1

General Banking Law

Definition:
A bank is an entity, which is: A corporation engaged
in the lending of funds obtained in the form of
deposit. (Sec.3)
The term deposit means the unpaid balance of money or
its equivalent received by a bank in the usual course of
business and for which it has given or is obliged to give
credit to a commercial, checking, savings, time or thrift
account or which is evidenced by passbook, check and/or
certificate of deposit, printed or issued in accordance with
Bangko Sentral rules and regulations and other applicable
laws, together with such other obligations of a bank, which,
consistent with banking usage and practices, the Board of
Directors shall determine and prescribe by regulations to be
deposit liabilities of the Bank: Provided, That any obligation
of a bank which is payable at the office of the bank located
outside of the Philippines shall not be a deposit for any of the
purposes of this Act or included as part of the total deposits
or of insured deposit: Provided, further, That, subject to the
approval of the Board of Directors, any insured bank which is
incorporated under the laws of the Philippines which
maintains a branch outside the Philippines may elect to
include for insurance its deposit obligations payable only at
such branch.
(As amended by P.D. 1940, 27 June 1984; R.A. 7400, 13 April
1992; R.A. 9302, 12 August 2004, Sec. 2 RA 9576, amending
Sec. 4 (f) of RA 3591 PDIC Charter, as amended by RA 9576,
approved April 29, 2009)
Note: The amount of deposit insurance in banks has been
effectively increased from P 250,000 to P 500,000. Sec. 4
PDIC Law, RA 3591, as amended by RA 9576, approved April
29, 2009.
Relationship between Bank and its Depositors
Q. What is the Relationship Between Bank and Depositor
The relation is governed/covered by the law on loans. People
v. Ong 204 SCRA 942 (1991)
Articles 1953 and 1980 of the Civil Code.

Art. 1953. A person who receives a loan of money of any

other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same
kind and quality.
Fundamental and familiar is the doctrine that the
relationship between a bank and a client is one of debtorcreditor. Under Art. 1953 of the Civil Code, a person who
receives a loan or money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality. Art.
1980 provides that fixed, savings and current deposits of
money in banks and similar institution shall be governed by
the provision concerning simple loan.
Allied Banking Corp. v. Lim Sio Wan 549 SCRA 504 (2007)
Ownership passes in Mutuum.
Art. 1980. Fixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the
provisions concerning simple loan. In other words, the
relationship between the bank and the depositor is that of a
debtor and creditor. Moran v. CA 230 SCRA 799 (1994), Allied
Banking Corp. vs. Lim Sio Wan 549 SCRA 504
Debtor and Creditor relation, right to set-off, matter of
privilege not an obligation.
The bank has the right to set-off the deposits in its hands for
the payment of a depositors indebtedness. Equitable PCI
Bank v. Ng Sheung 541 SCRA 223 (2007)
Having the right to set-off the deposits, the bank; however,
is under No Obligation to make an application or set-off
against the deposit accounts of borrower. This is a matter of
privilege on the part of the bank or an option to exercise, but
not the obligation. Bank of PI v. CA 232 SCRA 302 (1994)
What kind of loan? Answer: A demand loan- you can
demand payment anything by withdrawing.
Distinction of Banks from Quasi-banks and Trust entities.
Banks are entities engaged in the lending of funds obtained
in the form of deposits. A Quasi-Bank shall refer to a
nonbank financial institution authorized by BSP to engage in
quasi-banking functions and to borrow funds from more

than nineteen (19) lenders through the issuance,

endorsement or assignment with recourse or acceptance of
deposit substitutes1 as defined in Section 95 of RA 7653
(New Central Bank Act) for the purpose of relending or
purchasing of receivables and other obligations.( Sec. 3 (c)
RA 9474 Lending Company Regulation Act of 2007). Trust
Entities are corporation or a person duly authorized by the
MB to engaged in trust business to act as trustee or
administer any trust or hold property in trust or on deposit
for the use, benefit or behalf of others.
Distinguished from Lending Company, which shall refer to a
corporation engaged in the granting of loans from its own
capital funds or from funds sourced from NOT MORE THAN
NINETEEN (19) PERSONS. RA 9474 Lending Company
Regulation Act of 2007.)
Financial Intermediaries are persons or entities whose
principal functions include the lending, investing, or
placement of funds or evidences of indebtedness or equity
deposited with them, acquired by them, or otherwise course
through them, either for their own account or for the account
of others.
First Planters Pawnshop v. BIR 560 SCRA 606 (2008)
Banking Business Impressed with Public Interest
Citibank, N.A. v. Dinopol 635 SCRA 649
The business of banking is impressed with public interest
and great reliance is made on the banks sworn professional
of diligence and meticulousness in giving irreproachable
service. Thus, the Court affirms the award of exemplary
damages as a way of setting an example for the public good.
Citibank should have been more cautious in dealing with its
clients since its business is imbued with public interest.
The fiduciary nature of the relationship between the bank
and the depositors must always be of paramount concern.
(PS Bank v. Chowking Food Corp. 557 SCRA 318 , July 4,
2008)
Sec. 95 Definition of Deposit Substitutes. The term is defined as an alternative form of obtaining funds from the
public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for borrowers own
account, for the purpose of relending or purchasing of receivables and other obligations. These instruments may
include, but need not be limited to, bankers acceptances, promissory notes, participations, certificates of assignment
and similar instruments with recourse and purchase agreements.
1

Metropolitan Bank v. Marias 625 SCRA 511 ( 2011)

Their business being affected with public interest and by
nature of their functions, banks are under obligation to treat
the accounts of their depositors with meticulous care, always
having in mind the fiduciary narture of their relationship.
Bank of America v. Philippine Racing Club 594 SCRA 301
(2009)
Last Clear chance and contributory negligence (Art. 2179 )
was applied by the SC but still holds the bank liable up to
60% of the loss.
Nevertheless, even if we assume that both parties were
guilty of negligent acts that led to the loss, petitioner will still
emerge as the party foremost liable in this case. In instances
where both parties are at fault, this Court has consistently
applied the doctrine of last clear chance in order to assign
liability.
In Westmont Bank v. Ong,21 we ruled:
[I]t is petitioner [bank] which had the last clear chance to
stop the fraudulent encashment of the subject checks had it
exercised due diligence and followed the proper and regular
banking procedures in clearing checks. As we had earlier
ruled, the one who had a last clear opportunity to avoid the
impending harm but failed to do so is chargeable with the
consequences thereof.22 (emphasis ours)
In the case at bar, petitioner cannot evade responsibility for
the loss by attributing negligence on the part of respondent
because, even if we concur that the latter was indeed
negligent in pre-signing blank checks, the former had the
last clear chance to avoid the loss. To reiterate, petitioners
own operations manager admitted that they could have
called up the client for verification or confirmation before
honoring the dubious checks. Verily, petitioner had the final
opportunity to avert the injury that befell the respondent.
Failing to make the necessary verification due to the volume
of banking transactions on that particular day is a flimsy and
unacceptable excuse, considering that the "banking business
is so impressed with public interest where the trust and
confidence of the public in general is of paramount
importance such that the appropriate standard of diligence
must be a high degree of diligence, if not the utmost
diligence."23 Petitioners negligence has been undoubtedly
established and, thus, pursuant to Art. 1170 of the NCC, 24 it

must suffer the consequence of said negligence.

In the interest of fairness, however, we believe it is proper to
consider respondents own negligence to mitigate
petitioners liability. Article 2179 of the Civil Code provides:
Art. 2179. When the plaintiffs own negligence was the
immediate and proximate cause of his injury, he cannot
recover damages. But if his negligence was only
contributory, the immediate and proximate cause of the
injury being the defendants lack of due care, the plaintiff
may recover damages, but the courts shall mitigate the
damages to be awarded.
1avvph!1

Definition and Classifications of Banks under RA 8791

Universal Bank expanded commercial bank (commercial
bank powers plus power of an investment house and invest
in non-allied enterprises. They have the highest
capitalization requirement.
2015 Bar
A Commercial bank wants to acquire shares in a cement
manufacturing company. Do you think it can do that? Why or
why not? (2%)
Suggested Answer: No. A commercial bank has no power to
acquire shares or invest in non-allied enterprises.
Commercial Bank- Powers of ordinary or regular commercial
banks, (accepting drafts, issuing letters of credit; discounting
and negotiating PN, drafts, bills of exchange, and other
evidence of debts, forex, accepting and creating demand
deposits etc.) lower capitalization than Ubanks cannot
exercise powers of an investment house and invest in nonallied enterprises.
UniBanks and Comml. Banks can accept and create demand
deposits.(liabilities of BSP &banks w/c are denominated in
Phil. Currency and are subject to payment in legal tender
upon demand by presentation of depositors check.
Thrift Banks- these are savings and mortgage banks, stock
savings and loan associations, and private development
bank, which are governed by Thrift Bank Act RA 7906

Rural Banks Banks mandated to make needed credit

available and readily accessible in the rural areas on
reasonable terms, govern by RA 7353.
RA 7353, has been amended by RA 10574, 23 July 2012.
Sec. 4 of RA 7353 is hereby amended to read as follows:
Sec. 4. No rural bank shall be operated without a Certificate
of Authority from the Monetary Board of the Bangko Sentral
ng Pilipinas. Rural banks shall be organized in the form of
stock corporations. No less than forty percent (40%) of the
voting stocks of a rural bank shall be owned by citizens of
the Philippines or corporations or associations organized
under the laws of the Philippines at leas sixty percent (60%)
of whose capital is owned by such citizens. Non-Filipino
citizens may own and acquire or purchase up to sixty
percent (60%) of the voting stocks in a rural bank. The
percentage of foreign-owned
voting stocks shall be
determined by the citizenship of the individual or corporate
stockholders of the rural bank. Upon consultation with the
rural banks in the area, duly established cooperatives and
corporations primarily organized to hold equities in rural
banks may organize a rural bank and/or subscribe to the
shares of stock of any rural bank: Provided, That a
cooperative or corporation owning or controlling the whole or
majority of the voting stock of the rural bank shall be subject
to special examination and to such rules and regulations as
the Monetary Board may prescribed. If subscription of
private shareholders to the capital stock of a rural bank
cannot be secured or

Cooperative banks- These are banks organized primarily to

make financial and credit services available to cooperative.
RA 6938
Islamic bank Banks whose business dealings and activities
are subject the basic principles and ruling of Islamic Sharia .
RA 6848
Other banks as determined by MB
Private and Government owned banks

The General Banking Act (RA 337) characterizes the terms

banking institution and banks as synonymous and interchangeable and specifically includes commercial banks,
savings bank and mortgage banks, development banks, rural
banks, stock savings and loan association, and branches and
agencies in the Philippines of foreign banks. RA 8791 also
included cooperative banks, Islamic banks, and other banks
as determined by the Monetary Board in the classification of
banks. First Planters Pawnshop v. BIR 560 SCRA 606 (2008)
Who has the supervisory and regulatory powers over banks
and quasi-banks, trust entities and other financial
institutions? BSP
Who can cause the prosecution of violations of banking laws?
BSP under RA 7653
Section 3. Responsibility and Primary Objective. The
Bangko Sentral shall provide policy directions in the areas
of money, banking, and credit. It shall have supervision
over the operations of banks and exercise such
regulatory powers as provided in this Act and other
pertinent laws over the operations of finance companies and
non-bank financial institutions performing quasi-banking
functions, hereafter referred to as quasi-banks, and
institutions performing similar functions.
The primary objective of the Bangko Sentral is to maintain
price stability conducive to a balanced and sustainable
growth of the economy. It shall also promote and maintain
monetary stability and the convertibility of the peso.
Since Banking laws violations constitute a public offense, the
prosecution of which is a matter of public interest, anyone
even private individuals can denounce such violations before
the prosecuting officers.
Perez v. MB 20 SCRA 592
What is the Bank of International Settlements?
- It is an international organization based on Basle
Switzerland which was established by the Hague
Agreement of Jan. 20, 1930. Its stockholders are central
banks and not government. It is called the bank for
central banks.

- BIS assists central banks in managing and investing

their forex reserves.
- It is also a service organization providing professional,
organizational and material logistics for central bank
cooperation in all areas of common interest.
- Basle Accord- is aimed at raising the standards of safety
and soundness of in the worlds banking business in a
manner consistent with fair competition
Banks Power and Liabilities
Could bank issue no par value stocks? (Sec.9; See also Sec.
6, Corp. Code) NO2
Could bank acquire its own shares (Sec.10) (Sec. 9, 37 and
81 of Corp. Code)
No Bank shall purchase or acquire shares of its own capital
stock or accept its own shares as security for a loan, except
when authorized by the MB; provided in every case the stock
so purchased or acquired shall, within 6 months from the
time of its purchase or acquisition, be sold or disposed of at
a public auction or private sale.
What is the total number of voting stocks of a domestic bank
that could be owned?
Filipino individual and Domestic Non-Bank Corp-40% of the
outstanding voting stock of a domestic bank
Foreign Individual and Foreign Non-Bank Corp. 40 % ibid
RA 7721 An Act Liberalizing the Entry of Foreign Banks) Phil.
Corp. listed in the PSE or long standing for at least 10 years
shall have the right to acquire or purchase at least 60% of
voting stock of domestic bank.
Under Sec. 73 RA 8791 foreign bank may own up to 100% of
the voting stock of only 1 existing domestic bank w/n 7 years
from the effectivity of RA 8791 ( June 13, 2000)
Modes of Entry of Foreign Banks (Sec. 2, RA 7721, May 18,
1994)
Sec. 9, Treasury Shares, Sec. 6., Classification of shares. Banks, trust
companies, insurance companies, public utilities, and building and loan
associations shall not be permitted to issue no-par value shares of stock.
2

Subject to the authority of the MB

(1)
Acquiring/purchasing 60% voting stock of an
existing bank ((i) by acquiring, purchasing or owning
up to one hundred (100) percent of voting stock of
existing bank; RA 10641, July 21, 2014)
(2)
Investing in up to 60% of the voting stock of a new
banking subsidiary incorporated under the laws of RP
((ii) by investing up to one hundred (100) percent of
voting stock of new banking subsidiary incorporated
under the laws of the Philippines, RA 10641)
(3)
Establishing branches with full banking authority
(same with RA 10641)
Provided that Foreign Bank may avail itself of only one (1)
mode of entry.
Please note that these provisions have been amended by RA
10641 (July 21, 2014).
Under Sec. 2 of RA 10641, it provides:
Sec. 2. Modes of Entry.- The Monetary Board may authorize
foreign banks to operate in the Philippine banking system
through any one of the following modes of entry:(i) by
acquiring, purchasing or owning up to one hundred (100)
percent of voting stock of existing bank; (ii) by investing up
to one hundred (100) percent of voting stock of new banking
subsidiary incorporated under the laws of the Philippines, (iii)
by establishing branches with full banking authority.

BANKS

OWNERSHIP/CAPITAL
STRUCTURE
FILIPINO
FOREIGN
(minimu (maximum)
m)
100% (RA
10641)

POWERS/FUNCTIONS
(1) by acquiring, purchasing or
owning up to
one hundred percent (100%) of the
voting
stock of an existing bank (2)by
investing in
up to one hundred percent (100%)
of the

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voting stock of a new banking
subsidiary
incorporated under the laws of the
Philippines;
or (3) by establishing branches
with full banking authority.
Guidelines for approval. (1) MB
shall (i) ensure geographic
representation and
complementation ; (ii) consider
strategic trade and investment
relationships between the
Philippines and the country of
incorporation of the foreign bank
(iii) study the demonstrated
capacity, global reputation for
financial innovations and stability
in a competitive environment of
the applicant (iv) see to it that the
reciprocity rights are enjoyed by
the Philippine banks in the
applicants country; (v) consider
willingness to fully share their
technology.
Only established , reputable and
financially sound foreign banks
shall be allowed entry in
accordance with Section 2 of RA
10641

Rural
Bank
Financing
Co.
Lending
Co.
Investme
nt House

40%
40%
51%
40%

60% ( RA
10574)
60% (RA
8556)
49% (RA
9474)
60% ( RA
8366)

2015 Bar
XXI. A foreign company has a distributor in the Philippines. The latter
acts in his own name and account. Will this distributorship be
considered as doing business by the foreign company in the
Philippines? (3%)
No. Under the Foreign Investment Act (FIA RA 7042)
appointing a representative or distributor in the Philippines
which transact business in its own name for its own account
is not considered as doing business in the Philippines.

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XXII. ABC Corporation was organized in Malaysia but has a branch in

the Philippines. It is entirely owned by Filipino citizens. Can you
consider ABC Corporation a Philippine national? (2%)
Suggested Answer:
It depends. If ABC Corporation is registered as doing
business in the Philippines under the Corporation Code and
one hundred percent (100%) of the capital stock outstanding
and entitled to vote is wholly owned by Filipinos then ABC
Corporation is a Philippine national as defined under RA 7042
(FIA).
XXIII. Raymond invested his money in securities issued by the
Philippine government, through his bank. Subsequently, the Bureau
of Internal Revenue asked his bank to disclose his investments. His
bank refused the request for disclosure on the ground that the
investments are confidential under the Secrecy of Bank Deposits Law
(Republic Act No. 1405, as amended). Is the bank's refusal justified?
Defend your answer. (2%)
Suggested Answer:
Yes, the banks refusal is justified. The investment is in the
form of securities issued by the Philippine government. Sec.
2 of RA 1405 prohibits the examination and inquiry or
looking into all deposits of whatever nature with banks in the
Philippines (including investments in bonds issued by the
Foreign Stockholdings (Sec.11) Foreign individuals and nonbank corporations may own or control up to 40% of voting
stock of domestic bank. Rule shall apply to Filipinos and
domestic non-bank corporations.
Note that under RA 10641 amending RA 7721 ( Act
Liberalizing the Entry and Scope of Foreign Banks in the
Phils.), foreign banks may now acquire up to 100% of voting
stock of an existing bank.
Grandfather Rule: Percentage of foreign-owned voting stocks
in a bank shall be determined by citizenship of individual
stockholders in that bank. Citizenship of corporation which is
a stockholder in a bank shall follow the citizenship of the
controlling stockholders of the corporation , irrespective of
the place incorporation.

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Please note, that under RA 7942 Philippine Mining Act Sec. 3

(f) Foreign owned corporation means any corporation,
partnership, association, or cooperative duly registered in
accordance with law in which less than 50% of the capital is
owned by Filipino citizens. This means that a mining
corporation, the capital of which is owned 50% or more by
Filipino citizens is considered Filipino owned corporation.
RESTRICTION ON DOSRI
DOSRI Rules (Sec. 36) Directors Officers, Stockholders and
Related Interest
Regulate the amount of credit accommodations to DOSRI.
Prohibitions to Directors of Officers to directly or indirectly ,
for himself or as the representative or agent of others to
borrow from such bank or act as guarantor, endorser or
surety, obligor or incur any contractual liability , except the
transactions is in pare passu.3
DOSRI- Directors Officers, Stockholders and their related
interests.
Rules
regulating
the
grant
of
credit
accommodations that bank may extend to its DOSRI. Credit
accommodation should be pare pasu (regular course of
business and on terms not less favorable to the bank than
those offered to non-DOSRI).
Stockholdings in a bank deemed owned by family
group/related interest
Stockholdings of individuals related to each other within the
4th degree of consanguinity or affinity, legitimate or common
law shall be considered family groups or related interests.
Such relationships must be fully disclosed in all transactions
by such individuals with the bank. Section 12, GBL RA 8791
Two or more corporations owned or controlled by the same
family group or same group of persons shall be considered
related interests and must be fully disclosed in all
transactions by such corporations or related groups of
persons with the bank. Section 13, GBL RA 8791
RA 7653 BSP Act
Section 26. Bank Deposits and Investments. Any director,
officer or stockholder who, together with his related interest,
3

Equally, without preference

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contracts a loan or any form of financial accommodation

from: (1) his bank; or (2) from a bank (a) which is a
subsidiary of a bank holding company of which both his bank
and the lending bank are subsidiaries or (b) in which a
controlling proportion of the shares is owned by the same
interest that owns a controlling proportion of the shares of
his bank, in excess of five percent (5%) of the capital and
surplus of the bank, or in the maximum amount permitted by
law, whichever is lower, shall be required by the lending
bank to waive the secrecy of his deposits of whatever nature
in all banks in the Philippines. Any information obtained from
an examination of his deposits shall be held strictly
confidential and may be used by the examiners only in
connection with their supervisory and examination
responsibility or by the Bangko Sentral in an appropriate
legal action it has initiated involving the deposit account.
------------------------Sec. 23 of the Corp. Code corporate powers shall be
exercised, and all business conducted and all property
controlled and held by the BOD.
Every director must own at least one (1) share of the capital
stock of the corporation, which share shall stand in his name
on the Stock and Transfer Book.
The exception is Section 15 of the GBL (RA 8791)
Independent Directors
Notwithstanding provisions of Corporation Code to the
contrary, there shall be at least 5, and a maximum of 15
members of the BOD of a bank, 2 of whom shall be
independent directors.
Independent Director shall mean a person other than an
officer or employee of the bank, its subsidiaries or affiliates
or related interests.
Non-Filipino citizens may become members of the BOD to
the extent of foreign equity participation;
Meeting of the BOD may be conducted through modern
technologies such as, but not limited to, teleconferencing
and video-conferencing.
Sec.15. of RA 8791 GBL
The provisions of the Corporation Code to the contrary
notwithstanding, there shall be at least five (5), and a

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maximum of fifteen (15) members of the board or directors

of a bank, two( 2) of whom shall be independent directors.
Independent director- is a person other than an officer or
employee of the bank, its subsidiaries or affiliates or related
interest.
Independent director as defined under SRC RA 8799 (Sec.38)
- person other than officer or employee of the corporation,
its parent or subsidiaries, or any individual having a
relationship with the corporation, which would interfere with
the exercise of independent judgment in carrying out the
responsibilities of a director.
In case of bank merger or consolidation , number of directors
shall not exceed twenty-one (21), Sec. 17

What is fit and proper rule?

In order to maintain the quality of bank management and
afford better protection to depositors and the public in
general , the MB shall:
- prescribe, pass upon and review the qualifications and
disqualifications of individuals elected / appointed bank
directors/ officers; ( In determining whether an
individual is fit and proper to hold position of a
director/officer, due regard shall be given to his
integrity,
experience,
education,
training,
and
competence)
- after due notice to the BOD of the bank, the MB may
disqualify , suspend, remove any bank director/officer
who commits or omits an act w/c render him unfit for
the position.
Power to suspend or remove After due notice to the BOD of
the bank, MB may disqualify, suspend or remove any bank
director or officer who commits or omits an act which render
him unfit for the position.
MB as an administrative agency, is legally bound to observe
due process, although it is free from the rigidity of certain
procedural requirements, it is clear under Sec. 28 ( c) of RA
3779, that an investigation or examination may be
conducted with or without prior notice but always with

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fairness and reasonable opportunity for the association or

any of its officials to give their side.
Likewise, suspension of bank officers which is only
preventive in nature would require no notice or hearing, and
until such time that the officers have proved their innocence,
he may be preventively suspended from holding office so as
not to influence the conduct of investigation, and to prevent
commission of further irregularities.
Basuego v. CA 204 SCRA 473 (1999)
Could an elective and appointive public official serve as an
officer of a private bank?
No, whether part-time or full-time, except under Rural Bank
Act 7353 (director/officer/consultant) save in cases where
service is incident to financial assistance provided by the
government or gocc.
What are SBL rules?
Single Borrowers Limit Rules Rules promulgated by BSP
w/c regulate the total amount of loans, credit
accommodations and guarantees that may be extended by a
bank to any person, partnership, corporation or other entity.
The rules seek to protect the bank from making excessive
loans to a single borrower by providing a ceiling of 20% of
the net worth of the bank concerned, subject to possible
increase by an additional 10% under certain conditions.
DOSRI (Directors, Officers, Stockholders and their Related
Interest) rules which regulate the amount of credit
accommodations that a bank may extend to its DOSRI. The
banks credit accommodation must be regular course of
business and on terms not less favorable to the bank than
those offered to non-DOSRI.
Microfinancing
The grant of small loans (microfinance loan) to the basic
sectors, as described in the Social Reform and Poverty
Alleviation Act of 1997 ( RA 8425), and other loans to the
poor and low-income households for their micro-enterpises
and small businesses so as to enable them to raise their
income levels and improve their living standards. These

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loans are granted on the basis of the borrowers cash flow

and are typically unsecured.
Could bank acquire real estate? (Sec.51)
Yes, if it is necessary for its own use in the conduct of its
business. Provided, however, that the total investment in
such real estate and improvements thereof including bank
equipment, shall not exceed 50% of combined capital
accounts. Provided further that the equity investment if a
bank in another corporation engaged primarily in real estate
shall be considered as part of the banks total investment in
real estate, unless otherwise provided by the MB.
Notwithstanding the limitations thereof under Section 52,
banks may acquire, hold or convey real property under the
ff. circumstances:
1.
2.
3.

Such as shall be mortgaged to it in good faith by

way of security for debts
Conveyed in satisfaction of debts previously
contracted in the course of its dealings; or
Such as it shall purchase at sales under
judgments, decrees, mortgages, or trust deeds
held by it and such as it shall purchase to secure
debts due it.

Any real property acquired or held under the above

circumstances shall be disposed of w/n 5 years or as may be
prescribed by the MB.
Can a bank acquire real property by virtue of deed of
transfer from its former employee in satisfaction of a civil
liability arising from the criminal offense of qualified theft?
No, since the debts referred to are those resulting from
previously contracted in the course of its dealings. Reg. of
Deeds of Manila v. Chinabank 4 SCRA 1145
Single Borrowers Limit. These are rules promulgated by the
BSP to regulate loans, credit accommodations and
guarantees that banks may extend to any person. The
current limit is 20% of the net worth of the bank, subject to
possible increase of 10% under certain conditions.
Purpose: to protect banks from over exposure or making
excessive loans to a single borrower.

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What is the requisite for the stipulation on escalation clause

of interest in the PN to be valid?
1. That there can be an increase in interest if increased by
law or by the MB,and
2. It must include a provision for reduction of the
stipulated interest in the event that the applicable
maximum rate of interest is reduced by law or the MB.
Interest rate of 5.5% or 66% pa. is contrary to morals hence
void.
Medel et al v. CA, Nov. 27, 1998
Where the disclosure statements, as well as the credit
agreements, do not provide for any increase in the specified
interest rates, none would be permitted.
New Sampaguita Builders Construction, Inc. v. PNB 435 SCRA
565
Degree of diligence required in banking.
-more than that of a good father of a family; highest degree
of diligence
-banks liability as an obligor is not merely vicarious, but
primary
- State recognizes the fiduciary nature of banking that
requires high standards of integrity and performance Sec. 2
RA 8791.
Strikes and Lockouts
Banking industry is indispensible to National InterestUnsettled after seven (7) calendar days shall be reported by
BSP to DOLE Secretary who may assume jurisdiction over the
dispute or decide it or certify the same to NLRC for
compulsory arbitration.
The President may any time intervene and assume
jurisdiction over such labor dispute in order to settle or
terminate the same.
Read PNB v. Pike 470 SCRA328

18

It bears emphasizing that negligence of banking institutions

should never be countenanced- though its employees may
be the ones negligent, a banks liability as an obligor is not
merely vicarious but primary, as banks are expected to
exercise the highest degree of diligence in the selection and
supervision of their employees.
UNITED COCONUT PLANTERS BANK, petitioner, vs. TEOFILO
C. RAMOS, respondent. 415 SCRA 596 G.R. No. 147800 Nov.
11, 2003
Banks and Banking: Loans; The business of a bank is one
affected with public interest, for which reason the banks
should guard against loss due to negligence or bad faith; In
approving the loan of an applicant, the bank concerns itself
with proper information regarding its debtors.- It bears
stressing that the petitioner is a banking corporation, a
financial institution
RURAL BANK OF STA. IGNACIA, INC. vs. DIMATULAC 401 SCRA
G.R. No. 142015 April 29,2003
Sales: Land Titles; Banks and Banking; Judicial Notice; The
rule that persons dealing with registered lands can rely
solely on the certificate of title does not apply to banks;
Judicial notice may be taken of the common practice of
banks, before approving a loan, to send a representative to
the premises of the land offered as collateral and duly
investigate who are the true owners thereof,- The rule that
person dealing with registered lands can rely solely on the
certificate of title does not apply to banks. The degree of
diligence required of banks is more than that of a good
father of a family; in keeping with their responsibility to
exercise the necessary care and prudence in dealing even
with a registered or titled property. The business of a bank is
affected with public interest, holding in trust the money of
the depositors, which the bank should guard against loss to
rely merely on the protective mantle of the land registration
law, which is normally accorded only to purchasers or
mortgagees for value and in good faith. In the present case,
while petitioner sent a representative to verify the original
TCT on file with the Register of Deeds, no ocular inspection
of the premise took place. Judicial notice may be taken of the
common practice of banks, before approving a loan, to send
a representative to the premises of the land offered as
collateral and duly investigate who are the true owners
thereof. Failure to do so is negligence on the part of a bank.

19

Had petitioner taken extra steps, time and effort in dealing

with the property it purchased by conducting proper ocular
inspection of the premises, it could have discovered early
the presence of settlers therein who are land reform
beneficiaries.
HEIRS OF EDUARDO MANLAPAT vs. COURT OF APPEALS 459
SCRA 412 G.R. No. 125585
Same; same; Banks and Banking; Banks their business being
impressed with public interest, are expected to exercise
more care and prudence than private individuals in their
dealings, even those involving registered lands- the highest
degree of diligence is expected, and high standards of
integrity and performance are even required of them.- The
Cruzes resorted to such means to protect their interest in the
property that right fully belongs to them only because of the
bank officers acquiescence thereto. The Cruzes could not
have secured a separate TCT in the name of Ricardo without
the banks approval. Banks, their business being impressed
with public interest, are expected to exercise more care and
prudence than private individuals in their dealings, even
those involving registered lands. The highest degree is
expected, and high standards of integrity and performance
are even required of it.
In Rural Bank of Compostela v. CA 271 SCRA 76, 88, April 8,
1997, we held that a bank failed to observe due diligence
was not mortgagee in good faith. In the words of the
ponencia:
xxxx [T]the rule that persons dealing with registered
lands can rely solely on the on the certificate of title does not
apply to banks.
Banks indeed, should exercise more care and prudence
in dealing even with registered lands, that private
individuals, for their business in one affected with public
interest, keeping in trust money belonging to their
depositors, which they should guard against loss by not
committing any act of negligence which amounts to lack of
good faith by which they would be denied the protective
mantle of the land registration statute, Act [No] 496,
extended only to purchasers for value and in good faith, as
well as mortgagees of the same character and descriptions.

20

xxx
Prudence dictates that a person signing a document in his
official capacity (as bank manager in this case) must closely
read and meticulously study the contents of the said
document affixing his signature thereon. A bank is not
without a legal staff or lawyer who prepares documents
concerning its business. The mistake committed by the
bank's staff, which was admitted by respondent Jimenez, was
not a slight or minor infraction. It deprived petitioners of
their property which could ultimately result in their
ejectment therefrom. Moreover, the bank's manager, Dr.
Jimenez, could not even explain why the mistake occurred.
xxx
The banking system has become an indispensable institution
in the modern world and plays a vital role in the economic
life of every civilized society. Whether as mere passive
entities for the safe-keeping and saving of money or as
active instruments of business and commerce, banks have
attained a ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and
most of all, confidence. (Simex International [Manila], Inc. vs.
Court of Appeals, G.R. No. 88013, March 19, 1990, 183 SCRA
360).
G.R. No. 100755 February 10, 1994
CRISTETA BAUTISTA, REMEDIOS MEJIA-BADUA,
CATALINA MEJIA, LAURETA MEJIA, ROSITA MEJIA,
MILAGROS MEJIA, JUAN MEJIA, CANDIDA MEJIA,
ADRIANA MEJIA, and FAUSTO MEJIA, petitioners,
vs.
MANGALDAN RURAL BANK, INC., THRU ITS PRESIDENT,
DR. VICENTE JIMENEZ, REGISTER OF DEEDS OF
PANGASINAN, EFREN RODRIGUEZ: and THE
HONORABLE COURT OF APPEALS, respondent
BANKING LAWS
GENERAL CONCEPT
That the bank is under the supervision of the Bangko
Sentral ng Pilipinas (BSP) and the Philippine Stock Exchange
(PSE) does not exempt it from complying with the continuing
disclosure requirements embodied in the assailed rules. As a
bank, it is primarily subject to the control of the BSP ; and as
a corporation trading its securities in the stock market. It is

21

under the supervision of the SEC. These regulations are

meant to assure full, fair, and accurate information for the
protection of the investors. (UNION BANK OF THE
PHILIPPINES vs. SEC GR. No. 138949. June 6, 2001)
A bank can have no lien on its own stock for the
indebtedness of the stockholders even when the by-laws
provide that the shares shall be transferable only on the
books of the corporation and that no such transfer shall be
made if the holder of the shares is indebted to the
corporation. For if a banking corporations were given a lien
on their own stock for the indebtedness of the stockholders,
the prohibition against granting loans or discounts upon the
security of the stock would become largely ineffective (FUA
CUN vs. SUMMERS and CHINA BANKING CORP. GR No. L1944, March 27, 1923)
LIABILITY FOR DAMAGES
In approving the loan of an applicant, the bank
concerns itself with proper information regarding its debtors.
UCPB, as a bank and a financial institution engaged in the
grant of loans, is expected to ascertain and verify the
identities of the persons it transacts business with. (UNITED
COCONUT PLANTERS BANK vs. RAMOS. GR No. 147800.
November 11, 2003.)
MORAL DAMAGES
Simex International (Manila), Inc. v. CA 183 SCRA 360 (1990)
Moreover, a corporation is not as a rule entitled to moral damages
because, not being a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish and moral shock. The only exception to this rule is
where the corporation has a good reputation that is debased,
resulting in its social humiliation.
We shall recognize that the petitioner did suffer injury because of the
private respondent's negligence that caused the dishonor of the
checks issued by it. The immediate consequence was that its
prestige was impaired because of the bouncing checks and
confidence in it as a reliable debtor was diminished. The private
respondent makes much of the one instance when the petitioner was
sued in a collection case, but that did not prove that it did not have a
good reputation that could not be marred, more so since that case
was ultimately settled. It does not appear that, as the private respondent

22

would portray it, the petitioner is an unsavory and disreputable entity that
has no good name to protect.

MORAL DAMAGES BASED ON ACTUAL INJURY

G.R. No. 177839
January 18, 2012
FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now
known as FLT PRIME INSURANCE CORPORATION), Petitioner,
vs.
CHEVRON PHILIPPINES, INC. (formerly known as CALTEX
[PHILIPPINES], INC.), Respondent.
Finally, we hold that the trial court correctly dismissed petitioners
counterclaim for moral damages and attorneys fees. The filing alone
of a civil action should not be a ground for an award of moral
damages in the same way that a clearly unfounded civil action is not
among the grounds for moral damages. 27 Besides, a juridical person
is generally not entitled to moral damages because, unlike a natural
person, it cannot experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or moral shock. 28
Although in some recent cases we have held that the Court may
allow the grant of moral damages to corporations, it is not
automatically granted; there must still be proof of the existence of the
factual basis of the damage and its causal relation to the defendants
acts. This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose
a penalty on the wrongdoer.29 There is no evidence presented to
establish the factual basis of petitioners claim for moral damages.
Rudolf Lietz, Inc. v. Court of Appeals, G.R. No. 122463, December
19, 2005, 478 SCRA 451, 460.
28
Crystal v. Bank of the Philippine Islands, G.R. No. 172428,
November 28, 2008, 572 SCRA 697, 705, citing People v. Manero,
Jr., G.R. Nos. 86883-85, January 29, 1993, 218 SCRA 85, 96-97.
29
Id. at 706, citing Development Bank of the Phil. v. Court of Appeals,
451 Phil 563, 586-587 (2003).
27

MORAL DAMAGES CANNOT BE GRANTED TO CORPORATION

G.R. No. 128690 January 21, 1999
ABS-CBN BROADCASTING CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS, REPUBLIC
BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE
DEL ROSARIO, respondents.
The award of moral damages cannot be granted in favor of a
corporation because, being an artificial person and having existence

23

only in legal contemplation, it has no feelings, no emotions, no

senses, It cannot, therefore, experience physical suffering and mental
anguish, which call be experienced only by one having a nervous
system. 65 The statement in People v. Manero 66 and Mambulao Lumber
Co. v. PNB 67 that a corporation may recover moral damages if it "has a
good reputation that is debased, resulting in social humiliation" is an obiter
dictum. On this score alone the award for damages must be set aside,
since RBS is a corporation.

65 Prime White Cement Corp. v. Intermediate Appellate Court, 220

SCRA 103, 113-114 [1993] LBC Express Inc. v. Court of Appeals, 236
SCRA 602, 607 [1994]; Acme Shoe, Rubber and Plastic Corp. v.
Court of Appeals, 260 SCRA 714, 722 [1996].
66 Supra note 31.
67 130 Phil. 366 [1968].
BANKS FIDUCIARY DUTY TO DEPOSITORS
A banking corporation is liable to innocent third persons
where the representation is made in the course of its
business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate a
fraud upon his principal or some other person, for his own
ultimate benefit. ( PHILIPPINE BANKING CORPORATION vs.
COURT OF APPEALS and MARCOS GR No. 127469. January
15, 2004.)
RECEIVERSHIP
The appointment of a receiver operates to suspend the
authority of a bank and of its directors and officers over its
property and effects, such authority being reposed in the
receiver and in this respect, the receivership is equivalent to
an injunction to restrain bank officers from intermeddling
with the property of the bank in any way. The receiver only
has authority to administer the properties of the bank for the
benefits
of
the
creditors
(ABACUS
REAL
ESTATE
DEVELOPMENT CENTER, INC. vs MANILA BANKING CORP. GR
No. 162270, April 6, 2005.)
NEW CENTRAL BACK ACT
While admittedly the Central Bank Act gives vast and
far reaching power to the conservator of a bank. It must be
pointed out that such powers must be related to the
preservation of the asset of the bank (the reorganization
thereof) and the restoration of its viability. Such powers
enormous and extensive as they are, cannot extend to ex
post facto repudiation of perfected transactions, otherwise
that would infringe against the non-impairment clause of the

24

Constitution. (FIRST PHIL___ BANK vs. GR No. 115849.

January 24, 1996)
There is no requirement whether express or implied,
that a hearing be first conducted before a banking institution
may be placed under receivership. On the contrary, the law
is explicit as to the conditions prerequisite to the action of
the Monetary Board to forbid the institution to do business in
the Philippines and to appoint a receiver who will
immediately take charge of the banks assets and liabilities.
The requirements are; (a) an examination made by the
examining department of the Central Bank; (b) report by said
department to the Monetary Board; and (c) prima facie
showing that the bank is in a condition of insolvency or so
situated that its continuance in business would involve
probable loss to its depositors or creditors.
The evident implication of the law, therefore, is that the
appointment of a receiver may be made by the Monetary
Board without notice and hearing but its action is subject to
judicial inquiry to ensure the protection of the banking
institution. Stated otherwise, due process does not
necessarily require a prior (BUHI vs. CA GR No. 61689. June
20, 1988)
EFFECT OF CLOSURE
The banks closure did not diminish the authority and
powers of the designated liquidator to effectuate and carry
on the administration of the bank. The bank liquidator is
allowed to continue receiving collectibles and receivables or
to pay off creditors claims and other transactions pertaining
to the normal operations of the bank. Among these
transactions are the prosecution of suits against debtors for
collection and the foreclosure of mortgages. The bank is
allowed to collect interest rate on its loans while under
liquidation, provided that the interests are legal. In fine, the
interest rate on the loan agreed upon between the parties is
not excessive or unconscionable; and that during the closure
of respondent bank, it could still function as a bonding
institution, hence, could continue collecting interests from
petitioners. (BACOLOR vs. BANCO FILIPINO SAVINGS AND
MORTGAGE BANK GR No. 148491. February 8, 2007)
INSOLVENCY OF BANK

25

Insolvency was defined as the inability of a banking

institution to pay its liabilities as they fall due in the ordinary
course of business. Respondent CB found Genbank incapable
to generate liquid funds by itself in order to meet draw
downs on its deposits and deposit-substitutes and to pay for
other maturing obligations, as well as advances from Central
Bank.
Genbank cannot be allowed to adopt a statutory
definition of insolvency, which was not set forth in the law
when Resolution No. 675 was issued. The Monetary Board
actions could not have run counter to a legal provision
inexistent at the time when it issued the resolution in
question (GENERAL BANK AND TRUST COMPANY vs. CENTRAL
BANK OF THE PHILIPPINES GR. No. 152551. June 15, 2008.
JURISDICTION OVER ACTIONS AGAINST AN INSOLVENT BANK
The Monetary Board has exclusive jurisdiction over
actions against insolvent banks. Regular courts do not have
jurisdiction over actions filed by claimants against an
insolvent bank unless there is a clear showing that the action
taken by the BSP was in excess of jurisdiction or with grave
abuse of discretion. Disputed claims refer to all claims,
whether they be against the assets of the insolvent bank, for
specific performance, breech of contract, damages, or
whatever. Petitioners claims falls within the ambit of a claim
against the assets of the insolvent bank.
The disputed claim should be lodged in the liquidation
proceedings by the petitioner as creditor, since the closure of
the bank has rendered all claims subsisting at that time
moot which can best be threshed out by the liquidation court
and not the regular courts. (MIRANDA vs. PHILIPPINE
DEPOSIT INSURANCE CORP. ET. AL. GR No. 169334.
September 8, 2006)
LIQUIDATION OF BANK VS. LIQUIDATION OF CORPORATION
The liquidation of RBBI is undertaken according to Sec.
30 of the New Central Act. The said provision lays down the
proceedings for receivership and liquidation of a bank. It is
silent as regards the securing of a tax clearance from the
BIR. The omission cannot compel the Court to apply by
analogy the tax clearance requirement of the SEC since the

26

dissolution of a corporation by the SEC is totally different

from the receiveship and liquidation of a bank by the BSP.
There are substantial differences in the procedure for
involuntary dissolution and liquidation of a corporation under
the Corporation Code, and that of a banking corporation
under the New Central Bank Act, so that the requirements in
one cannot simply be imposed in the other. (IN RE: PETITION
FOR ASSISTANCE IN THE LIQUIDATION OF THE RURAL BANK
OF BOKOD (BENGUET), INC (RBBI), PHILIPPINE DEPOSIT
INSURANCE CORPORATION (PDIC) vs. BUREAU OF INTERNAL
REVENUE (BIR). GR No. 158261. December 18, 2006)
DEPOSIT INSURANCE
The amount of deposit insurance in banks has been
effectively increased to P 500,000. 00 (RA 3591 as amended
by RA 9576, April 29, 2009)
1. After the mortgage property was extrajudicially
foreclosed, and the certificate of sale was issued and
registered at the Office of the Registry of Deeds, the
mortgagor filed an action for annulment of mortgage.
a. The action tolls the running of the redemption period
b. The action does not interrupt the running of the
redemption period
c. The mortgagor can still redeem the property even
after the expiration the redemption period
d. The mortgagor can redeem the property by paying
the redemption price pursuant to Section 6 of Act
3135
Answer: b (Vaca vs. CA 234 SCRA 146)
a. The redemption price once the real property is
foreclosed judicially or extrajudicially is: Redemption
price pursuant to Section 78 of the General Banking
Act (now Section 47 of the General Banking law RA
8791) and Not the Redemption price pursuant to the
Section 6 of Act 3135; or the Purchase price plus 1%
interest per month up to the time of redemption or as
provided under Sec. 28, Rule 39;or Purchase price
plus 2 % interest per month to commence 60 days
after the redemption from the first redemption

27

In Ponce de Leon v. Rehabilitation Finance Corp 146 SCRA

862)
In Ponce de Leon v. Rehabilitation Finance Corporation, 27 this
Court had occasion to rule that Section 78 of the General Banking Act
had the effect of amending Section 6 of Act No. 3135 28 insofar as the
redemption price is concerned when the mortgagee is a bank, as in
this case, or a banking or credit institution. 29 The apparent conflict
between the provisions of Act No. 3135 and the General Banking Act
was, therefore, resolved in favor of the latter, being a special and
subsequent legislation. This pronouncement was reiterated in the case
of Sy v. Court of Appeals30 where we held that the amount at which
the foreclosed property is redeemable is the amount due under the
mortgage deed, or the outstanding obligation of the mortgagor plus
interest and expenses in accordance with Section 78 of the General
Banking Act.31 It was therefore manifest error on the part of the Court
of Appeals to apply in the case at bar the provisions of Section 30 Rule
39 of the Rules of Court in fixing the redemption price of the subject
foreclosed property.
27

146 SCRA 862 (1970).

28

SEC. 6. In all cases in which an extrajudicial sale is made under the

special power herein before referred to, the debtor, his successors in
interest or any judicial creditor or judgment creditor of said debtor, or
any person having a lien on the property subsequent to the mortgage
or deed of trust under which the property is sold, may redeem the
same at any time within the term of one year from and after the date
of sale; and such redemption shall be governed by the provisions of
sections four hundred and sixty-four to four hundred and sixty-six,
inclusive, of the Code of Civil Procedure (now Secs. 29, 30 and 34, Rule
39, Revised Rules of Court), insofar as these are not inconsistent with
the provisions of this Act.
29

See note 27, supra, p. 878.

30

172 SCRA 125 (1989).

Reiterated in the case of

G.R. No. 134068

December 25, 2001

UNION BANK OF THE PHILIPPINES,

petitioner,
vs.
COURT OF APPEALS, APOLONIA DE JESUS GREGORIO, LUCIANA
DE JESUS GREGORIO, GONZALO VINCOY, married to TRINIDAD
GREGORIO VINCOY, respondents.

2. When the redemption period is about to expire,

mortgagor offered to redeem the property by tendering
payment for the full amount of the redemption price.
The mortgagee refuses the amount of the tender of
payment of redemption price because of disagreement
as to the redemption price.

28

a. Mortgagor may file an action within 1 year

redemption period in order to preserve the right of
redemption
b. The mortgagor can still redeem the property even
after the expiration the redemption period
c. The action does not interrupt the running of the
redemption period
d. The mortgagor can redeem the property by paying
the redemption price pursuant to Section 6 of Act
3135
Answer : a ( Hi-Yield Realty vs. CA 388 SCRA 655, Lee
Chung Realty vs. CA 250 SCRA 596)
3. If the proceeds of the extra-judicial foreclosure sale of
real estate mortgage turned out to be less than or
insufficient to pay the debt, the mortgagee can:
a. Sue /file an action to recover the deficiency from the
mortgagor;
b. Mortgagee cannot sue for the deficiency, any
agreement to the contrary is void;
c. The extrajudicial foreclosure sale extinguishes the
obligation. Mortgagee cannot recover the deficiency,
notwithstanding any stipulation to the contrary;
d. The extrajudicial foreclosure should be published for
three (3) consecutive weeks in a newspaper of
general circulation
Deficiency of Price, Recovery
In the case of EJF of REM, creditor bank is entitled to
deficiency in case the price of the foreclosure sale is less
than the principal amount of loan, interest and expenses, if
any. Same holds true with Chattel Mortgage.
In pledge under Article 2115, sale of thing pledge extinguish
the principal obligation, whether or not the proceeds of the
sale are equal to the amount of the principal obligation,
interest and expenses in a proper case. If price of sale is
more than the said amount, the debtor shall not be entitled
to the excess unless it is otherwise agreed. Exception is n
the case of legal pledge under Article 2121, 546 ( necessary
and useful expenses), 1731 (to work on movable) and 1994
(refers to depositary)or pledge by operation of law.
Including Article 1914, right of agent to retain. Article 2004
right of hotel or in-keeper to retain.

29

How about if the proceeds is less, creditor is not entitle to

recover the deficiency notwithstanding any stipulation to the
contrary.
4. A Universal Bank is:
a. Bank that can accept or create demand deposits
without approval of the BSP;
b. Bank that can grant small loans to the basic sectors,
as described in the Social Reform Poverty Alleviation
Act of 1997 /RA 8425;
c. Bank that has commercial bank powers in addition to
power of an investment house and invest in nonallied
enterprises
and
the
highest
capital
requirement.
d. Bank that has the power to accept drafts, issuing
letters of credit, discounting and negotiating PN,
drafts, bills of exchange and other evidence of debts,
forex, accepting and creating demand deposits.
Answer: c
5. A Commercial Bank is:
a. Bank that can accept or create demand deposits
without approval of the BSP;
b. Bank with powers of investment house and invest
in non-allied enterprises
c. Bank which has the power make needed credit
available and readily accessible in the rural areas
on reasonable terms;
d. Bank organized primarily to make financial and
credits services to cooperative.
Answer: a
6. Filipino and Foreign individuals and Domestic Non-Bank
Corporation wanted to acquire a domestic bank.
a. Only 40% of the voting stock could be owned
b. Up to 60% of the voting stock could be owned
c. Up to 100% of the voting stock could be owned
d. Up to 50 % of the voting stock could be owned
Answer: a (sec. 11 RA 8791)

30

7. In granting loans and credit accommodations to its

directors, officers stockholders and related interest,
bank may:
a. Regulate the loans and credit accommodations
b. Waive the Bank secrecy law
c. Extend as many loan and credit accommodations as
long as the can afford;
d. Loans and credit accommodation must be in the regular
course of business, with terms and conditions which are
equally and without preference
Answer: d. (Sec. 36 RA 8791)
8. The Right of Redemption of the juridical entity in
extrajudicial foreclosure of real estate mortgage by a
bank quasi-bank and trust entity under the General
Bank Act of 2000 or RA 8791
a. Right of Redemption is 1 year from the registration of
the certificate of sale in the office of the Register of
Deeds;
b. Redemption period shall be made until, but not later
than the registration of the certificate of foreclosure sale
with the applicable Register of Deeds which in no case
shall be more than 3 months after foreclosure, whichever
is earlier;
c. Redemption could be stayed by action assailing the
validity of foreclosure sale;
d. Redemption could not be stayed by any action.
9.

A bank in order to save on labor cost, hired or

outsourced casual and non-regular employees

a. Bank is prohibited to outsourced casual or non-regular

employees;
b. Bank is allowed to outsource casual or non-regular
employees;
c. Bank can employ casual or non-regular employee only
on short term basis involving non banking functions or
deposits transactions.

31

d. Bank can outsource inherent banking functions.

Answer: c (Sec. 55 RA 8791)

RA 7653 BSP
Section 58. Definition. For purposes of this Act, the term
"demand deposits" means all those liabilities of the
Bangko Sentral and of other banks which are denominated in
Philippine currency and are subject to payment in legal
tender upon demand by the presentation of checks.
Section 59. Issue of Demand Deposits. Only banks duly
authorized to do so may accept funds or create liabilities
payable in pesos upon demand by the presentation of
checks, and such operations shall be subject to the control of
the Monetary Board in accordance with the powers granted it
with respect thereto under this Act.
Section 60. Legal Character. Checks representing demand
deposits do not have legal tender power and their
acceptance in the payment of debts, both public and private,
is at the option of the creditor: Provided, however, That a
check which has been cleared and credited to the account of
the creditor shall be equivalent to a delivery to the creditor
of cash in an amount equal to the amount credited to his
account.
RA 7653 BSP Act
Section 95. Definition of Deposit Substitutes. The term
"deposit substitutes" is defined as an alternative form of
obtaining funds from the public, other than deposits, through
the issuance, endorsement, or acceptance of debt
instruments for the borrower's own account, for the purpose
of relending or purchasing of receivables and other
obligations. These instruments may include, but need not be
limited to, bankers acceptances, promissory notes,
participations, certificates of assignment and similar
instruments with recourse, and repurchase agreements. The
Monetary Board shall determine what specific instruments
shall be considered as deposit substitutes for the purposes of
Section 94 of this Act: Provided, however, That deposit
substitutes of commercial, industrial and other non-financial

32

companies for the limited purpose of financing their own

needs or the needs of their agents or dealers shall not be
covered by the provisions of Section 94 of this Act.
What is a draft? (Used normally in international commerce to
effect payment)
A draft is a bill of exchange. It is an order written by an
exporter /seller instructing an importer /buyer or its agent to
pay a specified amount of money at a specified time.
The person/business opening /initiating the draft is called the
maker, drawer or originator. The party to whom the draft is
addressed is the drawee. The drawee is asked to honor the
draft, i.e. to pay the amount requested according to the
stated terms. The drawee is either the buyer, in which case
the draft is called a Trade Draft, or buyers bank, in which
case the draft is called a Bank Draft.