The Banking Law Reviewer Hot Jurist
The Banking Law Reviewer Hot Jurist
The Banking Law Reviewer Hot Jurist
BANKING LAWS
JOINT ACCOUNT VS. PARTNERSHIP (2000)
Distinguish joint account from partnership. (3%)
GOVERNING LAW
SUGGESTED ANSWER
Banking Institution are governed by the following
The following are the distinctions between joint
laws:
account and partnership:
A. General banking laws
General Banking Law (R.A. No. 8791) 1) A partnership has a firm name while a joint
. New Central Bank Act (R.A. No. 7653) account has none and is conducted in the name of the
B. Special banking laws ostensible partner.
New Rural Banks Act (R.A. No. 7353) 2) WHILE A PARTNERSHIP HAS JURIDICAL
Private Development Banks Act PERSONALITY AND MAY SUE OR BE SUED
(R.A. No. 4093)
Savings and Loan Association Act UNDER ITS FIRM NAME, A JOINT ACCOUNT
(R.A. No. 3779) HAS NO JURIDICAL PERSONALITY AND CAN
. Thrift Banks Act (R.A. No. 7906) SUE OR BE SUED ONLY IN THE NAME OF THE
C. Other laws affecting banks OSTENSIBLE PARTNER.
Secrecy of Bank Deposits Law
(R.A. No. 1405) 3) While a partnership has a common fund, a joint
Unclaimed Balances Law (Act No. 3936) account has none.
Philippine Deposit Insurance
Corporation Act (R.A. No. 3591) 4) While in a partnership, all general partners have
the right of management, in a joint account, the
ostensible partner manages its business operations.
The general banking laws above mentioned are 5) While liquidations of a partnership may, by
applicable to government banks like DBP and PNB. agreement, be entrusted to a partner or partners, in
The Al- Amanah Islamic Bank is subject to all banking
and pertinent laws. joint account liquidation thereof can only be done by
the ostensible partner.
(Bar Review Materials in Commercial Law, Jorge
Miravite, 2002 ed.)
BAR QUESTION:
Theory of Cognition vs. Theory of Manifestation
T HREE KINDS OF ENTITIES THAT INTRODUCE FUNDS (1997)
INTO THE ECONOMY :
1. banks : entities that obtains funds from the public The Civil Code adopts the theory of cognition, while
in the form of deposits and re-lend it to the public; the Code of Commerce generally recognizes the
2. quasi-banks : those that obtain funds in the form of
theory of manifestation, in the perfection of
deposit substitutes and re-lend the same and not
from the public or depositors. contracts. How do these two theories differ?
3. Finance companies and other financial SUGGESTED ANSWER:
intermediaries: those that lend funds from their Under the theory of cognition, the acceptance is
own assets. considered to effectively bind the offeror only from
the time it came to his knowledge. Under the theory
of manifestation, the contract is perfected at the
FIVE PERSONS PRIMARILY INTERESTED IN THE
moment when the acceptance is declared or made by
BUSINESS OF BANKING the offeree.
1. Government
2. Depositors
3. Investors
4. Creditors
5. Borrowers
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1. That all requirements of existing laws and
Purpose: To promote and maintain a stable and regulations to engage in the business for which
efficient banking and financial system that is globally the applicant is proposed to be incorporated
competitive, dynamic and responsive to the demands of have been complied with;
a developing economy (Sec. 2).
2. That the public interest and economic
Scope of Application: The GBL primarily governs conditions, both general and local, justify the
universal banks and commercial banks. It suppletorily authorization; and
governs thrift banks, rural banks and other banking
institutions. 3. That the amount of the capital, the financing,
organization, direction and administration, as
well as the integrity and responsibility of the
GENERAL CONCEPTS organizers and administrators, reasonably
assure the safety of deposits and the public
BANKS interest (Sec. 14).
Entities engaged in the lending of funds obtained in Organization of a Bank or Quasi-Bank
the form of deposits (Sec. 2) Requirements:
1. The entity is a stock corporation;
Entities duly authorized by the Monetary Board to 2. Its funds are obtained from the public,
engage in the business of regularly lending funds i.e. 20 or more persons; and
obtained regularly from the public through the 3. The minimum capital requirements prescribed
receipt of deposits of any kind. by the Monetary Board are satisfied (Sec. 8).
An investment company that performs function as Note:
such is NOT a bank. Thus an investment company In Quasi banks, Deposit substitute are
that is engage solely in investing, reinvesting or alternative forms of obtaining funds for the
trading in securities is not engage in banking. public, other than deposit, through the
( Banas vs. Asia Pacific Finance Corp., Oct. 18, issuance, endorsement, or acceptance of debt
2000). instrument for the borrowers own account, for
the purpose of relending or purchasing of
However, an investment company which loans out receivables and other obligations in banking or
money of its customers, collects interest, and quasi-banking functions
charges a commission to both lender or borrower is
engage in banking (Republic vs. Security Credit
and Acceptance Corp.) A person or entity cannot engage in banking or
quasi-banking functions without a certificate of
QUASI-BANKS authority from the BSP (Sec. 6).
The determination of whether a person or entity is
Entities engaged in the borrowing of funds through performing banking or quasi-banking functions
the issuance, endorsement or assignment with without BSP authority shall be decided by the
recourse or acceptance of deposit substitutes (Sec. Monetary Board.
95)
NATURE OF BANKING BUSINESS
Entities authorized to perform universal or
commercial banking functions may also engage in
quasi-banking functions. Impressed with public interest where the trust and
confidence of the public in general is of paramount
importance such that:
FINANCIAL INTERMEDIARIES
Persons or entities whose principal functions 1. The appropriate standard of diligence must be
include the lending, investing or placement of funds very high, if not the highest, degree of
on evidences of indebtedness or equity deposited diligence; highest degree of care (PCI Bank vs.
with them, acquired by them or otherwise coursed CA, 350 SCRA 446, PBCom vs. CA, G.R. No.
through them, either for their own account or for the 121413, 29 Jan. 2001)
account of others. This applies only to cases where banks
are acting in their fiduciary capacity, that
is, as depository of the deposits of their
ORGANIZATION AND OPERATION depositors (Reyes vs. CA, G.R. No.
118492, 15 Aug. 2001).
A. Authority to Register/Incorporate
The SEC shall not register the articles of 2. Subject to reasonable regulation under the
incorporation of any bank or any amendment police power of the state.
thereto unless accompanied by a certificate of
authority issued by the Monetary Board under its
seal (Sec. 14). While an innocent mortgagee is not expected to
conduct an exhaustive investigation on the history
The certificate of authority shall not be issued of the mortgagor’s title, in case of a banking
unless the Monetary Board is satisfied: institution, it must exercise due diligence before
entering into said contract, and cannot rely upon on
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in foro conscientiae
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what is or is not annotated on the title. Reason: 5. Cooperative banks – Those banks organized
Before a loan is approved, representatives are sent whose majority shares are owned and controlled by
to the premises offered as collaterals so as to cooperatives primarily to provide financial and
investigate who the real owners are (DBP vs. CA, credit services to cooperatives. It shall include
331 SCRA 267). cooperative rural banks. They are governed
primarily by the Cooperative Code (RA 6938).
The business of a bank is one affected by public
interest for which reason the bank should guard 6. Islamic banks – Banks whose business dealings
against loss due to negligence and bad faith. It is and activities are subject to the basic principles and
expected to ascertain and verify the identities of the rulings of Islamic Shari’ a, such as the Al Amanah
persons it transacts business with (UCPB vs. Islamic Investment Bank of the Philippines which
Ramos, G.R. No. 147800, November 11, 2003, was created by RA 6848.
Callejo, J.).
7. Other classification of banks as determined by
Due diligence required of banks extend even to the Monetary Board of the Bangko Sentral ng
persons, or institutions like the GSIS, regularly Pilipinas.
engaged in the business of lending money secured
by real estate mortgages (GSIS vs. Eduardo
Santiago, G.R. No. 155206. October 28, 2003). ORDINARY BANKING
CONSEQUENCES OF NATURE OF BUSINESS: CORPORATION CORPORATION
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administrator of investment management/ b. The total amount of loans extended by a bank to
advisory/consultancy accounts; and any person, partnership, association, corporation or
e. Rent out safety deposit boxes. other entity shall at no time exceed 20% of the net
worth of such bank.
The depositary would be liable if in performing its
obligation it is found guilty of fraud, negligence; in the c. The total amount of loans may be increased by an
absence of any stipulation prescribing the degree of additional 10% of the net worth of such bank
diligence required, that of a good father of the family is provided the additional liabilities of any borrower
to be observed. Any stipulation exempting the are adequately secured by trust receipts, shipping
depositary from any liability arising from loss on account documents, warehouse receipts or other similar
of fraud, negligence would be void for being contrary to documents transferring or securing title covering
public policy (CA-Agro Dev’t vs. CA, 219 SCRA 426, readily marketable, non-perishable goods which
March 5, 1993). must be fully covered by insurance;
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surplus of the lending bank or in the maximum b. Dealings of a bank with any of its DOSRI shall be
amount permitted by law, whichever is lower. upon terms not less favorable to the bank than
those offered to others (ARMS LENGTH RULE).
Who are covered (BSP Circular No. 170):
1. Directors – Directors of the lending bank c. Loans extended to DOSRI shall be limited to an
amount equivalent to their respective
2. Officers – Either identified in the by-laws or are unencumbered(unrestrained) deposits and book
generally known as such value of their paid-in capital contribution in the
bank.
3. Stockholders – those whose stockholdings, Except: (These are not limited)
individually and/or together with any of the following i. Loans, credit accommodations, and
persons, amount to 2% or more of the total guarantees secured by assets considered as
subscribed capital stock of the bank: non-risk by the Monetary Board.
a. His spouse or relative within the first degree of ii. Loans, credit accommodations, and advances
affinity/consanguinity or relative by legal to officers in the form of fringe(an extra benefit
adoption, partnership wherein any of the supplementing an employee's salary, for
foregoing is a general partner; and example, a company car, subsidized meals,
health insurance, etc) benefits.
b. A co-owner, with the stockholder or the iii. Cooperative banks with regard to their
stockholder’s spouse, or relative mentioned cooperative shareholders.
above, of property/right/interest (mortgaged,
pledged or assigned to secure the loan or d. The resolution approving the loan shall be entered in
credit accommodations, except when the the records of the bank and transmitted to the BSP.
mortgage, pledge or assignment covers only
said co-owner’s undivided interest. e. Waiver of secrecy of deposits of whatever nature in
all banks in the Philippines by the borrower. No
4. Related Interest – waiver is required if the related interests are the
a. Spouse, relatives within first degree of borrower.
consanguinity or affinity, or relative by legal
adoption of a DOS, partnerships of which a f. Information obtained from examination is strictly
DOS or any of the foregoing is a general confidential.
partner.
b. Co-owner, with the DOS or his spouse or
relative within the first degree of consanguinity 3. Rules on amount of secured loans
or affinity, or relative by legal adoption, of the
property/interest/ right mortgaged, pledged, a. Those secured by real estate shall not exceed 75%
assigned to secure the loans or credit of the appraised value of the real estate security,
accommodations, except when the mortgage, plus 60% of the appraised value of the insured
pledge or assignment covers only said co- improvements (Sec. 37).
owner’s undivided interest.
b. Those secured by chattels and intangible properties
c. Corporation with inter-locking directors or
(such as patents, trademarks, trade names and
where 20% of the capital stock is owned by the
DOS and/or their spouses or relatives copyrights) shall not exceed 75% of the appraised
mentioned above, or wholly or majority owned value of the security (Sec. 38).
or controlled by any related entity or a group of
related entities in items (b), (d), and (e). BAR QUESTION:
BANKS; RESTRICTIONS ON LOAN
ACCOMMODATIONS (2006)
Pio is the president of Western Bank. His wife
applied for a loan with the said bank to finance an
internet cafe. The loan officer told her that her
application will not be approved because the grant of
loans to related interests of bank directors,
officers, and stockholders is prohibited by the
General Banking Law. Explain whether the loan
Restrictions under the GBL and NCBA: officer is correct. (5%)
a. No director or officer of any bank shall, directly or
indirectly, borrow from such bank nor shall be SUGGESTED ANSWER:
guarantor, endorser or surety for loans from such Section 36 of the General Banking Law of 2000 does
bank to others, or in any manner be an obligor or not entirely prohibit directors or officers of the
incur any contractual liability to the bank, except bank, directly or indirectly, from borrowing from the
with the written approval of the majority of all the
bank. In this case, Pio is the president of Western
directors of the bank, excluding the director
concerned. The written approval shall not be Bank, which makes him an officer, director and
required for loans granted to officers under a fringe stockholder of the said bank. The General Banking
benefit plan approved by the Bangko Sentral. Law provides for additional restrictions to the bank
before it can lend to its directors or officers. A
written approval of the majority vote of all the
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in foro conscientiae
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directors of the bank, excluding the director a. at least seven years of age
concerned, is required. Furthermore, such dealings b. able to read and write
c. not disqualified by any incapacity
must be upon terms not less favorable to the bank d. it should only be savings or time deposits
than those offered to others (Section 1326, Central
Bank's "Manual of Regulations for Banks and Other
Financial Intermediaries, cited in Ranioso v. CA, G.R. Note: Parents may deposit for their minor children
No. 117416, December 8, 2000 ). A violation of this or wards (Sec.1 PD No.734)
provision will cause his or her position to be declared
If the guardian shall give notice in
vacant and the erring director or officer subjected
writing to any thrift bank not to make payments
to the penal provisions of the New Central Bank Act. of deposits, dividends, or interest to the minor
of whom he is the guardian, then such
payment shall be made to the guardian. (Sec.
COLLATERALS 22, Thrift Banks Act of 1995)
Kinds of Deposits between a Bank and its Depositor Only a universal or Evidenced by a
commercial bank can passbook.
1. As debtor-creditor accept or create demand
a. Savings deposits.
b. Time
c. Demand A bank other than a Banks are prohibited
Characteristics: universal bank or from issuing / accepting
i. In the nature of irregular deposits (Serrano
commercial bank withdrawal slips or other
vs. Central Bank, 96 SCRA 96)
ii. Contract of loan/mutuum with the CANNOT accept demand similar instruments to
depositor as creditor deposit effect withdrawals
iii. Bank acquires ownership of the thing without the passbooks
deposited and the right to use and dispose except for bank
iv. Money deposited is commingled with the authorized by the BSP
other money, constituting a common fund. to adopt the no
v. Not preferred credits (Central Bank vs.
Morfe, 20 SCRA 507). passbook withdrawal
system.
2. As lessor-lessee
a. Safety deposit boxes – the relation between a Temporary overdrawing A bank is negligent if it
bank renting out safety deposit boxes and its against current accounts allows the withdrawal
customer with respect to the contents of the shall not be allowed without requiring the
box is that of a bailor and bailee – the bailment unless caused by normal presentation of a
for hire and mutual benefit has been adopted in
this jurisdiction. It cannot be considered as a bank charges and other passbook. (BPI v. CA)
contract of lease because the full possession fees incidental to
and control of the safety deposit box is not handling such accounts.
given to the renters (Sia vs. CA, 222 SCRA 24
[1993]). Drawings against
uncollected deposits
3. As trustee-trustor
(uncleared checks) are
a. Trust account
generally prohibited.
4. As bailee-bailor
a. Deposit strictly for safekeeping and for specific
purposes
5. As agent-principal:
a. Deposit of check for collection
b. Deposit for specific purpose
c. Deposit for safekeeping NOW ACCOUNTS TIME DEPOSITS
Depositors:
(Negotiable Order of
1. Minors :
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in foro conscientiae
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The account may be deemed a
Withdrawal) survivorship agreement depending on the
intention of the parties; aleatory contract
(By an aleatory contract, one of the parties
Interest bearing deposit An account with fixed
or both reciprocally bind themselves to
accounts that combine term give or to do something in consideration of
the payable on demand what the other shall give or do upon the
feature of checks and happening of an event which is uncertain,
investment feature of or which is to occur at an indeterminate
savings account. time.) supported by a lawful consideration
which is valid unless when made as a
mere cloak to hide an inofficious donation,
to transfer property in fraud of creditors, or
to defeat the legitime of a forced heir
(Rivera vs. People’s Bank and Trust Co.,
73 Phil. 546 [1942]).
Deposit substitutes
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in foro conscientiae
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In case a bank or quasi-bank notifies the Bangko B. ON DIRECTORS , OFFICERS , EMPLOYEES ,
Sentral or publicly announces a bank holiday, or in any
OR AGENTS OF BANKS :
manner suspends the payment of its deposit liabilities
continuously for more than 30 days, the Monetary Board
may summarily and without need for prior hearing close 1. Make false entries in any bank report or statement
such banking institution and place it under receivership or participate in any fraudulent transaction;
of the Philippine Deposit Insurance Corporation (Sec.
53). 2. Without order of a court of component
jurisdiction, disclose to any unauthorized
The depositary would be liable if in performing person any information relative to the funds or
its obligation it is found guilty of fraud, properties in the custody of the bank belonging to
negligence; in the absence of any stipulation private individuals, corporations, or any other
prescribing the degree of diligence required, entity;
that of a good father of the family is to be
observed. Any stipulation exempting the 3. Accept gifts or any other form of remuneration in
depositary from any liability arising from loss connection with the approval of a loan or other
on account of fraud, negligence would be void credit accommodation from said bank;
for being contrary to public policy (CA-Agro
Dev’t vs. CA, 219 SCRA 426, March 5, 1993). 4. Overvalue or aid in overvaluing any security for
the purpose of influencing in any way the actions
of the bank or any bank; or
Note: The bank shall act as depositary or as an agent
shall keep the funds, securities and other effects which 5. Outsource inherent banking functions – a
it receives duly separated from its own assets and bank cannot engage the services of another
liabilities (Sec. 53) entity to receive deposits on its behalf; the bank
has to do it by itself.
Notes of hotjurist
in foro conscientiae
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2. Furnish false or make misrepresentations or 1. Filipino
suppression of material facts for the purpose of In case of a Filipino individual or a domestic non-
obtaining, renewing, or increasing a loan or bank corporation, each may own up to 40% of the
extending the period thereof; outstanding voting stock of a local bank.
3. The act or omission has caused any undue injury, 1. For locally incorporated subsidiaries – equal to that
or has given any unwarranted benefits, advantage of domestic banks of the same category
or preference to the bank or any party in the
discharge by the director or officer of his duties and
responsibilities through manifest partiality, evident 2. For foreign bank branches – not less than the US$
bad faith or gross inexcusable negligence; equivalent of P210M
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in foro conscientiae
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2. Other foreign individuals and non-bank a. The total investment in such real estate and
corporations may own up to 40% of the voting improvements shall not exceed 50% of the
stock of a domestic bank; the nationality of the combined capital accounts; and
controlling shareholders of the non-bank
corporations will be traced to determine the b. the equity investment of a bank in another
foreign ownership of the domestic bank (Sec. corporation engaged primarily in real estate
11, GBL). shall be considered as part of the bank's total
investment in real estate, unless otherwise
provided by the Monetary Board (Sec. 51).
FOREIGN BANKS (SECS. 72–78)
The law does not prohibit ownership of the stock by RULES ON FORECLOSURE OF A REAL ESTATE
members of the same family or related interest. MORTGAGE BY A MORTGAGEE-BANK
However, the law provides that stockholdings of
individuals related to each other within the 4th degree of
Application: Judicial or extrajudicial foreclosure
consanguinity or affinity, legitimate or common law, shall
be considered family groups or related interest and must
be fully disclosed in all transaction by such individual JUDICIAL EXTRAJUDICIAL
with the bank. (Sec 12, GBL) Right of redemption
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in foro conscientiae
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within the general scope of his authority even
though, in the particular case, the agent is
secretly abusing his authority and attempting to
Immediately after the date of the confirmation of
perpetrate a fraud upon his principal or some
the auction sale. other person, for his own ultimate benefit
(Philippine Banking Corp. vs. CA and Marcos,
G.R. No. 127469. January 15, 2004).
A bank may be bound by an agreement providing Only a stock corporation or a person duly
for a longer redemption period (Ibaan Rural Bank authorized by the Monetary Board shall act as a trustee
vs. CA, 321 SCRA 83); thus, converting it to or administer any trust or hold property in trust or on
conventional redemption or by estoppel if the deposit for the use, benefit, or behalf of others (Sec. 79)
extension was unilaterally made.
Trust Business- any activity resulting from a trustor-
trustee relationship involving the appointment of a
trustee by a trustor for the administration, holding,
management of funds and/or properties of the trustor by
the trustee for the use, benefit, advantage of trustor or
others called beneficiaries.
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in foro conscientiae
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1. To provide policy directions in the areas of money,
2. The trust business and all funds, properties or banking, and credit
securities received by any trust entity as executor,
administrator, guardian, trustee, receiver or 2. To supervise bank operations
depositary shall be kept separate and distinct from
the general business, including all other funds, 3. To regulate the operations of finance companies
properties, and assets, of such trust entity (Sec. 87,
and non-bank financial institutions performing
GBL).
quasi-banking functions, and similar institutions
(Sec. 3)
2. To promote and maintain monetary stability and the Note: The degree of diligence required of the members
convertibility of the peso. of the MB, officials and employees of the BSP in the
performance of their functions is extraordinary diligence
(Sec.16, NCBA).
R ESPONSIBILITIES :
Notes of hotjurist
in foro conscientiae
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3. of good moral character, of unquestionable integrity, Subsidiary – a corporation more than 50% of the
of known probity and patriotism, and voting stock of which is owned by a bank or quasi-bank
4. with recognized competence in social and Affiliate – a corporation the voting stock of which, to the
economic disciplines. extent of 50% or less, is owned by a bank or quasi-bank
or which is related or linked to such institution or
D ISQUALIFICATIONS AND I NHIBITION ON G OVERNOR intermediary through common stockholders or other
AND B OARD M EMBERS : factors determined by the Monetary Board.
1. disqualified from being a director, officer, employee, NO RESTRAINING ORDER AGAINST BSP
consultant, lawyer, agent or stockholder of any No restraining order or injunction shall be issued by
bank, quasi-bank or any other institution which is the court enjoining the Bangko Sentral from examining
subject to supervision or examination by the any institution subject to supervision or examination by
Bangko Sentral, in which case such member shall the Bangko Sentral, unless there is convincing proof
resign from, and divest himself of any and all that the action of the Bangko Sentral is plainly arbitrary
interests in such institution before assumption of and made in bad faith and the petitioner or plaintiff files
office (Sec. 9); with the clerk or judge of the court in which the action is
pending a bond executed in favor of the Bangko Sentral,
2. those coming from the private sector shall not hold
in an amount to be fixed by the court.
any other public office or public employment during
their tenure (Sec. 9);
4. cannot be employed in any such institution within - Any officer, owner, agent, manager, director or officer-
two (2) years after the expiration of his term except in-charge of any institution subject to the supervision or
when he serves as an official representative of the examination by the Bangko Sentral who, being required
Philippine Government to such institution (Sec. 9); in writing by the Monetary Board or by the head of the
supervising and examining department willfully refuses
5. the Governor of the Bangko Sentral and the full- to file the required report or permit any lawful
time members of the Board shall limit their examination into the affairs of such institution shall be
professional activities to those pertaining directly to punished under the Act. (Sec. 34)
their positions with the Bangko Sentral. Accordingly,
they may not accept any other employment, False Statement. - The willful making of a false or
whether public or private, remunerated or ad misleading statement on a material fact to the Monetary
honorem, with the exception of positions in Board or to the examiners of the Bangko Sentral shall
eleemosynary, civic, cultural or religious be punished. (Sec. 35)
organizations or whenever, by designation of the
President, the Governor or the full-time member is PROHIBITIONS ON BANK OFFICERS, DIRECTORS,
tasked to represent the interest of the Government LAWYERS, AGENTS
or other government agencies in matters connected
with or affecting the economy or the financial Personnel of the Bangko Sentral are hereby
system of the country (Sec. 20); prohibited from:
6. in case any member of the Monetary Board with 1. being an officer, director, lawyer or agent,
personal or pecuniary interest in any matter in the employee, consultant or stockholder, directly or
agenda of the Monetary Board shall disclose his indirectly, of any institution subject to supervision or
interest to the Board and shall retire from the examination by the Bangko Sentral;
meeting when the matter is taken up (Sec. 14).
Notes of hotjurist
in foro conscientiae
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Exception: non-stock savings and loan the previous management and board of directors of
associations and provident funds organized the bank or quasi-bank.
exclusively for employees of the Bangko Sentral,
and except as otherwise provided in this Act; The powers must be related to preservation of
assets, reorganization of management and the
2. directly or indirectly requesting or receiving any gift, restoration of viability. Such power to revoke cannot
present or pecuniary or material benefit for himself extend to post-facto repudiation of perfected
or another, from any institution subject to transactions, otherwise they would infringe the non-
supervision or examination by the Bangko Sentral; impairment clause of the Constitution. The power
to revoke contracts only covers those that are
deemed defective – i.e., void, voidable,
3. revealing in any manner, except under orders of the unenforceable or rescissible (First Phil. Int’l Bank
court, the Congress or any government office or vs. CA, 252 SCRA 259). The conservator’s power is
agency authorized by law, information relating to not unilateral and he cannot simply repudiate valid
the condition or business of any institution; obligations of the bank. His authority would be only
to bring actions to assail the same.
3. Collect all monies and debts due said bank; and 3. Inability to continue 3. Persistence in
business without conducting business
4. Exercise all powers necessary to restore its viability, involving probable losses in an unsafe or
with the power to overrule or rebuke the actions of to its depositors or unsound manner.
creditors; or (Sec. 56, GBL)
Notes of hotjurist
in foro conscientiae
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Receiver:
1. Banks – PDIC Ruling:
2. Quasi-banks – Any person of recognized
Section 29 of the Central Bank Act does not
competence in banking or finance
contemplate prior notice and hearing before a bank may
be declared to stop operations and placed under
Functions:
receivership. When it provides for the filing of the case
1. Immediate gathering and taking charge of all the
within 10 days after the receiver takes charge of the
assets and liabilities of the institution and
assets of the bank, it is unmistakable that the assailed
administering them for the benefit of creditors
actions should precede the filing of the case. Plainly, the
2. General powers of a receiver
legislature could not have intended or authorize “no
3. Determination ASAP but not later than 90 days,
prior notice and hearing” in the closure of the bank and
whether the institution should undergo
at the same time allow the suit to annul it on the basis of
rehabilitation or liquidation.
the absence thereof.
Note the distinctions between rehabilitation and
liquidation. This “close now and hear later” scheme is
grounded on practical and legal consideration to prevent
the unwarranted dissipation of the bank’s asset and as a
valid exercise of the police power to protect the
“CLOSE NOW, HEAR LATER” SCHEME depositors, creditors, stockholders and the general
public.
Sec. 29 of the Central Bank Act does not
contemplate prior notice and hearing before a bank
is placed under receivership. It is enough that such
action is made the subject of a subsequent judicial MANDATORY REQUIREMENTS FOR BANK
review. The purpose of the scheme is to protect the CLOSURE
depositors, creditors, stockholders and general 1. Examination by the appropriate BSP department as
public (Central Bank vs. CA, 220 SCRA 536). to the condition of the bank
2. Examination shows that the condition of the bank is
Only stockholders representing the majority of the one of insolvency
capital stock of a bank have the personality to file a 3. Director shall inform the MB in writing of such fact
petition for certiorari to be filed within 10 days from 4. If the MB shall find the statement of the department
receipt by the board of directors of the institution of to be true, it shall appoint a receiver of the assets
the order directing receivership, liquidation or and liabilities of the bank (Banco Filipino vs. MB,
conservatorship. 204 SCRA 519 [1991]).
5. Within 60 days, the MB shall determine and confirm
Reason: Stockholders owning a majority of the if the bank is insolvent, and if public interest
shares are expected to be more objective in requires, shall order the liquidation of the bank.
determining whether the resolution is plainly
arbitrary and issued in bad faith (Sec. 30, NCBA;
Central Bank vs. CA, G.R. No. 76118, March 30,
1993).
Notes of hotjurist
in foro conscientiae
Page 18 of 28
2. He shall convert the assets of the institution to
money for the purpose of paying the debts of the Checks representing demand deposits do not
institution (Sec. 30). have legal tender power and their acceptance
in the payment of debts, both public and
3. Payment shall be in accordance with the rules on private, is at the option of the creditor.
concurrence and preference of credits.
Regular courts have no jurisdiction over actions However, a check which has been cleared and
filed by claimants against an insolvent bank (Ong credited to the account of the creditor shall be
vs CA, 253 SCRA 105). equivalent to a delivery to the creditor of cash
in an amount equal to the amount credited to
his account (Sec. 60).
Rules:
BSP Authority to Replace
1. The required reserves of each bank shall be
1. Notes for any series or denomination – More than 5 proportional to the volume of its deposit
years old liabilities.
2. Coins – More than 10 years old 2. Since the required reserves are imposed
primarily to control the volume of money, the
Bangko Sentral shall not pay interests thereon
Rules: (Sec. 94).
1. Notes and coins called in for replacement shall 3. Deposits maintained with the Bangko Sentral
remain legal tender for a period of one year from as part of the reserve requirements shall be
the date of call. exempt from attachment, garnishment, or any
other order or process of any court or agency
(Sec. 103).
2. After that period, they shall cease to be legal tender 4. No increase of more than 4% point within 30-
during the following year or for such longer period day period.
as MB may determine.
3. After the expiration of this latter period, the notes PROHIBITIONS ON THE BSP
and coins which have not been exchanged shall
cease to be a liability of BSP and shall be 1. It shall not acquire shares of any kind or accept
demonetized (Sec. 57). them as collateral, and shall not participate in the
Notes of hotjurist
in foro conscientiae
Page 19 of 28
ownership or management of any enterprise, either complained that the garnishment violated the Law on
directly or indirectly; and the Secrecy of Bank Deposits because the existence
2. It shall not engage in development banking and
of his savings account was disclosed to the public.
financing (Sec. 128).
(5%) Is CDC's complaint meritorious or not? Reason
briefly.
SECRECY OF BANK DEPOSITS
LAW SUGGESTED ANSWER
(R.A. No. 1405)
No. CDC's complaint is not meritorious. It was held in
Purposes:
1. To encourage people to deposit in banks China Banking Corporation v. Ortega, 49 SCRA
2. To discourage private hoarding so that banks may 355 (1973) that peso deposits may be garnished and
lend such funds and assist in the economic
development the depositary bank can comply with the order of
garnishment without violating the Law on the
Coverage: Secrecy of Bank Deposits. Execution is the goal of
All deposits of whatever nature with banks or banking
institutions in the Philippines, including investments in litigation as it is its fruit. Garnishment is part of the
bonds issued by the Government of the Philippines, its execution process. Upon service of the notice of
political subdivisions and its instrumentalities.
garnishment on the bank where the defendant
deposited funds, such funds become part of the
PROHIBITED ACTS:
subject matter of litigation.
1. Examination and inquiry or looking into all deposits,
of whatever nature, with the banks in the B. From other laws
Philippines including investments in bonds issued
by the Government. 1. Anti-Graft and Corrupt Practices Act cases (R.A.
2. Any disclosure by any official or employee of any
No. 3019; added by analogy in PNB vs. Gancayco,
bank to any unauthorized person of any information
concerning the said deposits. 15 SCRA 91 [1965]);
GENERAL RULE: The deposits covered by law are 2. NIRC - Inquiry by the Commissioner of Internal
considered as of an absolutely confidential nature and Revenue into bank deposits of:
may not be examined, inquired or looked into by any
person, governmental bureau, or office. a. A decedent to determine his gross estate;
b. A taxpayer who has filed an application for
EXCEPTIONS: compromise of his tax liability by reason of
A. F ROM R.A. N O . 1405 financial incapacity to pay his tax liability. He
1. Upon written permission of the depositor; must file a written waiver of his privilege under
RA 1405 or other general or special laws (Sec.
6[f], NIRC).
2. In cases of impeachment;
3. Inquiry or examination by the Anti-Money
3. Upon order of a competent court in cases of bribery Laundering Council (AMLC) of any particular
or dereliction of duty of public officials; deposit or investment with any banking institution or
non-bank financial institution upon order of any
4. In cases where the money deposited or invested is competent court in cases of violation of the Anti-
the subject matter of the litigation; (Sec. 2) Money Laundering Law, when it has been
established that there is probable cause that the
deposits or investments are related to an unlawful
activity or a money laundering offense, except that
no court order shall be required in the following
unlawful activities:
a. Kidnapping for ransom under Art. 267 RPC;
b. Comprehensive Dangerous Drugs Act of 2002
(RA No. 9165);
BAR QUESTION:
Banks: Secrecy of Bank Deposits; Garnishment
c. Hijacking and other violations under RA 6235;
(2004) destructive arson and murder under RPC.
Including those perpetrated by terrorists against
CDC maintained a savings account with CBank. On non-combatant persons and similar targets”
orders of the MM Regional Trial Court, the Sheriff (Sec. 11, R.A. No. 9160 as amended by Sec. 8
garnished P50,000 of his account, to satisfy the of RA 9194)
judgment in favor of his creditor, MO. CDC
Notes of hotjurist
in foro conscientiae
Page 20 of 28
4. Disclosure to the Treasurer of the Philippines of Hi Yielding Corporation filed a complaint against five
dormant deposits for at least 10 years under the of its officers for violation of Section 31 of the
Unclaimed Balances Act (Act No. 3936).
Corporation Code. The corporation claimed that the
said officers were guilty of advancing their personal
interests to the prejudice of the corporation, and
OTHER LAWS RELATING TO SECRECY OF
that they were grossly negligent in handling its
BANK DEPOSITS affairs. Aside from documents and contracts, the
corporation also submitted in evidence records of
the officers’ U.S. Dollar deposits in several banks
A. Foreign Currency Deposit Act (R.A. No. 6426): overseas - Boston Bank, Bank of Switzerland, and
B. Extends confidentiality to foreign currency deposits, Bank of New York. For their part, the officers filed
but the law contains only one ground authorizing a criminal complaint against the directors of Hi
examination: upon written permission of the Yielding Corporation for violation of Republic Act No.
depositor.
6426, otherwise known as the Foreign Currency
C. General Banking Law of 2000 (R.A. No. 8791): Deposit Act of the Philippines. The officers alleged
that their bank deposits were illegally disclosed for
1. No bank shall employ casual or non-regular want of a court order, and that such deposits were
personnel or too lengthy probationary personnel in not even the subject of the case against them.
the conduct of its business involving bank deposits
(Sec. 55.4). a) Will the complaint filed against the directors of
2. No director, officer, employee, or agent of any bank Hi Yielding Corporation prosper? Explain
shall, without court order, disclose to any
unauthorized person any information relative to the SUGGESTED ANSWER:
funds or properties in the custody of the bank
No, because the Foreign Currency Deposit Act (R.A.
belonging to private individuals, corporations, or
any other entity, provided that with respect to bank No. 6426), including its punitive provisions, refers to
deposits, the provisions of existing laws shall foreign currency deposits accounts constituted
prevail (Sec. 55[b]). within the Philippines. It has no application at all to
3. Outsourcing of inherent bank functions accounts, even though they are banks, opened and
constituted abroad
D. New Central Bank Act (R.A. No. 7653):
1. DOSRI loans
2. Periodic and special examinations by the BSP (Sec. b) Was there a violation of the Secrecy of Bank
25) Deposits Law (Republic Act No. 1405)? Explain.
Notes of hotjurist
in foro conscientiae
Page 21 of 28
Notes of hotjurist
in foro conscientiae
Page 22 of 28
unmarried children. This is an absurdity that we will not mentioned in the subpoenas, among them GP. GP and
ascribe to the lawmakers. the banks opposed the production of the banks’
records of deposits on the ground that no such
Upon Order of the Ombudsman inquiry is allowed under the Law on Secrecy of Bank
Although Section 8 of the law that created the Deposits (RA 1405 as amended). Is the opposition of
Office of the Ombudsman expressly granted the GP and the banks valid? Explain.
Ombudsman the power to “administer oaths, issue SUGGESTED ANSWER:
subpoena and subpoena duces tecum and take
testimony in any investigation or inquiry, including the Yes. The opposition is valid. GP is not a public official.
power to examine and have access to bank accounts The investigation does not involve one of the
and records,” the Supreme court held that the exceptions to the prohibition against disclosure of
Ombudsman could not inquire into bank deposits until any information concerning bank deposits under the
there was a pending case in court involving the
Law on Secrecy of Bank Deposits. The Committee
deposits.(Marquez v. Desierto, 359 SCRA 772 (2001)
conducting the investigation is not a competent court
Unclaimed Balances Law or the Ombudsman authorized under the law to issue
The Unclaimed Balances Law (Republic Act No. a subpoena for the production of the bank record
3936) requires each bank to file a sworn statement with involving such disclosure.
the Treasurer of the Philippines stating the deposits that
the bank holds in the names of persons known to be
dead or who have not made deposits or withdrawals
during the preceding ten years or more. It is also ANTI-MONEY LAUNDERING ACT
requires the bank to post a copy of the sworn statement
in the bank premises. However, this is done only after OF 2001
the bank shall have first communicated with the
depositor at his last known residence or post office (R.A. No. 9160, as amended by
address. Such a disclosure of the deposits and the
depositors, does not violate the Bank Secrecy Law. R.A. 9194)
Garnishment of Bank Deposit Purposes:
In China Banking Corporation v. Court of Appeals, 1. To protect and preserve the integrity and
(193 SCRA 452 (1991) the Supreme Court held that the confidentiality of bank accounts, to ensure that the
garnishment of a bank deposit does not violate the Bank Philippines shall not be used as a site for unlawful
Secrecy Law. Said the court: money laundering activities; and
“It is clear from the discussion of the 2. To pursue State’s foreign policy to extend
conference committee report on x x x Republic Act. cooperation in transnational investigations and
No. 1405, that the prohibition against examination of prosecution on money laundering activities.
or inquiry into a bank deposit under Republic Act
No. 1405 does not preclude its being garnished to
insure satisfaction of a judgment. Indeed, there is Covered Entities:
no real inquiry in such a case, and if the existence
of the deposit is disclosed, the disclosure to evade 1. Banks
payment of their just debts, even if ordered by the
2. Non-banks
Court, through the expedient of converting their
assets into cash and depositing the same in a 3. Quasi-banks
bank.”(Phil. Commercial & International Bank v.
Court of Appeals, 93 SCRA 452 (1991). 4. Trust entities
5. All other institutions, their subsidiaries and affiliates
supervised or regulated by the BSP
BAR QUESTION:
Banks; Secrecy of Bank Deposits (2000)
Notes of hotjurist
in foro conscientiae
Page 23 of 28
4. Taking into account all known circumstances, it may J URISDICTION :
be perceived that the client’s transaction is
structured in order to avoid being the subject of All cases: RTC
reporting requirements under the Act Public officers and private persons in conspiracy
with them: Sandiganbayan
2. Any person knowing that any monetary instrument BANKS; SECRECY OF BANK DEPOSIT; AMLC
or property involves the proceeds of any unlawful (2006)
activity, performs or fails to perform any act as a
result of which he facilitates the offense referred to Rudy is jobless but is reputed to be a Jueteng
in number 1 above. operator. He has never been charged or convicted of
any crime. He maintains several bank accounts and
has purchased 5 houses and lots for his children
3. Any person knowing that any monetary instrument
or property is required under this Act to be from the Luansing Realty, Inc. Since he does not
disclosed and filed with the AMLC fails to do so. have any visible job, the company reported his
purchases to the Anti-Money Laundering Council
(AMLC). Thereafter, AMLC charged him with
P REVENTION OF M ONEY L AUNDERING violation of the Anti-Money Laundering Law. Upon
1. Customer Identification – Covered institutions request of the AMLC, the bank disclosed to it Rudy's
shall establish and record the true identity of its bank deposits amounting to P100 Million.
clients based on official documents. They shall Subsequently, he was charged in court for violation
maintain a system of verifying their clients and in
of the Anti-Money Laundering Law.
case of corporate client, require a system of
verifying their legal existence and organizational 1. Can Rudy move to dismiss the case on the
structure, s well as the authority and identification of
ground that he has no criminal record? (2.5%)
all person purporting to act on their behalf.
2. Record Keeping- All records of all transaction of
covered institution shall be maintained and safely
SUGGESTED ANSWER:
stored for 5 years from the dates of transaction.
With respect to closed accounts, the records on No. Under the Anti-Money Laundering Law, Rudy
customer identification, account files and business
would be guilty of a "money laundering crime"
correspondence, shall be preserved and safely
stored for at least 5 years from the dates when they committed when the proceeds of an "unlawful
were closed. activity," like Jueteng operations, are made to
3. Reporting of Covered and Suspicious appear as having originated from legitimate sources.
Transactions. – Covered institution shall report to The money laundering crime is separate from the
the AMLC all covered and suspicious transactions unlawful activity of being a Jueteng operator, and
within 5 working days from the occurrence thereof, requires no previous conviction for the unlawful
unless the Supervising Authority prescribes a
activity (See also Sec. 3, Anti-Money Laundering Act
longer period not exceeding 10 working days.
of 2001).
Notes of hotjurist
in foro conscientiae
Page 24 of 28
No, the bank did not violate any law. The bank being
specified as a "covered institution" under the Anti- PHILIPPINE DEPOSIT INSURANCE
Money Laundering Law, is obliged to report to the CORPORATION (PDIC) ACT
AMLC covered and suspicious transactions, without
thereby violating any law. This is one of the (R. A. 9302)
exceptions to the Secrecy of Bank Deposit Act. Purposes:
1. To create a government-owned entity, the PDIC;
4. Supposing the titles of the houses and lots are 2. To insure the deposit liability of banks in an account
up to P250,000 for every single depositor of each
in possession of the Luansing Realty, Inc., is it
bank irrespective of the number of accounts
under obligation to deliver the titles to Rudy? therewith.
(2.5%)
PHILIPPINE DEPOSIT INSURANCE CORPORATION
Notes of hotjurist
in foro conscientiae
Page 25 of 28
the PDIC is determined by the provisions of RA 3519
(PDIC vs. CA, 283 SCRA 462).
C. Bank Rehabilitation
The PDIC may grant financial assistance to
distressed banks if it is proven to be a less costly Case Digest
alternative than closure.
PDIC vs. CA, 283 SCRA 462
Notes of hotjurist
in foro conscientiae
Page 26 of 28
1. PDIC liability is on a per bank basis. Accounts in a
bank, even though in several branches, are to be
ELEMENTS OF UNCLAIMED BALANCES
added together, provided that they are maintained
in the same capacity and the same right for his 1. There must be a claim or deposit of:
benefit either in his own name or in the name of a. Money;
others.
b. Bullion;
Capacities: individual account, joint “and”
account, joint “and/or” account. c. Security; or
d. other evidence of indebtedness.
2. The insurance premiums are to be paid by the 2. The credit or deposit must be with a bank, building
insured bank, not the depositors. and loan association, or trust corporation; and
3. In case the depositor’s account is more than the 3. The credit or deposit is in favor of a person:
insurance coverage, the balance may still be a. who is dead, or
recovered from the PDIC after the final liquidation
of the remaining assets of the closed bank. b. who has not made further deposits or
withdrawals during the preceding 10 years or
more.
4. a. If the account is held jointly by two or more
natural persons, or by two or more juridical
persons or entities, the maximum insured Demand drafts cannot be escheated but
deposit shall be divided into as many equal telegraphic notes can be escheated (Republic
shares as there are individuals, juridical vs. FNCB, 3 SCRA 851 [1961]).
persons or entities, unless a different sharing is
stipulated in the document of deposit.
b. If the account is held by a juridical person or
entity jointly with one or more natural persons,
the maximum insured deposit shall be
presumed to belong entirely to such juridical
person or entity: Provided, further, That the
aggregate of the interests 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 Two hundred fifty thousand pesos
LEGAL CONSEQUENCE
(P250,000.00).
The unclaimed balances may be subject of escheat
proceedings, after proper publication and the depositors
still do not lay claim to them.
Authority to terminate insured status
1. Non-payment of insurance premiums
2. Continued engagement in unsafe and unsound FOREIGN CURRENCY DEPOSIT
banking practices ACT
(R.A. No. 6426)
Sec. 9 of RA 6426 (‘An Act Instituting a Foreign
Currency Deposit System in the Philippines,
and for Other Purposes") and Sec. 79 of FOREIGN CURRENCY
Central Bank (CB) Circular No. 1389, dated PESO DEPOSIT
DEPOSIT
August 13, 1993, mandate that foreign
currency deposits shall be insured under the Governed by R.A. Governed by R.A. No.
provisions of RA 3591, as amended. Under CB No. 1405 6426
Circular No. 1389, depositors are entitled to
receive payment in the same currency in which 4 exceptions + 1 exception + 1 provided
the insured deposit is denominated. exceptions found in under AMLA (R.A. No.
special laws 9160)
Note: The PDIC law is not applicable to Offshore
Banking Units (P.D. No. 1034). May be garnished or GENERAL RULE: Exempt
attached (not a from attachment,
violation of R.A. No. garnishment, and other
1405) court order and processes.
UNCLAIMED BALANCES LAW EXCEPTION: Salvacion
vs. CB (278 SCRA 27)
(R.A. N O . 3936)
Notes of hotjurist
in foro conscientiae
Page 27 of 28
In a sui generis case, the SC allowed garnishment Dana Gianina purchased on a 36 month installment
of such deposits of a transient American tourist basis the latest model of the Nissan Sentra Sedan
arising out of a heinous crime committed against a car from the Jobel Cars Inc. In addition to the
Filipino minor since to hold otherwise would result advertised selling price, the latter imposed finance
to injustice to a citizen perpetrated by a foreigner
(Salvacion, et al. vs. Central Bank et al., 278 SCRA charges consisting of interests, fees and service
27). charges. It did not, however, submit to Dana a
written statement setting forth therein the
information required by the Truth in Lending Act (RA
Note: This case does not constitute another 3765). Nevertheless, the conditional deed of sale
exception, the SC only ruled as such due to the which the parties executed mentioned that the total
special circumstances of the said case.
amount indicated therein included such finance
charges.
GOD SPEED!!!
Notes of hotjurist
in foro conscientiae