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BANKING AND ALLIED LAWS

I. NATURE AND CONCEPT OF BANKING LAWS


A. Governing Law- RA 337, as amended by RA 8791 or The General Banking Act of 2000; RA 7653 or the
New Central Bank Act
B. Nature of Business
i. Bank-Section 3.1, GBL
"Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits.
ii. Quasi-Bank – Section 95, NCBA in relation to Section 4.6, GBL
Section 4.6, GBL states that:

4.6. Enforcing prompt corrective action. (n)


The Bangko Sentral shall also have supervision over the operations of and exercise regulatory powers
over quasi-banks, trust entities and other financial institutions which under special laws are subject to
Bangko Sentral supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the borrowing of funds
through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes as
defined in Section 95 of Republic Act No. 7653 (hereafter the "New Central Bank Act") for purposes of
relending or purchasing of receivables and other obligations. (2-Da)

Section 95, NCBA states that:


SEC. 95. Definition of Deposit Substitutes. _ The term "deposit substitutes" is defined as an
alternative form of obtaining funds from the public, other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for the borrower's own account,
for the purpose of relending or purchasing of receivables and other obligations. These
instruments may include, but need not be limited to, bankers acceptances, promissory notes,
participations, certificates of assignment and similar instruments with recourse, and
repurchase agreements. The phrase “obtaining funds from the public” shall mean borrowing
from twenty (20) or more lenders at any one time and for this purpose, “lenders” shall refer
to individuals and corporate entities that are not acting as financial intermediaries, subject to
the safeguards and regulations issued by the Monetary Board. The Monetary Board shall
determine what specific instruments shall be considered as deposit substitutes for the
purposes of Section 94 of this Act: Provided, however, That deposit substitutes of
commercial, industrial and other nonfinancial companies issued for the limited purpose of
financing their own needs or the needs of their agents or dealers shall not be covered by the
provisions of Section 94 of this Act.
C. Declaration of Policy- Section 2, GBL
SECTION 2. Declaration of Policy. — The State recognizes the vital role of banks in providing an environment
conducive to the sustained development of the national economy and the fiduciary nature of banking that
requires high standards of integrity and performance. In furtherance thereof, the State shall 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. (n)
D. Requirements to Operate- Sections 8,14, 19, GBL
SECTION 8. Organization. — The Monetary Board may authorize the organization of a bank or quasi-bank
subject to the following conditions:
8.1. That the entity is a stock corporation (7);
8.2. That its funds are obtained from the public, which shall mean twenty (20) or more persons (2-Da); and
8.3. That the minimum capital requirements prescribed by the Monetary Board for each category of banks are
satisfied. (n)

SECTION 14. Certificate of Authority to Register. — The Securities and Exchange Commission 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. Such certificate shall not be issued unless the Monetary
Board is satisfied from the evidence submitted to it:
14.1 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;
14.2. That the public interest and economic conditions, both general and local, justify the authorization; and
14.3. That the amount of 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. (9)
SECTION 9. Issuance of Stocks. — The Monetary Board may prescribe rules and regulations on the types of
stock a bank may issue, including the terms thereof and rights appurtenant thereto to determine compliance with
laws and regulations governing capital and equity structure of banks: Provided, That banks shall issue par value
stocks only.
E. Degree Of Care- READ CASES

Q: What is the degree of diligence required of banks in handling deposits?


A: Extraordinary diligence. 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) This applies only to cases where banks are acting in their fiduciary capacity, that
is, as depository of the deposits of their depositors. (Reyes v. CA, G.R. No. 118492, Aug. 15, 2001)

ARMANDO V. ALANO - versus-PLANTERS DEVELOPMENT BANK, as Successor-in-Interest


of MAUNLADSAVINGS and LOAN ASSOCIATION, INC.,⃰ ⃰ ⃰ G.R. No. 171628 June 13, 2011
“The general rule that a mortgagee need not look beyond the title does not apply to banks and other financial
institutions as greater care and due diligence is required of them.[48] Imbued with public interest, they are
expected to be more cautious than ordinary individuals.[49] Thus, before approving a loan, the standard practice
for banks and other financial institutions is to conduct an ocular inspection of the property offered to be
mortgaged and verify the genuineness of the title to determine the real owner or owners thereof.[50] Failure to
do so makes them mortgagees in bad faith.”

CHINA BANKING CORPORATION, versus MARIA G. LAGON, represented by Armando G.


Lagon and/or Jose Lagon, Jr., G.R. No. 160843 “Moreover, petitioner could not be considered a
mortgagee in good faith. It had knowledge that respondent was in the United States at the time the
SPAs were allegedly executed, yet, it did not question their due execution. Though petitioner is not
expected to conduct an exhaustive investigation on the history of the mortgagors title, it cannot be
excused from the duty of exercising the due diligence required of a banking institution.[14] Banks are
expected to exercise more care and prudence than private individuals in their dealings, even those
that involve registered lands, for their business is affected with public interest.
SPOUSES EMILIANO L. JALBAY, SR. AND MAMERTA C. JALBAY, Petitioners, v. PHILIPPINE
NATIONAL BANK, Respondent. G.R. No. 177803, August 03, 2015 “True, banks, in handling real
estate transactions, are required to exert a higher degree of diligence, care, and prudence than
individuals. Unlike private individuals, it is expected to exercise greater care and prudence in its
dealings, including those involving registered lands. A banking institution is expected to exercise due
diligence before entering into a mortgage contract. 5 Indeed, there is a situation where, despite the
fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the
mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public
policy. This is the doctrine of "the mortgagee in good faith," wherein buyers or mortgagees dealing
with property covered by a Torrens Certificate of Title are no longer required to go beyond what
appears on the face of the title.6 However, the rule that persons dealing with registered lands can rely
solely on the certificate of title is not applicable to banks. Thus, before approving a loan application, it
is a standard operating practice for these institutions to conduct an ocular inspection of the property
offered for mortgage and to verify the veracity of the title to determine its real owners. An ocular
inspection is necessary to protect the true owner of the property as well as innocent third parties with
a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of
title.7redarclaw”

Citibank, N.A - versus -Spouses Luis and Carmelita Cabamongan and their sons
Luis Cabamongan, Jr. And Lito Cabamongan, G.R. No. 146918 May 2, 2006 “The Court has
repeatedly emphasized that, since the banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence of the public in general. Consequently, the
highest degree of diligence[40] is expected,[41] and high standards of integrity and performance are
even required, of it.[42] By the nature of its functions, a bank is under obligation to treat the accounts
of its depositors with meticulous care,[43] always having in mind the fiduciary nature of their
relationship.”

BPI FAMILY SAVINGS BANK, INC., petitioner, vs. FIRST METRO INVESTMENT
CORPORATION, respondent. [G.R. No. 132390. May 21, 2004] “A bank is under obligation to
treat the accounts of its depositors with meticulous care, whether such account consists only of a few
hundred pesos or of millions of pesos.[10] Here, petitioner cannot claim it exercised such a degree of
care required of it and must, therefore, bear the consequence.”
VICENTE GO, - versus - METROPOLITAN BANK AND TRUST CO., G.R. No. 168842, August
11, 2010 “As a business affected with public interest and because of the nature of its functions, the
banks are under obligation to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of the relationship. [26] The fact that this arrangement had been practiced
for three years without Mr. Go/Hope Pharmacy raising any objection does not detract from the duty of
the bank to exercise extraordinary diligence. Thus, the Decision of the RTC, as affirmed by the CA,
holding respondent bank liable for moral damages is sufficient to remind it of its responsibility to
exercise extraordinary diligence in the course of its business which is imbued with public interest.”

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND


AMERICA),vs. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., .
G.R. No. 121413 January 29, 2001 “It is a well-settled rule that the relationship between the
payee or holder of commercial paper and the bank to which it is sent for collection is, in the absence
of an argreement to the contrary, that of principal and agent.22 A bank which receives such paper for
collection is the agent of the payee or holder.

Time and again, we have stressed that banking business is so impressed with public interest where
the trust and confidence of the public in general is of paramount umportance such that the
appropriate standard of diligence must be very high, if not the highest, degree of diligence.34 A bank's
liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence
in the selection and supervision of its employees is of no moment.35

Banks handle daily transactions involving millions of pesos.36 By the very nature of their work the
degree of responsibility, care and trustworthiness expected of their employees and officials is far
greater than those of ordinary clerks and employees.37 Banks are expected to exercise the highest
degree of diligence in the selection and supervision of their employees.38

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs., COURT OF
APPEALS and LUZON DEVELOPMENT BANK, respondents. G.R. No. 113236. March 5, 2001
“A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such
account consists only of a few hundred pesos or of millions of pesos. [13] The fact that the other
withdrawal slips were honored and paid by respondent bank was no license for Citibank to presume
that subsequent slips would be honored and paid immediately. By doing so, it failed in its fiduciary
duty to treat the accounts of its clients with the highest degree of care.”

BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. TARCILA FERNANDEZ, Respondent.;


DALMIRO SIAN, THIRD PARTY G.R. No. 173134, September 02, 2015 “BPI is sternly
reminded that the business of banks is impressed with public interest. The fiduciary nature of their
relationship with their depositors requires it to treat the accounts of its clients with the highest degree
of integrity, care and respect. In the present case, the manner by which BPI treated Tarcila also
transgresses the general banking law47 and Article 19 of the Civil Code, which directs every person, in
the exercise of his rights, "to give everyone his due, and observe honesty and good faith.

F. Strikes and Lockouts- Section 22, GBL

SECTION 22. Strikes and Lockouts. — The banking industry is hereby declared as indispensable to
the national interest and, not withstanding the provisions of any law to the contrary, any strike or lockout
involving banks, if unsettled after seven (7) calendar days shall be reported by the Bangko Sentral to the
Secretary of Labor who may assume jurisdiction over the dispute or decide it or certify the same to the
National Labor Relations Commission for compulsory arbitration. However, the President of the
Philippines may at any time intervene and assume jurisdiction over such labor dispute in order to settle or
terminate the same. (6-E)

II. CLASSIFICATION OF BANKS

A. Types of Bank- Section 3.2, GBL

3.2. Banks shall be classified into:

(a) Universal banks; (b) Commercial banks; (c) Thrift banks, composed of: (i) Savings and mortgage
banks, (ii) Stock savings and loan associations, and (iii) Private development banks, as defined in
Republic Act No. 7906 (hereafter the "Thrift Banks Act"); (d) Rural banks, as defined in Republic Act No.
7353 (hereafter the "Rural Banks Act"); (e) Cooperative banks, as defined in Republic Act No. 6938
(hereafter the "Cooperative Code"); (f) Islamic banks as defined in Republic Act No. 6848, otherwise
known as the "Charter of Al Amanah Islamic Investment Bank of the Philippines"; and (g) Other
classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas. (6-Aa)
B. Distinctions (waley po ako mahanap na iba )

1. Universal banks ‐ Primarily governed by the General Banking Law (GBL), can exercise the powers of an
investment house and invest in non‐ allied enterprises and have the highest capitalization requirement.

2. Commercial banks ‐ Ordinary banks governed by the GBL which have a lower capitalization requirement
than universal banks and can neither exercise the powers of an investment house nor invest in non‐ allied
enterprises.

3. Thrift banks – These are a) Savings and mortgage banks; b) Stock savings and loan associations; c)
Private development banks, which are primarily governed by the Thrift Banks Act (R.A. 7906).

4. Rural banks – Mandated to make needed credit available and readily accessible in the rural areas on
reasonable terms and which are primarily governed by the Rural Banks Act of 1992 (RA 7353).

5. Cooperative banks – Those banks organized whose majority shares are owned and controlled by
cooperatives primarily to provide financial and credit services to cooperatives. It shall include cooperative
rural banks. They are governed primarily by the Cooperative Code (RA 6938).

6. Islamic banks – Banks whose business dealings and activities are subject to the basic principles and
rulings of Islamic Shari’ a, such as the Al Amanah Islamic Investment Bank of the Philippines which was
created by RA 6848.

7. Other classification of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas.

III. DEPOSIT FUNCTION


A. Nature- Article 1980, NCC
Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan. (n)

Q: What is the nature of a bank deposit?


A: All kinds of bank deposits are loan. The bank can make use as its own the money deposited. Said
amount is not being held in trust for the depositor nor is it being kept for safekeeping. (Tang Tiong Tick
v. American Apothecaries, G.R. No. 43682, Mar. 31, 1938)

B. Relationship Between the Bank and Deposit

PAULINO GULLAS vs.THE PHILIPPINE NATIONAL BANK G.R. No. L-43191


November 13, 1935 “As a general rule, a bank has a right of set off of the deposits in
its hands for the payment of any indebtedness to it on the part of a depositor. In
Louisiana, however, a civil law jurisdiction, the rule is denied, and it is held that a bank
has no right, without an order from or special assent of the depositor to retain out of his
deposit an amount sufficient to meet his indebtedness. The basis of the Louisiana
doctrine is the theory of confidential contracts arising from irregular deposits, e. g., the
deposit of money with a banker. With freedom of selection and after full preference to
the minority rule as more in harmony with modern banking practice.”

MACLARING M. LUCMAN, in his capacity as the Manager of the LAND BANK OF


THE PHILIPPINES, Marawi City, versus - ALIMATAR MALAWI, ABDUL-
KHAYER PANGCOGA, SALIMATARSARIP, LOMALA CADAR, ALIRIBA S.
MACARAMBON and ABDUL USMAN, G.R. No. 159794 December 19, 2006 “ By
virtue of the deposits, there exists between the barangays as depositors and LBP a
creditor-debtor relationship. Fixed, savings, and current deposits of money in banks and
similar institutions are governed by the provisions concerning simple loan.[33] In other
words, the barangays are the lenders while the bank is the borrower.

Bank deposits are in the nature of irregular deposits. They are really loans because they
earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be
treated as loans and are to be covered by the law on loans (Art. 1980, Civil Code; Gullas
v. Phil. National Bank, 62 Phil. 519).

MANUEL M. SERRANO vs.CENTRAL BANK OF THE PHILIPPINES; OVERSEAS


BANK OF MANILA G.R. No. L-30511 February 14, 1980 “Bank deposits are in the
nature of irregular deposits. They are really loans because they earn interest. All kinds of
bank deposits, whether fixed, savings, or current are to be treated as loans and are to be
covered by the law on loans. 14 Current and savings deposit are loans to a bank because
it can use the same. The petitioner here in making time deposits that earn interests with
respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and
not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of he
respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and
not a breach of trust arising from depositary's failure to return the subject matter of the
deposit”

TEOFISTO GUINGONA, JR., vs.THE CITY FISCAL OF MANILA G.R. No. L-60033
April 4, 1984 “In the case of Central Bank of the Philippines vs. Morfe (63 SCRA
114,119 [1975], We said:

It should be noted that fixed, savings, and current deposits of money in banks and similar
institutions are hat true deposits. are considered simple loans and, as such, are not
preferred credits

This Court also declared in the recent case of Serrano vs. Central Bank of the
Philippines (96 SCRA 102 [1980]) that:

Bank deposits are in the nature of irregular deposits. They are really 'loans because they
earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be
treated as loans and are to be covered by the law on loans (Art. 1980 Civil Code Gullas
vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans to a bank
because it can use the same. The petitioner here in making time deposits that earn
interests will respondent Overseas Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The respondent Bank was in turn a debtor of
petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its
obligation as a debtor and not a breach of trust arising from a depositary's failure to
return the subject matter of the deposit(Emphasis supplied).

Hence, the relationship between the private respondent and the Nation Savings and Loan
Association is that of creditor and debtor; consequently, the ownership of the amount
deposited was transmitted to the Bank upon the perfection of the contract and it can
make use of the amount deposited for its banking operations, such as to pay interests on
deposits and to pay withdrawals. While the Bank has the obligation to return the amount
deposited, it has, however, no obligation to return or deliver the same money that was
deposited. And, the failure of the Bank to return the amount deposited will not constitute
estafa through misappropriation punishable under Article 315, par. l(b) of the Revised
Penal Code, but it will only give rise to civil liability over which the public respondents
have no- jurisdiction.

THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT


OF APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents. [G.R. No.
138569. September 11, 2003] “The contract between the bank and its depositor is
governed by the provisions of the Civil Code on simple loan.[17] Article 1980 of the Civil
Code expressly provides that x x x savings x x x deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan. There is a debtor-
creditor relationship between the bank and its depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money and the bank agrees to pay
the depositor on demand. The savings deposit agreement between the bank and the
depositor is the contract that determines the rights and obligations of the parties.

However, 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.[24] 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.

C. Rules on Minors –Section 1, PD 734 “AUTHORIZING MINORS TO DEPOSIT WITH AND WITHDRAW
FROM BANKS

Section 1. Minors who are at least seven years of age, are able to read and write, have sufficient
discretion, and are not otherwise disqualified by any other incapacity, are hereby vested with special
capacity and power, in their own right and in their own names, to make savings or time deposits with and
withdraw the same as well as receive interests thereon from banking institutions, without the assistance
of their parents or guardians, the provisions of existing laws and regulations to the contrary
notwithstanding. Parents may nevertheless deposit for their minor children and guardians for their wards.

D. Kinds of Deposits

Q: What are the kinds of deposits between a bank and its depositors?
A: 1. As debtor‐ creditor:
a. Demand deposits – all those liabilities of banks which are denominated in the Philippine
currency and are subject to payment in legal tender upon demand by representation of checks.

b. Savings deposits – the most common type of deposit and is usually evidenced by a passbook.

Note: The requirement of presentation of passbooks is usually included in the terms and
conditions printed in the passbooks. A bank is negligent if it allows the withdrawal
without requiring the presentation of passbook (BPI v. CA, GR No. 112392, Feb. 29,
2000).

c. Negotiable order of withdrawal account (NOWA) – Interest‐ bearing deposit accounts that
combine he payable on demand feature of checks and investment feature of saving accounts.

d. Time deposit – an account with fixed term; payment of which cannot be legally required within
such a specified number of days.

2. As trustee‐ trustor: Trust account – a savings account, established under a trust agreement
containing funds administered by the bank for the benefit of the trustor or another person or persons.

3. As agent‐ principal:
a. Deposit of checks for collection
b. Deposit for specific purpose
c. Deposit for safekeeping

Q: What are the types of deposit accounts?


A:
1. Individual; or
2. Joint:
a. “And” account – the signature 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 without the knowledge consent and signature of the other.

E. Survivorship Agreement

ROMARICO G. VITUG vs.THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-


CORONA, G.R. No. 82027 March 29, 1990 “The Court ruled that a Survivorship Agreement is
neither a donation mortis causanor a donation inter vivos. It is in the nature of an aleatory contract
whereby one or both of the parties reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the happening of an event which is to occur at
an indeterminate time or is uncertain, such as death. The Court further ruled that a survivorship
agreement is per se not contrary to law and thus is valid unless its operation or effect may be violative
of a law such as in the following instances: (1) it is used as a mere cloak to hide an inofficious
donation; (2) it is used to transfer property in fraud of creditors; or (3) it is used to defeat the legitime
of a compulsory heir. In the instant case, none of the foregoing instances were present. Consequently,
the Court upheld the validity of the survivorship agreement entered into by the spouses Vitug. As
such, Romarico, being the surviving spouse, acquired a vested right over the amountsunder the
savings account, which became his exclusive property upon the death of his wife pursuant to the
survivorship agreement. Thus, the funds of the savings account are not conjugal partnership
properties and not part of the estate of the deceased Dolores.”

F. Secrecy of Bank Deposit


i. Nature –Section 2, RA 1405

Section 2. 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, are hereby considered as of an absolutely
confidential nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission of the depositor, or in
cases of impeachment, or upon order of a competent court in cases of bribery or dereliction
of duty of public officials, or in cases where the money deposited or invested is the subject
matter of the litigation.

ii. Acts Punishable – Section 3, RA 1405

Section 3. It shall be unlawful for any official or employee of a banking institution to


disclose to any person other than those mentioned in Section two hereof any information
concerning said deposits.

IT ALSO INCLUDE: Deposit may not be examined, inquired or looked into by any
person, government official, bureau or office.

iii. Penalty for Violation – Section 5, RA 1405

Section 5. Any violation of this law will subject offender upon conviction, to an
imprisonment of not more than five years or a fine of not more than twenty thousand pesos
or both, in the discretion of the court.

G. Exception to Bank Secrecy


1. Section 2, RA 1405 - written permission of the depositor, or in cases of impeachment, or upon
order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases
where the money deposited or invested is the subject matter of the litigation.
2. R A No. 3019 - ANTI-GRAFT AND CORRUPT PRACTICES ACT
3. Section 8 (8), RA 3591 - To make examinations of and to require information and reports from
banks, as provided in this Act
4. RA 3936 or the Unclaimed Balances Act-
5. Section 3(i) in relation to Section 11 of RA 9160, as amended (Sec. 8, RA 9194) –
SECTION 8. Section 11 of the same Act is hereby amended to read as follows:

"Sec. 11. Authority to Inquire into Bank Deposits. -- Notwithstanding the provisions of Republic Act
No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws,
the AMLC may inquire into or examine 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
this Act, when it has been established that there is probable cause that the deposits or investments
are related to an unlawful activities as defined in Section 3(I) hereof or a money laundering offense
under Section 4 hereof, except that no court order shall be required in cases involving unlawful
activities defined in Sections 3(I)1, (2) and (12).

"To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may inquire into or
examine any deposit of investment with any banking institution or non-bank financial institution
when the examination is made in the course of a periodic or special examination, in accordance with
the rules of examination of the BSP.

6. RA 9372 or the Human Security Act


7. BSB GROUP, INC., -versus- SALLY GO a.k.a. SALLY GO-BANGAYAN “The Court noted that the
inquiry into bank deposits allowable under R.A. No. 1405 must be premised on the fact that the
money deposited in the account is itself the subject of the action.

The said Information makes no factual allegation that in some material way involves the checks
subject of the testimonial and documentary evidence sought to be suppressed. Neither do the
allegations in said Information make mention of the supposed bank account in which the funds
represented by the checks have allegedly been kept.
It comes clear that the admission of testimonial and documentary evidence relative to respondent’s
Security Bank account serves no other purpose than to establish the existence of such account, its
nature and the amount kept in it. It constitutes an attempt by the prosecution at an impermissible
inquiry into a bank deposit account the privacy and confidentiality of which is protected by law. On
this score alone, the objection posed by respondent in her motion to suppress should have indeed
put an end to the controversy at the very first instance it was raised before the trial court.
In sum, we hold that the testimony of Marasigan on the particulars of respondent’s supposed bank
account with Security Bank and the documentary evidence represented by the checks adduced in
support thereof, are not only incompetent for being excluded by operation of R.A. No. 1405. They
are likewise irrelevant to the case, inasmuch as they do not appear to have any logical and
reasonable connection to the prosecution of respondent for qualified theft. We find full merit in and
affirm respondent’s objection to the evidence of the prosecution. The Court of Appeals was,
therefore, correct in reversing the assailed orders of the trial court.
8. JOSEPH VICTOR G. EJERCITO vs. SANDIGANBAYAN G.R. Nos. 157294-95 November 30,
2006
“TRUST ACCOUNT”
The policy behind the law is laid down in Section 1:
SECTION 1. It is hereby declared to be the policy of the Government to give encouragement to the
people to deposit their money in banking institutions and to discourage private hoarding so that the
same may be properly utilized by banks in authorized loans to assist in the economic development of
the country. (Underscoring supplied)
If the money deposited under an account may be used by banks for authorized loans to third
persons, then such account, regardless of whether it creates a creditor-debtor relationship between
the depositor and the bank, falls under the category of accounts which the law precisely seeks to
protect for the purpose of boosting the economic development of the country.
Trust Account No. 858 is, without doubt, one such account. The Trust Agreement between petitioner
and Urban Bank provides that the trust account covers "deposit, placement or investment of
funds" by Urban Bank for and in behalf of petitioner.6 The money deposited under Trust Account No.
858, was, therefore, intended not merely to remain with the bank but to be invested by it elsewhere.
To hold that this type of account is not protected by R.A. 1405 would encourage private hoarding of
funds that could otherwise be invested by banks in other ventures, contrary to the policy behind the
law.
The phrase "of whatever nature" proscribes any restrictive interpretation of "deposits." Moreover, it is
clear from the immediately quoted provision that, generally, the law applies not only to money which
is deposited but also to those which are invested. This further shows that the law was not intended
to apply only to "deposits" in the strict sense of the word. Otherwise, there would have been no
need to add the phrase "or invested."
Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account No. 858.
“PLUNDER”
Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason
is seen why these two classes of cases cannot be excepted from the rule making bank deposits
confidential. The policy as to one cannot be different from the policy as to the other. This policy
expresses the notion that a public office is a public trust and any person who enters upon its
discharge does so with the full knowledge that his life, so far as relevant to his duty, is open to public
scrutiny.
Undoubtedly, cases for plunder involve unexplained wealth. Section 2 of R.A. No. 7080 states so.
9. LOURDES T. MARQUEZ, in her capacity as Branch Manager, UNION BANK OF THE
PHILIPPINES, vs.HONORABLE ANIANO A. DESIERTO G.R. No. 135882 June 27, 2001 The
order of the Ombudsman to produce for in camera inspection the subject accounts with the Union
Bank of the Philippines, Julia Vargas Branch, is based on a pending investigation at the Office of the
Ombudsman against Amado Lagdameo, et. al. for violation of R.A. No. 3019, Sec. 3 (e) and (g)
relative to the Joint Venture Agreement between the Public Estates Authority and AMARI.
We rule that before an in camera inspection may be allowed, there must be a pending case before
a court of competent jurisdiction. Further, the account must be clearly identified, the inspection
limited to the subject matter of the pending case before the court of competent jurisdiction. The
bank personnel and the account holder must be notified to be present during the inspection, and
such inspection may cover only the account identified in the pending case.
In the case at bar, there is yet no pending litigation before any court of competent authority. What is
existing is an investigation by the Office of the Ombudsman. In short, what the office of the
ombudsman would wish to do is to fish for additional evidence to formally charge Amado Lagdameo,
et. al., with the Sandiganbayan. Clearly, there was no pending case in court which would warrant the
opening of the bank account for inspection.
10. UNION BANK OF THE PHILIPPINES, vs. COURT OF APPEALS and ALLIED BANK
CORPORATION G.R. No. 134699 December 23, 1999 In short, petitioner is fishing for
information so it can determine the culpability of private respondent and the amount of damages it
can recover from the latter. It does not seek recovery of the very money contained in the deposit.
The subject matter of the dispute may be the amount of P999,000.00 that petitioner seeks from
private respondent as a result of the latter's alleged failure to inform the former of the discrepancy;
but it is not the P999,000.00 deposited in the drawer's account. By the terms of R.A. No. 1405, the
"money deposited" itself should be the subject matter of the litigation.

That petitioner feels a need for such information in order to establish its case against private
respondent does not, by itself, warrant the examination of the bank deposits. The necessity of the
inquiry, or the lack thereof, is immaterial since the case does not come under any of the exceptions
allowed by the Bank Deposits Secrecy Act.
11. REPUBLIC OF THE PHILIPPINES, vs. HON. ANTONIO M. EUGENIO, JR. G.R. No. 174629
February 14, 2008 “Of course, Section 11 also allows the AMLC to inquire into bank accounts
without having to obtain a judicial order in cases where there is probable cause that the deposits or
investments are related to kidnapping for ransom,71certain violations of the Comprehensive
Dangerous Drugs Act of 2002,72 hijacking and other violations under R.A. No. 6235, destructive
arson and murder. Since such special circumstances do not apply in this case, there is no need for us
to pass comment on this proviso. Suffice it to say, the proviso contemplates a situation distinct from
that which presently confronts us, and for purposes of the succeeding discussion, our reference to
Section 11 of the AMLA excludes said proviso.
In the instances where a court order is required for the issuance of the bank inquiry order, nothing in
Section 11 specifically authorizes that such court order may be issued ex parte. It might be argued
that this silence does not preclude the ex parte issuance of the bank inquiry order since the same is
not prohibited under Section 11. Yet this argument falls when the immediately preceding provision,
Section 10, is examined.
Although oriented towards different purposes, the freeze order under Section 10 and the bank
inquiry order under Section 11 are similar in that they are extraordinary provisional reliefs which the
AMLC may avail of to effectively combat and prosecute money laundering offenses. Crucially, Section
10 uses specific language to authorize an ex parte application for the provisional relief therein, a
circumstance absent in Section 11. If indeed the legislature had intended to authorize ex
parte proceedings for the issuance of the bank inquiry order, then it could have easily expressed such
intent in the law, as it did with the freeze order under Section 10.”
EXC under Sec. 2 of the Law on Secrecy of Section 11 also allows the AMLC
Bank Deposits
(1) In an examination made in the course of a in cases where there is probable cause that the
special or general examination of a bank that is deposits or investments are related to kidnapping
specifically authorized by the Monetary Board for ransom,71certain violations of the
after being satisfied that there is reasonable Comprehensive Dangerous Drugs Act of
ground to believe that a bank fraud or serious 2002,72 hijacking and other violations under R.A.
irregularity has been or is being committed and No. 6235, destructive arson and murder.
that it is necessary to look into the deposit to
establish such fraud or irregularity,
(2) In an examination made by an independent
auditor hired by the bank to conduct its regular
audit provided that the examination is for audit
purposes only and the results thereof shall be
for the exclusive use of the bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of
bribery or dereliction of duty of public officials,
or
(6) In cases where the money deposited or
invested is the subject matter of the litigation.

H. Foreign Currency Deposit- RA 6426 or the Foreign Currency Deposit Act


1. CARMEN LL. INTENGANvs. COURT OF APPEALS, G.R. No. 128996 February 15, 2002 “The
accounts in question are U.S. dollar deposits; consequently, the applicable law is not Republic Act No.
1405 but Republic Act (RA) No. 6426, known as the "Foreign Currency Deposit Act of the Philippines,"
Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency deposits,
that is, disclosure is allowed only upon the written permission of the depositor. Incidentally, the acts of
private respondents complained of happened before the enactment on September 29, 2001 of R.A.
No. 9160 otherwise known as the Anti-Money Laundering Act of 2001.
2. KAREN E. SALVACION, vs.CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING
CORPORATION and GREG BARTELLI y NORTHCOTT. G.R. No. 94723 August 21, 1997
“Thus, one of the principal purposes of the protection accorded to foreign currency deposits is "to
assure the development and speedy growth of the Foreign Currency Deposit system and the Offshore
Banking in the Philippines"
It is evident from the above [Whereas clauses] that the Offshore Banking System and the Foreign
Currency Deposit System were designed to draw deposits from foreign lenders and investors (Vide
second Whereas of PD No. 1034; third Whereas of PD No. 1035). It is these deposits that are induced
by the two laws and given protection and incentives by them.
Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of deposit
encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said laws because such
depositor stays only for a few days in the country and, therefore, will maintain his deposit in the bank
only for a short time.
Respondent Greg Bartelli, as stated, is just a tourist or a transient. He deposited his dollars with
respondent China Banking Corporation only for safekeeping during his temporary stay in the
Philippines.
For the reasons stated above, the Solicitor General thus submits that the dollar deposit of respondent
Greg Bartelli is not entitled to the protection of Section 113 of Central Bank Circular No. 960 and PD
No. 1246 against attachment, garnishment or other court processes.
3. CHINA BANKING CORPORATION,vs.THE HONORABLE COURT OF APPEALS and JOSE
"JOSEPH" GOTIANUY. G.R. No. 140687 December 18, 2006 “the law provides that all foreign
currency deposits authorized under Republic Act No. 6426, as amended by Sec. 8, Presidential Decree
No. 1246, Presidential Decree No. 1035, as well as foreign currency deposits authorized under
Presidential Decree No. 1034 are considered absolutely confidential in nature and may not be inquired
into. There is only one exception to the secrecy of foreign currency deposits, that is, disclosure is
allowed upon the written permission of the depositor.
The Court of Appeals, in allowing the inquiry, considered Jose Gotianuy, a co-depositor of Mary
Margaret Dee. It reasoned that since Jose Gotianuy is the named co-payee of the latter in the subject
checks, which checks were deposited in China Bank, then, Jose Gotianuy is likewise a depositor
thereof. On that basis, no written consent from Mary Margaret Dee is necessitated.”

IV. PDIC- DEPOSIT INSURANCE


A. Governing Laws – Act 3591, as amended by RA 10846
B. Insurance Requirement
i. Rule on Deposit in a Domestic Bank Operating Within the Philippines-all deposit
regardless of the classification of the bank be subject to insurance under to
PDIC(MANDATORY)
The deposit liabilities of a bank or banking institution, which is engaged in the business
of receiving deposits, shall be insured with PDIC. The coverage is compulsory.

ii. Rule on Deposit in a Domestic Bank Operating Within Abroad – they are not covered
by the PDIC unless it was elected by the board or the bank opt to be covered by PDIC

NOTE: Foreign Bank operating within the Philippines is subject to insurance under PDIC
C. Nature of Insurance Policy- Section 10(a), RA 3591 states that, The provisions of other laws, general
or special, to the contrary notwithstanding, whenever it shall be personnel, deputies and agents of the
Corporation. (BASE PO KAY SIR YAN) PERO FEELING KO DAPAT SECTION 1 hahaha
Section 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter
referred to as the “Corporation” which shall insure, as herein provided, the deposits of all
banks which are entitled to the benefits of insurance under this Act, and which shall have the
powers hereinafter granted.

The Corporation shall, as a basic policy, promote and safeguard the interests of depositing
public by way of providing permanent and continuing insurance coverage on all insured
deposits.

D. Meaning of Insured Deposit- Sec.4(g), RA 3591 as amended by RA 9576


i. Rule on Joint-Account - Sec.4(g), RA 3591 as amended by RA 9576
Section. 3. Section 4(g) of the same Act is hereby amended to read as follows:
"(g) The term "insured deposit" means the amount due to any bona fide depositor for legitimate deposits
in an insured bank net of any obligation of the depositor to the insured bank as of date of closure, but
not to exceed Five hundred thousand pesos (P500,000.00). Such net amount shall be determined
according to such regulations as the Board of Directors may prescribe, In determining such amount due
to any depositor, there shall be added together all deposits in the bank maintained in the same right and
capacity for his benefits either in his own name or in the name of others. A joint account regardless of
whether the conjunction 'and,' 'or,' 'and/or' is used, shall be insured separately from any individually-
owned deposit account: Provided, That (1) 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, and (2) If the account is held by a juridical person or entity jointly
with one or more natural persons, the maximum insured deposits shall be presumed to belong entirely to
such juridical person or entity: Provided, further, That the aggregate of the interest 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 Five hundred thousand
pesos (P500,000.00): Provided, Furthermore, The the provisions of any law to the contrary
notwithstanding, no owner/holder of any negotiable certificate of deposit shall be recognized as a
depositor entitled to the rights provided in this Act unless his name is registered as owner/holder thereof
in the books of the issuing bank: Provided, Finally, That, in case of a condition that threatens the
monetary and financial stability of the banking system that may have systemic consequences, as defined
in section 17 hereof, as determined by the monetary board, the maximum deposit insurance cover may
be adjusted in such amount, for such a period, and/or for such deposit products, as may be determined
by a unanimous vote of the Board of Directors in a meeting called for the purpose and chaired by the
Secretary of Finance, subject to the approval of the President of the Philippines."
E. Exclusions from Insurance Coverage - Sec.4(f), RA 3591 as amended by RA 9576
Section 2. Section 4 (f) of Republic Act No. 3591, as amended, is hereby amended by adding
an additional paragraph, to read as follows:
"(f) The term "deposit" means the unpaid balance of money or its equivalent received by a bank
in the usual course of business and for which it has given or is obliged to give credit to a commercial,
checking, savings, time or thrift account, or issued in accordance with Bangko Sentral rules and
regulations and other applicable laws, together with such other obligations of a bank, which, consistent
with banking usage and practices, the Board of Directors shall determine and prescribe by regulations to
be deposit liabilities of the bank: Provided, That any obligation of a bank which is payable at the office of
the bank located outside of the Philippines shall not be a deposit for any of the purposes of this Act or
included as part of the total deposits or of insured deposits: Provided, further, That, subject to the
approval of the Board of Directors, any insured bank which is incorporated under the laws of the
Philippines which maintains a branch outside the Philippines may elect to include for insurance its deposit
obligations payable only at such branch.
The corporation shall not pay deposit insurance for the following accounts or transactions,
whether denominated, documented, recorded or booked as deposit by the bank:
"(1) Investment products such as bonds and securities, trust accounts, and other similar
instruments;
"(2) Deposit accounts or transactions which are unfunded, or that are fictitious or fraudulent;
"(3) Deposits accounts or transactions constituting, and/or emanating from, unsage and unsound
banking practice/s, as determined by the Corporation, in consultation with the BSP, after due
notice and hearing, and publication of a cease and desist order issued by the Corporation against
such deposit accounts or transactions; and
"(4) Deposits that are determined to be the proceeds of an unlawful activity as defined under
republic act 9160, as amended.
"The actions of the Corporation taken under this section shall be final and executory, and may not be
restrained or set aside by the court, except on appropriate petition for certiorari on the ground that the
action was taken in excess of jurisdiction or with such grave abuse of discretion as to amount to a lack or
excess of jurisdiction. The petition for certiorari may only be filed within thirty (30) days from notice of
denial of claim for deposit insurance."

PANG 5th ACCORDING SA DISCUSSION NI SIR


Section 11. Section 21, paragraph (f)(5) is hereby amended to read as follows.
"5) splitting of deposits or creation of fictitious loans or deposits accounts.
"Splitting of deposits occurs whenever a deposit account with an outstanding balance of more that the
statutory maximum amount of insured deposit maintained under the name of natural or juridical persons
is broken down and transferred into two (2) or more accounts in the name/s of natural or juridical
persons or entities who have no beneficial ownership on transferred deposits in their names within one
hundred twenty (120) days immediately preceding or during a bank-declared bank holiday, or
immediately preceding a closure order issued by the Monetary Board of the Bangko Sentral ng Pilipinas
for the purpose of availing of the maximum deposit insurance coverage."

F. Payment of Insured Deposit- Sec. 10(c), RA 3591 (Sec. 14 R.A. 3591, as amended)
Modes of Payment
1. By cash;
2. By making available to each depositor a transferred deposit in another insured bank in an amount
equal to insured deposit of such depositor.

Note: Provided: PDIC , in its discretion, may require proof of claims to be filed before
paying the insured deposits, and that in any case where PDIC is not satisfied as to the
viability of a claim for an insured deposit, it may require final determination of a court of
competent jurisdiction before paying such claim. (Sec. 14 R.A. 3591, as amended)

V. LOAN FUNCTION
A. Authority to Lend Money- Sec. 1, BSP Circular No. 622, Series of 2008
“Before granting loans or other credit accommodations, a bank/QB/NBFI must ascertain that the
borrower, co-maker, endorser, surety and/or guarantor, if applicable, is/are financially capable of fulfilling
his/their commitments to the bank/QB/NBFI. For this purpose, a bank/QB/NBFI shall obtain adequate
information on his/their credit standing and financial capacities.
“In addition to the usual information sheet about the borrower, a bank/QB/NBFI shall require from the
credit applicant the following:
1. A copy of the latest Income Tax Return (ITR) of the borrower and his co-maker, if applicable, duly
stamped as received by the Bureau of Internal Revenue (BIR);
2. Except as otherwise provided by law and in other regulations, if the borrower is engaged in business, a
copy of the borrower's latest financial statements as submitted for taxation purposes to the BIR; and
3. A waiver of confidentiality of client information and/or an authority of the bank/QB/NBFI to conduct
random verification with the BIR in order to establish authenticity of the ITR and accompanying financial
statements submitted by the client.

B. Single Borrower’s Limit “SBL”- Section 35.1, 35.2, GBL


SECTION 35. Limit on Loans, Credit Accommodations and Guarantees. —
35.1. Except as the Monetary Board may otherwise prescribe for reasons of national interest, the total
amount of loans, credit accommodations and guarantees as may be defined by the Monetary Board that
may be extended by a bank to any person, partnership, association, corporation or other entity shall at
no time exceed twenty percent (20%) of the net worth of such bank. The basis for determining
compliance with single-borrower limit is the total credit commitment of the bank to the borrower.
35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans, credit accommodations
and guarantees prescribed in the preceding paragraph may be increased by an additional ten percent
(10%) of the net worth of such bank provided the additional liabilities of any borrower are adequately
secured by trust receipts, shipping documents, warehouse receipts or other similar documents
transferring or securing title covering readily marketable, non-perishable goods which must be fully
covered by insurance.

C. Inclusions to SBL- Sec. X303(c) of the Manual of Regulations for Banks “MORB”

SECTION 35.3, RA 8791

35.3. The above prescribed ceilings shall include:

(a) the direct liability of the maker or acceptor of paper discounted with or sold to such bank and the
liability of a general indorser, drawer or guarantor who obtains a loan or other credit accommodation
from or discounts paper with or sells papers to such bank;

(b) in the case of an individual who owns or controls a majority interest in a corporation, partnership,
association or any other entity, the liabilities of said entities to such bank;

(c) in the case of a corporation, all liabilities to such bank of all subsidiaries in which such corporation
owns or controls a majority interest; and

(d) in the case of a partnership, association or other entity, the liabilities of the members thereof to such
bank.

D. Exclusions from SBL - Sec. X303(e) of the Manual of Regulations for Banks “MORB”

e. For purposes of this Section, loans, other credit accommodations and guarantees shall exclude:

(1) loans and other credit accommodations secured by obligations of the BSP or of the
Philippine Government;

(2) loans and other credit accommodations fully guaranteed by the government as to the
payment of principal and interest;

(3) loans and other credit accommodations secured by U.S. Treasury Notes and other securities
issued by central governments and central banks of foreign countries with the highest credit
quality given by any two (2) internationally accepted rating agencies;

(4) loans and other credit accommodations to the extent covered by the hold-out on or
assignment of, deposits maintained in the lending bank and held in the Philippines;
(5) loans, credit accommodations and acceptances under letters of credit to the extent covered
by margin deposits; and

(6) other loans or credit accommodations which the Monetary Board may from time to time
specify as non-risk items.

E. DOSRI Accounts- Section 36, GBL

SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related
Interests. — No director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from such bank nor shall he become a guarantor, indorser or
surety for loans from such bank to others, or in any manner be an obligor or incur any contractual liability
to the bank except with the written approval of the majority of all the directors of the bank, excluding the
director concerned: Provided, That such written approval shall not be required for loans, other credit
accommodations and advances granted to officers under a fringe benefit plan approved by the Bangko
Sentral. The required approval shall be entered upon the records of the bank and a copy of such entry
shall be transmitted forthwith to the appropriate supervising and examining department of the Bangko
Sentral.

Dealings of a bank with any of its directors, officers or stockholders and their related interests
shall be upon terms not less favorable to the bank than those offered to others.

After due notice to the board of directors of the bank, the office of any bank director or officer
who violates the provisions of this Section may be declared vacant and the director or officer shall be
subject to the penal provisions of the New Central Bank Act.

The Monetary Board may regulate the amount of loans, credit accommodations and guarantees
that may be extended, directly or indirectly, by a bank to its directors, officers, stockholders and their
related interests, as well as investments of such bank in enterprises owned or controlled by said
directors, officers, stockholders and their related interests. However, the outstanding loans, credit
accommodations and guarantees which a bank may extend to each of its stockholders, directors, or
officers and their related interests, shall be limited to an amount equivalent to their respective
unencumbered deposits and book value of their paid-in capital contribution in the bank: Provided,
however, That loans, credit accommodations and guarantees secured by assets considered as non-risk by
the Monetary Board shall be excluded from such limit: Provided, further, That loans, credit
accommodations and advances to officers in the form of fringe benefits granted in accordance with rules
as may be prescribed by the Monetary Board shall not be subject to the individual limit.

The Monetary Board shall define the term "related interests."

The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to
loans, credit accommodations and guarantees extended by a cooperative bank to its cooperative
shareholders. (83a)

i. Requisites – BSP Circular 170, in relation to Article 26, NCBA


"SECTION 26. Bank Deposits and Investments. — Any director, officer or stockholder who,
together with his related interest, contracts a loan or any form of financial accommodation from:
(1) his bank; or (2) from a bank (a) which is subsidiary of a bank holding company of which both
his bank and lending bank are subsidiaries or (b) in which a controlling proportion of the shares is
owned by the same interest that owns a controlling proportion of the shares of his bank, in
excess of five percent (5%) of the capital and surplus of the bank, or in the maximum amount
permitted by law, whichever is lower, shall be required by the lending bank to waive the secrecy
of his deposits of whatever nature in all banks in the Philippines. Any information obtained from
an examination of his deposits shall be held strictly confidential and may be used by the
examiners only in connection with their supervisory and examination responsibility or by the
Bangko Sentral in an appropriate legal action it has initiated involving the deposit account."

2. The following elements must concur for abovequoted Section 26, Republic Act No. 7653 to
apply:
a. The borrower is a director, officer or any stockholder of a bank;
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 the lending bank are
subsidiaries, or (3) a bank in which a controlling proportion of the shares is owned by the
same interest that owns a controlling proportion of the shares of his bank; and
d.The loan or financial accommodation of the director, officer or stockholder, 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.

3. In paragraph 2(a) above, the director, officer or any stockholder should himself be the
borrower or recipient of the loan or financial accommodation. Thus, if the borrower is the related
interest but not the director, officer or stockholder himself, the director, officer or stockholder is
not required to waive the secrecy of his bank deposits. The function of the phrase "who, together
with his related interest" in abovequoted Section 26 is to determine whether the loan(s) or
financial accommodation(s) exceeds the aggregate ceiling prescribed therein.
Moreover, the term "stockholder" means one as defined in Section 83 of Republic Act No. 337, as
amended, and its implementing rules in Part III of the Manual of Regulations for Banks and Other
Financial Intermediaries, owning two percent (2%) of more of the subscribed capital stock of the
bank.

4. For purposes of Section 26 of Republic Act No. 7653, the term "related interest" shall include
the following:
1.Spouse or relative within the first degree of consanguinity or affinity, or relative by
legal adoption, of a director, officer or stockholder of the bank;
2.Partnership of which a director, officer, or stockholder or his spouse or relative within
the first degree of consanguinity or affinity, or relative by legal adoption, is a general
partner;
3. Co-owner with the director, officer, stockholder or his spouse or relative within the first
degree of consanguinity or affinity, or relative by legal adoption, of the property or
interest or right mortgaged, pledged or assigned to secure the loans or credit
accommodations, except when the mortgage, pledge or assignment covers only said co-
owner's undivided interest;
4. Corporation, association, or firm of which a director or officer of the bank, or his
spouse is also director or officer of such corporation, association or firm, except (a) where
the securities of such corporation, association of firm are listed and traded in the big
board or commercial and industrial board of domestic stock exchanges and less than fifty
percent (50%) of the voting stock thereof is owned by any one person or by persons
related to each other within the third degree of consanguinity or affinity; or (b) where the
director, officer or stockholder of the lending bank sits as a representative of the bank in
the board of directors of such corporation: Provided, That the bank representative shall
not have any equity interest in the borrower corporation except for the minimum shares
required by law, rules and regulations, or by the by-laws of the corporation: Provided,
further, That the borrowing corporation under (a) or (b) is not among those mentioned in
items (5) and (6) hereof.
5. Corporation, association or firm of which any or a group of directors, officers,
stockholders of the lending bank and/or their spouses or relatives within the first degree
of consanguinity or affinity, or relative by legal adoption, hold/own more than twenty
percent (20%) of the subscribed capital of such corporation, or of the equity of such
association or firm;
6. Corporation, association or firm wholly or majority-owned or controlled by any related
entity or a group of related entities mentioned in items (2), (4) and (5) hereof.

F. Loan Threshold

i. Real Estate – Section 37, GBL

SECTION 37. Loans and Other Credit Accommodations Against Real Estate. — Except as the
Monetary Board may otherwise prescribe, loans and other credit accommodations against real
estate shall not exceed seventy-five percent (75%) of the appraised value of the respective real
estate security, plus sixty percent (60%) of the appraised value of the insured improvements,
and such loans may be made to the owner of the real estate or to his assignees.

ii. Chattel- Section 38, GBL

SECTION 38. Loans and Other Credit Accommodations on Security of Chattels and Intangible
Properties. — Except as the Monetary Board may otherwise prescribe, loans and other credit
accommodations on security of chattels and intangible properties, such as, but not limited to,
patents, trademarks, trade names, and copyrights shall not exceed seventy-five percent (75%) of
the appraised value of the security, and such loans and other credit accommodations may be
made to the title-holder of the chattels and intangible properties or his assignees.

G. Redemption of Collaterals in case of Foreclosure


i. Natural Person- Section 6, Act 3135 in relation to Section 47, GBL
SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of foreclosure, whether
judicially or extrajudicially, of any mortgage on real estate which is security for any loan or other
credit accommodation granted, the mortgagor or debtor whose real property has been sold for
the full or partial payment of his obligation shall have the right within one year after the sale of
the real estate, to redeem the property by paying the amount due under the mortgage deed,
with interest thereon at the rate specified in the mortgage, and all the costs and expenses
incurred by the bank or institution from the sale and custody of said property less the income
derived therefrom. However, the purchaser at the auction sale concerned whether in a judicial or
extrajudicial foreclosure shall have the right to enter upon and take possession of such property
immediately after the date of the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given due course only upon the filing by
the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the
damages which the bank may suffer by the enjoining or the restraint of the foreclosure
proceeding.
ii. Juridical person - Section 47, GBL
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an
extrajudicial foreclosure, shall have the right to redeem the property in accordance with this
provision until, but not after, the registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be more than three (3) months after
foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior
to the effectivity of this Act shall retain their redemption rights until their expiration.

H. Prohibited Acts of Borrowers- Section 55.2, GBL


55.2. No borrower of a bank shall —
(a) Fraudulently overvalue property offered as security for a loan or other credit accommodation from the
bank;
(b) Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining,
renewing, or increasing a loan or other credit accommodation or extending the period thereof;
(c) Attempt to defraud the said bank in the event of a court action to recover a loan or other credit
accommodation; or
(d) 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.

VI. OWNERSHIP OF BANKS

A. Foreign Equity in Domestic Bank- Section 11, GBL


SECTION 11. Foreign Stockholdings. — Foreign individuals and non-bank corporations may own or
control up to forty percent (40%) of the voting stock of a domestic bank. This rule shall apply to
Filipinos and domestic non-bank corporations. (12a; 12-Aa)
The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship
of the individual stockholders in that bank. The citizenship of the corporation which is a stockholder in a
bank shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the
place of incorporation.
B. Foreign Banks Operating in the Phils.
i. Modes of Entry – Section 2, RA7721, as amended by RA 10641

Sec. 2. Modes of Entry. — The Monetary Board may authorize foreign banks to operate in the
Philippine banking system through any of the following modes of entry:

(i) by acquiring, purchasing or owning up to sixty percent (60%) of the voting stock of an
existing bank;
(ii) by investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary
incorporated under the laws of the Philippines; or
(iii) by establishing branches with full banking authority: Provided, That a foreign bank may
avail itself of only one (1) mode of entry: Provided, further, That a foreign bank or a Philippine
corporation may own up to a sixty percent (60%) of the voting stock of only one (1) domestic
bank or new banking subsidiary.
ii. Criteria/Considerations of Entry- Section 3, Ra 7721 as amended by RA 10641

Sec. 3. Guidelines for Approval. — In approving entry applications of foreign banks, the
Monetary Board shall: (i) ensure geographic representation and complementation; (ii) consider
strategic trade and investment relationships between the Philippines and the country of
incorporation of the foreign bank; (iii) study the demonstrated capacity, global reputation for
financial innovations and stability in a competitive environment of the applicant; (iv) see to it
that reciprocity rights are enjoyed by Philippine banks in the applicant's country; and (v)
consider willingness to fully share their technology.

iii. Right of a Foreign Bank to Bid in a Foreclosure Sale- Sec. 9, RA 7721 as amended by RA
10641

Section 9 provides for the authority of the foreign banks who were authorized to do banking
business in the Philippines to do the following acts:

a. Bid and take part in the foreclosure sales of real property mortgaged to them;
b. Avail of enforcement and other proceedings in relation to the same; and
c. Take possession of the mortgaged property for a period not exceeding five (5) years
from actual possession.

Note, however, that although the foreign banks may take part in such foreclosure proceedings
and then, take possession of the real property, the provision provided for certain limitations.
First, the title cannot be transferred to said foreign bank; and second, the foreign bank is
required to transfer its rights to a qualified Philippine national during the five-year period
provided, without prejudice to a borrower’s rights under the applicable laws. In order to enforce
this limitation, RA 10641 provided for penalties in case of failure to transfer the property, i.e.,
the bank will be penalized one half (1/2) of one percent (1%) per annum of the price at which
the property is foreclosed until it is able to transfer the property to a qualified Philippine
national.

VI. BANK DIRECTORS AND OFFICERS


A. Composition – Section 15, 17, & 19, GBL

SECTION 15. Board of Directors. — The provisions of the Corporation Code to the contrary
notwithstanding, there shall be at least five (5), and a maximum of fifteen (15) members of the board of
directors of bank, two (2) of whom shall be independent directors. An "independent director" shall mean
a person other than an officer or employee of the bank, its subsidiaries or affiliates or related interests.
(n) Non-Filipino citizens may become members of the board of directors of a bank to the extent of the
foreign participation in the equity of said bank. (Sec. 7, RA 7721) The meetings of the board of directors
may be conducted through modern technologies such as, but not limited to, teleconferencing and video-
conferencing. (n)

SECTION 17. Directors of Merged or Consolidated Banks. — In the case of a bank merger or
consolidation, the number of directors shall not exceed twenty-one (21). (13a)

SECTION 19. Prohibition on Public Officials. — Except as otherwise provided in the Rural Banks Act, no
appointive or elective public official, whether full-time or part-time shall at the same time serve as officer
of any private bank, save in cases where such service is incident to financial assistance provided by the
government or a government-owned or controlled corporation to the bank or unless otherwise provided
under existing laws. (13)

i. Rural Bank- Section 5, RA 7353


Sec. 5. All members of the Board of Directors of the rural bank shall be citizens of the Philippines
at the time of their assumption to office: Provided, however, That nothing in this Act shall be
construed as prohibiting any appointive or elective public official from serving as director, officer,
consultant or in any capacity in the bank.
No Director or officer of any rural bank shall, either directly or indirectly, for himself or as the
representative or agent of another borrow any of the deposits or funds of such banks, nor shall
he become a guarantor, indorser, or surety for loans from such bank to others, or in any manner
be an obligor for money borrowed from the bank or loaned by it except with the written approval
of the majority of the directors of the bank, excluding the director concerned. Any such approval
shall be entered upon the records of the corporation and a copy of such entry shall be
transmitted forthwith to the appropriate supervising department. The director/officer of the bank
who violates the provisions of this section shall be immediately dismissed from his office and shall
be penalized in accordance with Section 26 of this Act.
The Monetary Board may regulate the amount of credit accommodations that may be extended
directly to the directors, officers or stockholders of rural banks of banking institutions. However,
the outstanding credit accommodations which a rural bank may extend to each of its stockholders
owning two percent (2%) or more of the subscribed capital stock, its directors, or officers shall be
limited to an amount equivalent to the respective outstanding deposits and book value of the
paid-in capital contributions in the bank.
B. Fit and Proper Rule- Section 16, GBL
SECTION 16. Fit and Proper Rule. — To maintain the quality of bank management and afford 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 bank directors or officers
and disqualify those found unfit.
After due notice to the board of directors of the bank, the Monetary Board may disqualify,
suspend or remove any bank director or officer who commits or omits an act which render him unfit for
the position.
In determining whether an individual is fit and proper to hold the position of a director or officer of a
bank, regard shall be given to his integrity, experience, education, training, and competence. (9-Aa)
C. Bank in Distress
i. Emergency Loan- Section 84,NCBA
SEC. 84. Emergency Loans and Advances. _ In periods of national and/or local emergency or of
imminent financial panic which directly threaten monetary and banking stability, the Monetary
Board may, by a vote of at least five (5) of its members, authorize the Bangko Sentral to grant
extraordinary loans or advances to banking institutions secured by assets as defined hereunder:
Provided, That while such loans or advances are outstanding, the debtor institution shall not,
except upon prior authorization by the Monetary Board, expand the total volume of its loans or
investments.
The Monetary Board may, at its discretion, likewise authorize the Bangko Sentral to grant
emergency loans or advances to banking institutions, even during normal periods, for the
purpose of assisting a bank in a precarious financial condition or under serious financial pressures
brought by unforeseen events, or events which, though foreseeable, could not be prevented by
the bank concerned: Provided, however, That the Monetary Board has ascertained that the bank
is not insolvent and has the assets defined hereunder to secure the advances: Provided, further,
That a concurrent vote of at least five (5) members of the Monetary Board is obtained.

ii. Conservationship- Section 29, NCBA


SEC. 29. Appointment of Conservator. _ Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the Monetary Board finds that a bank or a
quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity
deemed adequate to protect the interest of depositors and creditors, the Monetary Board may
appoint a conservator with such powers as the Monetary Board shall deem necessary to take
charge of the assets, liabilities, and the management thereof, reorganize the management,
collect all monies and debts due said institution, and exercise all powers necessary to restore its
viability.
The conservator shall report and be responsible to the Monetary Board and shall have the power
to overrule or revoke the actions of the previous management and board of directors of the bank
or quasi-bank. The conservator should be competent and knowledgeable in bank operations and
management. The conservatorship shall not exceed one (1) year.

iii. Receivership- Section 30, NCBA


SEC. 30. Proceedings in Receivership and Liquidation. _ Whenever, upon report of the head of
the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business:
Provided, That this shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its
liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or
creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become
final, involving acts or transactions which amount to fraud or a dissipation of the assets
of the institution; in which cases, the Monetary Board may summarily and without need
for prior hearing forbid the institution from doing business in the Philippines and
designate the Philippine Deposit Insurance Corporation as receiver of the banking
institution.
For a quasi-bank, any person of recognized competence in banking or finance may be designated
as receiver.

a. Effects-
a.1 Fidelity Savings and Mortgage Bank vs. Cenzon, GR No. L-46208 “It is
settled jurisprudence that a banking institution which has been declared insolvent and
subsequently ordered closed by the Central Bank of the Philippines cannot be held liable
to pay interest on bank deposits which accrued during the period when the bank is
actually closed and non-operational.”

a.2 Larrobis vs PVB, GR No. 135706 “When a bank is declared insolvent and placed
under receivership, the Central Bank, through the Monetary Board, determines whether
to proceed with the liquidation or reorganization of the financially distressed bank. A
receiver, who concurrently represents the bank, then takes control and possession of its
assets for the benefit of the banks creditors. A liquidator meanwhile assumes the role of
the receiver upon the determination by the Monetary Board that the bank can no longer
resume business. His task is to dispose of all the assets of the bank and effect partial
payments of the banks obligations in accordance with legal priority. In both receivership
and liquidation proceedings, the bank retains its juridical personality notwithstanding
the closure of its business and may even be sued as its corporate existence is assumed
by the receiver or liquidator. The receiver or liquidator meanwhile acts not only for the
benefit of the bank, but for its creditors as well.”

a.3 Effects : a) operations are suspended; b) asset deemed in custodial egis and shall
be exempt from garnishment, levy, execution, attachment; c) not liable to pay interest
on deposit; d) bank retains legal personality; and e) no preference even if claimant
depositor obtained writ of preliminary attachment.

iv. Liquidation- Section 30, NCBA

If the receiver determines that the institution cannot be rehabilitated or permitted to resume business
in accordance with the next preceding paragraph, the Monetary Board shall notify in writing the board
of directors of its findings and direct the receiver to proceed with the liquidation of the institution. The
receiver shall:

(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any
other action, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan
adopted by the Philippine Deposit Insurance Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted by the Monetary Board. Upon acquiring
jurisdiction, the court shall, upon motion by the receiver after due notice, adjudicate disputed claims
against the institution, assist the enforcement of individual liabilities of the stockholders, directors and
officers, and decide on other issues as may be material to implement the liquidation plan adopted. The
receiver shall pay the cost of the proceedings from the assets of the institution.

(2) convert the assets of the institution to money, dispose of the same to creditors and other parties,
for the purpose of paying the debts of such institution in accordance with the rules on concurrence
and preference of credit under the Civil Code of the Philippines and he may, in the name of the
institution, and with the assistance of counsel as he may retain, institute such actions as may be
necessary to collect and recover accounts and assets of, or defend any action against, the institution.
The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the
hands of the receiver and shall, from the moment the institution was placed under such receivership
or liquidation, be exempt from any order of garnishment, levy, attachment, or execution.

D. Effect of Actions of the BSP in Conservatorship and Receivership- Section 30, NCBA
BSP Monetary Board vs Antonio-Valenzuela, GR No. 184778 “It is well-settled that the
closure of a bank may be considered as an exercise of police power. The action of the MB on this
matter is final and executory. Such exercise may nonetheless be subject to judicial inquiry and can
be set aside if found to be in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction.

Courts are hereby reminded to take greater care in issuing injunctive relief to litigants, that it would
not violate any law. The grant of a preliminary injunction in a case rests on the sound discretion of
the court with the caveat that it should be made with great caution. Thus, the issuance of the writ of
preliminary injunction must have basis in and be in accordance with law. All told, while the grant or
denial of an injunction generally rests on the sound discretion of the lower court, this Court may and
should intervene in a clear case of abuse.”

VII. THE BANKO SENTRAL NG PILIPINAS


A. Creation- Section 2, NCGBA
SEC. 2. Creation of the Bangko Sentral. _ There is hereby established an independent central
monetary authority, which shall be a body corporate known as the Bangko Sentral ng Pilipinas, hereafter
referred to as the Bangko Sentral. The capital of the Bangko Sentral shall be Fifty billion pesos
(P50,000,000,000), to be fully subscribed by the Government of the Republic, hereafter referred to as the
Government, Ten billion pesos (P10,000,000,000) of which shall be fully paid for by the Government
upon the effectivity of this Act and the balance to be paid for within a period of two (2) years from the
effectivity of this Act in such manner and form as the Government, through the Secretary of Finance and
the Secretary of Budget and Management, may thereafter determine.
B. Responsibility and Objective- Section 3, NCBA

SEC. 3. Responsibility and Primary Objective. _ The Bangko Sentral shall provide policy directions in the
areas of money, banking, and credit. It shall have supervision over the operations of banks and exercise
such regulatory powers as provided in this Act and other pertinent laws over the operations of finance
companies and non-bank financial institutions performing quasi-banking functions, hereafter referred to
as quasibanks, and institutions performing similar functions.

The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced
and sustainable growth of the economy. It shall also promote and maintain monetary stability and the
convertibility of the peso.

C. Composition of the Monetary Board- Section 6, NCBA


SEC. 6. Composition of the Monetary Board. _ The powers and functions of the Bangko Sentral shall be
exercised by the Bangko Sentral Monetary Board, hereafter referred to as the Monetary Board, composed
of seven (7) members appointed by the President of the Philippines for a term of six (6) years.
The seven (7) members are:
(a) the Governor of the Bangko Sentral, who shall be the Chairman of the Monetary Board. The
Governor of the Bangko Sentral shall be head of a department and his appointment shall be subject to
confirmation by the Commission on Appointments. Whenever the Governor is unable to attend a
meeting of the Board, he shall designate a Deputy Governor to act as his alternate: Provided, That in
such event, the Monetary Board shall designate one of its members as acting Chairman;
(b) a member of the Cabinet to be designated by the President of the Philippines. Whenever the
designated Cabinet Member is unable to attend a meeting of the Board, he shall designate an
Undersecretary in his Department to attend as his alternate; and
(c) five (5) members who shall come from the private sector, all of whom shall serve full-time:
Provided, however, That of the members first appointed under the provisions of this subsection, three
(3) shall have a term of six (6) years, and the other two (2), three (3) years.
No member of the Monetary Board may be reappointed more than once.
D. Vacancies- Section 7, NCBA

SEC. 7. Vacancies. _ Any vacancy in the Monetary Board created by the death, resignation, or removal
of any member shall be filled by the appointment of a new member to complete the unexpired period of
the term of the member concerned.

E. Qualifications- Section 8, NCBA

SEC. 8. Qualifications. _ The members of the Monetary Board must be natural-born citizens of the
Philippines, at least thirty-five (35) years of age, with the exception of the Governor who should at least
be forty (40) years of age, of good moral character, of unquestionable integrity, of known probity and
patriotism, and with recognized competence in social and economic disciplines.
F. Disqualifications- Section 9, NCBA

SEC. 9. Disqualifications. _ In addition to the disqualifications imposed by Republic Act No. 6713, a
member of the Monetary Board is 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 as member of the
Monetary Board.

The members of the Monetary Board coming from the private sector shall not hold any other
public office or public employment during their tenure.

No person shall be a member of the Monetary Board if he has been 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; likewise, no member of the Monetary Board
shall 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.

G. Removal- Section 10, NCBA


SEC. 10. Removal. _ The President may remove any member of the Monetary Board for any of the
following reasons:
(a) If the member is subsequently disqualified under the provisions of Section 8 of this Act; or
(b) If he is physically or mentally incapacitated that he cannot properly discharge his duties and
responsibilities and such incapacity has lasted for more than six (6) months; or
(c) If the member is guilty of acts or operations which are of fraudulent or illegal character or
which are manifestly opposed to the aims and interests of the Bangko Sentral; or
(d) If the member no longer possesses the qualifications specified in Section 8 of this Act.
H. Supervisory Powers- Section 4, GBL
SECTION 4. Supervisory Powers. — The operations and activities of banks shall be subject to supervision
of the Bangko Sentral. "Supervision" shall include the following:
4.1. The issuance of rules of conduct or the establishment of standards of operation for uniform
application to all institutions or functions covered, taking into consideration the distinctive character
of the operations of institutions and the substantive similarities of specific functions to which such
rules, modes or standards are to be applied;
4.2. The conduct of examination to determine compliance with laws and regulations if the
circumstances so warrant as determined by the Monetary Board;
4.3. Overseeing to ascertain that laws and regulations are complied with;
4.4. Regular investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or sound
basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall be
immediately addressed;
4.5. Inquiring into the solvency and liquidity of the institution (2-D); or
4.6. Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision over the operations of and exercise regulatory powers
over quasi-banks, trust entities and other financial institutions which under special laws are subject to
Bangko Sentral supervision.
I. Money Function of the BSP- Section 50, NCBA
SEC. 50. Exclusive Issue Power. _ The Bangko Sentral shall have the sole power and authority to issue
currency, within the territory of the Philippines. No other person or entity, public or private, may put into
circulation notes, coins or any other object or document which, in the opinion of the Monetary Board,
might circulate as currency, nor reproduce or imitate the facsimiles of Bangko Sentral notes without prior
authority from the Bangko Sentral.
The Monetary Board may issue such regulations as it may deem advisable in order to prevent the
circulation of foreign currency or of currency substitutes as well as to prevent the reproduction of
facsimiles of Bangko Sentral notes.

TRUTH IN LENDING

I.Duty to Disclose- Section 4, RA 3765 “Truth in Lending Act”

Section 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 regulations prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2);

(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;

(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.

II. Effect of Non-compliance-

a. New Sampaguita Builders Construction, Inc. Vs PNB GR No. 148753 “Courts have the authority
to strike down or to modify provisions in promissory notes that grant the lenders unrestrained power to increase
interest rates, penalties and other charges at the latters sole discretion and without giving prior notice
to and securing the consent of the borrowers. This unilateral authority is anathema to the mutuality of contracts
and enable lenders to take undue advantage of borrowers. Although the Usury Law has been effectively
repealed, courts may still reduce iniquitous or unconscionable rates charged for the use of
money. Furthermore, excessive interests, penalties and other charges not revealed in disclosure statements
issued by banks, even if stipulated in the promissory notes, cannot be given effect under the Truth in Lending
Act.”
b. DBP vs Arcilla, GR No. 161426 “Under Circular No. 158 of the Central Bank, the information required by
R.A. No. 3765 shall be included in the contract covering the credit transaction or any other document to be
acknowledged and signed by the debtor, thus:

The contract covering the credit transaction, or any other document to be acknowledged and signed by
the debtor, shall indicate the above seven items of information. In addition, the contract or document shall
specify additional charges, if any, which will be collected in case certain stipulations in the contract are not met
by the debtor.

Furthermore, the contract or document shall specify additional charges, if any, which will be collected in
case certain stipulations in the contract are not met by the debtor.

If the borrower is not duly informed of the data required by the law prior to the consummation of the
availment or drawdown, the lender will have no right to collect such charge or increases thereof, even if
stipulated in the promissory note. However, such failure shall not affect the validity or enforceability of any
contract or transaction.

the present case, DBP failed to disclose the requisite information in the disclosure statement form
authorized by the Central Bank, but did so in the loan transaction documents between it and Arcilla. There is no
evidence on record that DBP sought to collect or collected any interest, penalty or other charges, from Arcilla
other than those disclosed in the said deeds/documents.

The Court is convinced that Arcillas claim of not having been furnished the data/information required by
R.A. No. 3765 and CB Circular No. 158 was but an afterthought. Despite the notarial rescission of the
conditional sale in 1990, and DBPs subsequent repeated offers to repurchase the property, the latter maintained
his silence. Arcilla filed his complaint only on February 21, 1994, or four years after the said notarial rescission.

ANTI-MONEY LAUNDERING

I. Governing Laws- RA 9160 “ Anti-Money Laundering Act of 2001” as amended by RA 9194; RA 10167 amending
Sections 10 and 11 of RA 9160; RA 10365
II. Declaration of State Policy- Section 2, AMLA

SEC. 2. Declaration of Policy. – It is hereby declared the policy of the State to protect and preserve the integrity
and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money laundering site
for the proceeds of any unlawful activity. Consistent with its foreign policy, the State shall extend cooperation in
transnational investigations and prosecutions of persons involved in money laundering activities wherever committed.

III. Money Laundering- Section 4, RA 10365

Section 4. Section 4 of the same Act is hereby amended to read as follows:


"SEC. 4. Money Laundering Offense. – Money laundering is committed by any person who, knowing that any
monetary instrument or property represents, involves, or relates to the proceeds of any unlawful activity:

"(a) transacts said monetary instrument or property;


"(b) converts, transfers, disposes of, moves, acquires, possesses or uses said monetary instrument or
property;
"(c) conceals or disguises the true nature, source, location, disposition, movement or ownership of or rights
with respect to said monetary instrument or property;
"(d) attempts or conspires to commit money laundering offenses referred to in paragraphs (a), (b) or (c);
"(e) aids, abets, assists in or counsels the commission of the money laundering offenses referred to in
paragraphs (a), (b) or (c) above; and
"(f) performs or fails to perform any act as a result of which he facilitates the offense of money laundering
referred to in paragraphs (a), (b) or (c) above.

“Money laundering is also committed by any covered person who, knowing that a covered or suspicious transaction
is required under this Act to be reported to the Anti-Money Laundering Council (AMLC), fails to do so."

A. Unlawful Activity- Section 3(i) AMLA, as amended (Section 2, RA 10365)

Section 2. Section 3(i) of the same Act is hereby amended to read as follows:
"(i) ‘Unlawful activity’ refers to any act or omission or series or combination thereof involving or
having direct relation to the following:
"(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised
Penal Code, as amended;
"(2) Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of Republic Act No. 9165, otherwise
known as the Comprehensive Dangerous Drugs Act of 2002;
"(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended, otherwise
known as the Anti-Graft and Corrupt Practices Act;
"(4) Plunder under Republic Act No. 7080, as amended;
"(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised
Penal Code, as amended;
"(6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602;
"(7) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree
No. 532;
"(8) Qualified theft under Article 310 of the Revised Penal Code, as amended;
"(9) Swindling under Article 315 and Other Forms of Swindling under Article 316 of the Revised
Penal Code, as amended;
"(10) Smuggling under Republic Act Nos. 455 and 1937;
"(11) Violations of Republic Act No. 8792, otherwise known as the Electronic Commerce Act of
2000;
"(12) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as
defined under the Revised Penal Code, as amended;
"(13) Terrorism and conspiracy to commit terrorism as defined and penalized under Sections 3 and
4 of Republic Act No. 9372;
"(14) Financing of terrorism under Section 4 and offenses punishable under Sections 5, 6, 7 and 8
of Republic Act No. 10168, otherwise known as the Terrorism Financing Prevention and
Suppression Act of 2012:
"(15) Bribery under Articles 210, 211 and 211-A of the Revised Penal Code, as amended, and
Corruption of Public Officers under Article 212 of the Revised Penal Code, as amended;
"(16) Frauds and Illegal Exactions and Transactions under Articles 213, 214, 215 and 216 of the
Revised Penal Code, as amended;
"(17) Malversation of Public Funds and Property under Articles 217 and 222 of the Revised Penal
Code, as amended;
"(18) Forgeries and Counterfeiting under Articles 163, 166, 167, 168, 169 and 176 of the Revised
Penal Code, as amended;
"(19) Violations of Sections 4 to 6 of Republic Act No. 9208, otherwise known as the Anti-
Trafficking in Persons Act of 2003;
"(20) Violations of Sections 78 to 79 of Chapter IV, of Presidential Decree No. 705, otherwise
known as the Revised Forestry Code of the Philippines, as amended;
"(21) Violations of Sections 86 to 106 of Chapter VI, of Republic Act No. 8550, otherwise known as
the Philippine Fisheries Code of 1998;
"(22) Violations of Sections 101 to 107, and 110 of Republic Act No. 7942, otherwise known as the
Philippine Mining Act of 1995;
"(23) Violations of Section 27(c), (e), (f), (g) and (i), of Republic Act No. 9147, otherwise known as
the Wildlife Resources Conservation and Protection Act;
"(24) Violation of Section 7(b) of Republic Act No. 9072, otherwise known as the National Caves
and Cave Resources Management Protection Act;
"(25) Violation of Republic Act No. 6539, otherwise known as the Anti-Carnapping Act of 2002, as
amended;
"(26) Violations of Sections 1, 3 and 5 of Presidential Decree No. 1866, as amended, otherwise
known as the decree Codifying the Laws on Illegal/Unlawful Possession, Manufacture, Dealing In,
Acquisition or Disposition of Firearms, Ammunition or Explosives;
"(27) Violation of Presidential Decree No. 1612, otherwise known as the Anti-Fencing Law;
"(28) Violation of Section 6 of Republic Act No. 8042, otherwise known as the Migrant Workers and
Overseas Filipinos Act of 1995, as amended by Republic Act No. 10022;
"(29) Violation of Republic Act No. 8293, otherwise known as the Intellectual Property Code of the
Philippines;
"(30) Violation of Section 4 of Republic Act No. 9995, otherwise known as the Anti-Photo and Video
Voyeurism Act of 2009;
"(31) Violation of Section 4 of Republic Act No. 9775, otherwise known as the Anti-Child
Pornography Act of 2009;
"(32) Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12 and 14 of Republic Act No. 7610,
otherwise known as the Special Protection of Children Against Abuse, Exploitation and
Discrimination;
"(33) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as
the Securities Regulation Code of 2000; and
"(34) Felonies or offenses of a similar nature that are punishable under the penal laws of other
countries."
B. Covered Person- Section 3(a) AMLA, as amended (Section 1, RA 10365)
Section 1. Section 3(a) of Republic Act No. 9160, as amended, is hereby amended to read as
follows:
"(a) ‘Covered persons’, natural or juridical, refer to:
"(1) banks, non-banks, quasi-banks, trust entities, foreign exchange dealers, pawnshops,
money changers, remittance and transfer companies and other similar entities and all
other persons and their subsidiaries and affiliates supervised or regulated by the Bangko
Sentral ng Pilipinas (BSP);
"(2) insurance companies, pre-need companies and all other persons supervised or
regulated by the Insurance Commission (IC);
"(3) (i) securities dealers, brokers, salesmen, investment houses and other similar
persons managing securities or rendering services as investment agent, advisor, or
consultant, (ii) mutual funds, close-end investment companies, common trust funds, and
other similar persons, and (iii) other entities administering or otherwise dealing in
currency, commodities or financial derivatives based thereon, valuable objects, cash
substitutes and other similar monetary instruments or property supervised or regulated
by the Securities and Exchange Commission (SEC);
"(4) jewelry dealers in precious metals, who, as a business, trade in precious metals, for
transactions in excess of One million pesos (P1,000,000.00);
"(5) jewelry dealers in precious stones, who, as a business, trade in precious stones, for
transactions in excess of One million pesos (P1,000,000.00);
"(6) company service providers which, as a business, provide any of the following
services to third parties: (i) acting as a formation agent of juridical persons; (ii) acting as
(or arranging for another person to act as) a director or corporate secretary of a
company, a partner of a partnership, or a similar position in relation to other juridical
persons; (iii) providing a registered office, business address or accommodation,
correspondence or administrative address for a company, a partnership or any other legal
person or arrangement; and (iv) acting as (or arranging for another person to act as) a
nominee shareholder for another person; and
"(7) persons who provide any of the following services:
(i) managing of client money, securities or other assets;
(ii) management of bank, savings or securities accounts;
(iii) organization of contributions for the creation, operation or management of
companies; and
(iv) creation, operation or management of juridical persons or arrangements, and
buying and selling business entities.
"Notwithstanding the foregoing, the term ‘covered persons’ shall exclude lawyers and accountants
acting as independent legal professionals in relation to information concerning their clients or
where disclosure of information would compromise client confidences or the attorney-client
relationship: Provided, That these lawyers and accountants are authorized to practice in the
Philippines and shall continue to be subject to the provisions of their respective codes of conduct
and/or professional responsibility or any of its amendments."
C. Anti-Money Laundering Counsil “AMLC”- Section 7, RA 9160
SEC. 7. Creation of Anti-Money Laundering Council (AMLC). – The Anti-Money Laundering Council
is hereby created and shall be composed of the Governor of the Bangko Sentral ng Pilipinas as
chairman, the Commissioner of the Insurance Commission and the Chairman of the Securities and
Exchange Commission as members. The AMLC shall act unanimously in the discharge of its
functions as defined hereunder:
(1) to require and receive covered transaction reports from covered institutions;
(2) to issue orders addressed to the appropriate Supervising Authority or the covered
institution to determine the true identity of the owner of any monetary instrument or
property subject of a covered transaction report or request for assistance from a foreign
State, or believed by the Council, on the basis of substantial evidence, to be, in whole or
in part, wherever located, representing, involving, or related to, directly or indirectly, in
any manner or by any means, the proceeds of an unlawful activity;
(3) to institute civil forfeiture proceedings and all other remedial proceedings through the
Office of the Solicitor General;
(4) to cause the filing of complaints with the Department of Justice or the Ombudsman
for the prosecution of money laundering offenses;
(5) to initiate investigations of covered transactions, money laundering activities and
other violations of this Act;
(6) to freeze any monetary instrument or property alleged to be proceeds of any unlawful
activity;
(7) to implement such measures as may be necessary and justified under this Act to
counteract money laundering;
(8) to receive and take action in respect of, any request from foreign states for assistance
in their own anti-money laundering operations provided in this Act;
(9) to develop educational programs on the pernicious effects of money laundering, the
methods and techniques used in money laundering, the viable means of preventing
money laundering and the effective ways of prosecuting and punishing offenders; and
(10) to enlist the assistance of any branch, department, bureau, office, agency or
instrumentality of the government, including government-owned and -controlled
corporations, in undertaking any and all anti-money laundering operations, which may
include the use of its personnel, facilities and resources for the more resolute prevention,
detection and investigation of money laundering offenses and prosecution of offenders.
D. Prevention of Money Laundering
i. Customer Identification- Section 9(a) RA 9160

(a) 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
the true identity of their clients and, in case of corporate clients, require a system of
verifying their legal existence and organizational structure, as well as the authority and
identification of all persons purporting to act on their behalf.The provisions of existing laws
to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and
all other similar accounts shall be absolutely prohibited. Peso and foreign currency non-
checking numbered accounts shall be allowed. The BSP may conduct annual testing solely
limited to the determination of the existence and true identity of the owners of such
accounts.

ii. Record Keeping- Section 9(b) RA 9160


(b) Record Keeping. - All records of all transactions of covered institutions shall be
maintained and safely stored for five (5) years from the dates of transactions. With respect
to closed accounts, the records on customer identification, account files and business
correspondence, shall be preserved and safely stored for at least five (5) years from the
dates when they were closed.
iii. Reporting of Covered and Suspicion Transaction – Section 9(c) RA 9160
(c) Reporting of Covered Transactions. - Covered institutions shall report to the AMLC
all covered transactions within five (5) working days from occurrence thereof, unless the
Supervising Authority concerned prescribes a longer period not exceeding ten (10) working
days.

E. Covered Transaction- Section 3(b) as amended (Section 1 RA 9194)

SECTION 1. Section 3, paragraph (b) of Republic Act No. 9160 is hereby amended as
follows:

"(b) 'Covered transaction' is a transaction in cash or other equivalent monetary instrument


involving a total amount in excess of Five hundred thousand pesos (PhP 500,000.00) within one (1)
banking day.

Rule 3(b), AMLA IRR

Rule 3.b. "COVERED TRANSACTION" IS A TRANSACTION IN CASH OR OTHER EQUIVALENT


MONETARY INSTRUMENT INVOLVING A TOTAL AMOUNT IN EXCESS OF FIVE HUNDRED
THOUSAND PESOS (PHP500,000.00) WITHIN ONE (1) BANKING DAY

F.Suspicious Transaction-

SECTION 2. Section 3 of the same Act is further amended by inserting between paragraphs
(b) and (c) a new paragraph designated as (b-1) to read as follows:

"(b-1) 'Suspicious transaction' are transactions with covered institutions, regardless of the
amounts involved, where any of the following circumstances exist:

1. there is no underlying legal or trade obligation, purpose or economic justification;


2. the client is not properly identified;
3. the amount involved is not commensurate with the business or financial capacity of the
client;
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 circumstances relating to the transaction which is observed to deviate from the
profile of the client and/or the client's past transactions with the covered institution;
6. the transactions is in a way related to an unlawful activity or offense under this Act
that is about to be, is being or has been committed; or
7. any transactions that is similar or analogous to any of the foregoing."
Rule 3.b.1. SUSPICIOUS TRANSACTIONS ARE TRANSACTIONS, REGARDLESS OF AMOUNT,
WHERE ANY OF THE FOLLOWING CIRCUMSTANCES EXISTS:
1. THERE IS NO UNDERLYING LEGAL OR TRADE OBLIGATION, PURPOSE OR ECONOMIC
JUSTIFICATION;
2. THE CLIENT IS NOT PROPERLY IDENTIFIED;
3. THE AMOUNT INVOLVED IS NOT COMMENSURATE WITH THE BUSINESS OR
FINANCIAL CAPACITY OF THE CLIENT;
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 OF THE CLIENT AND/OR THE CLIENT'S PAST
TRANSACTIONS WITH THE COVERED INSTITUTION;
6. THE TRANSACTION IS IN ANY WAY RELATED TO AN UNLAWFUL ACTIVITY OR ANY
MONEY LAUNDERING ACTIVITY OR OFFENSE UNDER THIS ACT THAT IS ABOUT TO BE,
IS BEING OR HAS BEEN COMMITTED; OR
7. ANY TRANSACTION THAT IS SIMILAR, ANALOGOUS OR IDENTICAL TO ANY OF THE
FOREGOING.
G. Safe Harbor- Section 9, 2nd par, RA 9160

When reporting covered transactions to the AMLC, covered institutions and their officers,
employees, representatives, agents, advisors, consultants or associates shall not be deemed to
have violated Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic
Act No. 8791 and other similar laws, but are prohibited from communicating, directly or indirectly,
in any manner or by any means, to any person the fact that a covered transaction report was
made, the contents thereof, or any other information in relation thereto. In case of violation
thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of
the covered institution, shall be criminally liable. However, no administrative, criminal or civil
proceedings, shall lie against any person for having made a covered transaction report in the
regular performance of his duties and in good faith, whether or not such reporting results in any
criminal prosecution under this Act or any other Philippine law.

When reporting covered transactions to the AMLC, covered institutions and their officers,
employees, representatives, agents, advisors, consultants or associates are prohibited from
communicating, directly or indirectly, in any manner or by any means, to any person, entity, the
media, the fact that a covered transaction report was made, the contents thereof, or any other
information in relation thereto. Neither may such reporting be published or aired in any manner or
form by the mass media, electronic mail, or other similar devices. In case of violation thereof, the
concerned officer, employee, representative, agent, advisor, consultant or associate of the covered
institution, or media shall be held criminally liable.

H.Authority to Inquire into Bank Deposit-Section11, RA 9160

SEC. 11. Authority to Inquire into Bank Deposits. – Notwithstanding the provisions of
Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791,
and other laws, the AMLC may inquire into or examine 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 this Act when it has been established that there is probable cause that the deposits
or investments involved are in any way related to a money laundering offense: Provided, That this
provision shall not apply to deposits and investments made prior to the effectivity of this Act.

I.Bank Inquiry Without Court Order- Section 3(i) in relation to Section 11, RA 9160 as amended
(Section 8RA 9194)

Section 3(i) in relation to Section 11, RA 9160

(i) "Unlawful activity" refers to any act or omission or series or combination thereof involving or
having relation to the following:

(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised
Penal Code, as amended;
(2) Sections 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended, otherwise
known as the Dangerous Drugs Act of 1972;
(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended; otherwise
known as the Anti-Graft and Corrupt Practices Act;
(4) Plunder under Republic Act No. 7080, as amended;
(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised
Penal Code, as amended;
(6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602;
(7) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree
No. 532;
(8) Qualified theft under Article 310 of the Revised Penal Code, as amended;
(9) Swindling under Article 315 of the Revised Penal Code, as amended;
(10) Smuggling under Republic Act Nos. 455 and 1937;
(11) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act
of 2000;
(12) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder,
as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists
against non-combatant persons and similar targets;
(13) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as
the Securities Regulation Code of 2000;
(14) Felonies or offenses of a similar nature that are punishable under the penal laws of other
countries.

SECTION 8. Section 11 of the same Act is hereby amended to read as follows:


(Section 8RA 9194)

"Sec. 11. Authority to Inquire into Bank Deposits. -- Notwithstanding the provisions of Republic
Act No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and
other laws, the AMLC may inquire into or examine 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 this Act, when it has been established that there is probable cause that the
deposits or investments are related to an unlawful activities as defined in Section 3(I) hereof or
a money laundering offense under Section 4 hereof, except that no court order shall be required
in cases involving unlawful activities defined in Sections 3(I)1, (2) and (12).

"To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may inquire into or
examine any deposit of investment with any banking institution or non-bank financial institution
when the examination is made in the course of a periodic or special examination, in accordance
with the rules of examination of the BSP.

Rule IX(b)AMLA Revised IRR

Rule 9.1.b. Trustee, Nominee and Agent Accounts. - When dealing with customers who
are acting as trustee, nominee, agent or in any capacity for and on behalf of another, covered
institutions shall verify and record the true and full identity of the person(s) on whose behalf a
transaction is being conducted. Covered institutions shall also establish and record the true and
full identity of such trustees, nominees, agents and other persons and the nature of their
capacity and duties. In case a covered institution has doubts as to whether such persons are
being used as dummies in circumvention of existing laws, it shall immediately make the
necessary inquiries to verify the status of the business relationship between the parties

J.Jurisdiction Over Money Laundering- Rule 5, AMLA Revised IRR

Rule 5.1. Jurisdiction of Money Laundering Cases. - The Regional Trial Courts shall have
1he jurisdiction to try all cases on money laundering. Those committed by public officers and
private persons who are in conspiracy with such public officers shall be under the jurisdiction of
the Sandiganbayan.

K.Freeze Order-Section 10,RA 9160 as amended by Section 7, RA 9194

SECTION 7. Section 10 of the same Act is hereby amended to read as follows:

"Sec 10. Freezing of Monetary Instrument or Property. -- The Court of Appeals, upon
application ex parte by the AMLC and after determination that probable cause exists that any
monetary instrument or property is in any way related to an unlawful activity as defined in
Section 3(i) hereof, may issue a freeze order which shall be effective immediately. The freeze
order shall be for a period of twenty (20) days unless extended by the court.

i. Probable Cause- Ligot vs Republic GR No. 176944- As defined in the law, the
probable cause required for the issuance of a freeze order refers to "such facts and circumstances
which would lead a reasonably discreet, prudent or cautious man to believe that an unlawful
activity and/or a money laundering offense is about to be, is being or has been committed and that
the account or any monetary instrument or property subject thereof sought to be frozen is in any
way related to said unlawful activity and/or money laundering offense."

In other words, in resolving the issue of whether probable cause exists, the CA’s statutorily-guided
determination’s focus is not on the probable commission of an unlawful activity (or money
laundering) that the Office of the Ombudsman has already determined to exist, but on whether the
bank accounts, assets, or other monetary instruments sought to be frozen are in any way related
to any of the illegal activities enumerated under RA No. 9160, as amended. Otherwise stated,
probable cause refers to the sufficiency of the relation between an unlawful activity and the
property or monetary instrument which is the focal point of Section 10 of RA No. 9160, as
amended.

ii. Duration- Section 10,RA 9160 as amended by Section 7, RA 9194

SECTION 7. Section 10 of the same Act is hereby amended to read as follows:

“The freeze order shall be for a period of twenty (20) days unless extended by the
court.”

Ligot vs Republic GR No. 176944- The final sentence of Section 10 of the Anti-Money
Laundering Act of 2001 provides, "the freeze order shall be for a period of twenty (20) days
unless extended by the court. In contrast, Section 55 of the Rule in Civil Forfeiture Cases
qualifies the grant of extension "for a period not exceeding six months" "for good cause" shown.
Notably, the Senate deliberations on RA No. 9160 even suggest the intent on the part of our
legislators to make the freeze order effective until the termination of the case, when
necessary.40

As correctly noted by the petitioners, a freeze order is meant to have a temporary effect; it was
never intended to supplant or replace the actual forfeiture cases where the provisional remedy -
which means, the remedy is an adjunct of or an incident to the main action – of asking for the
issuance of an asset preservation order from the court where the petition is filed is precisely
available. For emphasis, a freeze order is both a preservatory and preemptive remedy.

To stress, the evils caused by the law’s silence on the freeze order’s period of
effectivity46 compelled this Court to issue the Rule in Civil Forfeiture Cases. Specifically, the
Court fixed the maximum allowable extension on the freeze order’s effectivity at six months. In
doing so, the Court sought to balance the State’s interest in going after suspected money
launderers with an individual’s constitutionally-protected right not to be deprived of his property
without due process of law, as well as to be presumed innocent until proven guilty.

To our mind, the six-month extension period is ordinarily sufficient for the government to act
against the suspected money launderer and to file the appropriate forfeiture case against him,
and is a reasonable period as well that recognizes the property owner’s right to due process. In
this case, the period of inaction of six years, under the circumstances, already far exceeded
what is reasonable.

L. Civil Forfeiture – Section 12, RA 9160

SEC. 12. Forfeiture Provisions. –

(a) Civil Forfeiture. - When there is a covered transaction report made, and the court has, in
a petition filed for the purpose ordered seizure of any monetary instrument or property, in
whole or in part, directly or indirectly, related to said report, the Revised Rules of Court on
civil forfeiture shall apply.

M. Prosecution of Money Laundering- Section 6, RA 9160

SEC. 6. Prosecution of Money Laundering. –

(a) Any person may be charged with and convicted of both the offense of money laundering
and the unlawful activity as herein defined.

(b) Any proceeding relating to the unlawful activity shall be given precedence over the
prosecution of any offense or violation under this Act without prejudice to the freezing and
other remedies provided.

Republic vs Glasgow Credit and Collection Services, Inc. GR No. 170281

A criminal conviction for an unlawful activity is not a prerequisite for the institution of a civil
forfeiture proceeding. Stated otherwise, a finding of guilt for an unlawful activity is not an essential
element of civil forfeiture.
Section 6 of RA 9160, as amended, provides:

SEC. 6. Prosecution of Money Laundering.


(a) Any person may be charged with and convicted of both the offense of money
laundering and the unlawful activity as herein defined.

(b) Any proceeding relating to the unlawful activity shall be given precedence
over the prosecution of any offense or violation under this Act without prejudice to
the freezing and other remedies provided. (emphasis supplied)

Rule 6.1 of the Revised Implementing Rules and Regulations of RA 9160, as amended,
states:

Rule 6.1. Prosecution of Money Laundering

(a) Any person may be charged with and convicted of both the offense of money
laundering and the unlawful activity as defined under Rule 3(i) of the AMLA.
(b) Any proceeding relating to the unlawful activity shall be given precedence
over the prosecution of any offense or violation under the AMLA without prejudice to
the application ex-parte by the AMLC to the Court of Appeals for a freeze order with
respect to the monetary instrument or property involved therein and resort to other
remedies provided under the AMLA, the Rules of Court and other pertinent laws
and rules. (emphasis supplied)

Finally, Section 27 of the Rule of Procedure in Cases of Civil Forfeiture provides:

Sec. 27. No prior charge, pendency or conviction necessary. No prior criminal charge,
pendency of or conviction for an unlawful activity or money laundering offense is
necessary for the commencement or the resolution of a petition for civil forfeiture.
(emphasis supplied)

Thus, regardless of the absence, pendency or outcome of a criminal prosecution for the
unlawful activity or for money laundering, an action for civil forfeiture may be separately and
independently prosecuted and resolved.
FINANCIAL REHABILITATION AND INSOLVENCY ACT (FRIA)

1. Concept and Governing Law – RA NO. 10142


- expressly repealed the Insolvency Law
- passed on July 18,2010
- FRIA and the FR Rules do not limit insolvency to a situation where the debtor’s assets are less than its liabilities.
It now covers a situation where the debtor is unable to meet its obligations as they fall due even if its assets are
more than its liabilities.

A. State Policies - Sec. 2, FRIA

SEC. 2. Declaration of Policy. — (1) It is the policy of the State to encourage debtors, both juridical and natural
persons, and their creditors to collectively and realistically resolve and adjust competing claims and property
rights.

In furtherance thereof, (2) the State shall ensure a timely, fair, transparent, effective and efficient rehabilitation
or liquidation of debtors.

(3) The rehabilitation or liquidation shall be made with a view to ensure or maintain certainty and predictability
in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights
and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated.

When rehabilitation is not feasible, (4) it is in the interest of the State to facilitate a speedy and orderly
liquidation of these debtors’ assets and the settlement of their obligations.

B. Nature of Proceedings - Sec. 3, FRIA


SEC. 3. Nature of Proceedings. — The proceedings under this Act shall be in rem.
An “in rem proceeding” refers to a lawsuit or other legal action directed toward property.
How is Jurisdiction acquired over all persons affected by the proceedings?
- acquired upon publication of the notice of the commencement of the proceedings in any newspaper of
general circulation and the commencement order or any similar order of the proceedings in one (1)
newspaper of general circulation for (2) two consecutive weeks.

How is the proceeding conducted?


- in a summary and non-adversarial manner consistent with the declared policies of this Act and in
accordance with the rules of procedure that the Supreme Court may promulgate.

Prohibited Pleadings:

(A) Motion to Dismiss


(B) Motion for bill of paticulars
(C) Petition for relief
(D) Motion for Extension
(E) Motions for postponement and other motions of similar intent
(F) Reply
(G) Rejoinder
(H) Intervention
(I) Any pleading or motion that is similar to or like effect as any of the foregoing

EXCEPTIONS:

The court may allow the filing of Motions for extension or postponement, PROVIDED, the
same shall be verified and under oath for stated and fully supported compelling reasons.

C. Applicability to Pending Proceedings - Sec. 146, FRIA;

SEC. 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases. — This Act
shall govern all petitions filed after it has taken effect. All further proceedings in insolvency, suspension of
payments and rehabilitation cases then pending, except to the extent that in the opinion of the court their
application would not be feasible or would work injustice, in which event the procedures set forth in prior laws
and regulations shall apply.

GR. NO. 180036


Situs Development Corp., Daily Supermarket, Inc., and Color Lithographic Press, Inc. v. Asiatrust
Bank, et al.
Facts:
Petitioners, all run by the Chua family, obtained from respondents loans secured by real estate
mortgages over the properties of spouses Chua. Petitioners failed to pay the debts as they fell due.
Petitioners later filed for declaration of a state of suspension of payments with approval of proposed
rehabilitation plan. The trial court issued a stay order.
Before the petition for rehabilitation, Allied bank and Metrobank foreclosed on the mortgages. Both were
the highest bidders in their respective proceedings. Respondents prayed for the petition’s dismissal and
the stay order’s lifting.
Petitioners moved for the cancellation of the certificate of sale and its annotation on the titles of the
foreclosed properties. They argued that these were in violation of the stay order.
Respondents countered that the foreclosure proceedings cannot be considered as a “claim” since the
issuance of the certificate of sale and its annotation do not constitute demands for payment of debt or
enforcement of pecuniary liabilities.
Issue:
Whether the stay order affects the foreclosure proceedings had before the petition for rehabilitation and
issuance of stay order
Ruling:
No, the stay order cannot suspend the foreclosure of accommodation mortgages, because the Stay Order
may only cover the suspension of the enforcement of all claims against the debtor, its guarantors, and
sureties not solidarily liable with the debtor. The suspension of enforcement of claims does not extend to
the foreclosure of accommodation mortgages, which, here, were the mortgages over the spouses Chua’s
properties.
Moreover, the foreclosure proceedings were commenced and the auction sale was conducted before the
issuance of the stay order and appointment of rehabilitation receiver. Thus, the execution of the
certificate of sale may no longer be suspended by the trial court’s issuance of the Stay Order, even if the
questioned properties are assumed to fall under the ambit of the Stay Order.

D. Construction of FRIA Rules - (the Rules should be liberally construed in the interest of justice)

Asiatrust Development Bank vs. First Aikka Development, Inc., GR. No. 179558

Facts:
Respondents filed a consolidated Petition for Corporate Rehabilitation with Prayer for Suspension of
Payments with the Regional Trial Court. On the day of the initial hearing, petitioner went to court with a
Motion for Leave of Court to Admit Opposition to Rehabilitation Petition with the attached Opposition to
Petition for Rehabilitation, however, the RTC denied the motion. Subsequently, the rehabilitation receiver
called for a conference and presented the draft of the rehabilitation report to petitioner. Petitioner filed a
manifestation and motion in court calling its attention to the alleged refusal of the receiver to hear its
side. Petitioner thus asked for judicial assistance to enable it to actively participate in the rehabilitation
proceedings and protect its interest. However, the RTC denied the motion of the petitioner. Petitioner
avers that it was denied due process when the rehabilitation court refused to admit its opposition to the
petition for rehabilitation and to comment on the rehabilitation plan.
Issue:
Whether the rehabilitation court correctly denied petitioner's prayer to participate in the rehabilitation
proceedings because of the belated filing of its Comment/Opposition to respondents' petition for
rehabilitation

Ruling:
No. The Court promulgated the Rules in order to provide a remedy for summary and non-adversarial
rehabilitation proceedings of distressed but viable corporations. These Rules are to be construed liberally
to obtain for the parties a just, expeditious, and inexpensive disposition of the case. To be sure, strict
compliance with the rules of procedure is essential to the administration of justice. Nonetheless, technical
rules of procedure are mere tools designed to facilitate the attainment of justice. strict application of
technical rules of procedure should be shunned when they hinder rather than promote substantial justice.
While the court has the discretion whether or not to admit the opposition belatedly filed by petitioner, the
RTC gravely abused its discretion when it refused to grant the motion, even as the factual circumstances
of the case require that the Rules be liberally construed in the interest of justice.

E. Venue of Proceedings - Sec. 6, Rule 1, A.M. 12-12-11-SC

- Shall be filed in the RTC which has jurisdiction over the principal office of the debtor alleged to be insolvent
in cases of SOLE PROPRIETORSHIP.
- Shall be filed in the RTC of the city or municipality where the head office is located where the principal
office of the corporation, partnership or association registered with the SEC is in Metro Manila.

F. Purposes - PBCom vs. Basic Polyprinters and Packaging Corporation, GR. No. 187581

Facts:
Respondent Basic Polyprinters along with the eight other corporations belonging to the Limtong Group of
Companies filed a joint petition for suspension of payments with approval of the proposed rehabilitation
in the RTC. The RTC issued a stay order, and eventually approved the rehabilitation plan, but the CA
reversed the RTC and directed the petitioning corporations to file their individual petitions for suspension
of payments and rehabilitation in the appropriate courts. As to the petition of Basic Polyprinters, the RTC
issued a Stay Order. Subsequently, the rehabilitation receiver recommended the approval of the
rehabilitation plan. The plan was approved by the RTC. PBCOM, a creditor, appealed to the CA, which
affirmed the RTC’s decision.

Issue:
Whether the approval of the rehabilitation plan was proper despite:
(a) the alleged insolvency of Basic Polyprinters; and
(b) absence of a material financial commitment pursuant to Section 5, Rule 4 of the Interim Rules.

Ruling:
No.
Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative purposes. On the
one hand, they attempt to provide for the efficient and equitable distribution of an insolvent debtor's
remaining assets to its creditors; and on the other, to provide debtors with a "fresh start" by relieving
them of the weight of their outstanding debts and permitting them to reorganize their affairs. The
purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby
allow creditors to be paid their claims from its earnings.
A material financial commitment becomes significant in gauging the resolve, determination,
earnestness and good faith of the distressed corporation in financing the proposed rehabilitation plan.
This commitment may include the voluntary undertakings of the stockholders or the would-be investors
of the debtor-corporation indicating their readiness, willingness and ability to contribute funds or property
to guarantee the continued successful operation of the debtor corporation during the period of
rehabilitation.
Basic Polyprinters presented financial commitments, as follows:
(a) Additional P10 million working capital to be sourced from the insurance claim;
(b) Conversion of the directors’ and shareholders’ deposit for future subscription to common stock;
(c) Conversion of substituted liabilities, if any, to additional paid-in capital to increase the company’s
equity; and
(d) All liabilities (cash advances made by the stockholders) of the company from the officers and
stockholders shall be treated as trade payables.

The financial commitments made by Basic Polyprinters could not be considered as firm assurances that
could convince creditors, future investors and the general public of its financial and operational viability

G. Concept of Insolveny - Sec. (4) FRIA;


K. Insolvency – shall refer to the financial incapacity of the debtors to pay their liabilities as they fall due
in the ordinary course of business or whenever their liabilities are greater than their assets.

Metrobank vs. S.F. Naguiat Enterprises, Inc., GR. No. 178407


Facts:
The spouses Naguiat (Naguiat) executed a Real Estate Mortgage (REM) in favor of the Metropolitan Bank
(Metrobank) to secure certain credit accommodations amounting to 17 million. After sometime, petition
for Voluntary Insolvency with the Application for Appointment of Receiver filed by Naguiat was approved.
Subsequently, Naguiat defaulted in paying its loan, so Metrobank instituted an extrajudicial foreclosure
proceeding against the mortgaged property, and sold it in a public auction. However, the Certificate of
Sale was not approved by the Executive Judge, because of the previously issued Stay Order.
Issue:
Whether Metrobank, a secured creditor, may enforce his lien even before the court acquires control over
the property of the debtor.
Ruling:
No, Metrobank cannot enforce its lien.
In the exercise of exclusive jurisdiction of the insolvency court over the estate of the insolvent,
the mortgaged property must first be formally delivered by the court or the assignee before a mortgage
creditor can initiate proceedings for foreclosure.
Here, Metrobank should have waited for the insolvency court to act on the motion to foreclose,
instead of initiating the foreclosure proceeding without leave of court. Its act interferes with the court’s
jurisdiction over the subject property; therefore, they cannot their lien.

i. Actual vs. Technical - PNB vs. Court of Appeals, GR No. 165571


Facts:
Private respondents filed with the SEC a verified petition for rehabilitation with prayer for suspension of
actions and proceedings pending rehabilitation. They stated that they possess sufficient properties to
cover their obligations but foresee inability to pay them within a period of one year.
Petitioners opposed the petition for rehabilitation. They argued that a solvent corporation cannot file
such petition, as it can only be filed a debtor with insufficient assets to cover its liabilities. They also
argued that the approval of the rehabilitation plan compelled them to release part of the collateral and
accept the mortgaged properties as payment by dacion en pago, violating the constitutional right on non-
impairment of contracts.
Issues:
1. Whether private respondents fall under the concept of insolvency under the law
2. Whether the approval of the rehabilitation plan violated the constitutional provision on non-
impairment of contracts
Ruling:
1. There are two kinds of insolvency under the law, actual and technical. Actual insolvency is when
the corporation’s assets are not enough to cover its liabilities while technical insolvency is when the
corporation has enough assets but it foresees its inability to pay its obligations for more than one year.
The mere fact that the ASB Group averred that it has sufficient assets to cover its obligations does not
make it "solvent" enough to prevent it from filing a petition for rehabilitation. A corporation may have
considerable assets but if it foresees the impossibility of meeting its obligations for more than one year, it
is considered as technically insolvent. Thus, at the first instance, a corporation may file a petition for
rehabilitation.
2. The approval of the Rehabilitation Plan and the appointment of a rehabilitation receiver merely
suspend the actions for claims against respondent corporations. The loan agreements between the
parties have not been set aside and petitioner bank may still enforce its preference when the assets of
ASB Group of Companies will be liquidated. Considering that the provisions of the loan agreements are
merely suspended, there is no impairment of contracts, specifically its lien in the mortgaged properties.

H. Concept of Debtor - Secs. 4(k) & 5, FRIA

(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole proprietorship duly
registered with the Department of Trade and Industry (DTI), a partnership duly registered with the Securities and
Exchange Commission (SEC), a corporation duly organized and existing under Philippine laws, or an individual
debtor who has become insolvent as defined herein.

Section 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-need companies,
and national and local government agencies or units.

For purposes of this section:

(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or actually subject to
conservatorship, receivership or liquidation proceedings under the New Central Bank Act (Republic Act No. 7653)
or successor legislation;

(b) Insurance company shall refer to those companies that are potentially or actually subject to insolvency
proceedings under the Insurance Code (Presidential Decree No. 1460) or successor legislation; and

(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer to sell pre-need plans.

Provided, That government financial institutions other than banks and government-owned or controlled
corporations shall be covered by this Act, unless their specific charter provides otherwise.

II. Rehabilitation
A. Definition & Concept - Sec. 4(gg), FRIA;
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and solvency,
if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the
present value of payments projected in the plan, more if the debtor continues as a going concern than if it is
immediately liquidated.

BPI Family Savings Bank, Inc. vs. St. Michael Medical Center, Inc., GR. NO. 205469;
Facts:
Spouses Rodil are the owners and sole proprietors of St. Michael Hospital. Later on, St. Michael
Medical Center, Inc. (SMMCI) was incorporated with which entity they planned to eventually
consolidate St. Michael Hospital’s operations. With a vision to upgrade St. Michael Hospital into a
modern, well-equipped and full service tertiary 11-storey hospital, SMMCI applied for a loan with
petitioner BPI Family Savings Bank. On August 11, 2010, SMMCI filed a Petition for Corporate
Rehabilitation, docketed as SEC Case No. 086-10, before the RTC, with prayer for the issuance of
a Stay Order as it foresaw the impossibility of meeting its obligation to BPI Family, its purported
sole creditor. BPI argues that the approval of the Rehabilitation Plan violated its rights as an
unpaid creditor/mortgagee and that the same was submitted without prior consultation with
creditors.
Issue:
Whether or not the CA correctly affirmed SMMCI’s Rehabilitation Plan as approved by the RTC
Ruling:
No. Restoration is the central idea behind the remedy of corporate rehabilitation. In common
parlance, to “restore” means “to bring back to or put back into a former or original state.” Case
law explains that corporate rehabilitation contemplates a continuance of corporate life and
activities in an effort to restore and reinstate the corporation to its former position of successful
operation and solvency, the purpose being to enable the company to gain a new lease on life and
allow its creditors to be paid their claims out of its earnings. In other words, rehabilitation
assumes that the corporation has been operational but for some reasons like economic crisis or
mismanagement had become distressed or insolvent.
In this case, it cannot be said that the petitioning corporation, SMMCI, had been in a position of
successful operation and solvency at the time the Rehabilitation Petition was filed on August 11,
2010. While it had indeed “commenced business” through the preparatory act of opening a credit
line with BPI Family to finance the construction of a new hospital building for its future
operations, SMMCI itself admits that it has not formally operated nor earned any income since its
incorporation.

Wonder Book Corp. vs. PBCom, GR. No. 187316;


Facts:
Wonder Book and eight (8) other corporations, collectively known as the Limtong Group of
Companies (LGC), filed a joint petition for rehabilitation with the RTC. A Stay Order was issued.
Equitable PCI Bank (EPCI Bank), one of the creditors of LGC, filed an opposition raising, among
others, the impropriety of nine (9) corporations with separate and distinct personalities seeking
joint rehabilitation under one proceeding. The petition was then approved by the RTC, however it
was questioned by EPCI Bank and PBCOM before the CA. The petition of EPCI was granted while
that of PBCOM’s was denied.
Wonder Book’s rehabilitation plan put forward a payment program that guaranteed full payment
of its loan from PBCOM after fifteen (15) years at a reduced interest rate of five percent (5%) per
annum with a waiver of all penalties and moratorium on interest and principal payments for two
(2) years and five (5) years, respectively, that will be counted from the court’s approval. Wonder
Book proposed to pay its trade creditors and the interest that will accrue during the two-year
moratorium within ten (10) years from the approval of its rehabilitation plan.[15] Further, it
committed to: (a) convert all deposits for future subscriptions to common stock; (b) treat all its
liabilities to its officers and stockholders as trade payables; (c) infuse an additional capital of P10
Million; and (d) use 70% and 30% of its unpaid insurance claim for the payment of its debts and
capital infusion, respectively.
Issue:
Whether Wonder Book’s petition for rehabilitation is impressed with merit.
Ruling:
No. Rehabilitation contemplates a continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of successful operation and solvency.
The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life
and thereby allow creditors to be paid their claims from its earnings. The rehabilitation of a
financially distressed corporation benefits its employees, creditors, stockholders and, in a larger
sense, the general public.
Rehabilitation is not the proper remedy for Wonder Book’s dire financial condition. Given that it is
actually insolvent and not just suffering from temporary liquidity problems, rehabilitation is not a
viable option.
Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc., GR. No. 177382
1) Rehabilitation 2) Liquidation
Facts:
Viva Shippines Lines filed an amended petition for rehabilitation declaring that it has 19 maritime
vessels and a shopping mall. In the material financial commitment, it stated that the sources of
funds are the sale of the vessels and the conversion of mall into hotel. Initially, RTC approved the
petition, but it later lifted the approval, upon the finding that out of 19, only 2 vessels were
owned by Viva. Also, the declared assets are non-serviceable because of the vessel’s age and
deterioration. From these, RTC dismissed the petition for failure to show the company’s viability
and feasibility of rehabilitation.
Issue:
Whether rehabilitation, not liquidation, is the more appropriate remedy when all the assets are
non-performing or non-serviceable.
Ruling:
Liquidation is the more appropriate remedy.
When optimum economic welfare will be achieved by winding up the affairs and equitably
distributing the assets among the creditors, or when rehabilitation will not result in a better
present value recovery for the creditors, then more appropriate remedy is liquidation.
Here, rehabilitation is not the remedy because the non-serviceable assets reduced the probability
for restoration and revival of business. The more appropriate remedy is liquidation, because it
allows the corporation to wind up its affairs and equitably distribute its assets among its
creditors.
Definition and concept of rehab and liquidation:
Liquidation is diametrically opposed to rehabilitation. Both cannot be undertaken at the same
time. In rehabilitation, corporations have to maintain their assets to continue business
operations. In liquidation, on the other hand, corporations preserve their assets in order to sell
them. Without these assets, business operations are effectively discontinued. The proceeds of the
sale are distributed equitably among creditors, and surplus is divided or losses are re-allocated.

B. Concept of Material Financial Commitment - PBCom vs. Basic Polyprinters and Packaging
Corporation, GR. No. 187581
Facts:
Respondent Basic Polyprinters along with the eight other corporations belonging to the Limtong Group of
Companies filed a joint petition for suspension of payments with approval of the proposed rehabilitation
in the RTC. The RTC issued a stay order, and eventually approved the rehabilitation plan, but the CA
reversed the RTC and directed the petitioning corporations to file their individual petitions for suspension
of payments and rehabilitation in the appropriate courts. As to the petition of Basic Polyprinters, the RTC
issued a Stay Order. Subsequently, the rehabilitation receiver recommended the approval of the
rehabilitation plan. The plan was approved by the RTC. PBCOM, a creditor, appealed to the CA, which
affirmed the RTC’s decision.

Issue:
Whether the approval of the rehabilitation plan was proper despite: (a) the alleged insolvency of Basic
Polyprinters; and (b) absence of a material financial commitment pursuant to Section 5, Rule 4 of the
Interim Rules.

Ruling:
No.
Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative purposes. On the one
hand, they attempt to provide for the efficient and equitable distribution of an insolvent debtor's
remaining assets to its creditors; and on the other, to provide debtors with a "fresh start" by relieving
them of the weight of their outstanding debts and permitting them to reorganize their affairs. The
purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby
allow creditors to be paid their claims from its earnings.
A material financial commitment becomes significant in gauging the resolve, determination, earnestness
and good faith of the distressed corporation in financing the proposed rehabilitation plan. This
commitment may include the voluntary undertakings of the stockholders or the would-be investors of the
debtor-corporation indicating their readiness, willingness and ability to contribute funds or property to
guarantee the continued successful operation of the debtor corporation during the period of
rehabilitation.
Basic Polyprinters presented financial commitments, as follows:
(a) Additional P10 million working capital to be sourced from the insurance claim;
(b) Conversion of the directors’ and shareholders’ deposit for future subscription to common stock;
(c) Conversion of substituted liabilities, if any, to additional paid-in capital to increase the company’s
equity; and
(d) All liabilities (cash advances made by the stockholders) of the company from the officers and
stockholders shall be treated as trade payables.
The financial commitments made by Basic Polyprinters could not be considered as firm assurances that
could convince creditors, future investors and the general public of its financial and operational viability
C. Types of Rehabilitation Proceedings
i. Voluntary Proceedings - Sec. 4(rr), FRIA
(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.
SEC. 1. WHO MAY PETITION. When approved by”
(a) the owner, in case of a sole proprietorship;
(b) a majority of the partners, in case of a partnership; or
(c) a majority vote of the board of directors or trustees and authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or at least two-thirds (2/3) of the members in a
non-stock corporation, in case of a corporation;
an insolvent debtor may initiate voluntary proceedings under this Rule by filing a petition for rehabilitation with
the court based on the grounds hereinafter specifically provided.
a. The Petitioner
b. Grounds - Sec. 1, Rule 2, AM 12-12-11-SC;
A group of debtors may file a petition for rehabilitation under this Rule when (1) one or more of its members
foresee the impossibility of meeting debts whl:n they respectively fall due, and (2) the financial distress would
likely adversely affect the financial condition and/or operations of the other members of the group or the
participation of the other members of the group is essential under the terms and conditions of the proposed
Rehabilitation Plan.

Tantano vs. Espina-Caboverde, GR. No.203585;

Facts:
Private respondent Dominalda filed a petition to place certain lots under receivership. She
alleged her fear of the properties being squandered and her need for income to defray her
medical expenses and support. The trial court granted her application.
Petitioners moved for reconsideration. They argued that the concerns raised in the application
are not grounds for placing the properties in receivership.
Issue:
Whether the court erred in appointing a receiver despite clear showing that the reasons
advanced by the applicant are not those enumerated by the rules
Ruling:
Before appointing a receiver, courts should consider: (1) whether the injury resulting from such
appointment would probably be greater than the injury ensuing if the status quo is left
undisturbed and (2) whether the appointment will imperil the interest of others whose rights
deserve as much a consideration from the court as those of the person requesting for
receivership.
Here, Dominalda’s alleged need for income to defray her medical expenses and support is not a
valid justification for the appointment of a receiver. The approval of an application for
receivership merely on this ground is not only unwarranted but also an arbitrary exercise of
discretion because financial need and like reasons are not found in the law prescribing specific
grounds or reasons for granting receivership.
Moreover, there is no clear showing that the disputed properties are in danger of being lost or
materially impaired and that placing them under receivership is most convenient and feasible
means to preserve, administer or dispose of them.

Ao-as vs. Court of Appeals, GR No. 128464


Facts:
Petitioners filed SEC-SICD Case No. 3857 for accounting and damages with prayer for preliminary
injunction and appointment of a management committee on the ground that there are acquisition
of some lands using the corporate funds in the name of some person other than the LCP, and
various cash advances of corporate funds by the respondents are not liquidated up to the
present. Respondents are the duly elected board of directors of the Lutheran Church in the
Philippines at the time of the filing of SEC-SICD Case No. 3857.
Issue:
Whether the grounds alleged by petitioners warrant the appointment of management committee
Ruling:
No. Where the corporation is solvent, a receiver will not be appointed because of past
misconduct and a subsequent mere apprehension of a future misdoing, where the present
situation and the prospects for the future are not such as to warrant a receivership. It is the
general rule that a receiver (or a management committee) will not be appointed unless it appears
that the appointment is necessary either to prevent fraud, or to save the property from fraud or
threatened destruction, or at least in case of solvent corporation. Similarly, a receiver (or a
management committee) should not be appointed in an action by a minority stockholder against
corporate officers for an accounting where the corporation is solvent and going concern and a
receiver is not necessary to preserve the corporate property pending the accounting.
The appointment of a receiver for a going corporation is a last resort remedy, and should not be
employed when another remedy is available. Bad judgment by directors, or even unauthorized
use and misapplication of the company’s funds, will not justify the appointment of a receiver for
the corporation if appropriate relief can otherwise be had.

ii. Involuntary Proceedings - Sec. 4(r), FRIA


a. The Petitioner-Sec. 13, FRIA; b. Grounds - Sec. 13, FRIA;
Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or group of
creditors with a claim of, or the aggregate of whose claims is, at least One Million Pesos
(Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partners'
contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a
petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least sixty (60) days or that the debtor has
failed generally to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that
will prevent the debtor from paying its debts as they become due or will render it insolvent.
Sec. 4, Rule 2, A.M. 12-12-11-SC
SEC. 4. WHO MAY PETITION. -Any creditor or group of creditors with a claim of, or the aggregate of
whose claims is at least One Million Pesos (Pl,000,000.00) or at least twenty-five percent (25%) of the
subscribed capital stock or partners' contributions, whichever is higher, may initiate involuntary
proceedings under this Rule by filing a petition for rehabilitation of a debtor with the court and on the
grounds hereinafter specifically provided.

Sec 5, Rule 2, A.M. 12-12-11-SC


SEC. 5. GROUNDS TO INITIATE INVOLUNTARY PROCEEDINGS. - Involuntary proceedings may be
initiated against the debtor by filing a petition with the court if:
(A) there is no genuine issue of fact or law on the claimis of the petitioner/s, and that the
due and demandab!e payments thereon have not been made for at least sixty (60) days; or
(B) the debtor has failed generally to meet its liabilities as they fall due; or
(C) at least one creditor, other than the petitioner/s, has initiated foreclosure proceedings
against the debtor that will prevent the debtor from paying its debts as tJ1ey become due or will
render it insolvent.
iii. Pre-Negotiated Rehabilitation --Sec. 76, FRIA
Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its creditors, may
file a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan which has
been endorsed or approved by creditors holding at least two-thirds (2/3) of the total liabilities of the
debtor, including secured creditors holding more than fifty percent (50%) of the total secured claims of
the debtor and unsecured creditors holding more than fifty percent (50%) of the total unsecured claims
of the debtor. The petition shall include as a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3) qualified nominees for
rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and a report on the provisioning of funds to account
for appropriate payments should any such claims be ruled valid or their amounts adjusted.

iii. Out-of-Court or Informal Restructuring Agreement or Rehabilitation - Sec. 84, FRIA

Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An out-of-curt
or informal restructuring agreement or Rehabilitation Plan that meets the minimum requirements
prescribed in this chapter is hereby recognized as consistent with the objectives of this Act.

Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and


Rehabilitation Plans. - For an out-of-court or informal restructuring/workout agreement or Rehabilitation
Plan to qualify under this chapter, it must meet the following minimum requirements:
(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured obligations of
the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of the unsecured
obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total liabilities,
secured and unsecured, of the debtor.
D. Stand still Period - Sec. 85, FRIA;
Section 85. Standstill Period. - A standstill period that may be agreed upon by the parties pending negotiation and
finalization of the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan contemplated
herein shall be effective and enforceable not only against the contracting parties but also against the other
creditors: Provided, That (a) such agreement is approved by creditors representing more than fifty percent (50%)
of the total liabilities of the debtor; (b) notice thereof is publishing in a newspaper of general circulation in the
Philippines once a week for two (2) consecutive weeks; and (c) the standstill period does not exceed one hundred
twenty (120) days from the date of effectivity. The notice must invite creditors to participate in the negotiation
for out-of-court rehabilitation or restructuring agreement and notify them that said agreement will be binding on
all creditors if the required majority votes prescribed in Section 84 of this Act are met.
Sec. 2, Rule 4, A.M. 12-12-11-SC
SEC. 2. STANDSTISTILL PERIOD. - A standstill period may be agreed upon by the parties and shall be effective
and enforceable not only against the contracting parties but also against the other creditors provided it complies
with the following conditions:
(A) approval or the agreement for a standstill period by creditors
representing more than fifty percent (50%) of the total liabilities of the debtor;
(B) publication of the notice of the agreement in a newspaper of general circulation in the Philippines, once a
week for two (2) consecutive weeks; and
(C) the standstill period shall not exceed one hundred twenty (120) days from the date of effectivity.
The notice of the standstill agreement shall substantially state the following minimum
requirements:
( l) the identity of the debtor, its principal business or activity lies, and its principal place of business;
(2) the total amount of the liabilities of the debtor, classified into secured and unsecured;
(3) that a contact person is identified, together with his contact details, which should include existing
office address, phone numbers, and e-mail addresses;
( 4) that creditors are invited to participate in the negotiations for an OCRA and may do so by
contacting the person specified in the notice;
(5) that the creditors representing more than fifty percent (50%) of the total liabilities of the debtor
have agreed to observe a standstill period which shall not exceed one hundred twenty ( J 20) days from
its date of effectivity;
(6) that the terms and conditions agreed upon by the parties shall be strictly observed during the
standstill period;
(7) that the standstill period shall be effective after publication of the notice once a week for two (2)
consecutive weeks in a newspaper of general circulation in the Philippines; and
(8) that the OCRA shall be binding on the debtor and all affected persons, including the creditors,
whether or not they will participate in the negotiations, if approved by all of the following:
(a) the debtor;
(b) the creditors. representing at least sixty-seven percent (67%) of the secured obligations of
the debtor;
(c) the creditors representing at least seventy-five percent (75%) of the unsecured obligations of
the debtor; and
(d)the creditors holding at least eighty-five percent (85%) of the total liabilities, secured and
unsecured, of the debtor.

E. Commencement Order
i. Action on the Petition - Sec. 15, FRIA;

(B) Action on the Petition and Commencement of Proceedings.


Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be sufficient in form
and substance, it shall, within five (5) working days from the filing of the petition, issue a
Commencement Order. If, within the same period, the court finds the petition deficient in form or
substance, the court may, in its discretion, give the petitioner/s a reasonable period of time within which
to amend or supplement the petition, or to submit such documents as may be necessary or proper to put
the petition in proper order. In such case, the five (5) working days provided above for the issuance of
the Commencement Order shall be reckoned from the date of the filing of the amended or supplemental
petition or the submission of such documents.
Sec. 7, Rule 2, A.M. 12-12-11-SC
SEC. 7. ACTION ON THE PETITION. - Jf the court finds the petit.ion for rehabilitation to be sufficient in
form and substance, it shall, within five (5) working days from the filing of the petition, issue a
Commencement Order.
If, within the same period, the court finds the petition deficient in fonn or substance, the court may, in its
discretion, give the petitioner/s not exceeding five (5) working days from receipt of notice of the order of
the court within which to amend or supplement the petition, or to submit such documents as may be
necessary or proper to put the petition in proper order. ln such case, the five (5) working days provided
above shall be reckoned from the date of the filing of the amended or supplemental petition or the
submission of such documents. The court shall dismiss the petition if the deficiency is not complied within
ilie extended five ( 5 )-day period.
ii. Effects of Commencement Order - Sec. 17, FRIA;
Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act, the court's
issuance of a Commencement Order shall, in addition to the effects of a Stay or Suspension Order
described in Section 16 hereof:

(a) vest the rehabilitation with all the powers and functions provided for this Act, such as the right to
review and obtain records to which the debtor's management and directors have access, including bank
accounts or whatever nature of the debtor subject to the approval by the court of the performance bond
filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the results of any extrajudicial
activity or process to seize property, sell encumbered property, or otherwise attempt to collection or
enforce a claim against the debtor after commencement date unless otherwise allowed in this Act,
subject to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any setoff after the commencement date of any
debt owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against the debtor's
property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to the court Provided.
However, That the court may allow the continuation of cases on other courts where the debtor had
initiated the suit.
Attempts to seek legal of other resource against the debtor outside these proceedings shall be sufficient
to support a finding of indirect contempt of court.
Sec. 9, Rule 2, A.M. 12-12-11-SC
SEC. 9. EFFECTS OF THE COMlvlENCEl'viENT ORDER. - The effects of the court's issuance of a Commencement
Order shall retroact to the date of the filing of the petition and, in addition to the effects of a Stay or Suspension
Order described in the foregoing section, shall:
(A) vest the rehabilitation receiver with all the powers and functions provided for under the Act, such
as the right of access, and the right to review and obtain records to which the debtor's management and
directors have access, including bank accounts of whatever nature of the debtor, subject to the approval
by the court of the performance bond posted by the rehabilitation receiver;
(B) prohibit or otherwise serve as the legal basis for rendering null and void the results of any
extrajudicial activity or process to seize property, sell encumbered property, or otherwise attempt to
collect on or enforce a claim against the debtor after the commencement date unless otherwise allowed
under these Rules, subject to the provisions of Section 49 of this Rule;
(C) serve as the legal basis for rendering null and void any set-off after the commencement date of
any debt owed to the debtor by any of the debtor's creditors;
(D) serve as the legal basis for rendering null and void the perfection of any lien against the debtor's
property after the commencement date;
(E) consolidate all legal proceedings by and against the debtor to the court: Provided, however, That
the court may allow the continuation of cases in other courts where the debtor had initiated the suit; and
(F) exempt the debtor from liability for taxes and fees, including penalties, interests and charges
thereof due to the national government or the LGU as provided in Section 19 of the Act.
Attempts to seek legal or other recourse against the debtor outside of tl1ese proceedings shall be
sufficient to support a finding of indirect contempt of court.
iv. Exception - Sec. 60, FRIA,

(H) Treatment of Secured Creditors.

Section 60.No Diminution of Secured Creditor Rights. The issuance of the Commencement Order
and the Suspension or Stay Order, and any other provision of this Act, shall not be deemed in
any way to diminish or impair the security or lien of a secured creditor, or the value of his lien or
security, except that his right to enforce said security or lien may be suspended during the term
of the Stay Order.
The court, upon motion or recommendation of the rehabilitation receiver, may allow a secured
creditor to enforce his security or lien, or foreclose upon property of the debtor securing his/its
claim, if the said property is not necessary for the rehabilitation of the debtor. The secured
creditor and/or the other lien holders shall be admitted to the rehabilitation proceedings only for
the balance of his claim, if any.

Rule 59, Rule 2, A.M. 12-12-11-SC

SEC. 59. NO DIMINUTION OF SECURED CREDITOR RIGHTS.


The issuance of the Commencement Order and the Suspension or Stay Order, and any other
provision of the Act, shall not in any way diminish or impair the security or lien of a secured
creditor, or the value of his lien or security, except that his right to enforce the security or lien
may be suspended during the term of the Stay Order.
The court, upon motion or recommendation of the rehabilitation receiver, may allow a secured
creditor to enforce his security or lien, or foreclose upon property of the debtor securing his/its
claim, if tJ1e property is not necessary for the rehabilitation of the debtor. Thee secured creditor
and/or the other lien holders shall be admitted to the rehabilitation proceedings only for the
balance, if any, of his claim.

v. Effectivity and Duration - Sec. 21, FRIA;

Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court, the Commencement
Order shall be for the effective for the duration of the rehabilitation proceedings for as long as there is a substantial
likelihood that the debtor will be successfully rehabilitated. In determining whether there is substantial likelihood for
the debtor to be successfully rehabilitated, the court shall ensure that the following minimum requirements are met:

(a) The proposed Rehabilitation Plan submitted complies with the minimum contents prescribed by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for the protection of
creditors;
(c) The debtor has met with its creditors to the extent reasonably possible in attempts to reach consensus on
the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating that the underlying
assumptions and the goals stated in the petitioner's Rehabilitation Plan are realistic reasonable and
reasonable or if not, there is, in any case, a substantial likelihood for the debtor to be successfully
rehabilitated because, among others:
(1) there are sufficient assets with/which to rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the operations of the debtor;
(3) the debtor's, partners, stockholders, directors and officers have been acting in good faith and
which due diligence;
(4) the petition is not s sham filing intended only to delay the enforcement of the rights of the
creditor's or of any group of creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any materially false or
misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at least three-fourths
(3/4) of its total obligations to the extent reasonably possible and made a good faith effort to reach a
consensus on the proposed Rehabilitation Plan if the petitioner/s is/are a creditor or group of creditors, that/
the petitioner/s has/have met with the debtor and made a good faith effort to reach a consensus on the
proposed Rehabilitation Plan; and
(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s or a group of creditors.

Sec. 11, Rule 2, A.M. 12-12-11-SC


SEC. l L EFFECTIVITY AND DURATION OF COMMENCEMENT ORDER. 􀂙 The Commencement Order shall be
effective for the duration of the rehabilitation proceedings, unless (a) earlier lifted by the court, (b) the
rehabilitation plan is seasonably confirmed or approved, or (c) the rehabilitation proceedings are ordered
terminated by the court pursuant to Section 73 of this Rule.
F. Stay or Suspension Order - Sec. 16(9), FRIA;

(q) include s Stay or Suspension Order which shall:

(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against
the debtor;
(2) suspend all actions to enforce any judgment, attachment or other provisional remedies against
the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its
properties except in the ordinary course of business; and
(4) prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided herein.

i. Concept of "Clams" - Sec. 4(c), FRIA;

(c) Claim shall refer to all claims or demands of whatever nature or character against the debtor or
its property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured
or unmatured, disputed or undisputed, including, but not limited to; (1) all claims of the government,
whether national or local, including taxes, tariffs and customs duties; and (2) claims against directors
and officers of the debtor arising from acts done in the discharge of their functions falling within the
scope of their authority: Provided, That, this inclusion does not prohibit the creditors or third parties
from filing cases against the directors and officers acting in their personal capacities.

Lingkod Manggagawa sa Rubberworld (Phils.), Inc., GR. No 153882


Facts:
Petitioner union filed against Rubberworld a complaint for unfair labor practice (ULP). While the
case was pending before the Labor Arbiter (LA), Rubberworld filed before the SEC a Petition for
Declaration of a State of Suspension of Payments with Proposed Rehabilitation Plan, which was
granted. Despite such order, the LA went on with the case and ruled in favor of petitioner.
Initially, the appeal of Rubberworld was dismissed by the NLRC for failure to file the proper bond.
The suspension order was lifted, hence, the NLRC issued a writ of execution. In the interest of
justice, the CA held that the LA committed grave abuse of discretion when it proceeded with the
ULP case despite the SEC order.
Issue:
Whether Sec. 6(c) of PD 902-A, which confers power upon the SEC to appoint a management
committee, rehabilitation receiver, board or body, is applicable in labor cases.
Ruling:
Yes.
The law is clear: upon the creation of a management committee or the appointment of a
rehabilitation receiver, all claims for actions “shall be suspended accordingly.” No exception in
favor of labor claims is mentioned in the law. Since the law makes no distinction or exemptions,
neither should this Court. Ubi lex non distinguit nec nos distinguere debemos.
Allowing labor cases to proceed clearly defeats the purpose of the automatic stay and severely
encumbers the management committee's time and resources. The said committee would need to
defend against these suits, to the detriment of its primary and urgent duty to work towards
rehabilitating the corporation and making it viable again. To rule otherwise would open the
floodgates to other similarly situated claimants and forestall if not defeat the rescue efforts.

Garcia vs. PAL, GR No. 164856

Facts:
The petitioners filed an illegal termination case against their employer (PAL). During the
pendency of the labor case, the SEC declared PAL as suffering from severe financial losses, thus,
it appointed an Interim Rehabilitation Receiver (IRR). After the Labor Arbiter rendered his
decision, the SEC replaced the IRR with a Permanent Rehabilitation Receiver. The petitioners
ignored the SECs action. They now claim for reinstatement based on the decision of LA, and the
issuance of writ of execution and notice of garnishment.
Issue:
Whether the claim for reinstatement based on writ of execution and Notice of Garnishment
issued by the Labor Arbiter may be enforced despite the approval of petition for rehabilitation of
the employer (PAL).
Ruling:
No, the claim for reinstatement may not be executed.
The suspension of claims by legislative fiat (SEC) partakes the nature of restraining order
that constitutes a legal justification for the noncompliance of a reinstatement order.
Since the SEC issued a suspension order upon the appointment of receiver, and the order
is in the nature of restraining order, thus, the obligation of employer to pay the salaries pending
appeal did not attach, and the claim of employees for reinstatement cannot be enforced.

Sobrejuanite vs. ASB Development GR NO. 165675

Facts:
Petitioners filed a complaint for rescission of contract, refund of payments, and damages against
respondent before the Housing and Land Use Regulatory Board (HLURB).
Respondent moved to dismiss or suspend the proceedings in view of the approval by the SEC of
its rehabilitation plan and the appointment of a rehabilitation receiver.
The HLURB arbiter denied the motion and ordered the continuation of the proceedings. It later
ruled for petitioners.
The decision was then affirmed by the HLURB Board of Commissioners. It held that the approval
of the rehabilitation plan and the appointment of a rehabilitation receiver by the SEC did not have
the effect of suspending the proceedings before the HLURB and that the HLURB could properly
take cognizance of the case since whatever monetary award that may be granted by it will be
ultimately filed as a claim before the rehabilitation receiver.
Issue:
Whether petitioners’ complaint for rescission and damages is a claim under the
contemplation of the Rules on Corporate Rehabilitation
Ruling:
A claim refers to all claims or demands, of whatever nature or character against a debtor or its
property, whether for money or otherwise. The definition is all-encompassing as it refers to all
actions whether for money or otherwise. There are no distinctions or exemptions.
The complaint filed by the Sobrejuanites is a claim as defined under the Interim Rules of
Procedure on Corporate Rehabilitation. As such, HLURB arbiter should have suspended the
proceedings upon the approval by the SEC of the ASB Group of Companies’ rehabilitation plan
and the appointment of its rehabilitation receiver. This is pursuant to Sec. 6(c) of PD 902-A
which provides that upon appointment of a management committee, rehabilitation receiver,
board or body, pursuant to this Decree, all actions for claims against corporations, partnerships
or associations under management or receivership pending before any court, tribunal, board or
body shall be suspended accordingly.

ii. Exceptions - Sec. 18, FRIA; Sec. 10, Rule 2, A.M. 12-12-11-SC;

Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not apply:

(a) to cases already pending appeal in the Supreme Court as of commencement date Provided, That any
final and executory judgment arising from such appeal shall be referred to the court for appropriate action;

(b) subject to the discretion of the court, to cases pending or filed at a specialized court or quasi-judicial
agency which, upon determination by the court is capable of resolving the claim more quickly, fairly and
efficiently than the court: Provided, That any final and executory judgment of such court or agency shall be
referred to the court and shall be treated as a non-disputed claim;

(c) to the enforcement of claims against sureties and other persons solidarily liable with the debtor, and third
party or accommodation mortgagors as well as issuers of letters of credit, unless the property subject of the
third party or accommodation mortgage is necessary for the rehabilitation of the debtor as determined by the
court upon recommendation by the rehabilitation receiver;

(d) to any form of action of customers or clients of a securities market participant to recover or otherwise
claim moneys and securities entrusted to the latter in the ordinary course of the latter's business as well as
any action of such securities market participant or the appropriate regulatory agency or self-regulatory
organization to pay or settle such claims or liabilities;

(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities
pledge or margin agreement for the settlement of securities transactions in accordance with the provisions of
the Securities Regulation Code and its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the facilities of a clearing agency or similar
entities duly authorized, registered and/or recognized by the appropriate regulatory agency like the Bangko
Sentral ng Pilipinas (BSP) and the SEC as well as any form of actions of such agencies or entities to
reimburse themselves for any transactions settled for the debtor; and

(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be
affected by any proceeding commend under this Act

MWSS vs. Daway, GR No. 160732;

Facts:
MWSS granted Maynilad under a Concession Agreement a twenty-year period to manage,
operate, repair, decommission and refurbish the existing MWSS water delivery and sewerage
services in the West Zone Service Area. To secure the concessionaire’s performance of its
obligations under the Concession Agreement, Maynilad was required to put up a security
acceptable to MWSS. Thereafter, Maynilad arranged for a three-year facility with a number of
foreign banks, led by Citicorp International Limited, for the issuance of an Irrevocable Standby
Letter of Credit in favor of MWSS for the full and prompt performance of Maynilad’s obligations to
MWSS as aforestated. On November 22, 2003, MWSS, submitted a written notice to Citicorp
International Limited, as agent for the participating banks, that by virtue of Maynilad’s failure to
perform its obligations under the Concession Agreement, it was drawing on the Irrevocable
Standby Letter of Credit and thereby demanded payment. Prior to this, however, Maynilad had
filed on November 13, 2003, a petition for rehabilitation before the court a quo which resulted in
the issuance of the Stay Order. Maynilad argues that MWSS may not call the Letters of Credit
because it is part of the assets of Maynilad subject of the Stay Order.
Issue:
Whether the Letters of Credit is an exemption to Stay Orders
Ruling:
Yes. Sec. 6 (b) of Rule 4 of the Interim Rules does not enjoin the enforcement of all claims
against guarantors and sureties, but only those claims against guarantors and sureties who are
not solidarily liable with the debtor. The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules
does not apply to herein petitioner as the prohibition is on the enforcement of claims against
guarantors or sureties of the debtors whose obligations are not solidary with the debtor. The
participating banks’ obligation are solidary with respondent Maynilad in that it is a primary, direct,
definite and an absolute undertaking to pay and is not conditioned on the prior exhaustion of the
debtor’s assets. These are the same characteristics of a surety or solidary obligor.
Except when a letter of credit specifically stipulates otherwise, the obligation of the banks issuing
letters of credit are solidary with that of the person or entity requesting for its issuance, the same
being a direct, primary, absolute and definite undertaking to pay the beneficiary upon the
presentation of the set of documents required therein.
Being a solidary obligation, the letter of credit is excluded from the jurisdiction of the
rehabilitation court and therefore in enjoining.

iii. JAPRL Development Corp. vs. Security Bank, GR No. 19 Devvelopment Corp. vs. Security Bank,
GR No. 190107;
Facts:
JAPRL, applied with the SBC for a credit facility amounting to 50 million Pesos. The application
was approved. Petitioners Limson and Arollado, JAPRL Chairman and President, respectively,
executed a Continuing Suretyship Agreement (CSA) in favor of SBC wherein they guaranteed the
debt and full payment and performance of JAPRL's guaranteed obligations. It was stipulated that
untrue representations in the documents submitted will constitute an event of default by JAPRL
and its sureties. Petitioners failed to comply with SBC’s demand, hence, SBC filed before a
collection case against them. The case was dismissed but later, the court ordered the archiving of
SBC’s complaint against all petitioners. Upon appeal of SBC to the CA, it ruled that SBC's claim
against Limson and Arollado in their capacity as sureties could proceed independently of JAPRL's
petition for rehabilitation.
Issue:
Whether SBC can pursue its claim against Limson and Arollado despite the pendency of JAPRL's
petition for rehabilitation.
Ruling:
Yes. A creditor can demand payment from the surety solidarily liable with the corporation seeking
rehabilitation, it being not included in the list of stayed claims.
Moreover, Section 6(b) of the Interim Rules of Procedure of Corporate Rehabilitation provides
that a stay order does not apply to sureties who are solidarity liable with the debtor. In Limson
and Arollado's case, their solidarv liability with JAPRL is documented. Thus, they cannot claim
protection from the rehabilitation court, they not being the financially-distressed corporation that
may be restored, not to mention that the rehabilitation court has no jurisdiction over them.
iv. Panlilio vs. RTC, GR No. 173846
Facts:
The RTC Branch 24 approved the petition for rehabilitation filed by Silahis International
Hotel, Inc. (SIHI), and thereafter, issued Stay Order. However, at the time of filing the petition,
SIHI was charged with several criminal charges in Branch 51, among others is estafa. SIHI
(petitioner) prayed that Branch 51 suspend the criminal proceedings until the petition for
rehabilitation is finally resolved. It argued that the stay order applies to pending criminal charges.
Issue:
Whether the approval of rehabilitation plan of SIHI will suspend the criminal proceedings.
Ruling:
No, the approval of rehabilitation plan will not suspend the criminal proceedings.
The rehabilitation and the settlement of claims against the corporation is not a legal
ground for the extinction of criminal liabilities.
Since rehabilitation does not extinguish criminal liabilities, more so will it not suspend the
criminal charges for estafa despite approval of the rehabilitation plan. It is because the prime
purpose of criminal action is to punish the offender in order to deter the person from committing
the same offence, to isolate him from society, reform, and rehabilitate, or to maintain social
order.
G. Displacement of Existing Management - Sec 36. FRIA: Sec. 31, Rule 2, A.M. 12-12-11-5
Section 36.Displacement of Existing Management by the Rehabilitation Receiver or Management
Committee. – Upon motion of any interested party, the court may appoint and direct the rehabilitation
receiver to assume the powers of management of the debtor, or appoint a management committee that will
undertake the management of the debtor. upon clear and convincing evidence of any of the following
circumstances:
(a) Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor’s assets or
other properties;
(b) Paralyzation of the business operations of the debtor; or
(c) Gross mismanagement of the debtor. or fraud or other wrongful conduct on the part of, or gross
or willful violation of this Act by. existing management of the debtor Or the owner, partner, director,
officer or representative/s in management of the debtor.
In case the court appoints the rehabilitation receiver to assume the powers of management of the debtor.
the court may:
(1) require the rehabilitation receiver to post an additional bond;
(2) authorize him to engage the services or to employ persona or entities to assist him in the
discharge of his managerial functions; and
(3) authorize a commensurate increase in his compensation.

In case the rehabilitation receiver is a juridical person, the acts of its designated representative shall be
presmned to be carried out in accordance with the authority vested in him by the juridical entity which he
represents. In case of conflict, the decision of the governing body of the juridical entity shall prevail.
However, the rehabilitation receiver and its representative/s shall remain solidarily liable for all obligations
and responsibilities, subject to the right of withdrawal prior to the implementation of the disputed decision

Umale vs. ASB Realty Corp., GR. No. 181126


Facts:
Respondent filed an action for unlawful detainer against petitioners. It alleged that the lease
contract it entered into with petitioners had expired, yet they continued occupying the premises.
Petitioners ask for the dismissal of the complaint for unlawful detainer on the ground that it was
not brought by the real party in interest. They contend that the appointment of a rehabilitation
receiver deprived corporate officers of the power to recover corporate property and transferred
such power to the rehabilitation receiver.
Issue:
Can a corporate officer file a suit to recover an unlawfully detained corporate property
despite the corporation having been placed under rehabilitation?
Ruling:
Being placed under corporate rehabilitation and having a receiver appointed to carry out the
rehabilitation plan do not ipso facto deprive a corporation and its corporate officers of the power
to recover its unlawfully detained property.
Corporations, such as ASB Realty, are juridical entities that exist by operation of law. As a
creature of law, the powers and attributes of a corporation are those set out, expressly or
impliedly, in the law. Among the general powers granted by law to a corporation is the power to
sue in its own name. This power is granted to a duly-organized corporation, unless specifically
revoked by another law.
Under PD 902-A, there are no prohibitions on a corporation to recover assets and collect
receivables. The corporation retains control and management of its affairs, apprising the
rehabilitation receiver of the proceedings taken and their results. The rehabilitation receiver has
to be notified of the developments in the case so that these assets would be managed in
accordance with the approved rehabilitation plan.

H. Claw-Back Principle-Sec. 52, FRIA

Section 52.Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets. - The court may rescind
or declare as null and void any sale, payment, transfer or conveyance of the debtor's unencumbered property or
any encumbering thereof by the debtor or its agents or representatives after the commencement date which are
not in the ordinary course of the business of the debtor: Provided, however, That the unencumbered property
may be sold, encumbered or otherwise disposed of upon order of the court after notice and hearing:

(a) if such are in the interest of administering the debtor and facilitating the preparation and implementation
of a Rehabilitation Plan;
(b) in order to provide a substitute lien, mortgage or pledge of property under this Act;
(c) for payments made to meet administrative expenses as they arise;
(d) for payments to victims of quasi delicts upon a showing that the claim is valid and the debtor has
insurance to reimburse the debtor for the payments made;
(e) for payments made to repurchase property of the debtor that is auctioned off in a judicial or extrajudicial
sale under. This Act; or
(f) for payments made to reclaim property of the debtor held pursuant to a possessory lien.

I. Rehabilitation Receiver - Sec. 4(h), FRIA


(hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointed as such by the
court pursuant to this Act and which shall be entrusted with such powers and duties as set forth herein.
Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointed as such by the court
pursuant to the Act and which shall be entrusted with such powers, duties, and responsibilities as set forth herein.
Where the rehabilitation receiver is a juridical entity, the term includes the juridical entity's designated representative.
i. Who may serve - Sec. 28, FRIA; Sec. 5(p), Rule 1, A.M. 12-12-11-SC; Sec. 20, Rule 2, A.M. 12-12-
11-SC
Section 28.Who May Serve as a Rehabilitation Receiver. - Any qualified natural or juridical person
may serve as a rehabilitation receiver: Provided, That if the rehabilitation receiver is a juridical entity,
it must designate a natural person/s who possess/es all the qualifications and none of the
disqualification’s as its representative, it being understood that the juridical entity and the
representative/s are solidarily liable for all obligations and responsibilities of the rehabilitation
receiver.
ii. Qualifications - Sec. 29, FRIA: Sec. 21. Rule 2, A.M. 12-12-11-SC
(A) The rehabilitation receiver who is a natural person must comply with the following minimum
qualifications and requirements:
(1) He is a citizen of the Philippines or a resident of the Philippines for at least six (6) months
immediately preceding his nomination;
(2) He is of good moral character and with acknowledged integrity, impartiality and independence;
(3) As far as practicable, he has expertise and acumen to manage and operate a business similar in
size and complexity to that of the debtor;
( 4) He has an operating knowledge in management, finance and rehabilitation of distressed
companies;
(5) He has a general familiarity with the rights of creditors subject to suspension of payments or
rehabilitation and a general understanding of the duties and obligations of a rehabilitation receiver;
(6) He has not been earlier dismissed as a rehabilitation receiver pursuant to Section 27 of this Rule;
(7) He has no conflict of interest as defined in this Rule
(8) He is willing and able to file a bond in such amount pursuant to Section 27 of this Rule
iii. Powers, Duties, and Functions - Sec. 31, FRIA
Section 31.Powers, Duties and Responsibilities of the Rehabilitation Receiver. - The rehabilitation
receiver shall be deemed an officer of the court with the principal duty of preserving and maximizing
the value of the assets of the debtor during the rehabilitation proceedings, determining the viability of
the rehabilitation of the debtor, preparing and recommending a Rehabilitation Plan to the court, and
implementing the approved Rehabilitation Plan, To this end, and without limiting the generality of the
foregoing, the rehabilitation receiver shall have the following powers, duties and responsibilities:
(a)To verify the accuracy of the factual allegations in the petition and its annexes;
(b)To verify and correct, if necessary, the inventory of all of the assets of the debtor, and
their valuation;
(c)To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;
(d)To evaluate the validity, genuineness and true amount of all the claims against the debtor;
(e)To take possession, custody and control, and to preserve the value of all the property of
the debtor;
(f)To sue and recover, with the approval of the court, all amounts owed to, and all properties
pertaining to the debtor;
(g)To have access to all information necessary, proper or relevant to the operations and
business of the debtor and for its rehabilitation;
(h) To sue and recover, with the. approval of the court, all property or money of the debtor
paid, transferred or disbursed in fraud of the debtor or its creditors, or which constitute undue
preference of creditor/s;
(i) To monitor the operations and the business of the debtor to ensure that no payments or
transfers of property are made other than in the ordinary course of business;
(j) With the court's approval, to engage the services of or to employ persons or entities to
assist him in the discharge of his functions;
(k) To determine the manner by which the debtor may be best rehabilitated, to review) revise
and/or recommend action on the Rehabilitation Plan and submit the same or a new one to
the court for approval;
(1) To implement the Rehabilitation Plan as approved by the court, if 80 provided under the
Rehabilitation Plan;
(m) To assume and exercise the powers of management of the debtor, if directed by the
court pursuant to Section 36 hereof;
(n) To exercise such other powers as may, from time to time, be conferred upon him by the
court; and
To submit a status report on the rehabilitation proceedings every quarter or as may be
required by the court motu proprio. or upon motion of any creditor. or as may be provided, in
the Rehabilitation Plan.
Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver shall
not take over the management and control of the debtor but may recommend the
appointment of a management committee over the debtor in the cases provided by this Act.

iv. Role of Management Committee - Sec. 37, FRIA

Section 37.Role of the Management Committee. – When appointed pursuant to the


foregoing section, the management committee shall take the place of the management and
the governing body of the debtor and assume their rights and responsibilities.The specific
powers and duties of the management committee, whose members shall be considered as
officers of the court, shall be prescribed by the procedural rules.

V. Immunity from Suit - Sec. 41, Sec. 38, Rule 2, A.M. 12-12-11-SC
Section 41.Immunity. - The rehabilitation receiver and all persons employed by him, and the
members of the management committee and all persons employed by it, shall not be subject
to any action. claim or demand in connection with any act done or omitted to be done by
them in good faith in connection with the exercise of their powers and functions under this
Act or other actions duly approved by the court. 1aw p++il

vi. Discharge - Sec. 73, FRIA; Sec. 71, Rule 2, A.M. 12-12-11-SC
SEC. 71. DISCHARGE OF REHABILITATION RECEIVER. - Upon the confimmtion of the
Rehabilitation Plan, the rehabilitation receiver shall submit a report and accounting to the court
within thirty (30) days from such confirmation for the approval of the court.
Upon approval of the repott and accounting, the court shall order the rehabilitation receiver's
discharge unless the Rehabilitation Plan specifically describes the role of 1he rehabilitation
receiver and/or requires the rehabilitation receiver to assume certain duties and responsibilities
even after the confirmation of the Rehabilitation Plan. In such case, the court shall order his
discharge after the termination of the rehabilitation proceedings and the approval of his final
report and accounting.
J. Rehabilitation Plan
i. Definition & Contents - Secs. 4(ii) & 62, FRIA
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and viability of an
insolvent debtor can be restored using various means including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en pago,
debt-equity conversion and sale of the business (or parts of it) as a going concern, or setting-
up of new business entity as prescribed in Section 62 hereof, or other similar arrangements
as may be approved by the court or creditors.

Section 62.Contents of a Rehabilitation Plan. – The Rehabilitation Plan shall, as a minimum:

(a) specify the underlying assumptions, the financial goals and the procedures proposed to
accomplish such goals;
(b) compare the amounts expected to be received by the creditors under the Rehabilitation
Plan with those that they will receive if liquidation ensues within the next one hundred twenty
(120) days;
(c) contain information sufficient to give the various classes of creditors a reasonable basis
for determining whether supporting the Plan is in their financial interest when compared to
the immediate liquidation of the debtor, including any reduction of principal interest and
penalties payable to the creditors;
(d) establish classes of voting creditors;
(e) establish subclasses of voting creditors if prior approval has been granted by the court;
(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization. dacion en
pago, debt-equity conversion and sale of the business (or parts of it) as a going concern, or
setting-up of a new business entity or other similar arrangements as may be necessary to
restore the financial well-being and visibility of the insolvent debtor;
(g) specify the treatment of each class or subclass described in subsections (d) and (e);
(h) provide for equal treatment of all claims within the same class or subclass, unless a
particular creditor voluntarily agrees to less favorable treatment;
(i) ensure that the payments made under the plan follow the priority established under the
provisions of the Civil Code on concurrence and preference of credits and other applicable
laws;
(j) maintain the security interest of secured creditors and preserve the liquidation value of the
security unless such has been waived or modified voluntarily;
(k) disclose all payments to creditors for pre-commencement debts made during the
proceedings and the justifications thereof;
(1) describe the disputed claims and the provisioning of funds to account for appropriate
payments should the claim be ruled valid or its amount adjusted;
(m) identify the debtor's role in the implementation of the Plan;
(n) state any rehabilitation covenants of the debtor, the breach of which shall be considered
a material breach of the Plan;
(o) identify those responsible for the future management of the debtor and the supervision
and implementation of the Plan, their affiliation with the debtor and their remuneration;
(p) address the treatment of claims arising after the confirmation of the Rehabilitation Plan;
(q) require the debtor and its counter-parties to adhere to the terms of all contracts that the
debtor has chosen to confirm;
(r) arrange for the payment of all outstanding administrative expenses as a condition to the
Plan's approval unless such condition has been waived in writing by the creditors concerned;
(s) arrange for the payment" of all outstanding taxes and assessments, or an adjusted
amount pursuant to a compromise settlement with the BlR Or other applicable tax
authorities;
(t) include a certified copy of a certificate of tax clearance or evidence of a compromise
settlement with the BIR;
(u) include a valid and binding r(,solution of a meeting of the debtor's stockholders to
increase the shares by the required amount in cases where the Plan contemplates an
additional issuance of shares by the debtor;
(v) state the compensation and status, if any, of the rehabilitation receiver after the approval
of the Plan; and
(w) contain provisions for conciliation and/or mediation as a prerequisite to court assistance
or intervention in the event of any disagreement in the interpretation or implementation of the
Rehabilitation Plan.

ii. Creditor - Secs. 4(h) 42


iii. Approval or Rejection - Sec. 64, FRIA; Sec. 62, Rule 2, A.M. 12-12-11-SC

v. Non-Impairment of Contracts - PNB vs. Court of Appeals p GR. No. 165571


Facts:
Private respondents filed with the SEC a verified petition for rehabilitation with prayer for
suspension of actions and proceedings pending rehabilitation. They stated that they possess
sufficient properties to cover their obligations but foresee inability to pay them within a period of
one year.
Petitioners opposed the petition for rehabilitation. They argued that a solvent corporation cannot
file such petition, as it can only be filed a debtor with insufficient assets to cover its liabilities.
They also argued that the approval of the rehabilitation plan compelled them to release part of
the collateral and accept the mortgaged properties as payment by dacion en pago, violating the
constitutional right on non-impairment of contracts.
Issues:
1. Whether private respondents fall under the concept of insolvency under the law
2. Whether the approval of the rehabilitation plan violated the constitutional provision on
non-impairment of contracts
Ruling:
1. There are two kinds of insolvency under the law, actual and technical. Actual insolvency
is when the corporation’s assets are not enough to cover its liabilities while technical insolvency is
when the corporation has enough assets but it foresees its inability to pay its obligations for more
than one year.
The mere fact that the ASB Group averred that it has sufficient assets to cover its obligations
does not make it "solvent" enough to prevent it from filing a petition for rehabilitation. A
corporation may have considerable assets but if it foresees the impossibility of meeting its
obligations for more than one year, it is considered as technically insolvent. Thus, at the first
instance, a corporation may file a petition for rehabilitation.
2. The approval of the Rehabilitation Plan and the appointment of a rehabilitation receiver
merely suspend the actions for claims against respondent corporations. The loan agreements
between the parties have not been set aside and petitioner bank may still enforce its preference
when the assets of ASB Group of Companies will be liquidated. Considering that the provisions of
the loan agreements are merely suspended, there is no impairment of contracts, specifically its
lien in the mortgaged properties.
v. Submission to the Court - Sec. 65, FRIA; Sec. 63, Rule 2, A.M. 12-12-11-SC
Section 65.Submission of Rehabilitation Plan to the Court. – If the Rehabilitation Plan is
approved, the rehabilitation receiver shall submit the same to the court for confirmation.
Within five (5) days from receipt of the Rehabilitation Plan, the court shall notify the creditors
that the Rehabilitation Plan has been submitted for confirmation, that any creditor may obtain
copies of the Rehabilitation Plan and that any creditor may file an objection thereto.
vi. Confirmation of Plan Notwithstanding Rejection by the Creditors "Cram Down Clause" - Sec. 64,
FRIA; Sec. 62, Rule 2, A.M. 12-12-11-SC;
Section 64.Creditor Approval of Rehabilitation Plan. – The rehabilitation receiver shall notify the
creditors and stakeholders that the Plan is ready for their examination. Within twenty (2Q) days from
the said notification, the rehabilitation receiver shall convene the creditors, either as a whole or per
class, for purposes of voting on the approval of the Plan. The Plan shall be deemed rejected unless
approved by all classes of creditors w hose rights are adversely modified or affected by the Plan. For
purposes of this section, the Plan is deemed to have been approved by a class of creditors if
members of the said class holding more than fifty percent (50%) of the total claims of the said class
vote in favor of the Plan. The votes of the creditors shall be based solely on the amount of their
respective claims based on the registry of claims submitted by the rehabilitation receiver pursuant to
Section 44 hereof.
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the Rehabilitation
Plan if all of the following circumstances are present:
(a)The Rehabilitation Plan complies with the requirements specified in this Act.
(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
(c) The shareholders, owners or partners of the juridical debtor lose at least their controlling
interest as a result of the Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the objecting class of creditors with
compensation which has a net present value greater than that which they would have
received if the debtor were under liquidation.

Victorio-Aquino vs. Pacific Plans, Inc. GR No. 193108

FACTS:
On April 7, 2005, foreseeing the impossibility of meeting its obligations to the availing planholders
as they fall due, respondent filed a Petition for Corporate Rehabilitation with the Regional Trial
Court. The Rehabilitation Receiver submitted an Alternative Rehabilitation Plan (ARP) which was
approved by the court. However, respondent submitted a manifestation with the Rehabilitation
Court, stating that the value of the U.S. Dollar-denominated NAPOCOR bonds — the assets
covering the trust fund subject of the traditional education plan — has already been substantially
diluted because of the stronger value of the Philippine Peso. Because of this event, the
Rehabilitation Receiver submitted a Modified Rehabilitation Plan (MRP) which was approved by
the court. Petitioner claims that it was beyond the authority of the Rehabilitation Court to
sanction a rehabilitation plan, or the modification thereof, when the essential feature of the plan
involves forcing creditors to reduce their claims against respondent.
Issue:
Whether the Rehabilitation Court may approve a rehabilitation plan even over the opposition of
the creditors.
Ruling:
Yes. The Interim Rules or the rules in effect at the time the petition for corporate rehabilitation
was filed in 2004 adopts the cramdown principle which "consists of two things:
(i) approval despite opposition and
(ii) binding effect of the approved plan x x x."
First, the Interim Rules allows the rehabilitation court to "approve a rehabilitation plan even over
the opposition of creditors holding a majority of the total liabilities of the debtor if, in its
judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is
manifestly unreasonable."
Second, it also provides that upon approval by the court, the rehabilitation plan and its provisions
"shall be binding upon the debtor and all persons who may be affected by it, including the
creditors, whether or not such persons have participated in the proceedings or opposed the plan
or whether or not their claims have been scheduled.”
vi. Objections - Sec. 66, FRIA; Sec. 64, Rule 2, A.M. 12-12-11-SC;
Section 66.Filing of Objections to Rehabilitation Plan. – A creditor may file an objection to
the Rehabilitation Plan within twenty (20) days from receipt of notice from the court that the
Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation Plan
shall be limited to the following:
(a) The creditors' support was induced by fraud;
(b)The documents or data relied upon in the Rehabilitation Plan are materially false
or misleading; or
(c)The Rehabilitation Plan is in fact not supported by the voting creditors.

BPI vs. Sarabia Manor Hotel Corp., GR No. 175844

Facts:
Sarabia obtained a P150,000,000.00 special loan package from Far East Bank and Trust Company
(FEBTC) in order to finance the construction of a five-storey hotel building (New Building) for the
purpose of expanding its hotel business. An additional P20,000,000.00 stand-by credit line was
approved by FEBTC in the same year. The foregoing debts were secured by real estate
mortgages over several parcels of land owned by Sarabia and a comprehensive surety agreement
signed by its stockholders. By virtue of a merger, BPI assumed all of FEBTC’s rights against
Sarabia.
Subsequently, Sarabia incurred cash flow problems. Thus, despite the fact that it had more
assets than liabilities at that time it, nevertheless, filed a Petition for corporate rehabilitation
(rehabilitation petition) with prayer for the issuance of a stay order before the RTC as it foresaw
the impossibility to meet its maturing obligations to its creditors when they fall due. The
rehabilitation plan was approved by the RTC. The CA affirmed with modification the rehabilitation
plan.
Issue:
Whether the CA correctly affirmed Sarabia’s rehabilitation plan as approved by the RTC, with the
modification on the reinstatement of the surety obligations of Sarabia’s stockholders.

Ruling:
Yes.
The opposition of a distressed corporation’s majority creditor is manifestly unreasonable if it
counter-proposes unrealistic payment terms and conditions which would, more likely than not,
impede rather than aid its rehabilitation. The unreasonableness becomes further manifest if the
rehabilitation plan, in fact, provides for adequate safeguards to fulfill the majority creditor’s
claims, and yet the latter persists on speculative or unfounded assumptions that his credit would
remain unfulfilled.
The Court finds BPI’s opposition on the approved interest rate to be manifestly unreasonable
considering that: (a) the 6.75% p.a. interest rate already constitutes a reasonable rate of interest
which is concordant with Sarabia’s projected rehabilitation; and (b) on the contrary, BPI’s
proposed escalating interest rates remain hinged on the theoretical assumption of future
fluctuations in the market, this notwithstanding the fact that its interests as a secured creditor
remain well-preserved.

viii. Confirmation of Rehabilitation Plan -Sec. 68, FRIA; Sec. 66, Rule 2, A.M. 12-12-11-SC
Section 68.Confirmation of the Rehabilitation Plan. – If no objections are filed within the
relevant period or, if objections are filed, the court finds them lacking in merit, or determines
that the basis for the objection has been cured, or determines that the debtor has complied
with an order to cure the objection, the court shall issue an order confirming the
Rehabilitation Plan.
The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over
claims if the Rehabilitation Plan has made adequate provisions for paying such claims.
For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the
court shall have the power to approve or implement the Rehabilitation Plan despite the lack
of approval, or objection from the owners, partners or stockholders of the insolvent
debtor: Provided, That the terms thereof are necessary to restore the financial well-being and
viability of the insolvent debtor.

ix. Effects of Confirmation - Sec. 69, FRIA; Sec. 67, Rule 2, A.M. 12-12-11-SC
Section 69.Effect of Confirmation of the Rehabilitation Plan, - The confirmation of the
Rehabilitation Plan by the court shall result in the following:
(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all
persons who may be affected by . it, including the creditors, whether or not such
persons have participated in the proceedings or opposed the Rehabilitation Plan or
whether or not their claims have been scheduled;
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall
take all actions necessary to carry out the Plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the
Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply to the extent that they do not conflict with the
provisions of the Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of payments by the
debtor shall be binding on creditors regardless of whether or not the Plan is
successfully implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan
are not subject to any Suspension Order.
The Order confirming the Plan shall comply with Rules 36 of the Rules of Court: Provided,
however, That the court may maintain jurisdiction over the case in order to resolve claims
against the debtor that remain contested and allegations that the debtor has breached the
Plan.

X. Period of Confirmation - Sec. 72, FRIA

Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a
maximum period of one (1) year from the date of the filing of the petition to confirm a
Rehabilitation Plan.If no Rehabilitation Plan is confirmed within the said period, the
proceedings may upon motion or motu propio, be converted into one for the liquidation of the
debtor .

xi. Termination - Sec. 74, FRIA & xii. Failure of Rehabilitation - Sec. 74, FRIA
Section 74. Termination of Proceedings. - The rehabilitation proceedings under Chapter II
shall, upon motion by any stakeholder or the rehabilitation receiver be terminated by order of
the court either declaring a successful implementation of the Rehabilitation Plan or a failure
of rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial
likelihood that the debtor can be rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the
implementation thereof, the debtor fails to perform its obligations thereunder or there
is a failure to realize the objectives, targets or goals set forth therein, including the
timelines and conditions for the settlement of the obligations due to the creditors and
other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its
amendment; and
(f) Other analogous circumstances as may be defined by the rules of procedure.

Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon motion by an
affected party may:
(1) Issue an order directing that the breach be cured within a specified period of time,
falling which the proceedings may be converted to a liquidation;
(2) Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit amendments to the
Rehabilitation Plan, the approval of which shall be governed by the same
requirements for the approval of a Rehabilitation Plan under this subchapter;
(4) Issue any other order to remedy the breach consistent with the present
regulation, other applicable law and the best interests of the creditors; or
(5) Enforce the applicable provisions of the Rehabilitation Plan through a writ of
execution.

a. Effects - Sec. 75, FRIA


Section 75. Effects of Termination. - Termination of the proceedings shall result in the following:
(a) The discharge of the rehabilitation receiver subject to his submission of a final
accounting; and
(b) The lifting of the Stay Order and any other court order holding in abeyance any action for
the enforcement of a claim against the debtor.
Provided, however, That if the termination of proceedings is due to failure of rehabilitation or
dismissal of the petition for reasons other than technical grounds, the proceedings shall be
immediately converted to liquidation as provided in Section 92 of this Act.

K. Liquidation: Definition & Concept -


Majority Stockholders of Ruby Industrial Corp. vs. Lim, GR. No. 165887;
Fatcs:
SEC created a Management Committee (MANCOM) for RUBY, because of the latter’s
severe liquidity problems. Two rehabilitation plans were proposed to the MANCOM, but they were
rejected. Subsequently, SEC dissolved the MANCOM, and the majority stockholders denied the
MANCOM and minorities of access to corporate documents, funds, and property. The minority SH
requested the majority SH to account for all the documents in their possession, and to fully
disclose all funds and property, but the majority SH refused. Thus, minority SH and MANCOM
resolved that the option is to move for a liquidation. They also invoked the propriety of
liquidation based on the expiration of RUBY’s corporate term as stated in its Articles of
Incorporation.
Issue:
Whether liquidation proceedings may be commenced upon expiration of the corporate term of
existence.
Ruling:
Yes, the liquidation may be commenced.
No corporation shall distribute any of its assets or property except upon lawful dissolution
and after payment of all its debts and liabilities.
Here, since RUBY’s corporate term has expired, thus, it is deemed dissolved which allows
the corporation to commence liquidation by distributing any of its assets or property after
payment of all its debts and liabilities. Particularly, liquidation, or the settlement of the affairs of
the corporation involves the winding up of the affairs of the corporation, which means the
collection of all assets, the payment of all its creditors, and the distribution of the remaining
assets, if any, among the stockholders in accordance with their contracts, or if there be no
special contract, on the basis of their respective interests.

Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc., GR. No. 177382
1) Rehabilitation 2) Liquidation
Facts:
Viva Shippines Lines filed an amended petition for rehabilitation declaring that it has 19 maritime
vessels and a shopping mall. In the material financial commitment, it stated that the sources of
funds are the sale of the vessels and the conversion of mall into hotel. Initially, RTC approved the
petition, but it later lifted the approval, upon the finding that out of 19, only 2 vessels were
owned by Viva. Also, the declared assets are non-serviceable because of the vessel’s age and
deterioration. From these, RTC dismissed the petition for failure to show the company’s viability
and feasibility of rehabilitation.
Issue:
Whether rehabilitation, not liquidation, is the more appropriate remedy when all the assets are
non-performing or non-serviceable.
Ruling:
Liquidation is the more appropriate remedy.
When optimum economic welfare will be achieved by winding up the affairs and
equitably distributing the assets among the creditors, or when rehabilitation will not result in a
better present value recovery for the creditors, then more appropriate remedy is liquidation.
Here, rehabilitation is not the remedy because the non-serviceable assets reduced the
probability for restoration and revival of business. The more appropriate remedy is liquidation,
because it allows the corporation to wind up its affairs and equitably distribute its assets among
its creditors.
Definition and concept of rehab and liquidation:
Liquidation is diametrically opposed to rehabilitation. Both cannot be undertaken at the
same time. In rehabilitation, corporations have to maintain their assets to continue business
operations. In liquidation, on the other hand, corporations preserve their assets in order to sell
them. Without these assets, business operations are effectively discontinued. The proceeds of the
sale are distributed equitably among creditors, and surplus is divided or losses are re-allocated.

L. Kinds of Debtors
i. Juridical (M.Conversion of Court Rehabilitation to Voluntary/Involuntary Liquidation (Juridical
Debtor) - Secs. 90 & 91, FRIA )

a. Voluntary - Sec. 90, FRIA


Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by filing a petition
for liquidation with the court. The petition shall be verified, shall establish the insolvency of the debtor
and shall contain, whether as an attachment or as part of the body of the petition;
(a) a schedule of the debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;
(b) an inventory of all its assets including receivables and claims against third parties; and
(c) the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings,
the debtor may also initiate liquidation proceedings by filing a motion in the same court where the
rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation
proceedings. The motion shall be verified, shall contain or set forth the same matters required in the
preceding paragraph, and state that the debtor is seeking immediate dissolution and termination of
its corporate existence.
If the petition or the motion, as the case may be, is sufficient in form and substance, the court shall
issue a Liquidation Order mentioned in Section 112 hereof.

b. Involuntary - Sec. 91, FRIA

Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims is
at least either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of the
subscribed capital stock or partner's contributions of the debtor, whichever is higher, may apply for
and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with the
court. The petition shall show that:

(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the
due and demandable payments thereon have not been made for at least one hundred eighty
(180) days or that the debtor has failed generally to meet its liabilities as they fall due; and

(b) there is no substantial likelihood that the debtor may be rehabilitated.

At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated


rehabilitation proceedings, three (3) or more creditors whose claims is at least either One million
pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or partner's
contributions of the debtor, whichever is higher, may also initiate liquidation proceedings by filing a
motion in the same court where the rehabilitation proceedings are pending to convert the
rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain or
set forth the same matters required in the preceding paragraph, and state that the movants are
seeking the immediate liquidation of the debtor.

If the petition or motion is sufficient in form and substance, the court shall issue an Order:

(1) directing the publication of the petition or motion in a newspaper of general circulation
once a week for two (2) consecutive weeks; and

(2) directing the debtor and all creditors who are not the petitioners to file their comment on
the petition or motion within fifteen (15) days from the date of last publication.
If, after considering the comments filed, the court determines that the petition or motion is
meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.

ii. Individual - Sec. 4(o), FRIA


(o) Individual debtor shall refer to a natural person who is a resident and citizen of the Philippines that has
become insolvent as defined herein.
a. Suspension of Payments - Secs. 94 & 96, FRIA

(A) Suspension of Payments.

Section 94. Petition. - An individual debtor who, possessing sufficient property to cover all his debts
but foreseeing the impossibility of meeting them when they respectively fall due, may file a verified
petition that he be declared in the state of suspension of payments by the court of the province or
city in which he has resides for six (6) months prior to the filing of his petition. He shall attach to his
petition, as a minimum: (a) a schedule of debts and liabilities; (b) an inventory of assess; and (c) a
proposed agreement with his creditors.

Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may issue an order
suspending any pending execution against the individual debtor. Provide, That properties held as security
by secured creditors shall not be the subject of such suspension order. The suspension order shall lapse
when three (3) months shall have passed without the proposed agreement being accepted by the
creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the
filing of the petition for suspension of payments and for as long as proceedings remain pending except:
(a) those creditors having claims for personal labor, maintenance, expense of last illness and funeral of
the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the
petition; and
(b) secured creditors.

b. Voluntary Liquidation - Sec. 103, FRIA

Section 103. Application. - An individual debtor whose properties are not sufficient to cover his
liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply to
be discharged from his debts and liabilities by filing a verified petition with the court of the province or
city in which he has resided for six (6) months prior to the filing of such petition. He shall attach to his
petition a schedule of debts and liabilities and an inventory of assets. The filing of such petition shall
be an act of insolvency.

C. Involuntary Liquidation - Sec. 105, FRIA


Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or with
claims aggregating at least Five hundred thousand pesos (Php500, 000.00) may file a verified
petition for liquidation with the court of the province or city in which the individual debtor resides.
The following shall be considered acts of insolvency, and the petition for liquidation shall set forth or
allege at least one of such acts:
(a) That such person is about to depart or has departed from the Republic of the Philippines,
with intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his
creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;
(d) That he conceals, or is removing, any of his property to avoid its being attached or taken
on legal process;
(e) That he has suffered his property to remain under attachment or legal process for three
(3) days for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for
the purpose of hindering or delaying the liquidation or of defrauding any creditors or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the purpose
of hindering or delaying the liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with intent to
give a preference to one or more of his creditors and thereby hinder or delay the liquidation
or defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate,
property, rights or credits with intent to hinder or delay the liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale,
conveyance or transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment of his
current obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys
deposited with him or received by him in a fiduciary; and
(m) That an execution having been issued against him on final judgment for money, he shall
have been found to be without sufficient property subject to execution to satisfy the
judgment.
The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if the
petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the debtor shall
not be declared an insolvent the petitioners will pay to the debtor all costs, expenses, damages
occasioned by the proceedings and attorney's fees.

N. Acts of Insolvency - Sec. 105, FRIA

O. Liquidation Order and its Effects - Secs. 107 & 112, FRIA;
Section 107. Default. - If the individual debtor shall default or if, after trial, the issues are found in
favor of the petitioning creditors the court shall issue the Liquidation Order mentioned in Section 112
hereof.
(A) The Liquidation Order.
Section 112. Liquidation Order. - The Liquidation Order shall:
(a) declare the debtor insolvent;
(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as
dissolved;
(c) order the sheriff to take possession and control of all the property of the debtor, except
those that may be exempt from execution;
(d) order the publication of the petition or motion in a newspaper of general circulation once a
week for two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property due the debtor to the
liquidator;
(f) prohibit payments by the debtor and the transfer of any property by the debtor;
(g) direct all creditors to file their claims with the liquidator within the period set by the rules of
procedure;
(h) authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit the names of other
nominees to the position of liquidator; and
(j) set the case for hearing for the election and appointment of the liquidator, which date shall
not be less than thirty (30) days nor more than forty-five (45) days from the date of the last
publication.

Secs.4,5,& 6, Rule 4, A.M. 15-0406-SC

Section 4. RIGHTS OF SECURED CREDITORS. The Liquidation Order shall not affect the right of a
secured creditor to enforce his lien in accordance with the applicable contract or law, unless he
waives his right.

Section 5. DUTY OF SECURED CREDITORS. At any time prior to the election of the liquidator, a
secured creditor shall manifest in writing to the court whether he is:

(a) Waiving his right under the security or lien in accordance with Sec 6 of this Rule or
(b) Maintaining his right under the security or lien

If a secured creditor fails to file such a manifestation, he shall be deemed to have opted to
maintain his right under the security or lien

Section 6. WAIVER OF SECURITY OR LIEN. A secured creditor shall not be deemed to have
waived his right under the security or lien unless the waiver is made in a public document, in
unequivocal language, and with full knowledge of the consequences of his action. If a secured
creditor waives his right, he shall be entitled to participate in the liquidation proceedings as an
unsecured creditor.
P. Liquidator - Secs. 118 & 119. FRIA
Section 118. Qualifications of the Liquidator. - The liquidator shall have the qualifications
enumerated in Section 29 hereof. He may be removed at any time by the court for cause,
either motu propio or upon motion of any creditor entitled to vote for the election of the
liquidator.
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be
deemed an officer of the court with the principal duly of preserving and maximizing the value
and recovering the assets of the debtor, with the end of liquidating them and discharging to
the extent possible all the claims against the debtor. The powers, duties and responsibilities
of the liquidator shall include, but not limited to:
(a) to sue and recover all the assets, debts and claims, belonging or due to the
debtor;
(b) to take possession of all the property of the debtor except property exempt by law
from execution;
(c) to sell, with the approval of the court, any property of the debtor which has come
into his possession or control;
(d) to redeem all mortgages and pledges, and so satisfy any judgement which may
be an encumbrance on any property sold by him;
(e) to settle all accounts between the debtor and his creditors, subject to the approval
of the court;
(f) to recover any property or its value, fraudulently conveyed by the debtor;
(g) to recommend to the court the creation of a creditors' committee which will assist
him in the discharge of the functions and which shall have powers as the court
deems just, reasonable and necessary; and
(h) upon approval of the court, to engage such professional as may be necessary
and reasonable to assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have the
right and duty to take all reasonable steps to manage and dispose of the debtor's assets with
a view towards maximizing the proceedings therefrom, to pay creditors and stockholders,
and to terminate the debtor's legal existence. Other duties of the liquidator in accordance
with this section may be established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation
receiver.

Q. Sale of Assets in Liquidation - Sec. 26, Rule 4, A.M. 15-04-06-SC


Section 26. SALE OF ASSETS IN LIQUIDATION. With the approval of the court, the liquidator may
sell, transfer or otherwise dispose of the unencumbered assets of the debtor and convert the
same into money. The sale, transfer or disposition shall be made at public auction. However, a
private sale, transfer or disposition may be allowed with the approval of the court if (a) the goods
to be sold are of a perishable nature, or are liable to quickly deteriorate in value, or are
disproportionately expensive to keep or maintain; or (b) the private sale, transfer or disposition is
for the best interest of the debtor and his creditors. With the approval of the court,
unencumbered property of the debtor may also be conveyed to a creditor in satisfaction of his
claim or part thereof. In all cases, the liquidator and the court shall ensure that the manner of
sale, transfer or disposition is in the best interest of the debtor and his creditors.

LETTERS OF CREDIT
A. Definition and Nature - Art. 567, Code of Commerce; Bank of America NT & SA vs. Court of Appeals,
GR. No. 105395
B. Essential Conditions - Art. 568, Code of Commerce
C. Parties to a Letter of Credit - Bank of America NT & SA vs. Court of Appeals, GR. No. 1053
D. Doctrine of Independence - Transfield Philippines, Inc. vs. Luzon Hydro Corporation, on 146717 1.
Fraud Exception Principle - Transfield Philippines, Inc. vs. Luzon Hydro Corporation, one 146717
E. Doctrine of Strict Compliance - Feati Bank & Trust Company vs. Court of Appeals
F. Kinds of Letters of Credit
i. Irrevocable Letter of Credit
ii. Commercial Letter of Credit
iii. Standby Letter of Credit
G. Letter of Credit vs. Guaranty
H. Prescriptive Period - National Commercial Bank of Saudi Arabia vs. CA, GR No. 124267

TRUST RECEIPTS
A. Definition - Sec. 4, TRL (PD 115); Bank of Commerce vs. Serrano, GR No. 151895
B. Nature and Object - See Whereas Clause of TRL; Ng vs. People, GR No. 173905; Rosario Textile
Mills Corp. vs. Home Bankers Savings and Trust Company, GR No. 137232; Landl & Company (Phil)
Inc. vs. Metrobank, GR No. 159622; Nacu vs. CA, GR No. 108638
C. Form and Contents of Trust Receipt - Secs. 3 & 5, TRL
D. Parties to a Trust Receipt
E. Obligations and Liabilities of the Entrustee - Sec. 9, TRL
F. Rights of the Entruster - Par. 1, Sec. 7, TRL
G. Cancellation of Trust Receipt - Par. 2, Sec. 7, TRL
H. Risk of Loss - Sec. 10, TRL
I. Right of a Purchaser for Value and Good Faith - Prudential Bank vs. NLRC, GR No. 112592
J. Repossession by the Entruster of Goods - Landl & Company
K. Penalties for Violation - Sec. 13, TRL; Gonzalez vs. HSBC, GR No. 164904; Sia vs. People, GR No.
L-30896