because foreign currency deposits are not subject to
court order except for violation of the anti-money laundering law
(GSIS v. Court of Appeals GR 189206, June 8, 2011, in Divina,
2014).
XPNs:
1. The depositor has given his written permission (ibid.)
2. Where the funds deposited in a joint foreign currency savings
account belonged exclusively to one of the depositors and were
held in trust for him by the other depositor and the other
depositor unilaterally closed the joint account and transferred
the funds to her personal account, the latter cannot invoke the
exemption from court processes under RA 6426 because she is
not the owner of the deposit in the account. Consequently, the
depositor who owned the funds can have her enjoined from
making withdrawals from her personal account (Van Twest v.
Court of Appeals, G.R. No. 106235, February 10, 1994).
3. A father who sued his daughter for illegally withdrawing funds
from his foreign currency deposit and transferring to another
bank in the name of her sister, can inquire into the deposit of
the sister, because the money deposited belongs to him (China
Banking Corp. v. CA, G.R. No. 140687, December 18, 2006).
4. The exemption from court process of foreign currency deposits
under RA 6426 cannot be invoked by a foreign transient who
raped a minor, escaped and was held liable for damages to the
victim. The garnishment of his foreign currency deposit should
be allowed to prevent an injustice and for equitable grounds.
The law was enacted to encourage foreign currency deposit and
not to benefit a wrongdoer (Salvacion v. Central Bank of the
Philippines, G.R. No. 94723, August 21, 1997).
5. The Commissioner of Internal Revenue is authorized to inquire
into bank deposits of the following: a. A decedent to determine
his estate; and b. Any taxpayer who has filed for an application
for compromise of his tax liability MERCANTILE LAW 372 c. A
specific taxpayer upon request for tax information from a
foreign tax authority pursuant to an international convention or
agreement on tax matters to which the Philippines is a party.
(NIRC, Sec. 6 [f])
6. AMLC may inquire into any deposit with a bank or financial
institution in case of violation of RA 9160 if there is probable
cause that it is related to an unlawful activity (RA 9160, Sec. 11).
7. Upon ex parte application by a law enforcer authorized by the
Anti-Terrorism Council, the justices of the CA designated as
special court to handle anti-terrorism cases may authorize the
examination of deposits in a financial institution upon finding
probable cause of the commission of terrorism or conspiracy to
commit terrorism (RA 9372, Sec. 27-28).
8. PDIC and BSP may examine deposit accounts and all information
related to them in case of a finding of unsafe or unsound
banking practices (RA 3591, as amended, Sec. 8).
9. AMLC can investigate (a) any property of funds related to
financing terrorism; (b) property or funds of any person if there
is probable cause to believe he is committing or attempting or
conspiring to commit terrorism or financing terrorism (RA
10168, Sec. 10).
Q: Michael withdrew without authority funds of the partnership in
the amounts of P500th and US$50th for services he claims
rendered for the benefit of the partnership. He deposited the P
500th in his personal peso current account with Prosperity Bank
and the US$50th in his personal foreign currency savings account
with Eastern Bank. The partnership instituted an action in court
against Michael, Prosperity, and Eastern to compel Michael to
return the subject funds to the partnership and pending litigation
to order both banks to disallow any withdrawal from his accounts.
At the initial hearing of the case, the court ordered Prosperity to
produce the records of his Michael’s peso current account and
Eastern to produce the records of his foreign currency savings
account. Can the court compel Prosperity and Eastern to disclose
the bank deposits of Michael? Discuss fully. (1995 Bar)
A: YES, with regard to Michael’s peso current account. This is
pursuant to Section 2 of RA 1405 which allows the disclosure of
bank deposits in case where the money deposited is the subject
matter of litigation. However with regard to his foreign currency
savings account, the disclosure cannot be allowed. Pursuant to the
Foreign Currency Law, the exemption to the prohibition against
disclosure of information concerning foreign bank deposits is to
acquire the written consent of the depositor.
Q: A, an individual, secured a loan from XYZ Company. C, a surety
company, issued a bond to further secure the obligation. A has
dollar deposits with ABC Bank. Can C inquire to ABC Bank about
the foreign currency deposits of A to determine whether or not
the loan proceeds were used for the purpose specified in their
surety agreement?
A: NO. The surety company which issued the bond cannot inquire
into the foreign currency deposits. It cannot be examined without
the consent of the depositor except in certain situations like
violation of anti-money laundering law (GSIS v. CA, G.R. No.
189206, June 8, 2011).
Q: X, a private individual, maintains a dollar deposit with ABC Bank. X
is suspected to be the leader of a Kidnap for Ransom Gang and he
is suspected of depositing all ransom money in said deposit
account which are all in US Dollars. The police want to open said
account to know if there are really deposits in big amounts. Which
statement is most accurate?
a. The same rules under Secrecy of Bank Deposit Act will apply.
b. An approval from the Monetary Board is necessary to open the
account.
c. Because the deposit is in US Dollars, it is covered by the Foreign
Currency Deposit Act which allows disclosure only upon the
written permission of the depositor.
d. Approval from the Court is necessary to order disclosure of the
account (2012 Bar).
A: C. The deposit, being in US Dollars, is covered by the Foreign
Currency Deposit Act which allows disclosure only upon the
written permission of the depositor.
A bank can be compelled to disclose the records of the accounts of a
depositor under the investigation for unexplained wealth
Since cases of unexplained wealth are similar to cases of bribery
and dereliction of duty, no reason is seen why it cannot be
excepted from the rule making bank deposits confidential. In this
connection, inquiry into illegally acquired property in anti-graft
cases extends to cases where such property is concealed by being
held or recorded in the name of other persons. This is also
because the Anti-Graft and Corrupt Practices Act, bank deposits
shall be taken into consideration in determining whether or not a
public officer has acquired property manifestly out of proportion
with his lawful income (PNB v. Gancayco, G.R. No. L-18343,
September 30, 1965).
In an action filed by the bank to recover the money transmitted by
mistake, the bank is allowed to present the accounts which it
believed were responsible for the acquisition of the money
RA 1405 allows the disclosure of bank deposits in cases where the
money deposited is the subject matter of litigation. In an action
filed by the bank to recover the money transmitted by mistake,
necessarily, an inquiry into the whereabouts of the amount
extends to whatever is concealed by being held or recorded in the
name of the persons other than the one responsible for the illegal
acquisition.
Q: Socorro received $10,000 from a foreign bank although she was
entitled only to $1,000. In an apparent plan to conceal
erroneously sent amount, she opened a dollar account with her
local bank, deposited $ 10,000 and issued 4 checks in the amount
of $2,000 and 1 check for $1,000 each payable to different
individuals who deposited the same in their respective dollar
accounts with different local banks. The sender bank then brought
a civil suit before the RTC for the recovery of erroneously send
amount. In the course of trial, the sender presented testimonies of
bank officials to show that the funds were, in fact, deposited in a
bank by Socorro and paid out to several persons, who participated
in the concealment and dissipation of the amount that Socorro
had erroneously received. Socorro moved to strike out the
testimonies from the record invoking the law on secrecy of bank
deposits. If you were the Judge, would you issue and order to
strike them out? Why? (1992 Bar)
A: If I am the judge I would not issue an order to strike them out. The
testimonies of the bank officials showing that the funds were in
fact deposited in a bank by Socorro and paid out to several
persons, who participated in the concealment and dissipation of
the amount that Socorro had erroneously received, were
presented in the course of the trial. Therefore, the said
testimonies must be considered as involved in the litigation. In the
case of Mellon Bank v. Magsino, G.R. No. 71479, October 18, 1990,
it was held that R.A. 1405 allows the disclosure of bank deposits in
cases where the money deposited is the subject matter of
litigation. In an action filed by a bank to recover money it
transmitted by mistake, necessarily, an inquiry to its whereabouts
of the amount extends to whatever concealed by, being held or
recorded in the name of the persons other than the one
responsible for illegal acquisition. Hence, in the case at bar, the
disclosure should be allowed and it should not be subject to an
order to strike out.
Q: The Law in Secrecy of Bank Deposits provides that all deposits of
whatever nature with banks or banking institutions are absolutely
confidential in nature and may not be examined, inquired or
looked into by any person, government official, bureau or office.
However, the law provides exceptions in certain instances. Which
of the following may not be among the exceptions:
1. In cases of impeachment
2. In cases involving bribery
3. In cases involving BIR inquiry
4. In cases of anti-graft and corrupt practices
5. In cases where the money involved is the subject of litigation.
Explain your answer or choice briefly (2004 Bar)
A: Under Section 6 (F) of the NIRC, the CIR can inquire into the
deposits of a decedent for the purpose of determining the gross
estate of such decedent. Apart from this case, a BIR inquiry into
bank deposits cannot be made. Thus, exception 3 may not be
always applicable. Turning to exception 4, an inquiry into bank
deposits is possible only in prosecutions for unexplained wealth
under the Anti-Graft and Corrupt Practices Act, according to the
Supreme Court in the cases of Philippine National Bank v.
Gancayco, G.R. No. L-18343, September 30, 1965 and Banco
Filipino Savings and Mortgage Bank v. Purisima, G.R. No. L-56429,
May 28, 1988. However, all other cases of anti-graft and corrupt
practices will not warrant an inquiry into bank deposits. Thus,
exception 4 may not always be applicable. Like any other
exception, it must be interpreted strictly. Exceptions 1, 2 and 5, on
the other hand, are provided expressly in the Law on Secrecy of
Bank Depositors. They are available to depositors at all times.
Q: Miguel, a special customs agent is charged before the
Ombudsman with having acquired property out of proportion to
his salary, in violation of the Anti-Graft and Corrupt Practices Act.
The Ombudsman issued a subpoena duces tecum to the Banco De
Cinco commanding its representative to furnish the Ombudsman
records of transactions by or in the name of Miguel, his wife and
children. A second subpoena was issued expanding the first by
including the production of records of friends of Miguel in said
bank and in all its branches and extension offices, specifically
naming them, Miguel moved to quash the subpoenas arguing that
they violate the Secrecy of Bank Deposits Law. In addition, he
contends that the subpoenas are in the nature of - fishing
MERCANTILE LAW 374 expedition or general warrants and are
constitutionally impermissible with respect to private individuals
who are not under investigation. Is Miguel’s contention tenable?
A: NO. The contention of Miguel is not tenable. In the case of Banco
Filipino v. Purisima, it was held that the inquiry into illegally
acquired property-or property not legitimately acquired- extends
to cases where such property is concealed by being held or
recovered in the name of other persons. This proposition is made
clear by RA 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 have to
do would be to simply place the property in possession or name of
persons other than their spouse and unmarried children. This is an
absurdity that we will not ascribe to the lawmakers.
5. GARNISHMENT OF DEPOSITS, INCLUDING FOREIGN DEPOSITS
Garnishment of a bank deposit does not violate the law
The prohibition against examination or inquiry 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, January
28, 1991).
Garnishment of foreign currency deposits
GR: Foreign currency deposits shall be exempt from attachment,
garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body
whatsoever (RA 6426, Sec 8).
XPN: The application of Sec. 8 of RA 6426 depends on the extent
of its justice. The garnishment of a foreign currency deposit should
be allowed to prevent injustice and for equitable grounds,
otherwise, it would negate Article 10 of the New Civil Code which
provides that “in case of doubt in the interpretation or application
 of laws, it is presumed that the lawmaking body intended right
and justice to prevail (Salvacion v. Central Bank of the Philippines,
G.R. 94723, August 21, 1997).

The foreign currency deposit of a transient foreigner who illegally

detained and raped a minor Filipina can be garnished to satisfy the
award for damages to the victim
The exemption from garnishment of foreign currency deposits
under R.A. 6426 cannot be invoked to escape liability for the
damages to the victim. The garnishment of the transient
foreigner’s foreign currency deposit should be allowed to prevent
injustice and for equitable grounds. The law was enacted to
encourage foreign currency deposit and not to benefit a
wrongdoer (Salvacion v. Central Bank of the Philippines, G.R.
94723, August 21, 1997).

Penalties for violation of R.A. 1405

1. Imprisonment of not more than five (5) years
2. Fine of not more than P20,000.00
3. Both, in the discretion of the court (RA 1405, Sec. 5).

Q: R.A. 6832 creating a Commission to conduct a Thorough Fact-

Finding Investigation of the failed Coup d’etat of December 1989,
recommend measures to prevent the occurrence of similar
attempts at a violent seizure of power and for other purposes,
provides that the Commission may ask the Monetary Board to
disclose information on and/or to grant authority to examine any
bank deposits, trust or investment funds, or banking transactions
in the name of and/or utilized by a persons, natural or juridical,
under investigation by the Commission, in any bank or banking
institution in the Philippines, when the Commission has
reasonable ground to believe that said deposits, trust or
investment funds, or banking transactions have been used in
support or in furtherance of the objectives of the said coup d’etat.
Does the above provision not violate the Law on Secrecy of Bank
Deposits (R.A. 1405)? (1991 Bar)
A: The above provision does not violate RA 1405 because the
enactment of RA 6832 is valid exercise of police power. RA 1405 is
in itself a statutory enactment which can be validly modified,
amended or repealed by a subsequent law. The Secrecy of Bank
Deposits Act did not amount to a contract between the depositors
and depository banks within the meaning of the non-impairment
clause of BANKING LAWS 375 the Constitution. Even if it did, the
police power of the State is superior to the non-impairment
clause.

D. ANTI-MONEY LAUNDERING ACT (R.A. NO. 9160, AS AMENDED

BY R.A. NO. 9194, 10167, 10365, 10927, AND 11521)
1. POLICY
1.1. 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.
1.2. To pursue the State’s foreign policy to extend cooperation in
transnational investigation and prosecutions of persons
involved in money laundering activities wherever committed.
(RA 9160, Sec. 1)

2. COVERED INSTITUTIONS AND THEIR OBLIGATIONS

Covered Institutions any of the following services
RA 9160, as amended by RA RA 10365, amending RA 9160 to third parties:
9194 and 10167 (Amendments and New 7. acting as a formation agent
Provisions) of juridical persons; acting as
Covered institution refers to: NOTE: Covered “Institutions” (or arranging for another
was changed to Covered person to act as) a director
1.banks, non-banks, quasi- “Persons” or corporate secretary of a
banks, trust entities, and all company, a partner of a
other institutions and their Covered persons, natural or partnership, or a similar
subsidiaries and affiliates juridical, refer to: position in relation to other
supervised or regulated by 1. banks, non-banks, quasi- juridical persons; providing a
the Bangko Sentral ng banks, trust entities, foreign registered office, business
Pilipinas (BSP); exchange dealers, address or accommodation,
2. Insurance companies and all pawnshops, money correspondence or
other institutions supervised changers, remittance and administrative address for a
or regulated by the Insurance transfer companies and company, a partnership or
Commission; and other similar entities and all any other legal person or
3. (i) securities dealers, other persons and their arrangement; and acting as
brokers, salesmen, subsidiaries and affiliates (or arranging for another
investment houses and supervised or regulated by person to act as) a nominee
other similar entities the Bangko Sentral ng shareholder for another
managing securities or Pilipinas (BSP); person; and
rendering services as 2. insurance companies, pre- 8. persons who provide any of
investment agent, advisor, need companies and all the following services:
or consultant, other persons supervised or (i) managing of client money,
(ii) mutual funds, close and regulated by the Insurance securities or other assets;
investment companies, Commission (IC); (ii) management of bank,
common trust funds, 3. (i) securities dealers, savings or securities
preneed companies and brokers, salesmen, accounts;
other similar entities, investment houses and (iii) organization of
(iii) foreign exchange other similar persons contributions for the
corporations, money managing securities or creation, operation or
changers, money payment, rendering services as management of companies;
remittance, and transfer investment agent, advisor, and
companies and other or consultant, (iv) creation, operation or
similar entities, and (ii) mutual funds, close-end management of juridical
(iv) other entities investment companies, persons or arrangements,
administering or otherwise common trust funds, and and buying and selling
dealing in currency, other similar persons, and business entities.
commodities or financial (iii) other entities
derivatives based thereon, administering or otherwise Exclusions: The term ‘covered
valuable objects, cash dealing in currency, persons’ shall exclude lawyers
substitutes and other commodities or financial and accountants
similar monetary derivatives based thereon,
instruments or property valuable objects, cash Requisites for exclusion
supervised or regulated by substitutes and other 1. Acting as independent legal
Securities and Exchange similar monetary professionals
Commission (SEC). instruments or property 2. In relation to information
supervised or regulated by concerning their clients or
the Securities and Exchange 3. Where disclosure of
Commission (SEC); information would
4. jewelry dealers in precious compromise client
metals, who, as a business, confidences or the attorney-
trade in precious metals, for client relationship. (RA
transactions in excess of One 10365, Sec. 1, amending RA
million pesos 9160, Sec. 3[a]).
(P1,000,000.00);
5. jewelry dealers in precious Obligations of covered institutions
stones, who, as a business, RA 9160, as amended by RA RA 10365, amending RA 9160
trade in precious stones, for 9194 and 10167 (Amendments and New
transactions in excess of One Provisions)
million pesos 1. Customer Identification 1. (same; not amended)
(P1,000,000.00); - Covered institutions shall 2. (same; not amended)
6. company service providers establish and record the true 3. Reporting of Covered and
which, as a business, provide
 identity of its clients based
on official documents. They
shall maintain a system of
verifying the true identity of
their clients and, in case of
corporate clients, require a
system of verifying their legal
existence and organizational
structure, as well as the
authority and identification
of all persons purporting to
act on their behalf. 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.
2. 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.
3. Reporting of Covered and
Suspicious Transactions
- Covered institutions shall
report to the AMLC all
covered transactions and
suspicious transactions
within five(5) working days
from occurrences thereof,
unless the Supervising
Authority prescribes a longer
period not exceeding ten
(10) working days.
"Should a transaction be
determined to be both a
covered transaction and a
suspicious transaction, the
covered institution shall be
required to report the same as
a suspicious transaction.
When reporting covered or
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.
“x x x
“x x x
“When reporting covered or
suspicious transactions to the
AMLC, covered persons and
their officers and employees
are prohibited from
communicating, directly or
indirectly, in any manner or by
any means, to any person or
entity, the media, the fact that
a covered or suspicious
transaction has been reported
or is about to be reported, the
contents of the report, or any
other information in relation
thereto. Neither may such
reporting be published or aired
in any manner or form by the
mass media”, electronic mail,
or other similar devices. In case
of violation thereof, the
concerned officer and
employee of the covered
person and media shall be held
criminally liable.”(Sec. 7, RA
10365 amending Sec. 9, RA
9160).
3. COVERED TRANSACTIONS
suspicious transactions to the
AMLC, covered institutions and
their officers and employees
shall not be deemed to have
violated Republic Act No. 1405,
as amended, Republic Act No.
6426, as amended, Republic
Act No. 8791 and other similar
laws, but are prohibited from
communicating, directly or
indirectly, in any manner or by
an means, to any person, the
fact that a covered or
suspicious transaction report
was made, the contents
thereof, or any other
information in relation thereto.
In case of violation thereof, the
concerned officer and
employee of the covered
institution shall be criminally
liable. However, no
administrative, criminal or civil
proceedings, shall lie against
any person for having made a
covered or suspicious
transaction report in the
regular performance of his
duties in good faith, whether
or not such reporting results in
any criminal prosecution under
this Act of any other law.
"When reporting covered or
suspicious transactions to the
AMLC, covered instituting and
their officers and employees
are prohibited from
communicating directly or
indirectly, in any manner or by
any means, to any person or
entity, the media, the fact that
a covered or suspicious
transaction report was made,
the contents thereof, or any
other information in relation
thereto. Neither may such
reporting be published or aired
in any manner or form by the
mass media, electronic mail, or
other similar devices. In case of
violation thereof, the
concerned officer and
employee of the covered
institution and media shall be
held criminally liable (Sec. 9,
RA 9160 as amended by RA
9194).
Covered transaction' is a transaction in cash or other equivalent
monetary instrument involving a total amount in excess of Five
hundred thousand pesos (PhP 500,000.00) within one (1) banking
day. (RA 9160, Sec. 3 [b]).
4. SUSPICIOUS TRANSACTIONS this Act to be disclosed and f. performs or fails to perform
'Suspicious transaction' are transactions with covered institutions, filed with the Anti-Money any act as a result of which he
regardless of the amounts involved, where any of the following Laundering Council (AMLC), facilitates the offense of
circumstances exist: fails to do so."( RA 9160, as money laundering referred to
1. There is no underlying legal or trade obligation, purpose or amended by RA 9194, Sec. 4) in paragraphs (a), (b) or (c)
economic justification; above.
2. The client is not properly identified;
3. The amount involved is not commensurate with the business or “Money laundering is also
financial capacity of the client; committed by any covered
4. Taking into account all known circumstances, it may be person who, knowing that a
perceived that the client's transaction is structured in order to covered or suspicious
avoid being the subject of reporting requirements under the Act; transaction is required under
5. Any circumstances relating to the transaction which is observed this Act to be reported to the
to deviate from the profile of the client and/or the client's past Anti-Money Laundering
transactions with the covered institution; Council (AMLC), fails to do so.”
6. The transactions is in a way related to an unlawful activity or (Sec. 4, RA 10365, amending
offense under this Act that is about to be, is being or has been Sec. 4, RA 9160)
committed; or
7. Any transactions that is similar or analogous to any of the Unlawful activities or predicate crime
foregoing." (RA 9160, Sec. 3[b-1]) RA 9160, as amended by RA RA 10365, amending RA 9160
9194 and 10167 (Amendments and New
5. SAFE HARBOR PROVISION Provisions)
No administrative, criminal or civil proceedings, shall lie against 'Unlawful activity' refers to any ‘Unlawful activity’ refers to any
any person for having made a COVERED transaction report or a act or omission or series or act or omission or series or
SUSPICIOUS transaction report in the regular performance of his combination thereof involving combination thereof involving
duties and in good faith, whether or not such reporting results in or having direct relation to or having direct relation to the
any criminal prosecution under this Act or any other Philippine following: following:
law. 1. Kidnapping for ransom under 1. Kidnapping for ransom
Article 267 of Act No. 3815, under Article 267 of Act No.
6. MONEY LAUNDERING (HOW COMMITTED; UNLAWFUL otherwise known as the 3815, otherwise known as the
ACTIVITIES OR PREDICATE CRIMES) Revised Penal Code, as Revised Penal Code, as
When is money laundering committed (definition of money amended; amended;
laundering) 2. Sections 4, 5, 6, 8, 9, 10, 12, 2. Sections 4, 5, 6, 8, 9, 10, 11,
RA 9160, as amended by RA RA 10365, amending RA 9160 13, 14, 15, and 16 of Republic 12, 13, 14, 15 and 16 of
9194 and 10167 (Amendments and New Act No. 9165, otherwise Republic Act No. 9165,
Provisions) known as the Comprehensive otherwise known as the
Money laundering is a crime Money laundering is Dangerous Act of 2002; Comprehensive Dangerous
whereby the proceeds of an committed by any person who, 3. Section 3 paragraphs B, C, E, Drugs Act of 2002;
unlawful activity, as herein knowing that any monetary G, H and I of republic Act No. 3. Section 3 paragraphs B, C, E,
defined, are transacted instrument or property 3019, as amended, otherwise G, H and I of Republic Act No.
thereby making them appear represents, involves, or relates known as the Anti-Graft and 3019, as amended, otherwise
to have originated from to the proceeds of any Corrupt Practices Act; known as the Anti-Graft and
legitimate sources. It is unlawful activity: 4. Plunder under Republic Act Corrupt Practices Act;
committed by the following: a. transacts said monetary No. 7080, as amended; 4. Plunder under Republic Act
a. Any person knowing that any instrument or property; 5. Robbery and extortion under No. 7080, as amended;
monetary instrument or b. converts, transfers, disposes Articles 294, 295, 296, 299, 5. Robbery and extortion under
property represents, involves, of, moves, acquires, possesses 300, 301 and 302 of the Articles 294, 295, 296, 299,
or relates to, the proceeds of or uses said monetary Revised Penal Code, as 300, 301 and 302 of the
any unlawful activity, transacts instrument or property; amended; Revised Penal Code, as
or attempts to transact said c. conceals or disguises the 6. Jueteng and Masiao amended;
monetary instrument or true nature, source, location, punished as illegal gambling 6.Jueteng and Masiao
property. disposition, movement or under Presidential Decree No. punished as illegal gambling
b. Any person knowing that any ownership of or rights with 1602; under Presidential Decree No.
monetary instrument or respect to said monetary 7. Piracy on the high seas under 1602;
property involves the instrument or property; the Revised Penal Code, as 7. Piracy on the high seas
proceeds of any unlawful d. attempts or conspires to amended and Presidential under the Revised Penal Code,
activity, performs or fails to commit money laundering under the Revised Penal Code, as amended and Presidential
perform any act as a result of offenses referred to in as amended and Presidential Decree No. 532;
which he falicitates the paragraphs (a), (b) or (c); Decree No. 532; 8. Qualified theft under Article
offense of money laundering e. aids, abets, assists in or 8. Qualified theft under Article 310 of the Revised Penal
referred to in paragraph (a) counsels the commission of 310 of the Revised penal Code, as amended;
above. the money laundering Code, as amended; 9. Swindling under Article 315
c. Any person knowing that any offenses referred to in 9. Swindling under Article 315 and Other Forms of Swindling
monetary instrument or paragraphs (a), (b) or (c) of the Revised Penal Code, as under Article 316 of the
property is required under above; and amended; Revised Penal Code, as
10. Smuggling under Republic
Act Nos. 455 and 1937;
11. Violations under Republic
Act No. 8792, otherwise
known as the Electrinic
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, including those
perpetrated by terrorists
against non-combatant
persons and similar targets;
13. Fraudulent practices and
other violations under
Republic Act No. 8799,
otherwise known as the
Securities Regulation Code of
2000;
14. Felonies or offenses of a
similar nature that is
punishable under the penal
laws of other countries."
amended;
10. Smuggling under Republic
Act Nos. 455 and 1937;
11. Violations of Republic Act
No. 8792, otherwise known as
the Electronic Commerce Act
of 2000;
12. Hijacking and other
violations under Republic Act
No. 6235; destructive arson
and murder, as defined under
the Revised Penal Code, as
amended;
13. Terrorism and conspiracy to
commit terrorism as defined
and penalized under Sections
3 and 4 of Republic Act No.
9372;
14. Financing of terrorism
under Section 4 and offenses
punishable under Sections 5,
6, 7 and 8 of Republic Act No.
10168, otherwise known as
the Terrorism Financing
Prevention and Suppression
Act of 2012:
15. Bribery under Articles 210,
211 and 211-A of the Revised
Penal Code, as amended, and
Corruption of Public Officers
under Article 212 of the
Revised Penal Code, as
amended;
16. Frauds and Illegal Exactions
and Transactions under
Articles 213, 214, 215 and 216
of the Revised Penal Code, as
amended;
17. Malversation of Public
Funds and Property under
Articles 217 and 222 of the
Revised Penal Code, as
amended;
18. Forgeries and
Counterfeiting under Articles
163, 166, 167, 168, 169 and
176 of the Revised Penal
Code, as amended;
19. Violations of Sections 4 to 6
of Republic Act No. 9208,
otherwise known as the Anti-
Trafficking in Persons Act of
2003;
20. Violations of Sections 78 to
79 of Chapter IV, of
Presidential Decree No. 705,
otherwise known as the
Revised Forestry Code of the
Philippines, as amended;
21. Violations of Sections 86 to
106 of Chapter VI, of Republic
Act No. 8550, otherwise
known as the Philippine
Fisheries Code of 1998;
22. Violations of Sections 101
to 107, and 110 of Republic
Act No. 7942, otherwise
known as the Philippine
Mining Act of 1995;
23. Violations of Section 27(c),
(e), (f), (g) and (i), of Republic
Act No. 9147, otherwise
known as the Wildlife
Resources Conservation and
Protection Act;
24. Violation of Section 7(b) of
Republic Act No. 9072,
otherwise known as the
National Caves and Cave
Resources Management
Protection Act;
25. Violation of Republic Act
No. 6539, otherwise known as
the AntiCarnapping 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 AntiFencing
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
AntiPhoto and Video
Voyeurism Act of 2009;
31. Violation of Section 4 of
Republic Act No. 9775,
otherwise known as the
AntiChild 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 laundering activities and other
Securities Regulation Code of violations of this Act;
2000; and 6. to apply before the Court of
34. Felonies or offenses of a Appeals, ex parte, for the
similar nature that are freezing of any monetary
punishable under the penal instrument or property
laws of other countries. alleged to be the proceeds of
any unlawful activity as
7. ANTI-MONEY LAUNDERING COUNCIL AND ITS FUNCTIONS defined in Section 3(i) hereof;
Anti-money laundering council (amlc) 7. to implement such measures
The Anti-Money Laundering Council is hereby created and shall be as may be necessary and
composed of: justified under this Act to
1.The Governor of the Bangko Sentral ng Pilipinas (BSP) as counteract money laundering;
Chairman, 8. to receive and take action in
2. The Commissioner of the Insurance Commission and respect of, any request from
3. The Chairman of the Securities and Exchange Commission (SEC) foreign states for assistance in
as members. (RA 9160, as amended by RA 9194, Sec. 7). their own anti-money
Functions laundering operations
RA 9160, as amended by RA RA 10365, amending RA 9160 provided in this Act;
9194 and 10167 (Amendments and New 9. to develop educational
Provisions) programs on the pernicious
The AMLC shall act The AMLC shall act effects of money laundering,
unanimously in the discharge unanimously in the discharge the methods and techniques
of its functions as defined of its functions as defined used in the money laundering,
hereunder: hereunder: the viable means of
1. to require and receive 1. (Same; not amended) preventing money laundering
covered or suspicious 2. (Same; not amended) and the effective ways of
transaction reports from 3. (Same; not amended) prosecuting and punishing
covered institutions; 4. (Same; not amended) offenders;
2. to issue orders addressed to 5. (Same; not amended) 10. to enlist the assistance of
the appropriate Supervising 6. to apply before the Court of any branch, department,
Authority or the covered Appeals, ex parte, for the bureau, office, agency, or
institutions to determine the freezing of any monetary instrumentality of the
true identity of the owner of instrument or property government, including
any monetary instrument or alleged to be laundered, government-owned and -
property subject of a covered proceeds from, or controlled corporations, in
transaction or suspicious instrumentalities used in or undertaking any and all anti-
transaction report or request intended for use in any money laundering operations,
for assistance from a foreign unlawful activity as defined in which may include the use of
State, or believed by the Section 3(i) hereof; its personnel, facilities and
Council, on the basis for 7. (Same; not amended) resources for the more
substantial evidence, to be, in 8. (Same; not amended) resolute prevention,
whole or in part, wherever 9. (Same; not amended) detection, and investigation of
located, representing, 10. (Same; not amended) money laundering offenses
involving, or related to 11. (Same; not amended) and prosecution of offenders;
directly or indirectly, in any 12. to require the Land and
manner or by any means, the Registration Authority and all 11. to impose administrative
proceeds of an unlawful its Registries of Deeds to sanctions for the violation of
activity. submit to the AMLC, reports laws, rules, regulations, and
3. to institute civil forfeiture on all real estate transactions orders and resolutions issued
proceedings and all other involving an amount in excess pursuant thereto. (Sec. 7, RA
remedial proceedings through of Five hundred thousand 9160 as amended by RA
the Office of the Solicitor pesos (P500,000.00) within 9194.)
General; fifteen (15) days from the date
4. to cause the filing of of registration of the
complaints with the transaction, in a form to be 8. AUTHORITY TO INQUIRE INTO BANK DEPOSITS
Department of Justice or the prescribed by the AMLC. The
Ombudsman for the AMLC may also require the RA 9160, as amended by RA RA 10365, amending RA 9160
prosecution of money Land Registration Authority 9194 and 10167 (Amendments and New
laundering offenses; and all its Registries of Deeds Provisions)
5. to investigate suspicious to submit copies of relevant Notwithstanding the provisions Same; but the following new
transactions and covered documents of all real estate of Republic Act No. 1405, as provisions were inserted:
transactions deemed transactions (Sec. 6, RA 10365 amended; Republic Act No.
suspicious after an amending Sec. 7, RA 9160). 6426, as amended; Republic Nothing contained in this Act
investigation by AMLC, money Act No. 8791; and other laws,
the AMLC may inquire into or
examine any particular deposit
or investment, including
related accounts, with any
banking institution or non-
bank financial institution upon
order of any competent court
based on an ex parte
application in cases of
violations of this Act, when it
has been established that
there is probable cause that
the deposits or investments,
including related accounts
involved, are related to an
unlawful activity as defined in
Section 3(i) hereof or a money
laundering offense under
Section 4 hereof; except that
no court order shall be
required in cases involving
activities defined in Section 3(i)
(1), (2), and (12) hereof, and
felonies or offenses of a nature
similar to those mentioned in
Section 3(i)(1), (2), and (12),
which are Punishable under
the penal laws of other
countries, and terrorism and
conspiracy to commit terrorism
as defined and penalized under
Republic Act No. 9372.
The Court of Appeals shall act
on the application to inquire
into or examine any deposit or
investment with any banking
institution or non-bank
financial institution within
twenty-four (24) hours from
filing of the application.
To ensure compliance with this
Act, the Bangko Sentral ng
Pilipinas may, in the course of a
periodic or special
examination, check the
compliance of a Covered
institution with the
requirements of the AMLA and
its implementing rules and
regulations.
For purposes of this section,
‘related accounts’ shall refer to
accounts, the funds and
sources of which originated
from and/or are materially
linked to the monetary
instrument(s) or property(ies)
subject of the freeze order(s).
A court order ex parte must
first be obtained before the
nor in related antecedent laws
or existing agreements shall be
construed to allow the AMLC
to participate in any manner in
the operations of the BIR. (Sec.
20, RA 10365, amending RA
9160.)
The authority to inquire into or
examine the main account and
the related accounts shall
comply with the requirements
of Article III, Sections 2 and 3
of the 1987 Constitution, which
are hereby incorporated by
reference. Likewise, the
constitutional injunction
against ex post facto laws and
bills of attainder shall be
respected in the
implementation of this Act. (RA
10365 amending RA 9160, Sec.
21.)
AMLC can inquire into these
related Accounts: Provided,
That the procedure for the ex
parte application of the ex
parte court order for the
principal account shall be the
same with that of the related
accounts.
"The authority to inquire into
or examine the main account
and the related accounts shall
comply with the requirements
of Article III, Sections 2 and 3
of the 1987 Constitution, which
are hereby incorporated by
reference (RA 9160, as
amended by RA 10167, Sec.
11).
9. FREEZING OF MONETARY INSTRUMENT OR PROPERTY
RA 9160, as amended by RA RA 10365, amending RA 9160
9194 and 10167 (Amendments and New
Provisions)
Upon verified ex parte petition Upon a verified ex parte
by the AMLC and after petition by the AMLC and after
determination that probable determination that probable
cause exists that any monetary cause exists that any monetary
instrument or property is in instrument or property is in
any way related to an unlawful any way related to an unlawful
activity as defined in Section activity as defined in Section
3(i) hereof, the Court of 3(i) hereof, the Court of
Appeals may issue a freeze Appeals may issue a freeze
order, which shall be effective order which shall be effective
immediately. The freeze order immediately, and which shall
shall be for a period of twenty not exceed six (6) months
(20) days unless extended by depending upon the
the court. In any case, the circumstances of the case:
court should act on the Provided, That if there is no
petition to freeze within case filed against a person
twenty-four (24) hours from whose account has been frozen
filing of the petition. If the within the period determined
application is filed a day before by the court, the freeze order
a nonworking day, the shall be deemed ipso facto
computation of the twenty- lifted: Provided, further, That
four (24)-hour period shall this new rule shall not apply to
exclude the nonworking days." pending cases in the courts. In
any case, the court should act
"A person whose account has on the petition to freeze within
been frozen may file a motion twenty-four (24) hours from
to lift the freeze order and the filing of the petition. If the
court must resolve this motion application is filed a day before
before the expiration of the a nonworking day, the
twenty (20)- day original freeze computation of the twenty-
order." four (24)-hour period shall
exclude the nonworking days.
"No court shall issue a
temporary restraining order or A person whose account has
a writ of injunction against any been frozen may file a motion
freeze order, except the to lift the freeze order and the
Supreme Court. (RA 9160 as court must resolve this motion
amended by RA 10167, Sec. before the expiration of the
10.) freeze order.
 No court shall issue a
temporary restraining order or
a writ of injunction against any
freeze order, except the
Supreme Court. (Sec. 8, RA
10365, amending RA 9160.)
E. BOUNCING CHECKS
1. REQUISITES TO BE LIABLE UNDER BP 22
2. CHECKS WITHOUT INSUFFICIENT FUNDS
3. EVIDENCE OF KNOWLEDGE OF INSUFFICIENT FUNDS
4. DUTY OF DRAWER
5. CREDIT CONSTRUED
6. COMPARISON WITH ESTAFA (ART. 315 {2] (D) 2
II. PDIC LAW & FRIA
A. PDIC (PHILIPPINE DEPOSIT INSURANCE CORPORATION)
42 MINS
The Philippines Deposit Insurance Corporation (Corporation)
created by RA 3591, as amended, to insure the deposits of banks
which are entitled to the benefits of insurance.
PDIC exists to provide deposit insurance coverage for the
depositing public to help promote public confidence and stability
on the economy. It ensures prompt payment of insured deposits,
exercises complementary supervision of banks, adopts responsive
resolution methods, and applies efficient management of
receivership and liquidation functions.
NOTE: PDIC covers only the risk of a bank closure ordered by the
Monetary Board (e.g. because of insolvency). Thus, bank losses
due to theft, fire, closure by reason of strike or existence of public
disorder, revolution or civil war, are no covered by PDIC.
Q: What banks are covered by PDIC?
A: All banks. It is mandatory for banks to insure deposits with, and
pay premium to, the PDIC.
Q: What is PDIC’s maximum deposit insurance coverage?
A: Previously up to P250,000 per depositor with the bank. R.A. No.
9576 signed by the President on 29 April, 2009 doubled the
coverage to P500,000.
1. INSURABLE DEPOSITS
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)
No owner/holder of any passbook, certificate of deposit, or other
evidence of deposit shall be recognized as a depositor entitled to
the rights under the PDIC charter unless the passbook, certificate
of deposit or evidence of deposit is determined by the PDIC to be
an authentic document or record of the issuing bank.
In determining such amount due to any depositor, the shall__
added together all deposits in the bank maintained in the same
right and capacity for his or her benefit either in his or her name
or in the name of others.
NOTE: If a bank has one or more branches, the main office and all
branch offices are considered as one bank. Thus, if you have
deposits at the main office and at one or more branch offices of
the same bank, the deposits are added together when
determining deposit insurance coverage, the total of which shall
not exceed P500,000.
Example:
Depositor Mimiyuh owns a savings account in Bank Rawr Rawr
with a balance of P200,000. Aside from the savings account,
Depositor Mimiyuh also opened a current account with Bank Rawr
Rawr with a balance of P1,000,000. In 2021, Bank Rawr Rawr was
ordered closed by the Monetary Board due to insolvency.
Q: How much can Depositor Mimiyuh recover from PDIC?
A:
Rules on Joint Account
A joint account regardless of whether the conjunction ‘and’, ‘or’,
‘and/or’ is used, shall be insured separately from any individually-
owned deposit account. The maximum insured deposit shall be
divided into as many equal shares as there are account holders,
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.
The aggregate 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 P500,000.
Example
The couple Ian and Paolo Pangilinan have the following account
balances with Banco Inidoro:
Ian Pangilinan P500,000
Paolo Pangilinan P500,000
Ian and/or Paolo P500,000
Q: How much are the insured amounts?
A: All the 3 accounts are insured because the deposits are
maintained in different rights and capacitites. A joint account shall
be insured separately from any individually-owned deposit
account. (Sec. 4 (g) PDIC Charter)
Q: How much can Ian Pangilinan recover from PDIC?
A: P750,000 (P500,000 + P250,000) The and/or account shall be
divided into as many entities whose names the account is
recorded.
Example
The bank records of Bank Pink show the following joint accounts
and their balances:
Rose and/or Lisa P500,000
Rose and/or Jisoo P500,000
Rose and/or Jennie P500,000
Q: Is each account insured?
A: Yes.
Q: How much can Rose recover from the PDIC?
A: P500,000. The aggregate interest of each co-owner over several
joint account, whether owned by the same or different
combinations of individual, juridical persons or entities, shall
likewise be subject to the maximum insured deposit of P500,000.

When should the depositor of a closed bank file his deposit
insurance claim with the PDIC?
Within 2 years from the date of bank takeover. Otherwise, all
rights of the depositor with respect to the insured deposit shall no
longer be honored. But he may still make a claim against the
assets of the closed bank.
2. MAXIMUM LIABILITY
3. REQUIREMENTS FOR CLAIMS
Requirements in filing claims
1. Original evidence of deposits
2. Valid original photo-bearing identification document (ID) with
clear signature of depositpr/claimant
3. Birth certificate, if depositor is below 18, and valid ID of parent
4. Notarized SPA for claimants who are not the signatories in the
bank records.
Filing of claims with PDIC
For account holders with a total deposit amount of not more than
P100,000, there is an automatic payment by mail. ODIC sends the
check by mail, in cooperation with the Philippine Postal Office
Provided that they:
1. have no obligation with the closed bank, or have not acted as
co-makers of these obligations, or are not spouses of the
borrowers;
2. have complete mailing address found in the bank records or
have updated their addresses through the Mailing Address
Update Form (MAUF) of PDIC before the start of the onsite
claims settlement operation; and
3. have not maintained the account under the name of business
entities
B. FINANCIAL REHABILITATION AND INSOLVENCY
1. DEFINITION OF TERMS
Policy Of The Law
1. To encourage debtors, both juridical and natural persons, and
their creditors to collectively and realistically resolve and adjust
competing claims and property rights.
2. To ensure a timely, fair, transparent, effective and efficient
rehabilitation or liquidation of debtors.
3. To ensure or maintain certainly and predictability in commercial
affairs, preserve and maximize the value of the assets of these
debtors, recognize creditor rights and respect priority of claims,
and ensure equitable treatment of creditors who are similarly
situated.
4. When rehabilitation is not feasible, to facilitate a speedy and
orderly liquidation of these debtor's assets and the settlement
of their obligations. (FRIA, Sec. 2)
Nature of the proceedings
1. In rem - Jurisdiction over all persons affected by the
proceedings shall be considered as acquired upon publication of
the notice of the commencement of the proceedings in any
newspaper of general circulation in the Philippines.
2. Summary and non-adversarial. (FRIA, Sec. 3)
Covered persons
1. Individual debtor – a natural person who is a resident and
citizen of the Philippines that has become insolvent. [FRIA, Sec.
4(o)]
2. Debtor – refers to, unless specifically excluded by a provision of
this Act, a sole proprietorship duly registered with the
Department of Trade and Industry (DTI), a partnership duly
registered with the Securities and Exchange Commission (SEC),
a corporation duly organized and existing under Philippine laws,
or an individual debtor who has become insolvent. [FRIA, Sec.
4(k)]
Insolvent – refers to the financial condition of a debtor that is
generally unable to pay its or his liabilities as they fall due in the
ordinary course of business or has liabilities that are greater than its
or his assets. [FRIA, Sec. 4(p)]
Excluded from the term debtor
1. Bank – refers to any duly licensed bank or quasi-bank that is
potentially or actually subject MERCANTILE LAW 462 to
conservatorship, receivership or liquidation proceedings under
the New Central Bank Act (Republic Act No. 7653) or successor
legislation;
2. Insurance companies - refer to those companies that are
potentially or actually subject to insolvency proceedings under
the Insurance Code (Presidential Decree No. 1460) or successor
legislation;
3.Pre-need company - refers to any corporation
authorized/licensed to sell or offer to sell preneed plans.
4. National and local government agencies or units
Government financial institutions other than banks and government-
owned or -controlled corporations are covered by this Act, unless
their specific charter provides otherwise. (FRIA, Sec.5)
2. SUSPENSION OF PAYMENTS
Upon motion filed by the individual debtor, the court may issue an
order suspending any pending execution against the individual
debtor: Provided, that properties held as security by secured
creditors shall not be the subject of such suspension order.
The suspension order shall lapse when three (3) months shall have
passed without the proposed agreement being accepted by the
creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim
from the debtor from the time of the filing of the petition for
suspension of payments and for as long as proceedings remain
pending except:
a. those creditors having claims for personal labor, maintenance,
expense of last illness and funeral of the wife or children of the
debtor incurred in the sixty (60) days immediately prior to the
filing of the petition; and
b. secured creditors. (FRIA, Sec. 96)
Failure of Individual to perform the agreement
If the individual debtor fails, wholly or in part, to perform the
agreement decided upon at the meeting of the creditors, all the
rights which the creditors had against the individual debtor before
the agreement shall revest in them. In such case the individual
debtor may be made subject to the insolvency proceedings in the
manner established by this Act. (FRIA, Sec. 102)
3. REHABILITATION
A. TYPES
I. COURT SUPERVISED II. PRE-NEGOTIATED
WHO MAY INITIATE? WHO MAY INITIATE?
1. Voluntary proceedings An insolvent debtor, by itself or
Initiated by the debtor when jointly with any of its creditors.
approved by: (FRIA, Sec. 76)
 a. Sole proprietorship –
Owner;
b. Partnership – majority of
the partners;
c. Corporation – a majority
vote of the board of
directors or trustees and
authorized by the vote of
the stockholders
representing at least
twothirds (2/3) of the
outstanding capital stock;
d. Nonstock corporation – by
the vote of at least two-
thirds (2/3) of the
members, in a stockholder's
or member's meeting duly
called for the purpose.
(FRIA, Sec. 12)
2. Involuntary proceedings
Any creditor or group of
creditors with a claim of, or
the aggregate of whose claims
is, at least One million pesos
(Php1,000,000.00) or at least
twenty-five percent (25%) of
the subscribed capital stock or
partners' contributions,
whichever is higher. (FRIA,
Sec. 13)
HOW INITIATED?
1. Voluntary proceedings
An insolvent debtor may
initiate voluntary proceedings
under this Act by filing a
petition for rehabilitation with
the court and on the grounds
hereinafter specifically
provided. The petition shall
be verified to establish the
insolvency of the debtor and
the viability of its
rehabilitation.
Grounds: A group of debtors
may jointly file a petition for
rehabilitation under this Act
when one or more of its
members foresee the
impossibility of meeting debts
when they respectively fall
due, and the financial distress
would likely adversely affect
the financial condition and/or
operations of the other
members of the group and/or
the participation of the other
members of the group is
essential under the terms and
conditions of the proposed
Rehabilitation Plan. (FRIA, Sec.
12)
HOW INITIATED?
By filing a verified petition with
the court for the approval of a
pre-negotiated Rehabilitation
Plan which has been endorsed
or approved by creditors
holding at least two-thirds
(2/3) of the total liabilities of
the debtor, including:
a.secured creditors holding
more than fifty percent
(50%) of the total secured
claims of the debtor; and
b. unsecured creditors holding
more than fifty percent
(50%) of the total unsecured
claims of the debtor. (FRIA,
Sec. 76)
2. Involuntary proceedings
Filing a petition for
rehabilitation with the court
if:
a. there is no genuine issue of
fact or law on the claim/s of
the petitioner/s, and that the
due and demandable
payments thereon have not
been made for at least sixty
(60) days or that the debtor
has failed generally to meet
its liabilities as they fall due;
or
b. a creditor, other than the
petitioner/s, has initiated
foreclosure proceedings
against the debtor that will
prevent the debtor from
paying its debts as they
become due or will render it
insolvent. (FRIA, Sec. 13)
The petition shall be verified to
establish the substantial
likelihood that the debtor may
be rehabilitated. (FRIA, Sec. 14)
CONTENTS OF PETITION CONTENTS OF PETITION
Petition shall include as a The petition shall include, as a
minimum: minimum:
a. Identification of the debtor, a. a schedule of the debtor's
its principal activities and its debts and liabilities;
addresses; b. an inventory of the debtor's
b. Statement of the fact of and assets;
the cause of the debtor's c. the pre-negotiated
insolvency or inability to pay Rehabilitation Plan, including
its obligations as they become the names of at least three
due; (3) qualified nominees for
c. The specific relief sought rehabilitation receiver; and
pursuant to this Act; d. a summary of disputed
d. The grounds upon which the claims against the debtor
petition is based; and a report on the
e. Other information that may provisioning of funds to
be required under this Act account for appropriate
depending on the form of payments should any such
relief requested; claims be ruled valid or their
f. Schedule of the debtor's amounts adjusted. (FRIA,
debts and liabilities including Sec. 76)
a list of creditors with their
addresses, amounts of claims
and collaterals, or securities, if
any;
g. An inventory of all its assets
including receivables and
claims against third parties;
h. A Rehabilitation Plan;
i. The names of at least three
(3) nominees to the position
of rehabilitation receiver; and
j. Other documents required to
be filed with the petition
pursuant to this Act and the
 rules of procedure as may be i. summarize the requirements and deadlines for creditors to
promulgated by the Supreme establish their claims against the debtor and direct all creditors
Court. (FRIA, Sec. 12) to file their claims with the court at least five (5) days before the
initial hearing;
2. Involuntary proceedings j. direct the Bureau of Internal Revenue (BIR) to file and serve on
Shall include: the debtor its comment on or opposition to the petition or its
a. identification of the debtor, claim/s against the debtor under such procedures as the
its principal activities and its Supreme Court may hereafter provide;
address; k. prohibit the debtor's suppliers of goods or services from
b. the circumstances sufficient withholding the supply of goods and services in the ordinary
to support a petition to course of business for as long as the debtor makes payments for
initiate involuntary the services or goods supplied after the issuance of the
rehabilitation proceedings Commencement Order;
under Section 13 of this Act; l. authorize the payment of administrative expenses as they
c. the specific relief sought become due;
under this Act; m. set the case for initial hearing, which shall not be more than
d. a Rehabilitation Plan; forty (40) days from the date of filing of the petition for the
e. the names of at least three purpose of determining whether there is substantial likelihood
(3) nominees to the position for the debtor to be rehabilitated;
of rehabilitation receiver; n. make available copies of the petition and rehabilitation plan for
f. other information that may examination and copying by any interested party;
be required under this Act o. indicate the location or locations at which documents regarding
depending on the form of the debtor and the proceedings under this Act may be reviewed
relief requested; and and copied;
g. other documents required p. state that any creditor or debtor, who is not the petitioner, may
to be filed with the petition submit the name or nominate any other qualified person to the
pursuant to this Act and the position of rehabilitation receiver at least five (5) days before
rules of procedure as may be the initial hearing;
promulgated by the Supreme q. include a Stay or Suspension Order which shall:
Court. (FRIA, Sec. 14) 1. suspend all actions or proceedings, in court or otherwise, for
the enforcement of claims against the debtor;
2. suspend all actions to enforce any judgment, attachment or
other provisional remedies against the debtor;
3. prohibit the debtor from selling, encumbering, transferring or
B. COMMENCEMENT ORDER
disposing in any manner any of its properties except in the
If the court finds the petition for rehabilitation to be sufficient in
ordinary course of business; and
form and substance, it shall, within five SPECIAL LAWS 465 (5)
4. prohibit the debtor from making any payment of its liabilities
working days from the filing of the petition, issue a
outstanding as of the commencement date except as may be
Commencement Order. (FRIA, Sec. 15)
provided herein. (FRIA, Sec. 16)
The rehabilitation proceedings shall commence upon the issuance of
the Commencement Order which shall: Effects of the Commencement Order
a. identify the debtor, its principal business or activity/ies and its 1.It vests the rehabilitation receiver with all the powers and
principal place of business; functions provided for in the Act, such as the right to review and
b. summarize the ground/s for initiating the proceedings; obtain all records to which the debtor's management and
c. state the relief sought under this Act and any requirement or directors have access, including bank accounts of whatever
procedure particular to the relief sought; nature of the debtor, subject to the approval by the court of the
d. state the legal effects of the Commencement Order, including performance bond filed by the rehabilitation receiver;
those mentioned in Section 17 hereof; 2. It prohibits, or otherwise serves as the legal basis for rendering
e. declare that the debtor is under rehabilitation; null and void the results of any extrajudicial activity or process to
f. direct the publication of the Commencement Order in a seize property, sell encumbered property, or otherwise attempt
newspaper of general circulation in the Philippines once a week to collect on or enforce a claim against the debtor after the
for at least two (2) consecutive weeks, with the first publication commencement date.
to be made within seven (7) days from the time of its issuance; XPN: The court may authorize the sale, transfer, conveyance or
g. if the petitioner is the debtor, direct the service by personal disposal of encumbered property of the debtor, or property of
delivery of a copy of the petition on each creditor holding at others held by the debtor where there is a security interest
least ten percent (10%) of the total liabilities of the debtor as pertaining to third parties under a financial, credit or other
determined from the schedule attached to the petition within similar transactions if, upon application of the rehabilitation
five (5) days; if the petitioner/s is/are creditor/s, direct the receiver and with the consent of the affected owners of the
service by personal delivery of a copy of the petition on the property, or secured creditor/s in the case MERCANTILE LAW 466
debtor within five (5) days; of encumbered property of the debtor and, after notice and
h. appoint a rehabilitation receiver who may or may not be from hearing, the court determines that:
among the nominees of the petitioner/s, and who shall exercise a. such sale, transfer, conveyance or disposal is necessary for the
such powers and duties defined in this Act as well as the continued operation of the debtor's business; and
procedural rules that the Supreme Court will promulgate;
 b. the debtor has made arrangements to provide a substitute lien
or ownership right that provides an equal level of security for
the counter-party's claim or right.
Provided, That properties held by the debtor where the debtor
has authority to sell such as trust receipt or consignment
arrangements may be sold or disposed of by the debtor, if such
sale or disposal is necessary for the operation of the debtor's
business, and the debtor has made arrangements to provide a
substitute lien or ownership right that provides an equal level of
security for the counter-party's claim or right. (FRIA, Sec. 50)
NOTE: Sale or disposal of property section 50 shall not give rise
to any criminal liability under applicable laws. (FRIA, Sec. 50)
3. It serves as the legal basis for rendering null and void any set-off
after the commencement date of any debt owed to the debtor
by any of the debtor's creditors;
4. It serves as the legal basis for rendering null and void the
perfection of any lien against the debtor's property after the
commencement date;
NOTE: The court may rescind or declare as null and void any sale,
payment, transfer or conveyance of the debtor's unencumbered
property or any encumbering thereof by the debtor or its agents
or representatives after the commencement date which are not
in the ordinary course of the business of the debtor: Provided,
however, That the unencumbered property may be sold,
encumbered or otherwise disposed of upon order of the court
after notice and hearing:
a. if such are in the interest of administering the debtor and
facilitating the preparation and implementation of a
Rehabilitation Plan;
b. in order to provide a substitute lien, mortgage or pledge of
property under the Act;
c. for payments made to meet administrative expenses as they
arise;
d. for payments to victims of quasi delicts upon a showing that
the claim is valid and the debtor has insurance to reimburse
the debtor for the payments made;
e. for payments made to repurchase property of the debtor that
is auctioned off in a judicial or extrajudicial sale under this Act;
or
f. for payments made to reclaim property of the debtor held
pursuant to a possessory lien. (FRIA, Sec. 52)
5. It consolidates the resolution of all legal proceedings by and
against the debtor to the court: Provided, however, that the
court may allow the continuation of cases in other courts where
the debtor had initiated the suit. (FRIA, Sec. 17)
NOTE: Attempts to seek legal or other recourse against the
debtor outside these proceedings shall be sufficient to support
a finding of indirect contempt of court.
The effects of the Commencement Order and the Stay or
Suspension Order on the suspension of rights to foreclose or
otherwise pursue legal remedies shall apply to government
financial institutions, notwithstanding provisions in their
charters or other laws to the contrary. (FRIA, Sec. 20)
Waiver of taxes and fees due to the National Government and to
Local Government Units
Upon issuance of the Commencement Order by the court, and
until the approval of the Rehabilitation Plan or dismissal of the
petition, whichever is earlier, the imposition of all taxes and fees,
including penalties, interests and charges thereof, due to the
national government or to LGUs shall be considered waived, in
furtherance of the objectives of rehabilitation.
Effectivity or duration of the commencement order
Unless lifted by the court, the Commencement Order shall be
effective for the duration of the rehabilitation proceedings for as
long as there is a substantial likelihood that the debtor will be
successfully rehabilitated. (FRIA, Sec. 21)
Minimum requirements to determine whether there is substantial
likelihood for the debtor to be successfully rehabilitated
a. The proposed Rehabilitation Plan submitted complies with the
minimum contents prescribed by the Act; SPECIAL LAWS 467
b. There is sufficient monitoring by the rehabilitation receiver of
the debtor's business for the protection of creditors;
c. The debtor has met with its creditors to the extent reasonably
possible in attempts to reach a consensus on the proposed
Rehabilitation Plan;
d. The rehabilitation receiver submits a report, based on
preliminary evaluation, stating that the underlying assumptions
and the financial goals stated in the petitioner's Rehabilitation
Plan are realistic, feasible and reasonable; or, if not, there is, in
any case, a substantial likelihood for the debtor to be
successfully rehabilitated because, among others:
i. there are sufficient assets with which to rehabilitate the
debtor;
ii. there is sufficient cash flow to maintain the operations of the
debtor;
iii. the debtor's owner/s, partners, stockholders, directors and
officers have been acting in good faith and with due
diligence;
iv. the petition is not a sham filing intended only to delay the
enforcement of the rights of the creditor/s or of any group of
creditors; and
v. the debtor would likely be able to pursue a viable
Rehabilitation Plan;
e. The petition, the Rehabilitation Plan and the attachments
thereto do not contain any materially false or misleading
statement;
f. If the petitioner is the debtor, that the debtor has met with its
creditor/s representing at least three-fourths (3/4) of its total
obligations to the extent reasonably possible and made a good
faith effort to reach a consensus on the proposed Rehabilitation
Plan; if the petitioner/s is/are a creditor or group of creditors,
that the petitioner/s has/have met with the debtor and made a
good faith effort to reach a consensus on the proposed
Rehabilitation Plan; and
g. The debtor has not committed acts of misrepresentation or in
fraud of its creditor/s or a group of creditors. (FRIA, Sec. 21)
Effect of creditor’s failure to file notice of claim
A creditor whose claim is not listed in the schedule of debts and
liabilities and who fails to file a notice of claim in accordance with
the Commencement Order but subsequently files a belated claim
shall not be entitled to participate in the rehabilitation
proceedings but shall be entitled to receive distributions arising
therefrom. (FRIA, Sec. 23)
No diminution of secured creditor’s right
The issuance of the Commencement Order and the Suspension or
Stay Order, and any other provision of the Act, shall not be
deemed in any way to diminish or impair the security or lien of a
secured creditor, or the value of his lien or security, except that his
right to enforce said security or lien may be suspended during the
term of the Stay Order.
The court, upon motion or recommendation of the rehabilitation
receiver, may allow a secured creditor to enforce his security or
lien, or foreclose upon property of the debtor securing his/its
 claim, if the said property is not necessary for the rehabilitation of
the debtor.
The secured creditor and/or the other lien holders shall be
admitted to the rehabilitation proceedings only for the balance of
his claim, if any. (FRIA, Sec. 60)
C. STAY OR SUSPENSION ORDER
Exceptions to the stay or suspension order
The Stay or Suspension Order shall not apply:
a. to cases already pending appeal in the Supreme Court as of
commencement date: Provided, That any final and executory
judgment arising from such appeal shall be referred to the court
for appropriate action;
b. subject to the discretion of the court, to cases pending or filed
at a specialized court or quasijudicial agency which, upon
determination by the court, is capable of resolving the claim
more quickly, fairly and efficiently than the court: Provided,
That any final and executory judgment of such court or agency
shall be referred to the court and shall be treated as a non-
disputed claim;
c. to the enforcement of claims against sureties and other persons
solidarily liable with the debtor, and third party or
accommodation mortgagors as well as issuers of letters of
credit, unless the property subject of the third party or
accommodation mortgage is necessary for the rehabilitation of
the debtor as determined by the court upon recommendation
by the rehabilitation receiver;
d. to any form of action of customers or clients of a securities
market participant to recover or otherwise claim moneys and
securities entrusted to the latter in the ordinary course of the
latter's business as well as any action of such securities market
participant or the appropriate regulatory agency or
selfregulatory organization to pay or settle such claims or
liabilities;
e. to the actions of a licensed broker or dealer to sell pledged
securities of a debtor pursuant to a securities pledge or margin
agreement for the settlement of securities transactions in
accordance with the provisions of the Securities Regulation
Code and its implementing rules and regulations;
f. the clearing and settlement of financial transactions through the
facilities of a clearing agency or similar entities duly authorized,
registered and/or recognized by the appropriate regulatory
agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as
well as any form of actions of such agencies or entities to
reimburse themselves for any transactions settled for the
debtor; and
g. any criminal action against the individual debtor or owner,
partner, director or officer of a debtor shall not be affected by
any proceeding commenced under this Act. (FRIA, Sec. 18)
D. REHABILITATION RECEIVER
Rehabilitation receiver shall refer to the person or persons, natural
or juridical, appointed as such by the court pursuant to this Act
and which shall be entrusted with such powers and duties as set
forth herein. [FRIA, Sec. 4(hh)]
If the rehabilitation receiver is a juridical entity, it must designate a
natural person/s who possess/es all the qualifications and none of
the disqualifications as its representative, it being understood that
the juridical entity and the representative/s are solidarily liable for
all obligations and responsibilities of the rehabilitation receiver.
(FRIA, Sec. 28)
Minimum qualifications
a. A citizen of the Philippines or a resident of the Philippines in the
six (6) months immediately preceding his nomination;
b. Of good moral character and with acknowledged integrity,
impartiality and independence;
c. Has the requisite knowledge of insolvency and other relevant
commercial laws, rules and procedures, as well as the relevant
training and/or experience that may be necessary to enable him
to properly discharge the duties and obligations of a
rehabilitation receiver; and
d. Has no conflict of interest: Provided, that such conflict of
interest may be waived, expressly or impliedly, by a party who
may be prejudiced thereby. (FRIA, Sec. 29)
Powers, duties and responsibilities of Rehabilitation Receiver
The rehabilitation receiver shall be deemed an officer of the court
with the principal duty:
1. Of preserving and maximizing the value of the assets of the
debtor during the rehabilitation proceedings;
2. Of determining the viability of the rehabilitation of the debtor;
3. Of preparing and recommending a Rehabilitation Plan to the
court; and
4. Of implementing the approved Rehabilitation Plan. (FRIA, Sec.
31)
5. To take an oath and file a bond, in such amount to be fixed by
the court, conditioned upon the faithful and proper discharge of
his powers, duties and responsibilities. (FRIA, Sec. 34)
6. To make an appropriate disclosure of conflict of interest either
to the court or to the creditors in case of out-of-court
rehabilitation proceedings. (FRIA, Sec. 40)
The rehabilitation receiver shall have the following powers, duties
and responsibilities:
a. To verify the accuracy of the factual allegations in the petition
and its annexes;
b. To verify and correct, if necessary, the inventory of all of the
assets of the debtor, and their valuation;
c. To verify and correct, if necessary, the schedule of debts and
liabilities of the debtor;
d. To evaluate the validity, genuineness and true amount of all the
claims against the debtor;
e. To take possession, custody and control, and to preserve the
value of all the property of the debtor;
f. To sue and recover, with the approval of the court, all amounts
owed to, and all properties pertaining to the debtor;
g. To have access to all information necessary, proper or relevant
to the operations and business of the debtor and for its
rehabilitation;
h. To sue and recover, with the approval of the court, all property
or money of the debtor paid, transferred or disbursed in fraud of
the debtor or its creditors, or which constitute undue preference
of creditor/s;
i. To monitor the operations and the business of the debtor to
ensure that no payments or transfers of property are made other
than in the ordinary course of business;
j. With the court's approval, to engage the services of or to employ
persons or entities to assist him in the discharge of his functions;
k. To determine the manner by which the debtor may be best
rehabilitated, to review, revise and/or recommend action on the
Rehabilitation Plan and submit the same or a new one to the
court for approval;
l. To implement the Rehabilitation Plan as approved by the court,
if so provided under the Rehabilitation Plan;
m. To assume and exercise the powers of management of the
debtor, if directed by the court pursuant to Section 36 hereof;
 n. To exercise such other powers as may, from time to time, be
conferred upon him by the court; and
o. To submit a status report on the rehabilitation proceedings
every quarter or as may be required by the court motu proprio,
or upon motion of any creditor, or as may be provided, in the
Rehabilitation Plan. (FRIA, Sec. 31)
NOTE: Unless appointed by the court under section 36
(management committee), the rehabilitation receiver shall not
take over the management and control of the debtor but may
recommend the appointment of a management committee over
the debtor in the cases provided by this Act.
Removal of the Rehabilitation Receiver
The rehabilitation receiver may be removed at any time by the
court, either motu proprio or upon motion by any creditor/s
holding more than fifty percent (50%) of the total obligations of
the debtor, on such grounds as the rules of procedure may provide
which shall include, but are not limited to, the following:
a. Incompetence, gross negligence, failure to perform or failure to
exercise the proper degree of care in the performance of his
duties and powers;
b. Lack of a particular or specialized competency required by the
specific case;
c. Illegal acts or conduct in the performance of his duties and
powers;
d. Lack of qualification or presence of any disqualification;
e. Conflict of interest that arises after his appointment; and
f. Manifest lack of independence that is detrimental to the general
body of the stakeholders. (FRIA, Sec. 32)
E. MANAGEMENT COMMITTEE
Role of Management Committee
When appointed, the management committee shall take the place
of the management and the governing body of the debtor and
assume their rights and responsibilities. (FRIA, Sec. 37)
NOTE: Members of the management committee are considered
also as officers of the court.
How the management committee is appointed
Upon motion of any interested party, the court may appoint and
direct the rehabilitation receiver to assume the powers of
management of the debtor, or appoint a management committee
that will undertake the management of the debtor, upon clear and
convincing evidence of any of the following circumstances:
a. Actual or imminent danger of dissipation, loss, wastage or
destruction of the debtor's assets or other properties;
b. Paralyzation of the business operations of the debtor; or
c. Gross mismanagement of the debtor, or fraud or other wrongful
conduct on the part of, or gross or willful violation of this Act by,
existing management of the debtor or the owner, partner,
director, officer or representative/s in management of the
debtor. (FRIA, Sec. 36)
F. REHABILITATION PLAN
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS
REHABILITATION PLANS
Minimum Requirements of Out-of-Court or Informal Restructuring
Agreements and Rehabilitation Plans
a. The debtor must agree to the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan;
b. It must be approved by creditors representing at least sixty-
seven percent (67%) of the secured obligations of the debtor;
c. It must be approved by creditors representing at least seventy-
five percent (75%) of the unsecured obligations of the debtor;
and
d. It must be approved by creditors holding at least eighty-five
percent (85%) of the total liabilities, secured and unsecured, of
the debtor. (FRIA, Sec. 84)
Standstill period
A standstill period that may be agreed upon by the parties
pending negotiation and finalization of the out-of-court or
informal restructuring/workout agreement or Rehabilitation Plan
contemplated herein shall be effective and enforceable not only
against the contracting parties but also against the other creditors.
Provided, that:
a. such agreement is approved by creditors representing more
than fifty percent (50%) of the total liabilities of the debtor;
b. notice thereof is published in a newspaper of general circulation
in the Philippines once a week for two (2) consecutive weeks;
and
c. the standstill period does not exceed one hundred twenty (120)
days from the date of effectivity.
The notice must invite creditors to participate in the negotiation
for out-of-court rehabilitation or restructuring agreement and
notify them that said agreement will be binding on all creditors if
the required majority votes prescribed in Section 84 of the Act are
met. (FRIA, Sec. 85)
Effect of court actions or other proceedings
Any court action or other proceedings arising from, or relating to,
the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan shall not stay its implementation, unless the
relevant party is able to secure a temporary restraining order or
injunctive relief from the Court of Appeals. (FRIA, Sec. 88)
REHABILITATION PLAN
It refers to a plan by which the financial well-being and viability of
an insolvent debtor can be restored using various means
including, but not limited to, debt forgiveness, debt rescheduling,
reorganization or quasi-reorganization, dacion en pago, debtequity
conversion and sale of the business (or parts of it) as a going
concern, or setting-up of new business entity as prescribed in
Section 62 hereof, or other similar arrangements as may be
approved by the court or creditors. [FRIA, Sec. 4(ii)]
Contents of rehabilitation plan
a. specify the underlying assumptions, the financial goals and the
procedures proposed to accomplish such goals;
b. compare the amounts expected to be received by the creditors
under the Rehabilitation Plan with those that they will receive if
liquidation ensues within the next one hundred twenty (120)
days;
c. contain information sufficient to give the various classes of
creditors a reasonable basis for determining whether
supporting the Plan is in their financial interest when compared
to the immediate liquidation of the debtor, including any
reduction of principal interest and penalties payable to the
creditors;
d. establish classes of voting creditors;
e. establish subclasses of voting creditors if prior approval has
been granted by the court;
f. indicate how the insolvent debtor will be rehabilitated including,
but not limited to, debt forgiveness, debt rescheduling,
reorganization or quasi-reorganization, dacion en pago,
debtequity conversion and sale of the business (or parts of it) as
 a going concern, or setting-up of a new business entity or other approval, or objection from the owners, partners or stockholders
similar arrangements as may be necessary to restore the of the insolvent debtor: Provided, that the terms thereof are
financial well-being and viability of the insolvent debtor; necessary to restore the financial wellbeing and viability of the
g. specify the treatment of each class or subclass described in insolvent debtor. (FRIA, Sec. 68)
subsections (d) and (e);
h. provide for equal treatment of all claims within the same class Effects of confirmation of rehabilitation plan
or subclass, unless a particular creditor voluntarily agrees to less a. The Rehabilitation Plan and its provisions shall be binding upon
favorable treatment; the debtor and all persons who may be affected by it, including
i. ensure that the payments made under the plan follow the the creditors, whether or not such persons have participated in
priority established under the provisions of the Civil Code on the proceedings or opposed the Rehabilitation Plan or whether
concurrence and preference of credits and other applicable or not their claims have been scheduled;
laws; b. The debtor shall comply with the provisions of the
j. maintain the security interest of secured creditors and preserve Rehabilitation Plan and shall take all actions necessary to carry
the liquidation value of the security unless such has been out the Plan; SPECIAL LAWS 471
waived or modified voluntarily; c. Payments shall be made to the creditors in accordance with the
k. disclose all payments to creditors for precommencement debts provisions of the Rehabilitation Plan;
made during the proceedings and the justifications thereof; d. Contracts and other arrangements between the debtor and its
l. describe the disputed claims and the provisioning of funds to creditors shall be interpreted as continuing to apply to the
account for appropriate payments should the claim be ruled extent that they do not conflict with the provisions of the
valid or its amount adjusted; Rehabilitation Plan;
m. identify the debtor's role in the implementation of the Plan; e. Any compromises on amounts or rescheduling of timing of
n. state any rehabilitation covenants of the debtor, the breach of payments by the debtor shall be binding on creditors regardless
which shall be considered a material breach of the Plan; of whether or not the Plan is successfully implemented; and
o. identify those responsible for the future management of the f. Claims arising after approval of the Plan that are otherwise not
debtor and the supervision and implementation of the Plan, treated by the Plan are not subject to any Suspension Order.
their affiliation with the debtor and their remuneration; (FRIA, Sec. 69)
p. address the treatment of claims arising after the confirmation
of the Rehabilitation Plan; G. CRAM DOWN EFFECT
q. require the debtor and its counter-parties to adhere to the A restructuring/workout agreement or Rehabilitation Plan that is
terms of all contracts that the debtor has chosen to confirm; approved pursuant to an informal workout framework (out of
r. arrange for the payment of all outstanding administrative court or informal restructuring agreements) shall have the same
expenses as a condition to the Plan's approval unless such legal effect as confirmation of a Plan under Section 69 of FRIA. The
condition has been waived in writing by the creditors notice of the Rehabilitation Plan or restructuring agreement or
concerned; Plan shall be published once a week for at least three (3)
s. arrange for the payment of all outstanding taxes and consecutive weeks in a newspaper of general circulation in the
assessments, or an adjusted amount pursuant to a compromise Philippines. The Rehabilitation Plan or restructuring agreement
settlement with the BIR or other applicable tax authorities; shall take effect upon the lapse of fifteen (15) days from the date
t. include a certified copy of a certificate of tax clearance or of the last publication of the notice thereof. (FRIA, Sec. 86)
evidence of a compromise settlement with the BIR;
u. include a valid and binding resolution of a meeting of the 4.LIQUIDATION
debtor's stockholders to increase the shares by the required Kinds of debtors
amount in cases where the Plan contemplates an additional 1. Juridical debtors
issuance of shares by the debtor; 2. Individual debtors
v. state the compensation and status, if any, of the rehabilitation
receiver after the approval of the Plan; and A. TYPES
w. contain provisions for conciliation and/or mediation as a VOLUNTARY LIQUIDATION INVOLUNTARY LIQUIDATION
prerequisite to court assistance or intervention in the event of (FRIA, Sec. 90) (FRIA, Sec. 91)
any disagreement in the interpretation or implementation of WHO MAY FILE? WHO MAY FILE?
the Rehabilitation Plan. (FRIA, Sec. 64)
An insolvent debtor may apply Three (3) or more creditors the
Confirmation of rehabilitation plan for liquidation by filing a aggregate of whose claims is at
If no objections are filed within the relevant period or, if petition for liquidation with the least either One million pesos
objections are filed, the court finds them lacking in merit, or court. (Php1,000,000.00) or at least
determines that the basis for the objection has been cured, or twenty-five percent (25%) of
determines that the debtor has complied with an order to cure the subscribed capital stock or
the objection, the court shall issue an order confirming the partner's contributions of the
Rehabilitation Plan. debtor, whichever is higher,
may apply for and seek the
The court may confirm the Rehabilitation Plan notwithstanding liquidation of an insolvent
unresolved disputes over claims if the Rehabilitation Plan has debtor by filing a petition for
made adequate provisions for paying such claims. liquidation of the debtor with
the court
For the avoidance of doubt, the provisions of other laws to the CONTENTS OF THE PETITION CONTENTS OF THE PETITION
contrary notwithstanding, the court shall have the power to
approve or implement the Rehabilitation Plan despite the lack of
 The petition shall be verified, The petition shall show that: The liquidation order shall:
shall establish the insolvency of a. there is no genuine issue of a. declare the debtor insolvent;
the debtor and shall contain, fact or law on the claim/s of b. order the liquidation of the debtor and, in the case of a juridical
whether as an attachment or the petitioner/s, and that the debtor, declare it as dissolved;
as part of the body of the due and demandable c. order the sheriff to take possession and control of all the
petition: payments thereon have not property of the debtor, except those that may be exempt from
a. a schedule of the debtor's been made for at least one execution;
debts and liabilities including hundred eighty (180) days or d. order the publication of the petition or motion in a newspaper
a list of creditors with their that the debtor has failed of general circulation once a week for two (2) consecutive
addresses, amounts of claims generally to meet its weeks;
and collaterals, or securities, liabilities as they fall due; e. direct payments of any claims and conveyance of any property
if any; and due the debtor to the liquidator;
b. an inventory of all its assets b. there is no substantial f. prohibit payments by the debtor and the transfer of any
including receivables and likelihood that the debtor property by the debtor;
claims against third parties; may be rehabilitated. g. direct all creditors to file their claims with the liquidator within
and c. the names of at least the period set by the rules of procedure;
three (3) nominees to the h. authorize the payment of administrative expenses as they
position of liquidator become due;
i. state that the debtor and creditors who are not petitioner/s may
submit the names of other nominees to the position of
*INDIVIDUAL DEBTORS (Suspension of Payment, Voluntary liquidator; and
Liquidation, Involuntary Liquidation) j. set the case for hearing for the election and appointment of the
PG. 472 liquidator, which date shall not be less than thirty (30) days nor
more than forty-five (45) days from the date of the last
publication. (FRIA, Sec. 112)
B. CONVERSION OF REHABILITATION TO LIQUIDATION
PROCEEDINGS Effects of liquidation order
VOLUNTARY LIQUIDATION INVOLUNTARY LIQUIDATION Upon the issuance of the liquidation order:
(FRIA, Sec. 90) (FRIA, Sec. 91) a. the juridical debtor shall be deemed dissolved and its corporate
When: When: or juridical existence terminated;
At any time during the At any time during the b. legal title to and control of all the assets of the debtor, except
pendency of court-supervised pendency of or after a those that may be exempt from execution, shall be deemed
or pre-negotiated rehabilitation court-supervised vested in the liquidator or, pending his election or appointment,
rehabilitation proceedings or pre-negotiated with the court;
rehabilitation proceedings c. all contracts of the debtor shall be deemed terminated and/or
Who may initiate: breached, unless the liquidator, within ninety (90) days from the
The debtor may also initiate Who may initiate: date of his assumption of office, declares otherwise and the
liquidation proceedings by Three (3) or more creditors contracting party agrees;
filing a motion in the same whose claims is at least either d. no separate action for the collection of an unsecured claim shall
court where the rehabilitation One million pesos be allowed. Such actions already pending will be transferred to
proceedings are pending (Php1,000,000.00) or at least the Liquidator for him to accept and settle or contest. If the
twenty-five percent (25%) of liquidator contests or disputes the claim, the court shall allow,
the subscribed capital or hear and resolve such contest except when the case is already
How: on appeal. In such a case, the suit may proceed to judgment,
By filing a motion to convert partner's contributions of the and any final and executory judgment therein for a claim
the rehabilitation proceedings debtor, whichever is higher, against the debtor shall be filed and allowed in court; and
into liquidation proceedings. may also initiate liquidation e. no foreclosure proceeding shall be allowed for a period of one
The motion shall be verified, proceedings by filing a motion hundred eighty (180) days. (FRIA, Sec. 113)
shall contain or set forth the in the same court where the
same matters required in the rehabilitation proceedings are D. RIGHTS OF SECURED CREDITORS
preceding paragraph, and state pending The Liquidation Order shall not affect the right of a secured
that the debtor is seeking creditor to enforce his lien in accordance with the applicable
immediate dissolution and How: contract or law.
termination of its corporate By filing a motion to convert
existence. the rehabilitation proceedings A secured creditor may:
into liquidation proceedings. a. waive his rights under the security or lien, prove his claim in the
The motion shall be verified, liquidation proceedings and share in the distribution of the
shall contain or set forth the assets of the debtor; or
same matters required in the b. maintain his rights under his security or lien.
preceding paragraph, and state
that the movants are seeking If the secured creditor maintains his rights under the security or
the immediate liquidation of lien:
the debtor. 1. the value of the property may be fixed in a manner agreed upon
by the creditor and the liquidator. When the value of the
C. LIQUIDATION ORDER property is less than the claim it secures, the liquidator may
 convey the property to the secured creditor and the latter will
be admitted in the liquidation proceedings as a creditor for the
balance; if its value exceeds the claim secured, the liquidator
may convey the property to the creditor and waive the debtor's
right of redemption upon receiving the excess from the
creditor;
2. the liquidator may sell the property and satisfy the secured
creditor's entire claim from the proceeds of the sale; or
3. the secured creditor may enforce the lien or foreclose on the
property pursuant to applicable laws. (FRIA, Sec. 114)
E. LIQUIDATOR
Powers, duties and responsibilities of the liquidator
The liquidator shall be deemed an officer of the court with the
principal duty:
a. of preserving and maximizing the value and recovering the
assets of the debtor, with the end of liquidating them and
discharging to the extent possible all the claims against the
debtor; (FRIA, Sec. 119)
b. to take an oath and file a bond, in such amount to be fixed by
the court, conditioned upon the proper and faithful discharge of
his powers, duties and responsibilities. (FRIA, Sec. 117)
The powers, duties and responsibilities of the liquidator shall
include, but not be limited to:
a. to sue and recover all the assets, debts and claims, belonging or
due to the debtor;
b. to take possession of all the property of the debtor except
property exempt by law from execution;
c. to sell, with the approval of the court, any property of the
debtor which has come into his possession or control;
d. to redeem all mortgages and pledges, and to satisfy any
judgment which may be an encumbrance on any property sold
by him;
e. to settle all accounts between the debtor and his creditors,
subject to the approval of the court;
f. to recover any property or its value, fraudulently conveyed by
the debtor;
g. to recommend to the court the creation of a creditors'
committee which will assist him in the discharge of his functions
and which shall have powers as the court deems just,
reasonable and necessary; and
h. upon approval of the court, to engage such professionals as may
be necessary and reasonable to assist him in the discharge of
his duties.
In addition to the rights and duties of a rehabilitation receiver, the
liquidator shall have the right and duty to take all reasonable steps
to manage and dispose of the debtor's assets with a view towards
maximizing the proceedings therefrom, to pay creditors and
stockholders, and to terminate the debtor's legal existence. (FRIA,
Sec. 119)
F. DETERMINATION OF CLAIMS
Registry of claims
Within twenty (20) days from his assumption into office, the
liquidator shall prepare a preliminary registry of claims of secured
and unsecured creditors.
Secured creditors who have waived their security or lien, or have
fixed the value of the property subject of their security or lien by
agreement with the liquidator and is admitted as a creditor for the
balance, shall be considered as unsecured creditors.
The liquidator shall make the registry available for public
inspection and provide publication notice to creditors, individual
debtors, owner/s of the sole proprietorship-debtor, the partners
of the partnership-debtor and shareholders or members of the
corporation-debtor, on where and when they may inspect it. All
claims must be duly proven before being paid. (FRIA, Sec. 123)
Right of set-off
If the debtor and a creditor are mutually debtor and creditor of
each other, one debt shall be set off against the other, and only
the balance, if any, shall be allowed in the liquidation proceedings.
(FRIA, Sec. 124)
Opposition or challenge to claims
Within thirty (30) days from the expiration of the period for filing
of applications for recognition of claims, creditors, individual
debtors, owner/s of the sole proprietorship-debtor, partners of
the partnership-debtor and shareholders or members of the
corporation-debtor and other interested parties may submit a
challenge to a claim or claims to the court, serving a certified copy
on the liquidator and the creditor holding the challenged claim.
(FRIA, Sec. 125)
Finality of the claims
Upon the expiration of the thirty (30)-day period, the
rehabilitation receiver shall submit to the court the registry of
claims containing the undisputed claims that have not been
subject to challenge. Such claims shall become final upon the filing
of the register and may be subsequently set aside only on grounds
of fraud, accident, mistake or inexcusable neglect. (FRIA, Sec. 125)
G. LIQUIDATION OF PLAN
Within three (3) months from his assumption into office, the
Liquidator shall submit a Liquidation Plan to the court. The
Liquidation Plan shall, as a minimum, enumerate all the assets of
the debtor, all the claims against the debtor and a schedule of
liquidation of the assets and payment of the claims. (FRIA, Sec.
129)
Sales of assets in Liquidation
The liquidator may sell the unencumbered assets of the debtor
and convert the same into money. The sale shall be made at public
auction.
However, a private sale may be allowed with the approval of the
court if:
a. the goods to be sold are of a perishable nature, or are liable to
quickly deteriorate in value, or are disproportionately expensive
to keep or maintain; or
b. the private sale is for the best interest of the debtor and his
creditors. With the approval of the court, unencumbered
property of the debtor may also be conveyed to a creditor in
satisfaction of his claim or part thereof. (FRIA, Sec. 131)
Concurrence and preference of credits
The Liquidation Plan and its implementation shall ensure that the
concurrence and preference of credits as enumerated in the Civil
Code of the Philippines and other relevant laws shall be observed,
unless a preferred creditor voluntarily waives his preferred right.
For purposes of this chapter, credits for services rendered by
employees or laborers to the debtor shall enjoy first preference
under Article 2244 of the Civil Code, unless the claims constitute
legal liens under Articles 2241 and 2242 thereof. (FRIA, Sec. 133)
 credit documents, there was no mention of penalty charges, but
on the promissory note the penalty charges were detailed. On the
III.TRUTH IN LENDING ACT & DATA PRIVACY ACT first month that the loan was due, Jungkook failed to pay on time.
A. TRUTH IN LENDING ACT BTS Bank sent him a statement of account for the total amount
1.PURPOSE due, which includes interest and penalty charges. Jungkook
To protect the public from lack of awareness of the true cost of contests the penalty charges and avers that he is not liable thereto
credit by requiring from the creditor the disclosure of full since it wasn’t included on the disclosure statement. Is Jungkook
information incident to a credit transaction. correct?
A: No. The reference to the penalty charges in the promissory note
Disclosure requirement constitutes substantial compliace with the disclosure requirement
Creditors are required to furnish to each person to whom credit is of the Truth in Lending Act. (BPI vs. Spouses Yu)
extended, prior to the consummation of the transaction, a clear
statement in writing setting forth, to the extent applicable with
rules and regulations prescribed by the Board, the following 2. OBLIGATION OF CREDITORS TO PERSONS TO WHOM CREDIT IS
information: EXTENDED
1. the cash price or delivered price of the property or service to be 3. COVERED AND EXCLUDED TRANSACTIONS
acquired; 4. CONSEQUENCES OF NON-COMPLIANCE WITH OBLIGATION
2. the amounts, if any, to be credited as down payment and/or
trade-in; B. DATA PRIVACY ACT
3. the difference between the amounts et forth under clauses (1) 1. DEFINITION OF TERMS
and (2);
4. the charges, individually itemized, which are paid or to be paid 2. SCOPE OF APPLICATION
by such person in connection with the transaction but which are
not incident to the extension of credit 3. DATA PRIVACY PRINCIPLES
5. the total amount to be financed;
6. the finance charge expressed in terms of pesos and centavos; 4. PROCESSING OF PERSONAL DATA
and
7. the percentage that the finance bears to the total amount to be 5. SECURITY MEASURES FOR THE PROTECTION OF PERSONAL DATA
financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation. 6. RIGHTS OF DATA SUBJECT
7. DATA BREACH NOTIFICATION
Q: Who are the lenders required to disclose? 8. OUTSOURCING AND SUBCONTRACTING AGREEMENTS
A:a.Banks and other financial institutions; 9. REGISTRATION AND COMPLIANCE REQUIREMENTS
b. Any person in the business of extending loans, or selling or
renting property or services on a time, credit, or installment
basis, either as principal or as agent.
Q: What are the effects if the creditor fails to disclose?
A: The credit transaction remains valid and enforceable, but the
debtors are afforded the following remedies:
a. File a civil case for recovery of damages in the amount of Php
100 or of twice the finance charged required by the creditor,
whichever is greater, but not to exceed P2,000.
- Must be brought within one year from the date of the
occurrence of the violation, in any court of competent
jurisdiction.
b. If non-disclosure is willful, file a criminal case. Penalty is fine not
less that P1,000 or more than P5,000 or imprisonment for not
less than 6 months, nor more than one year or both.
c. The lender will have no right to collect such charge or increases
thereof, even if stipulated in the promissory note (Development
Bank of the Philippines vs. Arcilla, 462 SCRA 599).

Examples of violations of Truth in Lending Act:

a. Requiring debtors to sign credit documents and promissory
notes in blank, and the unilaterally filling them up later on
(Spouses Silon vs. PNB)
b. A promissory note which grants the creditor the power to
unilaterally fix the interest rate means that the promissory note
does not contain a clear statement in writing of the finance
charge (UCPV vs. Veloso).

Problem:
Jungkook went to Dynamite Bank and applied for a loan. The bank
manager made him simultaneously sign credit documents and a
promissory note. On the disclosure statement included in the