Banking Laws

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BANKING LAWS GOVERNI NG LAW Banking Institution are governed by the following laws: A.

General banking laws  General Banking Law (R.A. No. 8791) New Central Bank Act (R.A. No. . 7653)

Special banking laws New Rural Banks Act (R.A. No. 7353)  Private Development Banks Act  (R.A. No. 4093) Savings and Loan Association Act  (R.A. No. 3779)  . Thrift Banks Act (R.A. No. 7906)

BAR QUESTION: JOINT ACCOUNT VS. PARTNERSHIP (2000) Distinguish joint account from partnership. (3%) SUGGESTED ANSWER The following are the distinctions between joint account and partnership:

B.

C.

Other laws affecting banks  Secrecy of Bank Deposits Law (R.A. No. 1405)  Unclaimed Balances Law (Act No. 3936) Philippine Deposit Insurance Corporation Act  (R.A. No. 3591)

 The

general banking laws above mentioned are applicable to government banks like DBP and PNB.  The Al- Amanah Islamic Bank is subject to all banking and pertinent laws. (Bar Review Materials Miravite, 2002 ed.)

in Commercial Law, Jorge

T HREE KINDS OF ENTITIES THAT INTRODUCE FUNDS INTO THE ECONOMY : 1.

2. 3.

banks : entities that obtains funds from the public in the form of deposits and re-lend it to the public; quasi-banks : those that obtain funds in the form of  deposit substitutes and re-lend the same and not from the public or depositors. Finance companies and other financial intermediaries: those that lend funds from their  own assets.

FIVE PERSONS PRIMARILY INTERESTED IN THE BUSINESS OF BANKING 1. 2. 3. 4. 5.

Government Depositors Investors Creditors Borrowers

1) A partnership has a firm name while a joint account has none and is conducted in the name of the ostensible partner. 2) WHILE A PARTNERSHIP HAS JURIDICAL PERSONALITY AND MAY SUE OR BE SUED UNDER ITS FIRM NAME, A JOINT ACCOUNT  HAS NO JURIDICAL PERSONALITY AND CAN SUE OR BE SUED ONLY IN THE NAME OF THE OSTENSIBLE PARTNER. 3) While a partnership has a common fund, a joint account has none. 4) While in a partnership, all general partners have the right of management, in a joint account, the ostensible partner manages its business operations. 5) While liquidations of a partnership may, by agreement, be entrusted to a partner or partners, in  joint account liquidation thereof can only be done by the ostensible partner.

BAR QUESTION: Theory of Cognition vs. Theory of Manifestation (1997)

The Civil Code adopts the theory of cognition, while the Code of Commerce generally recognizes the theory of manifestation, in the perfection of contracts. How do these two theories differ? SUGGESTED ANSWER: Under the theory of cognition, the acceptance is considered to effectively bind the offeror only from the time it came to his knowledge. Under the theory of manifestation, the contract is perfected at the moment when the acceptance is declared or made by the offeree.

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GENERAL BANKING LAW OF 2000 (GBL) (RA No. 8791)

Purpose: To promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of  a developing economy ( S ec. ec. 2). Scope of Application: The GBL primarily governs universal banks and commercial banks. It suppletorily governs thrift banks, rural banks and other banking institutions.

The certificate of authority shall not be issued unless the Monetary Board is satisfied: 1.

That all requirements of existing existing laws and and regulations to engage in the business for which the applicant is proposed to be incorporated have been complied with;

2.

That the public interest and economic conditions, both general and local, justify the authorization; and

3.

That the amount of of the capital, the financing, organization, direction and administration, as well as the integrity and responsibility of the organizers and administrators, reasonably assure the safety of deposits and the public interest ( S  Sec.   c. 14). e

GENERAL CONCEPTS BANKS 

Entities engaged in the lending of funds obtained in the form of deposits ( S  Sec.   c. 2) e



Entities duly authorized by the Monetary Board to engage in the business of regularly lending funds obtained regularly from the public through the receipt of deposits of any kind.



An investment company that performs function as such is NOT a bank. Thus an investment company that is engage solely in investing, reinvesting or  trading in securities is not engage in banking. (  Banas vs. Asia Pacific Finance Corp., Oct. 18, 2000).



However, an investment company which loans out money of its customers, collects interest, and charges a commission to both lender or borrower is engage in banking (Republic vs. S ecurity ecurity Credit  and Acceptance Corp.)

QUASI-BANKS 



Organization of a Bank or  Quasi-Bank Requirements: 1. The entity is a stock corporation; 2. Its funds are obtained from the public, i.e. 20 or more persons; and 3. The minimum capital requirements prescribed Sec.   c. 8). by the Monetary Board are satisfied ( S  e Note: In Quasi banks, Deposit substitute are alternative forms of obtaining funds for the public, other than deposit, through the issuance, endorsement, or acceptance of debt instrument for the borrowers own account, for  the purpose of relending or purchasing of  receivables and other obligations.in banking or  quasi-banking functions





Entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes ( S  Sec.  ec. 95) Entities authorized to perform universal or  commercial banking functions may also engage in quasi-banking functions.

NATURE OF BANKING BUSINESS 

FINANCIAL INTERMEDIARIES 

A person or entity cannot engage in banking or  quasi-banking functions without a certificate of  authority from the BSP ( S  Sec.   c. 6). e The determination of whether a person or entity is performing banking or quasi-banking functions without BSP authority shall be decided by the Monetary Board.

Impressed with public interest where the trust and confidence of the public in general is of paramount importance such that: 1.

The appropriate standard of diligence must be very high, if not the highest, degree of  diligence; hig hest degree of care (PCI Bank vs. CA, 350  S CRA CRA 446, PBCom vs. CA, G.R. No. 121413, 29 Jan. 2001) This applies only to cases where banks  are acting in their fiduciary capacity, that is, as depository of the deposits of their  depositors (Reyes vs. CA, G.R. No. 118492, 15 Aug. 2001).

2.

Subject to reasonable regulation under the police power of the state.

Persons or entities whose principal functions include the lending, investing or placement of funds on evidences of indebtedness or equity deposited with them, acquired by them or otherwise coursed through them, either for their own account or for the account of others.

ORGANIZATION AND OPERATION A.

Authority to Register/Incorporate



The SEC shall not register the articles of  incorporation of any bank or any amendment thereto unless accompanied by a certificate of  authority issued by the Monetary Board under its seal ( S  Sec.   c. 14). e



While an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor¶s title, in case of a banking

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institution, it must exercise due diligence before entering into said contract, and cannot rely upon on what is or is not annotated on the title. Reason: Before a loan is approved, representatives are sent to the premises offered as collaterals so as to investigate who the real owners are (DBP vs. CA, 331 S CRA CRA 267). 



The business of a bank is one affected by public interest for which reason the bank should guard against loss due to negligence and bad faith. It is expected to ascertain and verify the identities of the persons it transacts business with (UCPB vs. Ramos, G.R. No. 147800, November 11, 2003, Callejo, J.). Due diligence required of banks extend even to persons, or institutions like the GSIS, regularly engaged in the business of lending money secured S by real estate mortgages (GS I  IS      vs. Eduardo S antiago, antiago, G.R. No. 155206. 155206. October 28, 2003). 2003).

CONSEQUENCES OF NATURE OF BUSINESS : 1.

It is subject to heavy and close supervision and/or  regulation by the BSP ( Central Bank of t he P hils. v. CA, 208 S CRA CRA 652 ).

1.

It is required to exercise utmost diligence in the handling of deposits ( S imex imex International Manila Inc., 183 S CRA CRA 361) 361). Special rules on strikes and lockouts: any strike or  lockout involving banks, if unsettled after 7 calendar days shall be reported by the BSP to the Sec. of Labor who has 2 options: a. He may assume jurisdiction jurisdicti on over and decide the dispute; or  b. certify it to the NLRC for compulsory compulsory arbitration

2.

The President may also intervene at any time and assume jurisdiction over such labor dispute in order to settle or terminate the same.

CLASSIFICATION OF BANKS (SEC . 3) 1.

2.

- Primarily governed by the General Banking Law (GBL ), can exercise the powers of an investment house and invest in nonallied enterprises and have the highest capitalization requirement.

Universal banks

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

Commercial banks

3.

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

4.

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

5.

Cooperative banks

cooperatives primarily to provide financial and credit services services to cooperatives. It shall include cooperative rural banks. They are governed primarily by the Cooperative Code (RA 6938). 6.

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

7.

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

ORDINARY CORPORATION

BANKING CORPORATION

May be a stock or  non-stock corporation

Must generally be a stock corporation

May issue par value or no par value stocks.

Shall issue par value stocks only ( S  e Sec.   c. 9).

May be registered with the SEC without any certificate of  authority issued by a government agency.

Must secure a certificate of authority from the Monetary Board before it can register with SEC.

May purchase/acquire its own shares for a legitimate corporate purpose; provided that, it has unrestricted retained earnings in its books to cover  the shares to be purchased/ acquired.

May not purchase/ acquire its shares or  accept them as security for a loan. Except : when authorized by the Monetary Board. In such case, the bank must sell or dispose of said shares within 6 months from the time of their  acquisition ( S  e Sec.   c. 10).

Must be composed of 5 to 15 directors, each of whom shall own at least one (1) share of the capital stock of the corporation.

  Also composed of 5 to 15 directors. In case of merger or  consolidation, the number of directors shall not exceed 21

May declare dividends out of its unrestricted retained earnings.

May not declare dividends, if any of  the conditions set forth under Sec. 57 are present.

( S  e Sec.   c. 17).

± Those banks organized whose majority shares are owned and controlled by

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UNIVERSAL BANK

COMMERCIAL BANK

  Authority to exercise additional powers other than those authorized for  commercial banks

No such powers

additional

May invest in the equities of allied, whether financial or  non-financial, and non-allied enterprises (S ec. ec. 24) 24)

May only invest in equities of allied enterprises, whether  financial or non-financial

EQUITY INVESTMENTS POINT OF DISTINCTION

1. General powers incident to corporations 2. Such powers as may be necessary to carry on the business of  commercial banking: a. Accepting drafts and issuing letter of  credits; b. Discounting and negotiating promissory notes, drafts, bills of  exchange and other  evidence of debt; c. Accepting or  creating demand deposits; receiving other types of  deposits and deposit substitutes; d. Buying and selling foreign exchange and other debt securities; e. Extending credit. (S ec. ec. 29) 29)

Total investment in non-allied enterprises Equity investment in any one enterprise

OTHER BANKS

  Authorized to engage in quasi-banking functions without need for  approval

Not so authorized

May accept or create demand deposits without need for  approval

Must seek approval of  Monetary Board before accepting or  creating demand deposits. ( S ec. ec. 33) 33)

Demand deposits Liabilities of the BSP and of other banks which are denominated in Philippine currency and are subject to

COMM¶L BANK

(Sec. 24-28)

50%

35%

of net worth

of net worth

50%

N/A

of net worth 25%

25%

of net worth

of net worth (Allied only )

Equity investment in financial allied enterprise: thrift bank, rural bank or any financial allied enterprise

100%

100%

of equity

of equity

( S  e Sec.   c. 25)

In other  financial allied enterprises, investment shall remain a minority holding y

  A publicly-listed bank may own up to 100% of the voting stock of  only one other  ec. UB / CB ( S  S ec.

( S  e Sec.   c. 31).

25).

Equity investment in non-financial allied enterprises

UNIVERSAL & COMMERCIAL BANK

UNIVERSAL BANK 

(Sec. 30-32)

Total investment in allied enterprises

Powers

powers 1. The authorized for a commercial bank; 2. The powers of an investment house; and 3. The power to invest in non-allied enterprises ( S  Sec.  ec. 23).

payment in legal tender  upon demand by the presentation of checks Sec.   c. 58, NCBA). ( S  e

Equity investment in a single non-allied enterprise

Equity investment Quasi-Banks

100%

100%

of equity

of equity

Shall not exceed 35% of the total equity in that enterprise nor  shall it exceed 35% of the voting stock in that enterprise

N/A

in 40%

40%

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Allied Enterprises ± those entities which enhance or  complement banking Non-Financial Allied Enterprises ± pertains to activities that do not involve money matters (such as warehousing, safety deposit boxes ) NET WORTH The total of the unimpaired paid-in capital including paid-in surplus, retained earnings and undivided profit, net valuation reserves and other adjustments as may be required by the Bangko Sentral ( S  Sec.   c. 24). e

RISK ±B ASED CAPITAL 

The minimum ratio prescribed by the Monetary Board which the net worth of a bank must bear to its total risk assets which may include contingent accounts.



However, the Monetary Board may require or  suspend compliance with such ratio whenever  necessary for a maximum period of one year; PROVIDED that, such ratio shall be applied uniformly to banks of the same category ( S  Sec.  ec. 34).



Effect of non-compliance with the prescribed minimum ratio: 1.

Distribution Distributi on of net profits may be limited or  prohibited and MB 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; or  2. Acquisition of major assets and making of new investments may be restricted. EXCEPT: purchases of evidence of indebtedness guaranteed by the Government ( S  Sec.   c. 34). e 3. In case of a bank merger or consolidation, or  when a bank is under rehabilitation under a program approved by BSP, the MB may temporarily relieve the surviving bank, consolidated bank, or constituent bank or  corporations under rehabilitation from full compliance with the required capital ratio. Effects of non-compliance with the prescribed minimum ratio: Distributi on of net profits may be limited or  1. Distribution prohibited and MB 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; or  2. Acquisition of major assets and making of new investments may be restricted. EXCEPT: purchases of evidence of indebtedness guaranteed by the Government. 3. In case of a bank merger or consolidation, or when a bank is under rehabilitation under a program approved by BSP, the MB may temporarily relieve the surviving bank, consolidated bank, or  constituent bank or corporations under  rehabilitation from full compliance with the required capital ratio.

FUNCTIONS OF BANKS BASIC FUNCTIONS: 1. Loan Function 2. Deposit Function

OTHER FUNCTIONS Universal banks and commercial banks may also exercise any of the following functions: a. Receive in custody funds, documents and valuable objects; b. Act as financial agent agent and buy and sell, by order of and for the account of their customer, shares, evidences of indebtedness and types of securities; c. Make collection and payments for the account of others and perform such other services for  their customer as are not incompatible with banking business; d. Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or  administrator of investment management/ advisory/consultancy accounts; and e. Rent out safety deposit boxes.  The

depositary would be liable if in performing its obligation it is found guilty of fraud, negligence; in the absence of any stipulation prescribing the degree of  diligence required, that of a good father of the family is to be observed. Any stipulation exempting the depositary from any liability arising from loss on account of fraud, negligence would be void for being contrary to public policy (CA-Agro Dev¶t vs. CA, 219 S CRA CRA 426, Marc h 5, 1993).

Note: The bank acting as depositary or as an agent shall keep the funds, securities and other effects which it receives duly separated from its own assets and liabilities. (Sec. 53 )

A. LOAN F UNCTION Requirement for Grant of Loans

Before granting a loan, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. Rules: 1.

A bank may demand from its applicants applicants a statement of their assets and liabilities and of their  income and expenditures and other information.

2.

Should suc h statements prove to be false or  incorrect , the bank may terminate any loan granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of obligation ( S  Sec.   c. 40). e

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2.

DOSRI Accounts (Directors, Stockholders, and Related Interests) Interests )

Officers,

Classification of Loans UNCLASSIFIED

Requisites (BS P Circular No. 170 ): ):

CLASSIFIED LOANS

LOANS

Those that do not have a greater±than± normal risk and the borrower have apparent ability to satisfy it in full and no loss in ultimate collection is anticipated.

Limit on loans, credit guarantees (Sec. 35)

accommodations

and 

1.

Single Borrower¶s Limit (SBL) Rules

b.

The total amount of loans extended extended by a bank to any person, partnership, association, corporation or  other entity shall at no time exceed 20% of the net worth of such bank.

c.

The total amount of loans may be increased by an additional 10% of the net worth of such bank provided the additional liabilities of any borrower  are adequately secured by trust receipts, shipping documents, warehouse receipts or other similar  documents transferring or securing title covering readily marketable, non-perishable goods which must be fully covered by insurance;

Exclusions (NON-RISK LOANS): 1. Loans secured by obligations of the Bangko Sentral or the Philippine Government; 2. Loans fully guaranteed by the government; 3. Loans covered by assignment of deposits maintained in the lending bank and held in the Philippines; 4. Loans, credit credit accommodations accommodations and acceptances under letters of credit to the extent covered by margin deposits; and 5. Other loans or credit accommodations accommodations which which the MB may specify as non-risk items.

 J oint o int

and Solidary Signature (  J SS) S S) Practice

  A common banking practice requiring as an additional security for a loan granted to a corporation the joint and Solidary signature of a major stockholder or corporate Security   curity Bank vs. officer of the borrowing corporation ( S  e Cuenca, 341 S CRA CRA 781). Reasons:

a.

a. The borrower is director, officer, or any stockholder of a bank and related interest. b. He contracts a loan or any form of financial accommodation c. The loan or financial accommodation is from (1) his bank or (2 ) a bank that is a subsidiary of a bank holding company of which both his bank and lending bank are subsidiaries, (3 ) a bank in which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of of the shares of his bank; and d. The loan or financial accommodation of  the DOS, singly or with that of his related interest, is in excess of 5% of the capital and surplus of the lending bank or in the maximum amount permitted by law, whichever is lower.

Those that have extraordinary risks of  loss in collection due to some defects such as bad debts or those under litigation.

In case of default, creditor¶s recourse is not not limited limit ed to corporate properties but extends to personal assets of the surety; b. Surety would be compelled to ensure ensure that the loan would be used for the purpose intended. Note: While R.A. 87 91 provides for the rates of 20% and 10% respectively, the Bangko Sentral has not yet implemented such rates. The prevailing rates are 25% and 15% respectively.

Who are covered (BS P Circular No. 170): 170) : 1. Directors ± Directors of the lending bank

2.

Officers ± Either identified in the by-laws or are generally known as such

3.

Stockholders ± those whose stockholdings, individually and/or together with any of the following persons, amount to 2% or more of the total subscribed capital stock of the bank: a. His spouse or relative within the first degree of  affinity/consanguinity or relative by legal adoption, partnership wherein any of the foregoing is a general partner; and b.

A co-owner, with the stockholder or the stockholder¶s spouse, or relative mentioned above, of property/right/interest (mortgaged, pledged or assigned to secure the loan or  credit accommodations, except when the mortgage, pledge or assignment covers only said co-owner¶s undivided interest.

4. Related Interest ± a. Spouse, relatives within first degree of  consanguinity or affinity, or relative by legal adoption of a DOS, partnerships of which a DOS or any of the foregoing is a general partner. b. Co-owner, with the DOS or his spouse or  relative within the first degree of consanguinity or affinity, or relative by legal adoption, of the property/interest/ right mortgaged, pledged, assigned to secure the loans or credit accommodations, except when the mortgage, pledge or assignment covers only said coowner¶s undivided interest. c.

Corporation with inter-locking inter-locki ng directors or  where 20% of the capital stock is owned by the DOS and/or their spouses or relatives mentioned above, or wholly or majority owned or controlled by any related entity or a group of  related entities in items (b ), (d), and (e).

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Restrictions under the GBL and NCBA: a. No director or officer of any bank shall, directly or  indirectly, borrow from such bank nor shall be guarantor, endorser or surety for loans from such bank to others, or in any manner be an obligor or  incur any contractual liability to the bank, except with the written approval of the majority of all the directors of the bank, excluding the director  concerned. The written approval shall not be required for loans granted to officers under a fringe benefit plan approved by the Bangko Sentral.

b. Dealings of a bank with any of of its DOSRI shall be upon terms not less favorable to the bank than those offered to others (ARMS LENGTH RULE). c. Loans extended extended to DOSRI DOSRI shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their  paid-in capital contribution in the bank. Except: i. Loans, credit accommodations, and guarantees secured by assets considered as non-risk by the Monetary Board. ii. Loans, credit accommodations, and advances to officers in the form of fringe benefits. iii. Cooperative banks with regard to their  cooperative shareholders. d. The resolution approving the loan shall be entered in the records of the bank and transmitted to the BSP. e. Waiver of secrecy of deposits of whatever nature in all banks in the Philippines by the borrower. No waiver is required if the related interests are the borrower. f.

Section 36 of the General Banking Law of 2000 does not entirely prohibit directors or officers of the bank, directly or indirectly, from borrowing from the bank. In this case, Pio is the president of Western Bank, which makes him an officer, director and stockholder of the said bank. The General Banking Law provides for additional restrictions to the bank before it can lend to its directors or officers. A written approval of the majority vote of all the directors of the bank, excluding the director concerned, is required. Furthermore, such dealings must be upon terms not less favorable to the bank than those offered to others (Section 1326, Central Bank's "Manual of Regulations for Banks and Other Financial Intermediaries, cited in Ranioso v. CA, G.R. No. 117416, December 8, 2000). A violation of this provision will cause his or her position to be declared vacant and the erring director or officer subjected to the penal provisions of the New Central Bank Act. COLLATERALS 1. Value of collaterals

The loan shall not exceed 75% of the appraised value of the real property plus 60% of the appraised value of the improvements or 75% of the appraised value of the chattel ( S ecs. ecs. 37 & 38, GBL )

B. DEPOSIT FUNCTION Kinds of Deposits between a Bank and its Depositor 1.

As debtor-creditor  a. Savings b. Time c. Demand Characteristics: Serrano   rrano i. In the nature of irregular deposits ( S  e vs. Central Bank, 96 S CRA CRA 96) ii. Contract of loan/mutuum with the depositor as creditor  iii. Bank acquires ownership of the thing deposited and the right to use and dispose iv. Money deposited is commingled with the other money, constituting a common fund. v. Not preferred credits (Central Bank vs. Morfe, 20  S CRA CRA 507).

2.

As lessor-lessee a. Safety deposit deposit boxes boxes ± the relation between between a bank renting out safety deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee ± the bailment for hire and mutual benefit has been adopted in this jurisdiction. It cannot be considered as a contract of lease because the full possession and control of the safety deposit box is not Sia given to the renters ( S  i  a vs. CA, 222  S CRA CRA 24 [1993]).

3.

As trustee-trustor  a. Trust account

4.

As bailee-bailor 

Information obtained from examination is strictly confidential.

3.

Rules on amount of secured loans

a.

Those secured by real estate shall shall not exceed 75% of the appraised value of the real estate security, plus 60% of the appraised value of the insured Sec.   c. 37). improvements ( S  e

b.

Those secured by chattels and intangible properties (such as patents, trademarks, trade names and copyrights ) shall not exceed 75% of the appraised value of the security ( S  Sec.   c. 38). e

BAR QUESTION: BANKS; RESTRICTIONS ON LOAN ACCOMMODATIONS (2006) Pio is the president of Western Bank. His wife applied for a loan with the said bank to finance an internet cafe. The loan officer told her that her application will not be approved because the grant of loans to related interests of bank directors, officers, and stockholders is prohibited by the General Banking Law. Explain whether the loan officer is correct. (5%) SUGGESTED ANSWER:

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a. 5.

Deposit strictly strictly for safekeeping and for specific purposes

As agent-principal : a. Deposit of check for collection b. Deposit for specific purpose c. Deposit for safekeeping

Depositors: 1.

NOW ACCOUNTS TIME DEPOSITS

(Negotiable Order of  Withdrawal)

Minors : a. at least seven years of age b. able to read and write c. not disqualified by any incapacity d. it should should only be savings or time deposits deposits

Note: Parents may deposit for their minor children or wards (Sec. 1 PD No.734 )

Interest bearing deposit   An account with fixed accounts that combine term the payable on demand feature of checks and investment feature of  savings account.

If the guardian shall give notice in writing to any thrift bank not to make payments of deposits, dividends, or interest to the minor  of whom he is the guardian, then such payment shall be made to the guardian. (Sec. 22, Thrift Banks Act of  1995)



Married Women are allowed to open bank accounts without assistance of their  husbands (RA No. 7 192 

Kinds of Deposits Note: DEMAND DEPOSITS

SAVINGS ACCOUNT

Only a universal or  commercial bank can accept or create demand deposits.

Evidenced passbook.

  A bank other than a universal bank or  commercial bank CANNOT accept demand deposit

Banks are prohibited from issuing / accepting withdrawal slips or  other similar  instruments to effect withdrawals without the passbooks except for  bank authorized by the BSP to adopt the no passbook withdrawal system.

Temporary overdrawing against current accounts shall not be allowed unless caused by normal bank charges and other  fees incidental to handling such accounts. Drawings against uncollected deposits (uncleared checks ) are generally prohibited.

by



Demand, savings, NOW accounts, time deposits and deposit substitutes shall not be subject to interest ceilings.



A bank other than a universal or commercial bank must seek approval of Monetary Board before accepting or creating demand deposits. (Sec. 33)

a

  A bank is negligent if it allows the withdrawal without requiring the presentation of a passbook. (BPI v. CA )

Anonymous accounts are prohibited. ( R.A. No 9160 as amended by RA 9194; B S P Circular No. 251, July 21, 2000) exception: Foreign currency deposits may be a ³numbered account´. However, the law requires that the necessary measures are undertaken by the bank to record and establish the true identity of  the depositor. 

Joint account may be the subject of a survivorship agreement whereby the co-depositor agree to permit either of them to withdraw the whole deposit during their  lifetime and transferring the balance to the survivor upon the death of one of them ( Vitug vs, CA., Marc h 29, 1990) 

Types of deposit accounts (Handbook on Bank Deposits, A. Viray, 1998 ed.) 1.

Individual

2.

Joint a. ³And´ account  Co-ownership  The signatures of both co-depositors are required for withdrawals.

b.

³And/or´ account

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

Either one of the co-depositors may deposit and withdraw from the account without the knowledge, consent and signature of the other. And upon the death of one, the survivor may withdraw the entire balance on deposit.



The account may be deemed a survivorship agreement depending on the intention of the parties; aleatory contract supported by a lawful consideration which is valid unless when made as a mere cloak to hide an inofficious donation, to transfer property in fraud of creditors, or to defeat the legitime of a forced heir  (Rivera vs. People¶s Bank and Trust Co., 73 P hil. 546 [1942]).

Deposit substitutes   An alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower¶s own account, for the purpose of re-lending or  Sec.  ec. purchasing of receivables and other obligations ( S  95, RA 7653). DEPOSIT

No security given to guarantee repayment; the depositor relies on the stability and reputation of the bank.







DEPOSIT SUBSTITUTE

Guaranteed by certificates and other  instruments. (Handbook on Bank  Deposits, A. Viray, 1998 ed.)

In case a bank or quasi-bank notifies the Bangko Sentral or publicly announces a bank holiday, or in any manner suspends the payment of its deposit liabilities continuously for more than 30 days, the Monetary Board may summarily and without need for prior hearing close such banking institution and place it under receivership of the Philippine Deposit Insurance Corporation ( S  Sec.   c. e 53). 

Note: The bank shall act as depositary or as an agent shall keep the funds, securities and other effects which it receives duly separated from its own assets and Sec.   c. 53) liabilities ( S  e

PROHIBITIONS A. ON BANKS: 1.

To directly act as insurer  ( S  Sec.   c. 54) e

2.

For banks or quasi-banks to declare dividends, if at the time of declaration: a. its clearing clearing account with the Bangko Sentral is overdrawn;

A bank has the right to set-off the deposits in its hands for the payment of any outstanding indebtedness to it on the part of the depositor  (Gullas vs. PNB, 62 P hil. 519; PNB vs. CA, 272  S CRA CRA 291). The fiduciary nature of a bank-depositor  relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan and not a breach of trust. The law simply imposes on the bank a higher standard of  integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors, under  a similar contract of simple loan (CBTC vs. CA, G.R. No. 138569, S eptember eptember 11, 2003). This fiduciary relationship means that the bank¶s obligation to observe ³high standards of integrity and performance´ is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family (CBTC vs. CA, Ibid.).

Suspension of Payment on its Deposit Liabilities

The depositary would be liable if in performing its obligation it is found guilty of fraud, negligence; in the absence of any stipulation prescribing the degree of diligence required, that of a good father of the family is to be observed. Any stipulation exempting the depositary from any liability arising from loss on account of fraud, negligence would be void for being contrary to public policy (CA-Agro Dev¶t vs. CA, 219 S CRA CRA 426, Marc h 5, 1993).

b.

it is deficient in the required required liquidity floor for  government deposits for 5 or more consecutive days;

c.

it does not comply with the liquidity standards/ratios prescribed by the Bangko Sentral for purposes of determining funds available for dividend declaration; or 

d.

It has has committed a major violation as may be Sec.   c. 57). determined by the Bangko Sentral ( S  e

3.

To conduct business in an unsafe unsafe or unsound unsound Sec.   c. 56); manner  ( S  e

4.

Sec.   c. 62); Publication of capital stock ( S  e

5.

Unauthorized advertisement Sec.   c. 64); or  representation ( S  e

6.

To employ employ casual or non-regular personnel personnel or too lengthy probationary personnel in the conduct of its Sec.   c. 55). business involving bank deposits ( S  e

or

business

Rationale: To prevent violation of Bank Secrecy Law.

B. ON DIRECTORS, OFFI CERS, EMPLOYEES, OR AGENTS OF BANKS: 1.

Make false entries in any bank report or statement or participate in any fraudulent transaction;

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2.

Without order of a court of component   jurisdiction, disclose to any unauthorized person any information informati on relative to the funds or  properties in the custody of the bank belonging to private individuals, corporations, or any other  entity;

3. Accept gifts or any other form of remuneration in connection with the approval of of a loan or other  credit accommodation from said bank; 4.

Overvalue or aid in overvaluing any security for  the purpose of influencing in any way the actions of the bank or any bank; or 

5.

Outsource inherent banking functions ± a bank cannot engage the services of another  entity to receive deposits on its behalf; the bank has to do it by itself.

4.

D. ON EXAMINERS, BSP OR GOVERNMENT OFFI CERS AND EMPLOYEES ASSIGNED TO SUPERVISE, EXAMINE, ASSIST OR RENDER TE CHNI CAL ASSISTANCE TO ANY BANK:

Commit any of the acts enumerated in Sec. 55 or aid in the commission of the same. 

Rationale: To prevent violation of Bank Secrecy Law (Handbook on Bank Deposits, A. Viray, 1998  ed.). 

However , a bank may outsource, upon prior  approval of the Monetary Board the following functions:

All information technology systems and processes, except for certain functions affecting the ability of the bank to ensure the fit of technology services deployed to meet its strategic and business objectives and comply with pertinent laws and regulations; b. Data imaging, storage, and other related systems; c. Clearing and processing of checks not included in the Philippine Clearing House System; d. Printing of bank statements; e. Credit card services; f. Printing of bank loan statements and other  non-deposit records, bank forms and promotional materials; g. Credit investigation and collection; h. Processing of export, import and other trading transactions;. i. Transfer agent agent services for debt and equity services;   j. Property appraisal; k. Property management services; l. Messenger, courier and postal services; m. Security guard services; n. Vehicle service contracts o. Janitorial services; p. Other services as determined by the Monetary Board.

Offer any director, officer, employee or agent agent of 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.

The making of false reports or  misrepresentations or suppression of material facts by personnel of the BSP shall constitute fraud and shall be subject to administrative and criminal sanctions.

CONDUCTING BUSINESS IN AN UNSAFE OR UNSOUND MANNER (SEC . 56)

a.

In determining whether a particular act or omission, which is not otherwise prohibited by law, rule or  regulation affecting banks, quasi-banks, or trust entities, may be deemed as conducting business in an unsafe or  unsound manner, the MB shall consider any of the following circumstances: 1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger  to the safety, stability, liquidity or solvency of the institution; 2.

The act or omission has resulted or may result in material loss or damage, or abnormal risk to the institution¶s depositors, creditors, investors, and stockholders or to the BSP or to the public in general;

3.

The act or omission omission has caused any undue injury, or has given any unwarranted benefits, advantage or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence;

4.

The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or officer profited or will profit thereby.

C. ON BORROWERS: 1.

Fraudulently overvalue property offered as security for a loan from the bank;

2.

Furnish false or make misrepresentations or  suppression of material facts for the purpose of  obtaining, renewing, or increasing a loan or  extending the period thereof;

OWNERSHIP OF STOCKS OF A DOMESTIC BANK 1. 

2.

3.

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



Filipino In case of a Filipino individual or a domestic nonbank corporation, each may own up to 40% of the outstanding voting stock of a local bank. Foreign Foreign individuals and non-bank corporations may own or control up to an aggregate of 40% of the voting stock of a domestic bank.

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

The percentage of foreign-owned voting stocks in a bank shall be determined: (GRANDFATHER RULE) a. If individuals: by the citizenship of the individuals b. If corporations: by the citizenship of the controlling stockholders of the corporation, irrespective of the place of incorporation ( S  Sec.  ec. 11).

 ACT LIBERALIZING  ACT  LIBERALIZING ENTRY  ENTRY OF  OF FOREIGN  FOREIGN BANKS BANKS (R.A. NO. 7721) The Monetary Board authorizes foreign banks to operate through any of the following modes of  entry: 1.

2.

By acquiring, purc hasing or owning  up bank; 60% of the voting stock of an existing

to

By investing in up to 60% of the voting stock of a new banking subsidiary incorporated under  laws of Philippines;

1.

Entry: Governed by the provisions of the Foreign Bank Liberalization Act and the Offshore Banking System Decree ( S  Sec.  ec. 72)

2.

Revocation of license to do business in t he P hilippines: The Monetary Board may revoke such license on the grounds that the foreign bank is insolvent or in imminent danger thereof or that its continuance in business will involve probable loss to those transacting business with it ( S  Sec.  ec. 78).

S TOCKHOLDINGS OF F AMILY GROUPS OR R ELATED I NTEREST The law does not prohibit ownership of the stock by members of the same family or related interest. However, the law provides that stockholdings of  th individuals related to each other within the 4 degree of  consanguinity or affinity, legitimate or common law, shall be considered family groups or related interest and must be fully disclosed in all transaction by such individual with the bank. (Sec 12, GBL) 

Two or more corporations owned and controlled by the same family group or same group of person shall be considered related interest and must be fully disclosed in all transaction by such corporations or related group of person with the bank. (Sec 13, GBL)



3.

By establishing branc hes with full banking authority, provided: a. foreign bank may avail itself of of only one mode of entry; and b. Foreign bank or Philippine corporation may own up to 60% of the voting stock of only one domestic bank or new banking subsidiary ( S  Sec.  ec. 2).

Entries under the second and third modes are restricted to banks which are among the top 150 foreign banks in the world or top 5 banks in their  country of origin. MINIMUM CAPITALIZATION:



1.

For locally incorporated subsidiaries ± equal to that of domestic banks of the same category

2.

For foreign bank branches ± not less than the US$ equivalent of P2 10M



Amendments introduced by GBL 2000 seven years from effectivity of the GBL 1. Within seven (June 13, 2000), foreign banks may be allowed to own up to 100% equity of only one domestic bank as a mode of entry if authorized by the Monetary Board ( S  Sec.   c. 73, GBL). e

Unlike the former law, the GBL does NOT impose a limit on the number of shares that can be owned by the same family or related interest. However this should not be without prejudice to the 40% restriction imposed by Sec 11of the GBL. 

OWNERSHIP OF REAL PROPERTY GENERAL RULE: A bank cannot acquire and own real property. Rationale: Banks are not engaged in the business of  acquiring and possessing real property. Also, banks must maintain liquidity at all times to enable it to perform its functions. Thus, banks must as much as possible retain only assets that are easily marketable. EXCEPTIONS: 1. As shall be necessary for its own use in the conduct of its business, provided: a. The total investment in such real estate estate and improvements shall not exceed 50% of the combined capital accounts; and

b. 2.

Other foreign individuals and non-bank corporations may own up to 40% of the voting stock of a domestic bank; the nationality of the controlling shareholders of the non-bank corporations will be traced to determine the Sec.  ec. foreign ownership of the domestic bank ( S  11, GBL). 2.

FOREIGN BANKS (SECS. 7278)

the equity equity investment of a bank in another  corporation engaged primarily in real estate shall be considered as part of the bank's total investment in real estate, unless otherwise provided by the Monetary Board ( S  Sec.   c. 51). e

As mortgaged to it in good faith by way of of security for debts, conveyed to it in satisfaction of a debt previously contracted in the course of its dealings, and such as it shall purchase at forced sales or to

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secure debts; provided, however, that property acquired under such circumstances shall be disposed of by the bank within a period of 5 years; provided that the bank may after said period continue to hold the property for its own use, subject to ( 1) ( S  Sec.   c. 52). e

vs. CA, 321 S CRA CRA 83); thus, converting it to conventional redemption or by estoppel if the extension was unilaterally made.

RULES ON  ON FORECLOSURE  FORECLOSURE OF  OF  A  A REAL ESTATE 

DIRECTORS & OFFICERS

MORTGAGE BY  MORTGAGE  BY  A  A MORTGAGEE-BANK  Application: Judicial or extrajudicial foreclosure JUDICIAL

EXTRAJUDICIAL

Right of redemption Within 1 year registration of foreclosure (exception to Rule

from the sale 68)

1. Mortgagor is a natural person ± Within one year after  the registration of  sale with the Register of Deeds (S ec. ec. 1(3) S C Cir.  AM No. 99-10-05 )

2. Mortgagor is a  j uridical uridical person ± At any time before the registration of the certificate of  foreclosure sale which in no case shall be more than 3 months after  foreclosure, whichever is earlier.

Fit and Proper Rule

To maintain the quality of bank management and afford better protection to depositors and the public, in general, the Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of  individuals elected or appointed as bank directors or  officers and disqualify those found unfit ( S  Sec.   c. 16) e Independent Director   A person other than an officer or employee of the bank, its subsidiaries or affiliates or related interests.

Prohibition on Public Officials GENERAL RULE: No appointive or elective official, whether full-time or part-time, shall, at the same time, Sec.  ec. 19). serve as an officer of any private bank ( S 

EXCEPTIONS: of the Rural 1. As otherwise provided under Sec. 5 of Bank Act 2. Where such service is incidental to financial assistance provided by the government-owned or controlled corporation to the bank 3. As otherwise provided under existing laws. 

Redemption price:  Amount due under t he mortgage deed  + interest + all the cost and expenses incurred by the bank or institution from the sale and custody of  the property less the derived income ( S  Sec   c 78; e Union Bank vs. CA, GR 134068, 134068, June 25, 2001)

Right of purchaser to possess property: Immediately after the date of the confirmation of  the auction sale.





To enjoin or restrain the conduct of foreclosure proceedings, the petitioner must file a bond conditioned that he will pay all the damages which Sec.   c. 47). the bank may suffer by the injunction ( S  e A bank may be bound by an agreement providing for a longer redemption period (Ibaan Rural Bank 

A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their  employment; nor will it be permitted to shirk from its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (P hilippine Banking Corp. vs. CA and Marcos, G.R. No. 127469. January 15, 2004).

TRUST OPERATIONS (SECS. 79-93) Only a stock corporation or a person duly authorized by the Monetary Board shall act as a trustee or administer any trust or hold property in trust or on deposit for the use, benefit, or behalf of others ( S  Sec.   c. 79) e



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4. Trust Business- any activity resulting from a trustortrustee relationship involving the appointment of a trustee by a trustor for the administration, holding, management of funds and/or properties of the trustor by the trustee for the use, benefit, advantage of trustor or  others called beneficiaries.

Dissolution of the corporation by quo warranto proceedings

THE

Powers of trust entities: 1. Act as trustee on any mortgage or bond issued by any municipality, corporation or body politic and to accept and execute any trust consistent with law

2.

Act under the order or appointment of any any court as guardian, receiver, trustee, or depositary of the estate of any minor or incompetent person, and as receiver and depositary of any money paid into court by parties to any legal proceedings

3. Act as the executor executor of any will when it is named the executor thereof  4. Act as administrator of the estate of any any deceased deceased person, with the will annexed, or when there is no will 5. Accept and execute any trust for the holding, management and administration of any estate, real or personal, and the rents, issues, and profits thereof  6.

NEW CENTRAL BANK AC T (NCBA) (R.A. No. 7653)

Purpose: To maintain a central monetary authority that shall function and operate as an independent and accountable body in the discharge of its responsibilities concerning money, banking and credit.

BANGKO SENTRAL NG PILIPINAS (BSP) The state¶s central monetary authority; it is the government agency charged with the responsibility of  administering the monetary, banking and credit system of the country and is granted the power of supervision and examination over bank and non-bank financial institutions performing quasi-banking functions, including savings and loan associations (Busuego vs. CA, 151 S CRA CRA 376 [1987]).

Establish and manage common trust funds ( S  Sec.  ec. 83)

Prohibitions: 1. No trust entity shall, for 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, purchase debt from instruments of, any of the departments, directors, officers, stockholders or employees of the trust st entity, including relatives within the 1 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 or beneficiary of the trust prior to the transaction ( S  Sec.   c. 80, GBL). e

2. 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 ( S  Sec.   c. 87, e GBL).

P RIMARY OBJECTIVES : 1.

To maintain price stability conducive to a balanced and sustainable growth of the economy.

2.

To promote and maintain monetary stability and the convertibility of the peso.

R ESPONSIBILITIES : 1.

To provide policy directions directions in the areas of money, banking, and credit

2.

To supervise bank operations

3.

To regulate the operations of of finance companies companies and non-bank financial institutions performing quasi-banking functions, and similar institutions Sec.   c. 3) ( S  e

P OWERS / FUNCTIONS:

PENALTIES FOR VIOLATION OF THE GBL (SEC . 66) 1. As provided by specific provisions 2. Sections 34-37 of RA 7 653 (by excluding the bank from clearing) 3. Suspension or or removal removal of the director or officer  officer 

1.

Issuer of currency ( S  Sec.   c. 49-60) e

2.

Custodian of reserves ( S  Secs.   cs. 64-66, 94, 103) e

3.

Clearing channel or house; especially where where the PCHC does not operate ( S  Sec.  ec. 102)

4.

Banker of the government government ± the BSP shall be the official depository of the Government and shall

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represent it in all monetary fund dealings ( S  Secs.   cs. e 110- 116) 5.

6. 7.

8.

Financial advisor of the government ( S  Secs.   cs. 123e 124) ± Under Article VII, Sec. 20 of the 1987 Constitution, the President may contract or  guarantee foreign loans but with the prior  concurrence of the Monetary Board. Secs.   cs. 61-63, 81-89, 109) Source of credit ( S  e Supervisor of the banking system ( S  Sec.   c. 25)  ± shall e include the power to: a. Examine, extending extending to enterprises wholly wholly or  Sec.  ec. majority-owned or controlled by the bank ( S  7, RA 8791); this power may not be restrained by a writ of injunction unless there is convincing proof that the action of the BSP is Sec.   c. 25) plainly arbitrary ( S  e b. Place a bank under receivership or liquidation Sec.  ec. 30) ( S  c. Initiate criminal criminal prosecution of erring officers of  banks Secs.  ecs. 117-122) Government agent ( S 

Bangko Sentral, in which case such member shall resign from, and divest himself of any and all interests in such institution before assumption of  office (Sec. 9); 2.

those coming coming from the private sector shall not hold any other public office or public employment during their tenure (Sec. 9);

3.

cannot be connected directly with with any multilateral multilat eral banking or financial institution or has a substantial interest in any private bank in the Philippines, within one ( 1) year prior to his appointment (Sec. 9);

4.

cannot be employed in any any such such institution within two (2) years after the expiration of his term except when he serves as an official representative of the Philippine Government to such institution (Sec. 9);

5.

the Governor of the Bangko Sentral and the fulltime members of the Board shall limit their  professional activities to those pertaining directly to their positions with the Bangko Sentral.   Accordingly, they may not accept any other  employment, whether public or private, remunerated or ad honorem, with the exception of  positions in eleemosynary, civic, cultural or religious organizations or whenever, by designation of the President, the Governor or the full-time member is tasked to represent the interest of the Government or other government agencies in matters connected with or affecting the economy or the financial system of the country (Sec. 20 );

MONETARY BOARD (MB) The body by which the powers and functions of the Sec.6).   c.6). Bangko Sentral are exercised ( S  e

C OMPOSITION : Seven members consisting of: 1. 2.

3.

Chairman: Governor of the BSP A member of the cabinet to be designated by the President of the Philippines Five (5 ) members who shall come from the private sector, all of whom shall serve full-time. 6.

Note: The degree of diligence required of the members of the MB, officials and employees of the BSP in the performance of their functions is extraordinary diligence Sec.16,   c.16, NCBA). ( S  e

in case any member of the Monetary Board with with personal or pecuniary interest in any matter in the agenda of the Monetary Board shall disclose his interest to the Board and shall retire from the meeting when the matter is taken up (Sec. 14).

S UPERVISION AND E XAMINATION OF B ANKS U ALIFICATIONS OF MEMBERS OF THE MONETARY Q UALIFICATIONS B OARD : 1.

must be natural-born citizens of the Philippines,

2.

at least 35 years of age, with with the exception of the Governor who should at least be 40 years of age,

3.

4.

of good moral character, of unquestionable integrity, of known probity and patriotism, and with recognized competence economic disciplines.

in

social

and

D ISQUALIFICATIONS AND INHIBITION ON GOVERNOR AND AN D B OARD M EMBERS :



The BSP shall have supervision over, and conduct periodic or special examinations of, banking institutions and quasi-banks, including their  subsidiaries and affiliates engaged in allied activities.

of the Subsidiary ± a corporation more than 50% of voting stock of which is owned by a bank or quasi-bank Affiliate  ± a corporation the voting stock of which, to the extent of 50% or less, is owned by a bank or quasi-bank or which is related or linked to such institution or  intermediary through common stockholders or other  factors determined by the Monetary Board.

N O RESTRAINING ORDER AGAINST BSP  1.

disqualified from being a director, officer, officer, employee, consultant, lawyer, agent or stockholder of any bank, quasi-bank or any other institution which is subject to supervision or examination by the

No restraining order or injunction shall be issued by the court enjoining the Bangko Sentral from examining any institution subject to supervision or examination by the Bangko Sentral, unless there is convincing proof  that the action of the Bangko Sentral is plainly arbitrary

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and made in bad faith and the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond executed in favor of the Bangko Sentral, in an amount to be fixed by the court.

3. 4. 5. 6.

7.

R EFUSAL TO M AKE EXAMINATION .

R EPORTS

OR

PERMIT

- Any officer, owner, agent, manager, director or officerin-charge of any institution subject to the supervision or  examination by the Bangko Sentral who, being required in writing by the Monetary Board or by the head of the supervising and examining department willfully refuses to file the required report or permit any lawful examination into the affairs of such institution shall be punished under the Act. (Sec. 34 ) False Statement. - The willful making of a false or  misleading statement on a material fact to the Monetary Board or to the examiners of the Bangko Sentral shall be punished. (Sec. 35 )

PROHIBITIONS ON BANK OFFICERS , DIRECTORS, LAWYERS, AGENTS Personnel of the Bangko Sentral are hereby prohibited from: 1.

being an officer, director, lawyer or agent, employee, consultant or stockholder, directly or  indirectly, of any institution subject to supervision or  examination by the Bangko Sentral;

non-stock savings and loan Exception: associations and provident funds organized exclusively for employees of the Bangko Sentral, and except as otherwise provided in this Act; 2.

directly or indirectly requesting or receiving any gift, present or pecuniary or material benefit for himself  or another, from any institution subject to supervision or examination by the Bangko Sentral;

3.

revealing in any manner, except except under under orders of the court, the Congress or any government office or  agency authorized by law, information relating to the condition or business of any institution;

4.

borrowing from any institution instituti on subject to supervision or examination by the Bangko Sentral shall be prohibited unless said borrowings are adequately secured, fully disclosed to the Monetary Board. (Sec. 27)

CORPORATE POWERS OF THE BSP 1.

2.

To adopt, adopt, alter and use use a corporate seal which shall shall be judicially noticed To enter into contracts

To lease, own, and sell property To sue and be sued To acquire and hold hold such assets and incur such liabilities in connection with its operations or as are essential to the proper conduct of operation To compromise, condone, or release any claim claim of, or settled liability to the BSP To do and perform such other necessary powers powers

CONSERVATORSHIP OF A BANK OR QUASI-BANK Ground: State of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors.  A conservator appointed by the BSP may take over  without the need of first declaring the bank insolvent. Duration: Not to exceed 1 year  Effects: 1. Bank/quasi-bank retains juridical personality 2. Not a precondition to the designation designation of of a receiver  Powers of conservator: assets, liabilities, and the 1. To take charge of the assets, management thereof;

2.

Reorganize the management;

3.

Collect all monies and debts due said bank; and and

4.

Exercise all powers necessary to restore its viability, with the power to overrule or rebuke the actions of the previous management and board of  directors of the bank or quasi-bank.



The powers must be related to preservation of  assets, reorganization of management and the restoration of viability. Such power to revoke cannot extend to post-facto repudiation of perfected transactions, otherwise they would infringe the nonimpairment impairm ent clause of the Constitution. Constitution. The power  power  to revoke contracts only covers those that are deemed defective ± i.e., void, voidable, unenforceable or rescissible (First P hil. Int¶l Bank  vs. CA, 252  S CRA CRA 259). The conservator¶s power  is not unilateral and he cannot simply repudiate valid obligations of the bank. His authority would be only to bring actions to assail the same.

Termination: 1.

When the MB is satisfied that the institution can can continue to operate on its own and the conservatorship is no longer necessary;

2.

But if the continuance in business business of the bank would involve probable loss to its depositors or  creditors, proceedings for  receivership and Sec.   c. 29). liquidation shall be pursued ( S  e

RECEIVERSHIP OF A BANK OR

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review. The purpose of the scheme is to protect protect the depositors, creditors, stockholders and general public (Central Bank vs. CA, 220 S CRA CRA 536).

QUASI-BANK/CLOSURE Receivership is equivalent to an injunction to restrain the bank in any way. 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 (Villanueva vs. CA, 244 S CRA CRA 395 [1995]).



Grounds: Under NCBA

Under GBL

to pay 1. Inability liabilities as they become due in the ordinary course of business, but not including inability to pay those caused by extraordinary demands induced by financial panic in the banking community;

1. Notification to the BSP or public announcement of a bank holiday ( S  Sec.   c. e 53, GBL)

2. Insufficiency of  realizable assets to meet its liabilities; liabilities;

2. Suspension of  payment of deposit liabilities continuously continuously for more Sec.   c. than 30 days ( S  e 53, GBL)

3. Inability to continue business without involving probable losses to its depositors or  creditors; creditors; or 

3. Persistence in conducting business in an unsafe or  unsound manner. Sec.   c. 56, GBL) ( S  e

Only stockholders representing the majority of the capital stock of a bank have the personality to file a petition for certiorari to be filed within 10 days from receipt by the board of directors of the institution of  the order directing receivership, liquidation or  conservatorship. Reason: Stockholders owning a majority of the shares are expected to be more objective in determining whether the resolution is plainly arbitrary and issued in bad faith ( S  Sec.   c. 30, NCBA; e Central Bank vs. CA, G.R. No. 76118, Marc h 30, 1993).

CASE DIGEST Central Bank of the Philippines vs. Court of  Appeals, 220 SCRA 536

4. Willful violation of a cease and desist order  that has become final, involving acts or  transactions which amount to fraud or a dissipation of the assets of the institution ( S  Sec.   c. e 30)

Receiver: 1. Banks ± PDIC 2. Quasi-banks ± Any person competence in banking or finance

Facts:

Based on the financial reports submitted to the Central Bank, which states that the Financial condition of The Triumph Savings Bank (TSB ) is one of  insolvency and its continuance in the business world involve probable loss to its depositors and creditors, the Monetary Board issued a Resolution ordering the closure of TSB, forbidding it from doing business in the Philippines, placing it under receivership and appointing Ramon V. Taiaoqi as receiver. The TSB filed a complaint assailing the resolution on the ground of lack of prior notice and hearing

Issue:

Whether or not a Monetary Board Resolution be annulled on the ground of lack of prior notice and hearing.

Ruling:

of

recognized

Functions: all the 1. Immediate gathering and taking charge of all assets and liabilities of the institution and administering them for the benefit of creditors 2. General powers of a receiver  3. Determination ASAP but not later than 90 days, whether the institution should undergo rehabilitation or liquidation.  Note the distinctions between rehabilitation and liquidation.

Section 2 9 of the Central Bank Act does not contemplate prior notice and hearing before a bank may be declared to stop operations and placed under  receivership. When it provides for the filing of the case within 10 days after the receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede the filing of the case. Plainly, the legislature could not have intended or authorize ³no prior notice and hearing´ in the closure of the bank and at the same time allow the suit to annul it on the basis of  the absence thereof. This ³close now and hear later´ scheme is grounded on practical and legal consideration to prevent the unwarranted dissipation of the bank¶s asset and as a valid exercise of the police power to protect the depositors, creditors, stockholders and the general public.

CLOSE NOW, HEAR LATER SCHEME





Sec. 29 of the Central Bank Act does not contemplate prior notice and hearing before a bank is placed under receivership. It is enough that such action is made the subject of a subsequent judicial

1.

MANDATORY REQUIREMENTS FOR BANK CLOSURE Examination by the appropriate BSP department as to the condition of the bank

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2. 3. 4.

5.

Examination shows that the condition of the bank is one of insolvency Director shall inform the MB in writing of such such fact If the MB shall shall find the statement statement of the department to be true, it shall appoint a receiver of the assets and liabilities of the bank (Banco Filipino vs. MB, 204 S CRA CRA 519 [1991]). Within 60 days, the MB shall determine and confirm if the bank is insolvent, and if public interest requires, shall order the liquidation of the bank.

1.

1-Peso, 5-Peso and 10-Peso coins: In amounts not exceeding P 1,000.00

2.

25 centavo coin or less: In amounts not exceeding P100.00 (Circular No. 537, 2006)

BSP Authority to Replace 1.

Notes for any series or denomination ± More More than 5 years old

2.

Coins ± More than 10 years old

Rules:

LIQUIDATION Grounds: the bank is one of insolvency or  1. The condition of the that its continuance would involve probable loss to its depositors and creditors.

2.

A determinati determination on by the MB that that the bank cannot be rehabilitated.

Procedure: 1. Receiver shall file ex parte, with the proper RTC, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by the PDIC for general application to all closed banks. In case of quasi-banks, the liquidation plan shall be adopted by the Monetary Board.

2.

He shall convert the assets of the institution instituti on to money for the purpose of paying the debts of the Sec.   c. 30). institution ( S  e

3.

Payment shall be in accordance with the rules on concurrence and preference of credits. Regular courts have no jurisdiction over actions filed by claimants against an insolvent bank (Ong  vs CA, 253 S CRA CRA 105).



1.

Notes and coins called called in for replacement shall remain legal tender for a period of one year from the date of call.

2. After that period, they shall cease to be legal tender  during the following year or for such longer period as MB may determine.

3.

After the expiration of this latter period, the notes and coins which have not been exchanged shall cease to be a liability of BSP and shall be demonetized ( S  Sec.   c. 57). e 

Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor.



However, a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to Sec.   c. 60). his account ( S  e

MONETARY STABILIZATION EFFECTS OF APPOINTMENT OF RECEIVER/ LIQUIDATION 1. Suspension of operation 2. The assets under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall be exempt from garnishment, levy, attachment or execution ( S  Sec.   c. 30). e

3.

Bank is not not liable to pay interest on deposits during during the period of suspension of operation (Overseas Bank vs. CA, 113 S CRA CRA 778 [1982])

4.

The corporation retains its legal personality (Teal  Motor Co. vs. CFI, 51 P hil. 549 [1928])

5.

Deposits do not become preferred credits credits (CB vs. Morfe, 20 S CRA CRA 507 [1967])

3 I MPORTANT  MPORTANT T OOLS OOLS TO ACHIEVE  P RICE  RICE  STABILITY  1. Loans to Banks (S ec. ec. 83) (Rediscounting) a. If BSP wants to increase money supply, it opens the rediscount window by reducing interest on loans b. If BSP wants to decrease decrease money supply, it closes the rediscount window or charges very high interest rates for rediscounted notes

Sec.   c. 90) 2. Open Market Operations ( S  e a. If BSP wants to increase money supply, supply, it buys government securities b. If BSP wants to decrease decrease money supply, it sells government securities

LEGAL TENDER   All notes and coins issued by the Bangko Sentral are fully guaranteed by the Republic and shall be legal tender in the Philippines for all debts, both public and private ( S  Sec.   c. 52) e

3.

Sec.   c. 94) - where a certain Reserve Requirements ( S  e percentage of the deposit is set aside and cannot be lent out a. if the volume of of money is high, BSP will will raise reserve requirement

Legal tender power of coins

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b.

if the volume of money is low, reserve requirement is reduced.

4.

In cases where the money deposited or invested is the subject matter of the litigation; ( S  Sec.   c. 2) e

Rules: 1. 

2.

3.

4.

The required reserves of each bank shall be proportional to the volume of its deposit liabilities. Since the required reserves are imposed primarily to control the volume of money, the Bangko Sentral shall not pay interests thereon Sec.  ec. 94). ( S  Deposits maintained with the Bangko Sentral as part of the reserve requirements shall be exempt from attachment, garnishment, or any other order or process of any court or agency Sec.  ec. 103). ( S  No increase of more than 4% point within within 30day period.

PROHIBITIONS ON THE BSP 1.

2.

It shall not acquire acquire shares of any kind or accept them as collateral, and shall not participate in the ownership or management of any enterprise, either  directly or indirectly; and It shall not engage engage in development banking banking and financing ( S  Sec.  ec. 128). SECRECY OF BANK DEPOSI TS LAW  (R.A. No. 1405)

Purposes: 1. To encourage people to deposit in banks 2. To discourage private hoarding so that banks banks may lend such funds and assist in the economic development Coverage:

  All deposits of whatever nature with banks or banking institutions in the Philippines, including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities.

PROHIBITED ACTS: 1.

2.

Examination and inquiry or or looking into all deposits, of whatever nature, with the banks in the Philippines including investments in bonds issued by the Government. Any disclosure by any official or employee of any bank to any unauthorized person of any information concerning the said deposits.

BAR QUESTION: Banks: Secrecy of Bank Deposits; Garnishment (2004)

CDC maintained a savings account with CBank. On orders of the MM Regional Trial Court, the Sheriff garnished P50,000 of his account, to satisfy the   judgment in favor of his creditor, MO. CDC complained that the garnishment violated the Law on the Secrecy of Bank Deposits because the existence of his savings account was disclosed to the public. (5%) Is CDC's complaint meritorious or not? Reason briefly. SUGGESTED ANSWER No.

CDC's complaint is not meritorious. It was held in China Banking Corporation v. Ortega, 49 SCRA 355 (1973) that peso deposits may be garnished and the depositary bank can comply with the order of garnishment without violating the Law on the Secrecy of Bank Deposits. Execution is the goal of litigation as it is its fruit. Garnishment is part of the execution process. Upon service of the notice of garnishment on the bank where the defendant deposited funds, such funds become part of the subject matter of litigation. B. From other laws 1.

Anti-Graft and Corrupt Practices Act cases (R.A. No. 3019; added by analogy in PNB vs. Gancayco, 15 S CRA CRA 91 [1965]);

2.

NIRC - Inquiry by the Commissioner of Internal Revenue into bank deposits of:

GENERAL RULE: The deposits covered by law are considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, governmental bureau, or office.

a. A decedent decedent to determine his his gross estate; estate; b. A taxpayer who has filed an application for  compromise of his tax liability by reason of  financial incapacity to pay his tax liability. He must file a written waiver of his privilege under  RA 1405 or other general or special laws ( S  Sec.   c. e 6[f], NIRC).

EXCEPTIONS:

A.

F RO M R.A. N O . 1405

1.

Upon written permission of the depositor;

2.

In cases of impeachment;

3.

Upon order order of a competent court in cases cases of bribery or dereliction of duty of public officials;

3.

Inquiry or examination by the Anti-Money Laundering Council (AMLC) of any particular  deposit or investment with any banking institution or  non-bank financial institution upon order of any competent court in cases of violation of the AntiMoney Laundering Law, when it has been

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established that there is probable cause that the deposits or investments are related to an unlawful activity or a money laundering offense, except that no court order shall be required in the following unlawful activities: a. Kidnapping for ransom under under Art. 2 67 RPC; b. Comprehensive Dangerous Drugs Act of 2002 (RA No. 9165);

c. Hijacking and other violations violations under RA 6235; destructive arson and murder under RPC. Including those perpetrated by terrorists against non-combatant persons and similar targets´ Sec.   c. 11, R.A. No. 9160 as amended by  S ec. ( S  e ec. 8  of RA 9194) 4.

Disclosure to the Treasurer of the Philippines of  dormant deposits for at least 10 years under the Unclaimed Balances Act (Act No. 3936).

OTHER LAWS RELATING TO SECRECY OF BANK DEPOSITS

A. B.

Foreign Currency Deposit Act (R.A. No. 6426): 6426): Extends confidentiality to foreign currency deposits, but the law contains only one ground authorizing examination: upon written permission of the depositor.

C.

General Banking Law of 2000 (R.A. No. 8791): 8791):

1.

No bank shall shall employ casual or non-regular  personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits Sec.   c. 55.4). ( S  e No director, officer, employee, employee, or agent of any bank shall, without court order, disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations, or  any other entity, provided that with respect to bank deposits, the provisions of existing laws shall Sec.   c. 55[b]). prevail ( S  e Outsourcing of inherent bank functions

2.

3. D. 1. 2.

E.

New Central Bank Act (R.A. No. 7653): 7653): DOSRI loans Periodic and special examinations examinations by the BSP (Sec. 25) Anti-Money Laundering Act (R.A. No. 9160) 

Provides for another exception to confidentiality, which is applicable to both peso and foreign currency deposits.



Garnishment of bank deposit of judgment debtor does not violate RA 1405. It was not the intention of the legislature to place bank deposits beyond the reach of execution to satisfy a final judgment . Its purpose is merely to secure information as to the name of the depositor and whether or not the defendant had a deposit in said bank, only for purposes of 

garnishment. Any disclosure is purely incidental to the execution process (C hina Banking Corporation vs. Ortega, 49 S CRA CRA 355). 

Illegally acquired property extends to cases where property is concealed by being held by or recorded in the name of respondent¶s spouse, ascendants, descendants, relatives, or  any other persons (Banco Filipino S avings avings and  Mortgage Bank vs. Purisima, 161 S CRA CRA 576).



Money-market placement is not covered by RA 1405 because it is not deposited in the bank.

BAR QUESTION: BANKS: APPLICABILITY: FOREIGN CURRENCY DEPOSIT ACT & SECRECY OF BANK DEPOSITS (2005) Hi Yielding Corporation filed a complaint against five of its officers for violation of Section 31 of the Corporation Code. The corporation claimed that the said officers were guilty of advancing their personal interests to the prejudice of the corporation, and that they were grossly negligent in handling its affairs. Aside from documents and contracts, the corporation also submitted in evidence records of the officers· U.S. Dollar deposits in several banks overseas - Boston Bank, Bank of Switzerland, and Bank of New York. For their part, the officers filed a criminal complaint against the directors of Hi Yielding Corporation for violation of Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act of the Philippines. The officers alleged that their bank deposits were illegally disclosed for want of a court order, and that such deposits were not even the subject of the case against them. a) Will the complaint filed against the directors of Hi Yielding Corporation prosper? Explain SUGGESTED ANSWER: No, because the Foreign Currency Deposit Act (R.A. No. 6426), including its punitive provisions, refers to foreign currency deposits accounts constituted within the Philippines. It has no application at all to accounts, even though they are banks, opened and constituted abroad b) Was there a violation of the Secrecy of Bank Deposits Law (Republic Act No. 1405)? Explain. SUGGESTED ANSWER: No, because the punitive provisions of the Secrecy of Bank Deposits Law (R.A. No. 1405), including the statutory exemptions provided therein, are not applicable to FCDU accounts, even when constituted locally. (Intengan v. Court of Appeals, G.R. No. 128996, February 15, 2002)

REQUISITES FOR IN-CAMERA INSPECTION OF BANK DEPOSITS

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Marquez vs. Desierto, G.R. No. 135882, June 27, 2001 1.

2. 3. 4. 5.

Pending case before a court of competent  jurisdiction Account must be clearly identified The inspection is limited to the subject of the pending litigation. The bank personnel personnel and account holder must be present during the inspection. The inspection must cover only the account identified in the pending case.

W HERE FUNDS D EPOSITED ARE S UBJECT OF LITIGATION Case Digest

Onate v Hon Zeus Abrogar, 230 S CRA 181 Facts:

Sun Life brought a collection case to recover  the proceeds of a check it had issued, the insurance company wanted to determine how the defendant had applied the proceeds of the check. check. The trial court allowed Sun Life to examine pertinent records of the bank in which the check was deposited. Ruling:

R.A. NO. 1405 VIS-À-VIS POWER OF THE BSP TO CONDUCT PERIODIC AND/OR SPECIAL EXAMINATIONS (SEC . 4, GBL & SEC . 25, NCBA) 

Prof. Aquino and Prof. Viray believe that the general rule still applies. Hence, the deposit remains confidential.

Penalties Imprisonment of not more than 5 years or a fine not more than P20,000 or both, in the discretion of the court.

The Supreme Court held that the examination was authorized by Section 10 of Rule 57, on the examination of a person whose property has been attached and person indebted to him or controlling his property. The Court struck struck down the argument that the examination would violate the Bank Secrecy Law, explaining that the examination fell within the exception ³in cases where the money deposited or invested is the subject matter of litigation.´ The Court added that the examination of bank records was not a fishing expedition, but rather a method by which Sun Life could trace the proceeds of the check that it paid to the petitioners.

Impeachment

In impeachment proceedings, the impeachment court may inquire into bank deposits. Thus, during the impeachment proceedings against former President Estrada, Chief Justice Davide ruled that Clarissa Ocampo could testify on the Jose Estrada/Jaime Dichaves accounts maintained with Equitable PCIB Bank, over the objections of the defense that this would violate the Bank Secrecy Law. Basis for this ruling was was that the inquiry would be made in the course of an impeachment proceeding.

W RITTEN P ERMISSION OF DEPOSITOR  A bank may allow an inquiry into a deposit with the written consent of the depositor. An oral or implied authorization does not suffice. This consent may be given voluntarily. In some cases, cases, however, the consent is involuntary because the law requires it. Thus, Section 2 6 of the New Central Bank Act as implemented by BSP Circular No. 170, series of  1998, requires a director, officer or stockholder of a bank or  their related interests to submit a written waiver of the secrecy of all his deposits of whatever nature in all banks of the Philippines in favor of the Bangko Sentral, if he applies for a DOSRI loan. However, the information obtained from the examination remains confidential and may be used by BSP examiners only in legal action it may initiate involving the said deposits.  A waiver of the Bank Secrecy Law is also required in case of loans secured by a hold-out or an assignment of certificates of time deposits. (Section X3 15, Manual of  Regulations for Banks ).

In another case, Mellon Bank remitted $ 1 million rather that an intended $ 1,000 to the recipient, who deposited part of the remittance in a local bank. When personnel of the depositary bank testified on the bank deposits, the defense moved to strike out the testimonies of the depositary bank¶s bank¶s witnesses. witnesses. The Supreme Court allowed their testimonies to remain on the record, stating Section 2 of said law allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation. (Mellon Bank v. Magsino, 190 S CRA CRA 633. 

UNEXPLAINED WEALTH (RA3019)   Although the Bank Secrecy Law did not include cases covered by the Anti-Graft Law among the exceptions, the Supreme Court held that they should be included. The only conclusion possible is that Section 8 of the Anti-Graft Law is intended to amend Section 2 of  Republic Act No. 1405 by providing an additional exception to the rule against disclosure of band deposits.´ (PNB v. Gancayco, 15 S CRA CRA 91 (1965). This overturned an earlier case decided by the High Court where it held that a prosecution under the AntiGraft Law was not embraced within any of the exceptions to the Bank Secrecy Law that would allow disclosure by a bank of information concerning a deposit . (Tatalon Bario Council v. Bank of PI, 7  S CRA CRA 10 (1963). In another case, the Supreme Court expanded the exception under the Anti-Graft Law, when it allowed an examination not only of the accused¶s deposits, but also those of his spouse, ascendant, descendants and relatives, and other persons as well. ( Banco Filipino v. Hon. Fidel Purisima, 161 SCRA 576 (1988). Here, the Court declared as proper the production by subpoena duces tecum of bank records of transactions by or in the names of the wife, children and friends of a special agent of the Bureau of customs accused of having

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allegedly acquired property manifestly out of proportion to his salary and lawful income. The Court explained: explained: To sustain the petitioner¶s theory, and restrict the inquiry only to property held by or in the name of the government official or employee, or his spouse and unmarried children, is unwarranted in the light of the provisions of the statutes in question, and would make available to persons in government who illegally acquire property an easy and fool-proof means of evading investigation and prosecution; all they would have to do would be to simply place the property in the possession or name of persons other than their spouse and unmarried children. This is an absurdity that we will not ascribe to the lawmakers. Upon Order of the t he Ombudsman

  Although Section 8 of the law that created the Office of the Ombudsman expressly granted the Ombudsman the power to ³administer oaths, issue subpoena and subpoena duces tecum and take testimony in any investigation or inquiry, including the power to examine and have access to bank accounts and records,´ the Supreme court held that the Ombudsman could not inquire into bank deposits until there was a pending case in court involving the deposits .(Marquez v. Desierto, 359 S CRA CRA 772 (2001) Unclaimed Balances Law

The Unclaimed Balances Law (Republic Act No. 3936) requires each bank to file a sworn statement with the Treasurer of the Philippines stating the deposits that the bank holds in the names of persons known to be dead or who have not made deposits or withdrawals during the preceding ten years or more. It is also requires the bank to post a copy of the sworn statement in the bank premises. However, this is done only only after  the bank shall have first communicated with the depositor at his last known residence or post office address. Such a disclosure of the deposits deposits and the depositors, does not violate the Bank Secrecy Law. Garnishment of Bank Deposit

In C hina Banking Corporation v. Court of Appeals , (193 SCRA 452 ( 1991) the Supreme Court held that the garnishment of a bank deposit does not violate the Bank Secrecy Law. Said the court: ³It is clear from the discussion of the conference committee report on x x x Republic Act. No. 1405, that the prohibition against examination of  or inquiry into a bank deposit under Republic Act  No. 1405 does not preclude its being garnished to insure satisfaction of a  j udgment. udgment. Indeed, there is no real inquiry in such a case, and if the existence of the deposit is disclosed, the disclosure to evade   payment of their  j  their  j ust ust debts, even if ordered by the Court, through the expedient of converting their  assets into cash and depositing the same in a bank.´ (P  (P hil. hil. Commercial & International Bank v. Court of Appeals, 93 S CRA CRA 452 (  452 ( 1991). 1991).

Crimes of the House of Representatives, which was conducting a congressional investigation ´in aid of legislationµ on the involvement of police and military personnel, and possibly even of local government officials, in the illegal activities of suspected gambling and drug lords. Subpoenaed to attend the investigation were officers of certain identified banks with a directive to them to bring the records and documents of bank deposits of individuals mentioned in the subpoenas, among them GP. GP and the banks opposed the production of the banks· records of deposits on the ground that no such inquiry is allowed under the Law on Secrecy of Bank Deposits (RA 1405 as amended). Is the opposition of GP and the banks valid? Explain. SUGGESTED ANSWER: Yes. The opposition is valid. GP is not a public official. The investigation does not involve one of the exceptions to the prohibition against disclosure of any information concerning bank deposits under the Law on Secrecy of Bank Deposits. The Committee conducting the investigation is not a competent court or the Ombudsman authorized under the law to issue a subpoena for the production of the bank record involving such disclosure.  A NTI-M ONEY L A UNDER ING A  A CT OF 2001 (R  A  . A . No. 9160, a . A . 9194) as a a m ended by R  A  Purposes: 1.

To protect and preserve the integrity and confidentiality of bank accounts, to ensure that the Philippines shall not be used as a site for unlawful money laundering activities; and

2.

To pursue State¶s foreign policy to extend cooperation in transnational investigations and prosecution on money laundering activities.

Covered Entities:

1.

Banks

2.

Non-banks

3.

Quasi-banks

4.

Trust entities

5.

All other other institutions, their subsidiaries and and affiliates supervised or regulated by the BSP

COVERED TRANSACTION:

BAR QUESTION: Banks; Secrecy of Bank Deposits (2000)

Transaction, in cash or other equivalent monetary instrument in excess of P500,000, within one banking day.

GP is a suspected Jueteng lord who is rumored to be enjoying police and military protection. The envy of many drug lords who had not escaped the dragnet of the law, GP was summoned to a hearing of the Committee on Racketeering and Other Syndicated

SUSPICIOUS T RANSACTIONS: Transactions with covered institutions regardless of the amounts involved, where any of the following circumstances exists: 1.

There is no underlying legal or trade obligation

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2.

Client is not properly identified

3.

Amount involved is not commensurate with the business or financial capacity

4.

Taking into account all known circumstances, it may be perceived that the client¶s transaction is structured in order to avoid being the subject of  reporting requirements under the Act

5.

Any circumstance relating to the transaction which is observed to deviate from the profile and/or the client¶s past transactions with the covered institution

6.

Transaction is in any way related to an unlawful unlawful activity or offense under this Act that is about to be, is being or has been committed

7.

Analogous transactions to any of the foregoing

J URISDICTION : 

All cases: RTC



Public officers and private persons in conspiracy with them: Sandiganbayan

P OWER TO F REEZE A CCOUNTS 

The power of the AMLC to freeze accounts has been deleted under RA 9194



The Court of Appeals may issue a freeze order, which shall be effective immediately and for a period of 20 days, unless extended by the court, only:

MONEY LAUNDERING :   A crime whereby the proceeds of an unlawful activity are transacted, thereby making them appear to have originated from legitimate sources. It is committed by the following: 1.

Any person person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or  attempts to transact said monetary instrument or  property.

2.

Any person person knowing that any monetary instrument or property involves the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense referred to in number  1 above.

3.

Any person person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the AMLC fails to do so.

P REVENTION OF M ONEY L AUNDERING 1.

Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying their clients and in case of corporate client, require a system of  verifying their legal existence and organizational structure, s well as the authority and identification of  all person purporting to act on their behalf.

Customer Identification ±

2.

Record Keeping- All records of all transaction of  covered institution shall be maintained and safely stored for 5 years from the dates of transaction. With respect to closed accounts, the records on customer identification, account files and business correspondence, shall be preserved and safely stored for at least 5 years from the dates when they were closed.

3.

Reporting of  Covered and Suspicious Transactions. ± Covered institution shall report to the AMLC all covered and suspicious transactions within 5 working days from the occurrence thereof, unless the Supervising Authority prescribes a longer period not exceeding 10 working days.

a.

upon ex parte application of AMLC; and

b.

after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity.

BAR QUESTION: BANKS; SECRECY OF BANK DEPOSIT; AMLC (2006)

Rudy is jobless but is reputed to be a Jueteng operator. He has never been charged or convicted of any crime. He maintains several bank accounts and has purchased 5 houses and lots for his children from the Luansing Realty, Inc. Since he does not have any visible job, the company reported his purchases to the Anti-Money Laundering Council (AMLC). Thereafter, AMLC charged him with violation of the Anti-Money Laundering Law. Upon request of the AMLC, the bank disclosed to it Rudy's bank deposits amounting to P100 Million. Subsequently, he was charged in court for violation of the Anti-Money Laundering Law. 1. Can Rudy move to dismiss the case on the ground that he has no criminal record? (2.5%)

SUGGESTED ANSWER: No.

Under the Anti-Money Laundering Law, Rudy would be guilty of a "money laundering crime"  committed when the proceeds of an "unlawful activity," like Jueteng operations, are made to appear as having originated from legitimate sources. The money laundering crime is separate from the unlawful activity of being a Jueteng operator, and requires no previous conviction for the unlawful activity (See also Sec. 3, Anti-Money Laundering Act of 2001).

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2. To raise funds for his defense, Rudy sold the houses and lots to a friend. Can Luansing Realty, Inc. be compelled to transfer to the buyer ownership of the houses and lots? (2.5%)

authority to examine any bank deposits, trust or investment funds, or banking transactions in the name of and/or utilized by a person, natural or   juridical, under investigation by the Commission, in any bank or banking institution in the Philippines, when the Commission has reasonable ground to believe that said deposits, trust or investment funds, or banking transactions have been used in support or in furtherance of the objectives of the said coup d·etat. Does the above provision not violate the Law on Secrecy of Bank Deposits (RA 1405)?

SUGGESTED ANSWER:

SUGGESTED ANSWER:

Luansing Realty, Inc. is a real estate company, hence it is not a covered institution under Section 3 of the Anti-Money Laundering Act. Only banking institutions, insurance companies, securities dealers and brokers, pre-need companies and other entities administering or otherwise dealing in currency, commodities or financial derivatives are covered institutions. Hence, Luansing Realty, Inc. may not use the Anti-Money Laundering Act to refuse to transfer to the buyer ownership of the houses and lots.

The Law on Secrecy of Bank Deposits is itself merely a statutory enactment, and it may, therefore, be modified, or amended (such as by providing further exceptions therefrom), or even repealed, expressly or impliedly, by a subsequent law. The Secrecy of Bank Deposits Act did not amount to a contract between the depositors and depository banks within the meaning of the non-impairment clause of the Constitution. Even if it did, the police power of the State is superior to the non- impairment clause. RA 6832, creating a commission to conduct an investigation of the failed 1989 coup d·etat and to recommend measures to prevent similar attempts to seize power is a valid exercise of police power.

3. In disclosing Rudy's bank accounts to the AMLC, did the bank violate any law? (2.5%)

PHILIPPINE DEPOSIT INSUR   A NCE COR POR   A TION (PDIC) A  A CT

SUGGESTED ANSWER: No,

the bank did not violate any law. The bank being specified as a "covered institution" under the AntiMoney Laundering Law, is obliged to report to the AMLC covered and suspicious transactions, without thereby violating any law. This is one of the exceptions to the Secrecy of Bank Deposit Act.

4. Supposing the titles of the houses and lots are in possession of the Luansing Realty, Inc., is it under obligation to deliver the titles to Rudy? (2.5%)

(R . A  A . 9302) Purposes: 1.

To create a government-owned entity, the PDIC;

2.

To insure the deposit deposit liability of banks in an account up to P250,000 for every single depositor of each bank irrespective of the number of accounts therewith.

PHILIPPINE DEPOSIT INSURANCE CORPORATION F UNCTIONS : A.

The PDIC assesses and collects insurance assessments from member-banks to insure member-banks¶ deposit accounts. In case of bank closures, the PDIC processes and services claim for insured deposits. Deposits are insured up to a maximum coverage of P250,000 per depositor.

SUGGESTED ANSWER:

Yes, it has an obligation to deliver titles to Rudy. As Luansing Realty, Inc. is not a covered institution under Section 3 of the Anti-Money Laundering Act, it may not invoke this law to refuse delivery of the titles to Rudy.

B.

BAR QUESTION:

Bank Examination

Under the new law, PDIC's authority to examine its member banks, with prior approval by the Monetary Board, has been restored.

BANKS; SECRECY OF BANK DEPOSITS (1991)

The law (RA 6832) creating a Commission to conduct a Thorough Fact-Finding Investigation of the Failed Coup d·etat of Dec 1989, Recommend Measures to Prevent the Occurrence of Similar Attempts At a Violent Seizure of Power and for Other Purposes, provides that the Commission may ask the Monetary Board to disclose information on and/or to grant

Insurance

C.

Bank Rehabilitation

The PDIC may grant financial assistance to distressed banks if it is proven to be a less costly alternative than closure.

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Notes of 

in foro  conscientiae 

D.

Receivership of closed banks

Once a bank is ordered closed by the Monetary Board (MB) of the Bangko Sentral ng Pilipinas, the PDIC is designated as statutory receiver. The PDIC upon receipt of the MB resolution ordering the closure of a bank, immediately physically takes over the closed bank. Receivership is the stage within which the PDIC manages the affairs of the closed bank and preserves its assets for the benefit of creditors.

E.

Liquidation of closed banks

  After it is determined that the closed bank can not be rehabilitated, the PDIC shall recommend the liquidation of the assets of the closed bank. Liquidation refers to the recovery and conversion of  assets into cash for distribution to all creditors in accordance with the order of creditor preference pursuant to law

INSURANCE FUNCTION 1.

Nature: Compulsory insurance on all bank deposits

2.

Coverage: ³Insured deposits´ - the net amount due to any depositor for deposits in an insured bank, after deducting unpaid loans and other obligations of the depositor to the closed bank. In no case shall insured deposit exceed P250,000 per depositor.

3.

risk insured against: Bank closure only. Thus, losses due to a bank robbery are not covered. S    pecific

4.  Amount of insurance: Maximum of P250,000.00 per  deposit (RA 9302) 5. Condition precedent for entitlement to payment : Filing of claim within twenty-four months from order of closure 6.

7.

Manner of payment: a. Cash b. Transferred Transferr ed deposit ± A deposit in an an insured bank made available to a depositor by the PDIC as payment of the insured deposit of  such depositor in a closed bank and assumed by another insured bank. Effect of payment by t he PDIC to t he depositor of  insured deposit: a. Discharges the PDIC from further liability b. Subrogates the PDIC to all the rights of the depositor against the closed bank to the extent of such payment. his

The plaintiffs invested in the money market placement with the Premier Financing Corporation (PFC) but when they went to PFC to encashed the checks and promissory notes corresponding to their  investment the PFC referred them to the Regent Savings Bank (RSB ). Instead of paying the promissory notes and checks, the RSB issued 13 certificate of time deposit which was insured with the PDIC. The bank failed to pay the corresponding amount of the time deposit on its maturity date due to insolvency and advised the plaintiffs to file a claim with the PDIC. But the PDIC refused to pay the claim for it is not included in the list of duly recorded liabilities of the RSB. Issue: Whether or not the PDIC is liable for the plaintiffs¶ claims. Ruling:

The fact that the certificate state that the certificates are insured by PDIC does not ipso facto make the latter liable for the same should the contingency insured against arise. The deposit liability of the PDIC is determined by the provisions of R.A. 3519 and statements in the certificate that the same are insured by PDIC are not binding upon the latter.

Insured deposits  The net amount due to any depositor for deposits in an insured bank, after deducting offsets, less any part thereof which is in excess of P250,000.  Trust funds and safety deposit boxes are not covered.

After deducting offsets

Consistent with the rulings in Gullas vs. PNB, 62 P hil. 519 and Republic vs. CA, G.R. No. 15012, July 22, 1975  recognizing the debtor-creditor relationship of the bank and the depositor, set-off takes place ipso jure with respect to the depositor¶s bank deposit and his matured loan with the bank. Transferred deposits

  A deposit in an insured bank made available to a depositor by the PDIC as payment of the insured deposit of the depositor in a closed bank and assumed by another insured bank.

SPECIAL RULES 1.

 The fact that a bank instrument provides that the certificate is insured by the PDIC does not ipso facto make the latter liable for the same; the deposit liability of  the PDIC is determined by the provisions of RA 35 19 (PDIC vs. CA, 283 S CRA CRA 462).



Facts:

Capacities: individual account, joint ³and´ account, joint ³and/or´ account.

2.

The insurance premiums are to be paid by the insured bank, not the depositors.

3.

In case the depositor¶s account is more than the insurance coverage, the balance may still be recovered from the PDIC after the final liquidation of the remaining assets of the closed bank.

Case Digest

PDIC vs. CA, 283 SCRA 462

PDIC liability is on a per bank basis. Accounts in a bank, even though in several branches, are to be added together, provided that they are maintained in the same capacity and the same right for his benefit either in his own name or in the name of  others.

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in foro  conscientiae 

4. a.

If the account is held jointly by two or more natural persons, or by two or more juridical persons or entities, the maximum insured deposit shall be divided into as many equal shares as there are individuals, juridical persons or entities, unless a different sharing is stipulated in the document of deposit.

b. If the account account is held held by a juridical person or  entity jointly with one or more natural persons, the maximum insured deposit shall be presumed to belong entirely to such juridical person or entity: Provided, furt her , That the aggregate of the interests of each co-owner  over several joint accounts, whether owned by the same or different combinations of  individuals, juridical persons or entities, shall likewise be subject to the maximum insured deposit of Two hundred fifty thousand pesos (P250,000.00 ).



LEGAL CONSEQUENCE The unclaimed balances may be subject of escheat proceedings, after proper publication and the depositors still do not lay claim to them.

Authority to terminate insured status 1.

Non-payment of insurance premiums

2.

Continued engagement engagement in unsafe unsafe and unsound banking practices



Sec. 9 of RA 6426 (µAn Act Instituting a Foreign Currency Deposit System in the Philippines, and for Other Purposes" ) and Sec. 7 9 of  Central Bank (CB ) Circular No. 1389, dated  August 13, 1993, mandate that foreign currency deposits shall be insured under the provisions of RA 35 91, as amended. Under CB Circular No. 1389, depositors are entitled to receive payment in the same currency in which the insured deposit is denominated.

Note: The PDIC law is not applicable to Offshore Banking Units (P.D. No. 1034).

Demand drafts cannot be escheated but telegraphic notes can be escheated (Republic  vs. FNCB, 3 S CRA CRA 851 [1961]).

FOR EIGN CUR R  RE   NCY DEPOSIT A  A CT (R  A  . A . No. 6426)

PESO DEPOSIT

FOREIGN CURRENC Y DEPOSIT

Governed by R.A. No. 1405

Governed by R.A. No. 6426

4 exceptions + exceptions found in special laws

1 exception + 1 provided under AMLA (R.A. No. 9160)

May be garnished or attached (not a violation of R.A. No. 1405)

GENERAL RULE: Exempt from attachment, garnishment, and other  court order and processes. EXCEPTION: S alvacion alvacion vs. CB (278 S CRA CRA 27)

UN C L A I M E D B A L A N C E S L A   W  ( R . A   A . N O . 3 9 3 6 )

ELEMENTS OF UNCLAIMED BALANCES 1.

2. 3.

There must be a claim or deposit of: a.

Money;

b.

Bullion;

c.

Security; or 

d.

other evidence of indebtedness.

The credit or deposit deposit must be with with a bank, building building and loan association, or trust corporation; and The credit or deposit is in favor of a person: a.

who is dead, or 

b.

who has not made further deposits or  withdrawals during the preceding 10 years or  more.

OTHER FEATURES: 1.

Authorized banks may adopt a numbered account system for recording and servicing deposits in nonchecking accounts

2.

Foreign currency deposits are exempt from taxes except the interests

3. In the event a new enactment enactment or regulation is issued decreasing the rights granted under the law, it shall not apply to FCD¶s already made or existing at the time of the issuance of such new regulation or  enactment.



In a sui generis case, the SC allowed garnishment of such deposits of a transient American tourist arising out of a heinous crime committed against a Filipino minor since to hold otherwise would result to injustice to a citizen perpetrated by a foreigner 

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Notes of 

in foro  conscientiae 

Salvacion,   lvacion, et al. vs. Central Bank et al., 278  S CRA ( S  a CRA 27).

Note: This case does not constitute another  exception, the SC only ruled as such due to the special circumstances of the said case.

information required by the Truth in Lending Act (RA 3765). Nevertheless, the conditional deed of sale which the parties executed mentioned that the total amount indicated therein included such finance charges.



REPEALING LAW TO UNIFORM CURRENCY ACT (R.A. N O. 8183)  All monetary obligations shall be settled in the Philippine currency which is legal tender in the Philippines. However, the parties may agree that the obligation or  transaction shall be settled in any other currency at the time of payment ( S  Sec.   c. 1). e

TR UTH

IN LENDING A  A CT

( R   A 3  A  3765)

 The

law assures full disclosure by requiring the lender  to give the borrower all the details regarding the transaction.

 Under

Sec. 4, any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulation prescribed by the Board the following informations:

pric e or delivered deliv ered price of the t he property or  1. The cash price service required; 2. The amounts, if any to be credited as down payment and/or trade-ins; 3. The difference diff erence between the amounts set s et forth under  clauses 1 and 2;

Has there been substantial compliance of the aforesaid Act?

If your answer to the foregoing question is in the negative, what is the effect of the violation on the contract? 

In the event of a violation of the Act, what remedies may be availed of by Dana?

SUGGESTED ANSWER:

a) There was no substantial compliance with the Truth in Lending Act. The law provides that the creditor must make a full disclosure of the credit lost. The statement that the total amount due includes the principal and the financial charges, without specifying the amounts due on each portion thereof would be insufficient and unacceptable. b) A violation of the Truth in Lending Act will not adversely affect the validity of the contract itself. c) It would allow Dana to refuse payment of financial charges or, if already paid, to recover the same. Dana may also initiate criminal charges against the creditor.

*** *2'63(('

4. The charges, individually itemized, which are paid or  to be paid by such person in connection with the transaction but which are not incident to the extension of credit. 5. The total amount to be financed; 6.

The finance charge expressed in terms of pesos and centavos; and

7.

The percentage that the finance bears bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of  the obligation.

BAR QUESTION: TRUTH IN LENDING ACT (1991)

Dana Gianina purchased on a 36 month installment basis the latest model of the Nissan Sentra Sedan car from the Jobel Cars Inc. In addition to the advertised selling price, the latter imposed finance charges consisting of interests, fees and service charges. It did not, however, submit to Dana a written statement setting forth therein the

hotjurist

Notes of 

in foro  conscientiae