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BANKING LAWS
GOVERNING LAW
Banking Institution are governed by the following
laws:
BAR QUESTION:
A. General banking laws
 General Banking Law (R.A. No. JOINT ACCOUNT VS. PARTNERSHIP (2000)
8791) Distinguish joint account from partnership. (3%)
 . New Central Bank Act (R.A.
No. 7653) SUGGESTED ANSWER
The following are the distinctions between joint
B.Special banking laws
account and partnership:
 New Rural Banks Act (R.A. No. 7353)
 Private Development Banks Act
(R.A. No. 4093) 1) A partnership has a firm name while a joint
 Savings and Loan Association Act account has none and is conducted in the name of the
(R.A. No. 3779) ostensible partner.
 . Thrift Banks Act (R.A. No. 7906) 2) WHILE A PARTNERSHIP HAS JURIDICAL
PERSONALITY AND MAY SUE OR BE SUED
C. Other laws affecting banks
Secrecy of Bank Deposits Law UNDER ITS FIRM NAME, A JOINT ACCOUNT
(R.A. No. 1405) HAS NO JURIDICAL PERSONALITY AND CAN
 Unclaimed Balances Law (Act No. SUE OR BE SUED ONLY IN THE NAME OF THE
3936)
 Philippine Deposit Insurance OSTENSIBLE PARTNER.
Corporation Act (R.A. No. 3591)
3) While a partnership has a common fund, a joint
account has none.
 The general banking laws above mentioned 4) While in a partnership, all general partners have
are applicable to government banks like DBP
the right of management, in a joint account, the
and PNB.
 The Al- Amanah Islamic Bank is subject to ostensible partner manages its business operations.
all banking and pertinent laws. 5) While liquidations of a partnership may, by
agreement, be entrusted to a partner or partners, in
(Bar Review Materials in Commercial Law, Jorge joint account liquidation thereof can only be done by
Miravite, 2002 ed.)
the ostensible partner.

T HREE KINDS OF ENTITIES THAT INTRODUCE

BAR QUESTION:
FUNDS INTO THE ECONOMY : Theory of Cognition vs. Theory of Manifestation
1. banks : entities that obtains funds from the public (1997)
in the form of deposits and re-lend it to the public;
2. quasi-banks : those that obtain funds in the form of
deposit substitutes and re-lend the same and not The Civil Code adopts the theory of cognition, while
from the public or depositors. the Code of Commerce generally recognizes the
3. Finance companies and other financial theory of manifestation, in the perfection of
intermediaries: those that lend funds from their contracts. How do these two theories differ?
own assets. SUGGESTED ANSWER:
Under the theory of cognition, the acceptance is
considered to effectively bind the offeror only from
FIVE PERSONS PRIMARILY INTERESTED IN THE
the time it came to his knowledge. Under the theory
BUSINESS OF BANKING of manifestation, the contract is perfected at the
1. Government moment when the acceptance is declared or made by
2. Depositors
the offeree.
3. Investors
4. Creditors
5. Borrowers

Notes of hotjurist
in foro conscientiae

GENERAL BANKING LAW OF 2000
(GBL)
(RA No. 8791)
Purpose: To promote and maintain a stable and
efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of
a developing economy (Sec. 2).
Scope of Application: The GBL primarily governs
universal banks and commercial banks. It suppletorily
governs thrift banks, rural banks and other banking
institutions.
GENERAL CONCEPTS
BANKS
 Entities engaged in the lending of funds obtained in
the form of deposits (Sec. 2)
 Entities duly authorized by the Monetary Board to
engage in the business of regularly lending funds
obtained regularly from the public through the
receipt of deposits of any kind.
 An investment company that performs function as
such is NOT a bank. Thus an investment company
that is engage solely in investing, reinvesting or
trading in securities is not engage in banking.
( Banas vs. Asia Pacific Finance Corp., Oct. 18,
2000).
 However, an investment company which loans out
money of its customers, collects interest, and
charges a commission to both lender or borrower is
engage in banking (Republic vs. Security Credit
and Acceptance Corp.)
QUASI-BANKS
 Entities engaged in the borrowing of funds through
the issuance, endorsement or assignment with
recourse or acceptance of deposit substitutes (Sec.
95)
 Entities authorized to perform universal or
commercial banking functions may also engage in
quasi-banking functions.
FINANCIAL INTERMEDIARIES
 Persons or entities whose principal functions
include the lending, investing or placement of funds
on 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.
ORGANIZATION AND OPERATION
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A. Authority to Register/Incorporate
 The SEC shall not register the articles of
incorporation of any bank or any amendment
thereto unless accompanied by a certificate of
authority issued by the Monetary Board under its
seal (Sec. 14).
 The certificate of authority shall not be issued
unless the Monetary Board is satisfied:
1. That all requirements of existing laws and
regulations to engage in the business for which
the applicant is proposed to be incorporated
have been complied with;
2. That the public interest and economic
conditions, both general and local, justify the
authorization; and
3. That the amount of the capital, the financing,
organization, direction and administration, as
well as the integrity and responsibility of the
organizers and administrators, reasonably
assure the safety of deposits and the public
interest (Sec. 14).
Organization of a Bank or Quasi-Bank
Requirements:
1. The entity is a stock corporation;
2. Its funds are obtained from the public,
i.e. 20 or more persons; and
3. The minimum capital requirements
prescribed by the Monetary Board are satisfied
(Sec. 8).
Note:
In Quasi banks, Deposit substitute are
alternative forms of obtaining funds for the
public, other than deposit, through the
issuance, endorsement, or acceptance of debt
instrument for the borrowers own account, for
the purpose of relending or purchasing of
receivables and other obligations.in banking or
quasi-banking functions
 A person or entity cannot engage in banking or
quasi-banking functions without a certificate of
authority from the BSP (Sec. 6).
 The determination of whether a person or entity is
performing banking or quasi-banking functions
without BSP authority shall be decided by the
Monetary Board.
NATURE OF BANKING BUSINESS
 Impressed with public interest where the trust and
confidence of the public in general is of paramount
importance such that:
1. The appropriate standard of diligence must be
very high, if not the highest, degree of
diligence; highest degree of care (PCI Bank vs.
CA, 350 SCRA 446, PBCom vs. CA, G.R. No.
121413, 29 Jan. 2001)
Notes of hotjurist
in foro conscientiae
 Page 3 of 28

 This applies only to cases where banks are acting in

their fiduciary capacity, that is, as depository of the 2. Commercial banks
deposits of their depositors (Reyes vs. CA, G.R. No. - Ordinary banks governed by the GBL which have
118492, 15 Aug. 2001). a lower capitalization requirement than universal
banks and can neither exercise the powers of an
investment house nor invest in non-allied
2. Subject to reasonable regulation under the enterprises.
police power of the state.
3. Thrift banks –
These are a) Savings and mortgage banks; b)
 While an innocent mortgagee is not expected to Stock savings and loan associations; c) Private
conduct an exhaustive investigation on the history development banks, which are primarily governed
of the mortgagor’s title, in case of a banking by the Thrift Banks Act (R.A. 7906).
institution, it must exercise due diligence before
entering into said contract, and cannot rely upon on 4. Rural banks –
what is or is not annotated on the title. Reason: Mandated to make needed credit available and
Before a loan is approved, representatives are sent readily accessible in the rural areas on reasonable
to the premises offered as collaterals so as to terms and which are primarily governed by the
investigate who the real owners are (DBP vs. CA, Rural Banks Act of 1992 (RA 7353).
331 SCRA 267).
5. Cooperative banks
 The business of a bank is one affected by public – Those banks organized whose majority shares
interest for which reason the bank should guard are owned and controlled by cooperatives primarily
against loss due to negligence and bad faith. It is to provide financial and credit services to
expected to ascertain and verify the identities of the cooperatives. It shall include cooperative rural
persons it transacts business with (UCPB vs. banks. They are governed primarily by the
Ramos, G.R. No. 147800, November 11, 2003, Cooperative Code (RA 6938).
Callejo, J.).
6. Islamic banks –
 Due diligence required of banks extend even to Banks whose business dealings and activities are
persons, or institutions like the GSIS, regularly subject to the basic principles and rulings of Islamic
engaged in the business of lending money secured Shari’ a, such as the Al Amanah Islamic Investment
by real estate mortgages (GSIS vs. Eduardo Bank of the Philippines which was created by RA
Santiago, G.R. No. 155206. October 28, 2003). 6848.
CONSEQUENCES OF NATURE OF BUSINESS :
7. Other
classification of banks as determined by the
1. It is subject to heavy and close supervision and/or Monetary Board of the Bangko Sentral ng Pilipinas.
regulation by the BSP (Central Bank of the Phils. v.
CA, 208 SCRA 652).
ORDINARY BANKING
1. It is required to exercise utmost diligence in the CORPORATION CORPORATION
handling of deposits (Simex International Manila
Inc., 183 SCRA 361).
2. Special rules on strikes and lockouts: any strike or May be a stock or Must generally be a
lockout involving banks, if unsettled after 7 non-stock stock corporation
calendar days shall be reported by the BSP to the corporation
Sec. of Labor who has 2 options:
May issue par value Shall issue par value
a. He may assume jurisdiction over and decide
the dispute; or
or no par value stocks only (Sec. 9).
b. certify it to the NLRC for compulsory stocks.
arbitration May be registered Must secure a
with the SEC without certificate of authority
any certificate of from the Monetary
The President may also intervene at any time and authority issued by a Board before it can
assume jurisdiction over such labor dispute in order to government agency. register with SEC.
settle or terminate the same.
May May not purchase/
purchase/acquire its acquire its shares or
CLASSIFICATION OF BANKS (SEC. own shares for a accept them as
3) legitimate corporate security for a loan.
purpose; provided Except: when
that, it has authorized by the
1. Universal banks -
unrestricted retained Monetary Board. In
Primarily governed by the General Banking Law
earnings in its books such case, the bank
(GBL), can exercise the powers of an investment
house and invest in non-allied enterprises and have to cover the shares must sell or dispose of
the highest capitalization requirement. to be purchased/ said shares within 6

Notes of hotjurist
in foro conscientiae
 Page 4 of 28

acquired. months from the time 1. The powers 1. General powers

of their acquisition authorized for a incident to corporations
(Sec. 10). commercial bank; 2. Such powers as may
2. The powers of an be necessary to carry
investment house; on the business of
and commercial banking:
3. The power to invest a. Accepting drafts
in non-allied and issuing letter of
enterprises (Sec. credits;
23). b. Discounting and
negotiating
promissory notes,
Must be composed Also composed of 5 to drafts, bills of
of 5 to 15 directors, 15 directors. In case of exchange and other
each of whom shall merger or evidence of debt;
c. Accepting or
own at least one (1) consolidation, the creating demand
share of the capital number of directors deposits; receiving
stock of the shall not exceed 21 other types of
corporation. (Sec. 17). deposits and deposit
May declare May not declare substitutes;
dividends out of its dividends, if any of the d. Buying and selling
foreign exchange and
unrestricted retained conditions set forth other debt securities;
earnings. under Sec. 57 are e. Extending credit.
present. (Sec. 29)

UNIVERSAL BANK COMMERCIAL BANK

UNIVERSAL & OTHER BANKS
Authority to exercise No such additional COMMERCIAL BANK
additional powers powers
Authorized to engage in Not so authorized
other than those
quasi-banking functions
authorized for
without need for approval
commercial banks
May accept or create Must seek approval of
May invest in the May only invest in
demand deposits without Monetary Board before
equities of allied, equities of allied
need for approval accepting or creating
whether financial or enterprises, whether
demand deposits.
non-financial, and non- financial or non-financial
Demand deposits - (Sec. 33)
allied enterprises (Sec.
Liabilities of the BSP and
24)
of other banks which are
Powers denominated in
Philippine currency and
are subject to payment in
legal tender upon
demand by the
presentation of checks
(Sec. 58, NCBA).

EQUITY INVESTMENTS
POINT OF UNIVERSAL COMM’L BANK
DISTINCTION BANK
(Sec. 24-28) (Sec. 30-32)

Total investment 50% 35%

in allied
enterprises of net worth of net worth

Total investment 50% N/A

in non-allied

Notes of hotjurist
in foro conscientiae
 Page 5 of 28
enterprises of net worth RISK–BASED CAPITAL
Equity investment 25% 25%  The minimum ratio prescribed by the Monetary
in any one Board which the net worth of a bank must bear to
enterprise of net worth of net worth its total risk assets which may include contingent
accounts.
(Allied only)
 However, the Monetary Board may require or
Equity investment suspend compliance with such ratio whenever
in financial allied necessary for a maximum period of one year;
enterprise: thrift 100% 100% PROVIDED that, such ratio shall be applied
bank, rural bank uniformly to banks of the same category (Sec. 34).
or any financial of equity of equity
allied enterprise  Effect of non-compliance with the prescribed
(Sec. 25) minimum ratio:

? A publicly-listed • In other 1. Distributio

bank may own up financi n of net profits may be limited or prohibited and
to 100% of the al allied MB may require that part or all of the net profits
voting stock of enterpri
ses,
be used to increase the capital accounts of the
only one other bank until the minimum requirement has been
invest
UB / CB (Sec. ment met; or
25). shall 2. Acquisition
remain of major assets and making of new
a
minorit
investments may be restricted. EXCEPT:
y purchases of evidence of indebtedness
holding guaranteed by the Government (Sec. 34).
(Sec. 3. In case of a bank merger or consolidation, or
31). when a bank is under rehabilitation under a
Equity investment program approved by BSP, the MB may
in non-financial temporarily relieve the surviving bank,
allied enterprises 100% 100% consolidated bank, or constituent bank or
corporations under rehabilitation from full
of equity of equity compliance with the required capital ratio.

Equity investment Shall not exceed Effects of non-compliance with the prescribed
in a single non- 35% of the total minimum ratio:
allied enterprise equity in that
1. Distribution of net profits may be limited or
enterprise nor
prohibited and MB may require that part or all of the
N/A net profits be used to increase the capital accounts
shall it exceed
of the bank until the minimum requirement has
35% of the voting
been met; or
stock in that
2. Acquisition of major assets and making of new
enterprise
investments may be restricted. EXCEPT:
purchases of evidence of indebtedness guaranteed
by the Government.
3. In case of a bank merger or consolidation, or when
Equity investment a bank is under rehabilitation under a program
in Quasi-Banks approved by BSP, the MB may temporarily relieve
40% 40%
the surviving bank, consolidated bank, or
constituent bank or corporations under
rehabilitation from full compliance with the required
capital ratio.

Allied Enterprises – those entities which enhance or

complement banking

Non-Financial Allied Enterprises – pertains to

activities that do not involve money matters (such as
warehousing, safety deposit boxes)

NET WORTH
The total of the unimpaired paid-in capital including FUNCTIONS OF BANKS
paid-in surplus, retained earnings and undivided profit,
net valuation reserves and other adjustments as may be
required by the Bangko Sentral (Sec. 24). BASIC FUNCTIONS:
1. Loan Function
2. Deposit Function

Notes of hotjurist
in foro conscientiae
 Page 6 of 28

UNCLASSIFIED CLASSIFIED LOANS

OTHER FUNCTIONS LOANS
Universal banks and commercial banks may also Those that do not have Those that have
exercise any of the following functions: a greater–than–normal extraordinary risks of
a. Receive in custody funds, documents risk and the borrower loss in collection due to
and valuable objects; have apparent ability some defects such as
b. Act as financial agent and buy and to satisfy it in full and bad debts or those
sell, by order of and for the account of their no loss in ultimate under litigation.
customer, shares, evidences of indebtedness collection is
and types of securities; anticipated.
c. Make collection and payments for the
account of others and perform such other
services for their customer as are not
incompatible with banking business; Limit on loans, credit
d. Upon prior approval of the Monetary accommodations and guarantees
Board, act as managing agent, adviser, (Sec. 35)
consultant or administrator of investment
management/ advisory/consultancy accounts; 1. Single Borrower’s Limit (SBL) Rules
and
e. Rent out safety deposit boxes. b. The total amount of loans extended
by a bank to any person, partnership, association,
 The depositary would be liable if in corporation or other entity shall at no time exceed
performing its obligation it is found guilty of fraud, 20% of the net worth of such bank.
negligence; in the absence of any stipulation prescribing
the degree of diligence required, that of a good father of c. The total amount of loans may be
the family is to be observed. Any stipulation exempting increased by an additional 10% of the net worth of
the depositary from any liability arising from loss on such bank provided the additional liabilities of any
account of fraud, negligence would be void for being borrower are adequately secured by trust receipts,
contrary to public policy (CA-Agro Dev’t vs. CA, 219 shipping documents, warehouse receipts or other
SCRA 426, March 5, 1993). similar documents transferring or securing title
covering readily marketable, non-perishable goods
which must be fully covered by insurance;
Note: The bank acting as depositary or as an agent
shall keep the funds, securities and other effects which Exclusions (NON-RISK LOANS):
it receives duly separated from its own assets and 1. Loans
liabilities. (Sec. 53) secured by obligations of the Bangko Sentral or the
Philippine Government;
2. Loans fully
A. LOAN FUNCTION guaranteed by the government;
3. Loans
Requirement for Grant of Loans covered by assignment of deposits maintained in
the lending bank and held in the Philippines;
Before granting a loan, a bank must ascertain that 4. Loans,
the debtor is capable of fulfilling his commitments to the credit accommodations and acceptances under
bank. letters of credit to the extent covered by margin
deposits; and
Rules: 5. Other
loans or credit accommodations which the MB may
1. A bank may demand from its applicants a specify as non-risk items.
statement of their assets and liabilities and of their
income and expenditures and other information.
Joint and Solidary Signature (JSS)
2. Should such statements prove to be false or Practice
incorrect, the bank may terminate any loan granted
on the basis of said statements and shall have the A common banking practice requiring as an additional
right to demand immediate repayment or liquidation
security for a loan granted to a corporation the joint and
of obligation (Sec. 40).
Solidary signature of a major stockholder or corporate
officer of the borrowing corporation (Security Bank vs.
Cuenca, 341 SCRA 781).

Reasons:

a. In case of
default, creditor’s recourse is not limited to
corporate properties but extends to personal assets
of the surety;

Classification of Loans

Notes of hotjurist
in foro conscientiae

b. Surety
would be compelled to ensure that the loan would
be used for the purpose intended.
Note: While R.A. 8791 provides for the rates of 20%
and 10% respectively, the Bangko Sentral has not yet
implemented such rates. The prevailing rates are 25%
and 15% respectively.
2. DOSRI Accounts (Directors, Officers,
Stockholders, and Related Interests)
Requisites (BSP Circular No. 170):
a. The borrower is director, officer, or any
stockholder of a bank and related interest.
b. He contracts a loan or any form of financial
accommodation
c. The loan or financial accommodation is from
(1) his bank or (2) a bank that is a subsidiary of a
bank holding company of which both his bank and
lending bank are subsidiaries, (3) a bank in
which a controlling proportion of the shares is
owned by the same interest that owns a obligor or incur any contractual liability to the bank,
controlling proportion of the shares of his bank;
and
d. The loan or financial accommodation of
the DOS, singly or with that of his related
interest, is in excess of 5% of the capital and
surplus of the lending bank or in the maximum
amount permitted by law, whichever is lower.
Who are covered (BSP Circular No. 170):
1. Directors – Directors of the lending bank
2. Officers – Either identified in the by-laws or are
generally known as such
3. Stockholders – those whose stockholdings,
individually and/or together with any of the following
persons, amount to 2% or more of the total
subscribed capital stock of the bank:
a. His spouse or relative within the first degree
of affinity/consanguinity or relative by legal
adoption, partnership wherein any of the
foregoing is a general partner; and
b. A co-owner, with the stockholder or the
stockholder’s spouse, or relative mentioned
above, of property/right/interest (mortgaged,
pledged or assigned to secure the loan or
credit accommodations, except when the
mortgage, pledge or assignment covers only
said co-owner’s undivided interest.
4. Related Interest –
a. Spouse, relatives within first degree of
consanguinity or affinity, or relative by legal
adoption of a DOS, partnerships of which a
DOS or any of the foregoing is a general
partner.
b. Co-owner, with the DOS or his spouse or
relative within the first degree of consanguinity
or affinity, or relative by legal adoption, of the
property/interest/ right mortgaged, pledged,
assigned to secure the loans or credit
accommodations, except when the mortgage,
pledge or assignment covers only said co-
owner’s undivided interest.
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c. Corporation with inter-locking directors or
where 20% of the capital stock is owned by the
DOS and/or their spouses or relatives
mentioned above, or wholly or majority owned
or controlled by any related entity or a group of
related entities in items (b), (d), and (e).
Restrictions under the GBL and
NCBA:
a. No director or officer of any bank shall,
directly or indirectly, borrow from such bank nor
shall be guarantor, endorser or surety for loans
from such bank to others, or in any manner be an
except with the written approval of the majority of all
the directors of the bank, excluding the director
concerned. The written approval shall not be
required for loans granted to officers under a fringe
benefit plan approved by the Bangko Sentral.
b. Dealings of a bank with any of its DOSRI
shall be upon terms not less favorable to the bank
than those offered to others (ARMS LENGTH
RULE).
c. Loans extended to DOSRI shall be
limited to an amount equivalent to their respective
unencumbered deposits and book value of their
paid-in capital contribution in the bank.
Except:
i. Loans, credit accommodations, and
guarantees secured by assets considered as
non-risk by the Monetary Board.
ii. Loans, credit accommodations, and advances
to officers in the form of fringe benefits.
iii. Cooperative banks with regard to their
cooperative shareholders.
d. The resolution approving the loan shall be entered in
the records of the bank and transmitted to the BSP.
e. Waiver of secrecy of deposits of whatever nature in
all banks in the Philippines by the borrower. No
waiver is required if the related interests are the
borrower.
f. Information obtained from examination is strictly
confidential.
3. Rules on amount of secured loans
a. Those secured by real estate shall not exceed 75%
of the appraised value of the real estate security,
plus 60% of the appraised value of the insured
improvements (Sec. 37).
Notes of hotjurist
in foro conscientiae

b. Those secured by chattels and intangible properties
(such as patents, trademarks, trade names and
copyrights) shall not exceed 75% of the appraised
value of the security (Sec. 38).
BAR QUESTION:
BANKS; RESTRICTIONS ON LOAN
ACCOMMODATIONS (2006)
Pio is the president of Western Bank. His wife
applied for a loan with the said bank to finance an
internet cafe. The loan officer told her that her
application will not be approved because the grant of
loans to related interests of bank directors,
officers, and stockholders is prohibited by the
General Banking Law. Explain whether the loan
officer is correct. (5%)
SUGGESTED ANSWER:
Section 36 of the General Banking Law of 2000 does
not entirely prohibit directors or officers of the
bank, directly or indirectly, from borrowing from the
bank. In this case, Pio is the president of Western
Bank, which makes him an officer, director and
stockholder of the said bank. The General Banking
Law provides for additional restrictions to the bank
before it can lend to its directors or officers. A
written approval of the majority vote of all the
directors of the bank, excluding the director
concerned, is required. Furthermore, such dealings
must be upon terms not less favorable to the bank
than those offered to others (Section 1326, Central
Bank's "Manual of Regulations for Banks and Other
Financial Intermediaries, cited in Ranioso v. CA, G.R.
No. 117416, December 8, 2000). A violation of this
provision will cause his or her position to be declared
vacant and the erring director or officer subjected
to the penal provisions of the New Central Bank Act.
COLLATERALS
1. Value of collaterals
The loan shall not exceed 75% of the appraised
value of the real property plus 60% of the appraised
value of the improvements or 75% of the appraised
value of the chattel ( Secs. 37 & 38, GBL )
B. DEPOSIT FUNCTION
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ii. Contract of loan/mutuum with the
depositor as creditor
iii. Bank acquires ownership of the thing
deposited and the right to use and dispose
iv. Money deposited is commingled with
the other money, constituting a common
fund.
v. Not preferred credits (Central Bank
vs. Morfe, 20 SCRA 507).
2. As lessor-lessee
a. Safety deposit boxes – the relation between a
bank renting out safety deposit boxes and its
customer with respect to the contents of the
box is that of a bailor and bailee – the bailment
for hire and mutual benefit has been adopted in
this jurisdiction. It cannot be considered as a
contract of lease because the full possession
and control of the safety deposit box is not
given to the renters (Sia vs. CA, 222 SCRA 24
[1993]).
3. As trustee-trustor
a. Trust account
4. As bailee-bailor
a. Deposit strictly for safekeeping and for specific
purposes
5. As agent-principal:
a. Deposit of check for collection
b. Deposit for specific purpose
c. Deposit for safekeeping
Depositors:
1. Minors :
a. at least seven years of age
b. able to read and write
c. not disqualified by any incapacity
d. it should only be savings or time deposits
Note: Parents may deposit for their minor children
or wards (Sec.1 PD No.734)
 If the guardian shall give notice in
writing to any thrift bank not to make payments
of deposits, dividends, or interest to the minor
of whom he is the guardian, then such
payment shall be made to the guardian. (Sec.
22, Thrift Banks Act of 1995)
 Married Women are allowed to open
bank accounts without assistance of their
husbands (RA No. 7192

Kinds of Deposits between a Bank and

its Depositor Kinds of Deposits
1. As debtor-creditor DEMAND DEPOSITS SAVINGS ACCOUNT
a. Savings
b. Time Only a universal or Evidenced by a
c. Demand
commercial bank can passbook.
Characteristics:
accept or create demand
i. In the nature of irregular deposits
(Serrano vs. Central Bank, 96 SCRA 96) deposits.

Notes of hotjurist
in foro conscientiae
 Page 9 of 28

A bank other than a Banks are prohibited  A bank other than a universal or commercial bank
universal bank or from issuing / accepting must seek approval of Monetary Board before
commercial bank withdrawal slips or other accepting or creating demand deposits. (Sec. 33)
CANNOT accept demand similar instruments to
deposit effect withdrawals  Anonymous accounts are prohibited. ( R.A. No
without the passbooks 9160 as amended by RA 9194; BSP Circular No. 251,
except for bank July 21, 2000) exception: Foreign currency deposits
may be a “numbered account”. However, the law
authorized by the BSP requires that the necessary measures are undertaken
to adopt the no by the bank to record and establish the true identity of
passbook withdrawal the depositor.
system.
 Joint account may be the subject of a survivorship
Temporary overdrawing A bank is negligent if it agreement whereby the co-depositor agree to permit
against current accounts allows the withdrawal either of them to withdraw the whole deposit during their
shall not be allowed without requiring the lifetime and transferring the balance to the survivor upon
the death of one of them ( Vitug vs, CA., March 29,
unless caused by normal presentation of a
1990)
bank charges and other passbook. (BPI v. CA)
fees incidental to
handling such accounts. Types of deposit accounts
(Handbook on Bank Deposits, A. Viray, 1998 ed.)
Drawings against
uncollected deposits 1. Individual
(uncleared checks) are
generally prohibited. 2. Joint
a. “And” account
 Co-ownership
 The signatures of both co-depositors are
required for withdrawals.

b. “And/or” account
 Either one of the co-depositors may
deposit and withdraw from the account
NOW ACCOUNTS without the knowledge, consent and
TIME DEPOSITS signature of the other. And upon the death
(Negotiable Order of of one, the survivor may withdraw the
Withdrawal) entire balance on deposit.

Interest bearing deposit An account with fixed

accounts that combine term  The account may be deemed a
the payable on demand survivorship agreement depending on the
feature of checks and intention of the parties; aleatory contract
supported by a lawful consideration which
investment feature of
is valid unless when made as a mere
savings account. cloak to hide an inofficious donation, to
transfer property in fraud of creditors, or to
defeat the legitime of a forced heir (Rivera
vs. People’s Bank and Trust Co., 73 Phil.
546 [1942]).

Deposit substitutes

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 re-lending or
purchasing of receivables and other obligations (Sec.
Note: 95, RA 7653).

 Demand, savings, NOW accounts, time deposits DEPOSIT

and deposit substitutes shall not be subject to DEPOSIT
SUBSTITUTE
interest ceilings.

Notes of hotjurist
in foro conscientiae
 Page 10 of 28

No security given to Guaranteed by

guarantee repayment; certificates and other A. ON BANKS:
the depositor relies on instruments.
the stability and (Handbook on Bank
1. To directly act as insurer (Sec. 54)
reputation of the bank. Deposits, A. Viray,
1998 ed.)
2. For banks or quasi-banks to declare dividends, if at
the time of declaration:
a. its clearing account with the Bangko Sentral is
 A bank has the right to set-off the deposits in its overdrawn;
hands for the payment of any outstanding
indebtedness to it on the part of the depositor b. it is deficient in the required liquidity floor for
(Gullas vs. PNB, 62 Phil. 519; PNB vs. CA, 272 government deposits for 5 or more consecutive
SCRA 291). days;

 The fiduciary nature of a bank-depositor
relationship does not convert the contract between
the bank and its depositors from a simple loan to a
trust agreement, whether express or implied.
Failure by the bank to pay the depositor is failure to
pay a simple loan and not a breach of trust. The law
simply imposes on the bank a higher standard of
integrity and performance in complying with its
obligations under the contract of simple loan,
beyond those required of non-bank debtors, under
a similar contract of simple loan (CBTC vs. CA,
G.R. No. 138569, September 11, 2003).
c. it does not comply with the liquidity
standards/ratios prescribed by the Bangko
Sentral for purposes of determining funds
available for dividend declaration; or
d. It has committed a major violation as may be
determined by the Bangko Sentral (Sec. 57).
3. To conduct business in an unsafe or unsound
manner (Sec. 56);
4. Publication of capital stock (Sec. 62);

 This fiduciary relationship means that the bank’s 5. Unauthorized advertisement or business
obligation to observe “high standards of integrity representation (Sec. 64); or
and performance” is deemed written into every
deposit agreement between a bank and its 6. To employ casual or non-regular personnel or too
depositor. The fiduciary nature of banking requires lengthy probationary personnel in the conduct of its
banks to assume a degree of diligence higher than business involving bank deposits (Sec. 55).
that of a good father of a family (CBTC vs. CA,
Ibid.). Rationale: To prevent violation of Bank Secrecy
Law.
Suspension of Payment on its
Deposit Liabilities B. ON DIRECTORS, OFFICERS, EMPLOYEES, OR
AGENTS OF BANKS:
In case a bank or quasi-bank notifies the Bangko
Sentral or publicly announces a bank holiday, or in any
manner suspends the payment of its deposit liabilities 1. Make false entries in any bank report or statement
continuously for more than 30 days, the Monetary Board or participate in any fraudulent transaction;
may summarily and without need for prior hearing close
such banking institution and place it under receivership 2. Without order of a court of component
of the Philippine Deposit Insurance Corporation (Sec. jurisdiction, disclose to any unauthorized
53). person any information relative to the funds or
properties in the custody of the bank belonging to
 The depositary would be liable if in performing private individuals, corporations, or any other
its obligation it is found guilty of fraud, entity;
negligence; in the absence of any stipulation
prescribing the degree of diligence required, 3. Accept gifts or any other form of remuneration in
that of a good father of the family is to be connection with the approval of a loan or other
observed. Any stipulation exempting the credit accommodation from said bank;
depositary from any liability arising from loss
on account of fraud, negligence would be void 4. Overvalue or aid in overvaluing any security for
for being contrary to public policy (CA-Agro the purpose of influencing in any way the actions
Dev’t vs. CA, 219 SCRA 426, March 5, 1993). of the bank or any bank; or

5. Outsource inherent banking functions – a

Note: The bank shall act as depositary or as an agent
shall keep the funds, securities and other effects which
it receives duly separated from its own assets and
liabilities (Sec. 53)
PROHIBITIONS
bank cannot engage the services of another
entity to receive deposits on its behalf; the bank
has to do it by itself.
Rationale: To prevent violation of Bank Secrecy
Law (Handbook on Bank Deposits, A. Viray, 1998
ed.).

Notes of hotjurist
in foro conscientiae

 However, a bank may outsource, upon prior
approval of the Monetary Board the following
functions:
a. All information technology systems and
processes, except for certain functions
affecting the ability of the bank to ensure the fit
of technology services deployed to meet its
strategic and business objectives and comply
with pertinent laws and regulations;
b. Data imaging, storage, and other related
systems;
c. Clearing and processing of checks not included
in the Philippine Clearing House System;
d. Printing of bank statements;
e. Credit card services;
f. Printing of bank loan statements and other
non-deposit records, bank forms and
promotional materials;
g. Credit investigation and collection;
h. Processing of export, import and other trading
transactions;.
i. Transfer agent services for debt and equity
services;
j. Property appraisal;
k. Property management services;
l. Messenger, courier and postal services;
m. Security guard services;
n. Vehicle service contracts
o. Janitorial services;
p. Other services as determined by the Monetary
Board.
C. ON BORROWERS:
1. Fraudulently overvalue property offered as security
for a loan from the bank;
2. Furnish false or make misrepresentations or
suppression of material facts for the purpose of
obtaining, renewing, or increasing a loan or
extending the period thereof;
3. Attempt to defraud the said bank in the event of a
court action to recover a loan or other credit
accommodation; or
4. Offer any director, officer, employee or agent of a
bank any gift, fee, commission, or any other form of
compensation in order to influence such persons
into approving a loan or other credit
accommodation application.
D. ON EXAMINERS , BSP OR GOVERNMENT OFFICERS
AND EMPLOYEES ASSIGNED TO SUPERVISE , EXAMINE ,
ASSIST OR RENDER TECHNICAL ASSISTANCE TO ANY
BANK :
Commit any of the acts enumerated in Sec. 55 or aid in
the commission of the same.
 The making of false reports or
misrepresentations or suppression of material
Page 11 of 28
facts by personnel of the BSP shall constitute
fraud and shall be subject to administrative and
criminal sanctions.
CONDUCTING BUSINESS IN AN UNSAFE OR
UNSOUND MANNER (SEC. 56)
In determining whether a particular act or omission,
which is not otherwise prohibited by law, rule or
regulation affecting banks, quasi-banks, or trust entities,
may be deemed as conducting business in an unsafe or
unsound manner, the MB shall consider any of the
following circumstances:
1. The act or omission has resulted or may result in
material loss or damage, or abnormal risk or danger
to the safety, stability, liquidity or solvency of the
institution;
2. The act or omission has resulted or may result in
material loss or damage, or abnormal risk to the
institution’s depositors, creditors, investors, and
stockholders or to the BSP or to the public in
general;
3. The act or omission has caused any undue injury,
or has given any unwarranted benefits, advantage
or preference to the bank or any party in the
discharge by the director or officer of his duties and
responsibilities through manifest partiality, evident
bad faith or gross inexcusable negligence;
4. The act or omission involves entering into any
contract or transaction manifestly and grossly
disadvantageous to the bank, quasi-bank or trust
entity, whether or not the director or officer profited
or will profit thereby.
OWNERSHIP OF STOCKS OF A
DOMESTIC BANK
1. Filipino
 In case of a Filipino individual or a domestic non-
bank corporation, each may own up to 40% of the
outstanding voting stock of a local bank.
2. Foreign
 Foreign individuals and non-bank corporations may
own or control up to an aggregate of 40% of the
voting stock of a domestic bank.
 The percentage of foreign-owned voting stocks in a
bank shall be determined: (GRANDFATHER
RULE)
a. If individuals: by the citizenship of the
individuals
b. If corporations: by the citizenship of the
controlling stockholders of the corporation,
irrespective of the place of incorporation (Sec.
11).
ACT LIBERALIZING ENTRY OF
FOREIGN BANKS (R.A.
NO. 7721)
Notes of hotjurist
in foro conscientiae

The Monetary Board authorizes foreign banks to
operate through any of the following modes of
entry:
1. By acquiring, purchasing or owning up to
60% of the voting stock of an existing bank;
2. By investing in up to 60% of the voting stock of a
new banking subsidiary incorporated under
laws of Philippines;
3. By establishing branches with full banking
authority, provided:
a. foreign bank may avail itself of only one
mode of entry; and
b. Foreign bank or Philippine corporation
may own up to 60% of the voting stock
of only one domestic bank or new
banking subsidiary (Sec. 2).
 Entries under the second and third modes are
restricted to banks which are among the top 150
foreign banks in the world or top 5 banks in their
country of origin.
MINIMUM CAPITALIZATION:
1. For locally incorporated subsidiaries –
equal to that of domestic banks of the same
category
2. For foreign bank branches – not less
than the US$ equivalent of P210M
 Amendments introduced by GBL 2000
1. Within seven years from effectivity of the GBL
(June 13, 2000), foreign banks may be allowed
to own up to 100% equity of only one domestic
bank as a mode of entry if authorized by the
Monetary Board (Sec. 73, GBL).
2. Other foreign individuals and non-bank
corporations may own up to 40% of the voting
stock of a domestic bank; the nationality of the
controlling shareholders of the non-bank
corporations will be traced to determine the
foreign ownership of the domestic bank (Sec.
11, GBL).
FOREIGN BANKS (SECS. 72–78)
1. Entry: Governed by the provisions of the Foreign
Bank Liberalization Act and the Offshore Banking
System Decree (Sec. 72)
2. Revocation of license to do business in the
Philippines: The Monetary Board may revoke such
license on the grounds that the foreign bank is
Page 12 of 28
insolvent or in imminent danger thereof or that its
continuance in business will involve probable loss
to those transacting business with it (Sec. 78).
S TOCKHOLDINGS OF F AMILY GROUPS OR
R ELATED I NTEREST
 The law does not prohibit ownership of the stock by
members of the same family or related interest.
However, the law provides that 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 interest and must
be fully disclosed in all transaction by such individual
with the bank. (Sec 12, GBL)
 Two or more corporations owned and controlled by
the same family group or same group of person shall be
considered related interest and must be fully disclosed
in all transaction by such corporations or related group
of person with the bank. (Sec 13, GBL)
 Unlike the former law, the GBL does NOT impose a
limit on the number of shares that can be owned by the
same family or related interest. However this should not
be without prejudice to the 40% restriction imposed by
Sec 11of the GBL.
OWNERSHIP OF REAL PROPERTY
GENERAL RULE: A bank cannot acquire and own real
property.
Rationale: Banks are not engaged in the business of
acquiring and possessing real property. Also, banks
must maintain liquidity at all times to enable it to perform
its functions. Thus, banks must as much as possible
retain only assets that are easily marketable.
EXCEPTIONS:
1. As shall be necessary for its own use in the conduct
of its business, provided:
a. The total investment in such real estate and
improvements shall not exceed 50% of the
combined capital accounts; and
b. the equity investment of a bank in another
corporation engaged primarily in real estate
shall be considered as part of the bank's total
investment in real estate, unless otherwise
provided by the Monetary Board (Sec. 51).
2. As mortgaged to it in good faith by way of security
for debts, conveyed to it in satisfaction of a debt
previously contracted in the course of its dealings,
and such as it shall purchase at forced sales or to
secure debts; provided, however, that property
acquired under such circumstances shall be
disposed of by the bank within a period of 5 years;
provided that the bank may after said period
Notes of hotjurist
in foro conscientiae
 Page 13 of 28
continue to hold the property for its own use, it to conventional redemption or by estoppel if the
subject to (1) (Sec. 52). extension was unilaterally made.

RULES ON FORECLOSURE OF A
REAL ESTATE
MORTGAGE BY A DIRECTORS & OFFICERS
MORTGAGEE-BANK

Application: Judicial or extrajudicial foreclosure Fit and Proper Rule

JUDICIAL EXTRAJUDICIAL To maintain the quality of bank management and afford

Right of redemption
Within 1 year from 1. Mortgagor is a
registration of the natural person –
foreclosure sale Within one year after
(exception to Rule 68) the registration of sale
with the Register of
Deeds (Sec. 1(3) SC
Cir. AM No. 99-10-05)
2. Mortgagor is a
juridical person – At
any time before the
registration of the
certificate of
foreclosure sale which
in no case shall be
more than 3 months
after foreclosure,
whichever is earlier.
Redemption price:
Amount due under the mortgage deed + interest
+ all the cost and expenses incurred by the bank
or institution from the sale and custody of the
property less the derived income (Sec 78; Union
Bank vs. CA, GR 134068, June 25, 2001)
Right of purchaser to possess property:
Immediately after the date of the confirmation of
the auction sale.
 To enjoin or restrain the conduct of foreclosure
proceedings, the petitioner must file a bond
conditioned that he will pay all the damages which
the bank may suffer by the injunction (Sec. 47).
 A bank may be bound by an agreement
providing for a longer redemption period (Ibaan
Rural Bank vs. CA, 321 SCRA 83); thus, converting
better protection to depositors and the public, in general,
the Monetary Board shall prescribe, pass upon and
review the qualifications and disqualifications of
individuals elected or appointed as bank directors or
officers and disqualify those found unfit (Sec. 16)
Independent Director
A person other than an officer or employee of the bank,
its subsidiaries or affiliates or related interests.
Prohibition on Public Officials
GENERAL RULE: No appointive or elective official,
whether full-time or part-time, shall, at the same time,
serve as an officer of any private bank (Sec. 19).
EXCEPTIONS:
1. As otherwise provided under Sec. 5 of the Rural
Bank Act
2. Where such service is incidental to financial
assistance provided by the government-owned or
-controlled corporation to the bank
3. As otherwise provided under existing laws.
 A bank holding out its officers and agents as
worthy of confidence will not be permitted to
profit by the frauds they may thus be enabled
to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk
from its responsibility for such frauds, even
though no benefit may accrue to the bank
therefrom (10 Am Jur 2d, p. 114). Accordingly,
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 Corp. vs. CA and Marcos,
G.R. No. 127469. January 15, 2004).
TRUST OPERATIONS (SECS. 79-93)

Notes of hotjurist
in foro conscientiae
 Page 14 of 28

 Only a stock corporation or a person duly PENALTIES FOR VIOLATION OF

authorized by the Monetary Board shall act as a trustee THE GBL (SEC. 66)
or administer any trust or hold property in trust or on
deposit for the use, benefit, or behalf of others (Sec. 79)
1. As provided by specific provisions
Trust Business- any activity resulting from a trustor-
2. Sections 34-37 of RA 7653 (by excluding the bank
trustee relationship involving the appointment of a
from clearing)
trustee by a trustor for the administration, holding,
3. Suspension or removal of the director or officer
management of funds and/or properties of the trustor by
4. Dissolution of the corporation by quo warranto
the trustee for the use, benefit, advantage of trustor or
proceedings
others called beneficiaries.

Powers of trust entities:

1. Act as trustee on any mortgage or bond issued by
any municipality, corporation or body politic and to
accept and execute any trust consistent with law THE NEW CENTRAL BANK ACT
(NCBA)
2. Act under the order or appointment of any court as
guardian, receiver, trustee, or depositary of the
estate of any minor or incompetent person, and as (R.A. No. 7653)
receiver and depositary of any money paid into
court by parties to any legal proceedings Purpose: To maintain a central monetary authority that
shall function and operate as an independent and
3. Act as the executor of any will when it is named the accountable body in the discharge of its responsibilities
executor thereof
concerning money, banking and credit.
4. Act as administrator of the estate of any deceased
person, with the will annexed, or when there is no
will

5. Accept and execute any trust for the holding, BANGKO SENTRAL NG PILIPINAS
management and administration of any estate, real (BSP)
or personal, and the rents, issues, and profits
thereof The state’s central monetary authority; it is the
6. Establish and manage common trust funds (Sec. government agency charged with the responsibility of
83) administering the monetary, banking and credit system
of the country and is granted the power of supervision
Prohibitions: and examination over bank and non-bank financial
1. No trust entity shall, for account of the trustor or the institutions performing quasi-banking functions,
beneficiary of the trust, purchase or acquire including savings and loan associations (Busuego vs.
property from, or sell, transfer, assign or lend
CA, 151 SCRA 376 [1987]).
money or property to, purchase debt from
instruments of, any of the departments, directors,
officers, stockholders or employees of the trust
entity, including relatives within the 1st degree of P RIMARY OBJECTIVES :
consanguinity or affinity, or the related interests, of
such directors, officers and stockholders, unless the 1. To maintain price stability conducive to a balanced
transaction is specifically authorized by the trustor and sustainable growth of the economy.
and the relationship of the trustee and the other
party involved in the transaction is fully disclosed to 2. To promote and maintain monetary stability and the
the trustor or beneficiary of the trust prior to the convertibility of the peso.
transaction (Sec. 80, GBL).

2. The trust business and all funds, properties or

securities received by any trust entity as executor, R ESPONSIBILITIES :
administrator, guardian, trustee, receiver or 1. To provide policy directions in the areas of money,
depositary shall be kept separate and distinct from banking, and credit
the general business, including all other funds,
properties, and assets, of such trust entity (Sec. 87, 2. To supervise bank operations
GBL).
3. To regulate the operations of finance companies
and non-bank financial institutions performing

Notes of hotjurist
in foro conscientiae

quasi-banking functions, and similar institutions
(Sec. 3)
P OWERS / FUNCTIONS :
1. Issuer of currency (Sec. 49-60)
2. Custodian of reserves (Secs. 64-66, 94, 103)
3. Clearing channel or house; especially where the
PCHC does not operate (Sec. 102)
4. Banker of the government – the BSP shall be the
official depository of the Government and shall
represent it in all monetary fund dealings (Secs.
110- 116)
5. Financial advisor of the government (Secs. 123-
124) – Under Article VII, Sec. 20 of the 1987
Constitution, the President may contract or
guarantee foreign loans but with the prior
concurrence of the Monetary Board.
6. Source of credit (Secs. 61-63, 81-89, 109)
7. Supervisor of the banking system (Sec. 25) – shall
include the power to:
a. Examine, extending to enterprises wholly or
majority-owned or controlled by the bank (Sec.
7, RA 8791); this power may not be restrained
by a writ of injunction unless there is
convincing proof that the action of the BSP is
plainly arbitrary (Sec. 25)
b. Place a bank under receivership or liquidation
(Sec. 30)
c. Initiate criminal prosecution of erring officers of
banks
8. Government agent (Secs. 117-122)
MONETARY BOARD (MB)
The body by which the powers and functions of the
Bangko Sentral are exercised (Sec.6).
C OMPOSITION :
Seven members consisting of:
1. Chairman: Governor of the BSP
2. A member of the cabinet to be designated by the
President of the Philippines
3. Five (5) members who shall come from the private
sector, all of whom shall serve full-time.
Note: The degree of diligence required of the members
of the MB, officials and employees of the BSP in the
performance of their functions is extraordinary diligence
(Sec.16, NCBA).
Q UALIFICATIONS OF M EMBERS OF THE
M ONETARY B OARD :
1. must be natural-born citizens of the Philippines,
Page 15 of 28
2. at least 35 years of age, with the exception of the
Governor who should at least be 40 years of age,
3. of good moral character, of unquestionable
integrity, of known probity and patriotism, and
4. with recognized competence in social and
economic disciplines.
D ISQUALIFICATIONS AND I NHIBITION ON
G OVERNOR AND B OARD
M EMBERS :
1. disqualified from being a director, officer, employee,
consultant, lawyer, agent or stockholder of any
bank, quasi-bank or any other institution which is
subject to supervision or examination by the
Bangko Sentral, in which case such member shall
resign from, and divest himself of any and all
interests in such institution before assumption of
office (Sec. 9);
2. those coming from the private sector shall not hold
any other public office or public employment during
their tenure (Sec. 9);
3. cannot be connected directly with any multilateral
banking or financial institution or has a substantial
interest in any private bank in the Philippines, within
one (1) year prior to his appointment (Sec. 9);
4. cannot be employed in any such institution within
two (2) years after the expiration of his term except
when he serves as an official representative of the
Philippine Government to such institution (Sec. 9);
5. the Governor of the Bangko Sentral and the full-
time members of the Board shall limit their
professional activities to those pertaining directly to
their positions with the Bangko Sentral.
Accordingly, they may not accept any other
employment, whether public or private,
remunerated or ad honorem, with the exception of
positions in eleemosynary, civic, cultural or religious
organizations or whenever, by designation of the
President, the Governor or the full-time member is
tasked to represent the interest of the Government
or other government agencies in matters connected
with or affecting the economy or the financial
system of the country (Sec. 20);
6. in case any member of the Monetary Board with
personal or pecuniary interest in any matter in the
agenda of the Monetary Board shall disclose his
interest to the Board and shall retire from the
meeting when the matter is taken up (Sec. 14).
S UPERVISION AND E XAMINATION OF B ANKS
Notes of hotjurist
in foro conscientiae

 The BSP shall have supervision over, and
conduct periodic or special examinations of,
banking institutions and quasi-banks, including their
subsidiaries and affiliates engaged in allied
activities.
Subsidiary – a corporation more than 50% of the
voting stock of which is owned by a bank or quasi-bank
Affiliate – a corporation the voting stock of which, to the
extent of 50% or less, is owned by a bank or quasi-bank
or which is related or linked to such institution or
intermediary through common stockholders or other
factors determined by the Monetary Board.
NO RESTRAINING ORDER AGAINST BSP
No restraining order or injunction shall be issued by
the court enjoining the Bangko Sentral from examining
any institution subject to supervision or examination by
the Bangko Sentral, unless there is convincing proof
that the action of the Bangko Sentral is plainly arbitrary
and made in bad faith and the petitioner or plaintiff files
with the clerk or judge of the court in which the action is
pending a bond executed in favor of the Bangko Sentral,
in an amount to be fixed by the court.
R EFUSAL TO M AKE R EPORTS OR P ERMIT
E XAMINATION .
- Any officer, owner, agent, manager, director or officer-
in-charge of any institution subject to the supervision or
examination by the Bangko Sentral who, being required
in writing by the Monetary Board or by the head of the
supervising and examining department willfully refuses
to file the required report or permit any lawful
examination into the affairs of such institution shall be
punished under the Act. (Sec. 34)
False Statement. - The willful making of a false or
misleading statement on a material fact to the Monetary
Board or to the examiners of the Bangko Sentral shall
be punished. (Sec. 35)
PROHIBITIONS ON BANK OFFICERS,
DIRECTORS, LAWYERS, AGENTS
Personnel of the Bangko Sentral are hereby
prohibited from:
1. being an officer, director, lawyer or agent,
employee, consultant or stockholder, directly or
indirectly, of any institution subject to supervision or
examination by the Bangko Sentral;
Exception: non-stock savings and loan
associations and provident funds organized
Page 16 of 28
exclusively for employees of the Bangko Sentral,
and except as otherwise provided in this Act;
2. directly or indirectly requesting or receiving any
gift, present or pecuniary or material benefit for
himself or another, from any institution subject to
supervision or examination by the Bangko Sentral;
3. revealing in any manner, except under orders
of the court, the Congress or any government office
or agency authorized by law, information relating to
the condition or business of any institution;
4. borrowing from any institution subject to
supervision or examination by the Bangko Sentral
shall be prohibited unless said borrowings are
adequately secured, fully disclosed to the Monetary
Board. (Sec. 27)
CORPORATE POWERS OF THE BSP
1. To adopt, alter and use a corporate seal which shall
be judicially noticed
2. To enter into contracts
3. To lease, own, and sell property
4. To sue and be sued
5. To acquire and hold such assets and incur such
liabilities in connection with its operations or as are
essential to the proper conduct of operation
6. To compromise, condone, or release any claim of,
or settled liability to the BSP
7. To do and perform such other necessary powers
CONSERVATORSHIP OF A BANK OR
QUASI-BANK
Ground: State of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors.
 A conservator appointed by the BSP may take over
without the need of first declaring the bank
insolvent.
Duration: Not to exceed 1 year
Effects:
1. Bank/quasi-bank retains juridical personality
2. Not a precondition to the designation of a receiver
Powers of conservator:
1. To take charge of the assets, liabilities, and the
management thereof;
2. Reorganize the management;
3. Collect all monies and debts due said bank; and
4. Exercise all powers necessary to restore its
viability, with the power to overrule or rebuke the
actions of the previous management and board of
directors of the bank or quasi-bank.
Notes of hotjurist
in foro conscientiae
 Page 17 of 28

 The powers must be related to preservation of that has become final,

assets, reorganization of management and the involving acts or
restoration of viability. Such power to revoke cannot transactions which
extend to post-facto repudiation of perfected amount to fraud or a
transactions, otherwise they would infringe the non- dissipation of the assets
impairment clause of the Constitution. The power of the institution (Sec. 30)
to revoke contracts only covers those that are
deemed defective – i.e., void, voidable,
unenforceable or rescissible (First Phil. Int’l Bank Receiver:
vs. CA, 252 SCRA 259). The conservator’s power 1. Banks – PDIC
is not unilateral and he cannot simply repudiate 2. Quasi-banks – Any person of recognized
valid obligations of the bank. His authority would be competence in banking or finance
only to bring actions to assail the same.
Functions:
1. Immediate gathering and taking charge of all the
Termination: assets and liabilities of the institution and
administering them for the benefit of creditors
1. When the MB is satisfied that the institution can 2. General powers of a receiver
continue to operate on its own and the 3. Determination ASAP but not later than 90 days,
conservatorship is no longer necessary; whether the institution should undergo
rehabilitation or liquidation.
2. But if the continuance in business of the bank  Note the distinctions between rehabilitation and
liquidation.
would involve probable loss to its depositors or
creditors, proceedings for receivership and
liquidation shall be pursued (Sec. 29). “CLOSE NOW, HEAR LATER”
SCHEME

RECEIVERSHIP OF A BANK OR  Sec. 29 of the Central Bank Act does not

contemplate prior notice and hearing before a bank
QUASI-BANK/CLOSURE is placed under receivership. It is enough that such
action is made the subject of a subsequent judicial
review. The purpose of the scheme is to protect
Receivership is equivalent to an injunction to restrain the depositors, creditors, stockholders and general
the bank in any way. Thus, the appointment of a public (Central Bank vs. CA, 220 SCRA 536).
receiver operates to suspend the authority of the bank
and of its directors and officers over its property and  Only stockholders representing the majority of the
effects (Villanueva vs. CA, 244 SCRA 395 [1995]). capital stock of a bank have the personality to file a
petition for certiorari to be filed within 10 days from
receipt by the board of directors of the institution of
Grounds: the order directing receivership, liquidation or
conservatorship.
Under NCBA Under GBL
1. Inability to pay 1. Notification to the Reason: Stockholders owning a majority of the
liabilities as they become BSP or public shares are expected to be more objective in
due in the ordinary announcement of a determining whether the resolution is plainly
course of business, but bank holiday (Sec. 53, arbitrary and issued in bad faith (Sec. 30, NCBA;
not including inability to GBL) Central Bank vs. CA, G.R. No. 76118, March 30,
pay those caused by 1993).
extraordinary demands
induced by financial panic
in the banking CASE DIGEST
community;
Central Bank of the Philippines vs. Court of
2. Insufficiency of 2. Suspension of Appeals, 220 SCRA 536
realizable assets to meet payment of deposit
its liabilities; liabilities continuously
for more than 30 days Facts:
(Sec. 53, GBL)
Based on the financial reports submitted to the
Central Bank, which states that the Financial condition
3. Inability to continue 3. Persistence in of The Triumph Savings Bank (TSB) is one of
business without conducting business insolvency and its continuance in the business world
involving probable losses in an unsafe or involve probable loss to its depositors and creditors, the
to its depositors or unsound manner. Monetary Board issued a Resolution ordering the
creditors; or (Sec. 56, GBL) closure of TSB, forbidding it from doing business in the
4. Willful violation of a Philippines, placing it under receivership and appointing
cease and desist order Ramon V. Taiaoqi as receiver. The TSB filed a

Notes of hotjurist
in foro conscientiae
 Page 18 of 28

In case of quasi-banks, the liquidation plan shall be

complaint assailing the resolution on the ground of lack
adopted by the Monetary Board.
of prior notice and hearing
2. He shall convert the assets of the institution to
money for the purpose of paying the debts of the
Issue: institution (Sec. 30).
Whether or not a Monetary Board Resolution
be annulled on the ground of lack of prior notice and 3. Payment shall be in accordance with the rules on
hearing. concurrence and preference of credits.
 Regular courts have no jurisdiction over
actions filed by claimants against an insolvent bank
Ruling: (Ong vs CA, 253 SCRA 105).
Section 29 of the Central Bank Act does not
contemplate prior notice and hearing before a bank may
be declared to stop operations and placed under
EFFECTS OF APPOINTMENT OF RECEIVER/
receivership. When it provides for the filing of the case
LIQUIDATION
within 10 days after the receiver takes charge of the
1. Suspension of operation
assets of the bank, it is unmistakable that the assailed
2. The assets under receivership or liquidation shall
actions should precede the filing of the case. Plainly, the
be deemed in custodia legis in the hands of the
legislature could not have intended or authorize “no
receiver and shall be exempt from garnishment,
prior notice and hearing” in the closure of the bank and
levy, attachment or execution (Sec. 30).
at the same time allow the suit to annul it on the basis of
the absence thereof.
3. Bank is not liable to pay interest on deposits during
This “close now and hear later” scheme is the period of suspension of operation (Overseas
grounded on practical and legal consideration to prevent Bank vs. CA, 113 SCRA 778 [1982])
the unwarranted dissipation of the bank’s asset and as a
valid exercise of the police power to protect the 4. The corporation retains its legal personality (Teal
depositors, creditors, stockholders and the general Motor Co. vs. CFI, 51 Phil. 549 [1928])
public.
5. Deposits do not become preferred credits (CB vs.
Morfe, 20 SCRA 507 [1967])

MANDATORY REQUIREMENTS FOR BANK

CLOSURE
1. Examination by the appropriate BSP department as
to the condition of the bank
2. Examination shows that the condition of the bank is
one of insolvency
3. Director shall inform the MB in writing of such fact
4. If the MB shall find the statement of the department
to be true, it shall appoint a receiver of the assets
and liabilities of the bank (Banco Filipino vs. MB,
204 SCRA 519 [1991]).
5. Within 60 days, the MB shall determine and confirm
if the bank is insolvent, and if public interest
requires, shall order the liquidation of the bank.
LEGAL TENDER
All notes and coins issued by the Bangko Sentral are
fully guaranteed by the Republic and shall be legal
tender in the Philippines for all debts, both public and
private (Sec. 52)
Legal tender power of coins
1. 1-Peso, 5-Peso and 10-Peso coins: In amounts not
exceeding P1,000.00
2. 25 centavo coin or less: In amounts not exceeding
P100.00 (Circular No. 537, 2006)

BSP Authority to Replace

1. Notes for any series or denomination – More than 5
LIQUIDATION years old
Grounds: 2. Coins – More than 10 years old
1. The condition of the bank is one of insolvency or
that its continuance would involve probable loss to
its depositors and creditors. Rules:

2. A determination by the MB that the bank cannot be
rehabilitated.
Procedure:
1. Receiver shall file ex parte, with the proper RTC, a
petition for assistance in the liquidation of the
institution pursuant to a liquidation plan adopted by
the PDIC for general application to all closed banks.
1. Notes and coins called in for replacement shall
remain legal tender for a period of one year from
the date of call.
2. After that period, they shall cease to be legal tender
during the following year or for such longer period
as MB may determine.

Notes of hotjurist
in foro conscientiae
 Page 19 of 28
3. After the expiration of this latter period, the notes
and coins which have not been exchanged shall
cease to be a liability of BSP and shall be
demonetized (Sec. 57). PROHIBITIONS ON THE BSP

 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.
 However, 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 (Sec. 60).
MONETARY STABILIZATION
3 IMPORTANT TOOLS TO ACHIEVE PRICE
STABILITY
1. Loans to Banks (Sec. 83) (Rediscounting)
a. If BSP wants to increase money supply, it
opens the rediscount window by reducing
interest on loans
b. If BSP wants to decrease money supply, it
closes the rediscount window or charges very
high interest rates for rediscounted notes
2. Open Market Operations (Sec. 90)
a. If BSP wants to increase money supply, it buys
government securities
b. If BSP wants to decrease money supply, it
sells government securities
3. Reserve Requirements (Sec. 94) - where a certain
percentage of the deposit is set aside and cannot
be lent out
a. if the volume of money is high, BSP will raise
reserve requirement
b. if the volume of money is low, reserve
requirement is reduced.
1. It shall not acquire shares of any kind or accept
them as collateral, and shall not participate in the
ownership or management of any enterprise, either
directly or indirectly; and
2. It shall not engage in development banking and
financing (Sec. 128).
SECRECY OF BANK DEPOSITS
LAW
(R.A. No. 1405)
Purposes:
1. To encourage people to deposit in banks
2. To discourage private hoarding so that banks may
lend such funds and assist in the economic
development
Coverage:
All deposits of whatever nature with banks or banking
institutions in the Philippines, including investments in
bonds issued by the Government of the Philippines, its
political subdivisions and its instrumentalities.
PROHIBITED ACTS:
1. Examination and inquiry or looking into all deposits,
of whatever nature, with the banks in the
Philippines including investments in bonds issued
by the Government.
2. Any disclosure by any official or employee of any
bank to any unauthorized person of any information
concerning the said deposits.
GENERAL RULE: The deposits covered by law are
considered as of an absolutely confidential nature and
may not be examined, inquired or looked into by any
person, governmental bureau, or office.
EXCEPTIONS:
A. F ROM R.A. N O . 1405
1. Upon written permission of the depositor;
2. In cases of impeachment;

3. Upon order of a competent court in cases of bribery

Rules: or dereliction of duty of public officials;

1.  The required reserves of each bank shall be 4. In cases where the money deposited or invested is
proportional to the volume of its deposit the subject matter of the litigation; (Sec. 2)
liabilities.
2. Since the required reserves are imposed
primarily to control the volume of money, the
Bangko Sentral shall not pay interests thereon
(Sec. 94).

3. Deposits maintained with the Bangko Sentral

as part of the reserve requirements shall be
exempt from attachment, garnishment, or any
other order or process of any court or agency
(Sec. 103).
4. No increase of more than 4% point within 30-
day period. BAR QUESTION:

Notes of hotjurist
in foro conscientiae

Banks: Secrecy of Bank Deposits; Garnishment
(2004)
CDC maintained a savings account with CBank. On
orders of the MM Regional Trial Court, the Sheriff
garnished P50,000 of his account, to satisfy the
judgment in favor of his creditor, MO. CDC
complained that the garnishment violated the Law on
the Secrecy of Bank Deposits because the existence
of his savings account was disclosed to the public.
(5%) Is CDC's complaint meritorious or not? Reason
briefly.
SUGGESTED ANSWER
No. CDC's complaint is not meritorious. It was held in
China Banking Corporation v. Ortega, 49 SCRA
355 (1973) that peso deposits may be garnished and
the depositary bank can comply with the order of
garnishment without violating the Law on the
Secrecy of Bank Deposits. Execution is the goal of
litigation as it is its fruit. Garnishment is part of the
execution process. Upon service of the notice of
garnishment on the bank where the defendant
deposited funds, such funds become part of the
subject matter of litigation.
B. From other laws
1. Anti-Graft and Corrupt Practices Act cases (R.A.
No. 3019; added by analogy in PNB vs. Gancayco,
15 SCRA 91 [1965]);
2. NIRC - Inquiry by the Commissioner of Internal
Revenue into bank deposits of:
a. A decedent to determine his gross estate;
b. A taxpayer who has filed an application for
compromise of his tax liability by reason of
financial incapacity to pay his tax liability. He
must file a written waiver of his privilege under
RA 1405 or other general or special laws (Sec.
6[f], NIRC).
3. Inquiry or examination by the Anti-Money
Laundering Council (AMLC) of any particular
deposit or investment with any banking institution or
non-bank financial institution upon order of any
competent court in cases of violation of the Anti-
Money Laundering Law, when it has been
established that there is probable cause that the
deposits or investments are related to an unlawful
activity or a money laundering offense, except that
no court order shall be required in the following
unlawful activities:
a. Kidnapping for ransom under Art. 267 RPC;
b. Comprehensive Dangerous Drugs Act of 2002
(RA No. 9165);
Page 20 of 28
c. Hijacking and other violations under RA 6235;
destructive arson and murder under RPC.
Including those perpetrated by terrorists against
non-combatant persons and similar targets”
(Sec. 11, R.A. No. 9160 as amended by Sec. 8
of RA 9194)
4. Disclosure to the Treasurer of the Philippines of
dormant deposits for at least 10 years under the
Unclaimed Balances Act (Act No. 3936).
OTHER LAWS RELATING TO
SECRECY OF BANK DEPOSITS
A. Foreign Currency Deposit Act (R.A. No. 6426):
B. Extends confidentiality to foreign currency deposits,
but the law contains only one ground authorizing
examination: upon written permission of the
depositor.
C. General Banking Law of 2000 (R.A. No. 8791):
1. No bank shall employ casual or non-regular
personnel or too lengthy probationary personnel in
the conduct of its business involving bank deposits
(Sec. 55.4).
2. No director, officer, employee, or agent of any bank
shall, without court order, disclose to any
unauthorized person any information relative to the
funds or properties in the custody of the bank
belonging to private individuals, corporations, or
any other entity, provided that with respect to bank
deposits, the provisions of existing laws shall
prevail (Sec. 55[b]).
3. Outsourcing of inherent bank functions
D. New Central Bank Act (R.A. No. 7653):
1. DOSRI loans
2. Periodic and special examinations by the BSP
(Sec. 25)
E. Anti-Money Laundering Act (R.A. No. 9160)
 Provides for another exception to
confidentiality, which is applicable to both peso
and foreign currency deposits.
 Garnishment of bank deposit of judgment
debtor does not violate RA 1405. It was not the
intention of the legislature to place bank
deposits beyond the reach of execution to
satisfy a final judgment. Its purpose is merely
to secure information as to the name of the
depositor and whether or not the defendant
had a deposit in said bank, only for purposes of
garnishment. Any disclosure is purely
incidental to the execution process (China
Banking Corporation vs. Ortega, 49 SCRA
355).
Notes of hotjurist
in foro conscientiae

 Illegally acquired property extends to cases
where property is concealed by being held by
or recorded in the name of respondent’s
spouse, ascendants, descendants, relatives, or
any other persons (Banco Filipino Savings and
Mortgage Bank vs. Purisima, 161 SCRA 576).
 Money-market placement is not covered by RA
1405 because it is not deposited in the bank.
BAR QUESTION:
BANKS: APPLICABILITY: FOREIGN CURRENCY
DEPOSIT ACT & SECRECY OF BANK DEPOSITS
(2005)
Hi Yielding Corporation filed a complaint against five
of its officers for violation of Section 31 of the
Corporation Code. The corporation claimed that the
said officers were guilty of advancing their personal
interests to the prejudice of the corporation, and
that they were grossly negligent in handling its
affairs. Aside from documents and contracts, the
corporation also submitted in evidence records of
the officers’ U.S. Dollar deposits in several banks
overseas - Boston Bank, Bank of Switzerland, and
Bank of New York. For their part, the officers filed
a criminal complaint against the directors of Hi
Yielding Corporation for violation of Republic Act No.
6426, otherwise known as the Foreign Currency
Deposit Act of the Philippines. The officers alleged
that their bank deposits were illegally disclosed for
want of a court order, and that such deposits were
not even the subject of the case against them.
a) Will the complaint filed against the directors of
Hi Yielding Corporation prosper? Explain
SUGGESTED ANSWER:
No, because the Foreign Currency Deposit Act (R.A.
No. 6426), including its punitive provisions, refers to
foreign currency deposits accounts constituted
within the Philippines. It has no application at all to
accounts, even though they are banks, opened and
constituted abroad
b) Was there a violation of the Secrecy of Bank
Deposits Law (Republic Act No. 1405)? Explain.
SUGGESTED ANSWER:
No, because the punitive provisions of the Secrecy
of Bank Deposits Law (R.A. No. 1405), including the
statutory exemptions provided therein, are not
applicable to FCDU accounts, even when constituted
locally. (Intengan v. Court of Appeals, G.R. No.
128996, February 15, 2002)
REQUISITES FOR IN-CAMERA
INSPECTION OF BANK DEPOSITS
M ARQUEZ VS . D ESIERTO , G.R. N O . 135882,
Page 21 of 28
J UNE 27, 2001
1. Pending case before a court of competent
jurisdiction
2. Account must be clearly identified
3. The inspection is limited to the subject of the
pending litigation.
4. The bank personnel and account holder must be
present during the inspection.
5. The inspection must cover only the account
identified in the pending case.
R.A. NO. 1405 VIS-À-VIS POWER OF
THE BSP TO CONDUCT PERIODIC
AND/OR SPECIAL EXAMINATIONS
(SEC. 4, GBL & SEC. 25, NCBA)
 Prof. Aquino and Prof. Viray believe that the
general rule still applies. Hence, the deposit
remains confidential.
Penalties
Imprisonment of not more than 5 years or a fine not
more than P20,000 or both, in the discretion of the
court.
Impeachment
In impeachment proceedings, the impeachment
court may inquire into bank deposits. Thus, during the
impeachment proceedings against former President
Estrada, Chief Justice Davide ruled that Clarissa
Ocampo could testify on the Jose Estrada/Jaime
Dichaves accounts maintained with Equitable PCIB
Bank, over the objections of the defense that this would
violate the Bank Secrecy Law. Basis for this ruling was
that the inquiry would be made in the course of an
impeachment proceeding.
W RITTEN P ERMISSION OF D EPOSITOR
A bank may allow an inquiry into a deposit with the
written consent of the depositor. An oral or implied
authorization does not suffice. This consent may be
given voluntarily. In some cases, however, the consent
is involuntary because the law requires it.
Thus, Section 26 of the New Central Bank Act as
implemented by BSP Circular No. 170, series of 1998,
requires a director, officer or stockholder of a bank or
their related interests to submit a written waiver of the
secrecy of all his deposits of whatever nature in all
banks of the Philippines in favor of the Bangko Sentral,
if he applies for a DOSRI loan. However, the
information obtained from the examination remains
confidential and may be used by BSP examiners only in
legal action it may initiate involving the said deposits.
A waiver of the Bank Secrecy Law is also required
in case of loans secured by a hold-out or an assignment
of certificates of time deposits. (Section X315, Manual of
Regulations for Banks).
Notes of hotjurist
in foro conscientiae

W HERE F UNDS D EPOSITED ARE S UBJECT OF
L ITIGATION
Case Digest
Onate v Hon Zeus Abrogar, 230 SCRA 181
Facts:
Sun Life brought a collection case to recover
the proceeds of a check it had issued, the insurance
company wanted to determine how the defendant had
applied the proceeds of the check. The trial court
allowed Sun Life to examine pertinent records of the
bank in which the check was deposited.
Ruling:
The Supreme Court held that the examination
was authorized by Section 10 of Rule 57, on the
examination of a person whose property has been
attached and person indebted to him or controlling his
property. The Court struck down the argument that the
examination would violate the Bank Secrecy Law,
explaining that the examination fell within the exception
“in cases where the money deposited or invested is the
subject matter of litigation.” The Court added that the
examination of bank records was not a fishing
expedition, but rather a method by which Sun Life could
trace the proceeds of the check that it paid to the
petitioners.
 In another case, Mellon Bank remitted $1
million rather that an intended $1,000 to the recipient,
who deposited part of the remittance in a local bank.
When personnel of the depositary bank testified on the
bank deposits, the defense moved to strike out the
testimonies of the depositary bank’s witnesses. The
Supreme Court allowed their testimonies to remain on
the record, stating Section 2 of said law allows the
disclosure of bank deposits in cases where the money
deposited is the subject matter of the litigation. (Mellon
Bank v. Magsino, 190 SCRA 633.
UNEXPLAINED WEALTH (RA3019)
Although the Bank Secrecy Law did not include
cases covered by the Anti-Graft Law among the
exceptions, the Supreme Court held that they should be
included. The only conclusion possible is that Section 8
of the Anti-Graft Law is intended to amend Section 2 of
Republic Act No. 1405 by providing an additional
exception to the rule against disclosure of band
deposits.” (PNB v. Gancayco, 15 SCRA 91 (1965).
This overturned an earlier case decided by the High
Court where it held that a prosecution under the Anti-
Graft Law was not embraced within any of the
exceptions to the Bank Secrecy Law that would allow
disclosure by a bank of information concerning a
deposit. (Tatalon Bario Council v. Bank of PI, 7 SCRA
10 (1963).
In another case, the Supreme Court expanded the
exception under the Anti-Graft Law, when it allowed an
examination not only of the accused’s deposits, but also
those of his spouse, ascendant, descendants and
relatives, and other persons as well. (Banco Filipino v.
Hon. Fidel Purisima, 161 SCRA 576 (1988). Here, the
Page 22 of 28
Court declared as proper the production by subpoena
duces tecum of bank records of transactions by or in the
names of the wife, children and friends of a special
agent of the Bureau of customs accused of having
allegedly acquired property manifestly out of proportion
to his salary and lawful income. The Court explained:
To sustain the petitioner’s theory, and restrict the
inquiry only to property held by or in the name of the
government official or employee, or his spouse and
unmarried children, is unwarranted in the light of the
provisions of the statutes in question, and would make
available to persons in government who illegally acquire
property an easy and fool-proof means of evading
investigation and prosecution; all they would have to do
would be to simply place the property in the possession
or name of persons other than their spouse and
unmarried children. This is an absurdity that we will not
ascribe to the lawmakers.
Upon Order of the Ombudsman
Although Section 8 of the law that created the
Office of the Ombudsman expressly granted the
Ombudsman the power to “administer oaths, issue
subpoena and subpoena duces tecum and take
testimony in any investigation or inquiry, including the
power to examine and have access to bank accounts
and records,” the Supreme court held that the
Ombudsman could not inquire into bank deposits until
there was a pending case in court involving the
deposits.(Marquez v. Desierto, 359 SCRA 772 (2001)
Unclaimed Balances Law
The Unclaimed Balances Law (Republic Act No.
3936) requires each bank to file a sworn statement with
the Treasurer of the Philippines stating the deposits that
the bank holds in the names of persons known to be
dead or who have not made deposits or withdrawals
during the preceding ten years or more. It is also
requires the bank to post a copy of the sworn statement
in the bank premises. However, this is done only after
the bank shall have first communicated with the
depositor at his last known residence or post office
address. Such a disclosure of the deposits and the
depositors, does not violate the Bank Secrecy Law.
Garnishment of Bank Deposit
In China Banking Corporation v. Court of Appeals,
(193 SCRA 452 (1991) the Supreme Court held that the
garnishment of a bank deposit does not violate the Bank
Secrecy Law. Said the court:
“It is clear from the discussion of the
conference committee report on x x x Republic Act.
No. 1405, that the prohibition against examination of
or inquiry into a bank deposit under Republic Act
No. 1405 does not preclude its being garnished to
insure satisfaction of a judgment. Indeed, there is
no real inquiry in such a case, and if the existence
of the deposit is disclosed, the disclosure to evade
payment of their just debts, even if ordered by the
Court, through the expedient of converting their
assets into cash and depositing the same in a
bank.”(Phil. Commercial & International Bank v.
Court of Appeals, 93 SCRA 452 (1991).
BAR QUESTION:
Banks; Secrecy of Bank Deposits (2000)
Notes of hotjurist
in foro conscientiae

GP is a 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 a 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 banks’
records of deposits on the ground that no such
inquiry is allowed under the Law on Secrecy of Bank
Deposits (RA 1405 as amended). Is the opposition of
GP and the banks valid? Explain.
SUGGESTED ANSWER:
Yes. The opposition is valid. GP is not a public official.
The investigation does not involve one of the
exceptions to the prohibition against 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 to issue
a subpoena for the production of the bank record
involving such disclosure.
ANTI-MONEY LAUNDERING ACT
OF 2001
(R.A. No. 9160, as amended by
R.A. 9194)
Purposes:
1. To protect and preserve the integrity and
confidentiality of bank accounts, to ensure that the
Philippines shall not be used as a site for unlawful
money laundering activities; and
2. To pursue State’s foreign policy to extend
cooperation in transnational investigations and
prosecution on money laundering activities.
Covered Entities:
1. Banks
2. Non-banks
3. Quasi-banks
4. Trust entities
5. All other institutions, their subsidiaries and affiliates
supervised or regulated by the BSP
Page 23 of 28
COVERED TRANSACTION:
Transaction, in cash or other equivalent monetary
instrument in excess of P500,000, within one banking
day.
SUSPICIOUS TRANSACTIONS:
Transactions with covered institutions regardless of the
amounts involved, where any of the following
circumstances exists:
1. There is no underlying legal or trade obligation
2. Client is not properly identified
3. Amount involved is not commensurate with the
business or financial capacity
4. Taking into account all known circumstances, it
may be perceived that the client’s transaction is
structured in order to avoid being the subject of
reporting requirements under the Act
5. Any circumstance relating to the transaction which
is observed to deviate from the profile and/or the
client’s past transactions with the covered institution
6. Transaction is in any way related to an unlawful
activity or offense under this Act that is about to be,
is being or has been committed
7. Analogous transactions to any of the foregoing
MONEY LAUNDERING:
A crime whereby the proceeds of an unlawful activity
are transacted, thereby making them appear to have
originated from legitimate sources. It is committed by
the following:
1. Any person knowing that any monetary instrument
or property represents, involves, or relates to, the
proceeds of any unlawful activity, transacts or
attempts to transact said monetary instrument or
property.
2. Any person knowing that any monetary instrument
or property involves the proceeds of any unlawful
activity, performs or fails to perform any act as a
result of which he facilitates the offense referred to
in number 1 above.
3. Any person knowing that any monetary instrument
or property is required under this Act to be
disclosed and filed with the AMLC fails to do so.
P REVENTION OF M ONEY L AUNDERING
1. Customer
Identification – Covered institutions shall establish
and record the true identity of its clients based on
official documents. They shall maintain a system of
verifying their clients and in case of corporate client,
require a system of verifying their legal existence
Notes of hotjurist
in foro conscientiae

and organizational structure, s well as the authority
and identification of all person purporting to act on
their behalf.
2. Record Keeping- All
records of all transaction of covered institution shall
be maintained and safely stored for 5 years from
the dates of transaction. With respect to closed
accounts, the records on customer identification,
account files and business correspondence, shall
be preserved and safely stored for at least 5 years
from the dates when they were closed.
3. Reporting of Covered
and Suspicious Transactions. – Covered
institution shall report to the AMLC all covered and
suspicious transactions within 5 working days from
the occurrence thereof, unless the Supervising
Authority prescribes a longer period not exceeding
10 working days.
J URISDICTION :
 All cases: RTC
 Public officers and private persons in conspiracy
with them: Sandiganbayan
P OWER TO F REEZE A CCOUNTS
 The power of the AMLC to freeze accounts has
been deleted under RA 9194
 The Court of Appeals may issue a freeze
order, which shall be effective immediately and for
a period of 20 days, unless extended by the court,
only:
a. upon ex parte application of AMLC; and
b. after determination that probable cause exists
that any monetary instrument or property is in
any way related to an unlawful activity.
BAR QUESTION:
BANKS; SECRECY OF BANK DEPOSIT; AMLC
(2006)
Rudy is jobless but is reputed to be a Jueteng
operator. He has never been charged or convicted of
any crime. He maintains several bank accounts and
has purchased 5 houses and lots for his children
from the Luansing Realty, Inc. Since he does not
have any visible job, the company reported his
purchases to the Anti-Money Laundering Council
(AMLC). Thereafter, AMLC charged him with
violation of the Anti-Money Laundering Law. Upon
request of the AMLC, the bank disclosed to it Rudy's
Page 24 of 28
bank deposits amounting to P100 Million.
Subsequently, he was charged in court for violation
of the Anti-Money Laundering Law.
1. Can Rudy move to dismiss the case on the
ground that he has no criminal record? (2.5%)
SUGGESTED ANSWER:
No. Under the Anti-Money Laundering Law, Rudy
would be guilty of a "money laundering crime"
committed when the proceeds of an "unlawful
activity," like Jueteng operations, are made to
appear as having originated from legitimate sources.
The money laundering crime is separate from the
unlawful activity of being a Jueteng operator, and
requires no previous conviction for the unlawful
activity (See also Sec. 3, Anti-Money Laundering Act
of 2001).
2. To raise funds for his defense, Rudy sold the
houses and lots to a friend. Can Luansing Realty,
Inc. be compelled to transfer to the buyer
ownership of the houses and lots? (2.5%)
SUGGESTED ANSWER:
Luansing Realty, Inc. is a real estate company, hence
it is not a covered institution under Section 3 of the
Anti-Money Laundering Act. Only banking
institutions, insurance companies, securities dealers
and brokers, pre-need companies and other entities
administering or otherwise dealing in currency,
commodities or financial derivatives are covered
institutions. Hence, Luansing Realty, Inc. may not use
the Anti-Money Laundering Act to refuse to transfer
to the buyer ownership of the houses and lots.
3. In disclosing Rudy's bank accounts to the
AMLC, did the bank violate any law? (2.5%)
SUGGESTED ANSWER:
No, the bank did not violate any law. The bank being
specified as a "covered institution" under the Anti-
Money Laundering Law, is obliged to report to the
AMLC covered and suspicious transactions, without
thereby violating any law. This is one of the
exceptions to the Secrecy of Bank Deposit Act.
Notes of hotjurist
in foro conscientiae

4. Supposing the titles of the houses and lots are
in possession of the Luansing Realty, Inc., is it
under obligation to deliver the titles to Rudy?
(2.5%)
SUGGESTED ANSWER:
Yes, it has an obligation to deliver titles to Rudy. As
Luansing Realty, Inc. is not a covered institution
under Section 3 of the Anti-Money Laundering Act,
it may not invoke this law to refuse delivery of the
titles to Rudy.
BAR QUESTION:
BANKS; SECRECY OF BANK DEPOSITS (1991)
The law (RA 6832) creating a Commission to conduct
a Thorough Fact-Finding Investigation of the Failed
Coup d’etat of Dec 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 person, 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 (RA 1405)?
SUGGESTED ANSWER:
The Law on Secrecy of Bank Deposits is itself merely
a statutory enactment, and it may, therefore, be
modified, or amended (such as by providing further
exceptions therefrom), or even repealed, expressly
or impliedly, 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. RA
6832, creating a commission to conduct an
investigation of the failed 1989 coup d’etat and to
recommend measures to prevent similar attempts to
seize power is a valid exercise of police power.
PHILIPPINE DEPOSIT INSURANCE
CORPORATION (PDIC) ACT
(R. A. 9302)
Page 25 of 28
Purposes:
1. To create a government-owned entity, the PDIC;
2. To insure the deposit liability of banks in an account
up to P250,000 for every single depositor of each
bank irrespective of the number of accounts
therewith.
PHILIPPINE DEPOSIT INSURANCE
CORPORATION
F UNCTIONS :
A. Insurance
The PDIC assesses and collects insurance
assessments from member-banks to insure
member-banks’ deposit accounts. In case of bank
closures, the PDIC processes and services claim
for insured deposits. Deposits are insured up to a
maximum coverage of P250,000 per depositor.
B. Bank Examination
Under the new law, PDIC's authority to examine its
member banks, with prior approval by the Monetary
Board, has been restored.
C. Bank Rehabilitation
The PDIC may grant financial assistance to
distressed banks if it is proven to be a less costly
alternative than closure.
D. Receivership of closed banks
Once a bank is ordered closed by the Monetary
Board (MB) of the Bangko Sentral ng Pilipinas, the
PDIC is designated as statutory receiver. The PDIC
upon receipt of the MB resolution ordering the
closure of a bank, immediately physically takes
over the closed bank. Receivership is the stage
within which the PDIC manages the affairs of the
closed bank and preserves its assets for the benefit
of creditors.
E. Liquidation of closed banks
After it is determined that the closed bank can not
be rehabilitated, the PDIC shall recommend the
liquidation of the assets of the closed bank.
Liquidation refers to the recovery and conversion of
assets into cash for distribution to all creditors in
accordance with the order of creditor preference
pursuant to law
INSURANCE FUNCTION
1. Nature: Compulsory insurance on all bank deposits
2. Coverage: “Insured deposits” - the net amount due
to any depositor for deposits in an insured bank,
after deducting unpaid loans and other obligations
of the depositor to the closed bank. In no case shall
insured deposit exceed P250,000 per depositor.
Notes of hotjurist
in foro conscientiae

3. Specific risk insured against: Bank closure only.
Thus, losses due to a bank robbery are not
covered.
4. Amount of insurance: Maximum of P250,000.00 per
deposit (RA 9302)
5. Condition precedent for entitlement to payment:
Filing of claim within twenty-four months from
order of closure
6. Manner of payment:
a. Cash
b. Transferred deposit – A deposit in an insured
bank made available to a depositor by the
PDIC as payment of the insured deposit of
such depositor in a closed bank and assumed
by another insured bank.
7. Effect of payment by the PDIC to the depositor of
his insured deposit:
a. Discharges the PDIC from further liability
b. Subrogates the PDIC to all the rights of the
depositor against the closed bank to the extent
of such payment.
 The fact that a bank instrument provides that the
certificate is insured by the PDIC does not ipso facto
make the latter liable for the same; the deposit liability of
the PDIC is determined by the provisions of RA 3519
(PDIC vs. CA, 283 SCRA 462).
Case Digest
PDIC vs. CA, 283 SCRA 462
Facts:
The plaintiffs invested in the money market
placement with the Premier Financing Corporation
(PFC) but when they went to PFC to encashed the
checks and promissory notes corresponding to their
investment the PFC referred them to the Regent
Savings Bank (RSB). Instead of paying the promissory
notes and checks, the RSB issued 13 certificate of time
deposit which was insured with the PDIC. The bank
failed to pay the corresponding amount of the time
deposit on its maturity date due to insolvency and
advised the plaintiffs to file a claim with the PDIC. But
the PDIC refused to pay the claim for it is not included in
the list of duly recorded liabilities of the RSB.
Issue:
Whether or not the PDIC is liable for the
plaintiffs’ claims.
Ruling:
The fact that the certificate state that the
certificates are insured by PDIC does not ipso facto
make the latter liable for the same should the
contingency insured against arise. The deposit liability
of the PDIC is determined by the provisions of R.A.
3519 and statements in the certificate that the same are
insured by PDIC are not binding upon the latter.
Insured deposits
Page 26 of 28
 The net amount due to any depositor for deposits in
an insured bank, after deducting offsets, less any part
thereof which is in excess of P250,000.
 Trust funds and safety deposit boxes are not
covered.
After deducting offsets
Consistent with the rulings in Gullas vs. PNB, 62 Phil.
519 and Republic vs. CA, G.R. No. 15012, July 22,
1975 recognizing the debtor-creditor relationship of the
bank and the depositor, set-off takes place ipso jure with
respect to the depositor’s bank deposit and his matured
loan with the bank.
Transferred deposits
A deposit in an insured bank made available to a
depositor by the PDIC as payment of the insured
deposit of the depositor in a closed bank and assumed
by another insured bank.
SPECIAL RULES
1. PDIC liability is on a per bank basis. Accounts in a
bank, even though in several branches, are to be
added together, provided that they are maintained
in the same capacity and the same right for his
benefit either in his own name or in the name of
others.
 Capacities: individual account, joint “and”
account, joint “and/or” account.
2. The insurance premiums are to be paid by the
insured bank, not the depositors.
3. In case the depositor’s account is more than the
insurance coverage, the balance may still be
recovered from the PDIC after the final liquidation
of the remaining assets of the closed bank.
4. a. If the account is held jointly by two or more
natural persons, or by two or more juridical
persons or entities, the maximum insured
deposit shall be divided into as many equal
shares as there are individuals, juridical
persons or entities, unless a different sharing is
stipulated in the document of deposit.
b. If the account is held by a juridical person or
entity jointly with one or more natural persons,
the maximum insured deposit shall be
presumed to belong entirely to such juridical
person or entity: Provided, further, That the
aggregate of the interests of each co-owner
over several joint accounts, whether owned by
the same or different combinations of
individuals, juridical persons or entities, shall
likewise be subject to the maximum insured
deposit of Two hundred fifty thousand pesos
(P250,000.00).
Authority to terminate insured status
1. Non-payment of insurance premiums
Notes of hotjurist
in foro conscientiae
 Page 27 of 28
2. Continued engagement in unsafe and unsound
banking practices
FOREIGN CURRENCY DEPOSIT
ACT
 Sec. 9 of RA 6426 (‘An Act Instituting a Foreign
Currency Deposit System in the Philippines, (R.A. No. 6426)
and for Other Purposes") and Sec. 79 of
Central Bank (CB) Circular No. 1389, dated
August 13, 1993, mandate that foreign FOREIGN CURRENCY
currency deposits shall be insured under the PESO DEPOSIT
DEPOSIT
provisions of RA 3591, as amended. Under CB
Circular No. 1389, depositors are entitled to Governed by R.A. Governed by R.A. No.
receive payment in the same currency in which No. 1405 6426
the insured deposit is denominated.
4 exceptions + 1 exception + 1 provided
Note: The PDIC law is not applicable to Offshore
exceptions found in under AMLA (R.A. No.
Banking Units (P.D. No. 1034).
special laws 9160)

May be garnished or GENERAL RULE: Exempt

attached (not a from attachment,
violation of R.A. No. garnishment, and other
UNCLAIMED BALANCES LAW 1405) court order and processes.
(R.A. N O . 3936) EXCEPTION: Salvacion
vs. CB (278 SCRA 27)

ELEMENTS OF UNCLAIMED
BALANCES
OTHER FEATURES:
1. There must be a claim or deposit of:
a. Money; 1. Authorized banks may adopt a numbered account
system for recording and servicing deposits in non-
b. Bullion; checking accounts
c. Security; or
d. other evidence of indebtedness. 2. Foreign currency deposits are exempt from taxes
2. The credit or deposit must be with a bank, except the interests
building and loan association, or trust corporation;
and
3. In the event a new enactment or regulation is issued
3. The credit or deposit is in favor of a person: decreasing the rights granted under the law, it shall
a. who is dead, or not apply to FCD’s already made or existing at the
time of the issuance of such new regulation or
b. who has not made further deposits or enactment.
withdrawals during the preceding 10 years or
more.
 In a sui generis case, the SC allowed garnishment
of such deposits of a transient American tourist
 Demand drafts cannot be escheated but arising out of a heinous crime committed against a
telegraphic notes can be escheated (Republic Filipino minor since to hold otherwise would result
vs. FNCB, 3 SCRA 851 [1961]). to injustice to a citizen perpetrated by a foreigner
(Salvacion, et al. vs. Central Bank et al., 278 SCRA
27).

Note: This case does not constitute another

exception, the SC only ruled as such due to the
special circumstances of the said case.

REPEALING LAW TO UNIFORM

LEGAL CONSEQUENCE
The unclaimed balances may be subject of escheat
proceedings, after proper publication and the depositors
still do not lay claim to them.
CURRENCY ACT (R.A. NO. 8183)
All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines.

Notes of hotjurist
in foro conscientiae
 Page 28 of 28
However, the parties may agree that the obligation or  Has there been substantial compliance of
transaction shall be settled in any other currency at the the aforesaid Act?
time of payment (Sec. 1).
If your answer to the foregoing question is in the
negative, what is the effect of the violation on the
TRUTH IN LENDING ACT contract?

( RA 3765)  In the event of a violation of the Act, what

remedies may be availed of by Dana?

The law assures full disclosure by requiring the lender
to give the borrower all the details regarding the
transaction.
Under Sec. 4, any creditor shall furnish to each
person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in
writing setting forth, to the extent applicable and in
accordance with rules and regulation prescribed by
the Board the following informations:
1. The cash price or delivered price of the property or
service required;
2. The amounts, if any to be credited as down payment
and/or trade-ins;
3. The difference between the amounts set forth under
clauses 1 and 2;
SUGGESTED ANSWER:
a) There was no substantial compliance with
the Truth in Lending Act. The law provides that the
creditor must make a full disclosure of the credit
lost. The statement that the total amount due
includes the principal and the financial charges,
without specifying the amounts due on each portion
thereof would be insufficient and unacceptable.
b) A violation of the Truth in Lending Act will
not adversely affect the validity of the contract
itself.
c) It would allow Dana to refuse payment of
financial charges or, if already paid, to recover the
same. Dana may also initiate criminal charges against
the creditor.

4. The charges, individually itemized, which are paid or

to be paid by such person in connection with the
transaction but which are not incident to the extension
of credit. ***
5. The total amount to
be financed; GOD SPEED!!!
6. The finance charge
expressed in terms of pesos and centavos; and
7. The percentage that
the finance bears to the total amount to be financed
expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.

BAR QUESTION:

TRUTH IN LENDING ACT (1991)

Dana Gianina purchased on a 36 month installment

basis the latest model of the Nissan Sentra Sedan
car from the Jobel Cars Inc. In addition to the
advertised selling price, the latter imposed finance
charges consisting of interests, fees and service
charges. It did not, however, submit to Dana a
written statement setting forth therein the
information required by the Truth in Lending Act (RA
3765). Nevertheless, the conditional deed of sale
which the parties executed mentioned that the total
amount indicated therein included such finance
charges.

Notes of hotjurist
in foro conscientiae