1. Q: ABC Company filed a Petition for Rehabilitation with the Court.

An order was issued by

the Court, (1) staying enforcement of all claims, whether money or otherwise against ABC
Company, its guarantors and sureties not solidarily liable with the company; and (2)
prohibiting ABC Company from making payments of the liabilities, outstanding as of the date
of the filing of the Petition. XYC Company is a holder of an irrevocable Standby Letter of
Credit which was previously procured by ABC Company in favor of XYC Company to secure
performance of certain obligations. In the light of the Order issued by the Court, can XYC
Company still be able to draw on their Irrevocable Standby Letter of Credit when due? Explain
your answer.

A: YES. XYC Company, the beneficiary of the standby letter of credit, can draw on the
letter of credit despite filing of petition for corporate rehabilitation. The liability of the
bank that issued the letter of credit is primary and solidary. Being solidary, the claims
against them can be pursued separately from and independently of the rehabilitation
case (MWSS v. Daway, G.R. No.160732, June 21, 2004).

2. Q: X Corporation entered into a contract with PT Construction Corporation for the latter to
construct and build a sugar mill within six (6) months. They agreed that in case of delay, PT
Construction Corporation will pay X Corporation P100,000.00 for everyday of the delay. To
ensure payment of the agreed amount of damages, PT Construction Corporation secured
from Atlantic Bank a confirmed and irrevocable letter of credit which was accepted by X
Corporation in due time. One week before the expiration of the six (6) month period, PT
Construction Corp. requested for an extension of time to deliver claiming that the delay was
due to the fault of X Corporation. A controversy as to the cause of delay which involved the
worksmanship of the building ensued. The controversy remained unsolved. Despite the
controversy, X corporation presented a claim against Atlantic Bank by executing a draft
against the letter of credit.
a. Can Atlantic Bank refuse payment due to the unresolved controversy? Explain.
b. Can X Corporation claim directly from PT Construction Corp.? Explain. (2008 Bar)

a. NO. Atlantic Bank cannot refuse to pay X Corporation. This is because of the
Doctrine of Independence which provides that the obligation of the issuing bank to pay
the beneficiary does not depend on the fulfillment or non-fulfillment of the contract
supporting the letter of credit. The only instance where Atlantic Bank can refuse
payment is when X Corporation was not able to strictly comply with the letter of credit.

b. YES. X Corporation may directly claim from PT Construction Corporation. A letter of

credit by itself does not come into operation without a contract supporting it. It is not a
contract that can stand on its own, it needs a supporting contract. It is merely an
alternative course and does not in any way prevent the beneficiary from directly
claiming from the applicant (Transfield Philippines, Inc. v. Luzon Hydro Corp., supra).

3. : PJ Corporation (PJ) obtained a loan from ABC Bank (ABC) in the amount of P10 million
for the purchase of 100 pieces of ecodoors. Thereafter, a Letter of Credit was obtained by PJ
against such loan. The beneficiary of the Letter of Credit is Scrap Metal Corp. (Scrap Metal) in
Beijing, China. Upon arrival of 100 pieces of ecodoors, PJ executed a Trust Receipt in favor
of ABC to cover for the value of the ecodoors for its release to PJ. The terms of the Trust
Receipt is that any proceeds from the sale of the ecodoors will be delivered to ABC as
payment. After the ecodoors were sold, PJ, instead of paying ABC, used the proceeds of the
sale to order from Scrap Metal another 100 pieces of ecodoors but using another bank to
issue a new Letter of Credit fully covered by such proceeds. PJ refused to pay the proceeds
of the sale of the first set of ecodoors to ABC, claiming that the ecodoors that were delivered
were defective. It then instructed ABC not to negotiate the Letter of Credit that was issued in
favor of Scrap Metal.
As counsel of ABC, you are asked for advice on whether or not to grant the instruction of PJ.
What will be your advice?

A: I will not grant the instruction of PJ. Under the independence principle, the
obligation of the bank to pay the Scrap Metal Corporation is not dependent upon the
fulfillment or non-fulfillment of the main contract underlying the letter of credit but
conditioned only on its submission of the stipulated documents to ABC Bank.

4. Q: BV agreed to sell to AC, a Ship and Merchandise Broker, 2500 cubic meters of logs at
$27 per cubic meter FOB. After inspecting the logs, CD issued a purchase order.
On the arrangement made upon instruction of the consignee, H&T Corporation of LA,
California, the SP Bank of LA issued an irrevocable letter of credit available at sight in favor
for the total purchase price of the logs. The letter of credit was mailed to FE Bank with the
instruction "to forward it to the beneficiary". The letter of credit provided that the draft to be
drawn is on SP Bank and that it be accompanied by, among other things, a certification from
AC, stating that the logs have been approved prior shipment in accordance with the terms
and conditions of the purchase order. Before loading of the vessel chartered by AC, the logs
were inspected by custom inspectors and representatives of the Bureau of Forestry, who
certified to the good condition and exportability of the logs. After loading was completed, the
Chief Mate of the vessel issued a mate receipt of the cargo which stated that the logs are in
good condition. However, AC refused to issue required certification in the letter of credit.
Because of the absence of certification, FE Bank refused to advance payment on the letter of
credit.
a. May FE Bank be held liable under the Letter of Credit? Explain.
b. Under the facts above, the seller, BV, argued that FE Bank, by accepting the obligation to
notify him that the irrevocable letter of credit has been transmitted to it on his behalf, has
confirmed the letter of credit. Consequently, FE Bank is liable under the letter of credit. Is the
argument tenable? Explain. (1993 Bar)

a. FE Bank cannot be held liable under the letter of credit since the certificate is not
issued by BV. It is a settled rule in commercial transactions involving letters of credit
that the documents tendered must strictly conform to the terms of the letter of credit.
The tender of documents by the beneficiary (seller) must include all documents
required by the letter. A correspondent bank which departs from what has been
stipulated under the letter of credit, as when it accepts a faulty tender, acts on its own
risks and it may not thereafter be able to recover from the buyer or the issuing bank, as
the case may be, the money thus paid to the beneficiary. Thus the rule of strict
compliance (Feati Bank and Trust Company v. CA, Supra).

b. The argument made by BV is untenable. The FE Bank in this case is only a notifying
bank and not a confirming bank. It is tasked only to notify and/or transmit the required
documents and its obligation ends there. It is not privy to the contract between the
parties, its relationship is only with that of the issuing bank and not with the
beneficiary to whom he assumes no liability.

5. Q: At the instance of CCC Corporation, AAA Bank issued an irrevocable Letter of Credit in
favor of BBB Corporation. The terms of the irrevocable L/C state that the beneficiary must
present certain documents including a copy of the Bill of Lading of the importation for the
bank to release the funds, BBB Corporation could not find the original copy of the Bill of
Lading so it instead presented to the bank a Xerox copy of the Bill of Lading. Would you
advice the bank to allow the drawdown on the Letter of Credit? (2012 Bar)

A: NO, because the rule of strict compliance in commercial transactions involving

letters of credit, requiring documents set as conditions for the release of the fund has
to be strictly complied with or else funds will not be released.

TRUST RECEIPTS LAW

1. Q: Supermax is a domestic corporation engaged in the construction business. On various
occasions, Metrobank extended several commercial letters of credit to Supermax. These
commercial credits were used by Supermax to pay for delivery of several construction
materials to be used in their construction business. Thereafter, Metrobank required Hur Tin
Yang, as representative and Vice President for Internal Affairs of Supermax, to sign 24 trust
receipts as security for the construction materials. When 24 TRs fell due and despite the
receipt of demand letter, Supermax failed to pay or deliver the goods or proceeds to
Metrobank. As the demands fell on deaf ears, Metrobank filed a complaint for estafa against
Hur Tin Yang.

A: NO. The dealing between Hur Tin Yang and Metrobank was not a TR transaction but
one of simple loan. The Court, in Ng vs. People, and Land Bank of the Philippines v.
Perez, ruled that the fact that the entruster bank knew even before the execution of the
trust receipt agreements that the construction materials covered were never intended
by the entrustee for resale or for the manufacture of items to be sold is sufficient to
prove that the transaction was a simple loan and not a trust receipts transaction.

1. Q: CCC Car, Inc. obtained a loan from BBB Bank, which fund was used to import ten (10)
units of Mercedes Benz S class vehicles. Upon arrival of the vehicles and before release of
said vehicles to CCC Car, Inc. X and Y, the President and Treasurer, respectively, of CCC
Car, Inc. signed the Trust Receipt to cover tha value of the ten (10) units of Mercedes Benx S
class vehicles after which, the vehicles were all delivered to the Car display room of CCC Car,
Inc. Sale of the vehicles were slow, and it took a month to dispose of the ten (10) units. CCC
Car, Inc. wanted to be in business and to save on various documentations required by the
bank, decided that instead of turning over the proceeds of the sales, CCC Car Inc. used the
proceeds to buy another ten (10) units of BMW 3 series.
a. Is the action of CCC Car, Inc. legally justified? Explain your answer.
b. Will the corporate officers of CCC Car, Inc. be held liable under the circumstances? Explain
your answer. (2012 Bar)

NO. It is the obligation of the entrustee, CCC Car, Inc. to receive the proceeds of the
sale of the goods covered by the trust receipts in trust for the entruster and to turn
over the same to him the extent of the obligation (Sec. 4, P.D. 115).
B. YES. Failure of the entrustee to turn over the proceeds of the sale of the goods shall
constitute the crime of estafa. If the violation is committed by a juridical entity, the
penalty shall be imposed upon the directors, officers, employees or other officials or
persons therein responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense. Hence, the corporate officers are criminally liable for
the violation of the law being he human agent responsible for the same (Sec. 13, P.D.
115).

2. (a) A conviction under the Trust Receipts Law shall bar a prosecution for estafa under the
Revised Penal Code.

A: FALSE. The failure of an entrustee to turn over the proceeds of the sale of the
goods, documents or instruments covered by a trust receipt to the extent of the
amount owing to the entruster, or to return said goods, documents or instruments if
they were not sold or disposed of in accordance with the terms of the trust receipt
shall constitute the crime of estafa (Sec. 13, PD 115).

3. Q: Is lack of intent to defraud a bar to the prosecution of these acts or omissions? (2006
Bar)

A: NO. The mere failure to account or return gives rise to the crime which is malum
prohibitum. There is no requirement to prove intent to defraud

4. Q: CCC Car, Inc. obtained a loan from BBB Bank, which fund was used to import 10 units
of Mercedes Benz S Class vehicles. Upon arrival of the vehicles and before the release of
said vehicles to CCC Car, Inc., X and Y, the president and treasurer, respectively, of CCC
signed the Trust Receipt to cover the value of the 10 units of Mercedes Benz S class vehicles,
after which, the vehicles were all delivered to the car display room of CCC. Sales of the
vehicles were slow, and it took a month to dispose the 10 units. CCC wanted to be in
business and to save on various documentations required by the bank. It decided that
instead of turning over the proceeds of the sales, CCC used the proceeds to buy another 10
units of BMW 3 series. Will the corporate officers of CCC be held liable under the
circumstances? (2012 Bar)

A: YES, particularly the president and treasurer of CCC who both signed the trust
receipt. Section 13 of the Trust Receipts Law provides that if the violation or offense is
committed by a corporation, partnership, association, or other juridical entity, the
penalty provided for in the law shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the criminal offense.

5. Q: BBB Banking Corporation issued a Letter of Credit in the amount of P5Million, for the
purchase of five (5) tons of corn by X. Upon arrival of the goods, the goods were delivered to
the warehouse of X. Thereafter he was asked to sign a Trust Receipt covering the goods.
When the goods were sold, X did not deliver the proceeds to BBB Banking Corporation,
arguing that he will need the fund for the subsequent importation. Is there sufficient basis to
sue for criminal action? (2012 Bar)
A: There is no sufficient basis for a criminal action because when the trust receipt was
signed, the ownership of the goods was already with X, hence there is no TR
agreement to speak of.

6. Q: Ricardo mortgaged his fishpond to AC Bank to secure a P1M loan. In a separate

transaction, he opened a letter of credit with the same bank for $500,000 in his favor of HS
Bank, a foreign bank, to purchase outboard motors. Likewise, Ricardo executed a Surety
Agreement in favor of AC Bank.
a. Can AC Bank take possession of the outboard motors? Why?
b. Can AC Bank also foreclose the mortgage over the fishpond? (2005 Bar)

A: a.
If what Ricardo executed is a trust receopt, AC Bank can take possession of the
outboard motors so that it can exercise its lien and sell them. If what Ricardo executed
is a Surety Agreement, AC Bank cannot take possession of the outboard motors
because it has no lien on them.

b. AC Bank can also foreclose the mortgage over the fishpond if Ricardo fails to pay
the loan of P1M.

7. Q. Dennis failed to comply with his undertaking under the TR he issued in favor of ABC
bank. The bank filed both criminal and civil cases against Dennis. The court proceeded with
the civil case independently from the criminal case. Is the court correct in proceeding
independently although a criminal case is also instituted?

A: YES, the complaint against Dennis is based on the failure of the latter to comply
with his obligation as spelled out in the TR. This breach of obligation is separate and
distinct from any criminal
liability for "misuse and/or
misappropriation of goods or proceeds realized from the sale of goods, documents or
instruments released under trust receipts", punishable under Sec. 13 of the PD 115.
Being based on an obligation ex contractu and not ex delicto, the civil action may
proceed independently of the criminal proceedings instituted against petitioners
regardless of the result of the latter (Sarmiento vs. CA, G.R. No. 122502, December 27,
2002).

8. Q: E received goods from T for display and sale in E's store. E was to turn over to T the
proceeds of any sale and return the ones unsold. To document their agreement, E executed a
trust receipt in T’s favor covering the goods. When E failed to turn over the proceeds from his
sale of the goods or return the ones unsold despite demand, he was charged in court for
estafa. E moved to dismiss on the ground that his liability is only civil. Is he correct? (2011
Bar)

A: NO, since his breach of the trust receipt agreement subjects him to both civil and
criminal liability for estafa.
 NEW CENTRAL BANK LAW
1. Q: Upon maturity of the time deposit, the bank failed to remit. By reason of punitive action
taken by Central Bank, the bank has been prevented from performing banking operations. Is
the bank still obligated to pay the time deposits despite the fact that its operations were
suspended by the Central Bank?

A: YES, the suspension of operations of a bank cannot excuse non-compliance with

the obligation to remit the time deposits of depositors which matured before the bank’s
closure (Overseas Bank of Manila v. CA, G.R. No. 45886, April 19, 1989).

2. Q: An intra-corporate case was filed before RTC. On the other hand, another complaint
was filed before BSP to compel a bank to disclose its stockholdings invoking the supervisory
power of the latter. Is there a forum shopping?

A: NONE. The two proceedings are of different nature praying for different relief. The
complaint filed with the BSP was an invocation of its supervisory powers over banking
operations which does not amount to a judicial proceeding (Suan v. Monetary Board,
A.C. No. 6377, March 12, 2007).

3. Q: Aaron, a well-known architect, is suffering from financial reverses. He has four creditors
with a total claim of P 26 million. Despite his intention to pay these obligations, his current
assets are insufficient to cover all of them. His creditors are about to sue him. Consequently,
he was constrained to file a Petition for Insolvency (Act 1956).

a. Since Aaron was merely forced by circumstances to petition the court to declare him
insolvent, can the judge properly treat the petition as one for involuntary insolvency. Explain.
b. If Aaron is declared an insolvent by the court, what would be the effect, if any, of such
declaration on his creditors? Explain.
c. Assuming that Aaron has guarantors for his debts, are the guarantors released from their
obligations once Aaron is discharged from his debts? Explain.
d. What remedies are available to the
guarantors in case they are made to pay the creditors? Explain. (2005 Bar)

a. NO. In involuntary insolvency, it is the creditors who ask for the declaration of the
debtor’s insolvency. In this case, it is the debtor who filed a petition for insolvency. The
fact that Aaron has the intention to pay his obligations and was just constrained to file
a petition as one for involuntary insolvency.
b. i. All debtor’s assets placed in sheriff custody until a receiver or assignee has been
appointed;
ii.
Payment to debtor of any debt due to him, or delivery of any property due to him, and
transfer or conveyance of any property by him, are forbidden;
iii.
Time and place is fixed for a meeting of creditors to select the assignee in insolvency;
and
iv. And all civil proceedings against insolvent are stayed
c. NO. By virtue of the doctrine of excussion provided under Art. 2058, the creditor can
go against the guarantor after the former has exhausted all the properties of the
principal debtor and has resorted to all legal remedies against such debtor. In this
case, Aaron has insufficient property to discharge his obligations prompting him to file
a petition for insolvency which stays claims against him. The fact that Aaron was
declared insolvent permits the creditor to enforce his claim against the guarantor.
d. The guarantor is entitled to be reimbursed by the debtor for the following: i.
Total amount of the debt paid; ii. iii.
Legal interest from the time payment was made known to the debtor;
Expenses incurred after notifying debtor that demand to pay was made upon him; and
iv. Damages in accordance with law.

4. Q: The Blue Star Corporation filed with the RTC a petition for rehabilitation on the ground
that it foresaw impossibility of paying its obligations as they fall due. Finding the petition
sufficient in form and substance, the court issued an Order appointing a rehabilitation receiver
and staying the enforcement of all claims against the corporation. What is the rationale for the
Stay Order? (2006 Bar)

A: The reason behind the indiscriminate suspension or stay order in relation to the
creditors’ claim is to expedite the rehabilitation of the distressed corporation by
enabling the management committee or the rehabilitation receiver to effectively
exercise its/his powers free from any judicial or extrajudicial interference that might
unduly hinder or prevent the rescue of the debtor company. It also recognizes the
assets of a corporation under rehabilitation held under trust for the equal benefit of all
creditors under the doctrine equality is equity, whereby all the creditors ought to stand
on equal footing, and not one of them should be paid ahead of others.

5. Q: X maintains a savings deposit in the amount of Php·1 Million with ABC Bank
Corporation. X also has obtained a loan from ABC Bank Corporation in the amount of Php1
Million. In case of default: (2012 Bar)

A. The relationship between a bank and its depositor is that of creditor and debtor. For
this reason, a bank has the right to set-off the deposits in its hands for the payment of
a depositor’s indebtedness (Equitable PCI Bank v. Ng Sheung Ngor, et al., 171545,
December 19, 2007).

6. Q: Manosa, a newspaper columnist, while making a deposit in a bank, overheard a pretty

bank teller informing a co-employee that Gigi, a well-known public official, has just a few
hundred pesos in her bank account and that her check will in all probability bounce. Manosa
wrote this information in his newspaper column. Thus, Gigi filed a complaint with the City
Fiscal of Manila for unlawfully disclosing information about her bank account.
a. Will the said suit prosper? Explain your answer.
b. Supposing that Gigi is charged with
unlawfully acquiring wealth under R.A. 1379 and that the fiscal issued a subpoena duces
tecum for the records of the bank account of Gigi. May Gigi validly oppose the said issuance
on the ground that the same violated the law on secrecy of bank deposits? Explain your
answer. (1990 Bar)

a. NO. The suit will not prosper. It is clear as provided in section 3 of R.A. 1405 that it
shall be unlawful for any official or employee of a banking institution to disclose to any
person other than those mentioned in section two of the said law any information
concerning said deposits. Manosa, as a columnist, is not one of those persons
contemplated under the law. Furthermore, he merely overheard what appeared to be a
vague remark of the bank teller therefore is not in a sense an inquiry or a disclosure.
b. NO. Gigi cannot oppose the said issuance because the law provides as an exception
from the coverage of R.A. 1405 that upon order of a competent court in cases of anti-
graft and corruption cases, the examination of the deposits may be allowed.

7. Q: GP is suspected jueteng lord who is rumored to be enjoying police and military

protection. The envy of many drug lords who had not escaped the dragnet of the law, GP was
summoned to a hearing of the Committee on Racketeering and Other Syndicated Crimes of
the House of Representatives, which was conducting congressional investigation-in aid of
legislation on the involvement of police and military personnel, and possibly even of local
government officials, in the illegal activities of suspected gambling and drug lords.
Subpoenaed to attend the investigation were officers of certain identified banks with a
directive to them to bring the records and documents of bank deposits of individuals
mentioned in the subpoenas, among them GP. GP and the banks opposed the production of
the bank records of deposits on the ground that no such inquiry is allowed under the Law on
Secrecy of Bank Deposits (R.A. 1405 as amended). Is the opposition of GP and the banks
valid? Explain. (2010 Bar)

A: YES. The opposition is valid. GP is not a public official. The investigation does not
involve one of the exceptions to the prohibition against the disclosure of any
information concerning bank deposits under the Law on Secrecy of Bank Deposits.
The Committee conducting the investigation is not a competent court or the
Ombudsman authorized under the law involving such disclosure.

8. Q: An insurance company is deluded into releasing a check to A for P35th o pay for
Treasury Bills (T-Bills) which A claims to be en route on board an armored truck from a
government bank. The check is delivered to A who deposits it to his account with XYZ bank
before the insurance company realizes it as a scam. Upon such realization, the insurance
company files an action against A for recovery for the amount defrauded and obtains a writ of
preliminary attachment. In addition to the writ, the Bank is also served a subpoena to examine
the account records of A. The Bank declines to provide any information in response to the writ
and moves to quash subpoena in invoking secrecy of bank deposits under R.A. 1405 and a)
not respond to the writ b) quash the subpoena for examination? (1998 Bar)

A: YES. Whether the transaction is considered a sale of money placement does not make the
money subject matter of litigation within the meaning of Section 2 of R.A. 1405 which prohibits
the disclosure or inquiry into bank deposits except “in cases where the money deposited or
invested is the subject matter of litigation” nor will it matter whether the money was
“swindled”.

9. Q: Michael withdrew without authority funds of the partnership in the amounts of P500th
and US$50th for services he claims rendered for the benefit of the partnership. He deposited
the P 500th in his personal peso current account with Prosperity Bank and the US$50th in his
personal foreign currency savings account with Eastern Bank. The partnership instituted an
action in court against Michael, Prosperity, and Eastern to compel Michael to return the
subject funds to the partnership and pending litigation to order both banks to disallow any
withdrawal from his accounts. At the initial hearing of the case, the court ordered Prosperity to
produce the records of his Michael’s peso current account and Eastern to produce the
records of his foreign currency savings account. Can the court compel Prosperity and Eastern
to disclose the bank deposits of Michael? Discuss fully. (1995 Bar)
: YES, with regard to Michael’s peso current account. This is pursuant to Section 2 of
RA 1405 which allows the disclosure of bank deposits in case where the money
deposited is the subject matter of litigation. However with regard to his foreign
currency savings account, the disclosure cannot be allowed. Pursuant to the Foreign
Currency Law, the exemption to the prohibition against disclosure of information
concerning foreign bank deposits is to acquire the written consent of the depositor

10. Q: A, an individual, secured a loan from XYZ Company. C, a surety company, issued a
bond to further secure the obligation. A has dollar deposits with ABC Bank. Can C inquire to
ABC Bank about the foreign currency deposits of A to determine whether or not the loan
proceeds were used for the purpose specified in their surety agreement?

A: NO. The surety company which issued the bond cannot inquire into the foreign
currency deposits. It cannot be examined without the consent of the depositor except
in certain situations like violation of anti-money laundering law (GSIS v. CA, G.R. No.
189206, June 8, 2011).

11. Q: X, a private individual, maintains a dollar deposit with ABC Bank. X is suspected to be
the leader of a Kidnap for Ransom Gang and he is suspected of depositing all ransom money
in said deposit account which are all in US Dollars. The police want to open said account to
know if there are really deposits in big amounts. Which statement is most accurate? (2012
Bar)

A: C. The deposit, being in US Dollars, is covered by the Foreign Currency Deposit Act
which allows disclosure only upon the written permission of the depositor.

12. Q: Socorro received $10,000 from a foreign bank although she was entitled only to
$1,000. In an apparent plan to conceal erroneously sent amount, she opened a dollar account
with her local bank, deposited $ 10,000 and issued 4 checks in the amount of $2,000 and 1
check for $1,000 each payable to different individuals who deposited the same in their
respective dollar accounts with different local banks. The sender bank then brought a civil suit
before the RTC for the recovery of erroneously send amount. In the course of trial, the sender
presented testimonies of bank officials to show that the funds were, in fact, deposited in a
bank by Socorro and paid out to several persons, who participated in the concealment and
dissipation of the amount that Socorro had erroneously received. Socorro moved to strike out
the testimonies from the record invoking the law on secrecy of bank deposits. If you were the
Judge, would you issue and order to strike them out? Why? (1992 Bar)

A: If I am the judge I would not issue an order to strike them out. The testimonies of the bank
officials showing that the funds were in fact deposited in a bank by Socorro and paid out to
several persons, who participated in the concealment and dissipation of the amount that
Socorro had erroneously received, were presented in the course of the trial. Therefore, the
said testimonies must be considered as involved in the litigation. In the case of Mellon Bank v.
Magsino, G.R. No. 71479, October 18, 1990, it was held that R.A. 1405 allows the disclosure
of bank deposits in cases where the money deposited is the subject matter of litigation. In an
action filed by a bank to recover money it transmitted by mistake, necessarily, an inquiry to its
whereabouts of the amount extends to whatever concealed by, being held or recorded in the
name of the persons other than the one responsible for illegal acquisition. Hence, in the case
at bar, the disclosure should be allowed and it should not be subject to an order to strike out.

13. Q: The Law in Secrecy of Bank Deposits provides that all deposits of whatever nature
with banks or banking institutions are absolutely confidential in nature and may not be
examined, inquired or looked into by any person, government official, bureau or office.
However, the law provides exceptions in certain instances. Which of the following may not be
among the exceptions:
1. In cases of impeachment 2. In cases involving bribery 3. In cases involving BIR inquiry 4. In
cases of anti-graft and corrupt practices 5. In cases where the money involved is the subject
of litigation.
Explain your answer or choice briefly (2004 Bar)

A: Under Section 6 (F) of the NIRC, the CIR can inquire into the deposits of a decedent
for the purpose of determining the gross estate of such decedent. Apart from this case,
a BIR inquiry into bank deposits cannot be made. Thus, exception 3 may not be always
applicable. Turning to exception 4, an inquiry into bank deposits is possible only in
prosecutions for unexplained wealth under the Anti-Graft and Corrupt Practices Act,
according to the Supreme Court in the cases of Philippine National Bank v. Gancayco,
G.R. No. L-18343, September 30, 1965 and Banco Filipino Savings and Mortgage Bank
v. Purisima, G.R. No. L-56429, May 28, 1988. However, all other cases of anti-graft and
corrupt practices will not warrant an inquiry into bank deposits. Thus, exception 4 may
not always be applicable. Like any other exception, it must be interpreted strictly.
Exceptions 1, 2 and 5, on the other hand, are provided expressly in the Law on Secrecy
of Bank Depositors. They are available to depositors at all times.

14. Q: Miguel, a special customs agent is charged before the Ombudsman with having
acquired property out of proportion to his salary, in violation of the Anti-Graft and Corrupt
Practices Act. The Ombudsman issued a subpoena duces tecum to the Banco De Cinco
commanding its representative to furnish the Ombudsman records of transactions by or in the
name of Miguel, his wife and children. A second subpoena was issued expanding the first by
including the production of records of friends of Miguel in said bank and in all its branches and
extension offices, specifically naming them, Miguel moved to quash the subpoenas arguing
that they violate the Secrecy of Bank Deposits Law. In addition, he contends that the
subpoenas are in the nature of - fishing expedition or general warrants and are
constitutionally impermissible with respect to private individuals who are not under
investigation. Is Miguel’s contention tenable?

A: NO. The contention of Miguel is not tenable. In the case of Banco Filipino v. Purisima, it
was held that the inquiry into illegally acquired property-or property not legitimately acquired-
extends to cases where such property is concealed by being held or recovered in the name of
other persons. This proposition is made clear by RA 3019 which quite categorically states that
the term “legitimately acquired property of a public officer or employee shall not include
property unlawfully acquired by the respondent, but its ownership is concealed by its being
recorded in the name of, or held by, respondent’s spouse, ascendants, descendants, relatives
or any other persons. To sustain the petitioner’s theory, and restrict the inquiry only to
property held by or in the name of the government official or employee, or his spouse and
unmarried children is unwarranted in the light of the provisions of the statutes in question, and
would make available to persons in government who illegally acquire property an easy and
foolproof means of evading investigation and prosecution; all they have to do would be to
simply place the property in possession or name of persons other than their spouse and
unmarried children. This is an absurdity that we will not ascribe to the lawmakers.

15. Q: R.A. 6832 creating a Commission to conduct a Thorough Fact-Finding Investigation of

the failed Coup d’etat of December 1989, recommend measures to prevent the occurrence of
similar attempts at a violent seizure of power and for other purposes, provides that the
Commission may ask the Monetary Board to disclose information on and/or to grant authority
to examine any bank deposits, trust or investment funds, or banking transactions in the name
of and/or utilized by a persons, natural or juridical, under investigation by the Commission, in
any bank or banking institution in the Philippines, when the Commission has reasonable
ground to believe that said deposits, trust or investment funds, or banking transactions have
been used in support or in furtherance of the objectives of the said coup d’etat. Does the
above provision not violate the Law on Secrecy of Bank Deposits (R.A. 1405)? (1991 Bar)

A: The above provision does not violate RA 1405 because the enactment of RA 6832 is
valid exercise of police power. RA 1405 is in itself a statutory enactment which can be
validly modified, amended or repealed by a subsequent law. The Secrecy of Bank
Deposits Act did not amount to a contract between the depositors and depository
banks within the meaning of the non-impairment clause of the Constitution. Even if it
did, the police power of the State is superior to the non-impairment clause

GENERAL BANKING LAW

1. Q: First Planters Pawnshop, Inc. (Pawnshop) contests the deficiency value-added and
documentary stamp taxes imposed upon it by the Bureau of Internal Revenue (BIR) for the
year 2000. The core of petitioner's argument is that it is not a lending investor within the
purview of Section 108(A) of the National Internal Revenue Code (NIRC), as amended, and
therefore not subject to value-added tax (VAT). Is Pawnshop’s contention correct?

A:NO. The tax treatment of pawnshops as non-bank financial intermediaries is not

without basis. Financial intermediaries are defined as persons or entities whose
principal functions include the lending, investing or placement of funds or evidences
of indebtedness or equity deposited with them, acquired by them, or otherwise
coursed through them, either for their own account or for the account of others. It need
not be elaborated that pawnshops are non-banks/banking institutions. Moreover, the
nature of their business activities partakes that of a financial intermediary in that its
principal function is lending.

2. Q: XYZ Corporation is engaged in lending funds to small vendors in various public markets.
To fund the lending, XYZ Corporation raised funds through borrowings from friends and
investors. Which statement is most accurate? (2012 Bar)

A: b. XYZ Corporation is a quasi-bank

3. Q: XXX Bank Corporation and ZZZ Corporation were merged into XX ZZ Bank Corporation.
So as not to create any unnecessary conflict, all the former directors of both banks wanted to
be appointed /elected as members of the Board of Directors of the merged bank. Each bank
used to have eleven (11) members of the board. The maximum number of directors of the
merged bank is - (2012 Bar)

A: C. In case of a merged bank, number of directors may be more than 15 but should
not exceed 21 (GBL, Sec. 17).

4. Q: FFCCI opened a savings/current and dollar savings account PNB at its Timog Avenue
Branch. Its President Felipe and SecretaryTreasurer Angelita were the named signatories for
the said accounts. While Felipe and Angelita were thus out of the country, applications for
cashiers and managers checks bearing Felipe’s signature were presented to and both
approved by the PNB. When Angelita returned to the country, she noticed the deductions of
P9,950,000.00 and P3,260,500.31. Claiming that these were unauthorized and fraudulently
made, FFCCI requested PNB to credit back and restore to its account the value of the
checks. PNB refused, and thus constrained [FFCCI] filed the instant suit for damages against
the PNB and its own accountant Aurea Caparas. On its part, PNB alleged that it exercised
due diligence in handling the account of FFCCI; that the applications for managers check
have passed through the standard bank procedures and it was only after finding no infirmity
that these were given due course; that In fact, it was no less than Caparas, the accountant of
FFCCI, who confirmed the regularity of the transaction. Is PNB guilty of negligence in
handling FFCCI’s account?

A: As between a bank and its depositor, where the bank’s negligence is the proximate
cause of the loss and the depositor is guilty of contributory negligence, the greater
proportion of the loss shall be borne by the bank. The bank was negligent because it
did not properly verify the genuineness of the signatures in the applications for
manager’s checks while the depositor was negligent because it clothed its
accountant/bookkeeper with apparent authority to transact business with the Bank and
it did not examine its monthly statement of account and report the discrepancy to the
Bank. The court allocated the damages between the bank and the depositor on a 60-40
ratio (Philippine National Bank v. FF Cruz and Company, G.R. No. 173259, July 25, 2011,
in Divina, 2014).

5. Q: On Oct. 10, 2002, a check in the amount of P1,000,000.00 payable to MMGI was
presented for deposit and accepted at petitioner’s Kawit Branch. The check, post-dated “Oct.
9, 2003”, was drawn against the account of Silva with BPI Bel-Air Branch.
The check was cleared by BPI and ABC credited the account of MMGI with P1,000,000.00.
On Oct. 22, 2002, MMGI’s account was closed and all the funds therein were withdrawn. A
month later, Silva discovered the debit of P1,000,000.00 from his account. In response to
Silva’s complaint, BPI credited his account with the aforesaid sum.
On March 21, 2003, respondent returned a photocopy of the check to petitioner for the
reason: “Postdated.” Petitioner, however, refused to accept and sent back to respondent a
photocopy of the check. Thereafter, the check, or more accurately, the Charge Slip, was
tossed several times from ABC to BPI, and back to ABC, until on May 6, 2003, BPI requested
the PCHC to take custody of the check. Acting on the request, PCHC directed BPI to deliver
the original check and informed it of PCHC’s authority under CHOM No. 279 dated 06
September 1996 to split 50/50 the amount of the check subject of a “Ping-Pong” controversy
which shall be implemented thru the issuance of Debit Adjustment Tickets against the outward
demands of the banks involved. PCHC likewise encouraged respondent to submit the
controversy for resolution thru the PCHC Arbitration Mechanism. The latter rendered its
Decision in favor of ABC and against BPI. Respondent filed a motion for reconsideration but it
was denied by the PCHC Board of Directors. The RTC affirmed with modification the
Arbitration Committee’s decision. By its Decision, the CA set aside the RTC judgment and
ruled for a 60-40 sharing of the loss as it found petitioner guilty of contributory negligence in
accepting what is clearly a postdated check.

A: A collecting bank is guilty of contributory negligence when it accepted for deposit a

postdated check notwithstanding that said check had been cleared by the drawee bank
which failed to return the check within the 24-hour reglementary period. The collecting
bank which accepted a postdated check for deposit and sent it for clearing and the
drawee bank which cleared and honored the check are both liable to the drawer for the
entire face value of the check (Allied Banking Corporation v. Bank of the Philippine
Islands, G.R. No. 188363, February 27, 2013, in Divina, 2014).

6. Q: After procuring a checking account, the depositor issued several checks. He was
surprised to learn later that they had been dishonored for insufficient funds. Investigation
disclosed that deposits made by the depositor were not credited to its account. Is the bank
liable for damages?

A: YES, the depositor expects the bank to treat his account with utmost fidelity,
whether such account consist only of a few hundred pesos or of millions. The bank
must record every single transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to reflect at any given time
the amount of money the depositor can dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he directs. A blunder on the part of the bank,
such as the dishonor of the check without good reason, can cause the depositor not a
little embarrassment if not also financial loss and perhaps even civil and criminal
litigation (Simex Intl. v. CA, G.R. No. 88013, March 19, 1990