BANKING

LAW I CRAMMERS GUIDE

Atty. Hofilea | SY 2015-2106

ASSIGNMENT 1

Consti Prov.
Establish an independent central monetary authority
Board- must be natural born citizens
o Qualifications- probity, integrity and patriotism
Majority of which must come from private sector
Qualification and disabilities may be prescribed by law
Policy direction in money, credit and banking
Power of supervision and regulation over banks, finance companies and
other similar institutions

New Central Bank Act (NCBA)
Section 1- creates central monetary authority w/ functions of an
independent and accountable body as to its duty in relation to money, credit
and banking
o Special GOCC w/ fiscal and administrative autonomy
Sec. 2- Creation of BSP
o Capital of P50B FULLY subscribed by the Govt P10B to be paid upon
its creation and the rest within 2 years
Sec. 3-
o Supervision over banks
o Regulatory powers of non-bank institutions including quasi-banks
o Primary objective- price stability for a balance and sustainable growth
of the economy
PLUS monetary stability and convertibility of the Peso
Sec. 4- principal place of business in MM
Sec. 5-
o Authority to adopt corporate seal w/ judicial notice
o Enter contracts
o Lease/own personal property
o To sue and be sued
o May acquire and hold assets and incur liabilities thereon
o Compromise, condone or release liabilities
General Banking Law
Kinds of banks
o Universal bank
o Commercial
o Thrift
Savings/mortgage
Stock savings and loan
Private development bank
o Rural
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o Cooperatives
o Islamic
Supervisory powers
o Issue rules for standards of operation
o Examination for its compliance
o Compliance with law
o Investigation
o Inquiring into solvency and liquidity
o Quasi-banks- engaged in borrowing fund through issuing, endorsing
assigning deposit substitutes
No one can do banking or quasi-banking operations WITHOUT authority of
BSP

Kinds of Banking Institutions

What are Thrift Banks?
Banks designed to provide short-term capital and medium/long term
financing to business engaged in agriculture, services, industry and housing
Banks providing financial services specifically to small/medium enterprises

What are Rural Banks?
Banks designed to make credit available in rural areas on reasonable terms
Provide adequate credit facilities to farmers/merchants or their cooperatives
and to people of rural communities

What are Cooperative Banks?
Bank that provides credit facilities to the members of the cooperative

What is the DBP?
Provide banking services to medium and long term needs for
agricultural/industrial enterprises in the country side preferably to
small/medium scale enterprises

What is the Land Bank?
Banking institution to provide funds to Govt to acquire landed estates and its
subsequent RESALE to small landholders AS WELL AS to provide funds for
purchase of the agricultural lessee from landholder
o Existence of 50 years only

What is the Islamic Bank?
Provide credit and banking facilities for the socio-economic development in
the ARMM for agricultural, commercial and industrial ventures in accordance
with the Islamic concept of banking
o The F is zakat and ithe?
o Al-Amanah place of business in Zamboanga City
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Creation of Sharia Advisory Council- 5 members of Isamic scholars and jurist

o Elected every 3 years
o Powers (Sec. 5)- offer advise and review application of principles and
rulings of Islamic Sharia
BUT CANNOT be involved in operation of banks

What are Universal/Commercial Banks?
Universal- (1) powers authorized for commercial banks (2) power of
investment house (3) power to invest in non-allied enterprises
Commercial- has: (1) general powers of corporations PLUS-

Non-Bank Financial Institutions

What are Investment Houses?
Enterprise engaged in the underwriting of securities
o Underwriting- act of guaranteeing distribution and sale of securities
o Securities- written evidence of ownership or indebtedness
Director of IH cannot concurrently be a director of a BANK
o IH cannot engage in banking operations

What are Financing Companies?
Corporations engaged in extending credit facilities to consumers or
enterprises by discounting commercial papers on accounts receivable
o Credit is any loan, mortgage deed of trust etc. under which part of
or all the prices is payable subsequent to its constitution
o Purchase Discount difference between value of the receivable
purchase or credit assigned and net amount paid by finance company
EXCLUSIVE of fees, service charges and interest

What are Investment Companies?
Institutions engaged in investing, reinvesting or trading of securities

Class Notes:

Financial system
o System that enables lenders and borrowers to exchange funds
Banks are the intermediaries- takes funds and reallocates it to
lenders
May be deposits, equity, notes
Banks basically borrow and lend money
o Composed of banks and non-banks, total assets of P11 trillion (?)
Banks-> takes deposits, if DO NOT take deposits -> maybe not a bank
Non-banks are alternative ways to get funds-> if below 20(?), you do not
need license

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Core banking function- taking deposit (loan or mutuum) covered by CC and

needs a license
Banking v. Quasi Banking
o Deposits v. Deposit Substitutes
o Quasi-banking- alternative form of obtaining funds from the public,
other than deposits
o Deposit-takin- source of funds
o Granting of loans- source of interest income
o Treasury- excess funds are invested to maximize income
Treasure invest excess money in treasury
o Interest on loans + earning on placements deposit interest = bank
income
Importance of banks
o Public confidence- fiduciary relation (that you would get the money
back)
o Banks are affect by public interest
o Why does it fail? Because of bad governance resulting in insider abuse
and breach of fiduciary duties (e.g. bankers use the funds themselves)
o Banking business is subject to regulation under the police powers
because of the nature fiscal affairs
Stability of Banks= capital + governance + business
o Amount of capital to cover the risk to be taken
PDIC- deposit insurance up to 500k
o Receiver of banks
o Appointed by MB as receiver and liquidator of bank
o Insolvency is covered by BSP regulation
Types of Banks
o Universal Banks- powers of an investment house, can underwrite
securities
Banks can invest in equity
o Commercial Banks- they can issue LoC
o Thrift Bank- objective of savings
o Cooperative Banks- distinction in membership
o Rural banks- for rural development
o Islamic Bank- only one (no interest)
Bangko Sentral ng Pilipinas (BSP)- it is not a bank, it is a monetary authority,
they dont accept deposits from the government
o Seal-> freedom, clarity of vision and three pillars
o Legal framework- mandated by the constitution
Admin autonomy-
o Review is not to OP but judicial review either by certiorari or petition
for review
o Decisions subject to judicial review
Imposition of fines and penalties
Admin proceedings

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Cease and desist orders

Findings of unsound or unsafe banking practices
Placement of a bank under prompt corrective actions
Placement of a bank under receivership, conservatorship and
liquidation
Remedy is to go to CA not RTC

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 ASSIGNMENT II

What is Banking? (3.1 & 8.2)
Banks are entities engaged in the lending of funds in the form of deposits.
That the funds obtained are from the public which shall mean that the banks
obtained it from 20 or more persons
What is Quasi-Banking (QB)? (4 & 95)
These are entities engaged in the borrowing of funds through the issuance,
endorsement or assignment with recourse or acceptance of deposit
substitutes.
o Deposit Substitutes- it is an alternative form of obtaining funds from
the public, other than deposits, through the issuance or acceptance of
debt instruments for the borrowers own account, for the purpose of
relending or purchasing of receivables and other obligations.
What is the licensing requirement? (6 and 8)
An entity cannot engage in banking/QB functions without authority from the
BSP and if found to be exercising such unauthorized functions, may be
subject to appropriate sanctions
o The determination whether an entity is exercising banking/QB
functions w/o BSP authority is decided upon the Monetary Board
(MB).
Has the power to issue subpoena duces tecum
o Once an authority is issued, such entity may exercise banking/QB
functions UNLESS such authority is surrendered, revoked, suspended
or annulled by the BSP
Conditions for grant of authority-
o Entity is a stock corporation
o The funds obtained are from the public
o Compliance with the minimum capital requirements prescribed by the
MB
o Other conditions such as-
Taking into consideration the financial resources and technical
expertise and integrity
Assessment of the banks ownership structure, directors and
senior management, its operating plan and internal controls as
well as its projected financial condition and capital base.
Why do banks need special regulation?
Banks exercise a vital role in developing the national economy and fiduciary
nature of banking, which requires high standards of integrity and
performance.
Banking industry is indispensable to the national interest. Thus, strikes or
lockouts involving banks, if unsettled within 7 days, shall be reported to the
Sec. of Labor or certify it to the NLRC for compulsory arbitration.
What is the authority of the BSP as regulator?

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As Licensor- See 6 & 8 above (Re: licensing). Furthermore, the SEC shall
not register the AoI of a Bank unless it is accompanied with a certificate of
authority issued by the MB under its seal. The certificate of authority would
not be issued by the MB unless the latter is satisfied upon the showing of
evidence that:
o Other requirements prescribed by laws and regulations have been
complied with
o General and local public interest and economic conditions justify the
authorization
o 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 (14)
No person or entity can advertise themselves as or hold itself out as being
engaged or exercising banking/QB functions, unless authorized to engage in
such business. (64)
Sanctions and Penalties- Violations of the GBL would be subject to the
sanctions and penalties provided in the NCBA. Furthermore, if the offender
is a director or officer of a bank, quasi-bank or trust entity, the Monetary
Board may also suspend or remove such director or officer. If the violation is
committed by a corporation, such corporation may be dissolved by quo
warranto proceedings instituted by the Solicitor General.
o (NCBA, 36)- Violations may be punished by a fine of not less than
P50k but not more than P200k or by imprisonment of not less than 2
years but not less than 10 years or both at the discretion of the court
o (NCBA, Administrative Sanctions, 37)- Aside from the criminal
sanctions, the MB may also impose administrative sanctions for: (1)
willful violation of its charter or bylaws; (2) willful delay in the
submission of reports or publications thereof as required by law,
rules and regulations; (3) refusal to permit examination into the
affairs of the institution; (4) any willful making of a false or
misleading statement to the Board or the appropriate supervising
and examining department or its examiners; (5) any willful failure or
refusal to comply with, or violation of, any banking law or any
order, instruction or regulation issued by the Monetary Board; and (6)
commission of irregularities, and/or conducting business in an
unsafe or unsound manner as may be determined by the Monetary
Board. Such sanctions include the ff:
Fine
Suspension of rediscounting privileges or access to BSP credit
facilities
Suspension of lending or FOREX operations or authority to
accept new deposits
Suspension of interbank clearing privileges
Revocation of quasi-banking license

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o Resignation or termination of the director/offender will not exempt

the corporation from admin/crim sanction
o MB has the power of preventive suspension the duration of which shall
not exceed 120 days from the date of suspension. BUT if the delay is
due to the fault or negligence of the party suspended it shall not be
counted in computing the period of suspension
o MB has the power to issue injunctive relief, termed as a Cease and
Desist Order (C&D Order) and is immediately effective upon service.
But the party to whom the C & D Order is issued against shall have the
opportunity to be heard, upon request of the latter, within 5 days from
the receipt of the order.
As Supervisor and Regulator- (blah blah)

Republic v. SCAC (G.R. No. L-20583)- Quo Warranto proceedings were filed by the
SolGen against the respondent for engaging in banking functions without the
required authority from the MB as required by the GBA. It was found that
respondent SCAC receives deposits from the public but denominated such deposits
in its FS as conditional subscription to capital stock.

The SC in determining whether respondent SCAC was performing banking functions
ruled in the affirmative. The SC reasoned that the transactions performed by the
SCAC were in the nature of a banking operation since it obtained funds from the
public to facilitate the borrowing, lending and safe-keeping of money and would
thus require authority from the MB. Note that the petition for QW was filed directly
to the SC, which also has original jurisdiction to entertain the same.

Central Bank v. Morfe (G.R. No. L-20119)- A search warrant was issued against
private respondent FMSLO by Judge Cancino on the ground that there was sufficient
and good reason to believe that FMSLO was performing banking functions without
authority from the MB, which is contrary to 2 of the GBA. The subject matter
covered by the search warrant was the books, records, financial statements of
FMSLO. However, the public respondent herein, Judge Morfe issued an ex parte TRO
against the CB restraining the latter from enforcing the search warrant issued by
Judge Cancino.

In determining whether Judge Morfe commited GADALEJ in issuing the ex parte
TRO, the SC held that the search warrant issued by Judge Cancino was predicated
upon the existence of probable cause that FMSLO was in violation of 2 & 6 of the
GBA. Furthermore, the SC found that membership structure of FMSLO, wherein the
funds deposited therein were under the exclusive control of the founding
members and that the privileges/benefits accruing to participating members
would be determined by the former in its discretion. The aforementioned
circumstance is exactly the evil sought to be prevented by the GBA in requiring that
an authority first be issued by the MB before an entity would perform banking
functions.

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Baas v. APFC (G.R. No. 128703)- Baas executed a Promissory Note in favor of
C.G. Dizon, to which the latter endorsed to respondent APFC and as security thereof,
executed a Chattel Mortgage over three tractors. Cenen, president of C.G. Dizon also
executed a Continuing Undertaking binding himself to be solidarily liable with C.G.
Dizon. Thereafter, C.G. Dizon failed to pay the amounts due, so duh, APFC sued.
Petitioner interposed as a defense that APFC was basically performing banking
functions contrary to the GBA.

The SC held that petitioners arguments were untenable and held that APFC is an
Investment House primarily engaged in the business of investing, reinvesting or
trading in securities. The SC held that the transaction involved herein is a purchase
of receivables at a discount and not one of a loan, which APFC is authorized to
perform. Furthermore, petitioners failed to establish that the funds accruing to
APFC were obtained from the public, which is a necessary requisite for an entity to
come within the contemplation of a banking entity.

Simex International v. CA (G.R. No. 88013)- Petitioner deposited P100k with
respondent bank and thereafter issued several checks to its suppliers, which were
later on dishonored due to DAIF.1 This caused trouble to the petitioner since the
suppliers threatened the former with lawsuits and further withheld deliveries to the
same, disrupting the business of the petitioner. It was later found out that the Bank
did not credit the P100k deposit to petitioners account. Hence, petitioner filed suit
against the bank for its negligent acts claiming moral and exemplary damages.

The SC, in determining whether petitioner was entitled to the damages sought, ruled
in the affirmative and awarded petitioner with moral and exemplary damages as
well as attorneys fees.2 The SC reasoned that the negligence of the bank injured
petitioners business standing or commercial standing justifying the awarding of
moral damages. The SC explained that banks are expected to treat the accounts
under its custody with the utmost fidelity, until the last centavo since the banking
business is one affected with public interest and its fiduciary nature. The Bank here
was remiss in such duty, and the fact that it did not explain why such error occurred
proves that the Bank acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.

DBP v. COA (G.R. No. 88435)- In connection with the loan obtained by the
Philippines with the World Bank, one of the conditions attached therein was that (1)
the DBP be rehabilitated and (2) the latter would be required to undergo a private
external audit. Former COA Chairman Guingona Jr. did not object to such terms
provided that the audit conducted by the private auditor would be reviewed and
approved by the COA. Guingona was thereafter replaced by Domingo who claimed
that the hiring of the private auditors encroached on the powers of the COA to audit

1 DAIF- drawn against insufficient funds.
2 Hayyyyy J.Lo
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government agencies. The COA, in a letter-decision, ordered the DBP to stop paying
the private auditor and to restitute the amounts already paid.

The SC in determining whether the COA had the sole and exclusive power to audit
government banks, ruled in the negative since Art. IX-D of the 1987 Constitution and
the Records of the ConCom did not intend to limit such prerogative to the COA. Thus,
it is correct to say that the authority to audit govt banks could be concurrently
exercised by private auditing entities and by the COA. Furthermore, the authority to
audit would also come within the contemplation of the Central Banks power3 of
supervision over banking entities.

Go v. BSP (G.R. No. 178429)- Petitioner herein was the director, president and CEO
of Orient Bank and was accused of violating R.A. 337, which prohibited
directors/officers from entering into transactions involving the funds of the bank of
which he is an officer of. Go interposed the claim that his actions did not fall under
the prohibition since (1) it only penalizes directors or officers who are either
borrowers OR guarantors but NOT both and (2) the information failed to specify the
amount borrowed/guaranteed thus not violating the limits set by law.

In determining whether Go committed the offenses charged against him, the SC held
in the affirmative since the elements constituting a violation of R.A. No. 337, 83
would yield the inference that the essence of the crime of becoming an obligor of a
bank requires the written approval of the majority of the banks directors. In the
case at bar, it was not shown that he obtained such loans without such approval.
Anent Gos second claim, the SC held that the information need not state the fact the
loan obtained exceeds the legal limit since the Gos act of obtaining the subject loan
without BoD approval is the crux of the offense.

Busuego v. CA (G.R. No. 95326)- The Central Bank conducted an examination of
PESALAs books and records an thereafter found out that there were irregularities
committed by the latters directors/officers. A conference was conducted by the CB
wherein none of the impleaded directors attended such meeting. The CB issued a
Resolution wherein the directors were put in a watchlist and the institution of
criminal/civil action against the directors for their (mis)malfeasance.

In determining whether the due process rights of the directors were violated, the SC
held in the negative stating that the CB being a quasi-judicial body, does not adhere
to the strict rules of notice/hearing as long as the respondents are given an
opportunity to be heard. And in the case at bar, the records reveal that the CB did
indeed gave the directors such opportunity prior to the issuance of the assailed CB
Resolution. On the other hand, the CB here has the authority to issue the assailed
Resolution since under R.A. No. 3779 the CB through the MB may conduct
investigations and impose the proper administrative sanctions for violations
thereof.

3 See 25 & 28 of the New Central Bank Act
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UCPB v. Ganzon, Inc. (G.R. 168859)- Private respondent EGI obtained a credit
financing from UCPB, which they thereafter failed to pay. The parties entered into a
MOA 4 wherein they agreed that the loan would be paid by the transfer
(dacion)/foreclosure of condominium properties. Shit went down when EGI found
upon review of UCPB documents that the Internal Memorandum of the latter
revealed that the amount owed by EGI were varying and conflicting.5 Thus, EGI
claimed for a refund, which was thereafter denied. EGI then filed criminal and
administrative cases against UCPB for the commission of irregularities and
conducting business in an unsafe and unsound manner in violation of 36-37 of
R.A. No. 7653 in relation to 55.1(a) of R.A. No. 8791.

In relation to the jurisdictional issues, the SC held that the CA had appellate JD over
resolutions of the BSP Monetary Board since the list contained in 9(3) of the B.P.
No. 129 was not meant to be exclusive.6 The SC also found that the CBs erroneous
summary dismissal of the complaints instituted by EGI was not supported by
substantial evidence. The CB here did not even gave weight to the evidence
presented by EGI (i.e. the Internal Memo) to determine whether it was sound
practice for a bank to keep a record of its borrowers loan obligations with two
different sets of figures, one higher than the other; and to disclose to the borrower
only the higher figures. Thus, the case was remanded back to the MB as they are the
agency tasked to determine whether a particular act or omission, which is not
otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or
trust entities, may be deemed as conducting business in an unsafe or unsound
manner.

4 Memorandum of Agreement
5 Basically, there were two amounts contained in the UCPB Memorandum, the
actual amount owed which was lower and the disclosed amount to EGI which was
higher.
6 BSP Circular No. 477 confirmed the appellate JD of the CA over BSP Resolutions.
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ASSIGNMENT III

BPI v. IAC (G.R. No. 69162)- The spouses Canlas opened a joint account in CBTC.
However, Arthur (the husband), had an existing account with CBTC and the New
Accounts Teller mistakenly placed the deposit for the joint account to Arthurs
existing account with CBTC. Thereafter, when the spouses Canlas issued checks
under the joint account, one of them was dishonored due to DAIF. The Bank tried to
rectify this honor and attempted to contact the spouses Canlas but to no avail. Thus,
the Spouses Canlas sued BPI (CBTC/BPI merger), RTC ruled in favor and CA
affirmed, but reduced the damages awarded.

The SC held that BPI was indeed negligent for not discovering the mistake despite
their established procedure to check and countercheck possible errors in the
accounts. Furthermore, the SC held that Spouses Canlas were entitled to moral
damages but not to exemplary damages since there was an absence of malice and
bad faith on part of BPI.

BPI v. CA (G.R. No. 112392)- Napiza deposited a Continental Bank Check in a FCDU
account with BPI, which was payable to cash and endorsed by the former. It was
found that Napiza was only an accommodating party upon the request of a certain
Henry Chan. However, a Reuben Gayon was able to withdraw the amount and to
make things worse, Wells Fargo informed BPI that the Continental Bank check was a
fake. Thus, BPI demanded the return of the money from Napiza, who claimed the
defense that he was only accommodating Chan. A complaint for the recovery of sum
of money was filed by BPI against Napiza. The latter interposed the defense that BPI
was negligent since the money was withdrawn without the necessary presentation
of the passbook of the account holder. BPI disclaimed liability by attributing fault to
Napiza since the withdrawal slip was signed without naming the agent who could
withdraw the amount.

In determining whether a contract of agency existed between Napiza and Gayon, the
SC held in the negative, since the withdrawal slip named a certain Sps. De Guzman as
the intended payees. Despite the fact that Gayon was named as the person with
authority to withdraw, the same withdrawal slip contained a warning that passbook
must likewise be presented to make such withdrawal. In ordinary banking practice,
the collecting bank has the duty of ascertaining the genuineness of all prior
endorsements and as such a bank should exercise its functions not only with the
diligence of a good father of a family but it should do so with the highest degree of
care. BPI, in allowing the withdrawal of Napiza's deposit, failed to exercise the
diligence of a good father of a family. In total disregard of its own rules, BPI's
personnel negligently handled Napizas account to BPI's detriment. BPI violated its
own rules by allowing the withdrawal of an amount bigger than the original deposit
of $750.00 and the value of the check deposited in the amount of $2,500.00 although
they had not yet received notice from the clearing bank in the United States on
whether or not the check was funded. In so doing, BPI assumed the risk of incurring

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a loss on account of a forged or counterfeit foreign check and hence, it should suffer
the resulting damage.

CBTC v. CA (G.R. 138569)-

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ASSIGNMENT 4
CORPORATE STRUCTURE OF BANKS

How are banking institutions organized? (GBL 8, 9, 10, 14 & 57)
Banks/ QBs must be organized as a: (1) stock corporation; (2) funds obtained
from the public; and (3) meets the minimum capital requirements prescribed
by the MB
o MB shall also take into consideration their (1) capability in terms of
their financial resources and technical expertise and integrity and (2)
assess the bank ownership structure, directors and senior
management, operating plan and internal controls as well as its
projected financial condition and capital base. (8)
MB may also regulate the type of stock that a bank may issue. However,
bank may only issue par value stocks. (9)
The bank cannot purchase or acquire shares of its own capital stock or accept
its own shares as a security for a loan UNLESS AUTHORIZED by the MB.
o If the MB authorized such purchase, the bank, within 6 months must
sell such acquired stock in a public or private sale. (10)
As a rule, the SEC will not register the Articles of Incorporation of a Bank/QB
without the accompanying certificate of authority of the MB. The MB shall,
before issuing the certificate, ascertain the ff. to its satisfaction:
o (1) the requirements of law and regulations have been complied with;
(2) the public interest and economic conditions justify such
authorization; and (3) 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 (14)
A bank or/ QB cannot declare dividends if: (1) its (bank/QB) clearing account
with the BSP is overdrawn; (2) deficiency in its required liquidity floor for
govt deposits for 5 or more consecutive days; and (3) does not comply with
the liquidity standards/ratios prescribed by the BSP; and (4) commission of
a major violation of the rules prescribed by the BSP. (57)

What are the kinds of ownership structure of banking/QB institutions? (GBL, 11,
12 & 13)
First type: Banks/QB with foreign ownership:
o Foreign individuals and non-bank corporations may own or contro up
to forty percent (40%) of the voting stock of a domestic bank.
This rule shall also apply to Filipinos and domestic and nonbank corporations
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
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stockholders of the corporation, irrespective of the place of

incorporation. (11)
Second type: Banks/ QB with family group ownership:
o Stockholdings of individuals related to each other within the 4th civil
degree of consanguinity/affinity whether legitimate or common-law
MUST BE FULLY DISCLOSED in all transactions by such corporations
with the bank (12)
o Two or more corporations owned or controlled by the same family
group or same group of persons shall be considered related interests
and must be fully disclosed in all transactions by such corporations or
related group of persons with the bank. (13)

What are the other capitalization requirements for banks/QB? (GBL, 34)
Requiring the institution of risk based capital. The latter is defined as the
minimum ratio, which the net worth of a bank must bear to its total risk
assets, which may include contingent accounts.
o How is this ratio determined? On the basis of the net worth and risk
assets of a bank and its subsidiaries, financial or otherwise, as well as
the composition and the manner of determining the net worth and
total risk assets of banks and their subsidiaries.
The MB may also prescribe that the bank/QB conform to
internationally accepted standards, including those of the Bank
for International Settlements (BIS), relating to risk-based
capital requirements.
The MB has the authority to alter/suspend compliance
with the ratio abovementioned for a maximum period
of 1 year.
Such ratio shall be applied uniformly to all banks of the
same category.
Consequences for non-compliance with prescribed minimum ratio- the MB may
limit or prohibit the distribution of net profits by such bank and may require
that part or all of the net profits be used to increase the capital accounts of
the bank until the minimum requirement has been met.
o Furthermore, the MB may restrict or prohibit the acquisition of major
assets and the making of new investments by the bank,
EXCEPT the purchase of readily marketable evidences of
indebtedness of the Republic of the Philippines and of the
Bangko Sentral and any other evidences of indebtedness or
obligations the servicing and repayment of which are fully
guaranteed by the Republic of the Philippines, until the
minimum required capital ratio has been restored.
In cases of merger, consolidation, rehabilitation- the MB may, under these
circumstances, temporarily relieve the compliance with the minimum capital
ratio requirement under such conditions it may prescribe. (34)

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Who may be directors/officers of Banking/QB institutions? (15, 16, 17, 18 & 19)
Board of Directors- there shall at least be five (5) and a maximum of fifteen
(15) members. Two (2) of which must be independent directors.
o What are independent directors? a person other than an officer or
employee of the bank, its subsidiaries or affiliates or related interests.
o 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.
o How may their meetings be conducted? The meetings of the board of
directors may be conducted through modern technologies such as, but
not limited to, teleconferencing and video-conferencing. (15)
o In cases of merger or consolidation- the number of directors shall not
exceed twenty-one (21) members. (17)
The fit and proper rule 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.
o Why? To maintain the quality of bank management and afford better
protection to depositors and the public in general.
o How? 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. (16)
Compensation of Directors and Officers- As a general rule, the AoI or By-Laws
of the bank governs this BUT as an exception, the MB has the authority to
regulate the payment by the bark to its directors and officers of
compensation, allowance, fees, bonuses, stock options, profit sharing and
fringe benefits in exceptional cases. These circumstances are:
o (1) bank is under comptrollership/conservatorship; (2) bank is
conducting business in an unsafe or unsound manner; and (3) bank is
in an unsatisfactory financial condition. (18)
Prohibition against public officials- As a general rule, no appointive or elective
public official whether full-time or part-time shall at the same time serve as
officer of any private bank. EXCEPT:
o (1) if otherwise provided by the Rural Banks Act
o (2) in cases where such service is incidental to financial assistance
provided by the government or a government owned or controlled
corporation to the bank
o (3) otherwise provided under existing laws (19)



ARANDIA 4B

What are the rules in relation to bank branches and hours of operation? (20 & 21)
Universal/Commercial Banks- may open branches or other offices within or
outside the Philippines upon prior approval of the BSP.
o For other types of banks, these are governed by their own pertinent
laws
A bank may, subject to prior approval of the Monetary Board, use any or all of
its branches as outlets for the presentation and/or sale of the financial
products of its allied undertaking or of its investment house units.
o They are also responsible for all business conducted in such branches
and offices to the same extent and in the same manner as though
such business had all been conducted in the head office.
o Thus, as a rule, a bank and its branches and offices shall be treated as
one unit.
Banking days and hours- all banks including their branches and offices shall
transact business on all working days for at least six (6) hours a day.
o In case of Saturdays, Sundays or Holidays- banks may be open for at
least three (3) hours a day.
However, if such bank would be open on such days, they shall
report to the BSP the additional days during which they or
their branches or offices shall transact business
o For purposes of this Section, working days shall mean Mondays to
Fridays, except if such days are holidays.

CASE DOCTRINES:

Busuego v. CA (G.R. No. 95326)-


Prudential Bank v. CA-

FPIB v. CA-

BPI v. FMIC-

PBTC v. Abasolo (G.R. No. 186738)










ARANDIA 4B

ASSIGNMENT 5
DEPOSITS, LOANS AND OTHER OPERATIONS

GENERAL BANKING OPERATIONS
What are the powers of a Universal Bank? (23)
o It shall have the powers authorized of that of a Commercial Bank (29)
and
General powers incident to corporations
Powers necessary to carry on the business of commercial
banking such as:
Accepting drafts and letters of credit
Discounting and negotiating promissory notes,
drafts, bills of exchange and other evidences of
debt
Accepting or creating demand deposits
Receiving other types of deposits and deposit
substitutes
Buying and selling foreign exchange and gold or
silver bullion
Acquiring marketable bonds and other debt
securities
Extending Credit
o The Powers of an Investment house

What are the Allowable Equity Investments for Banking Entities?
o For Universal Banks- they may invest in the equities of allied and
non-allied enterprises, which may be financial or non-financial. Take
note that, "net worth" shall mean the total of the unimpaired paid-in
capital including paid-in surplus, retained earnings and undivided
profit, net of valuation reserves and other adjustments as may be
required by the Bangko Sentral. Also, acquisition of such equity is
subject to prior approval of the MB.
Total investments in equities of allied and non-allied shall not
exceed 50% of the net worth of the bank
Equity investment in any one enterprise, whether allied or
non-allied, shall not exceed 25% of its net worth
Equity Investments in Financial Allied Enterprise (25)
May invest up to 100% of the equity of a thrift or rural
bank or another financial allied enterprise
Also, may own up to 100% of the voting stock of one
other universal or commercial bank
Equity Investments in Non-Financial Allied Enterprise (26)
May own up to 100% of the equity
ARANDIA 4B

Equity Investments in Non-Allied Enterprises (27)

May only invest in the equity of a single non-allied
enterprise of up to/shall not exceed 35% of its total
equity and/or 35% of its voting stock
Equity Investments in Quasi-Banks (28)
Limited to 40%
o For Commercial Banks- may only invest in the equities of allied
enterprises, which may either be financial or non-financial.
Acquisition of equities is also subject to prior approval of the MB.
Total investment in equities of allied enterprises shall not
exceed 35% of its net worth
Equity investment in any one enterprise shall not exceed 25%
of its total net worth
Equity Investments in Financial Allied Enterprises ( 31)
May own up to 100% of the equity of a thrift or rural
bank.
If investing in other financial allied enterprise or
ANOTHER commercial bank they can ONLY INVEST UP
TO MINORITY SHAREHOLDING (meaning, only up to
49%)
Equity Investments in Non-Financial Allied Enterprises (32)
May own up to 100% of a non-financial allied enterprise
Equity Investment in Quasi-Banks (28)
Also limited to 40%
What other banking services may Commercial/Universal Banks render? Take
note that they may also perform the following services as depositaries or
agents provided that it shall keep the funds, securities and other effects which
it receives duly separate from the bank's own assets and liabilities
o Receive custody of funds, documents or valuable objects
o Act as financial agent and buy and sell, by order of and for the account
of their customers, shares, evidences of indebtedness and all types of
securities;
o Make collections and payments for the account of others and perform
such other services for their customers as are not incompatible with
banking business;
o Act as managing agent, adviser, consultant or administrator of
investment management/advisory/ consultancy accounts; and
o Rent out safety deposit boxes.

TRUST OPERATIONS
What is a trust?
o It is where a trustor bestows the legal title to a certain identifiable
property (the res) to a person called a trustee, for the benefit of
another person (the beneficiary/cestui que trust) who holds the
beneficial or equitable title to the res. (Art. 1440, NCC)
ARANDIA 4B

A trust may also be express or implied.

Who are authorized to engage in trust operations? (79)
o Only stock corporations or persons duly authorized by the MB may
engage or act as a trustee or administer any trust or hold property in
trust.
o Furthermore, the SEC shall not register the AoI or By-Laws of a trust
entity unless accompanied by a certificate of authority issued by the
Bangko Sentral. (81)
o A trust entity, before it can engage in trust or other fiduciary business,
shall comply with the minimum paid-in capital requirement (82)
o Other requirements:
Deposit Requirement- every trust entity shall deposit with the
Bangko Sentral, as security for the faithful performance of its
trust duties, cash or securities in an amount equal to or not less
P500k or such higher amount as may fixed by the Monetary
Board (84)
How shall a trust entity conduct a trust business? (80)
o It shall administer the res under its custody with the diligence that a
prudent man would exercise in the conduct of an enterprise of a like
character and with similar aims.
But it cannot for the account of the trustor or the beneficiary
of the trust, purchase or acquire property from, or sell,
transfer, assign, or lend money or property to, or purchase
debt instruments of, any of the departments, directors, officers,
stockholders, or employees of the trust entity, relatives within
the first degree of consanguinity or affinity, or the related
interests, of such directors, officers and stockholders, unless
the transaction is specifically authorized by the trustor and the
relationship of the trustee and the other party involved in the
transaction is fully disclosed to the trustor of beneficiary of the
trust prior to the transaction
o The trust business and all funds, properties or securities received by
any trust entity as executor, administrator, guardian, trustee, receiver,
or depositary shall be kept separate and distinct from the general
business including all other funds, properties, and assets of such trust
entity. The accounts of all such funds, properties, or securities shall
likewise be kept separate and distinct from the accounts of the
general business of the trust entity (87)
What are the powers of a trust entity? (83)
o Act as trustee on any mortgage or bond issued by any municipality,
corporation, or any body politic and to accept and execute any trust
consistent with law
o Act under the order or appointment of any court as guardian, receiver,
trustee, or depositary of the estate of any minor or other incompetent

ARANDIA 4B

person, and as receiver and depositary of any moneys paid into court
by parties to any legal proceedings and of property of any kind
o Act as the executor of any will when it is named executor
o Act as administrator of the estate of any deceased person, with the
will annexed, or as administrator of the estate of any deceased person
when there is no will
o Accept and execute any trust for the holding, management, and
administration of any estate, real or personal, and the rents, issues
and profits thereof
o Establish and manage common trust funds
(IMPT.) No assets held by a trust entity in its capacity as trustee shall be
subject to any claims other than those of the parties interested in the
specific trusts. (92)

FOREX OPERATIONS (Governed by R.A. No. 6426 or the Foreign Currency Deposit
Act)
Who may deposit foreign currencies?
o Any natural or juridical person may deposit with Philippine Banks
designated by the Central Bank foreign currencies which are
acceptable as part of the international reserve (2)
What are the powers/authority given to banks designated by the Central
Bank to accept Foreign Currencies?
o To accept deposits and to accept foreign currencies in trust
o To issue certificates to evidence such deposits
o To discount said certificates
o To accept deposits as collateral for loans
o To pay interest in foreign currency on such deposits
What are the foreign currency cover requirements?
o The depository banks shall maintain at all times a one hundred
percent foreign currency cover for their liabilities, of which cover at
least fifteen percent shall be in the form of foreign currency deposit
with the Central Bank, and the balance in the form of foreign currency
loans or securities, which loans or securities shall be of short term
maturities and readily marketable.
Depository banks which, on account of networth, resources,
past performance, or other pertinent criteria, have been
qualified by the Monetary Board to function under an
expanded foreign currency deposit system, shall be exempt
from the requirements in the preceding paragraph of
maintaining fifteen percent (15%) of the cover in the form of
foreign currency deposit with the Central Bank
o Such foreign currency loans may include loans to domestic
enterprises which are export-oriented or registered with the Board of
Investments, subject to the limitations to be prescribed by the
Monetary Board on such loans. (4)
ARANDIA 4B

Is there a restriction on the withdrawability or transferability of the foreign

currency deposits?
o There shall be no restriction on the withdrawal by the depositor of
his deposit or on the transferability of the same abroad except those
arising from the contract between the depositor and the bank. (5)
Are foreign currency deposits tax exempt? YES
o All foreign currency deposits, as well as foreign currency deposits,
including interest and all other income or earnings of such deposits,
are exempted from any and all taxes. Irrespective of whether these
deposits are made by residents or nonresidents so long as the
deposits are eligible or allowed under aforementioned laws and, in
the case of nonresidents, irrespective of whether they are engaged in
trade or business in the Philippines.
Are foreign currency deposits confidential? YES
o All foreign currency deposits are considered absolutely confidential in
nature and, except upon the written permission of the depositor,
in no instance shall foreign currency deposits be examined, inquired or
looked into by any person, government official, bureau or office whether
judicial or administrative or legislative, or any other entity whether
public or private; Provided, however, that said foreign currency
deposits shall be exempt from attachment, garnishment, or any
other order or process of any court, legislative body, government
agency or any administrative body whatsoever. (8)
CASE DOCTRINES:

Agan v. PIATCO

Cancio v. Court of Tax Appeals

Salvacion v. Central Bank

ARANDIA 4B


Annex: Tabulation of 23-32

Universal Bank
Commercial Banks
Powers of Commercial
yes
yes
Bank
Investment house power yes
no
Investment in allied
yes
yes
enterprises
Investment in non-allied
yes
no
enterprises
Maximum in allied and
50% of net worth
35% of net worth (no to
non allied
non-allied)
Maximum to single allied 25% of net worth
25% of net worth
Maximum to single non25% of net worth
0
allied
Maximum financial allied 100% equity
49% equity
Maximum financial non
100% equity
100% equity
allied
Maximum non-allied
35%
0









Demand Deposits=Checking Accounts=current account

One where the bank pays on demand, both saving and checking are withdrawable
on demand

Certain features
- they are liabilities of the bank
- denominated in pesos
- bank must pay in legal tender
- bank needs a special authority to offer demand deposits
but it is inherent in a commercial and universal bank

ARANDIA 4B

ASSIGNMENT 6

What is the nature and characteristic of a deposit?

o Basically a simple loan
See Art. 1953 and 1980 of the NCC on simple loans:
A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the
same kind and quality
Fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the
provisions concerning simple loan
What are demand deposits?
o All those liabilities of the Bangko Sentral and of other banks which are
denominated in Philippine currency and are subject to payment in
legal tender upon demand by the presentation of checks. (58)
Who are authorized to issue demand deposits?
o Only banks duly authorized to do so may accept funds or create
liabilities payable in pesos upon demand by the presentation of
checks, and such operations shall be subject to the control of the
Monetary Board
o A bank other than a universal or commercial bank cannot accept or
create demand deposits except upon prior approval of, and subject to
such conditions and rules as may be prescribed by the Monetary
Board.
What is the legal character of demand deposits?
o Checks representing demand deposits do not have legal tender
power and their acceptance in the payment of debts, both public and
private, is at the option of the creditor

CASE DOCTRINES:

Serrano v. Central Bank

Guingona v. City Fiscal of Manila

BPI Family Bank v. Franco

Fulton Iron Works Co. v. China Bank

BPI v. CA

Central Bank v. Morfe

Gullas v. National Bank
ARANDIA 4B


Republic v. CA

BPI v. CA

Lucman v. Malawi

China Banking v. CIR

BPI Family Savings Bank v. First Metro Investments

Allied Banking Corporation v. Lim Sio Wan

ARANDIA 4B

What is a contract of commodatum? It occurs when one of the parties delivers to

another either something not consumable so that the latter may use the same for a
certain time and return it.
A contract of commodatum is essentially gratuitous. Furthermore, the bailor
retains ownership loaned.

What is a contract of simple loan (mutuum)? It occurs when of the parties delivers to
another, either money or other consumable thing, upon the condition that the same
amount of the same kind and quality shall be paid.
A contract of mutuum may either be gratuitous or with a stipulation to pay
interest. Furthermore, ownership of the thing loaned passes to the borrower.

When are contracts of commodatum or mutuum binding? Upon the acceptance of the
promise to deliver

When are contracts of commodatum or mutuum perfected? It is only upon delivery
of the object of the contract

Are fixed savings and current deposits governed by the provisions on simple loan?
YES

When will be interest on loans be due? They will only be due if they are expressly
stipulated in writing

ARANDIA 4B

What is the scope of Bank Secrecy Law (R.A. 1405)? The provisions of this law
covers deposits with banks or banking institutions in the Philippines.
Also includes investments in bonds issued by the Government, its political
subdivisions and instrumentalities.

What is the effect of the passage of this law? The deposits covered under this law
would be considered as of an absolute confidential nature and may not be
examined, inquired or looked into by any person, government official, bureau or
office
EXCPETIONS:
o Upon written permission of the depositor
o In cases of impeachment
o Upon order of a competent court in cases of bribery or dereliction of
duty of public officials
o In cases where the money deposited or invested is the subject matter
of the litigation
In Go, 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.
In China Bank, the prohibition against examination of or inquiry into a bank
deposit under Republic Act 1405 does not preclude its being garnished to
insure satisfaction of a judgment. Indeed, there is no real inquiry in such a
case, and if the existence of the deposit is disclosed the disclosure is purely
incidental to the execution process. It is hard to conceive that it was ever
within the intention of Congress to enable debtors to evade payment of their
just debts, even if ordered by the Court, through the expedient of converting
their assets into cash and depositing the same in a bank.
In PNB, unless there are compelling reasons such as: A DEFECT ON THE
FACE OF THE WRIT or ACTUAL KNOWLEDGE ON THE PART OF THE
GARNISHEE OF LACK OF ENTITLEMENT ON THE PART OF THE GARNISHER,
it is not incumbent upon the garnishee to inquire or to judge for itself
whether or not the order for the advance execution of a judgment is valid
What are the other instances falling under the exceptions mentioned above?
R.A. 9160 (AMLA)
o In Eugenio, the pre-existence of a money laundering offense is not a
precondition for the issuance of a bank inquiry order. An ex parte
order for the bank inquiry order is allowed once probable cause is
established. However, it is not so with regard to freeze orders under
11.
R.A. 3019, 8 (Anti-Graft and Corrupt Practices Act)
o In Gancayco, 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.
ARANDIA 4B

o In Purisima, the SC held that to sustain the petitioner's theory, and

restrict the inquiry only to property held by or in the name of the
government official or employee, or his spouse and unmarried
children is unwarranted in the light of the provisions of the statutes in
question, and would make available to persons in government who
illegally acquire property an easy and fool- proof means of evading
investigation and prosecution; all they would have to do would be to
simply place the property in the possession or name of persons other
than their spouse and unmarried children. This is an absurdity that
we will not ascribe to the lawmakers.
R.A 6770, 15 (Ombudsman Act of 1989)
o In Marquez, the order of the Ombudsman to produce for in camera
inspection for the subject accounts with the bank is based on a
pending investigation at the Office of the Ombudsman. However,
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.
R.A. 7080, 1 & 4 (Act Defining and Penalizing Plunder)
R.A. 3591 (PDIC Charter)
Human Security Act
National Internal Revenue Code
o The Commissioner is authorized to inquire into Bank Deposit
Accounts in cases of:
A decedent to determine his gross estate
Any taxpayer who has filed an application for compromise of
his tax liability by reason of financial incapacity
Unclaimed Balances Law
o All credits and deposits of persons known to be dead, or have not
made deposits/withdrawals during the preceding 10 years
Foreign Currency Deposit Act
o In Intengan, 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

What are the prohibited transactions provided under 55 of the GBL? Directors,
officers, employees or agents of a bank or banking institution are prohibited from
disclosing to any unauthorized person any information relative to the funds or
properties in the custody of the bank belonging to private individuals, corporations
or any other entity.

ARANDIA 4B

What restrictions did the GBL place on the hiring of personnel by banks? No bank
shall employ casual or non-regular personnel or too lengthy probationary
personnel in the conduct of its business involving bank deposits

What are the rules on garnishment of deposits under Rule 39 of the Rules of Court?
Who? The officer/sheriff may levy on debts due the judgment obligor and
other credits, including bank deposits, financial interest, royalties,
commissions and other personal property not capable of manual delivery
How? Levy shall be made by serving notice upon the person owing such debts
or having in his possession or control such credits to which the judgment
obligor is entitled.
o The garnishee shall make a written court within 5 days from service
of notice of garnishment stating whether or not the judgment obligor
has sufficient funds or credits to satisfy the amount of the judgment.
o If not, the report shall state how much funds or credits the garnishee
holds for the judgment obligor.
o The garnished amount in cash, or certified bank check issued in the
name of the judgment obligee, shall be delivered directly to the
judgment obligee within ten (10) working days from service of notice
on said garnishee requiring such delivery, except the lawful fees
which shall be paid directly to the court.
What is covered by the notice of garnishment? The garnishment shall cover
only such amount as will satisfy the judgment and all lawful fees.
What happens if there are two or more garnishees? In the event there are two
or more garnishees holding deposits or credits sufficient to satisfy the
judgment, the judgment obligor, if available, shall have the right to indicate
the garnishee or garnishees who shall be required to deliver the amount due;
otherwise, the choice shall be made by the judgment obligee.
In De Castro, by virtue of the order of garnishment, the same was placed in
custodia legis and therefore, from that time on, RCBC was holding the funds
subject to the orders of the court a quo. That the sheriff, upon delivery of the
check to him by RCBC encashed it and turned over the proceeds thereof to
the plaintiff was no longer the concern of RCBC as the responsibility over the
garnished funds passed to the court. Thus, no breach of trust or dereliction of
duty can be attributed to RCBC in delivering its depositor's funds pursuant to
a court order which was merely in the exercise of its power of control over
such funds.
o The order directing the bank to deliver the amount to the sheriff was
distinct and separate from the order directing the sheriff to encash the
said check. The bank had no choice but to comply with the order
demanding delivery of the garnished amount in check. The very tenor
of the order called for immediate compliance therewith. On the other
hand, the bank cannot be held liable for the subsequent encashment of
the check as this was upon order of the court in the exercise of its

ARANDIA 4B

power of control over the funds placed in custodia legis by virtue of

the garnishment.
o

ARANDIA 4B

What are the rules placed by the GBL on the grant of loans and other credit
accommodations? A bank shall grant loans and other credit accommodations only
in amounts and for the periods of time essential for the effective completion of
the operations to be financed.
It shall also be consistent with safe and sound banking practices

What must be disclosed on the loan application and in the contract of loan? The
purpose of the loan and other credit accommodation.

What if the borrower spends the proceeds of the loan for some other purpose other
than that mentioned in application/contract? Once the bank finds out, that such
proceeds were spent for some other purpose without its approval the bank shall
have the right to terminate the loan or other credit accommodation and demand
immediate repayment of the obligation.

What are the other requirements before a bank may grant loans and other credit
accommodations?
The bank shall also ascertain that the debtor is capable of fulfilling his
financial commitments to the bank. To achieve this, the bank may to
properly evaluate the credit application:
o Demand from the applicant a statement of their assets and liabilities
and of their income and expenditures and such information as may be
prescribed by law or by the Monetary Board
o Demand the corresponding financial statements submitted for
taxation purposes to the BIR

What if the applicant misrepresents or falsify these requirements? Should such
statements prove to be false or incorrect in any material detail the bank may
terminate any loan or other credit accommodation granted on the basis of said
statements and shall have the right to demand immediate repayment or liquidation
of the obligation.

What are the prohibited transactions as to the grant of loans and other credit
accommodations under 55 of the GBL?
As to Directors, Officers or Agent of the bank
o Make false entries in any bank report or participate in any fraudulent
transaction, thereby affecting the financial interest of or causing
damage to the bank or any person
o Accept gifts, fees or commissions or any other form of remuneration
in connection with the approval of a loan or other credit
accommodation from said bank
o Overvalue or aid in overvaluing any security for the purpose of
influencing in any way the actions of the bank or any bank
As to the Borrower

ARANDIA 4B

o Fraudulently overvalue property offered as security for a loan or

other credit accommodation from the bank;
o 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
o Attempt to defraud the said bank in the event of a court action to
recover a loan or other credit accommodation
o 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.

Case Doctrines:
o In UCPB, in approving the loan of an applicant, the bank concerns itself with
proper information regarding its debtors. UCPB as a bank and a financial
institution engaged in the grant of loans, is expected to ascertain and verify
the identities of the persons it transacts business with.

May a bank grant unsecured loans (no security)? Yes, but it is subject to the
regulations imposed by the Monetary Board.

Does the Monetary Board have the authority to prescribe the terms and conditions
of a loan or other credit accommodation? YES, the MB may prescribe maturities, and
other terms and conditions for various types of bank loans and other credit
accommodation taking into consideration the requirements of the economy for the
effective utilization long-term funds.
Limitations of this authority:
o Any changes made by the MB shall only apply to loans and other
credit accommodations made after the date of such action
The MB also had the authority to grant extensions or renewals of its loans
and other credit accommodation

What are the rules on losses and write-offs?
Bad Debts. All debts due to any bank on which interest is past due and
unpaid for a period determined by the MB, except if the same is well-secured
and in the process of collection
The MB has authority to fix, the amount of reserves for bad debts or doubtful
accounts or other contingencies
The MB may also issue regulations it may deem necessary with respect to the
maximum permissible maturities of the loans and investments which the
bank may make and the kind/amount of security to be required

What is required from banks under the Truth in Lending Act (R.A. 3765)

ARANDIA 4B

The creditor shall furnish to each person to whom credit is extended, prior to
the consummation of the transaction, a clear statement in writing, the
following information:
o The cash price or delivered price of the property or service to be
acquired;
o The amounts, if any, to be credited as down payment and/or trade-in;
o (3) the difference between the amounts set forth under clauses (1)
and (2);
o 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;
o The total amount to be financed;
o The finance charge expressed in terms of pesos and centavos; and
o 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.

What happens if a creditor violates the provisions of the Truth in Lending Act?
Failure to disclose such information in violation of this Act shall be liable to
such person in the amount of P100 or in an amount equal to twice the finance
charged required by such creditor in connection with such transaction,
whichever is greater
o EXCEPT, that such liability shall not exceed P2,000
The action to recover such penalty may be brought by said person with one
year from the date of the occurrence of the violation

Case Doctrines:
o In New Sampaguita, the unilateral determination and imposition of
increased rates is violative of the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code. Although escalation clauses are
valid in maintaining fiscal stability and retaining the value of money on longterm contracts, giving respondent an unbridled right to adjust the interest
independently and upwardly would completely take away from petitioners
the right to assent to an important modification in their agreement and
would also negate the element of mutuality in their contracts.
o Rates found to be iniquitous or unconscionable are void, as if it there
were no express contract thereon. Above all, it is undoubtedly against
public policy to charge excessively for the use of money.
o In AFTIL, CB Circular No. 905 merely upheld the parties freedom of contract
to agree freely on the rate of interest. It cited Article 1306 of the New Civil
Code, under which the contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy.
o In Bulos, the SC held that while the Usury Law has been suspended by Central
Bank Circular No. 905, s. 1982, effective on 1 January 1983, and parties to a

ARANDIA 4B

loan agreement have been given wide latitude to agree on any interest rate,
still stipulated interest rates are illegal if they are unconscionable. Nothing in
the said circular grants lenders carte blanche authority to raise interest rates
to levels which will either enslave their borrowers or lead to a hemorrhaging
of their assets.
o In PNB, the SC held that for escalation clauses to be valid it shall specifically
provide for the following: (1) That there can be an increase in interest if
increased by law or by the Monetary Board and (2) it must include a
provision for reduction of the stipulated interest in the event that the
applicable maximum rate of interest is reduced by law or by the Monetary
Board. In this case, PNB relied on its own resolutions which are neither laws
nor resolutions of the MB
o In Llorin, escalation clauses are valid under the law so long as the following
requisites are met: specifically provide (1) that there can be an increase in
interest if increased by law or by the Monetary Board, and (2) it must include
a provision for reduction of the stipulated interest in the event that the
applicable maximum rate of interest is reduced by law or by the Monetary
Board. In the case at bar, although there was no de-escalation clause, APEX
lowered the interest rate on its own, thus the promissory note and the
obligation is valid.

What are floating interests? When a bank, due to fluctuating economic conditions,
stipulate that interest rates on a loan to not be fixed and be made dependent upon
prevailing market conditions. However, there should always be a reference rate upon
which to peg such variable interest rates.

What are the rules on the amortization on loans and other credit
accommodations?
It shall depend on the nature of the operations to be financed
If it is with maturities of more than five years, provisions must be made for
periodic amortization payments but such payments must be made at least
annually
o EXCEPT, if the funds borrowed are used for purposes which do not
initially produce revenue adequate for regular amortization
payments, the bank may permit the initial deferment of the initial
amortization but in no case be later than 5 years

Is a borrower allowed to make a prepayment on the loan? Yes, a borrower may at
any time prior to the agreed maturity date, prepay in whole or in part, the unpaid
balance of any loan or other credit accommodation, subject to such reasonable terms
and conditions as may be agreed upon

What is the rule on mutuality of contracts? NO, the contract must bind both
contracting parties, its validity or compliance cannot be left to the will of one of
them.
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What is the rule on extraordinary inflation/deflation? If there be a law/regulation
declaring as such, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment
o In EPCIB, extraordinary inflation exists when there is an unusual decrease in
the purchasing power of currency (that is, beyond the common fluctuation in
the value of currency) and such decrease could not be reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time of the
obligation. Extraordinary deflation, on the other hand, involves an inverse
situation. For extraordinary inflation (or deflation) to affect an obligation, the
following requisites must be proven:
o That there was an official declaration of extraordinary inflation or
deflation from the Bangko Sentral ng Pilipinas (BSP)
o That obligation was contractual in nature
o That the parties expressly agreed to consider the effects of the
extraordinary inflation or deflation.

What is the single borrowers limit?
o Cannot exceed 20% of the net worth of the bank and is based on the total
credit commitment to the borrower
o May be increased by 10% if adequately secured

What are the restrictions on Bank Exposure on Directors, Officers, Stockholder and
Related Interest (DOSRI)? A director/officer of a bank cannot directly/indirectly for
himself or for others, (1) borrow from such bank or (2) become a guarantor,
endorser, or surety for loans from such bank to others, or (3) in any manner
be an obligor or incur any contractual liability
EXCEPT:
o If with written approval of the majority of all the directors of the bank,
excluding the director concerned.
o If such loan is granted under a fringe benefit plan approved by the
BSP, no written approval is required
Such written approval must be entered into (1) the records of the bank and
(2) a copy sent to the appropriate department of the BSP

What are the limitations on the dealings of a bank to its DOSRI?
It shall be upon terms not less favorable to the bank than those offered to
other

What if there are violations of these rules on DOSRI? The MB may declare the seat
occupied by such DOSRI vacant after due notice to its board of directors and be
subject to the penal provisions of the NCBA

What regulations/limitations may the MB place on DOSRI? The MB may:

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Regulate the amount of the loan/credit accommodation as well as the

investments of such bank in enterprises controlled by the DOSRI
The outstanding loan/credit accommodations shall be limited to an amount
equivalent to their respective unencumbered deposits and book value of
their paid-in capital contribution in the bank
o EXCEPT if such loan/credit accommodation is considered as a nonrisk by the MB, or a fringe benefit then it shall be excluded from such
limit
Under 26, a DOSRI who contracts a loan or any form of financial
consideration from a bank which:
o Is a subsidiary of a bank holding company of which both his bank and
the lending bank are subsidiaries
o 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,
o Shall be REQUIRED by the lending bank to waive the secrecy of his
deposits of whatever nature in all banks in the Philippines
But such information is considered confidential and can only
be used in connection with their supervisory and examination
responsibility or by the BSP in an appropriate legal action

ARANDIA 4B

What is the contract of guaranty? It is where, a person, called the guarantor, binds
himself to the creditor, to fulfill the obligation of the principal debtor in case the
latter should fail to do so.

What are the rule on solidary or joint liability?
There is only solidary liability when: (1) the obligation expressly so states or
(2) when the law or the nature of the obligation requires solidarity
o Solidarity may exist even if the creditors/debtors may not be bound in
the same manner or by the same periods and conditions
o A solidary creditor may do whatever is useful to the others, but not
anything which may be prejudicial to the other solidary creditors
There is a presumption created by law that the obligation is joint wherein
the credit or debt is to be divided into as may shares as there are creditors or
debtors
o What happens if the division of the credit/debt is impossible?
Remember, the indivisibility of the obligation does not
necessarily give rise to solidarity nor does solidarity by itself
imply indivisibility.
o In what circumstance may the rights of the creditors be prejudiced?
Only through their collective acts, furthermore, the debt can be only
enforced by proceeding against all the debtors.
o What happens if one of the debtors is insolvent? The other joint
debtors shall not be liable for the insolvent debtors share

Case Doctrines:
o In Cuenca, an obligation may be extinguished by novation, pursuant to Art.
1292 of the NCC: In order that an obligation may be extinguished by another
which substitute the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other. Novation of a contract is never presumed. In
the absence of an express agreement, novation takes place only when the old
and the new obligations are incompatible on every point. Requisites:
o There is a previous valid obligation
o The parties concerned agree to a new contract
o The old contract is extinguished
o There is a valid new contract

An essential alteration in the terms of the Loan Agreement without the
consent of the surety extinguishes the latters obligation. It is fundamental in
the law of suretyship that any agreement between the creditor and the
principal debtor which essentially varies the terms of the principal contract,
without the consent of the surety, will release the surety from liability.

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A continuing guaranty is one which covers all transactions, including those

arising in the future, which are within the description or contemplation of
the contract of guaranty, until the expiration or termination thereof.

It is a common banking practice to require the JSS (joint and solidary
signature) of a major stockholder or corporate officer, as an additional
security for loans granted to corporations. There are at least two reasons for
this.
o First, in case of default, the creditors recourse, which is normally
limited to the corporate properties under the veil of separate
corporate personality, would extend to the personal assets of the
surety.
o Second, such surety would be compelled to ensure that the loan would
be used for the purpose agreed upon, and that it would be paid by the
corporation.
o In Ong, a guarantor insures the solvency of the debtor while a surety is an
insurer of the debt itself. A contract of guaranty gives rise to a subsidiary
obligation on the part of the guarantor. It is only after the creditor has
proceeded against the properties of the principal debtor and the debt
remains unsatisfied that a guarantor can be held liable to answer for any
unpaid amount. This is the principle of excussion.
o In a suretyship contract, however, the benefit of excussion is not
available to the surety as he is principally liable for the payment of the
debt. As the surety insures the debt itself, he obligates himself to pay
the debt if the principal debtor will not pay, regardless of whether or
not the latter is financially capable to fulfill his obligation. Thus, a
creditor can go directly against the surety although the principal
debtor is solvent and is able to pay or no prior demand is made on the
principal debtor. A surety is directly, equally and absolutely bound
with the principal debtor for the payment of the debt and is deemed as
an original promissor and debtor from the beginning.
In DBP, at the time of the constitution of the mortgagee, the mortgagee bank
failed to conduct an ocular inspection. While an innocent mortgagee is not
expected to conduct an exhaustive investigation on the history of the
mortgagors title, in the case of banking institutions, a mortgagee must
exercise due diligence before entering into said contract. Judicial notice
mistaken of the standard practice for banks, before approving a loan, to send
representatives to the premises of the land offered as collateral & to
investigate who are the legal owners thereof. Banks, having been impressed
with public interest, are expected to exercise more care & prudence than
private individuals in their dealings, even those involving registered lands.
Petitioner was already aware that a person other than the registered owner
was in actual possession of the land when it bought the same at the
foreclosure sale. It is a well settled rule that a purchaser cannot close his eyes
to facts which should put a reasonable man upon his guard, & then claim that

ARANDIA 4B

he acted in goof faith under the belief that there was no defect in the title of
the vendor.
In Union Bank, a dragnet clause or blanket mortgage is one which is
specifically phrased to subsume all debts of past or future origins. Such
clauses are "are fully scrutinized and strictly construed. Mortgages of this
character enable the parties to provide continuous dealings, the nature or
extent of which may not be known or anticipated at the time, and they avoid
the expense and inconvenience of executing a new security on each new
transaction. It has been settled in a long line of decisions that mortgages
given to secure future advancements are valid and legal contracts, and the
amounts named as consideration in said contracts do not limit the amount
for which the mortgage may stand as security if from the four corners of the
instrument the intent to secure future and other indebtedness can be
gathered.
In Metrobank, the one-year redemption period should be counted not from
the date of foreclosure sale, but from the time the certificate of sale is
registered with the Registry of Deeds. The general rule in redemption is that
it is not sufficient that a person offering to redeem manifests his/her desire
to do so. The statement of intention must be accompanied by an actual and
simultaneous tender of payment. This constitutes the exercise of the right to
repurchase. Bona fide redemption necessarily implies a reasonable and valid
tender of the entire purchase price, otherwise the rule on the redemption
period fixed by law can easily be circumvented. There is no cogent reason for
requiring the vendee to accept payment by installments from the
redemptioner, as it would ultimately result in an indefinite extension of the
redemption period.
o In order to effect a redemption, the judgment debtor must pay the
purchaser the redemption price, which is:
The price which the purchaser paid for the property
Interest of 1% per month on the purchase price
The amount of any assessment or taxes which the purchaser
may have paid on the property after the purchaser
Interest of 1% per month on such assessment and taxes
o As to the filing of a civil complaint having the effect of freezing the
redemption period and preserves the right of the mortgagor to
redeem the property foreclosed:
Such rule applies only when the complaint to enforce a
repurchase is filed within the period of redemption in
which case, the same will be equivalent to an offer to redeem
and have the effect of preserving the right of redemption. In
the case before us, the complaint for redemption (Specific
Performance) was filed beyond the one-year redemption
period or on 12 September 1997, more than twelve years from
20 June 1985 which is the last day of said person.

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In Ibaan, when the bank received a copy of the Certificate of Sale registered
in the Office of the Register of Deeds of Lipa City, it had actual and
constructive knowledge of the certificate and its contents. For 2 years, it did
not object to the two- year redemption period provided in the certificate.
Thus, it could be said that the bank consented to the two-year redemption
period specially since it had time to object and did not. When circumstances
imply a duty to speak on the part of the person for whom an obligation is
proposed, his silence can be construed as consent. By its silence and inaction,
the bank misled the Sps. Tarnate to believe that they had two years within
which to redeem the mortgage. After the lapse of two years, the bank is
estopped from asserting that the period for redemption was only one year
and that the period had already lapsed. Estoppel in pais arises when one, by
his acts, representations or admissions, or by his own silence when he ought
to speak out, intentionally or through culpable negligence, induces another to
believe certain facts to exist and such other rightfully relies and acts on such
belief, so that he will be prejudiced if the former is permitted to deny the
existence of such facts.
In Union Bank, the period of redemption is not interrupted by the filing of an
action assailing the validity of the mortgage, so that at the expiration thereof,
the mortgagee who acquires the property at the foreclosure sale can proceed
to have the title consolidated in his name and a writ of possession issued in
his favor. As to the price of the redemption, this is now MOOT and
ACADEMIC. However, the SC said, based on several cases: the amount at
which the foreclosed property is redeemable is the amount due under the
mortgage deed, or the outstanding obligation of the mortgagor plus interest
and expenses in accordance with Section 78 of the General Banking Act. It
was therefore manifest error on the part of the Court of Appeals to apply in
the case at bar the provisions of Section 30 Rule 39 of the Rules of Court in
fixing the redemption price of the subject foreclosed property.
In Samson, the purchaser in a foreclosure sale may apply for a writ of
possession during the redemption period by filing for that purpose an ex
parte motion under oath, in the corresponding registration or cadastral
proceeding in the case of a property with torrens title. Upon the filing of such
motion and the approval of the corresponding bond, the court is expressly
directed to issue the writ.
o This Court has consistently held that the duty of the trial court to
grant a writ of possession is ministerial. Such writ issues as a matter
of course upon the filing of the proper motion and the approval of the
corresponding bond. No discretion is left to the trial court. Any
question regarding the regularity and validity of the sale, as well as
the consequent cancellation of the writ, is to be determined in a
subsequent proceeding as outlined in Section 8 of Act 3135. Such
question cannot be raised to oppose the issuance of the writ, since the
proceeding is ex parte. The recourse is available even before the

ARANDIA 4B

expiration of the redemption period provided by law and the Rules of

Court
o The purchaser, who has a right to possession that extends after the
expiration of the redemption period, becomes the absolute owner of
the property when no redemption is made. Hence, at any time
following the consolidation of ownership and the issuance of a new
transfer certificate of title in the name of the purchaser, he or she is
even more entitled to possession of the property. In such a case, the
bond required under Section 7 of Act 3135 is no longer necessary,
since possession becomes an absolute right of the purchaser as the
confirmed owner.

ARANDIA 4B

What is the rule on major investments? The MB has the authority to establish
criteria for reviewing major acquisitions of investments by a bank which may
expose the bank to undue risks or in any way hinder effective supervision

Can a bank acquire real estate? Yes, a bank may acquire real estate that may be
necessary for its own use in the conduct of its business.
However, the total investment in such real estate shall not exceed 50% of
combined capital accounts
If the bank has equity investments in another corporation engaged primarily
in real estate, they shall be considered part of the banks total investment in
real estate.
Under what circumstance can the MB place a bank under receivership? The MB may
summarily and without need for prior hearing close such bank and place it under
receivership of the PDIC:
When a bank notifies the BSP or publicly announces a bank holiday
Or in any manner suspends the payment of its deposit liabilities continuously
for more than 30 days

Can a bank engage in the business as insurer? NO, a bank shall not directly engage in
insurance business as the insurer.

What are the acts constituting as conducting business in an unsafe and unsound
manner?
Where such act results in material loss or damage or abnormal risk or danger
to the safety, stability, liquidity or solvency of the bank
Where such act results in material loss or damage or abnormal risk or danger
to the banks depositors, creditors, investors, stockholders, the BSP or the
public in general.
Where such act caused any undue injury or has given any unwarranted
benefits, advantage or preference to the bank or any party in the discharge
by the director or officer of his duties and responsibilities through manifest
partiality, evident bad faith or gross inexcusable negligence
Where such act involves entering into any contract or transaction manifestly
and grossly disadvantageous to the bank, quasi-bank or trust entity, whether
or not the director or officer profited or will profit thereby

What happens when a bank persists in conducting its business in an unsafe or
unsound manner? The MB without prejudice to the administrative sanctions it may
impose, it may exclude the erring bank from clearing

What sanctions may the MB impose on banks conducting business in an unsafe or
unsound manner? The MB may impose administrative sanctions as well as fine of
P50k-P200k or by imprisonment of 2-10 years or both, at the discretion of the court.

ARANDIA 4B

May the BSP extend loans and advances to banks institutions? YES, but under
different circumstances, such as:
Loans for liquidity purposes
o The BSP may grant loans to a bank for the purpose of providing
liquidity to the banking system in times of need which may be for a
period of not more than 7 days without the need of any collateral
Emergency Loans and Advances
o For periods of national and/or local emergency or of imminent
financial panic, the MB may grant extraordinary loans secured by
assets
The emergency must be one that directly threatens
monetary and banking stability
Requires the vote of at least 5 of its members
While such loan is outstanding he debtor institution shall not,
except upon prior authorization by the MB, expand the total
volume of its loans or investments.
o For normal periods, the MB may grant loans when:
The purposes is to assist 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
The MB has first ascertained that the bank involved is not
insolvent has sufficient assets to secure such loan
Requires the concurrent vote of at least 5 members of the MB
o Rules as to the amount loaned/advanced by the MB
It must not exceed 50% of the total deposits and deposit
substitutes of the banking institution
Shall be disbursed in two or more tranches
As to the first tranche:
o It is limited to 25% of the total deposit and
deposit substitutes of the institution
o Shall be secured by government securities to the
extent of their applicable loan values and other
unencumbered first class collaterals which the
Monetary Board may approve
o Submit to the BSP a resolution of the banks
board of directors authorizing the BSP to
evaluate other assets of the banking institution
certified by its external auditor to be good and
available for collateral purposes should the
release of the subsequent tranche be thereafter
applied for.
o EXCEPT (when they can release more than 25%
on the first tranche):
There are circumstances necessitating it
ARANDIA 4B

It is adequately secured by government

securities to the extent of their applicable
loan values and other unencumbered first
class collaterals which the MB may
approve
The principal stockholders of the
institution furnish an acceptable
undertaking to indemnify and hold
harmless from suit a conservator whose
appointment the Monetary Board may
find necessary at any time.
As to the second tranche:
o There must be a a vote of at least five (5) of its
members, authorize the release of a subsequent
tranche on condition that the principal
stockholders of the institution:
Furnish an acceptable undertaking to
indemnify and hold harmless from suit a
conservator
Provide acceptable security that is
adequate to supplement, where necessary
the assets tendered by the banking
institution to collateralize the subsequent
tranche
May the MB acquire shares of the bank as security for the loans? YES, as well
as their acquisition as a result of the foreclosure proceedings. However, they
must dispose of said shares by public bidding within one year from the date
of consolidation of title by the BSP

Conservatorship (29)
How determined? It is determined on the basis of a report submitted by the
supervising or examining department
On what grounds? Based on such report, the MB finds that the 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.
What is the Authority/Powers of the Conservator? To (1) take charge of the
assets, liabilities, and the management thereof, (2) reorganize the
management, collect all monies and debts due said institution, and (3)
exercise all powers necessary to restore its viability
o AS WELL AS:
The power to overrule or revoke the actions of the previous
management and board of directors of the bank or quasi- bank
(?)

ARANDIA 4B

Qualifications; must be competent and knowledgeable in bank operations

and management
Duration; the conservatorship shall not exceed one year
Salaries; fixed by the MB in an amount not to exceed 2/3 of the salary of the
president of such institution in one year, payable in 12 equal payments.
o If conservatorship terminated earlier than one year; if on the ground
that the bank can now operate on its own, then the conservator
gets the remaining balance he would have received for the year
IF ON SOME OTHER GROUND, not entitled to such balance
o If the conservator appointed is one who is connected to the BSP, he is
not entitled to receive any remuneration or emolument
Grounds for termination of the conservatorship
o When the MB is satisfied that the bank can continue to operate on its
own and conservatorship is no longer necessary
o When the MB, on the basis of the report of the conservator or of its
own finding, determine that the continuance in business of the
institution would involve probable loss to its depositors or
creditors, in which case the bank would undergo
receivership/liquidation

Case Doctrines:
In FPIB, the Central Bank law gives vast and far- reaching powers to the
conservator of a bank, it must be pointed out that such powers must be
related to the (preservation of) the assets of the bank, (the reorganization
of) the management thereof and (the restoration of) its viability. However,
such powers CANNOT EXTEND TO THE POST-FACTO REPUDIATION OF
PERFECTED TRANSACTIONS, otherwise they would infringe against the nonimpairment clause of the Constitution. The conservator merely takes the
place of a banks board of directors. What the said board cannot do -
such as repudiating a contract validly entered into under the doctrine
of implied authority - the conservator cannot do either.
o Ineluctably, his power is not unilateral and he cannot simply
repudiate valid obligations of the Bank. His authority would be only to
bring court actions to assail such contracts - as he has already done so
in the instant case.
In re: Petition for Assistance, the receiver shall immediately gather and take
charge of all the assets and liabilities of the institution, administer the same
for the benefit of its creditors, and exercise the general powers of a receiver
under the Revised Rules of Court but shall not, with the exception of
administrative expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution
In Koruga, the banking business is properly subject to reasonable regulation
under the police power of the state because of its nature and relation to the
fiscal affairs of the people and the revenues of the state. Banks are affected
with public interest because they receive funds from the general public in the
ARANDIA 4B

form of deposits. In this country, that task is delegated to the BSP, which
pursuant to its Charter, is authorized to administer the monetary, banking,
and credit system of the Philippines. It is further authorized to take the
necessary steps against any banking institution if its continued operation
would cause prejudice to its depositors, creditors and the general public as
well.
o The Corporation Code, however, is a general law applying to all types
of corporations, while the New Central Bank Act regulates specifically
banks and other financial institutions, including the dissolution and
liquidation thereof. As between a general and special law, the latter
shall prevail generalia specialibus non derogant
o On the strength of these provisions, it is the Monetary Board that
exercises exclusive jurisdiction over proceedings for receivership of
banks.

Receivership and Liquidation (30)
How determined? Upon report of the head of supervising or examining
department
Grounds for receivership/liquidation. The MB finds that a bank:
o Is unable to pay its liabilities as they become due in the ordinary
course of business
If such inability is due to extraordinary demands induced by
financial panic in the banking community, then it shall not be a
ground for receivership/liquidation
o Has insufficient realizable assets to meet its liabilities
o It cannot continue in business without involving probable losses to its
depositors or creditors
o Has willfully violated a cease and desist order that became final,
involving transaction which amounts to fraud or a dissipation of the
assets of the bank
How? The MB may summarily and without need for prior hearing (close now,
hear later) forbid the bank from doing business and designate the PDIC as
receiver (statutory receiver)
Power of the receiver. The receiver shall immediately gather and take charge
of all the assets and liabilities of the institution, administer the same for the
benefit of its creditors, and exercise the general powers of a receiver under
the Revised Rules of Court but shall not, with the exception of
administrative expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution
o Exception: The receiver is allowed to deposit or place the funds of the
bank in non-speculative investment (i.e. government bonds,
perhaps?)
When receivership ends and goes to rehabilitation/liquidation. Within a period
not later than 90 days from the take over, the receiver shall determine
whether the institution may be rehabilitated or otherwise placed in such a
ARANDIA 4B

condition so that it may be permitted to resume business with safety to its

depositors and creditors and the general public.
o However, if the receiver determines that the institution cannot be
rehabilitated or permitted to resume business, 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.
Procedure for liquidation. The receiver shall:
o File with the proper RTC an ex parte petition for assistance in the
liquidation of the bank pursuant to a liquidation plan adopted by the
PDIC for general application to all closed banks.
If quasi-bank, the liquidation plan shall be adopted by the MB
o Once the RTC acquires jurisdiction over the petition, the court shall
upon motion by the receiver after due notice, adjudicate disputed
claims against the bank, 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.
o Convert the assets of the institutions 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
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.
o 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.
Nature of the actions of the MB in conservatorship/receivership. They are final
and executory and cannot be restrained or set aside by the court
o EXCEPT, when the majority stockholders based on the capital stock
files a petition for certiorari within 10 days from receipt by the board
of directors of the institution of the order directing receivership,
liquidation or conservatorship.
The petition for R65 would be on the ground that the action
taken was in excess of jurisdiction or with such grave abuse of
discretion as to amount to lack or excess of jurisdiction.
Is the designation of a receiver a precondition for the designation of a receiver?
NO

Case Doctrines:
o In Banco Filipino, when the issue on the validity of the closure and
receivership of Banco Filipino bank was raised, pendency of the case did not
diminish the powers and authority of the designated liquidator to carry on
ARANDIA 4B

the ministrations of the bank. While the CB was enjoined from further acts of
liquidation, they were not prohibited from receiving collectibles and
receivables or paying off credits claims and other transactions pertaining to
normal operate of a bank.
o While the CB was enjoined from further acts of liquidation, they were
not prohibited from receiving collectibles and receivables or paying
off credits claims and other transactions pertaining to normal operate
of a bank. The liquidator is empowered under the law to continue the
functions of receiver is preserving and keeping intact the assets of the
bank in substitution of its former management, and to prevent the
dissipation of its assets to the detriment of the creditors of the bank.
o The liquidator by himself or through counsel has the authority to
bring actions for foreclosure of mortgages executed by debtors in
favor of the bank.
o In RBSM, under RA 7653, only a "report of the head of the supervising or
examining department" is necessary. The absence of an examination before
the closure of RBSM did not mean that there was no basis for the closure
order. It is clear under RA 7653 that the basis need not arise from an
examination as required in the old law.
o In Larrobis, while it is true that foreclosure falls within the broad definition
of doing business, that is a continuity of commercial dealings and
arrangements and contemplates to that extent, the performance of acts or
words or the exercise of some of the functions normally incident to and in
progressive prosecution of the purpose and object of its organization; it
should not be considered included, however, in the acts prohibited whenever
banks are prohibited from doing business during receivership and
liquidation proceedings.
o Purpose of receivership proceedings is to receive collectibles and
preserve the assets of the bank in substitution of its former
management, and prevent the dissipation of its assets to the
detriment of the creditors of the bank.
o 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.
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o In Central Bank, the "close now and hear later" scheme is grounded on
practical and legal considerations to prevent unwarranted dissipation of the
bank's assets and as a valid exercise of police power to protect the
depositors, creditors, stockholders and the general public.
o In Valenzuela, judicial review enters the picture only after the MB has taken
action; it cannot prevent such action by the MB. The threat of the imposition
of sanctions, even that of closure, does not violate their right to due process,
and cannot be the basis for a writ of preliminary injunction.
o The close now, hear later doctrine has already been justified as a
measure for the protection of the public interest. Swift action is called
for on the part of the BSP when it finds that a bank is in dire straits.
Unless adequate and determined efforts are taken by the government
against distressed and mismanaged banks, public faith in the banking
system is certain to deteriorate to the prejudice of the national
economy itself, not to mention the losses suffered by the bank
depositors, creditors, and stockholders, who all deserve the
protection of the government.
o In Ong, all claims against the insolvent bank should be filed in the liquidation
proceeding. The rationale for this provision is to prevent multiplicity of
actions against the insolvent bank. It is a pragmatic arrangement designed to
establish due process and orderliness in the liquidation of the bank, to
obviate the proliferation of litigations and to avoid injustice and
arbitrariness.
o Disputed claims, it is not necessary that a claim be initially disputed in
a court or agency before it is filed with the liquidation court.
o In Manalo, the exclusive jurisdiction of the liquidation court pertains only to
the adjudication of claims against the bank. It does not cover the reverse
situation where it is the bank which files a claim against another person or
legal entity.
o The issuance of a writ of possession is not in the nature of a disputed
claim against the bank. it is an action instituted by the bank itself for
the preservation of its assets and protection of its properties
o In Cudiamat, as a general rule, if there is a judicial liquidation of an insolvent
bank, all claims against the bank should be filed in the liquidation
proceeding. However, after considering the circumstances attendant to the
case, held that the general rule should not be applied if to order the aggrieved
party to refile or relitigate its case before the litigation court would be an
exercise in futility. Among the circumstances the Court considered in that
case is the fact that the claimants were poor and the disputed parcel of land
was their only property, and the parties claims and defenses were properly
ventilated in and considered by the judicial court.
o In Villanueva, the insolvency of a bank and the consequent appointment of a
receiver restrict the bank's capacity to act especially in relation to its
property, applying Article 1323 of the Civil Code, Ong's offer to purchase the
subject lots became ineffective because the PVB became insolvent before the
bank's acceptance of the offer came to his knowledge. Hence, the purported
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contract of sale between them did not reach the stage of perfection.
Corollarily, he cannot invoke the resolution of the bank approving his bid as
basis for his alleged right to buy the disputed properties.
o In Abacus, the assets of the bank pass beyond its control into the possession
and control of the receiver whose duty it is to administer the assets for the
benefit of the creditors of the bank. Thus, the appointment of a receiver
operates to suspend the authority of the bank and of its directors and officers
over its property and effects, such authority being reposed in the receiver,
and in this respect, the receivership is equivalent to an injunction to restrain
the bank officers from intermeddling with the property of the bank in any
way.
o Clearly, the receiver appointed by the CB to take charge of the
properties of the Bank only had authority to administer the same for
the benefit of its creditors. Granting or approving an exclusive option
to purchase is not an act of administration, but an act of strict
ownership, involving, as it does, the disposition of property of the
bank. Congress itself has recognized that a bank receiver only has
powers of administration.

Distribution of Assets (31)
First, the cost of the proceedings, including reasonable expenses and fees of
the receiver to be allowed by the court shall be paid.
Second, the receiver shall pay the debts of the banks, upon order of the court,
in accordance with the rules on concurrence and preference of credits

Disposition of Revenues and Earnings (32)
Revenues realized by the receiver in winding up the affairs and administering
the assets of the bank. This shall be used to pay the costs, fees and
expenses mentioned in the preceding section, salaries of such
personnel whose employment is rendered necessary in the discharge of
the liquidation together with other additional expenses caused thereby.
o The balance of revenues and earnings, after the payment of all said
expenses, shall form part of the assets available for payment to
creditors.

Disposition of Banking Franchise (33)

Penalty for Transactions After a Bank Becomes Insolvent (70) A director or of
officer of any bank declared insolvent or received under receivership, who refuses
to turn over the records and assets to the designated receivers or who tampers with
banks records, or who appropriates for himself for another party or destroys or
causes the misappropriation and destruction of the bank's assets, or who receives or
permits or causes to be received in said bank any deposit, collection of loans and/or
receivables, or who pays out or permits or causes to be transferred any securities or

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property of said bank shall be subject to the penal provisions of the New Central
Bank Act.

Case doctrines:
o In Lipana, , the stay of the execution of judgment is warranted by the fact that
respondent bank was placed under receivership. To execute the judgment
would unduly deplete the assets of respondent bank to the obvious prejudice
of other depositors and creditors. The assets of the insolvent banking
institution are held in trust for the equal benefit of all creditors, and after its
insolvency, one cannot obtain an advantage or a preference over another by
an attachment, execution or otherwise.
o In Provident, doing business refers to a continuity of commercial dealings
and arrangement, and contemplates to that extent, the exercise of some of
the words or the normally incident to, and in progressive prosecution of, the
purpose and object of its organization
o In Central Bank, the CB is supposed to help a distressed bank, but in the case
of PROVIDENT, the CB imposed an interest of 12% on its emergency loans. In
so doing, the CB, instead of helping improve the situation of PROVIDENT,
actually aggravated further its financial position. And what is most amazing,
while this is being done to a bank in distress, the CB was willing to give loans
to a well-off bank, the Banco Filipino, loans at an interest of only 4%.
o In Banco Filipino, the following requisites, therefore, must be present before
the order of conservatorship may be set aside by a court:
o The appropriate pleading must be filed by the stockholders of record
representing the majority of the capital stock of the bank in the
proper court;
o Said pleading must be filed within 10 days from receipt of notice by
said majority stockholders of the order placing the bank under
conservatorship; and
o There must be convincing proof, after hearing, that the action is
plainly arbitrary and made in bad faith.
o The purpose of the law in requiring that only the stockholders of
record representing the majority of the capital stock may bring the
action to set aside a resolution to place a bank under conservatorship
is to ensure that it be not frustrated or defeated by the incumbent
Board of Directors or officers who may immediately resort to court
action to prevent its implementation or enforcement. It is presumed
that such a resolution is directed principally against acts of said
Directors and officers which place the bank in a state of continuing
inability to maintain a condition of liquidity adequate to protect the
interest of depositors and creditors. Indirectly, it is likewise intended
to protect and safeguard the rights and interests of the stockholders.
Common sense and public policy dictate then that the authority to
decide on whether to contest the resolution should be lodged with the
stockholders owning a majority of the shares for they are expected to

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be more objective in determining whether the resolution is plainly

arbitrary and issued in bad faith.
o In Central Bank, ruled that a banks claim that the resolution of the Monetary
Board under Section 29 is plainly arbitrary and done in bad faith should be
asserted as an affirmative defense or counter-claim in the proceedings for
assistance in liquidation. It may be filed as a separate action if no petition for
assistance in liquidation has been instituted yet.
o In

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Lecture

50 year lifespan of banks and can be dissolved by SEC but BSP has particular
regulation
In the meantime they can be closed, or be distressed
If need cash, BSP can grant emergency loans, rules
o Unsecured loans may be granted, but see the restrictions
MB can step in and make a finding if the bank is not doing well
o Conservator
Sec. 29 and 30
Know distinction bet. Receiver and conservator and
overall objective of each
Conser- if bank can remain viable, that means the activities of
bank does not stop it continues but BSP will watch actions of
management (takes charge of management)
Receiver has 90 days to see if rehab is possible and if have to
liquidate
o Receivership
o Rehab/Liquid
Jurisdiction
o Koruga-> GBL/NCBA you see the authority of the BSP and that the
latter has jurisdiction. Therefore, limits remedies to certiorari by the
majority stockholders. See what the cause of action is
Grounds for receivership
Sec 36 of the NCBA unsafe and unsound practice, can be placed under
receivership
Sec. 53 if bank announces a bank holiday or suspend payment of deposits for
more than 30 days can be put under receivership
o Banco Fili- court ruled against CB, order putting BF under
receivership is not valid, because they did not follow the requisites
Need for examination to be conducted. CB did not make a full
examination. (This was decided under the old law)
o Rural Bank of San Mig- SC said theres no more need to be able to
prove that a complete examination be done, all that is required is a
REPORT that was prepared. SC confirmed if BSP acts upon the report
it is not sufficient conclusion that BSP acted arbitrarily.
o Statutory Receiver-> PDIC.
o Duties of the Receiver, know concept of receivership
Takes charge of the assets
Collects debts of the bank
Not really to continue the business, but to determine if bank
needs to be liquidated or not
o Larrobis- bank placed under receivership, that fact alone does not
dissolve the corporate existence, but in fact, restricts the ability of the
bank to conduct business
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Not to pursue new bank business

No interruption to prescriptive period because of receivership
Bank is bound by the acts of the receiver
Close now hear later- authority of the CB to close banks without prior notice
or hearing
o CB v. CA- courts upheld this authority. Due process does not require
absolutely prior hearing.
Bank runs
o Valenzuela- not entitled to prior notice and hearing and not even
entitled to be given the report. It does not offend due process to deny
the bank to receive copy of the report. No obligation of CB to give the
report to the bank.
Earlier case->
o What is the remedy of the bank? Certiorari by majority stockholders
within 90 days from the receipt. On grounds of GADALEJ
Liquidation
o Remember concept behind liquidation know the primary
objective
o Sec. 30 receiver appointed and can decide to rehab or liquidated
o Vega- rehab and liquidation are polar opposites.
o Sec. 31 and 32 asset converted to cash
o Sec. 33 franchise of the bank surrender it, closure of bank may have
some spillover effects as to its branches, public may have no more
bank to go to and in that particular case, the MB may approve the
bank to continue to operate by another institution
o Preference of Credits- liquidation court has jurisdiction
Ong- disputed claims
Manalo- court clarified, the fact that there is a liquid court
where all claims are filed refers to claims filed against the
bank. But if reverse, file it with regular RTC.
Exception is Cudiamat, pending case where bank is actively
participating then gets liquidation. Whether case should be
dismissed? GR is yes, but there are exceptions where if on the
basis on estoppel, wherein refiling would be futile, court of
general jurisdiction may continue
Effects of receivership and liquidation
o Villanueva- Whether receiver can accept offer in behalf of bank. Once
bank is placed under receivership it cannot continue NEW banking
business. Cited Civ Code theres a restriction on capacity to act,
accepting offer requires capacity to act. Unaccepted offer, deemed
terminated
Receiver has duties and functions, has to enter into
agreements, compromise or represent bank in other ways,
continue to represent bank,

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o Abacus-Sc affirms that when bank is under receiver, authority of the

board terminates or ceases. Receiver performs act of administration
cannot do acts of disposition or alienation
Sec. 30
Sec. 70 consequences of being declared under receivership or insolvent
o Tampering refusing to deliver records, can be penalized by the
bSP
Garnishment/levy/attachment/execution- first reference is Sec. 30
o Lipana- effects of receivership to obtain writs of execution
Stoppage of business
o Disallowed to do new banking business->
Effect of receivership on running of interest
o Fidelity-> if bank is ordered closed, not liable for interest on those
deposits at that time, because bank is prohibited to do more business
thus it cannot pay interest on deposits
o Sta. Catalina->rural bank was in default, special circumstance where
bank is estopped from paying interest
Judicial Review
o MB can close now hear later, only way to set aside the order of
receiver, conservator,
65 by majority stockholder within 10 days from receipt of
order of the MB

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