Q: The president of ABC Corporation entered a contract with XYZ Corporation to continue the

construction of a building in Makati. So there was a construction initiated by ABC Corporation.

It had been completed so the president of ABC entered the contract with XYZ Corporation.
Subsequently, ABC was placed under the receivership. Can the receiver confirm the option to
purchase the property granted by ABC to XYZ as consideration for the completion of the
construction of the building?

But in this case, the option is granted by the president of ABC Bank. Can the receiver confirm
that option first granted to XYZ Corporation? What are the functions of a receiver under the
central bank act?

A: The functions of the receive under the new receiver, it is to ensure that the assets of the
corporation will not be dissipated.

Q: Does the receiver have powers of management?

A: No

Q: Does the receiver have powers of dominion?

A: No, the receiver can only exercise acts of administration.

Q: So if the receiver can only perform acts of administration and the receiver's duties is to guard
the assets for the benefit of creditors in preparatory relation, does that make sense then that
the receiver will confirm an option to purchase property granted to XYZ Corporation?

A: No.

Q: Even assuming that XYZ completed the construction of the building?

A: No, Dean.

Q: Are you changing your answer?

A: Yes, Dean.

Q: What about this one? Can ABC or can XYZ, confirm the option to purchase the property
granted by ABC Bank before it was placed under the receivership?

XYZ is the contract, right? XYC is the one who construct the building in consideration for the
construction of the building, it was granted the option to buy it, right? It was done before the
bank was placed under the receivership, right? So the receiver is appointed and we said the
receiver cannot confirm an option for this property to be an act of dominion and that's not
consistent with the functions of a receiver, right? This time I'm changing the question into can
XYZ Corporation enforce the option to buy the property earlier granted by ABC Bank?

A: No, Dean, it cannot enforce the option because when a bank is placed under receivership,
what will follow next is necessarily the liquidation of the bank. And during the liquidation, the
claims against the corporation should be brought with the liquidation board if not in a separate
action board.

Q: Let's say this time the bank was placed under receivership. So can the president grant an
option to buy the property of the corporation?

A: No.

Q: With what is the effect? What is the effect of the appointment of the receiver as far as the
bank is concerned?

A: Once a receiver is appointed, the officers of the corporation no longer have management of
the same.

Q: Does it amount to an injunction to enjoin them to meddling with the affairs of the property
of the corporation?

A: Yes, they can no longer control the properties and assets.

Q: If a receiver is appointed, can the receiver rehabilitate the bank?

A: No, it can no longer rehabilitate the bank according to the New Central Bank Act.

Q: According to the New Central Bank Act or amended to the New Central Bank Act Charter?

A: The amendment to the Charter.

A: Under the amendment, once a receiver is appointed, what should follow next is the filing of
a petition for assistance in liquidation with the RTC. If removed the 90 day period where the
receiver may rehabilitate…

Q: Can the bank apply a comment or opposition to the petition for assistance in liquidation and
that comment or opposition raise as defenses the bad faith on the part of the BSP in closing the
bank?

A: No, that was the old ruling. However, in the case of YUSECO v. PDIC as the statutory
receiver of UNI Bank, it was held that the remedy of the bank would be to within 10 days from
receipt of the order, the stockholders representing at least majority of the outstanding capital
stock should file a petition for certiorari under Rule 65 with the Court of Appeals. It should be
premised on excess, on bad faith or grave abuse of discretion among jurisdiction.

DEAN:
There are only two topics on Central Bank Act in accordance with your syllabus.

First, Banks In Distress and second Remedies Available to the Closed Banks.

Let's take up the first item. Remedies or tools available to BSP in case the bank is in financial
distress. Now, there are other assumptions or operations for BSP even though the bank is in
normal operation or business, but given that the syllabus limited only to banks in distress, then
we'd only go over the discussion on the tools and remedies available to BSP to other in financial
distress.

And these are the appointment of a conservator, the appointment of a receiver, and of
course, once the receiver is appointed, the closure and liquidation of the bank.

SUB TOPIC appointment of a receiver.

Q: So when does BSP or when BSP place a bank under receivership?

A: The key word is iniquity, right? Or lack of liquidity that is adequate to protect the interests of
creditors, depositors, and stakeholders of the bank.

So if the bank is in that financial condition, well, it doesn't have a state of liquidity that is
adequate to protect the interests of credit stakeholders in place under receivership.

Q: What do we mean by lack of liquidity as opposed to insolvency?

A: So by lack of liquidity, we mean the assets are more than the liabilities. But the bank
foresees the possibility, or the bank cannot pay its obligations in ordinary terms of ability.

Q: how can it be that a bank has more assets than the liabilities, and yet cannot pay its
obligations as they hold you?

A: So let's think of a bank that has granted loans secured by mortgages, and those loans were
not paid. The bank can foreclose mortgages, obviously, and the bank can acquire those
properties if there is a redemption right at the site for the mortgages. But these properties are
not in cash, and they get converted to cash right away.

So that is liquidity. It doesn't have cash to pay off their liabilities.

A: given period of one year to restore the bank to a state of liability. The conservator would
take charge of the assets, liabilities of the bank, reorganized management. So, one key role or
function of the conservator that distinguishes it from a receiver is that it will emphasize
management power. Whatever board of management can do, the conservator likewise can do.
So the conservator takes the place of the management.

Of course, there are certain powers that are reserved for the board of directors, like the ones
we discussed under Corporation Law, we covered in RCC.

But management powers are now transferred to the receiver.

Q: What is the importance of that statement that management powers are now with the
conservator?

A: It means that when the bank is faced under conservator, it does not result in the closure of
the bank, unlike the appointment of a receiver, right? So a conservator is less stringent
compared to the appointment of a receiver.

Q: Is it possible, not to appoint a conservator and right away close the bank? So let's say the
bank is in a state of liquidity, lack of liquidity, collecting interest of creditors, depositors,
stakeholders for a reason they cannot continue without involving losses with stakeholders. Is it
automatically in the part of BSP to appoint a receiver? Is it duly bound to appoint a
conservator?

A: It's not. BSP may close the bank. So the discretion belongs to BSP to appoint a conservator
in the bank with a chance to be rehabilitated or simply decide to close it. If there's a finding
that the bank can deal with business without involving proper losses with the boss or the
creditors.

So there's a chance that it may just involve losses with the boss or the creditors' stakeholders.
And for this reason, the bank can be closed. Or the bank can, replace under conservatorship.
But BSP has no obligation to replace under conservatorship. It depends on the financial
position of the bank. And take into account the mandate of BSP to oversee the operations and
functions of the bank.

Q: What about the other one? The appointment of a receiver. When will a bank be placed
under receivership?

SUB TOPIC These are the grounds before the amendment to the charter of some bank.
FIRST the ability to pay the obligations as they fall due. These are the abilities we don't argue as
a business. Except if it is due to extra large demand brought by panic to the community.

So the basic piece of this series, the series revival. Every year, the members of Congress, the
Senate and House, members of the Supreme Court, the cabinet, the members of the family
which is the family of the president, are gathered to visit the state meeting and others of the
president. And when they're all gathered there, may nagpasabog.
So who will now take, who will now, what, manage or bring the government? So there is a,
there's a game of survival. One, did not attend the state meeting and others. He will not be
the president basically. So he was appointed as the new president. That was the first thing he
did. Remember regarding banks, he put a cap. So withdrawal should not exceed the amount of
$500 a week.

So let's say in that situation, the bank is faced with a series of loss. And as a consequence, the
bank cannot accommodate all of them.

Q: Can the bank replace under conservatorship?

A: No, right? Because due to extraordinary demand.

Q: What kind of liabilities are referred to on the receiver? And it's a service or withdrawal of the
products. It's called bank run. So when the bank ran, ibig sabihin ang withdrawal ay sabay-
sabay. Then the bank will be placed under conservatorship.

SECOND GROUND, the most common ground is insolvency

but take a look at how the law defines insolvency. It's not assets less than the liabilities.
Instead, the value of the bank assets is not enough to pay the obligations of the bank.

THIRD GROUND is if the bank will continue the business without involving proper losses to its
depositors and creditors.

So take note, it's not imminent loss or actual loss that is a ground of the receiver. But just the
fact the bank will continue without involving proper losses to its depositors and creditors.

In the hands of management of the board, the bank cannot continue the business without
involving proper losses to its depositors and creditors. For the financial condition of the bank,
the management, the capability, the bank cannot continue the business without involving
proper losses to its depositors. In this case, the bank will face under receivership.

This was asked in the bar, by the way, MCQ. So when Justice Hernando was the examiner, sabi
niya the bank will face under receivership if it cannot continue the business without involving

A- actual, B- imminent, C- potential, and D- proper losses. The answer is of course is proper
losses to the depositors and creditors.

FOURTH GROUND is violation of a cease and desist order in case involving fraud and dissipation
of assets. In which cases, the bank will be prohibited from doing business.
Q: What are the additional grounds under the amendment?
A: lateral closure of the bank. Are there public declarations or foreclosure of the bank? Yung
walang pasabi-sabi na magcloclose.

And then dormancy for at least six months. The ability to pay obligations. Other than ordinary
liabilities.

And then another significant amendment on the ground of the receiver. As the member said, if
the realizable value of the bank assets, less liabilities, it's now the assets are the realizable
value is insufficient. And determined by BSP to meet the obligations of the bank.

Banco Filipino was a bank that was closed, re-opened, and closed again. So when was the first
time Banco Filipino was closed? 1990. Despite the slogans of 1908, it was closed by Central
Bank. And I remember there was a very famous paper because it was Kitty, you know, Hello
kitty, a product that entices young depositors to put money in the bank. It was closed for what
reason? Insolvency.

Q: So when is a bank insolvent?

A: If the assets are less than liabilities

Q: What are the assets of the bank?

A: Cash, real property, personal property, collectibles or reusable.

Q: What about liabilities?

A: Deposit. Deposit of liabilities. Obligations going to creditors, right? Obligations under credit
and under a stretch position.

Banco Filipino Savings Bank v. Central BankG.R. No. 70054. 1 December 1991
DOCTRINE: In case of premature conclusion that the bank is insolvent as when the Central Bank
unilaterally deducted valuation reserves or allowance for probable losses for loans and
investments from the assets of the bank.

Now there's one item that was deducted from the assets of Banco Filipno. That was valuation
reserves or levels of probable losses.

Let me explain. In banking, this item is deducted from the assets of any bank institution. It's
called valuation reserves.

Q: How does it work? When a bank grants a loan or makes an investment, there's a chance
that that loan may not be paid, right? Or the investment returns are. Let's take a look. Let's
see a bank grants a loan of 100 million.
Seek a mortgage on property. Real property. It turns out the type of loan is forged. Forged. So
therefore there's a chance that that 100 million loan may not be *inaudible* So the bank is
required to set up an allowance for the probable loss. Just keep in mind, they're using the
money of the public to grant the loan or make an investment, right? So they're required to set
up an allowance for probable loss.

So if it is required to deducted from the assets of a bank, how come in this case, the SC said it's
wrong? It was wrong because the Central Bank deducted the amount of 612 million 2111 pesos
from the assets of banco Filipino corresponding to a lowest probable loss without consulting
with management. Without due process. So by itself, the Central Bank says this loan returns
hours that we have to put up a lowest probable loss. So the bank was re-open. But actually it
was closed again, right?

So now under revision, it's the BSP determines without having to consult with management
whether or not the assets are enough. In the new of the assets will be enough to pay the banks
over the years. But that's the history of the division.

If a bank is paying a distribution with the consequence, you may think that the phrase in which
case the bank will be committed to the business is only part of the idea.

Meaning, it's only proper if the bank is placed on a receivership in case of violation of a cease
and desist order. But that rule that requires the closure of the bank and being prohibited to do
business applies on every ground of appointment for a receiver.

Meaning, if the bank is placed on a recerivership for any of these grounds that we have
enumerated, then the bank is committed to the business. The bank will be closed. Another
closure comes next. Liquidation of the bank.

So under the old law, before the amendment, there was the option granted to the PDIC as the
receiver by law for all failed banks to rehabilitate the bank within 90 days from the appointment
of a receiver, 90 days.

Within 90 days, the PDIC will try to rehabilitate the bank. Either get an investor or require the
stockholders to induce capital in the corporation or grant loans perhaps to the bank. So once a
bank is placed on the receivership and closed, the next step is liquidation. That's it.
Liquidation. Meaning, selling the assets, convert them to cash, pay the obligations to
creditors, whatever is left given to the stockholders of the bank.

Q: In my book, in our book, I wrote that a bank may be rehabilitated in the course of
liquidation. Let me explain because, Is it possible for a bank under liquidation, is it possible
for PDIC to sell the assets of this bail bank to an investor? And the investor will agree to
repaint the closed bank? Let’s say to pump in capital incorporation with the consent of BSP?
It's possible. As long as it’s done in the course of liquidation. So it can be rehabilitated in the
course of liquidation. Baka malito kayo. In the bar, if the bank is closed, that's it, liquidation.

Q: What do you mean by liquidation again? So one of the phases again of liquidation,
remember?

A: The first phase is asset recovery. Recovery assets. And part of the recovery of assets is to
collect receivables, right? Collectibles. What do you do with those assets? Do you maximize
asset recovery, use these assets to pay the negation? And who are your creditors? You
determine your creditors. And then which ones are valid?

Which ones are enforceable? Which ones are stale? And which ones are being paid first. So
once you determine your creditors, you pay them based on concurrence and premise credit.
Whatever is left, you distribute to the stockholders.

Q: So it's impossible to give back something to the stockholders if a bank is closed. Is it

possible? Is there a possibility that there have been single 2525 assets in case of liquidation?

A: Yes, because insolvency is not the only ground to close the bank.

If the ground is insolvency, then there will be no assets to be given to the stockholders. But the
premise is the assets are not enough to pay the obligations to creditors. But the bank, I mean
placed in receivership, in case of financial closure, in case of dormancy, in case of an inability
to pay the obligations as they go on due, in case of a cease and desist order.

So if the ground is insolvency, it's very much possible that there will be residual assets. So what
I'm saying is, it's very possible that there will be excess or receiving assets even if you close the
bank. As long as the ground is not dissolved.

Q: What are the effects of the appointment of a receiver?

A: So at FIRST, it amounts to an injunction for the officers of the bank to intermeddle with the
property and effects of the bank. Basically it means that when a bank is placed on a
conservatorship, no bank officer can ever deal with the property or effects of the bank. This is
the second injunction. Do not interfere, meddle with the property and effects of the bank.

Abacus Real Estate Development Center, Inc. v. Manila Banking Corporation, G.R. No. 162270,
06 April 2005.

Why? These properties are to be gathered by the receiver for the benefit of the clients. These
are to be used to pay the obligation of the bank to its creditors. The one we discussed with Mr.
Mai earlier, because this was asked twice in the bar already. So Manila Bank in operation used
to be a very prominent bank in the 1990s, but placed on conservatorship. They started
construction of a building in Makati, along Ayala Avenue, a 21 storey building, to be their head
office. And then, well, to finish the construction, the President entered into a contract with
Abacus, for Abacus to complete and granting an option to buy the property. And then based on
the rsolution by BSP.

Q: So the first question is, can Abacus enforce the option to buy the property granted by the
President? The SC said no. Can the receiver confirm the option to buy the property granted by
the President? NO. But again, because the receiver proposes acts of administration, no acts of
dominion, and confirmation of an option to buy a real property, an act of dominion not an act
of administration. And then again, we have the receiver appointed, it's an injunction against
the officer from meddling with the property of the property.

Second, the appointment of the receiver means closure of the bank. So the bank is forbidden
to do business, not allowed in the business. Can’t accept loans. Can’t accept deposit. Can’t
grant loans. Can’t engage in partnership operation. Is the bank liable to the interest on deposit?

A: So the bank receive deposit, right? In case of conservatorship. Is the bank liable to make
interest on the deposit? And SC said, if the bank cannot earn income because it's forbidden in
the business, then it's not liable to make interest on the deposit.

Q: What about this case? Filed by former CJ Sereno. If the bank is placed on conservatorship
and ordered to close by BSP, does it have the obligation to pay rentals for the lease of the
property? Can the rentals be recovered or should the balance be waived or excused if the bank
is placed on receivership when ordered to close by BSP?

A: And this is what the Supreme Court said. The order for closure is not force majeure unless
the order closure was in bad faith or of grave abuse of discretion.

In that case, the bank paid rentals for four years in advance. Biglang pinasara ng BSP. So sabi ng
banko, can I get a refund from the lessor? Kasi close na kami, not allowed to do business. Not
allowed to do business. So meron bang Karapatan ang banko to get the rental for the closure of
the lease? Sabi ng SC, no. Because force majeure payment of obligation to pay rent.

Another effect of appointment of receiver

Q: So let's say a bank officer signed a cheque. And then the bank was paid under receivership.
As a consequence, that cheque cannot be paid. Can the payee sue the signatory for violation of
BP 22?

Ordinarily, without this case, you tell me liable, right? Because it is a special law. And good
faith is immaterial. And any time you issue a cheque that is dishonored for being loaned against
special funds then you're liable. Regardless of good faith or bad faith.
But not in this case. So the SC said there is no criminal obligation on the part of the loan or the
cheque because payment became a legal impossibility(?). But if the bank is closed, not allowed
to do business then it becomes nearly impossible for the bank to pay the paying of the cheque.
And second reason, if you allow payment without paying of the cheque you're giving him
preference to be in your own creditors of the bank. In violation of the rule on liquidation that,
so that's the reason why in the case of a receivership they're excused if they're not able to pay
or honor the cheque that the bank issued.

Q: What about if there is a pending case filed by the bank before the case of receivership?
There's a case in the outline of our book, this is the case

Hermosa Savings and Loan Bank v. Development Bank of

the Philippines, G.R. No. 222972, February 10, 2021

So DBP granted a loan to Hermosa Bank. So that loan was not paid. So the bank filed an action.
While the case was pending, Hermosa Bank was placed under receivership. And if placed
under receivership is closed, right? And next step is liquidation of the bank.

Q: What will happen now to the action for collection filed by DBP against Hermosa Bank? Can
an action continue because any way to start it before the bank was closed? Or should that case
be deferred and transferred to the liquidation court? You know about this document of
adherence, right? There's an exception.

It's on the Central Bank Charter. So the case filed by DBP against Hermosa Bank, Hermosa Bank
is on liquidation, right? The case filed by DBP against Hermosa Bank should be transferred to
the liquidation court. So all claims against the bank should be filed on the liquidation
proceeding. To avoid, multiplicity of suits.

Now speaking of that, so all claims against the bank on the liquidation, filed within the
liquidation court, what about claims by the bank? Can the bank that is foreclosed have claims?

Of course, because they can have collections, they can have receipts, they can have planning
terms, they can have mortgages. Those terms ought to be collected, right? Can the bank that
is closed collect from those mortgages? Yes, but to the receiver.

Can the bank that is foreclosed file petitions for each one with possession? Yes. To whom, the
receiver? So any claim by the closed bank may be continued, but by the receiver, as part of
the liquidation process, because the bank has maximized asset recovery. So there's this case
in Manalo v CA, if a bank grants a loan, they give a mortgage, if the loan is not paid, the bank
will foreclose the mortgage,

right? After foreclosure, there will be redemption, right? In the right of them to not exercise,
the bank will become the actual owner of the property by conjugating title of the property. And
once that is consolidated, the bank is now ready to take possession of the property if mortgage
is still there. If the mortgage is still in your possession, what's the next step? Petition for this
one is not to leave the possession. To ask the mortgage from the mortgage property.

Q: So can the receiver file petitions for the writ of possession? And if yes, where will it be filed.
Will it be filed at the liquidation court or outside the liquidation court?

A: Outside, right? Because the claim is not against the bank, but claim filed by the bank.

Q: The bank has insurance for this property. And the property was insured by the bank. Can
the bank collect the insurance proceeds from the insurer?

Yes, to the receiver. If the insurance company is refused to pay, where will the claim or the
action be filed? Is it filed at the liquidation court or filed with another RTC? With that RTC,
there is a claim not against the bank, but claimed filed by the bank. So let's keep in mind the
basic rule. Claim against the bank should be launched by the liquidation court but the claim by
the bank may be continued outside the liquidation proceedings.

If the bank is closed on receivership, what is the consequence if the PDIC is not impeded, not a
part of the case. So if the bank is closed on receivership, the PDIC as the receiver by law has to
join the petition or the complaint or at least authorize the filing of the petition or complaint.
Otherwise, it is dismissible. Why? Because the personality of the bank should be represented
by the receiver by express provision.

Q: How do you distinguish a conservator from a receiver?

A: So first, the conservator is appointed in the bank issue to the review of the state of lack of
liquidity to protect the interests of stakeholders.

What about the receiver? There are many grounds to appoint a receiver the most common is
insolvency, second, if a conservator is appointed to take over management of the bank's
position, grant assets, revenues to organize management, to restore the bank to a state of
liability.

What about the receiver? He gathers the assets and revenues for the benefit of the creditors.
Third, the conservator has one year to restore the bank to a state of liability. The receiver, who
was appointed, has no option to rehabilitate, but has the obligation to close the bank and
proceed to liquidation.

Q: So who closes the bank, not PDIC, right?

A: It's BSP.

Q: But who is required to petition for liquidation a litigation? It's not BSP, by the way. It is PDIC,
because PDIC needs the court's assistance to get the liquidation of the bank.
So it's petitioned for assistance in the elimination, by the PDIC, filed with either Makati, the
principal office of PDIC, or the defendant’s of the bank's principal place office.

SUB TOPIC remedies available to closed bank

Q: Who will file petition for certiorari?

A: It's filed by or authorized by stockholders representing these majority of outstanding capital

stock. That's why the derivative suit will not lie when it comes to assailing the order of closure
where the law says filed by stockholders only at least majority of outstanding capital stock. The
issued certiorari filed by stockholders representing majority of outstanding capital stock who in
10 days receive an order of closure premised on bad faith or grave abuse of discretion.

So, once a bank is closed by BSP, PDIC takes over, right? . And the remedy of the bank is go to
the CA for petition for certiorari? Can the bank apply for issuance of the or a writ of preliminary
junction to restrain the liquidation of the bank?

You mean to tell me that the bank cannot ask for the TRO to stop the liquidation ? What's the
point of getting the petition for certiorari if you cannot restrain the liquidation of the bank?

A: You should apply issuance of TRO or injunction to restrain the liquidation of the bank.
Otherwise, it becomes useless.

Q: Can you get the TRO to stop the closure?

A: No po

Q: Yun ang ibig kong sabihin. That's what you have in mind. You cannot get the TRO to stop the
closure. You cannot get an injunction to stop the closure. You cannot get a TRO to stop the
liquidation, right?

But you cannot get a TRO to stop the liquidation because the order has been issued by BSP. So,
the remedy is after each one of the order, you cannot second-guess what BSP is doing, right?

What the law says is that the order of closure is exercise of police power. It cannot be
restrained. But if it becomes subject to initial scrutiny only after each one's order, not before
each one's order.

Q: Is it correct to say that the bank can be closed without due process? Can a bank be closed
without due process?
Q: So, BSP can close a bank. That's exercised by police power right? So, if the bank can be
closed without notice of hearing, then what would be the basis then of BSP to close a bank?
Where would BSP rely or premise its decision to close a bank?
A: As to the premise of the BSP, it is particularly stated in Section 30 of the new central bank act
which provides that it would be based upon the part of the head of the supervising and
examining department of the monetary board.

So, the SC said the BSP may rely on the report of the conservator if one is appointed or if none
is appointed, the report of the supervision and examination department of BSP. So, in BSP,
every department calls for visual examination that oversees the operation of the bank, that can
inquire the solvency and liquidity of the bank, that can assert that the bank complies with
those rules and regulations, and can enforce corrective measures. So, if this department says
this bank should be closed because of the insolvency and lack of liquidity, BSP may rely on the
report.

Q: Can BSP rely on the report without conducting another audit or examination?

A: Yes.

So, the SC said you cannot ascribe bad faith the part of BSP just because it did not conduct
another audit. Just because it relied completely on the findings of the supervision and
examination department. So, this is the basis of the order of closure. But in case of bad faith
and grave abuse of discretion, then there's a remedy with the supervision board.

Q: The bank is being mismanaged by the board and the officers. That results in amortization of
business and imminent danger of dissipation of balance. Can the creditors of this bank file a
petition with RTC to place the bank under control of the management? So, there's a clear
evidence of dissipation of assets, clear evidence of participation of business, and they both
concur. So, there is serious participation of business and imminent danger of dissipation of
assets in the hands of management of the board. So, can the creditors of the bank and or
stakeholders of that bank file a petition with the RTC to place this bank under control of
management?

A: In this case, the officers cannot do such thing. Since the authority that is given to place a
bank in a receivership would be upon the monetary board, and they cannot file a petition as
since the court in the power of the court cannot appoint a receiver. Therefore, the court
cannot also grant such petition. So, the petition cannot.

Q: So, that authority is lodged to BSP not to the court. So, it is a circumvention of authority of
BSP. Authority allowed to authority to place a bank under the receivership, conservatorship, is
not to the court but to the BSP.

This was asked in the last bar examination. So, a bank is liquid. Bank is engaged in safe and
sound baking practice.
we said there has to be due process, right? But that due process does not mean notice and
hearing. It means are basis to close the bank. But that basis can be, well, can be, can depend
on the report of the conservator or supervision and examination department.

CLOSE NOW HEAR LATER DOCTRINE

It is the rule that allows BSP to order the closure of the bank even without prior notice and
hearing. BSP may rely on the report of the head of its supervising and examining department, or
of the conservator, if one is appointed. (Alfredo Vivas v. Monetary Board of the Bangko Sentral
ng Pilipinas, et al., G.R. No. 191424, August 7, 2013).

RATIONALE OF THE CLOSE NOW, HEAR LATER DOCTRINE

The rationale of the close now, hear later doctrine: If a bank would be entitled to notice and
hearing before it is closed, bank runs would be the order of the day. What would you do if you
know that your bank is being investigated for insolvency or illiquidity? The first thing you'll do is
to go to your bank and get your money. Second, it may encourage the officers to dissipate
assets. If you know that your bank is about to be closed, it will be too tempting to appropriate
assets of the corporation bank; it may lead to the dissipation of assets instead of being secured
by the PDIC. Under the situation, therefore, the SC said that swift action is needed to protect
the stakeholders of the bank.

Secrecy of Bank Deposits - R.A. No. 1405 and R.A. No. 6426, as amended

Q: A Senator got a tip from a bank employee, the senator was interviewed, then he said that
Mayor Duterte has an account with BPI and it contains millions of pesos.

Q: Can you sue the Senator for violation of the bank secrecy?

A: No.

Q: What about in conspiracy with a bank official who disclosed information?

A: No.

Q: What about the bank official who disclosed information to Senator?

A: Yes.

Q: This one has not been asked in the bar. Let's say Y forged a check payable to the order of
ABC Corporation of which her husband is the president. So the proceeds of the check were
deposited in the account of the wife.
So the husband filed a criminal complaint of qualified theft on behalf of ABC Corporation
against the wife and the fiscal found probable cause was indicted to the wife for information on
the qualified theft in the course of the prosecution the prosecutor asked for issuance of
subpoena to compel the manager to disclose and make available to the court all the funds of
the wife accused to the bank.

Q: So the question is should the court grant the request for subpoena?

A: The court should not grant the subpoena since it was not ordered in particularity with
whatever or which account of the wife is needed to be investigated.

Q: Can prosecutor counter argue that the funds in the account are to the matter.. therefore with
the exception to the loan against unauthorized disclosure.

A: No, dean. Since as provided in RA 1405 that in order for a bank to be investigated first it must
be pending case and that the investigation must provide for a specific account and that
investigation is limited to that specific account in this case in the facts provided the court
ordered all of the accounts of the wife furthermore it must be noted that it is an encroachment
in the privacy of the wife because a bank is an extension of one's privacy.

Q: The information says the crime qualified theft were the proceeds of the crime deposited with
this bank and the accounts also meaning the C160 T1140 can the prosecutor now ask the court
or subpoena to compel about that specific account.

A: If in that case then the court may allow or grant it.

That's what Chief Justice Peralta said, the information must allege were the proceeds of the
crime were deposited otherwise they are allowed to do a phishing expedition and the
engrossment the right privacy of the account.

In our example, we said all funds right all funds of the accused that's not allowed you have to
specify the account and the account with the crime charged in the information. Otherwise it's
not a solving matter of litigation.

It shall be unlawful for any official or employee of a bank to disclose or allow the examination or
inquiry by any person other than those excepted by law any information concerning Philippine
currency bank deposits of whatever nature and kind, as well as investment in government
securities.

BAR Q: A columnist overheard 2 tellers exchanging information about the account of a public
official that has gone up to P1Million. They were exchanging information in the course of the
performance of their duties as bank tellers, and it was overheard by the columnist. The
following day, the columnist wrote the same in his column. The public official subject of the
column charged the columnist and the 2 tellers for the violation of RA 1405.

Q: Who among them is liable, if any, for violation of RA 1405?

A: No one is liable. The tellers were disclosing to each other information in the course of the
performance of their duties, and not to a third party. It is the disclosure to a third party that is
violative of RA 1405, not to each other in the course of the performance of their duties.
Situation: If for example, a teller discloses information about the deposit of an account holder
to the VP for Security Services.

Q: Is there a violation of the law?

A: Yes, because the recipient of the information is not in a position or does not have any
business in knowing about the deposit of the account holder.
In our example, it is disclosure made by a teller to another teller in the course of the
performance of their duties, it will not violate the law. Disclosure is authorized.

Q: What about the columnist? Is he liable?

A: He is not liable because he is not a bank official or employee. He may have violated the right
to privacy of the public official, but he is not liable for RA 1405.

Situation: The wife, after a long day, shared information or stories with her husband, and told
that “You know sweetheart, itong account ni ganito lang laki laki na, umabot na ng 100M
pesos.” Napakwento lang siya. Long day, usually you tell stories with your spouse, napasobra
yung kwento na pati yung account saka balance ng deposit nung account holder nasabi sa
husband. Yung husband naman, isa pang chismoso, sinabi sa columnist.

Q: Among them, who is liable for the violation of RA No. 1405?

A:
Husband – No. Because he is not bank official or
employee.
Columnist–No.
Wife – Liable. Because she disclosed the information to her husband who is an unauthorized
third party.

Dean: They may be one in the eyes of God, but they are very much different in the eyes of RA
No. 1405. Disclosure of the Wife to her husband is unauthorized disclosure that falls within the
prohibition.
NB: If the one disclosing is bank official or employee, covering information about deposit, and
investments involving securities, RA No. 1405 is the applicable law.
ITEMS COVERED BY THE PROHIBITION AGAINST UNAUTHORIZED DISCLOSURE UNDER RA NO.
1405

a. All Philippine currency bank deposits of whatever nature with banks, including investment in
bonds issued by the government of the Philippines, its political subdivisions and
instrumentalities.

b. Trust funds and any sum of money invested in the bank which the bank may use for loans and
similar transactions are now included in the term “deposits.”

c. Deposits are thus no longer limited to those governed by the law on loans giving rise to
creditor- debtor relationship.

ITEM (A)
The term “deposit” here refers to deposits under Art. 1980 of the Civil Code that give rise to
creditor-debtor relationship.

TEM (B)
Q: Why is it again that trust fund is included under RA No. 1405?

A: The SC said it is to restrict the phrase “whatever nature and kind” to deposit is inconsistent
with the purpose of the prohibition. So, the phrase “whatever nature and kind” is broad enough
to include not just funds deposited but also funds invested to the bank being used for loans and
similar transactions.

Trust funds can be used by the bank for loans and similar transactions. Money market
placement can be used by the banks for loans and similar transactions. But money for
safekeeping cannot use it for loan because it is a contract of strict deposit, in fact the banks are
not supposed to use it – this is not governed by RA No. 1405. For trust funds and money market
placement, the fact that they can be used for loans and similar transaction are considered
deposits in the context of RA No. 1405.

Q: What about government securities i.e. treasury bills, investment of bills in GSIS? What about
investment of government securities e.g. when the government issued Maharlika bonds?

A: Yes. Under the Bank Secrecy Law, bank deposits of whatever nature including investments in
government bonds are considered absolutely confidential. This law prohibits the government
and its agencies, including the BIR, to look into bank accounts.

All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and
its instrumentalities. (Sec. 2, RA No. 1405)

EXCEPTIONS
Q: In what cases may information on Philippine currency bank deposits, as well as investment in
government securities, be disclosed, examined, or looked into without violating the law?
Meaning, in what cases can a bank disclose information about deposit and investment in
government securities without violating the law?

1. Written permission of the depositor;

2. In case of impeachment;
3. In case of order of a competent court in any of the
following cases:
a. in case of bribery or dereliction of duty of public
officials;
b. where the subject matter of litigation is the
money deposited;
c. prosecution for unexplained wealth (plunder is
akin to unexplained wealth);
d. prosecution for violation of the anti-graft and
corrupt practices act;
e. in case of violation of the anti-money laundering
law; and
f. garnishment of bank deposits.

NB: Under RA 1405, the issuance of court order is limited to bribery or dereliction of duty of
public officials and where the subject matter of litigation is the money deposited. The rest of the
enumeration is based on jurisprudence and the other laws.
4. The BIR may inquire into the deposit and other related information to determine the gross
estate of the deceased taxpayer for computation of estate tax;
5. The BIR may also inquire into bank deposits if there is an offer of compromise of tax liability
on account of financial incapacity to pay his tax liability;

a. WRITTEN PERMISSION OF THE DEPOSITOR

As you know, if the debtor is solvent, syempre mag-aagaw-agawan yung mga creditors assets
Sabi nung liquidator, paghati-hatian niyo yung property, para wala nang gulo, we hold the
agreement at least we know how to apportion the properties of the debtor. So if there's two
creditors nagcocomprise, sige ito yung sayo, ito yung sa akin. The agreement includes the right
and access to the deposit of the resolvent debtor.

Q: The question is, on the basis of the agreement, can these creditors not look at the assets,
or look at the bank facts of the resolvent debtor?

A: And SC say no, because there is no consent given by the resolvent debtor. And even though
it may be a part of the conventional agreement, there is no consent given in access to the
debtor.
All right, and then, the second case involving investigation of the Office of General Counsel of
BSP, an officer BDO charged with unsafe bank practice or making or deduction from the
account of a bank depositor. Ang defense ng officer ng BDO, I need this information as my
defense. I need an access to accounts as my defense. So she filed a motion with the General
Counsel's department for production governance. She authorized me to go to the bank
depositor. Should prove that I was authorized by the complainant to do this. In fact, I was
allowed to have access to the bank account being referred to in the complaint filed by the
complainant with the BSP.

Q: So on that basis, can the bank, the BDO officer have access to the bank accounts?

Sabi ng SC, ang nagbigay ng consent ay hindi naman yung 13538 complainant. That's not the
consent that we refer to under the law. And of course, the other reason is that BSP is not a
common court. Only common court case order allowing submission of bank. Okay, that's the
information.

IMPEACHMENT

Q: In case of impeachment. Why is it that in case of impeachment, the Senate may order
production of bank deposits or records?

A: Because once the Senate hears a complaint referred to or submitted by the Congress, it
becomes a court, an official court that can hear, try to convict the public official. Any court can
have access to bank deposits.

One of the exceptions in R.A. No. 1405, and is not mirrored in R.A. No. 6426 is impeachment.
In case of impeachment, the impeachment court, which is the Senate, may look into the
accounts of the public official being impeached. It covers not just Philippine currency but funds
likewise. For foreign currency, will discuss that in a short while.

Dean: It is not clear though whether the inquiry by the Senate impeachment court is limited to
the account of the impeached official or any account related to the impeachment proceedings.
There’s no case yet. But given the previous impeachments proceedings, it seems that the power
of the impeachment court extends not just to the account of the official impeached but even to
the accounts of private individuals if they have any bearing or relation to the impeachment
proceedings.

I have seen that during the time of the former President Erap Estrada when he was impeached.

Q: Why is it done, in case of impeachment, the relevant accounts may be looked into without
violating the law? A: Because in case of impeachment, the Senate, acting as impeachment court
has the power to issue subpoenas to determine the culpability and liability of the impeached
official. In other way, it becomes a court. As a court, it can issue subpoena ad testificandum and
subpoena duces tecum, or any information related to the impeachment proceedings.
The House transmits the articles of impeachment to the Senate then the Senate tries the
impeached official and then renders judgment, and that judgment includes disqualification from
holding office in the future.

What is not settled though is this: Can the House Committee on Justice of the Congress
subpoena banks already to determine probable cause, meaning to prepare the articles of
impeachment, in order to find out the deposit of the impeached public official, or any account
related to the impeachment of the said public official?

Dean: My thinking is that the House Committee on Justice is similar to fiscal/prosecutor, it only
establishes probable cause before it files the articles of impeachment with the Senate. Being
the counterpart of fiscal/prosecutor, and a prosecutor has no power to subpoena bank records
because it is the court who issues such and not the prosecutor.

Then part of my reasoning, the House of Committee of Justice has no power likewise to order
the production of bank deposit records. It has to reach first the Senate, before the Senate can
subpoena relevant accounts in relation to the impeachment proceedings.

NB: R.A. No. 1405 covers deposits, not trust funds. Impeachment, as an exception to the
prohibition against disclosure of information about deposits, is only in R.A. No. 1405, not in R.A.
No. 8791 and not in R.A. No. 6426.

GSIS v. CA
G.R. No. 189206. 08 June 2011
In this case, the SC said that there are only two (2)
exceptions when it comes to foreign currency deposit.
1. Permission in writing of the depositor; and
2. Court order for the violation of the Anti-Money Laundering Law.

But what is important to stress in that case is impeachment is not an exception. Impeachment is
only applicable when it comes to Philippine currency bank deposits, and not to foreign currency
deposit. So that is your authority to say that impeachment does not include foreign currency
deposit.

The SC said there are only 2 exceptions. Court order for violation of AMLA, and the written
permission of the depositor. R.A. No. 6426 was enacted way, way earlier than the case of GSIS v.
CA. That's 2011. And despite that law, the SC said there are only 2 exceptions when it comes to
foreign currency deposit.

Q: What about escheat. Can a foreign currency account be escheated?

A: A foreign currency deposit account may not be escheated because under the Foreign
Currency Deposit Act, it provides that foreign currency deposit shall be exempt from
garnishment, attachment and other court orders. And escheat is akin to garnishment. And
therefore, escheat will not lie against foreign currency deposits.

Dean: That's what the DOJ said, that foreign currency accounts are not subject to escheat.
Escheat is akin to garnishment. A foreign currency account is exempt from garnishment and
escheat is akin to garnishment. Then foreign currency accounts cannot be escheated.