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SPECIAL COMMERCIAL LAWS (MIDTERM)
HISTORY OF BANKS IN THE PHILIPPINES
 During the Spanish era, organizations such as churches and hospitals engaged in lending activities so that the income would be used to
fund their respective activities. It was almost non-profit but to fund their operations, they needed income
 Eventually came the Americans together with foreign banks. It was during this period where Bank of the Philippine Islands (BPI) and
Philippine National Bank (PNB) were established
 1948: It was only much later that the government attempted to put a structure or regulate the banking system. This was in 1948 where
the Charter of the Central Bank of the Philippines was passed. This Charter took effect January 3, 1949.
 Jan. 3, 1949: Coincidentally, this was also the same day that the General Banking Act (RA 337) was passed. The General Banking Act
attempted to regulate the establishment of domestic banks and entry of foreign banks; also to determine the powers of domestic banks
and their foreign counterparts. This was the first attempt to regulate the banking industry
 1955: The law on Secrecy of Bank Deposits was passed. This was basically a law that was passed to entice people to deposit their money
with banks. Prior to this, there was no such rule, so each bank was not prohibited to divulge. So to prevent this and entice people, this
was passed. Currently, there are exceptions to this.
 1963: The Charter of the Philippine Deposit Insurance Commission (PDIC) was passed. This was when deposits where subject to deposit
insurance, to further entice people to put their money in the bank
 July 3, 1993: The New Central Bank Act (RA 7695) was passed. This is the Central Bank law that we have now. With this, all the powers of
the Central Bank, established in 1948, were given to what we now call the BangkoSentral ng Pilipinas (BSP)
 1994: RA 7721 was passed, liberalizing the entry of foreign banks in the Philippines. With this, from the 30% allowable shareholdings of
foreign banks, it was increased to 60%. So foreign banks can now own up to 60% shares of domestic banks. And in some exceptions, they
can also establish branches here fully owned by foreign banks, but only for a very limited period.
Atty G: It was only a limited period, I think it was around 7 years from the time of passage of the law
 Recently, around May 2014: Congress passed RA 10641 which allows now the full entry of foreign banks in the Philippines. It now allows
100% ownership of foreign banks in domestic banks, as well as establishment of foreign branches without limitation
 April 12, 2000: General Banking Law was passed. If you see GBL, it means the current law. If General Banking Act, that would be the law.
This is now repealed by the GBL. This was for recognition that the financial market was rapidly expanding and changing. They needed a
law that can adapt and at the same time, sustain the growth of the economy.
 The declaration of policy of GBL actually recognizes 2 things about the banking system.

GENERAL BANKING LAW (RA 8791)

2 ASPECTS RECOGNIZED IN GBL
1. Vital role of banks in providing an environment conducive to the sustained development of the national economy
 The law recognizes that banks play an important role for the development of the national economy

Roles of banks that are vital

a. As payment system
 As a payment system, banks allow the efficient and effective consummation of commercial transactions
 How? Allowing clearing of checks, or electronic transfers of money
 It would be so difficult if you are Lucio Tan and you want to buy PAL. If you do it in cash, you will be bringing a truckload of
money. So with a bank, you just give a check or through a wire transfer
 Also in case of foreign transactions. Example you have a supplier in Africa, you can do a bank-to-bank transfer of payment

b. Vital role in money supply

 Example. It’s Christmas time and people now get their bonuses. They spend their money. When people spend, tendency is for
prices of goods to go up. There is inflation. BSP will now implement and tell banks that there is inflation. Now offer investment
products as higher interest rates. People take out their money and instead put it in the bank. This now causes less money in
circulation. With this, prices now go down. Inflation is controlled.
 In this same way, if BSP determines there is less money circulating, so BSP will now tell banks to lower interest rates. Tendency
now is for people to cash in on their investments products; to get their money back from banks, thereby increasing money
circulation in public
 The policies of banks can expand or contract circulation of money in the public

c. As financial intermediaries
 Example. I am an inventor. I invent something that I think will benefit everyone. But to do that, I need a factory for
manufacturing. I don’t have money, so where will I go? Not to loan sharks. Go to banks. They will normally offer less interest
 In that way, the banks extend credit to investors/entrepreneurs. The bank gets the money from deposits. Someone
deposits with the bank some millions. Here comes the investor also wanting to borrow. Ordinarily, the millionaire and the
inventor would not have met. The inventor would not have availed of the former’s cash. But because of the bank, the
source and user of money come together

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 Banks bring together the source of the funds as well as the users of such funds.

Sec. 2.Declaration of Policy. The State recognizes the vital role of banks in providing an environment conducive to the sustained
development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In
furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive,
dynamic and responsive to the demands of a developing economy.
 Again, these three roles are recognized as the roles of the bank which are essential to the development of the national economy.
And this is basically what this first sentence of the declaration of policy means. The second sentence on the other hand, basically
gives an overview of what the general banking law contains.

2. The State, through the GBL, shall promote and maintain a stable and efficient banking and financial system that is globally competitive,
dynamic and responsive to the demands of a developing economy
 So there are 3 things that GBL intends to establish with respect to the banking system:

a. There has to be a stable and efficient banking and financial system (Good corporate governance)
 So how is this done? What kind of regulation? The GBL PROMOTES GOOD CORPORATE GOVERNANCE. If you go over the
provisions of GBL, you will see some restrictions with respect to the dealings between banks, directors, officers, and
shareholders. Like for one,

1) The GBL requires that a certain number of people must be independent directors.

Directors are people who make decisions for a corporation. As you will know in your corporation code, a director will
have to be a shareholder. A director that is not a shareholder is not qualified to act as such. Normally, directors are
people who have substantial interest in the corporation. INDEPENDENT directors are the opposite of this, these are
persons who are NOT substantial holders, NOT officers of the bank or any of its parent, affiliates or subsidiaries.

The law requires that the Board of Directors of a bank must include independent directors. Why? Because, in an
ordinary director sitting in the board, there will always be a conflict of interest between trying to earn as much for the
bank to the detriment of the public. You have a vested interest in the good performance of your company. So what
the law says that at the very least, the BOD of the bank must include independent directors who have no interest. It
means that they will not benefit regardless of how the bank will perform. Why? These are the people that the law
expects will look out for the benefit of the public rather than the performance of the bank. So GBL requires that a
certain percentage must be independent directors.

2) Limitation on DOSRI transactions or lendings.

DOSRI – means Directors, Officers, Shareholders and Related Interest. This is to prevent a situation where for example,
I am a president and a director. The bank basically gets deposits from the public. I borrow all of the money that the
bank got from the public and I use it to fund my other companies which might not be profitable and the depositors can
lose their money. So to prevent this, the GBL sets limits on DOSRI lending.

So the GBL says that hey bank, you can only lend to your DOSRI up to 25% of your total loan portfolio. Anything in
excess of that will be invalid. So there’s a limitation of how much a bank can lend in its DOSRI for the protection of the
public.

3) Fit and proper rule

Under the Corporation Code, when the shareholders will elect their directors and officers, as long as those persons
have already qualified (meaning they already have their 1 share each), they can already start exercising their functions
as directors or officers. But that is NOT the case for banks. Because if you are elected as such, you have to be approved
by the BangkoSentral.

The Bangko Centralhave this fit and proper rule. They have to ensure that the persons are fit and proper for their
positions. The moment that you are elected, you have to go through BSP approval, you CANNOT perform your
functions right away. This is also required in the GBL.

b. That which is globally competitive, dynamic and responsive (Market Discipline)

 Through MARKET DISCIPLINE which is established in the GBL and which has two aspects namely:

1) Competitiveness
Through the GBL, the law or the state allows the easier entry of foreign banks into the Philippines, sets up the mode of
how banks can be established. Basically intending to increase the number of banks in the Philippines because the policy
of the state is that the more competition there is among banks, the better it is for the economy. They want to establish
and promote competition among banks.

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2) Transparency
The GBL requires that financial statements of banks will have to be published because this allows the public to judge for
themselves whether or not they are willing to put their money on that particular bank. Financial Records of banks are
open to public access.

c. Promote and maintain (supervision and regulation/ external governance)

 So it’s EXTERNAL GOVERNANCE by the BangkoSentral. If you look at the law, there are many rules set out by the
BangkoSentral in order to ensure the supervision and regulation.

THE BANKING BUSINESS IS FIDUCIARY IN NATURE BECAUSE IT IS IMBUED WITH PUBLIC INTEREST
CASE: EQUITABLE PCI VS TAN
Facts:
Tan had an account with PCI. On May 13, he issued a check postdated May 30 in favor of Sulpicio Lines. The latter deposited the check and
the amount was immediately debited by PCI. Tan thereafter issued 3 checks payable to ASELCO but such were dishonored for lack of sufficient
funds. As a result, the electric supply of the 2 power mills was cut off. Tan sued for payment of losses and damages by PCI.
Ruling:
A reading of the check would readily show that it was indeed postdated May 30. The date written clearly appears 5/30/1992. Therefore,
the appellee bank and its personnel erred in debiting the amount of the check even before the check’s due date.
The law imposes on banks high standards in view of the fiduciary nature of banking. The court finds that its negligence is the proximate
cause of respondent’s loss. Payment made before the date specified by the drawer is clearly against the drawee bank’s duty to its client.The
law allows the grant of exemplary damages to set an example for the public good. The banking system has become an indispensable
institution in the modern world and plays a vital role in the economic life of every civilized society . Banks have attained an ubiquitous
presence among our people, who have come to regard them with respect and gratitude and most of all, confidence. For this reason, banks
should guard against injury attributable to negligence or bad faith on its part. Since the banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence of the public in general . Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are even required of it.

Discussion:
 Post-dated check is one where the date of payment is subsequent to the issuance of the check. In this case, it was issued May 13 and it
was supposed to be paid on May 30. Since the bank immediately debited the account, Tan was then left with insufficient funds to cover
for the 3 subsequent checks he issued. As a result, his power was cut off. Bank’s contention was that they debited it immediately because
of the way he allegedly wrote the date “5/3/0/1992”. SC said it is absurd to write a slant between 3 and 0. We’ll go with the regular way.
Thus, the bank is liable.
 The bank was also assessed for exemplary damages. This is usually awarded against businesses imbued with public interest
 There is a recognition here that for the banking business to survive, there has to be the trust and confidence of the public
 This is the reason why there is the FIDUCIARY NATURE banking nature, because the very survival of banks depends on whether or not the
public is willing to put their money in the bank. The bank needs the trust and confidence of the public. So that is why the bank should act
with the highest standard of integrity and performance is required

HIGH STANDARDS OF INTEGRITY AND PERFORMANCE ARE REQUIRED AS TO:

1. Treatment of the accounts of depositors/customers

CASE: CENTRAL BANK VS. CITYTRUST

Facts:
One of Central Banks’ tellers, Flores, presented for payment to petitioner’s senior teller Iluminada 2 Citytrust checks, payable to Citytrust,
both signed and indorsed by Citytrust’s authorized signatory-drawers. The signatures were verified against the specimen signatures. Flores
signed as “Cayabyab”. The cash transfer slip was approved and paid. More than a year and 9 months later, CItytrust demanded Central Bank to
restore the amounts alleging that the checks were already cancelled because they were stolen.
Ruling:
Central Bank is the government body mandated to supervise and regulate banking and other financial institutions. The law imposes on
banks high standards in view of the fiduciary nature of banking. The bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.
This fiduciary relationship means that the bank’s obligation to observe high standards of integrity and performance is deemed written into
every deposit agreement between a bank and its depositor.

Discussion:

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 The SC here cited the case of Simex vs CA, wherein it was ruled that the bank is under obligation to treat the accounts of its depositors
with meticulous care. So even if that person is a long-time contact of the bank, it does not excuse the bank’s negligence in making sure
he signed under the correct name
 Central Bank said that you can’t fault us because you authorized this person who’s worked with you for 5 years. We already know him.
But SC said that does not excuse you. No matter how long you transacted with this person, each transaction will still have to be
meticulously examined. This is under the fiduciary nature of banking.
 So one aspect of fiduciary nature of banking is that the bank will have to observe the highest integrity and performance with respect to
treatment of accounts of its depositors

2. Hiring, selection and supervision of employees

CASE: WESTMONT BANK VS. RAMOS

Facts:
Ramos had an account with a bank and got acquainted with Tan, the bank’s signature verifier. Tan offered her a special arrangement
wherein he would place sufficient funds in her account whenever there would be an overdraft to make sure the checks she would issue would
not be dishonored.To guarantee payment for such funding, Ramos issued postdated checks. One was a stale guarantee check where the date
was altered. This and other checks were dishonored.
Ruling:
Considering that banks can only act through their officers and employees, the fiduciary obligation necessarily extends to their
employees. Banks must ensure that their employees observe the same high level of integrity and performance for it is only through this that
banks may meet and comply with their own fiduciary duty. A bank’s liability as an obligor is not merely vicarious, but PRIMARY since they are
expected to observe equally high degree of diligence, not only in the selection, but also in the supervision of employees. Thus, even if it is the
employee who is negligent, the bank’s responsibility to its client remains paramount making its liability to be a direct one.
The Bank avers that Ramos acquiesced to the change of date. It argues that her continued acts of dealing and transacting with the Bank
are tantamount to her giving consent.The Bank has not taken to heart its fiduciary responsibility to its clients. The more paramount issue is
why the bank, through several of its competent officers and employees, did not double check the genuineness of the date of the check.

Discussion:
 Note that: The arrangement was not sanctioned by the bank. It was a private arrangement between Ramos and Tan.
 Note that: the check deposited was a stale check. This is one which has not been enchased within 6 months from its issuance. When a
check is stale, the drawee bank is not supposed to accept the check anymore. However, Tan was able to encash it. He changed the date
of the check to make it current. Ramos questioned it because she did not consent to the change of date.
 The bank said that the arrangement was between Tan and Ramos, the bank had nothing to do with it. This is actually against the rules of
the bank. Tan was guilty of misconduct, but the bank is still responsible.
 The fiduciary nature is also with respect to hiring and supervision of employees, because banks can only act through its officers and
employees. Necessarily, the fiduciary nature extends to them. The bank, then, must make sure that in the hiring, selection and
supervision, it must also exercise a high standard.

KEY POINTS
 The banking business is fiduciary nature because according to Equitable vs. Tan, the bank operates with PUBLIC INTEREST. It has a vital
role in the economy which can only be fulfilled if the bank has the trust and confidence of the public. And this is why the banks will have
to exercise highest standards of integrity and performance
 This high standard will reflect not only on treatment of accounts of its depositors, but also with hiring and supervision of employees. This
is because banks can only act through them. Even if it is the fault of the employee, the bank can still be held liable.
 If the mistake is made by the depositor himself? (see case below)

CASE: TAN VS CA
Facts:
Tan was travelling to Manila, and to avoid carrying cash, he secured a cashier’s check from PCIB Puerto Princesa branch and
deposited the check with his account in RCBC Binondo. It was an out-of-town check. When he deposited it, he used a local deposit slip, which
resulted to the check being sent to the clearing house. A local check is one issued and deposited in the same territory. It was returned for
being “missent”.RCBC debited the amount from account of Tan without informing him. Believing that the check was deposited, he issued 2
checks which were returned for insufficiency of funds. Tan alleged to have suffered humiliation and loss of face.
Ruling:
Respondent bank cannot exculpate itself from liability by claiming that the depositor “impliedly” instructed it to clear his check by
filing a local deposit slip.In Citytrust vs. IAC, it was ruled that depositors are not concerned with banking procedure. That is the responsibility
of the bank and its employees. Bank clients are supposed to rely on the services extended by the bank, including assurance that their deposits
will be credited to them as soon as they are made.

Discussion:

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 SC said in the first place, the teller should not have accepted it because your teller is expected to know the internal rules. The client is not
expected to know the same.
 The client was not held at fault and the bank was held liable for damages
 A mistake made by the client does not necessarily mean that the bank can be exempted from liability
 This is still because of the fiduciary nature of banking. They are expected to exercise a high degree of diligence

SECTION 3.Definition and Classification of Banks.—

3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits.(2a)
3.2. Banks shall be classified into:
(a) Universal banks;
(b) Commercial banks;
(c) Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock savings and loan associations, and (iii) Private development banks,
as defined in Republic Act No. 7906 (hereafter the "Thrift Banks Act");
(d) Rural banks, as defined in Republic Act No. 7353 (hereafter the "Rural Banks Act");
(e) Cooperative banks, as defined in Republic Act No. 6938 (hereafter the "Cooperative Code");
(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al Amanah Islamic Investment Bank of the
Philippines"; and
(g) Other classifications of banks as determined by the Monetary Board of the BangkoSentral ng Pilipinas. (6-Aa)

CLASSIFICATION OF BANKS
1. UNIVERSAL BANKS
 Sundiang: Banks that have authority to exercise, in addition to the powers and functions of commercial banks, powers of an
investment house and the power to invest in non-allied enterprises
 Can act as an investment house unlike a commercial bank, which is different from setting up investments
 Investment house: an entitiy which undertakes to sell the securities of the issuing companies. What sets it apart is that it guarantees
the sale of these securities. It acts as an underwriter of these securities. They guarantee that these securities will be sold.
 Example. San Miguel will want to issue 1M worth of shares. They won’t just sell it to the public because they don’t have the capacity.
It will contact a bank that has an investment house and the bank will undertake to sell these securities with a promise that if not all
are sold, they will pay the remainder. It undertakes to sell and is also allowed to guarantee the sale of those securities. Only a
universal bank can do this. Commercial banks cannot
 Banks can invest in allied enterprises, which can be financial or non-financial; or non-allied enterprises.
 Non-allied means that the operation is not related to banking at all, like a real estate company, or construction
 Only universal banks can invest in non-allied enterprises
 Basically, a universal bank is like a commercial bank with greater powers. So it is called expanded commercial bank
 Under the General Banking Act, it was just commercial bank. When BSP gave out additional powers, they were then known as
expanded commercial bank. But now with GBL, they are now known as universal banks

2. COMMERCIAL BANKS
 Sundiang: Banks that are given all such power necessary to engage in commercial banking in addition to general corporate powers;
commercial banking includes the power to accept drafts, issue letters of credits, discounting and negotiation of negotiable
instruments and evidence of debt, accept and create demand deposits and the like
 They perform ordinary banking functions such as deposits, loans, opening accounts, granting letters of credits. Universal banks can
also do these.

3. THRIFT BANKS
 Sundiang: Include savings and mortgage banks, private development banks, and stock savings and loan associations
 They are geared towards small and medium entrepreneurs- the middle class. Those who do not need much capital can instead go to
a thrift bank instead of universal banks

4. RURAL BANKS
 Banks which are usually found in the provinces for promotion of rural development

5. COOPERATIVE BANKS
 Primarily provide financial, banking and credit services to cooperative organizations and their members.

6. ISLAMIC BANKS
 Made in accordance with RA 6848
 Why is there a need to set up a bank based on religion?
 Because there are certain regular banking rules that which are considered as unfit to some religious teachings e.g. :

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Interest
When you borrow from the bank, they will always impose interest. In fact, when you
deposit, there is also an interest which means the Muslims cannot go to a regular bank. So a
special bank must be created to meet their requirements which would be consistent with their
belief.

 These banks are necessary to make sure that all banking needs of the public are addressed. That is why there are classifications.

ORGANIZATION OF BANKS
An ordinary corporation has 1 franchise from the SEC- the certificate of registration that is basically a document that proves that it
is a juridical person that which is alive. But how many franchise/es does a bank require?
2 franchises
1) Primary –Certificate of registration of SEC
2) Secondary- banking license, Certificate of authority to operate

1. CERTIFICATE OF AUTHORITY TO ORGANIZE / ESTABLISH (Sec. 8 of the GBL)

You apply first to the BSP. What is needed before the monetary board issues this certificate? Applicant must first
intend to organize a stock corporation (meaning the capital is divided into shares and can distribute surplus profits as
dividends pursuant to Sec. 3 of the Corporation Code) because at this point, there is no corporation yet. Second, it
intends that its funds are obtained from the public (which shall mean 20 or more persons). Third, the minimum
capital requirement prescribed by the Monetary board for each category of banks are satisfied (which means the
paid-up capital stock). The authorized capital stock is the maximum, the portion of the authorized capital owned by
the stockholders is the subscribed capital stock and the portion of the subscribed capital which is actually paid is the
paid up capital stock.

Aside from these things, the BSP shall also assess the banks’ ownership structure, directors and senior management,
its operating plan and internal controls as well as its projected financial condition and capital base. If it finds
everything in order, all the requirements under section 8, the bank will then issue the certificate.

2. CERTIFICATE OF AUTHORITY TO REGISTER (Sec. 14 of the GBL)

In your application, you must submit your organizational documents. These are the AOI, the by-laws and treasurer’s
affidavit the documents that you need to organize a corporation. The BSP through the Monetary Board will examine
these organizational documents and once it finds that everything is in order based on Sec.14, it will issue the
certificate of authority to register.

3. CERTIFICATE OF INCORPORATION OR REGISTRATION – PRIMARY FRANCHISE ***

Take note that the SEC is mandated both under the Corporation code and the General Banking law not to approve
the application of an entity which will engage in banking functions without a certificate of authority to register from
the BangkoSentral. Once the SEC finds that everything is in order, it will then issue the certificate of registration or
certificate of incorporation.

4. CERTIFICATE OF AUTHORITY TO OPERATE – SECONDARY FRANCHISE *** (Sec. 6 of the GBL)

The moment that you have your certificate of incorporation from the SEC, now you go back to the BangkoSentral and
now you apply for the authority to operate pursuant to Sec 6. Take note that the certificate of incorporation issued
by the SEC is your PRIMARY franchise, this is your authority to say that “I am now a corporation a juridical entity”. But

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this alone will not allow you to operate your business, it’s not enough because Sec 6 requires that you need the
certificate of authority to operate which in turn will now be your secondary license.

 But what happens if a corporation without getting this certificate of authority to operate will start
accepting deposits? Who is authorized to determine WON entity is engaged in banking functions? Take note
that a corporation without a banking license cannot operate as a bank, but it does not really stop people
from acting as banks even without license. So the monetary board can determine, and if it finds that a
certain entity is engage without license, it can go to court and penalize that person/entity. The power of the
monetary board is ONLY TO DETERMINE whether or not a person/ entity is engaged in banking functions. If
it determines that is a violation of GBL and Central Bank Act for which there are penalties, of course the
Monetary board CANNOT IMPOSE THESE PENALTIES - so the Monetary board will have to go to COURT to
get the sanctions.

Take note under Sec. 6, the Monetary Board is also authorized to:
 examine, inspect, or investigate the books and records of any such person or entity,
 administer oaths
 compel the presentation and production of books, documents, papers or records

SHAREHOLDINGS OF THE BANK

Foreign
 Bank – Sec11 does NOT APPLY; RA 10641 applies (Foreign Bank Act)
 Non-Bank- Sec 11 applies
 Individual
 Corporation
Filipino
 Bank –Sec 11 does NOT apply; GBL(certain provisions apply)
 Non-Bank- Sec 11 applies
 Individual
 Corporation

 For Foreign Nonbank Individual and Corporation its 40%. What do you mean by a domestic bank?
It is a bank incorporated in the Philippines. It does not say anything that it is Filipino or Foreign owned. It
simply means it is incorporated under Philippine laws.

 For Filipinos, 40%. So for example Mr. A is a foreigner owning 40% of the share of XY Bank, then here comes Z corporation which is
another foreign corporation wanting to own 40%, allowed? BOTH are foreign. Another example- all Domestic B corporation& P
corporation, both each 40% of 123 Bank. Allowed? The basis will now be Section X126.1 of the Manual of Regulation for Banks (MORB).

 For foreign Individuals & Nonbank Corporation, each may own or control 40% of a Universal (UB), Commercial (KB) & Thrift (TB) Banks.
Provided that the aggregate shall NOT exceed 40% of the UB/KB & 60% of TB. For non Filipino citizens, each/in aggregate may own 60%
(Sec X126.1a).

 For Filipino individual &domestic nonbank corporation may each own up to 40% of UB, KB or TB and up to 60% of RB. No ceiling on
aggregate ownership by such in a domestic bank (Sec X126.1c). So Mr. B can own up to 40% and another Filipino corporation can get to
own another 40%. Together, there can be 80% because there is no limit in their aggregate shareholdings.

 How can you determine that it is a foreign nonbank corporation?

It is important to know WON corporation is foreign or Filipino because if it is foreign, there is an aggregate limit. But if it is Filipino, it has
no aggregate limit. According to Section X126.1 i(2) the citizenship of the corporation, which is a stockholder of a bank shall follow the
citizenship of the controlling stockholders of the corporation, irrespective of the place of incorporation.

 What do you mean by controlling or how much is controlling?

Section X126.1 i(2) says further that the term controlling stockholders shall refer to stockholders holding more than 50% of the voting
stock of the corporate stockholders of the bank. Take note that this is quite peculiar because in other laws, particularly in the Foreign
Investment Act, limit is 60% for a corporation to be considered as Filipino. So in the MORB, if Filipino ownership is more than 50% let’s say
51%, that will qualify and will not require them to have an aggregate limit. If foreign shareholding is more than 50%, that corporation will
be subject to an aggregate limit.

If Z corporation, take a look at who are the shareholdings of Z, if shareholders of Z is more than 50% foreigners, Z is a foreign shareholder
and subject to the aggregate limit. If P corporation has a shareholding of 51% Filipinos, it is a Filipino citizen, not a foreign corporation and
is not subject to the aggregate limit.

 What about stockholdings within family groups or related interest?

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If B is married to C, can B own 40% of a bank? Yes. Can C own another 40% even if they are related to each other? Yes.According to Section
X126.1f, individuals related to each other within the 4th degree of consanguinity or affinity, whether legitimate, illegitimate or common
law, shall be considered family groups or related interests but may each own up to 40% of the voting stock of a UB, KB or TB and up to
60% of the voting stock of RB. Provided that said relationship must be fully disclosed in all transactions by such individuals or family
groups or related individuals.

 Situation 1. Corporation X owned by A & B, another Corporation Y, also owned by A & B, can corp X own 40%? Yes. Can corp Y own also
40%?
Pursuant to X126.1g, Two or more corporations owned or controlled by the same family group or same group of persons shall be
considered related interest but may each own up to 40% of the voting stock of a UB, KB or TB and up to 60% of a RB. Provided that said
relationship must be fully disclosed in all transactions by such corporation or related groups of persons with the bank.

 Situation 2. A owns 40% of a bank, A fully owns X corporation, and X corp wants 40% again of the same bank. Can this be done?
Pursuant to X126.1d, an individual and a corporation or corporations which are wholly-owned or majority of the voting stock of which is
owned, by him, may own only up to a combined 40% of the voting stock of a UB, KB, or TB, and up to a combined 60% of the voting stock
of a RB.

 What’s the difference between the first situation and the second?
In the 1st situation,corporations are owned by groups of personsalthough they are considered as relatedinterests,there is still a group and
not just one individual. In the 2 nd situation, we are only talking about 1 individual and a corporation wholly owned by him. In which case,
the law considers them as one, with a combined limit of 40%.

STOCKS ISSUED BY THE BANK

 Banks can issue any kind of stocks authorized by the Monetary Board. The Monetary Board does not set any kind of prohibition. It can be
common, preferred, redeemable, convertible, etc. The only requirement under the GBL is that the stock must be a par value stock which
means that the value of the stock must be stated in the articles of incorporation of the bank.
 What are Treasury stocks?
These are stocks that have been issued and fully paid for but then are reacquired by the bank.
 Are banks allowed to reacquire their own shares? Create treasury shares?
The general rule is NO, they aren’t allowed. But they can do it with the authority of the Monetary Board. But if in fact they do have
treasury shares, they must dispose them within 6 monthsfrom the time of its purchase or acquisition, be sold or disposed of at a public or
private sale (Section 10 GBL).

DIRECTORS AND OFFICERS

 Under the Corporation law, the directors of a corporation will exercise the powers of the corporation granted through its articles, they
will conduct the business of the corporation, and hold the properties of the corporation. Basically, a corporation acts through its
directors.

 Directors are at least 5 and a maximum of 15 except when there is a merger or consolidation in which case, not more than 21 . A merger
happens when 2 corporations combine or 1 is absorbed by another. Why does the law want to entice corporations to merge? (Section 15 &
17)
Because the policy of the law is that these smaller banks if they get together- they merge or consolidate, they will become stronger and
they will have more assets.So the policy is to promote merger or consolidation of banks. But the law recognizes that the limit on the
number of directors can be a hindrance because obviously, the directors of both banks would want to maintain their own position. So to
allow for these mergers or consolidations to actually happen, the law says okay there’s a merger or consolidation, the bank can have 21
directors. So this is the purpose of the exception.

 Of the BOD, how many should be independent?

The law says 2, but the MORB says at least 20% but not less than 2. So if the bank has 5 directors, 20% of that is 1, but the minimum is 2, so
there should be 2 independent directors. If the bank has 15 directors, 20% of that is 3, minimum is 2, so there should be 3 independent
directors. It can’t have 2 because the limit is at least 20%. Can it have 4? Yes, because the 20% is just the minimum.

 When can you consider one as an independent director?

The general rule under Section 15 of the GBL is that it shall mean a person other than an officer or employee of the bank, its subsidiaries
or affiliates, or related interests. However, this is expanded under the MORB, a person who will be elected as an independent director
must not be retained as a professional adviser, consultant, agent of the bank or of the related companies of the bank (For full definition
See X141.2b of the MORB)
Moreover, a shareholder with shares of stock sufficient to elect 1 seat in the board of directors of the institution, or in any of its related
companies or of its majority corporate stockholders shall NOT be qualified to be an independent director pursuant to X141.2b (3). For
example, I am a shareholder of a bank with such number of shares that I can elect myself to the bank to be a director then I am NOT
qualified to be an independent director. In your Corporation law, you will learn how voting of directors is done, it is through what we call

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as a cumulative voting which means the number of shares you have multiplied by the number of seats in the board. So if that number of
votes will allow you to vote yourself at least 1 seat in the BOD, you are not allowed to be a director. Meaning your shareholdings must
NOT qualify you as a director.

 What’s the term of an independent director?

They shall only serve for ONE term. The term of an independent director is 1 year, you have to be elected again for another year. But an
independent director can be elected for 5 consecutive years. If he has been elected for 5 consecutive years, he CANNOT be elected on the
6th year, or 7th year. On the 8th year he CANafter what we call the 2 years cooling off period, and can serve for another 5 years, so a total
of 10 years of service. However, to be allowed another 5 years, you must not have done something during the 2 year cooling off period
that would disqualify you from being an independent director.
For example, after you have served full 5 years, you have acted as an adviser to the bank during the cooling off period, you will no longer
be qualified for the next 5 years. Moreover, if an independent director has elected and served for only 1 year, then after that he has not
been elected the 2nd year, then in the 3rd he CAN be elected subsequently or thereafter. There’s no prohibition. Since what the law
requires is when an independent director has served for 5 consecutive years, then there’s the cooling off period. If you serve for every
other year, the cooling off period will NOT be required. But you can only serve a total of 10 years but no cooling off period.

 The fit and proper rule as discussed earlier is part of the corporate governance requirements for banks under the GBL. The Monetary
Board is given the power to prescribe, pass upon and review the qualifications and disqualifications of individuals elected or appointed
as bank directors or officers. And disqualify those found unfit. As mentioned before, in an ordinary corporation, once you elect your
directors and officers- that’s it. No other act is required. But for banks, once elected they have to submit their bio data and resume of all
their elected directors to the Bangko Sentral who will say whether or not such are qualified are disqualified. So without approval of the
Monetary Board, the directors or officers cannot start their duties as such.

 The QUALIFICATIONS of the director as found in X141.2a include:

o At least 25 years of age at time of election or appointment
o At least a college graduate or have at least 5 years of experience in business
o Have attended a special seminar on corporate governance
o Must be fit and proper
 DISQUALIFICATIONS
o Permanent- Basically, grounds are the same as the temporary. Permanent is if the conviction or iffound guilty
by final judgment.
o Temporary- If there’s a pending appeal.
o If there’s a criminal case for estafa filed against Mr. A, he CAN be qualified as a director because there is NO
JUDGMENT yet. But the moment he is found guilty, he becomes temporarily disqualified. If he appealsduring
the duration of his appeal, his disqualification will remain. If the ruling is affirmed by the appellate court, once
the ruling becomes final because it’s affirmed, his disqualification becomes permanent.But if he is acquitted,
then his disqualification is removed. So the mere filing of a criminal case will not disqualify.
 Take note that public officials are NOT allowed to become directors or officers of the bank except as stated in section
19- where such service is incident to financial assistance given by the government.

BANK BRANCHES
 Pursuant to Section 20, Bank branches are allowed to be used as outletsfor the presentation or sale of the financial products of its allied
undertaking or of its investment house units.
 Allied Undertakings are those enterprises which are related to the operations of the bank such as credit card companies, insurance
companies, lending institutions and finance companies.
 The rule is that these allied enterprises or allied undertaking of banks can present their products within the banking premises or within
the bank office. It has to be an allied undertaking – an affiliate or subsidiary of the bank.
 For example,X bank. Can it sell the products of its affiliate finance company of car loans? Can car loans be presented in X bank offices? Yes,
because it is a product of an allied undertaking of the bank. The finance company is related to the bank, an affiliate of the bank.
 What if the finance company is not related or is a third person in relation to the bank, can it sell its product within bank premises? No.
 If there’s an Insurance Co. and it’s an affiliate of the bank, it can sell its product within bank premises. If the insurance company is a third
person, not related to the bank, it CAN sell pursuant to Sec. 375 of the Insurance Code (R. A. 10607).

Section 375. The term banc assurance shall mean the presentation and sale to bank customers by an insurance
company of its insurance products within the premises of the head office of such bank duly licensed by the
BangkoSentral ng Pilipinas or any of its branches under such rules and regulations which the Commissioner and the
BangkoSentral ng Pilipinas may promulgate. To engage in bancassurance arrangement, a bank is not required to have
equity ownership of the insurance company. No insurance company shall enter into a bancassurance arrangement
unless it possesses all the requirements as may be prescribed by the Commissioner and the BangkoSentral ng Pilipinas.

"No insurance product under this section, whether life or non-life, shall be issued or delivered unless in the form
previously approved by the Commissioner.

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 Take note that under this rule, it states ‘any insurance company’ so an insurance company is allowed even if
it’s not an allied enterprise or undertaking.
 But of course, subject to the rules and regulations which the Commissioner and the BangkoSentral ng
Pilipinas may promulgate but no such rule has been promulgated yet. So this provision is not yet in effect. But
technically, this Section 375 amends Section 20 of the General Banking Law. But we don’t know yet the rules
that will be set by the Commissioner and the BangkoSentral.

 Cross-Selling is the process of selling or presenting the financial products within the banking premises. It’s when you
present the products of the allied undertaking or investment house within bank premises.
 Bancassuranceif presenting insurance products.

BASIC FUNCTIONS OF BANKS: 1. DEPOSIT FUNCTION

 Contract of Deposit (legal definition from the Civil Code)

A contract whereby a person receives from another a specific thing with the obligation of safely keeping it and returning the same
 There is no definition of deposit in the GBL but it is in the Civil Code. However, the transaction with the bank is not really deposit but a
SIMPLE LOAN or MUTUUM.
 The definition of DEPOSIT is not found in the GBL but in the Charter of the PDIC, paragraph F:
 “The term “deposit” means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for
which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account, or issued in accordance
with BangkoSentral rules and regulations and other applicable laws, together with such other obligations of a bank, which, consistent
with banking usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the
bank: Provided, That any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall not be a
deposit for any of the purposes of this Act or included as part of the total deposits or of insured deposit: Provided, further, That,
subject to the approval of the Board of Directors, any insured bank which is incorporated under the laws of the Philippines which
maintains a branch outside the Philippines may elect to include for insurance its deposit obligations payable only at such branch.”
 Even PDIC here does not define deposit as a contract. It is defined as an OBJECT – an unpaid balance of money. The definition itself
does not say it’s a contract. Technically, deposit is the transaction and the contract entered into is the contract of loan.
 SO when you talk about contract of deposit, it’s not the same as used in banking practice

CASE: CONSOLIDATED BANK VS CA

Facts:
LC Diaz instructed its messenger Calapre to deposit money with Solidbank along with the passbook. Calapre went to Solidbank,
made the deposit, and the teller acknowledged it. Since it took time, he left the passbook with Solidbank as he had to make another deposit
with Allied Bank. When he returned, the teller told him somebody else got the passbook. LC Diaz learned of an unauthorized withdrawal on
that same day. LC Diaz filed Recovery of a Sum of Money against Solid Bank.
Ruling:
Solidbank is liable for breach of contract due to negligence or culpa contractual. The contract between the bank and its depositor is
governed by the provisions of the Civil Code on SIMPLE LOAN. There is a debtor-creditor relationship between the bank, the debtor, and the
depositor who is the creditor. The depositor lends the bank the money and the bank agrees to pay the depositor on demand. The savings
deposit agreement between the bank and depositor is the contract that determines the rights and obligations of the parties. The law imposes
high standards of integrity and performance in view of the fiduciary nature of banking. However, the fiduciary nature of banking does not
convert the contract between the bank and depositors from a simple loan to a trust agreement. Failure of the bank to pay the depositor is
failure to pay a simple loan, and not a breach of trust.

Discussion:
 The basis of imposing damages against the bank is breach of contract/culpa contractual. SC said there was breach of contract of loan.
However, this is not an ordinary contract of loan. The rule in Obligations and Contracts is that the parties are only bound by the
stipulations of the contract.
 Are banks required to stipulate on the fiduciary nature and high standard of diligence in the contract? SC said they are not. The
declaration of policies under the GBL isdeemed written into the contract. There is no need for an express stipulation.
 However, this fiduciary duty does not change or transform the nature. The relationship is still a debtor-creditor relationship. Even if the
fiduciary nature is deemed written into the contract, it does not convert it to trust agreement.
 Failure of the bank to comply with the contract which is to allow the client to withdraw the money from the bank does not result in a
breach of trust. It is merely a breach of an obligation to pay.

CASE: GUINGONA VS CITY FISCAL

Facts:

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The instant petition filed by Guingona, president of the bank involved, seeks to prohibit public respondents from proceeding with the
preliminary investigation of I.S. No. 81-31938, in which petitioners were charged with estafa and violation of Central Bank Circular No. 364 on
the ground of jurisdiction in that the allegations showed that petitioner’s obligations were civil in nature.
Ruling:
There is merit in the contention that their liability is civil in nature and thus, public respondents have no jurisdiction over the charge
of estafa. It must be pointed out that when private respondent David invested his money on time and savings deposits with the aforesaid
bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. Bank deposits are in the nature
of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be
treated as loans and are to be covered by the law on loans. Current and savings deposits are loans to a bank because it can use the same.
Hence, the relationship between the private respondent and Nation Savings and Loan Association is that of creditor and debtor;
consequently, the ownership of the amount deposited was transmitter to the bank upon the perfection of the contract and it can make use
of the amount deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals. While the bank has the
obligation to return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited. And, the
failure of the bank to return the amount deposited will not constitute estafa but only give rise to a civil liability over which public respondents
have no jurisdiction.

Discussion:
 Estafa here was allegedly committed through violation of paragraph 1(b) Article 315 of the RPC: “By misappropriating or converting, to
the prejudice of another, money, goods, or any other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of or to return the same, even though such obligation
be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property.”
 So for example, if it is a contract of deposit and you failed to return the very same thing under the contract f deposit, then you can be
liable for estafa under 315 (b), because you have to return the very same thing you received. So this was the basis of the case filed by the
depositor against Guingona and the rest
 When the time comes to repay, the bank does not have to return the exact same bills and coins. It only needs to repay the same amount
 3 consequences of declaring that a deposit is a contract of loan:
a. The moment you deposit the funds, there is transfer of ownership
b. The bank can now use the funds in any way it sees fit. As owner, it can keep it or lend it
c. When it comes for repayment, it is obligated to return the same amount
 Thus, there is no criminal consequence/liability in failure to return the money. This is simply a civil matter: non-payment of loan, and not a
breach of trust or failure to return the money received in trust

CASE: ASSOCIATED BANK VS TAN

Facts:
Tan deposited with the bank a check. Upon advice and instruction of the bank that the check was already cleared and backed by
sufficient funds, Tan withdrew the sum. He then issued several checks to his business partners. However, the latter went back to him alleging
the checks he issued bounced because of lack of sufficient funds. Tan then filed for damages against the bank for he allegedly had
sufficientfunds in his account. The bank argues that its right to debit the amount of the dishonored check from the account of respondent is
clear and is immediately enforceable even assuming it did not give him notice that the check has been dishonored.
Ruling:
A bank generally has a right of setoff over the deposits therein for the payment of any withdrawals on the part of a depositor.  The
right of a collecting bank to debit a client's account for the value of a dishonored check that has previously been credited has fairly been
established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions concerning simple loan."
Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation
under Article 1278 of the Civil Code may take place "when all the requisites mentioned in Article 1279 are present," as follows:
"(1)That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2)That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3)That the two debts be due;
(4)That they be liquidated and demandable;
(5)That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to
the debtor."
Nonetheless, the real issue here is not so much the right of petitioner to debit respondent's account but, rather, the manner in which
it exercised such right. The Court has held that even while the right of setoff is conceded, separate is the question of whether that remedy has
properly been exercised.  
Discussion:

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 What happened here was that Tan deposited a check in the bank. Before that check cleared, the bank allowed him to withdraw a certain
portion, but he still believed he had sufficient funds so he issued still several checks. However, the first check bounced. When it did, the
bank compensated it. They owed Tan money, the amount in his account. Now, Tan owed them money because the check he deposited
bounced and he withdrew it already. Now, the bank and Tan became creditors and debtors of each other
 SC ruled that undoubtedly, the bank has a right of set-off (legal compensation). It is a right recognized for banks because the
relationship/contract between the parties is that of debtor and creditor, or a contract of loan. It is a mode of extinguishing an obligation.
This happens when two parties are both creditors and debtors of each other
 When all the elements (above) are present, compensation takes place by operation of law. This rule on compensation will apply to banks
because banks and depositors are debtors and creditors of each other
 The problem in this case was how that right was exercised because according to the SC, Hey bank, this is your long-term creditor. You
should have informed him that you already debited his account, so it was held liable for damages. But it was only in the manner of setting
off since banks have that right

CASE: CENTRAL BANK VS MORFE

Facts:
Private respondents secured against Savings Bank, after the same had been declared insolvent, final judgments for the recovery of
the balance of their time deposits. Payment of the same as preferred credits evidenced by final judgments in accordance with Article 2244 (14)
(b) of the Civil Code was directed by the liquidation court. From this order, the Central Bank appealed by certiorari.
Ruling:
It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are not true deposits. They are
considered simple loans and, as such, are not preferred credits. Evidently, one purpose in prohibiting the insolvent bank from doing business
is to prevent some depositors from having an undue or fraudulent preference over other creditors and depositors.
We are of the opinion that such judgments cannot be considered preferred and that article 2244(14)(b) does not apply to judgments
for the payment of the deposits in an insolvent savings bank which were obtained after the declaration of insolvency.A contrary rule or
practice would be productive of injustice, mischief and confusion.
And with respect to a national bank under voluntary liquidation, the court noted in the Rohr case that the assets of such a bank
"become a trust fund, to be administered for the benefit of all creditors pro rata, and, while the bank retains its corporate existence, and may
be sued, the effect of a judgment obtained against it by a creditor is only to  fix the amount of debt. He can acquire no lien which will give him
any preference or advantage over other general creditors."

Discussion:
 Preference of credit comes into play only upon insolvency or liquidation of a corporation. If it is an ongoing concern, or it has the ability to
meet its debts as they become due, there is no such thing as preference of credits. They only come in when the assets of the corporation
are no longer sufficient to meet its liabilities. When this happens, there is preference as to who gets paid first over the insufficient assets.
 The spouses claim they are preferred creditors because of the judgment they secured.
 SC said deposits are only ordinary credit and do not enjoy any preference. Being ordinary credit, the depositors will have to wait until all
the preferred credits have been paid. If there are still assets left, the depositors will now share in those assets in proportion to their
deposit amounts. No preference with respect to other credits; no preference with respect to each other. They share equally in their
rights in proportion to the amount of their deposits.
 When you deposit with a bank, you are merely an ordinary creditor of the bank. You do not acquire any lien on the properties of the bank,
like the chairs or table. You only have an ordinary loan, there is no lien on specific credits. Remember, the nature of a preferred credit is
that it creates a lien on a specific property of the insolvent corporation. That’s why if you have a mortgage, that becomes a preferred
credit because the mortgage creates a lien over the property. A deposit does not doe that because it is a simple loan, it does not have a
security. So a depositor cannot convert his ordinary credit to a preferred credit
 As a depositor, you can file a case (even after the corporation is declared insolvent) but only if your claim is disputed and only for the
purpose of fixing the amount of the claim. However, this judgment will not make your credit a preferred credit if your judgment is still
that you are a depositor of the bank. It will just say this is the amount you are entitled to recover. It doesn’t create any preference, you
are still an ordinary creditor of the bank. As long as judgment will just establish that you are a depositor of the bank, that will not create
any preference because the concept of a deposit really is just a simple loan, thus it does not create any lien.

TYPES OF ACCOUNTS and DEPOSITS

A. Depositors
1. Natural Persons
I. Qualifications
i. Legal age
ii. Legal capacity to enter into contracts – this is needed because deposit is a contract of loan
 Not disqualified by law
 Minors
Exception: PD 734 provides that minors can deposit in their own name with the bank provided:
 they are at least 7 years of age

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 able to read and write
 have sufficient discretion
 not otherwise disqualified by any other incapacity
o They can only enter into savings deposit and time deposit. So, they cannot enter into demand
deposits
 Insane/demented
 With civil interdiction
 Deaf-mutes who cannot read or write
II. Kinds of accounts natural persons can enter into
i. Individual account
 One person opens an account
ii. Joint account
 Kinds:
 And/or account – only one signature of any of the depositors is necessary for withdrawal
 And account – all signatures of the depositors are necessary
 They are owned by more than 1 depositor, not just limited to two persons.
2. Juridical Persons
iii. Corporate accounts
 Accounts entered into by corporations, partnership, associations; by juridical persons
B. Types of Deposits
1. Demand Deposit
They are normally not interest bearing because when you maintain a demand deposit from a bank, there is no certainty as
when you will withdraw the money. So the bank will be forced to keep a certain amount of money to make sure that when
you withdraw it, they can provide you. In other words, when the bank is required to keep the money, it cannot use the
money for any other purposes- it cannot lend or invest the money. So the money does not earn for the bank and in turn, it
will not earn for you.

Pursuant to Section 33, the a bank other than a universal or commercial bank cannot accept or create demand deposits
except upon prior approval and subject to such conditions and rules as may be prescribed by the Monetary Board. So
ordinarily, ONLY Universal and Commercial banks can create demand deposits or checking accounts, the other banks should
get special authority from the Monetary Board.
2. Savings Account
Interest bearing; most common type usually evidenced by a passbook.
3. Negotiable Order of Withdrawal Account (NOW)
A combination of both demand and savings deposit. It is interest-bearing that combine the payable on demand feature of
checks and investment feature of savings account.
4. Time Deposits
An account with fixed term

 The interest in banks will depend on the commitment of the depositor on how long he will maintain the deposit with the bank. The longer
the commitment, the higher the interest because in that case, the bank can use it for long term investments thus earning higher income
for the bank.

 INSURED DEPOSITS refer to the amount deposited in the bank which upon insolvency of the bank which the deposit was made, the
depositor may recover up to P500,ooo. So the maximum insured deposit is 500k.

Section 4 (g) of RA 3591 as amended by Section 3 of RA 9576.

“Insured deposit” means the amount due to any bona fide depositor for legitimate deposits in an insured bank net of any obligation of
the depositor to the insured bank as of date of closure, but not to exceed Five hundred thousand pesos (P500,000.00)
1) A has a deposit of 300k, he can recover 300k.
2) If A’s deposit is 800k, he can recover 500k (only maximum account)
3) If A&B has a joint account of 400k, each can recover 200k
4) If A&B has a joint account of 900k, each can recover250k
 (500k maximum divided by no. of depositors)
 If it is a joint account, the insured amount is 500k. How much is the share of each
depositor? 250k each. What is divided is NOT the amount of deposit but the law says the
maximum insured amount is to be divided equally based on the number of depositors.
5) If A has 300k in his individual acct,
He has a900k joint acct with B
 A can recover 300k from individual, and 250k from joint acct. = 550k
 A joint account shall be insured separately from any individual-owned account (Section4)
6) If A has 300k in his savings, 300k in time, and 200kin his demand deposit; he can recoverONLY 500k.

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 It is treated as a single account. Only 500k maximum for his individual account regardless of
theclassification of said individual account.
 If one account is in branch 1, the other is in branch 2, and so on, still ONLY 500kfor all three
because it is considered still as one and what is insured separately is joint and individual.
7) If A has 300k in his individual acct
He has900k joint acct with B,
He has 900k joint acct with C&
He has 200k joint acct with D
 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 Five hundred thousand pesos
(P500,000.00) pursuant to Section 4 (g) of RA 3591 as amended by Section 3 of RA 9576.
 A can recover 300k for his individual account and 500k as aggregate interest
 But of course, you are more protected if you separate your deposits into two since per
account, it is considered one 500k.But all in all, you can never recover in excess of 500k.
8) If A has 600k in his individual acct
He has400k with B
He has 800k with C
 For A- 500k for his individual, 200k for joint w/ B &250k for joint w/ C = 950k
 For B –200k
 For C –250k
9) If A has 500k in his individual acct
He has 600k with B (A&B)
He has 500k with C (A&C)
He has 450k with B & C. (A,B&C)
 For A - 500k for individual, 650k for joint but since it can never exceed 500k for joint, so = 1Million
 For B – 400k (250 + 150)
 For C – 400k(250 + 150)
 Pursuant to Section 4 (g) of RA 3591 as amended by Section 3 of RA 9576.

SECRECY OF BANK DEPOSITS: A. R.A. 1405 BANK SECRECY LAW

 Bank Secrecy Law was passed on September 9, 1955.

Section 2.  All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the
Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature
and may not be examined, inquired or looked into by any person, government official, bureau or office. (R.A. 1405)

 Why?Because deposits are absolutely confidential in nature.

 R.A. 1405 provides for exceptions:
 written permission of the depositor,
 cases of impeachment,
 upon order of a competent court in cases of bribery or dereliction of duty of public officials, or
 cases where the money deposited or invested is the subject matter of the litigation

CASE: BSB VS GO
Facts:
Ricardo Bangayan (husband of Sally) as president of BSB Group, Inc. filed a complaint for estafa and qualified theft against Sally Go.
Sally Go allegedly indorsed check amounting to P1, 534,135.50 to her personal banking account at Security Bank instead of being turned over to
the company’s coffers. Sally Go filed a motion to quash noting that in the complaint affidavit, there was no mention of the said bank account.
Bangayan opposed on the ground that the complaint showed that there were two checks which she allegedly deposited. Sally Go filed a
supplemental motion and then invoked the privilege of confidentiality under R. A. 1405. BSB contended that the account contains the
proceeds of the check and thus falls among the exception in Section 2 of R.A. 1405 that money deposited or invested is the subject matter of
the
Ruling:
The subject matter of the action in the case at bar is to be determined from the indictment that charges Sally Go with the offense,
and not from the evidence. In the criminal information, Sally Go was charged with qualified theft. The information makes no factual allegation
that in some material way involves the checks sought to be suppressed neither do the allegations make mention of the supposed bank
account in which the funds represented by the checks have allegedly been kept. In other words, it can hardly be inferred that the account is
the subject of the inquiry. Moreover, should there be doubts in upholding the absolutely confidential nature of bank deposits against authority
to inquire, such doubts must be resolved in favor of the former.
Discussion:

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Section 1. It is hereby declared to be the policy of the Government to give encouragement to the people to deposit their money in banking
institutions and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the
economic development of the country. (R. A. 1405)
 Two allied purposes of the Bank Secrecy Law
1) To discourage private hoarding
2) Encourage the people to deposit their money in banking institutions
 The BSB contended that the subject money is among the exception, specifically the fourth exception which is case where the money
deposited or invested is the subject matter of the litigation
 There was no mention of the checks allegedly stolen neither was there any mention of the accounts where the checks were
supposedly deposited in the information. The accounts and the money deposited therein were no longer subjects of the litigation.
 You can consider it to be subject of litigation only when you look at the pleading and it is part of the allegations there that the issue is
considered to be that money in that particular account identified in the pleading. Therefore, it must be alleged in the pleading.
 In the case at bar, there was never any allegations in the complaint and just said in general terms that she stole money in the amount
of 1 million plus and that was it. So the SC said, this account and the money deposited therein cannot be considered as subject matter
of litigation.

CASE: PNB VS GANCAYCO

Facts:
Special Prosecutors from the DOJ required PNB to produce records of bank deposits of Ernesto Jimenez former administrator of the
Agricultural Credit and Cooperative Administration for unexplained wealth particularly inconnection with Section 8 of R. A. 3019 or the Anti-
Graft and Corrupt Practices Act regarding the dismissal due to unexplained wealth.The PNB refused to reveal citing the absolutely confidential
nature of deposits pursuant to R.A. 1405. Lower courtruled and sustained the power to compel the disclosure and said that Congress clearly
intended to provide additional grounds for the examination of bank deposits.
Ruling:
Section 8 is intended to amend Section 2 of R.A. 1405, providing additional exception to the rule against the disclosure of bank
deposits. Moreover, while Section 2 of R.A. 1405 declares bank deposits to be absolutely confidential, it nevertheless allows such disclosure in
the following instances (1) written permission of the depositor, (2) in cases of impeachment, (3) upon order of a competent court in cases of
bribery or dereliction of duty of public officials, or (4) in cases where the money deposited or invested is the subject matter of the litigation.
Cases of unexplained wealth are similar to cases of bribery and dereliction of duty and no reason is seen why these two classes of cases
cannot be excepted from the rule making bank deposits confidential. Therefore, the DOJ may look into such deposit of Jimenez.

Discussion:
 The bank, PNB itself was the one who invoked the secrecy of bank deposits and it said that it is not allowed to divulge the records of
the depositors because of R.A. 1405.
 The DOJ invoked the last part of Section 8 of R.A. 3019 which states that “bank deposits shall be taken into consideration in the
enforcement of this section, notwithstanding any provision of the law to the contrary”.
 Section 8 does not expressly provide that in cases of unexplained wealth, the deposits of the person under investigation can be
inquired upon. There was nothing there.
 The Supreme court said that the last phrase of Section 8 of Anti Graft and Corrupt Practices Act is actually sufficient to constitute an
exception to the bank secrecy lawsuch that it went on to say that this basically amends R.A. 1405.
 Other than that, if such Section is not sufficient, the cases of unexplained wealth can be considered as similar to cases of bribery and
dereliction of duty which is expressly allowed under R.A. 1405 for the deposit to be inquired into.
 SoAnti Graft and Corrupt Practices Act is among the exceptions to the Bank Secrecy Law and the basis for that is PNB vs
Gancaycobecause the law is not really clear on it. So the real basis is this case, PNB vs Gancayco.

B. R.A. 6426 “FOREIGN CURRENCY DEPOSIT ACT OF THE PHILIPPINES”

Section 8. Secrecy of foreign currency deposits.  – All foreign currency deposits authorized under this Act, as amended by PD No. 1035, as well
as foreign currency deposits authorized under PD No. 1034, are hereby declared as and considered of an absolutely confidential nature and,
except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined, inquired or looked into by
any person, government official, bureau or office whether judicial or administrative or legislative, or any other entity whether public or
private; Provided, however, That said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process
of any court, legislative body, government agency or any administrative body whatsoever.
 R. A. 1405 has four exceptions, while R. A. 6426 has only one exception.

CASE: GSIS vs CA
Facts:
A surety agreement was made between Domsat and GSIS where the former obtained a security bond from the latter to secure the
payment of the loan from the banks. Domsat failed to pay the loan and GSIS refused to comply with its obligation reasoning that Domsat did
not use the loan proceeds for the payment of the rental. GSIS alleged that Domsat transferred 11 Million U.S. dollars from Korea, to New York

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and from there to Binondo Branch of Westmont Bank. The Banks filed a complaint against Domsat and GSIS. GSIS requested Westmont Bank
through a subpoena to produce documents saying that it is among the exceptions and invoked R.A. 1405. RTC quashed such subpoenas and
ruled the absolute confidentiality of foreign currency deposits and may be examined only when there is written permission from the
depositor. CA declared that Domsat’s deposits is covered by R. A. 6426 and such testimony of incumbent president of Westmont Bank is not
the written consent contemplated in law however, production of some documents does not involve the examination of Domsat’s account
since it will never be known how much money was deposited into. The Bank maintains that R. A. 1405 is not applicable.
Ruling:
The two laws R.A. 1405 & R. A. 6426 both support the confidentiality of bank deposits. There is NO conflict between them. R. A. 1405
covers all bank deposits in the Philippines and no distinction was made between domestic and foreign deposits. Thus, it is a law of general
application. On the other hand, R. A. 6426 is a special law designed especially for foreign currency deposits.Applying Sec. 8 of R. A. 6426,
absent the written permission of Domsat, Westmont Bank cannot be legally compelled to disclose the bank deposits of Domsat, otherwise it
might expose itself to criminal liability.

Discussion:
 GSIS invoked R.A. 1405 or the Bank Secrecy Law, GSIS is saying that the money deposited in the account is the subject matter of litigation
and so under R.A. 1405, it is exempt from the confidential nature of bank deposits.
 Westmont Bank invoked R. A. 6426.
 There is no conflict between the two laws since R. A. 1405 applies to all types of deposit in the Philippines in general while R. A. 6426
applies specifically to foreign currency deposits.
 If it is a foreign currency deposit account, apply Foreign currency deposit law.
 If it is any other account, apply R. A. 1405.
 Since R. A. 6426 has one exception, you cannot apply the exceptions in R. A. 1405.
 Unless you get the written permission of the depositor, you cannot look into the foreign currency deposit.

CASE: INTENGAN VS. CA

Facts:
Citibank filed a complaint against 2 of its officers who appeared to have been actively engaged in business endeavors in conflict with
the business of the bank, specifically with the use of 2 companies which they have personal financial interest, they caused existing bank clients
to divert their money from the former. These bank clients include Carmen Intengan, Rosario Neri and Rita Brawner known as the petitioners.
The disclosure of the said petitioners’ deposits was necessary to establish the allegation. Petitioners assert that the disclosure of their bank
recordswas unwarranted and illegal in blatant violation of R. A. 1405.
Ruling:
The provincial prosecutor, the DOJ, the SolGen and CA – all appear to have overlooked a single fact that the accounts in question are
U.S. Dollar deposits. Consequently, the applicable law is R.A. 6426 and under such law, there is only one exception that the disclosure is
allowed upon written permission of the depositor. A case for violation of R.A. 6426 should have been the proper case brought.

Discussion:
 Even when the DOJ Secretary Franklin Drilon was involved, the Supreme Court sarcastically said that hey you great minds or the finest
legal minds of the country, you did not even know what law you should be applying. You are all talking about R.A. 1405 but take a look,
this deposit account is a foreign currency deposit.
 So you don’t apply R. A. 1405, you apply R. A. 6426 which there is only one exception and without complying, you cannot examine the
account of the persons involve.

C. ANTI-MONEY LAUNDERING ACT

 This act gives two exceptions. These are found under Section 9 and Section 11.
Section 9. (c) When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives,
agents, advisors, consultants or associates shall not be deemed to have violated Republic Act No. 1405, as amended; Republic Act No.
6426, as amended.
 In other words, this is an exception of the Bank Secrecy Law and Foreign Currency Deposit.
 So if your transaction falls under covered or suspicious transactions, whether your account is Philippine currency or foreign currency,
you can be reported under this Section 9 and the person reporting is exempt from liability.
 What is this covered transaction? (We will discuss more on AMLA later, and let’s just focus on exemptions).
These are transactions which are more than 500 thousand pesos in one banking day. The law says that if you
transact with the bank, and your transaction covers more than 500 thousand pesos, the bank is obligated to
report you to the AMLC. Now, that should not be done because your transaction should be confidential but the
law says nevermind, this is an exemption notwithstanding or shall not be deemed to have violated R. A. 1405 and
R. A. 6426.
Section 11. Authority to inquire into Bank Deposits. – Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No.
6426, as amended; Republic Act No. 8791, and other laws, the AMLC may inquire into or examine any particular deposit or investment with

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any banking institution or non-bank financial institution upon order of any competent courtin cases of violation of this Act when it has been
established that there is probable cause that the deposits or investments involved are in any way related to a money laundering
offense:Provided, That this provision shall not apply to deposits and investments made prior to the effectivity of this Act.

CASE: REPUBLIC VS EUGENIO

Facts:
Several investigations were conducted by the Ombudsman concerning the award of NAIA Airport 3 to PIATCO. Among the persons
investigated was Pantaleon Alvarez, a chairman of the PBAC Technical Committee NAIA-IPT3 Project and Cheng Yong. Investigation revealed
that Alvarez maintained 8 bank accounts with 6 different banks. To fully inquire into such deposits, AMLC filed for issuance of a bank inquiry
order. The RTC issued orders ex-parte. Upon motion by Alvarez, the orders were lifted, refraining AMLC to inquire. Lilia Cheng who is the wife
of Cheng Yong with whom she jointly owns a bank account filed a TRO and argued that ex-parte bank inquiry orders violated her right.
Moreover, she argued that under the AMLA, such order can only be granted in connection with violations of the AMLA and that the AMLA can
not apply to bank accounts opened and transactions entered into prior to the effectivity of the AMLA.
Ruling:
The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC may inquire into a bank account upon order of
any competent court in cases of violation of the AMLA, it having been established that there is probable cause that the deposits or
investments are related to unlawful activities as defined in Section 3(i) of the law, or a money laundering offense under Section 4 thereof.
There is also no need for the AMLC to obtain a court order before it could inquire into such accounts. Further, a bank inquiry order may not
be availed of ex parte.

Discussion:
 2 issues of the AMLA (1) The interpretation of the phrase “in cases of violation of this Act” (2) Can the AMLC file ex-parte
 The contention of the persons being investigated is that the phrase “in cases of violation of this Act” means that before the AMLC can
look into the deposit accounts, there has to be first an actual case filed for violation of the AMLA. They took the term literally.
 The SC said the contention is wrong since what it simply means is ‘in the event of’ or in the event there are violations of the AMLA and it
is NOT required for there to be actual cases pending for violation of the AMLA. So you don’t need to file a case to look into the bank
deposits.
 On the second issue of ex-parte, meaning on application of one party and the other party will not be allowed to contest. In this case the
SC said that you compare Section 10 and Section 11. Section 10 expressly provides that it is an ex-parte application for a freeze order. But
the phrase is NOT repeated on Section 11 and so obviously, the intention of Congress is for it to be NOT ex-parte. So it’s not allowed. You
cannot do it ex-parte.
 Upon learning of the decision in the case of Eugenio, Congress amended Section 11.

Section 2.Section 11 of the same Act is hereby amended to read as follows:

"SEC. 11.Authority to Inquire into Bank Deposits.– Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No.
6426, as amended; Republic Act No. 8791; and other laws, the AMLC may inquire into or examine any particular deposit or investment,
including related accounts, with any banking institution or non-bank financial institution upon order of any competent court based on an ex
parte application in cases of violations of this Act, when it has been established that there is probable cause that the deposits or investments,
including related accounts involved, are related to an unlawful activity as defined in Section 3(i) hereof or a money laundering offense under
Section 4 hereof; except that no court order shall be required in cases involving activities defined in Section 3(i)(1), (2), and (12) hereof, and
felonies or offenses of a nature similar to those mentioned in Section 3(i)(1), (2), and (12), which are Punishable under the penal laws of other
countries, and terrorism and conspiracy to commit terrorism as defined and penalized under Republic Act No. 9372."
"The Court of Appeals shall act on the application to inquire into or examine any deposit or investment with any banking institution or non-
bank financial institution within twenty-four (24) hours from filing of the application."
 In the new section 11 (Sec.2 of R.A. 10167 amending Sec. 11 of R.A. 9160), it says ex-parte application. Now it is allowed. Congress is
now saying to the Supreme Court that the SC’sinterpretation is wrong. The intention is for there to be an ex-parte application.
 You apply to the Court of Appeals.
 Just take note that Section 9 and Section 11 are exceptions to the Secrecy of Bank Deposits covering Philippine and foreign currency
deposits.

D. RA9372 Human Securities Act

SEC. 27.Judicial Authorization Required to Examine Bank Deposits, Accounts, and Records. - The provisions of Republic Act No. 1405 as
amended, to the contrary notwithstanding, the justices of the Court of Appeals designated as a special court to handle anti-terrorism cases
after satisfying themselves of the existence of probable cause in a hearing called for that purpose that: (1) a person charged with or suspected
of the crime of terrorism or, conspiracy to commit terrorism, (2) of a judicially declared and outlawed terrorist organization, association, or
group of persons; and (3) of a member of such judicially declared and outlawed organization, association, or group of persons, may authorize
in writing any police or law enforcement officer and the members of his/her team duly authorized in writing by the anti-terrorism council to: (a)
examine, or cause the examination of, the deposits, placements, trust accounts, assets and records in a bank or financial institution; and (b)
gather or cause the gathering of any relevant information about such deposits, placements, trust accounts, assets, and records from a bank or

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financial institution. The bank or financial institution concerned, shall not refuse to allow such examination or to provide the desired
information, when so, ordered by and served with the written order of the Court of Appeals.
 But the exception in this law is for Philippine Deposits ONLY- because it only mentions R.A. 1405 and no mention of R.A. 6426.
 If it’s a foreign currency deposit, you cannot use the Human Security Act to look into the deposit.
 Again, the requirement is upon court order-Court of Appeals.

E. R.A. 10168 ANTI-TERRORISM

Section 10.Authority to Investigate Financing of Terrorism. …For purposes of this section and notwithstanding the provisions of Republic Act
No. 1405, otherwise known as the "Law on Secrecy of Bank Deposits", as amended; Republic Act No. 6426, otherwise known as the "Foreign
Currency Deposit Act of the Philippines", as amended; Republic Act No. 8791, otherwise known as "The General Banking Law of 2000” and
other laws, the AMLC is hereby authorized to inquire into or examine deposits and investments with any banking institution or non-bank
financial institution and their subsidiaries and affiliates without a court order.
 The 3rd paragraph states that both Philippine and Foreign currency deposits may be looked into.
 And the last statement states “without court order”, so there’s no need for a court order because this involves national security.
NIRC
SEC. 6.Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement.
(F) Authority of the Commissioner to inquire into Bank Deposit Accounts. - Notwithstanding any contrary provision of Republic Act No. 1405 and
other general or special laws, theCommissioner is hereby authorized to inquire into the bank deposits of:
 
(1) a decedent to determine his gross estate; and
(2) any taxpayer who has filed an application for compromise of his tax liability underSec. 204 (A) (2) of this Code by reason of financial
incapacity to pay his tax liability.
 
In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a
clear inability to pay the tax assessed, his application shall not be considered unless and until he waives in writing his privilege under Republic
Act No. 1405 or under other general or special laws, and such waiver shall constitute the authority of the Commissioner to inquire into the
bank deposits of the taxpayer.
 Under the old provisions of Section 6 of the NIRC the BIR Commissioner can look into bank accounts of the decedent to determine
the gross estate. So when you settle an estate of the decedent, you can go to the bank and ask for certification of the bank accounts
because the BIR will look into that, that is exempt because it is NOT covered under the secrecy law and R. A. 6426.
 Again BOTH foreign and Philippine currency.
 Also, when you file compromise with the BIR, but in this case you are required to waive the secrecy of bank deposits. So you have to
do it voluntarily- forced voluntary.

F. R. A. 10021 EXCHANGE OF INFORMATION ON TAX MATTERS LAW

 Recently, this R. A. 10021 amended Section 6 above, and added number (3) it states that (3) A specific taxpayer or taxpayers subject
of a request for the supply of tax information from a foreign tax authority pursuant to an international convention or agreement on
tax matters to which the Philippines is a signatory or a party of: Provided, That the information obtained from the banks and other
financial institutions may be used by the Bureau of Internal Revenue for tax assessment, verification, audit and enforcement
purposes.
 So when a foreign tax authority inquires with respect to deposit accounts or information of a certain depositor, BIR commissioner
can look into the account of that depositor without violation of R.A. 1405 and 6426.

G. PDIC CHARTER R.A. 9576

 Unsound or unsafe Banking practice also an exception
 BOTH R.A 1405 & R. A. 6426
As you will notice, the exceptions under R.A. 1405 & R. A. 6426 have been expanded. Aside from the original 4 exceptions under R. A. 1405, and
the original 1 exception in R. A. 6426, you will now have several under different laws.
Key points:
 Deposits are only contracts of simple loan, NOT a trust
 Failure to pay the bank is NOT a criminal obligation but a CIVIL obligation
 But deposits are considered as absolutely confidential, they cannot be looked into except in cases provided by law
 Even if there are several exceptions, the general rule is still to uphold the secrecy of bank deposits, hence exceptions are
strictly construed against the applicants.

1. LOAN FUNCTION

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GENERAL GUIDELINES
SECTION 39. Grant and Purpose of Loans and Other Credit Accommodations — A bank shall grant loans and other credit accommodations
only in amounts and for the periods of time essential for the effective completion of the operations to be financed. Such grant of loans and
other credit accommodations shall be consistent with safe and sound banking practices.
The purpose of all loans and other credit accommodations shall be stated in the application and in the contract between the bank and the
borrower. If the bank finds that the proceeds of the loan or other credit accommodation have been employed, without its approval, for
purposes other than those agreed upon with the bank, it shall have the right to terminate the loan or other credit accommodation and
demand immediate repayment of the obligation.

1. The amount and period of the loan have to be such that they will be for the effective completion of the operations to be financed
 The purpose of the loan will have to be disclosed by the borrower to the bank in the application and has to be incorporated in the
loan document
 The purpose needs to be expressly stated. The reason is that the amount and the period of the loan are determined by the purpose
of the loan. The amount and period have to be such that will make effective the completion of the operations to be financed. This
means they have to be such amount and period that the purpose can be completed
 Thus, it is important to disclose the purpose for the bank to know if the amount given is enough, or that it can know the period for
the payment of the loan. The purpose will determine how much can be granted and for how long the term of payment will be
 If the proceeds of the loan are used differently, the bank has the right to terminate the loan agreement and immediately demand
payment

2. The grant of loans shall be consistent with safe and sound banking practices
 For the bank, the board of directors (BOD) establishes and provides the specific rules to enforce these safe and sound banking
practices so that the officers will not just grant loans to anyone. They have to establish specific guidelines pursuant to the general
guidelines under the law
 The BOD then will specify who can avail such loans, how much, what are the collateral required, the term of the loan, the
documentary requirements; or the specifics, such that in granting loans, the bank will have to comply with its own internal
procedure. If it does not comply with its own procedure, then that is not compliant with safe and sound banking practices

3. The bank must ensure that the would-be borrower would be able to pay the loan in the time stipulated
 This is dictated by the fiduciary nature of banking. Remember that the funds used by the banks to grant loans are not its own money
but also borrowed from its depositors. So the bank has this obligation of making sure that the persons to whom they lent money can
also repay them. If such persons cannot repay, the bank cannot also repay the depositors
 If the basis of the grant of the loan is a fraudulent financial statement or untrue ITRs, the bank has the right to terminate the loan

LIMITATIONS ON THE GRANT OF LOANS: 1. SINGE BORROWER LIMIT (SBL)

 Example. You place all your money in one business. If that fails, all your money will be gone. If you put it in 2 separate businesses, you
have the risk of losing 50% of your money only. You are basically spreading the risk exposure of your investment.
 There is also this mechanism in the GBL in section 35 known asTHE SINGLE BORROWER LIMIT (SBL)

SECTION 35. Limit on Loans, Credit Accommodations and Guarantees—

35.1. Except as the Monetary Board may otherwise prescribe for reasons of national interest, the total amount of loans, credit
accommodations and guarantees as may be defined by the Monetary Board that may be extended by a bank to any person,
partnership, association, corporation or other entity shall at no time exceed twenty percent (20%)(now 25%) of the net worth of
such bank. The basis for determining compliance with single-borrower limit is the total credit commitment of the bank to the
borrower. xxxx

 SBL says that the bank cannot grant loans to a single individual or corporation more than 20% of the net worth of the bank. However, the
MORB has already increased this to 25% of the total net worth of the bank.

 SUBJECT TO THE SBL:

1. Loans
Those amounts granted to the borrowers which are covered under the bank’s loan portfolio. This will be accounted for as
loans from the bank

2. Credit accommodations
These are different from a loan. It’s buying a negotiable instrument which will probably be booked as an investment. The
bank gave you money, and later on you will have the obligation of paying the bank if the borrower or maker defaulted. You, probably
as guarantor of that note, will be liable to the bank. However, there is no loan by the bank to you.
So these are transactions not booked as loans but technically, there is still money given by the bank and there is an
expectation of liability on the part of the person being given the money. Example is when the bank buys receivables. Another is X
Corporation issuing bonds, and the bank buys the bonds. The bank gave X Corp money, and X Corp will repay the bank upon maturity

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of the bond. This is not a loan, but this will be booked as investment by the bank. But, this is akin to a loan because there is giving of
money and there is expectation of return of money. This is a commitment on the part of the bank to give certain credit to a person
but these credits are not booked as loans but rather as investments.

3. Guarantee
This is not just an irrevocable assurance on the part of the bank to pay money in case of non-payment. This is more general
in as much as it is an irrevocable assurance on the part of the bank to pay money in case another person defaults on a contract
Example I am a contractor. I have been engaged to build a power plant. This will take billions of pesos. Me as contractor to
be assured of payment, I will require the owner of the power plant to better get a bond in the form of a stand-by letter of credit with
the bank. That bond will say that if he cannot pay me the obligation under the contract, I can go after the bank
Another situation then is I am now the owner of the power plant. I want to be assured that you will really construct the
power plant according to our contract. How do I make sure you will comply? I will also ask for a bond, and this can be in the form of
stand-by letter of credit with the bank. So if you breach the contract, I can go after the bank and ask for payment of damages.

 BASIS FOR DETERMINING THE SBL:

Situation: The bank bought bonds from X Corp worth 100M. Then it guarantees the obligation of X Corp to construct the powerplant
worth 500M. The SBL is 20% (but she said previously that it has been amended to 25%..) of the net worth of the bank, so let’s say that is
600M. At this point, X Corp wants to apply for another loan worth 100M. Can the loan be granted?
Take note the bank did not pay anything. There is just a guarantee, and the bank will not pay unless there is breach of contract. In
this case, the obligation is not yet mature because this is a long-term bond. Until the bond matures, there is really no obligation on your
part to repay. Technically, you don’t owe the bank anything yet.
The law says that the basis for determining compliance is the total credit commitment of the bank to the borrower.
Thus, in this situation, the bank cannot grant the loan anymore even if technically the bank has not lent you any money yet. This is
because you don’t base it on actual loan given but base it on what has been committed by the bank. If the loan is still granted, it will now
exceed the 600M limit.

 LIABILITIES TO DETERMINE THE SBL:

35.3. The above prescribed ceilings shall include: (a) the direct liability of the maker or acceptor ofpaper discounted with or sold to
such bank and the liability of a general indorser, drawer or guarantor who obtains a loan or other credit accommodation from or
discounts paper with or sells papers to such bank; (b) in the case of an individual who owns or controls a majority interest in a
corporation, partnership, association or any other entity, the liabilities of said entities to such bank; (c) in the case of a corporation,
all liabilities to such bank of all subsidiaries in which such corporation owns or controls a majority interest; and (d) in the case of a
partnership, association or other entity, the liabilities of the members thereof to such bank.

 (b) in the case of an individual who owns or controls a majority interest in a corporation, partnership, association or any other entity, the
liabilities of said entities to such bank
Example: A is a natural person who owns 100% of the shares of X Corp. Can he still avail personally of the 100M loan? NO. This is
because he bank will aggregate all their liabilities
 (c) in the case of a corporation, all liabilities to such bank of all subsidiaries in which such corporation owns or controls a majority interest
Example: Parent corporations and their subsidiaries. If theyall owe money to the bank, the bank will aggregate all their liabilities

35.4. Even if a parent corporation, partnership, association, entity or an individual who owns orcontrols a majority interest in such
entities has no liability to the bank, the Monetary Board may prescribe the combination of the liabilities of subsidiary corporations
or members of the partnership, association, entity or such individual under certain circumstances, including but not limited to any
of the following situations: (a) the parent corporation, partnership, association, entity or individual guarantees the repayment of
the liabilities; (b) the liabilities were incurred for the accommodation of the parent corporation or another subsidiary or of the
partnership or association or entity or such individual; or (c) the subsidiaries though separate entities operate merely as
departments or divisions of a single entity.
 This enumerates basically the same persons. The difference with this and 35.3 is that the latter applies when the corporation itself
and the individuals are the borrowers of the bank. Their liabilities will be aggregated. In 35.4, the parent or individual is not the
borrower of the bank. Ordinarily if the parent or individual owning majority of the shares of a corporate borrower are not debtors
personally of the bank, their liabilities will not be aggregated except for the circumstances in 35.4. Under the exceptions, even if the
parent corporation or individual stockholder does not owe the bank any money, the bank will still aggregate in these 3 situations.

 INCREASE IN THE TOTAL AMOUNT OF LOANS, CA and GUARANTEES:

35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans, credit accommodations and guarantees
prescribed in the preceding paragraph may be increased by an additional ten percent (10%) of the net worth of such bank provided
the additional liabilities of any borrower are adequately secured by trust receipts, shipping documents, warehouse receipts or other
similar documents transferring or securing title covering readily marketable, non-perishable goods which must be fully covered by
insurance.
 Take note that 35.2 provides that the SBL can be increased by additional 10% of the net worth but only if there are securities which
are the negotiable documents of title covering readily marketable non-perishable goods covered by insurance
 Readily marketable means there is already somebody waiting to buy it

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 Non-perishable means it will not perish lol. If something perishes, it deteriorates and rots. So this means not agricultural.
 Examples: Gold, silver, similar metals. These are commodities traded in a ready market. If you have negotiable documents of title,
you can avail of an increase. The total will now be 35% but the additional 10% must be secured with negotiable documents of title

 EXCLUDED FROM DETERMINATION:

This then means that if the loan falls under 35.5, you can have as much loan as you want. No limit.

35.5. For purposes of this Section, loans, other credit accommodations and guarantees shall
exclude:
(a) loans and other credit accommodations secured by obligations of the BangkoSentral or of the Philippine
Government;
(b) loans and other credit accommodations fully guaranteed by the government as to the payment of principal and
interest;
(c) loans and other credit accommodations covered by assignment of deposits maintained in the lending bank and held
in the Philippines;
(d) loans, credit accommodations and acceptances under letters of credit to the extent covered by margin deposits; and
 (a) loans(e)
and other
other credit
loans or accommodations securedwhich
credit accommodations by obligations of theBoard
the Monetary BangkoSentral
may fromortime
of the
to Philippine Government;
time, specify as non-risk items.
These are non-risk securities. This is because the only time the government will not be fulfilling its obligation to pay its securities
is when there is total anarchy and in which case the SBL does not really matter. Under normal circumstances, the government
will pay. So if your loan is secured by BSP notes or treasury bills, this will not be part of your SBL and you can borrow whatever
amount you want. The government wasn’t you to invest more in government securities
 (b) loans and other credit accommodations fully guaranteed by the government as to the payment of principal and interest
This will normally happen in BOT transactions (Build Operate Transfer) or in PPP transactions (Public Private Partnership). This is
when the government will contract with a private person to build an infrastructure for public purpose like skyways, NLEX, SLEX
or the 3rdMactan Bridge they’re contemplating. This will take a lot of capital so the government will have the guarantee payment
of this.
 (c) loans and other credit accommodations covered by assignment of deposits maintained in the lending bank and held in the Philippines
Example. The bank will lend you 100M but it will also require you to deposit 100M in the bank. Why is this exempt? Because the
bank has the right to offset. This is fully secured. It can offset at any time.
 (d) loans, credit accommodations and acceptances under letters of credit to the extent covered by margin deposits
Margin deposits are pursuant to some undertaking by a bank. Going back to the example, the contractor will tell the owner that
he does not trust the owner. He says, hey I don’t trust you better get a letter of credit to make sure I’m covered in case you
don’t pay. So the owner goes to the bank which also says, I don’t trust you. I will issue this 2B worth letter of credit but you have
to put in deposits here so that when the letter is called for, there is a deposit we can use to pay.
This is the margin deposit, this is like a guarantee for a guarantee to be given by the bank. The letter of credit is the guarantee to
the contractor from the bank. And the bank will also require you to maintain a margin deposit. So this is not subject to any risk
because of the margin deposit.

2 LOANS AND OTHER CREDIT ACCOMODATIONS AGAINST REAL ESTATE

SECTION 37. Loans and Other Credit Accommodations Against Real Estate. — Except as the Monetary Board may otherwise prescribe,
loans and other credit accommodations against real estate shall not exceed seventy-five percent (75%) of the appraised value of the
respective real estate security, plus sixty percent (60%) of the appraised value of the insured improvements, and such loans may be
made to the owner of the real estate or to his assignees.
 If improvements are not insured, they have no loan value
 Appraised value: the fair market value of the property made by the bank. The bank cannot just rely on the appraisal of the borrower.

CASE: CENTRAL BANK VS CA

Facts:
Island Savings Bank approved the loan application of Tolentino, who, as security for the loan, executed a real estate mortgage over
his 100-hectare property. Island Savings later allegedly discovered that there was overvaluation of the loan collateral.
Ruling:
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying with its
reciprocal obligation to furnish the entire P80,000.00 loan. This Court previously ruled that bank officials and employees are expected to
exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation
of the bank's officials and employees that before they approve the loan application of their customers, they must investigate the existence
and valuation of the properties being offered as a loan security. The recent rush of events where collaterals for bank loans turn out to be non-
existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by bank officials and employees on their
customer's representation regarding the loan collateral being offered as loan security is a patent non-performance of this responsibility. If
ever, bank officials and employees totally rely on the representation of their customers as to the valuation of the loan collateral, the bank shall
bear the risk in case the collateral turn out to be over-valued. The representation made by the customer is immaterial to the bank's
responsibility to conduct its own investigation.

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Discussion:
 The bank is not bound by whatever appraisal given by the borrower. The bank has the obligation to conduct its independent appraisal.

JUNIOR ENCUMBRANCE
 Can a JUNIORENCUMBRANCEbe constituted over real property?
Yes. A senior encumbrance is the first obligation whereas a junior encumbrance is the subsequent obligation. For REAL ESTATE
mortgage the bank is allowed to be a junior mortgagee. Provided that the sum total of the loan covered by the senior mortgage
and loan to be granted does not exceed the loan able amount which is the 75% ceiling. So senior loan and junior loan taken together
must NOT EXCEED the loanable value of the property.

X311.1 Loans secured by junior mortgage on real estate.Banks may also grant loans on the security of junior mortgages on real estate:
Provided, That for such loans to be considered as adequately secured under Sections 37 and 38 of R.A. No. 8791, the sum total of the loans
tobe granted and the outstanding balance of the loan granted on the senior mortgage shall not, at any time, exceed the loan value of subject
real estate security based on the appraisal of the real estate by the junior mortgagee.
A certified latest statement of account showing the outstanding balance of the loan including interest and arrearages, from the senior
mortgagee shall be presented to the bank.
In case several loans are granted on the security of the same property, the total amount of the loans shall not, at any time, exceed the total
loan value of the said property.

 Can a real property secure FUTURE OBLIGATIONS?

Yes. This is termed as the DRAGNET CLAUSE/ BLANKET MORTGAGE CLAUSE.

CASE: REPUBLIC PLANTERS BANK “MAYBANK” VS SARMIENTO

Facts:
Respondents spouses Vivencio and Jesusa Sarmiento with son Jose and spouse Elizabeth executed (1.) promissory note obligating
themselves to pay the amount of P80,000 secured by real estate mortgage. Such mortgage secured the payment of the principal loan and
all other obligations, overdrafts and other credit accommodations obtained and those that may be obtained in the future from Maybank.
Such was amended changing the consideration from P80,000 to P100,000. Vivencio as sole proprietor in his business also incurred (2) loan
obligations for his export advances amounting to P1, 281,748. Thereafter, a (3) suretyship agreement was executed for the payment of
P100,000plus all obligations which the latter incurred and would incur from Maybank. They defaulted payment for such and as a result
Maybank executed an extrajudicial foreclosure. Action for specific performance was filed to redeem the property and tendered to Maybank
the redemption price of P312,000.
Ruling:
The deposits amounting to P312,000 did not constitute a valid tender of the redemption price. The real estate mortgage provides for
a blanket mortgage clause also knows as the dragnet clause, one that is specifically phrased to subsume all debts of past and future origins.
It operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute
additional security documents. In accordance with Section 78 of General Banking Act, redemption may only be made by paying the amount
due under the mortgage deed within one year from the sale of the property. Since respondents failed to satisfy the full amount of the
indebtedness to Maybank, the bank was justified in refusing to grant the demand for redemption.

Discussion:
 There were 3 obligations: (1.) promissory note obligating themselves to pay the amount of P80,000 secured by REM, (2) loan
obligations for his export advances amounting to P1, 281,748, and a (3) suretyship agreement was executed for the payment of
P100,000 plus all obligations which the latter incurred and would incur from Maybank
 There was a redemption offer of P312,000
 The issue in this case whether or not the deposits made by the obligors constituted a valid tender of the redemption price
 In order to know WON this is a valid redemption price, there’s a need to know how much is the total obligation first.
 Because there was a dragnet clause in the real estate mortgage, so the SC said that ALL the obligations of the debtor-mortgagors
are covered by the real estate mortgage which includes the security agreement and the export advances.
 In the part of the export advances the SC said that your business is a sole proprietorship,if it is such then it means that there is no
separate and distinct personality unlike a corporation which has a separate and distinct personality from its stockholders, directors
and its officers. So the debt and obligation of the business is the obligation of the proprietor.
 In this case, since this is a sole proprietorship then the obligation of the company is the obligation of the proprietor. And the
proprietor is covered by the dragnet clause. So the obligation was more than 1million pesos therefore, the payment is not sufficient
to effect a valid redemption.
 The reason why people would enter in this dragnet clause is that it operates as a convenience and accommodation to the borrowers
as it makes available additional funds without their having to execute additional security documents thereby saving time, travel, loan

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closing costs, cost of extra legal services, recording fees, etc. This being the case, a dragnet clause benefits the borrower and as
such, it is a valid stipulation. Being a valid stipulation, it can be upheld and in this case, it was.
 But this dragnet clause is actually strictly construed by the courts because in the first place, the loan documents are prepared by the
bank, so this is a contract of adhesionwhich you cannot really negotiate to the bank regarding the terms of the loan.

CASE: PRUDENTIAL BANK VS ALVIAR

Facts:
The spouses Don & Georgia Alviar are the registererd owners of a land. This case involves 3 promissory notes secured by different
securities namely (1) P250, 000 REM with a blanket mortgage clause, (2) P2,640,000secured by a hold out foreign currency deposit and (3)
P544, 000 secured by Clean Phase out or temporary overdraft to be converted into an ordinary loan. Subsequently, these weresecured by
chattel mortgage and a deed of assignment of certain promissory notes. For failure to pay, Prudential Bank foreclosed the property covered
by the P250, 000. Prudential Bank contended that the dragnet clause expressly covers not only the P250,000 but also the two other
promissory notes, that regarding the second promissory note there is no law which prohibits an obligation form being covered by more than
one security and that since the third promissory note was obtained by the corporation, the corporate veil should be pierced because such
was used for personal purposes or household construction. The SpsAlviar contended on the other hand that dragnet clause cannot be
applied to subsequent loans since these are covered by separate promissory notes and provide for a different form of security.
Ruling:
It was improper for the petitioner to seek foreclosure of the mortgage property because of nonpayment of these promissory notes.
While the existence of a dragnet clause cannot be denied, there is a need to respect the existence of other security given. The foreclosure of
the property should only be for the P250, 000 and for any amount not covered by the security for the second promissory note.

Discussion:
 The Supreme court made a test to determine whether or not subsequent loans are covered by the dragnet clause.
 There were 3 issues raised in this case (1) the validity of the dragnet clause, (2) coverage of the dragnet clause & (3) propriety of
seeking foreclosure of the mortgaged property for the nonpayment of the three loans.
 For our purposes, the issue relevant is the coverage of the dragnet clause. In connection with this, our real question or our 1 st issue is
1.) whether or not the dragnet clause can cover obligations secured or incurred by third persons or persons other than the debtor
which was first covered by the initial REM, 2.)whether or not the dragnet clause can cover obligations secured by other collaterals.
 For our 1st issue- The difference between that Sarmiento case is that what was involved there is Sole proprietorship which would
entail that there was no separate and distinct personality, while in this Alviar case, this involves a corporation and the rule is that it
has a separate and distinct personality from its directors or officers. So the loan of the corporation is NOT the personal loan of their
stockholders, while the loan of the sole proprietor business is a loan of the sole proprietor himself. In that Sarmiento case, SC said
yes you can add the loan. In this Alviar case, no you cannot because debtor here is the corporation and not the mortgagor in the
REM.
 For our second issue- The SC described the dragnet clause as a continuing offer by the mortgagor to the bank, that if I have
subsequent loans or I borrow some more money, here is this property, continue to use this as the security for my other loans. So it is
an offer by the mortgagor.A sign that the bank did NOT accept such offer is when the bank requires additional security on top of
the REM, thereby rejecting the offer of a continuing security. It rejects the offer because it did not want to rely onsuch security and
instead wanted a new security.The test espoused is the “RELIANCE ON THE SECURITY TEST”, whether the second loan was made in
reliance on the original security. Because the bank did not rely on the 1 st security, the extent of the loan covered by another security
cannot be touched or cannot be covered by the dragnet clause. The bank needs to exhaust first the security covering the second
loan before it can resort to the dragnet clause.
 For example, if the hold out agreement is P1.5 Million, the bank needs to get or exhaust the hold out agreement first. You have to
compensate or offset the deposit of P1.5 Million, the balance of P500,000 that is now the time you will have to get it through
theforeclosure mortgage. In other words, you cannot foreclose if you do not exhaust the 2 nd security first.
 In the 2011 bar, the question of what a dragnet clause is was asked. The thing with Commercial law bar, the examiners are fond of
having the examinees define terms. You have to be vigilant on these terms- dragnet clause/ blanket mortgage clause and reliance on
security test.
 Take note that the Blanket Mortgage clause is subject to the rule on junior encumbrances. The total loan that can be covered by the
property should never exceed 75% of the appraised value of the property. This is subject to the loan able amount limit.

2. SECURED BY CHATTELS AND INTANGIBLE PROPERTIES

X312 Loans and Other Credit Accommodations Secured By Chattels and Intangible Properties. Loans and other credit accommodations on
the security of chattels and intangible properties, such as, but not limited to, patents, trademarks, trade names, and copyrights shall not
exceed seventy-five percent (75%) of the appraised value of the security, and such loans and other credit accommodations may be made to
the title-holder of the unencumberedchattels and intangible properties or his assignees: Provided, That in the case of intangible properties,
appraisal thereof shall be conducted by an independent appraiser acceptable to the BSP.
 Junior encumbrances are NOTallowed. The GBL does not provide for it but the MORB provides that the chattel must be
unencumbered and in effect, it is saying that junior encumbrances are not allowed because as soon as a chattel is encumbered,
it has no more loan able value.

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 A dragnet clause is NOT allowed because the lawon chattel mortgage requires that in the affidavit of good faith, you describe in
specific details the loan that will be covered by the chattel mortgage. So how can you describe a loan that does not exist yet?
The law on chattel mortgage even says that you have to incorporate the promissory note or details of the loan to the contract
itself and describe it in the affidavit of good faith. So the loan if it does not exist yet because it is a future loan, you cannot
include it in the affidavit of good faith. For REM, there is no prohibition but for chattel mortgage, the chattel mortgage law does
NOT allow it by the affidavit of good faith.

AMORTIZATION
SECTION 44.Amortization on Loans and Other Credit Accommodations.— The amortization schedule of bank loans and other credit
accommodations shall be adapted to the nature of the operations to be financed.
In case of loans and other credit accommodations with maturities of more than five (5) years, provisions must be made for periodic
amortization payments, but such payments must be made at least annually: Provided, however, That when the borrowed funds are to be
used for purposes which do not initially produce revenues adequate for regular amortization payments therefrom, the bank may permit the
initial amortization payment to be deferred until such time as said revenues are sufficient for such purpose, but in no case shall the initial
amortization date be later than five (5) years from the date on which the loan or other credit accommodation is granted.
In case of loans and other credit accommodations to microfinance sectors, the schedule of loan amortization shall take into consideration
the projected cash flow of the borrower and adopt this into the terms and conditions formulated by banks.
 With regards to amortization, the loans shall be paid based on the amortization schedule of the bank. And the amortization schedule
will be based on the purpose. We shall remember that Section 39 states that the amount and the term of the loan will depend on the
operations to be financed or the purpose of the loan. So similarly, Section 24 says that the amortization schedule, meaning the
payment schedule will have to be based on the operations to be financed.
 If the term of the loan is more than 5 years, you have to pay at least once a year or at least annually. So if it’s a long term loan -10
years, 30 years, you are required to pay the loan at least once a year. Can it be more than once a year? Every quarter? Yes. Every 2
years? No.
 If the loan is for the purpose or is such that it will not generate income right away, the bank is allowed to impose a moratorium on
the payment for the first 5 years. So it’s an exemption to the rule that it shall be paid once a year. But not more than 5 years which
means that on the 6th year, you should start your annual payment.

PREPAYMENT
SECTION 45.Prepayment of Loans and Other Credit Accommodations.— A borrower may at any time prior to the agreed maturity date
prepay, in whole or in part, the unpaid balance of any bank loan and other credit accommodation, subject to such reasonable terms and
conditions as may be agreed upon between the bank and its borrower.
 Prepayment is allowed. In your obligations and contracts, and under the civil code, if the obligation is one with the period, the period
is for the benefit of the borrower and the creditor such that the creditor cannot require the borrower to pay ahead of time and the
debtor cannot require the creditor to accept payment ahead of time especially if the loan is subject to interest. Because if the term is
ten years, you repay on the 6th year, that will make the creditor lose the interest for the remaining 4 years. So lugi. Now, there’s an
exception under the general banking law since the law expressly provides that the debtor is allowed to prepay the loan. So it is now
the lookout of the bank to ensure that the contract provides that if the borrower prepays, you will still pay interest for the remaining
period or even just a discounted interest. Because now, the debtor can force the bank to accept payment. You don’t apply the Civil
Code, you apply the GBL.
 A bank CAN grant a loan with NO COLLATERAL subject to such regulations that the Monetary Board may provide.

FORECLOSURE OF REAL ESTATE MORTGAGE

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

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1) Extrajudicial – provided for in the contract, contract expressly provides. You file your petition with the clerk of court of the
executive judge. The clerk will publish, then public auction. No need for hearing.
 Real Estate Mortgage Law
 Right of Redemption 1 year from the time of foreclosure
2) Judicial – file a complaint in court- this is an actual civil case. Court will conduct a hearing, and then judge will issue his
decision. The decision will be to foreclose, then there will be the public auction.
 Apply Rules of Court – Rule 68
 Period of equity of redemption- 90 days
 In GENERAL BANKING LAW
 Section 47 of GBL Only at the time of the registration of the certificate of sale but NOT more than 3 months whichever is
earlier

CASE: ASIA TRUST DEVELOPMENT BANK VS TUBLE

Facts:
CarmeloTuble who served as the Vice President of Asia Trust acquired a Nissan Vanette through availing himself of the car incentive
plan and loan privileges offered by the bank. He obtained 3 separate loans namely (1) real estate loan, (2) consumption loan and (3) salaray
loan. Tuble resigned. Because of his obligation to the bank, and the bank’s obligation to Tuble, he claimed an offsetting of the loan.
Subsequently, bank finally allowed offsetting resulting to a reduction of Tuble’s liabilities amounting to P970,000 plus unreturned value of the
vehicle. Bank filed a complaint for Replevin to recover the car which was granted. Tuble redeemed such but questioned the foreclosure basis
and how such amount ballooned which made him file a complaint for recovery of sum of money and damages. RTC ruled in favor of Tuble. CA
affirmed.Bank argues that GBL should be applied to compute the redemption price and not the Rules of Court, and used the 18% interest rate.
Ruling:
Bank is correct. When the mortgagee is a bank, the amount to be paid in redeeming the property is determined by the General
Banking Act. On the issue of the interest, the applicable law is still the General Banking law. Despite the fact that the real estate mortgage
contract has been extinguished, Tuble had the right to redeem the security by paying the redemption price. The right of redemption of
foreclosed properties was a statutory privilege he enjoyed. The terms of this right based on Section 47 of the GBL are as follows:
1.)The redemptioner shall have the right within 1 year after the sale of the real estate, to redeem the property.
2.)The redemptioner shall pay the amount due under the mortgage deed, with interest thereon at rate specified in the mortgage, and all the
costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom.
3.)In case redemptioners who are considered by law as juridical persons, they shall have the right to redeem not after the registration of
certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three months after foreclosure,
whichever is earlier.

Discussion:
 The bank used 18% interest from the consumption loan basing from the General Banking Law. However, Tuble insisted on Act 3135 as
amended in relation to Section 28 of Rule 39 of the Rules of Court which allows an interest of 1% per month if the foreclosed property
is redeemed. The SC decided that the applicable law is the General Banking Law because the creditor is the bank, do NOT use the real
estate mortgage law, nor the Rules of Court.
 However, Asia Trust was incorrect in applying the 18% interest because the GBL states that it should be the interest thereon that is
stipulated on the real estate mortgage. Since there was no interest agreed, there should be no interest imposed. Besides, when you
file the foreclosure, you are only claiming the real estate loan and you did not claim anything else so you cannot impose the
additional payments in the redemption price.
 If the creditor/mortgagee is a bank, use the General Banking law.

 When you come across a case, take a look at who creditor is. If the creditor is a bank, then apply Section 47. But the
question is, when will the period start running?
CASE: CIR vs UCPB
Facts:
UCPB granted loans to George C. Co, Go Tong Electrical Supply Co., Inc. and Tesco Realty Co. that caused to be secured by real estate
mortgages. They failed to pay causing UCPB to file a petition for extrajudicial foreclosure. The extrajudicial foreclosure specifically the public
auction happened on Dec 31, 2001. The executive judge approved it on March 1, 2002.UCPB paid creditable withholding tax and

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documentary stamp tax only on July 5, 2002.The BIR contented that it was late in paying the taxes, they should have paid from the date of
the foreclosure sale on Dec 31, 2001 and further said that it lapsed three months after specifically on March 31, 2002. UCPB protested that
period lapsed on June 1, 2002 or 3 months after the executive judge approved the issuance of the certificate of sale.
Ruling:
The executive judge approved the issuance of the certificate of sale to UCPB on March 1, 2002. Consequently, the 3-month
redemption period ended only on June 1, 2002 and only on this date did the deadline for the payment of CWT and DST on the extrajudicial
foreclosure sale become due.

Discussion:
 Take note here that the debtor/ mortgagoris a corporation or a juridical person.
 The rule in terms of payment of CWT & DST is that Creditable Expanded Withholding Tax should be paid within 10 days following the
end of the month in which the redemption period expires, while Documentary Stamp Tax be paid within 5 days from the end of the
month when the redemption period expires.
 The contention of the CIR is that the redemption period ends on March 31, 2002- so payment be made April 5/ April 10.
 The contention of UCPB is that the redemption period ends on June 1, 2002- so the payment be made July 5 / July 10.You don’t count it
starting June 1, you count it 5 days, 10 days after the end of the month of the transaction, so since the transaction occurred June 1, the
deadline would have been July 5 or 10.
 The transaction here means the date when the sale of the bank was completed. It was completed when the owners of the property
could no longer redeem it. So basically, you base the payment of the taxes from the time when the period of the redemption expires.
 The Supreme Court ruled that UCPB was correct. Count the redemption period NOT from the time of the auction sale but from the time
of the issuance of the certificate of sale.
 You pay the mortgage loan, plus interest stated and the cost & expenses of the sale less the income from the transaction. Take note
that the redemption price is also different. If it is done byjudicial foreclosure, the redemption price is based on the judgment debt- on
how much is the debt based on the order of the court.If it is done by extrajudicial foreclosure, the redemption price is based on the
purchase price during the auction sale with interest of 1% per month. But if the bank is the creditor, GBL law states that redemption
price ispaying the mortgage loan, interest stated and the cost & expenses of the sale.

CASE: GC DALTON INDUSTRIES, INC. VS EQUITABLE PCI BANK

Facts:
Equitable PCI Bank extended a credit line to Camden Industries Inc. (CII) allowing the latter to avail of several loans. Camden
executed a hold out agreement in favor of the bank. To guarantee payment, GC Dalton executed a 3 rd-party mortgage of its real property as
security for CII. CII did not pay its obligations. Consequently, bank filed a petition for extrajudicial foreclosure and a certificate of sale was
issued on August 3, 2004. On September 13, 2004, the bank filed the certificate of sale and consolidated its ownership. In view of the
foregoing, bank filed an ex parte motion for issuance of a writ of possession on June 10, 2005. Previously however, CII had filed an action for
specific performance and damages because it allegedly paid its obligation in full.
Ruling:
The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is summary and ministerial in nature as such
proceeding is merely an incident in the transfer of title. The trial court does not exercise discretion in the issuance thereof. For this reason, an
order for the issuance of the writ is not a judgment on the merits. Furthermore, the mortgagor loses all legal interest over the foreclosed
property after the expiration of the redemption period. Under Section 47, if the mortgagor is a juridical person, right to redeem is until but
not after the registration of the certificate, within 3 months after foreclosure whichever is earlier . The bank filed the certificate of sale and
affidavit of consolidation on Sept. 13, 2004 and this terminated the redemption period because consolidation of title becomes a right upon
expiration of the redemption period and thus, respondent became the owner of the foreclosed properties.

Discussion:

SECTION If you are not
53.Other able toServices.—
Banking redeem, the mortgagor
In addition will operations
to the lose all his interest to the
specifically property and the courts will issue its writ of possession
authorized
which
in this Act, becomes
a bank a ministerial
may perform duty.
the following services:
53.1. Receive in custody funds, documents and valuable objects;
53.2. Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all
types of securities;
53.3. Make collections and payments for the account of others and perform such other services for their customers as are not
incompatible with banking business;
53.4. Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment
management/advisory/consultancy accounts; and
53.5. Rent out safety deposit boxes.
OTHER BANKING FUNCTIONS
The bank shall perform the services permitted under Subsections 53.1, 53.2, 53.3 and 53.4 as depositary or as an agent. Accordingly, it
shall keep the funds, securities and other effects which it receives duly separate from the bank's own assets and liabilities.

The Monetary Board may regulate the operations authorized by this Section in order to ensure that such operations do not endanger the
interests of the depositors and other creditors of the bank. In case a bank or quasi-bank notifies the BangkoSentral or publicly
announces a bank holiday, or in any manner suspends the payment of its deposit liabilities continuously for more than thirty (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. 26
 A.T. | © 2014-2015

1. Receive in custody funds, documents and valuable objects

Example. Escrow contract
 A bank can be considered as an escrow agent. This is used in the purchase of shares of stocks. In Corpo Law, the transferee cannot
be considered as shareholder unless he is recorded as such in the transfer books. You also know under NIRC, the corporate secretary
has no authority to record in the books unless the buyer can present the certificate authorizing registration (CAR) from the BIR
proving that all taxes for the transfer of shares have been paid. From the time of the execution of the deed of assignment of shares
up to the time of recording of transfer, there might be a substantial amount of time, to secure the taxes and CAR. So there is a time
the transaction is already completed but you’re not yet a stockholder. To ensure that the seller will pay the taxes, what we normally
do is instead of giving the purchase price to the seller, we put it in escrow with the bank with a stipulation that the amount will only
be released upon presentation of the CAR.
 On the part of the buyer, you are assured that the seller will do his best to secure the CAR otherwise he cannot get the purchase
price. On the part of the seller, you are assured that the amount is just there. Once you get the CAR, you assured that you will get
paid.
 In this case, the bank acts as a CUSTODIAN OF THE FUNDS
 When you deposit money with the bank under an escrow agreement that is NOT A DEPOSIT TRANSACTION. The bank only acts as
custodian of the funds and will only release the funds upon compliance of certain conditions

2. Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all
types of securities

3. Make collections and payments for the account of others and perform such other services for their customers as are not
incompatible with banking business
Example. In Taxation Law, banks can be Authorized Agent Banks to receive payment of taxes
4. Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment
SECTION 36.Restriction on Bank Exposureaccounts
management/advisory/consultancy to Directors, Officers, Stockholders and Their Related Interests.— No director or officer of
any bank shall, directly or indirectly, for himself or as therepresentative or agent of others, borrow from such bank nor shall he become
a5.
guarantor,
Rent outindorser
safety orsurety for loans from such bank to others, or in any manner be an obligor or incur any contractual liabilityto the
deposit boxes
bank except with the written approval of the majority of all the directors of the bank, excluding thedirector concerned: Provided, That
such written approval shall not be required for loans, other creditaccommodations and advances granted to officers under a fringe
 Under plan
benefit the approved
Deposit transaction, although itThe
by the BangkoSentral. is arequired
simple contract of loan,
approval shall the fiduciary
be entered upon thenature of banking
records is deemed
of the bank written
and a copy into the
of such
contract. This is still governed by GBL Sec 2. What about sec 53? What is the nature of the obligation
entryshall be transmitted forthwith to the appropriate supervising and examining department of the BangkoSentral. of the bank here?
 Nos. 2, 3 & 4: Contract of Agency
A person
Dealings whowith
of a bank is the
anyprincipal authorizes
of its directors, another
officers person who is
or stockholders thetheir
and agent withininterests
related the authority given.
shall be upon terms not less favorable to
 bank
the Nos.than
1 & those
5: Contract of to
offered Deposit
others. After due notice to the board of directors of the bank, the office of any bank director or officer
who This is not
violates thethe same asof
provisions the deposit
this Sectionfunction. The bankvacant
may be declared acts asand
a DEPOSITARY.
the director orThis is the
officer deposit
shall contract
be subject as penal
to the defined under the
provisions of Civil
CodeCentral
the New whereBank
the bank
Act. will receive the funds or asset for the purpose of safekeeping and returning the same thing to the depositor
 CONSEQUENCES OF THE NATURE OF SEC 53: (as agency contract and deposit contract)
The
1. Monetary
They are Board mayby
governed regulate
the Civilthe amount
Code of loans,
and not by thecredit
GBL accommodations and guarantees that may be extended, directly or
indirectly, by a bank to its directors, officers, stockholders
2. The bank has the obligation to segregate the funds andreceived
their related interests,
under sec 53 as wellits
from as investments
own funds. of suchthere
Thus, bank in
is enterprises
no transfer of
ownedownership
or controlled by said directors, officers, stockholders and their related interests. However, the outstanding
unlike in a deposit transaction. Since there is no transfer of ownership, the bank cannot comingle the funds loans, credit
accommodations and guarantees which a bank may extend to each of its stockholders, directors, or officers and their related interests,
shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution
in the bank: Provided, however, That loans, credit accommodations and guarantees secured by assets considered as non-risk by the
Monetary Board shall be excluded from such limit: Provided,
LOANS BETWEENfurther,
BANKSThatAND
loans,ITScredit
DOSRI accommodations and advances to officers in the
form of fringe benefits granted in accordance with rules as may be prescribed by the Monetary Board shall not be subject to the
individual limit.

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

The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans, credit accommodations and
27
guarantees extended by a cooperative bank to its cooperative shareholders.
 A.T. | © 2014-2015

DOSRI
1. Directors
 These are those persons who have been elected by the stockholders and qualified by the Monetary Board under the fit and proper
rule

2. Officers
 The office must be found in the by-laws (the internal laws). If your office is not found there, you are not a corporate officer but only
an employee, even if the President appointed you

3. Stockholders
 Persons who have subscribed to the shares of the bank

4. Related Interests

e. Related interest shall refer to any of the following:

(1) Spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, of a director, officer or
stockholder of the bank;
xxx

VS. STOCKHOLDINGS OF A BANK

X126.1 (e). Stockholdings of family groups orrelated interests: Individuals related to each other within the fourth degree of
consanguinity or affinity, whether legitimate, illegitimate or common-law, shall be considered family groups or related interests
but may each own up to forty percent (40%) of the voting stock of a domestic bank: Provided, That said relationship must be fully
disclosed in all transactions by such corporations or related groups or persons with the bank.
 When we were discussing stockholdings of a bank on related interests, this is not the same with that. For DOSRI purposes, it stops at
the 1st degree of consanguinity
 Ex. Not related interests: your grandchildren, grandparents

Related interests (from 326.1 E MORB):

1. Spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, of a director, officer or
stockholder of the bank

2. Partnership of which a director, officer, or stockholder of a bank or his spouse or relative within the first degree of consanguinity or
affinity, or relative by legal adoption, is a general partner
 Partnerships where the DOSRI is a general partner. That partnership will also be a related interest to the DOS

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 A.T. | © 2014-2015
3. Co-owner with the director, officer, stockholder or his spouse or relative within the first degree of consanguinity or affinity, or
relative by legal adoption, of the property or interest or right mortgaged, pledged or assigned to secure the loans or other credit
accommodations, except when the mortgage, pledge or assignment covers only said co-owner’s undivided interest
 A is a stockholder of a bank. He is co-owner with B of a certain parcel of land. If this property co-owned by A and B is mortgaged
to secure an obligation with the Bank, B will become a related interest with the stockholder A
 EXCEPT if what is mortgaged is only the interest of A. B will only become a related interest if the property is mortgaged as a
whole
 The relationship is by co-ownership of the property. So when B applies for a loan in the bank and he uses the same property as
collateral, he will be subject to sec 36. But if B applies for a loan and uses another property, he will not be a related interest. The
relationship with only be with respect to the co-owned property

4. Corporation, association, or firm of which a director or officer of the bank, or his spouse is also a director or officer of such
corporation, association or firm, except (a) where the securities of such corporation, association or firm are listed and traded in the
big board or commercial and industrial board of domestic stock exchanges and less than fifty percent (50%) of the voting stock
thereof is owned by any one (1) person or by persons related to each other within the first degree of consanguinity or affinity; or (b)
where the director, officer or stockholder of the bank sits as a representative of the bank in the board of directors of such
corporation: Provided, That the bank representative shall not have any equity interest in the borrower corporation except for the
minimum shares required by law, rules and regulations, or by the by-laws of the corporation: Provided, further, That the borrowing
corporation is not among those mentioned in Items “e(5)”, “e(6)”, “e(7)” and “e(8)” of this Section

5. Corporation, association or firm of which any or a group of directors, officers, stockholders of the lending bank and/or their spouses
or relatives within the first degree of consanguinity or affinity, or relative by legal adoption, hold or own at least twenty percent
(20%) of the subscribed capital of such corporation, or of the equity of such association or firm

6. Corporation, association or firm wholly or majority-owned or controlled by any related entity or a group of related entities
mentioned in Items “e(2)”, “e(4)” and “e(5)” of this Section

7. Corporation, association or firm which owns or controls directly or indirectly whether singly or as part of a group of related interest
at least twenty percent (20%) of the subscribed capital of a substantial stockholder of the lending bank or which controls majority
interest of the bank pursuant to Subsec. X303.1

8. Corporation, association or firm which has an existing management contract or any similar arrangement with the parent of the
lending bank

SELF-DEALING TRANSACTIONS
SELF-DEALING TRANSACTIONS: Dealings between the bank and its directors, officers, stockholders and related interests
GR: Generally allowed provided you comply with the restrictions under Sec 36 which governs transactions between the bank and DOSRI
 Transaction entered into must be ARMS-LENGTH transaction
 It has to be made where parties negotiate on equal footing. One does not exert undue influence on the other
 We don’t want these DOSRI to influence the bank to giving them more favorable terms than those given to the general public. The
transaction has to be arms-length so the terms will not be less favorable to the bank than those given to the public
 “Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be upon terms not less
favorable to the bank than those offered to others.”
 Policy is DOSRI transactions are allowed when they comply with sec 36 and done in an arms-length manner

REQUIREMENTS UNDER SEC 36

1. Approval/Procedural requirement: The account should be upon written approval of the majority of ALL the directors of the lending bank
excluding the director concerned
 Example. There are 15 directors of the bank. In that meeting where they are to approve the loan, 8 are present. How many are
required to approve? Majority of all, not majority of the present. We need 8 votes here, but exclude the vote of the self-dealing
director
 Thus, if the 8 include the self-dealing director, there is no valid approval.
 The approval must be in writing

2. Reportorial requirement: The resolution approving the loan shall be entered in the records of the bank and a copy of the entry shall be
transmitted forthwith to the Supervising and Examination Sector of the BSP
 Transmit a copy the resolution, not the contract, approving the transaction
3. Ceilings (under the MORB)
A. Aggregate Ceiling
15% of the total loan portfolio of the bank or 100% of the combined capital accounts whichever is lower

B. Individual Ceiling

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 A.T. | © 2014-2015
Amount equivalent to the DOSRI’s respective unencumbered deposits and book value of their paid-in capital contribution in the bank
 Example. A is a stockholder of a bank and has paid-in capital of 50M, and deposits of 0.
He has no unencumbered deposits, so base it on his paid-in capital of 50M, which is the limit
 Ex 2. A has loan from bank – 30M; housing loan under Fringe benefit plan of bank – 30 M
 We are within the limit. According to the law, excluded are loans, credit accommodations and advances:
i. to officers in the form of fringe benefits granted in accordance with rules as may be prescribed by the Monetary Board
shall not be subject to the individual limit
ii. extended by a cooperative bank to its cooperative shareholders
iii. covered by non-risk securities
 Ex 3. A has 50M unencumbered deposit and 50M paid-up. What’s the limit? 100 M
A has unsecured loan- 30M; loan secured by REM- 50M; fringe benefit plan/housing loan- 20M; loan secured by non-risk
security- 30M.
Is he within the limit? How much? This is 80M composed of unsecured loan and loan with REM. Exclude the others. He is
within limit of 100M. REM is not non-risk collateral. Non-risk collaterals are those we took up in SBL: government securities,
cash deposits, margin deposits, etc. Non-risk do not include REM or chattel mortgages.

CASE: GO vs BSP
Facts:
The offense allegedly committed by Go was “the said accused, being then the Director and the President and Chief Executive Officer
of the Orient Bank unlawfully borrowthe deposits or funds of the said banking institution  and/or become a guarantor, indorser or obligor for
loans from the said bank to others, knowing fully well that the same has been done without the written approval of the majority of the Board
of Directors.”
Go argued that the charge was not only vague, but also did not constitute an offense. He posited that Section 83 of RA 337 penalized
only directors and officers of banking institutions who acted either as borrower or as guarantor, but not as both. Go also argued his limit was
not even shown as DOSRI
Ruling:
Under Section 83, RA 337, the following elements must be present to constitute a violation of its first paragraph:
1. the offender is a director or officer of any banking institution;
2. the offender, either directly or indirectly, for himself or as representative or agent of another, performs any of the following
acts:
a. he borrows any of the deposits or funds of such bank; or
b. he becomes a guarantor, indorser, or surety for loans from such bank to others, or
c. he becomes in any manner an obligor for money borrowed from bank or loaned by it;
3. the offender has performed any of such acts without the written approval of the majority of the directors of the bank, excluding
the offender, as the director concerned.
A simple reading of the above elements easily rejects Go's contention that the law penalizes a bank director or officer only either for
borrowing the bank's deposits or funds or for guarantying loans by the bank, but not for acting in both capacities. The essence of the crime is
becoming an obligor of the bank without securing the necessary written approval of the majority of the bank's directors.

Discussion:
 Each violation of the requirements is a separation offense. His charge was that he did not secure the approval. He cannot put up the
defense that they did not put his ceiling limitation because that is different.
 There are 3 requirements under the law: approval requirement, reportorial requirement, and ceiling requirement. These are different
requirements and all of them have to be complied with. You do not have to violate all of them, violation of one is sufficient because they
are different violations.
 So showing the limit is not necessary because the charge was a separate violation
 As to the 2nd issue, he said his charge was vague because of the use of and/or. SC said it does not matter as long as you oblige yourself
with the bank, you have to secure approval. It does not matter if direct or indirect manner, whether as guarantor or not
 Important thing here is that the 3 requirements are different and separate offenses
 Sec 36 says “No director or officer of any bank shall, directly or indirectly, for himself or as therepresentative or agent of others, borrow
from such bank nor shall he become a guarantor, indorser or surety for loans from such bank to others…” So it does not matter if you are
just surety/guarantor; still comply with sec 36.
 The reason for Sec 36 is protection to the public especially to the depositors. This is where the bank gets their money and the bank
cannot just give the money to the DOSRI without limitations. This is to prevent fraud.
RULES FOR INVESTMENT OF BANKS IN REAL ESTATE

SECTION 51.Ceiling on Investments in Certain Assets.— Any bank may acquire real estate as shall be necessary for its own use in the
conduct of its business: Provided, however, That the total investment in such real estate and improvements thereof, including bank
equipment, shall not exceed fifty percent (50%) of combined capital accounts: Provided, further, That the equity investment of a bank in
another corporation engaged primarily in real estate shall be considered as part of the bank's total investment in real estate, unless
otherwise provided by the Monetary Board.
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 A.T. | © 2014-2015

 Sec 51 sets out the rule that a bank cannot engage in real estate business. When it acquires real estate, it can only hold such real estate for
the purpose of the conduct of its own operations/business. It cannot lease out or enter into sale and resale of real estate. However, the
ownership of real properties is also subject to the limitation that the total value of these investments should not exceed 50% of the
combined capital accounts of the bank
 The investments in real estate that are covered by this limitation are the actual investment in real property or the land, improvements
thereon, office equipment, and even the equity investment, which means the investment in shares of the bank in a company engaged in
real estate business. This means all your investments in real estate which includes all these mentioned is subject to the limitation of not
exceeding 50% of the combined capital accounts

EXCLUSUION FOR THE FIRST FIVE YEARS

SECTION 52.Acquisition of Real Estate by Way of Satisfaction of Claims.—

Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or convey real property under the following
circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or
52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to
secure debts due it.
Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the bank within
a period of five (5) years or as may be prescribed by the Monetary Board: Provided, however, That the bank may, after said period,
continue to hold the property for its own use, subject to the limitations of the preceding Section.

 Sec 52 says that when a bank acquires property that was mortgaged to it, or transferred to it in dacion, or acquired by it in a judicial sale,
these properties for the 1st five years are not included in determining whether or not the bank has reached its limit. It does not mean these
properties will be excluded from the limit because the limit is not based on the value of the investments, it is based on your combined
capital accounts.
 Example. The 50% of your combined capital accounts is 800M. You have real property that you use in business is 500M. You are within the
limit here.
 Ex 2. In addition to the 500M, you also acquired properties that were mortgaged to you by 400M. This is still within the limit because you
don’t include this amount in the 500M for comparing with the limit of the 50%. You don’t really include the value of the real property in
determining the limit. In determining the limit, you only use the combined capital accounts. But in comparing whether or not you have
exceeded the limit, you exclude the 400M but only for the first 5 years from the time that these properties were acquired by the bank.
 After 5 years, if you still have not gotten rid of these properties, they will now be included in determining whether or not you have
reached the limit
 Ex. 3. What is now your total investment? 900M. You have now reached the limit because your limit remains at 800M and now your
investment is 900M. So you don’t use the value of investment to determine the limit but use it to determine if you have complied with the
limit. Again, the limit is not based on your investment but on the combined capital accounts.

CASE: UNION BANK vs. SPS. TIU

Facts:
The spouses loaned from the bank and had an agreement for dacionenpagoof the properties. When they were unable to pay, the
bank foreclosed the properties and entered into lease agreements for 2 years using the porperties. The Court of Appeals found the lease
contracts over the properties conveyed to Union Bank via dacionenpago to be void for being against public policy. The appellate court held
that since the General Banking Law of 2000  mandates banks to immediately dispose of real estate properties that are not necessary for its
own use in the conduct of its business, banks should not enter into two-year contracts of lease over properties paid to them
through dacion. The Court of Appeals thus ordered Union Bank to return the rentals it collected.
Ruling:
Section 52.2 contemplates a dacionenpago. Thus, Section 52 undeniably gives banks five years to dispose of properties conveyed to
them in satisfaction of debts previously contracted in the course of its dealings, unless another period is prescribed by the Monetary Board.
Furthermore, there appears to be no legal impediment for a bank to lease the real properties it has received in satisfaction of debts, within the
five-year period that such bank is allowed to hold the acquired realty.
We do not dispute the interpretation of the Court of Appeals that the purpose of the law is to prevent the concentration of land
holdings in a few hands, and that banks should not be allowed to hold on to the properties contemplated in Section 52 beyond the five-year
period unless such bank has exerted its best efforts to dispose of the property in good faith but failed. However, inquiries as to whether the
banks exerted best efforts to dispose of the property can only be done if said banks fail to dispose of the same within the period provided.
Such inquiry is furthermore irrelevant to the issues in the case at bar.

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 A.T. | © 2014-2015
Discussion:
 The CA said that the lease contract is against public policy because CA said under sec 52, the bank has to get rid of those properties in 5
years. By entering into lease contracts, the bank conveyed an intention of not disposing the properties for at least 2 years. It is indirectly
violating sec 52 which mandates that banks should dispose of the real property within 5 years.
 SC said CA is wrong because banks have 5 years to dispose of the property. WON it had the intention or exerted best efforts to dispose of
the property, this is not the question that has to be answered within the first 5 years. Within that period, the bank can do whatever it
wants with the property. It is only after the lapse of the period will the question of best efforts arise. Within 5 years, you don’t look at the
intention of the bank. In can do whatever it wants provided after 5 years it has to dispose, and must show it exerted best efforts.
 Here, the lease contract is valid because it is only for 2 years

PROHIBITIONS

1. Prohibition to act as insurer

SECTION 54.Prohibition to Act as Insurer.— A bank shall not directly engage in insurance business as the insurer.

 Does this contradict our discussion on cross-selling? Or even with the provision under the Revised Insurance Code on bancassurance?
It does not conflict because bancassurance provides representation by any insurance company even if the bank has no equity in that
company. (This revised the cross-selling rule)
 There is no conflict because in sec 54 what is prohibited is that the bank itself will act as insurer. In sec 365 of the Insurance Code, a
3rd party insurance company WON it is allied with the bank will go to bank premises and sell their insurance products there. The bank
here is not the insurer. The company is just using the bank premises to sell.

2. Prohibited Transactions

SECTION 55.Prohibited Transactions.—

55.1. No director, officer, employee, or agent of any bank shall —
(a) Make false entries in any bank report or statement or participate in any fraudulent transaction, thereby affecting the financial
interest of, or causing damage to, the bank or any person;
(b) Without order of a court of competent jurisdiction, disclose to any unauthorized person any information relative to the funds or
properties in the custody of the bank belonging to private individuals, corporations, or any other entity: Provided, That with respect to
bank deposits, the provisions of existing laws shall prevail;
(c) Accept gifts, fees or commissions or any other form of remuneration in connection with the approval of a loan or other credit
accommodation from said bank;
(d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any bank; or
(e) Outsource inherent banking functions.
55.2. No borrower of a bank shall —
(a) Fraudulently overvalue property offered as security for a loan or other credit accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining, renewing, or increasing a loan
or other credit accommodation or extending the period thereof;
(c) Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation; or
(d) Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any other form of compensation in order to
influence such persons into approving a loan or other credit accommodation application.
55.3. No examiner, officer or employee of the BangkoSentral or of any department, bureau, office, branch or agency of the Government
that is assigned to supervise, examine, assist or render technical assistance to any bank shall commit any of the acts enumerated in this
Section or aid in the commission of the same. (87-Aa)
The making of false reports or misrepresentation or suppression of material facts by personnel of the BangkoSentral ng Pilipinas shall
constitute fraud and shall be subject to the administrative and criminal sanctions provided under the New Central Bank Act.
55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks Secrecy Law, no bank shall employ casual
or nonregular personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits.

 Three persons are prohibited here, or may violate this section:

a. Officer/director/employee/agent of the bank
b. Borrow of the bank
c. Officer/ employee/agent of the BSP
 55.1 B says it Is prohibited “(b) Without order of a court of competent jurisdiction, disclose to any unauthorized person any information
relative to the funds or properties in the custody of the bank belonging to private individuals, corporations, or any other entity: Provided,
That with respect to bank deposits, the provisions of existing laws shall prevail”
 Is this the Bank Secrecy Law? No because this talks about the other banking services in sec 53. This is not pertaining to deposit
transaction because sec 55.4 talks about the prohibition with respect to deposit transactions. 55.1 pertain to those funds or assets
acquired by the bank under sec 53 or in its custodian function

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 A.T. | © 2014-2015
 This means even sec 53 are covered by confidentiality. But the bank can be compelled to divulge based on a court order
 55.1 E says it is prohibited to “(e) Outsource inherent banking functions”
 The inherit banking functions are loans and deposits. You cannot outsource any transaction of the bank relating to loans and deposit
 Under the old MORB, 2012 version, it will provide the functions which a bank can outsource. Under the 2013 MORB, what is provided
there are the inherent functions of the bank which cannot be outsourced. Other than those functions, the bank can already
outsource those.
162.2. Prohibition against outsourcing of inherent banking functions. No bank shall outsource inherent banking
functions such as:
a. Services normally associated with placement of deposits and withdrawals including the recognition based on
recording of movements in the deposit accounts;
b. Granting of loans and extension of other credit exposures;
c. Position-taking and market risk-taking activities;
d. Managing of risk exposures; and
e. Strategic decision-making

 Appraisal of loans or when you value the collateral, that can be outsourced because that s not related to granting loans
 Credit card services, collection of loans, ATM maintenance, book keeping functions can be outsourced. SO anything not found in the
enumeration can be outsourced because they are not considered inherent

CASE: BPI EMPLOYEES UNION vs. BPI

Facts:
Certain functions of BPI were outsourced to a 3rd party entity- BOMC: check clearing, delivery of bank statements, fund
transfers, card production, operations accounting and control, and cash servicing; also cashiering functions and bookkeeping functions
after there was consolidation. This was questioned by the labor union saying the CBA was violated by the company with respect to
membership.
Ruling:
From the very definition of "banks" as provided under the General Banking Law, it can easily be discerned that banks
perform only two (2) main or basic functions — deposit and loan functions. Thus, cashiering, distribution and bookkeeping are but
ancillary functions whose outsourcing is sanctioned under CBP Circular No. 1388.

Discussion:
 SC said this is a management prerogative to outsource banking functions, and even then, this is allowed by the BSP because the
functions outsourced are not inherent banking functions.
 Example. We had a client who wanted to put up a Point-Of-Sale system (POS). They wanted to put in their stores a POS system
where you can pay with your debit card and the clerk of the store can just give you money as change. You have 5K in your debit card
and your purchase is only 3K. You can tell the store clerk give me the 2K change in cash. They asked if they can do it. We said NO
because that is TELLERING function. You are basically withdrawing from your account. That’s a debit card, thus a savings account.
When you asked the clerk to give you your money, she is acting as a bank teller because you are withdrawing from her. They did not
believe us so they went to BSP. BSP also said they cannot do that because that is an inherent banking function. Apparently, that’s
done in other countries but not here. Such functions have to be done within bank premises.

EQUITY INVESTMENTS
 INVESTMENT is when you acquire something with the intention of keeping it for the long termeither for the purpose of control or income
 You want to control, so you buy equity securities and keep it for the long term, or you want to earn from that investment for the long
term or you want regular income from that asset

1. UNIVERSAL BANKS (UB)

They are allowed to have investments. They can invest in the equities of allied enterprises, which can be financial allied enterprise and non-
financial allied enterprise; and also in non-allied enterprise

 Allied enterprises include financing companies, credit card companies; or companies whose operations are similar or related to banking
operations
 Non-allied enterprises are not related to banking operations such as agriculture, manufacturing. They basically change their output; this is
not related to banking at all

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 Under sec 23, only UB can invest in non-allied enterprise. Sec 24 says UB can invest in both allied enterprises (AE) and non-allied
enterprises (NAE) subject to limitations

SECTION 23.Powers of a Universal Bank. — A universal bank shall have the authority to exercise, in addition to the powers
authorized for a commercial bank in Section 29, the powers of an investment house as provided in existing laws and the power to
invest in non-allied enterprises as provided in this Act.
SECTION 24.Equity Investments of a Universal Bank.— A universal bank may, subject to the conditions stated in the succeeding
paragraph, invest in the equities of allied and non-allied enterprises as may be determined by the Monetary Board. Allied
enterprises may either be financial or non-financial.
Except as the Monetary Board may otherwise prescribe:
24.1. The total investment in equities of allied and non-allied enterprises shall not exceed fifty percent (50%) of the net worth of the
bank; and
24.2. The equity investment in any one enterprise, whether allied or non-allied, shall not exceed twenty-five percent (25%) of the net
worth of the bank.
As used in this Act, "net worth" shall mean the total of the unimpaired paid-in capital including paid-in surplus, retained earnings
and undivided profit, net of valuation reserves and other adjustments as may be required by the BangkoSentral.
The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which shall promulgate appropriate
guidelines to govern such investments.
SECTION 25.Equity Investments of a Universal Bank in Financial Allied Enterprises.— A universal bank can own up to one hundred
percent (100%) of the equity in a thrift bank, a rural bank or a financial allied enterprise.
A publicly-listed universal or commercial bank may own up to one hundred percent (100%) of the voting stock of only one other
universal or commercial bank. (21-B; 21-Ca)
SECTION 26.Equity Investments of a Universal Bank in Non-Financial Allied Enterprises.— A universal bank may own up to one
hundred percent (100%) of the equity in a non-financial alliedenterprise. (21-Ba)
SECTION 27.Equity Investments of a Universal Bank in Non-Allied Enterprises.— The equity investment of a universal bank, or of
its wholly or majority-owned subsidiaries, in a single non-allied enterprise shall not exceed thirty-five percent (35%) of the total
equity in that enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that enterprise. (21-B)
SECTION 28.Equity Investments in Quasi-Banks.— To promote competitive conditions in financial markets, the Monetary Board
may further limit to forty percent (40%) equity investments of universal banks in quasi-banks. This rule shall also apply in the case of
commercial banks.

LIMITATIONS
1. Investor Limitation – when you base it on the net worth of the bank, that is an investor limitation because that is based on the investor
itself, the bank
a. Aggregate investment: Total investment in AE and NAE does not exceed 50% of the net worth of the bank
b. Single enterprise AE or NAE: not exceed 25%of net worth of the bank
 Basis: sec 24.1 and sec 24.2

2. Investee Limitation
a. Allied enterprise
i. Financial allied enterprise
 100% of the equity in a thrift bank, a rural bank or other financial allied enterprise (sec 25)
 Another UB/KB
1. Publicly-listed: 100% of the voting stock
2. Not publicly-listed: 49% minority interest
ii. Non-financial allied enterprise - 100% of the equity (sec 26)
b. Non-allied
SECTION enterprise
29.Powers of a Commercial Bank.— A commercial bank shall have, in addition tothe general powers incident to corporations,

all such powers as may be35%of
Not exceeding the total
necessary equity
to carry on in
thethat enterprise
business nor shall itbanking,
of commercial exceed 35%
suchofasthe voting stock
accepting inand
drafts thatissuing
enterprise
letters of
 Equity
credit; discounting andisnegotiating
different from voting stock.
promissory notes,Equity is bills
drafts, the total capital which
of exchange, can be
and other voting orofnon-voting
evidences debt; accepting or creating
demand deposits; receiving other types of deposits and deposit substitutes; buying and selling foreign exchange and gold or silver
bullion; acquiring marketable bonds and other debt securities; and extending credit, subject to such rules as the Monetary Board may
promulgate. These rules may include the determination of bonds and other debt securities eligible for investment, the maturities and
aggregate amount of such investment. (21a)
SECTION 30.Equity Investments of a Commercial Bank.— A commercial bank may, subject to the conditions stated in the succeeding
paragraphs, invest only in the equities of allied enterprises as may be determined by the Monetary Board. Allied enterprises may either
be financial or non-financial.
Except as the Monetary Board may otherwise prescribe:
30.1. The total investment in equities of allied enterprises shall not exceed thirty-five percent (35%) of the net worth of the bank; and
30.2. The equity investment in any one enterprise shall2. not
COMMERCIAL BANKSpercent
exceed twenty-five (KB) (25%) of the net worth of the bank.
The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which shall promulgate appropriate
guidelines to govern such investments. (21A-a; 21-Ca)
SECTION 31.Equity Investments of a Commercial Bank in Financial Allied Enterprises.—A commercial bank may own up to one
hundred percent (100%) of the equity of a thrift bank or a rural bank.
Where the equity investment of a commercial bank is in other financial allied enterprises, including another commercial bank, such
investment shall remain a minority holding in that enterprise. (21-Aa; 21-Ca)
SECTION 32.Equity Investments of a Commercial Bank in Non-Financial Allied Enterprises.— A commercial bank may own up to one
34
hundred percent (100%) of the equity in a nonfinancialallied enterprise.
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 KB can only invest in allied enterprises, divided into financial allied enterprises and non-financial allied enterprises
 So a KB cannot invest in a mining company, agriculture or manufacturing company; only to related enterprises

LIMITATIONS (ONLY ALLIED ENTERPRISES)

1. Investor Limitation
a. Aggregate investment: total investment in equities of allied enterprises shall not exceed 35% of the net worth of the bank
b. Single enterprise: not exceed 25% of the net worth of the bank

2. Investee Limitation
a. Financial Allied Enterprise
i. Thrift bank or rural bank: 100% of the equity
ii. Other financial allied enterprise: 49% of the equity; minority interest (MORB, 378)
 So this is different from the limit in UB because TB, RB and other FAE have the same limit for UB
iii. Another UB/KB
 Publicly-listed: 100% of the voting stock
 Not publicly-listed: 49% minority interest

b. Non-financial Allied Enterprise

 100% of the equity in a nonfinancialallied enterprise (sec 32)

 ATTY: So this is actually VERY EASY to remember. Basta allied, it’s just 100 or 49. 49 langang UB with respect to another UB/KB if it’s not
publicly-listed. All the rest, 100. Ang KB, mu 49 lang with respect to another UB/KB if it’s not publicy-listed, same rule sa UB. It will also be
40 with respect to other FAE which are not TB or RB.

EXAMPLES:Net worth is 1B. 50% is 500M; 25% is 250M. Assuming we meet with investee limitations, let’s figure out investor limitations of UB
1. You have investment in 3 companies. A- 100M; B- 100M; C- 250M. We meet the limitation here. For individual limitation, nothing exceeds
250M. For aggregate limitation, we have 450M. We meet both limitations
2. Investment in A- 250M; B- 250M. Single limitation and aggregate limitation (500M) are met.
3. Investment in A- 200M; B- 300M. We meet the aggregate of 500M, but we don’t meet single limitation FOR B ONLY because investment
in B is 300M and the limit is 250M.

 ATTY: No need to memorize, just familiarize yourselves with these (di banaparehara? O.O)

QUASI BANKING FUNCTIONS

Section 6.Authority to Engage in Banking and Quasi-Banking Functions. No person or entity shall engage in banking operations or quasi-
banking functions without authority from the BangkoSentral: Provided, however, that an entity authorized by the BangkoSentral to perform
universal or commercial banking functions shall likewise have the authority to engage in quasi-banking functions.

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 Any person or entity who wants to engage in quasi-banking function has to get an authority or secure a license from the BangkoSentral.
Take note that the BangkoSentral is different from the Monetary Board in the sense that the monetary board is the governing body.
 Except: Universal Banks and Commercial Banks, not required because once you have a UB or KB license, that automatically includes quasi-
banking license.
 How can a UB/ KB undertake a quasi-banking functions directly?
They can do it by themselves or by a different department but only one entity- the same Universal or Commercial bank. They can engage
in quasi-banking function by direct authority from Section 6.
 How else, this time indirectly?
They can exercise it indirectly through equity investment. Pursuant to Section 25, a quasi-bank is considered a financial allied enterprise,
so a UB can invest up to 100% and a KB can invest up to 49% this time pursuant to Section 31 because it says 100% but as to allied
enterprise, they will only be minority so 49%. Is there another limitation? MORB Section 28. 40%. Rule also applies to Commercial Bank.
So UB & KB can either directly or indirectly engage in quasi-banking functions. Directly by themselves, and indirectly by investing in the
equity of a quasi-bank. So if it is done indirectly, that quasi-bank entity will have to secure a license because this is a separate entity from
the universal or commercial bank and they are not covered by the UB or KB’s license. They will have to secure its own license pursuant to
Section 6.
 What is a quasi-bank? Section 4 of the GBL provides that
 "Quasi-banks" shall refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse
or acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653 (hereafter the "New Central Bank Act") for
purposes of re-lending or purchasing of receivables and other obligations.

ESSENTIAL ELEMENTS for an entity to be considered engaging in Quasi-banking function

1. Borrow money for their own house
This means under your own name and not acting as a representative or an agent of another person.

2. From the public

Public means 20 or more persons (whereas if you borrow money from 19 or less people it’s considered private placement).

3. The mode of borrowing is through issuances, endorsement or assignment with recourse or acceptance of deposit substitutes.
Deposit substitutes are mere debt instruments and what makes it a deposit substitute is that the debt instrument has to be with recourse
-which means in case of dishonor of the instrument, the holder can go back to the seller. It has a recourse against the seller. The seller
guarantees the performance of the instrument. If the issuance is without recourse, then it falls out of the definition of quasi-banking
function. But if the instrument is silent, it is presumed to be with recourse.

4. For purposes of re-lending or purchasing of receivables and other obligations.

There’s a corporation who wants to get more capital for the purpose of expanding, it issues promissory notes borrowing money from 20
persons. Can that be considered a quasi-banking function? NO because it is only for the purpose of financing their own, it is for a private
purpose and not for re-lending. Section 95 last paragraph of the NCBA says that deposit substitutes of commercial, industrial and other
non-financial companies for the limited purpose of financing their own needs or the needs of their agents or dealers shall NOT be covered
by the provisions of Section 94 of this Act.

 These four elements must exist before there can be a quasi-banking function. You are not supposed to borrow from the public under
a quasi-banking function unless you are authorized by the BangkoSentral. If you do borrow without authority, that is a violation of
the New Central Bank Act and there are penalties.

 We have this client engaging in retail trade. They have this team and they would get several buyers or clients to post cash bond and
earn interest, in return of the cash bond, they can sell what they want. The persons depositing money can sell the notes and the
person who buys the notes can go to the grocery of the retailer and they can buy items on credit. Now, this retailer wanted to
regularize all their transactions because they want to sell their shares into the stock exchange, to do initial public offering. They were
basically borrowing money from the public, persons who deposited are more than 20 in number. We were asked whether it is a
violation. So we have to discuss the elements:
1. Is there borrowing? There was no loan, it was given in a form of security
2. From the public? Yes.
3. Issuing deposit substitutes? No. it has to be debt instruments. When it is rendered to you, there’s money. Here, it’s not
money, but grocery items.
4. Purpose of relending? No. It was basically to secure payment of the goods bought on credit.

 So NO. You make sure that you comply with the Philippine Consumer Act because although this is not a quasi-banking
function, it is a form of a sale on credit transaction.
TRUST
 It is defined as a written relationship between a person having an equitable ownership in a property (Trustor) and another person who
owns the legal title (Trustee) with the equitable ownership of the former entitling him to require the performance of certain duties and
the exercise of certain powers from the latter which performance can be compelled by the courts.

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 Under the Civil Code, there is express and implied trust. We are to discuss express trust and not implied because under the GBL, trust
operations are always express, the activities are always done by professional trust entities.
 Law says

Section 79. Authority to Engage in Trust Business. - Only a stock corporation or a person duly authorized by the Monetary
Board to engage in trust business shall act as a trustee or administer any trust or hold property in trust or on deposit for the
use, benefit, or behoof of others. For purposes of this Act, such a corporation shall be referred to as a trust entity.

 In order to be able to engage, you need to have the authority from the Monetary Board.
 If I have the client who wants me to manage his share and he gives me a voting trust, is there a trust relationship?
Yes. Legal ownership is transferred, and beneficial ownership remains to the trustor.
 But does this mean I have to secure an authority from the Monetary Board?
No, since it is only a one time transaction. In order to say that you are engaged in the trust business, there must be a
recurring activity resulting from a trustor and a trustee involving the appointment of a trustee for the admistration,
holding, and management of funds and property for the use, advantage and benefit of the trustor.
 Who can engage? Is it limited to banks?
No. Under the old banking act, the requirement to secure was only limited to banks. So non-bank entitites were running
amok, no one was regulating them. So now, other persons can.

CONSEQUENCES OF TRUST RELATIONSHIP

1. Single property has DOUBLE OWNERSHIP
Splitting of ownership. Legal title also referred to as naked ownership.
2. A trust is FIDUCIARY in nature that is why section 80 says there are 2 cardinal principles of a trust entity:

1) The PRUDENT MAN RULE

 A trust entity shall administer the funds or property under its custody with the diligence that a prudent man would exercise in the
conduct of an enterprise of a like character and with similar aims.  Based on American Jurisprudence, the prudent man rule says that
the prudence, diligence, care and the skill of a trustee is that of an expert professional trustee.

2) Prohibition AGAINST SELF-DEALING

No trust entity shall, for the account of the trustor or the beneficiary of the trust, purchase or acquire property from, or sell, transfer,
assign, or lend money or property to, or purchase debt instruments of, any of the departments, directors, officers, stockholders, or
employees of the trust entity, relatives within the first degree of consanguinity or affinity, or the related interests, of such directors,
officers and stockholders, unless the transaction is specifically authorized by the trustor and the relationship of the trustee and the
other party involved in the transaction is fully disclosed to the trustor of beneficiary of the trust prior to the transaction.

If you are under a trust, you are not allowed to use the money to deal with yourself or your related interest. (i.e. buy your own
property, lend it to your wife) even if it is beneficial to the trustor. Why? This is to avoid conflict of interest. Getting advantage for
yourself to the detriment of the trustor.

3. The funds or property of the trust will be kept from the general funds or property of the trustee. (Section 87 of GBL)
In relation to section 92, no assets held by a trust entity in its capacity as trustee shall be subject to any claims other than those of the
parties interested in the specific trusts. So if the trustee cannot pay his obligations and here comes his creditor wanting to garnish
the trustee’s funds or property, that creditor cannot garnish the property of the trust even if technically, it belongs to the trustee.
But if the trustee did not comply and he made, kept the properties as his own, there is the chance that property may be garnished or
attached. In which case, trustee can be liable civilly or criminally- that is estafa.

POWERS OF THE TRUSTEE:

Section 83. Powers of a Trust Entity. - A trust entity, in addition to the general powers incident to corporations, shall have the power to:
83.1 Act as trustee on any mortgage or bond issued by any municipality, corporation, or any body politic and to accept and execute any trust
consistent with law;
83.2 Act under the order or appointment of any court as guardian, receiver, trustee, or depositary of the estate of any minor or other
incompetent person, and as receiver and depositary of any moneys paid into court by parties to any legal proceedings and of property of
any kind which may be brought under the jurisdiction of the court;
83.3. Act as the executor of any will when it is named the executor thereof;
83.4 Act as administrator of the estate of any deceased person, with the will annexed, or as administrator of the estate of any deceased
person when there is no will;
83.5. Accept and execute any trust for the holding, management, and administration of any estate, real or personal, and the rents, issues and
profits thereof; and
83.6. Establish and manage common trust funds, subject to such rules and regulations as may be prescribed by the Monetary Board.

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 In reality, the last one–to establish and manage common trust funds has been abolished by the BangkoSentral. The purpose of
this common trust funds is to pull your resources. Now it is replaced by Unit Investment Trust Funds (UITF)-investments that
you can buy from trust entities, pulling money together and bank will manage it. The one who can sell must be a trust entity. If a
bank sells a UITF, you have to make sure it is a licensed trust entity since this is a separate license from your banking license. This
is different from quasi-banking functions since even the UB and KB needs to secure another license to engage in trust functions.
The mutual fund on the other hand is a trust but not registered as a trust entity.

FOREIGN BANKS

 Banks formed, organized and existing under the laws other than the laws of the Republic of the Philippines.
 A domestic bank is a bank which is organized, formed and existing under the laws of the Philippines.
 The test that we follow with respect to the nationality of the bank is the Nationality test – the place where it is incorporated.
 A bank is considered a citizen where it is incorporated. If you are incorporated under the Philippine laws, regardless of who your
stockholders are, you are considered a domestic bank, whereas if it is incorporated under the laws outside the Philippines, even if bank is
100% Filipino owned, it is a foreign bank.
 How can foreign bank enter or get a license in the Philippines?
Under R.A. 7721, the modes of entry are -you acquire the shares of an existing bank up to 60%, invest on a new subsidiary up to 60% or
open a bank in the Philippines. But this law has already been amended. The first amendment is Section 72 of the GBL which states that for
the first seven years from the time of the enactment of the GBL, FB are allowed to own up to 100% of the equity of a domestic bank. But
only for that seven year period. And after the lapse of the seven year period, you cannot acquire 100%, only the 60% going back to RA 7721.
But those who acquired 100% under the seven year rule, they are allowed to continue their 100% shareholding. But they are not allowed to
dispose of it. Because if they dispose it with another foreign bank, the 7 year period has already lapsed. So that other foreign bank will
have to comply with the 60%. So again, this is Section 72 of the GBL reconciling R.A. 7721. But this has become moot because of R.A. 10641
which allows full entry of foreign banks in the Philippines- now 100%. So:

Of the three, in the first two you have a domestic bank or have already been incorporated under the law of the Philippines. Going back to
section 11 of the GBL, Domestic Banks can be owned by foreign individuals and nonbank corporations both in individual and aggregate
limit only up to 40%. If the shareholder is a banking corporation, the limit is 100%. Section 11 made a reservation that stockholders are
nonbank individuals or nonbank corporations . Why the reservation? Because the law has a different rule for foreign banks – they are
allowed to own 100% shares of domestic corporation. So with domestic banking corporations, if the shareholder of a domestic bank is a
Filipino either individual or nonbank corporation- subject to 40% limit except that there is no aggregate limit. If it’s a domestic corporation,
you go back to allowable investments of UB & KB- you can own 100% of a TB or RB. If you’re a UB or KB, you are still allowed to own
another domestic bank (UB or KB) but only minority shareholdings (49%) except if you are publicly listed in which case you can own 100%.
So same with Foreign banks, they can own 100% of the domestic bank.

Can you relate everything class? It’s very simple to remember (*everyone laughed). Domestic banks, who are allowed to be shareholders?
It could be foreign or Filipino. If Foreign, consider if it is a bank (100% pursuant to R.A. 10641) or nonbank (40% pursuant to Section 11 of
the GBL). If Filipino, consider if it is a bank or nonbank- if it is a bank then under the investments of banks, the UB or KB can own 100% of a
TB or RB and only minority shareholdings if it is for another UB or KB unless publicly listed (in which case it can be 100%) and if it is
nonbank then it’s 40% individual limitation only pursuant to Section 11.

So specifically when we say foreign banks license to do business in the Philippines, what are we really talking about? It is the 3rd one. We
can’t include the first two since they are considered as domestic banks and therefore covered by the GBL. The third is your foreign bank
license to do business in the Philippines pursuant to the Foreign bank law or R.A. 7721 as amended by R.A. 10641- an act allowing the full
entry of Foreign banks in the Philippines. So R.A. 7721 as amended by R.A. 10641 primarily will govern and suppletory by the GBL or NCBA.

Section 77. Laws Applicable. - In all matters not specifically covered by special provisions applicable only to a foreign bank or its
branches and other offices in the Philippines any foreign bank licensed to do business in the Philippines shall be bound by the
provisions of this Act, all other laws, rules and regulations applicable to banks organized under the laws of the Philippines of the
same class, except those that provide for the creation, formation, organization or dissolution of corporations or for the fixing of the

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relations, liabilities, responsibilities, or duties of stockholders, members, directors or officers of corporations to each other or to the
corporation

“except those that provide for the creation, formation, organization or dissolution of corporations or for the fixing of the relations,
liabilities, responsibilities, or duties of stockholders, members, directors or officers of corporations to each other or to the corporation”
 It will now be governed by the laws of the country of the bank’s nationality.
 Foreign Banks:
a) As far as OPERATIONS are concerned- it will be governed by R.A. 7721 as amended by R.A. 10641, GBL and NCBA
b) As far as their CREATION, FORMATION, DISSOLUTION, RELATIONSHIP, etc. – law of bank’s nationality.

PRINCIPLES GOVERNING OPERATIONS OF FOREIGN BANKS

1. ONE UNIT rule (Section 74 of GBL)
Section 74. Local Branches of Foreign Banks. - In the case of a foreign bank which has more than one (1) branch in the Philippines, all such
branches shall be treated as one (1) unit for the purpose of this Act, and all references to the Philippine branches of foreign banks shall be
held to refer to such units.

This has another similar provision under Section 20 which provides that the head office and the branches of the head office are
considered as one – the One unit rule for domestic banks. For Foreign banks, branches within the Philippines are considered as one.

2. HEAD OFFICE GUARANTEE (Section 75 of GBL)

Section 75. Head Office Guarantee. - In order to provide effective protection of the interests of the depositors and other creditors of
Philippine branches of a foreign bank, the head office of such branches shall fully guarantee the prompt payment of all liabilities of its
Philippine branch. (69) Residents and citizens of the Philippines who are creditors of a branch in the Philippines of a foreign bank shall
have preferential rights to the assets of such branch in accordance with the existing laws.

If the head office in another country has creditors, and it has become insolvent, can the creditors proceed against the assets of the
branch? NOT until all the depositors or creditors in the Philippines have been paid. They have a preference with respect to the branch
assets.

CASE: CITYBANK vs SABENIANO

Facts:
Respondent Sabeniano was a client of petitioners. She had several deposits and market placements with petitioners, among which
were her savings account with the local branch of petitioner Citibank (Citibank-Manila 3 ); money market placements with petitioner FNCB
Finance; and dollar accounts with the Geneva branch of petitioner Citibank (Citibank-Geneva). Respondent filed a complaint against
petitioners claiming to have substantial deposits, the proceeds of which were supposedly deposited automatically and directly to
respondent’s account with the petitioner Citibank and that allegedly petitioner refused to despite repeated demands. Petitioner alleged that
respondent obtained several loans from the former and in default, Citibank exercised its right to set-off respondent’s outstanding loans with
her deposits and money. RTC declared the act illegal, null and void and ordered the petitioner to refund the amount plus interest, ordering
Sabeniano, on the other hand to pay Citibank her indebtedness. CA affirmed the decision entirely in favor of the respondent. 
Ruling:
Section 20 applies to a universalor commercial bank,duly established and organized as a Philippine corporation in accordance with
Section 8 of the same statute, and authorized to establish branches within or outside the Philippines. Moreover, what Section 74 of the said
law provides is that in case of a foreign bank with several branches in the country, all such branches shall be treated as one unit. As to the
relations between the local branches of a foreign bank and its head office, Section 75 of the General Banking Law of 2000 and Section 5 of the
Foreign Banks Liberalization Law provide for a "Home Office Guarantee," in which the head office of the foreign bank shall guarantee prompt
payment of all liabilities of its Philippine branches. While the Home Office Guarantee is in accord with the principle that these local branches,
together with its head office, constitute but one legal entity, it does not necessarily support the view that said principle is true and applicable
in all circumstances.
The Home Office Guarantee is included in Philippine statutes clearly for the protection of the interests of the depositors and other
creditors of the local branches of a foreign bank.If a client obtains a loan from the foreign bank’s Philippine branch, it does NOT absolutely
and automatically make the client a debtor, not just of the Philippine branch, but also of the head office and all other branches of the foreign
bank around the world.
Discussion:

 Citybank Manila attempted to say that under the one unit rule, we are considered as one with all other branches. Because we are one, if
you owe us money and you have a deposit in our branches, then legal compensation takes place. It used Section 20, 74 & 75 of the GBL to
foster its claim
 SC said that with respect to Section 20, you cannot use it since it only refers to a domestic bank, refers to the head office and the
branches of a domestic bank-a universal or commercial bank established in the Philippines.
 With respect to Section 74, SC said that it is also not applicable because you are talking about the branch outside the Philippines- the
Geneva branch. This only applies to branches of the Foreign bank within the Philippines.

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 Citybank was saying, hey SC look at Section 75, this is one example or one embodiment that we are one unit with our head office with all
the branches around the world because it provides that we require head office to guarantee all our branches here in the Philippines.
However, with respect to Section 75, SC said that the Home Office Guarantee only applies for the protection of the depositors in the
Philippines. In case of a foreign bank, the head office is located outside our jurisdiction, outside the Philippines. So we needed Section 75
in order to make the head office liable here and to hold them answerable. It is for the purpose of protecting the depositors in the
Philippines, you CANNOT use it in reverse, that is not what the law contemplates. You cannot use it to make the depositor liable for
something outside of the Philippines.
 Citybank was not allowed to compensate because the other branch in Geneva is not considered as one unit with the local branch.
 In the loan-you are the debtor and Citybank is the creditor, while in the deposit- you are the creditor and Citybank Manila is the debtor.
 An essential element for legal compensation is that the parties must be mutually creditors and debtors to each other. In this case, they
are not. So you and Citybank Manila are not mutually creditors and debtors of each other.

SEC. 5. Section 8 of Republic Act No. 7721 is hereby amended to read as follows:
“SEC. 8. Equal Treatment.  – Foreign banks authorized to operate under Section 2 of this Act, shall perform the same functions, enjoy
the same privileges, and be subject to the same limitations imposed upon a Philippine bank of the same category. The single
borrower’s limit of a foreign bank branch shall be aligned with that of a domestic bank.
“The foreign banks shall guarantee the observance of the rights of their employees under the Constitution.
“Any right, privilege or incentive granted to foreign banks or their subsidiaries or affiliates under this Act, shall be equally enjoyed by
and extended under the same conditions to Philippine banks.” (R.A. 10641)

 If the branch is licensed to a Universal bank, it has all the powers of a Domestic Universal bank. If it is licensed as a Commercial
bank, it has all the powers of a Commercial bank.
 Can foreign bank be allowed as a mortgagee for a real property? (Remember that foreigners aren’t allowed to own land in the
Philippines.) YES.

SEC. 6. A new provision in Section 9 is hereby inserted in the same Act, in lieu of the original provisions of Section 9 repealed by
Section 11 of Republic Act No. 10000. Section 9 shall now read as follows:

“SEC. 9. Participation in Foreclosure Proceedings.—Foreign banks which are authorized to do banking business in the Philippines
through any of the modes of entry under Section 2 hereof shall be allowed to bid and take part in foreclosure sales of real property
mortgaged to them, as well as to avail of enforcement and other proceedings, and accordingly take possession of the mortgaged
property, for a period not exceeding five (5) years from actual possession: Provided, That in no event shall title to the property be
transferred to such foreign bank. In case said bank is the winning bidder, it shall, during the said five (5)-year period, transfer its rights
to a qualified Philippine national, without prejudice to a borrower’s rights under applicable laws. Should the bank fail to transfer such
property within the five (5)-year period, it shall be penalized one half (1/2) of one percent (1%) per annum of the price at which the
property was foreclosed until it is able to transfer the property to a qualified Philippine national.”

So again, take note:

1. GBL applies to Domestic Banks i.e. Universal and Commercial Banks

2. Thrift Banks, Rural Banks , Cooperative Banks and Islamic Banks have their own law. Whatever is not in conflict, GBL can
beapplied but they are generally governed by their own law

THE NEW CENTRAL BANK ACT (RA 7653)

IN GENERAL
 The law creating the Central Bank, the General Banking Act, was passed in 1948 but it took effect in 1949.
 Subsequently, Congress seeing the need for reform and to update the central monetary authority passed RA 7653 which is the New
Central Bank Act. This was in June 14, 1993
 Under this new law, all the powers, obligations, assets and liabilities of the Central Bank was transferred to BSP. We now call it BSP.

POLICY
The BSP is a central monetary authority which has fiscal and administrative autonomy

SECTION 1.Declaration of Policy. - The State shall maintain a central monetary authority that shall function and operate as an
independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit.
In line with this policy, and considering its unique functions and responsibilities, the central monetary authority established under this
Act, while being a government owned corporation, shall enjoy fiscal and administrative autonomy.

o Establish an independent and accountable body corporate through fiscal and administrative autonomy
1. Fiscal autonomy– being financially independent from other government agencies
a. Creation of their own source of income

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Examples:
 BSP can create its own sources of income through imposition of fines and fees
 It can buy and sell government securities (only)
 It can also give out loans to banking institutions and they can also earn interest
b. Ability or right to allocate resources with wisdom and dispatch as their needs may require
 Aside from creating their own income, they also have the right to determine where they will spend that income
 These 2 principles must be met. They are able to create their own income and are able to dispose of that income in the way
they see fit
 Examples
 It can determine the salaries of its officers and employees. This is one of the powers of the Monetary Board (MB)
under sec 15
 It can create its own annual budget without interference from other government agencies (sec 15)

2. Administrative autonomy – operational independence; the BSP can determine how it will run its own operations without
interference from other government agencies
 It is allowed to issue rules and regulations for banks
 Under sec 50, BSP through MB is also allowed to issues rules and regulations for its own internal operations
 MB has the power to govern BSP without interference from the government’s executive branch

RESPONSIBILITIES OF THE BSP

SEC. 3.Responsibility and Primary Objective. – The BangkoSentral shall provide policy directions in the areas of money, banking, and
credit. It shall have supervision over the operations of banks and exercise such regulatory powers as provided in this Act and other
pertinent laws over the operations of finance companies and non-bank financial institutions performing quasi-banking functions,
hereafter referred to as quasibanks, and institutions performing similar functions.
The primary objective of the BangkoSentral is to maintain price stability conducive to a balanced and sustainable growth of the
economy. It shall also promote and maintain monetary stability and the convertibility of the peso.

GENERAL RESPONSIBILITY
The BangkoSentral shall provide policy directions in the areas of money, banking, and credit

OBJECTIVES OF THE BSP

1. Maintain price stability
 Price stability pertains to the purchasing power of the peso in relation to the domestic market. It can be measured by the
consumer price index or inflation rates
 Price stability is the changes in the price level or the domestic inflation rate. The goal of the BSP is to ensure that any changes in
the value of the peso or purchasing power should be minimal
 Inflation rate can never be zero because of factors that are based on the market and cannot be controlled. But the goal is that if
there are changes in the price stability, the changes must be minimal and must not be eratic
 Minimal: It can’t happen that this week you can buy 1 sack of rice for 2,500 then next week it’s 5K already. Changes should only
be minimal
 Eratic: It can’t also happen that this week it’s 2,500/sack, next week it’s 3K/sack, next week it’s 1,500/sack. So that’s being eratic;
you can’t predict it. The price keeps going up then down then up again. There should be a trend and it should be predicted.
 The importance of maintaining price stability is so you can predict the price of goods. This is more for budgeting of industries
and business. If they do not know how much rice their 1K can buy next year or next month, they cannot project how much their
business will need. This is important for the economy to help businesses project their expenditures

2. Promote and maintain monetary stability and convertibility of the peso

 Monetary stability is international while price stability is domestic
 Monetary stability is basically the value of the peso compared to other foreign currencies
 Convertibility of the peso means the capacity or the ability of the Phil peso to be converted to a foreign currency
 This is important for investment purposes. Remember the case when the loan was denominated in dollars but then the Asian
financial crisis happened so they had to convert it to peso. The exchange rate started at 20 pesos per 1 dollar. Then next week it
was 40 pesos per 1 dollar. Then it became 50. The changes now are in terms of cents. But it happened before that there were 5-
10 peso increments. So when you borrow $1,000 and you brought it here, convert it using Php20, its value is Php20,000. You
have to pay the loan in dollars also. So you want to acquire dollars now to pay it. The value of the dollar now is Php40,the peso
you have to convert now is 40K, whereas the peso you received was just 20K. This happened in one of the cases we discussed (I
think Union Bank vs. Sps Tiu)
 Similar with price stability, this helps business plan for their expenditures. We had one case and the same thing to them
happened (above situation). The Asian financial crisis hit and the bank told them to convert their loan to peso. But of course, the
conversion rate is at the time you actually converted it. They went to court and they finally had to file rehabilitation.
 It’s also important to maintain convertibility because if you can’t convert the peso, you cannot purchase foreign currency. No
one will accept your peso.

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3. Supervise and regulate the operations of banks and other financial institutions
 We had this under GBL in sec 4

SECTION 4.Supervisory Powers.— The operations and activities of banks shall be subject tosupervision of the BangkoSentral.
"Supervision" shall include the following:
4.1. The issuance of rules of conduct or the establishment of standards of operation for uniform application to all institutions or
functions covered, taking into consideration the distinctive character of the operations of institutions and the substantive
similarities of specific functions to which such rules, modes or standards are to be applied;
4.2. The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined
by the Monetary Board;
4.3. Overseeing to ascertain that laws and regulations are complied with;
4.4. Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether an
institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found by or discovered
by an audit shall be immediately addressed;
4.5. Inquiring into the solvency and liquidity of the institution (2-D); or
4.6. Enforcing prompt corrective action. (n)
The BangkoSentral shall also have supervision over the operations of and exercise regulatory powers over quasi-banks, trust
entities and other financial institutions which under special laws are subject to BangkoSentral supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the borrowing of funds through the issuance,
endorsement or assignment with recourse or acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653
(hereafter the "New Central Bank Act") for purposes of relending or purchasing of receivables and other obligations.

Based on these objectives, we now have the BSP’s basic functions

BASIC FUNCTIONS OF THE BSP

1. Maintain price stability

 Money supply affects price stability. The more money circulating in the economy, the lesser its purchasing power, the higher the
prices of goods. If there’s more money, there’ more demand. So the prices of supply go up. If there is less money, less demand,
prices of supply tend to go down. Which is good for us, up or down? Neither. You might say going down is better because you are a
consumer; but you also have to think of the businessmen. If they go down because no ne is buying from them, economy goes down.
The job of the BSP is to balance supply and demand so prices don’t get too high or low. Since prices are affected by money supply,
the first basic function in obtaining price stability is currency issue

a. Currency issue
This is the 1st basic function.

i. The BSP has the sole power to issue currency.

SEC. 50.Exclusive Issue Power._ The BangkoSentral shall have the sole power and authority to issue currency, withinthe
territory of the Philippines. No other person or entity, public or private, may put into circulation notes, coins or any other
object or document which, in the opinion of the Monetary Board, might circulate as currency, nor reproduce or imitate the
facsimiles of BangkoSentral notes without prior authority from the BangkoSentral.
The Monetary Board may issue such regulations as it may deem advisable in order to prevent the circulation of foreign
currency or of currency substitutes as well as to prevent the reproduction of facsimiles of BangkoSentral notes.
The BangkoSentral shall have the authority to investigate, make arrests, conduct searches and seizures in accordance with
law, for the purpose of maintaining the integrity of the currency.
Violation of this provision or of any regulation issued by the BangkoSentral pursuant thereto shall constitute an offense
punishable by imprisonment of not less than five (5) years but not more than ten (10) years. In case the Revised Penal
Code provides for a greater penalty, then that penalty shall be imposed.

 You know under the RPC, anyone who makes money without authority from BSP will be held liable for falsification or
forgery. That is a crime.

ii. Notes and coins issued by BSP are its liabilities

 BSP cannot indiscriminately issue money because that is the liability of the BSP. The money that it issues is its liability so it
has to make sure it will not issue beyond its assets. If it does, it will now have liabilities more than its assets. It will go
bankrupt, which cannot happen.

SEC. 51.Liability for Notes and Coins._ Notes and coinsissued by the BangkoSentral shall be liabilities of the
BangkoSentraland may be issued only against, and in amounts not exceeding, the assets of the BangkoSentral. Said notes
and coins shall be a first and paramount lien on all assets of the BangkoSentral.
The BangkoSentral's holdings of its own notes and coins shall not be considered as part of it's currency issue and,
accordingly, shall not form part of the assets or liabilities of the BangkoSentral.

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iii. Guaranteed by the government

SEC. 52.Legal Tender Power._ All notes and coins issued by the BangkoSentral shall be fully guaranteed by the Government
of the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public and private:
Provided, however, That, unless otherwise fixed by the Monetary Board, coins shall be legal tender in amounts not
exceeding Fifty pesos (P50) for denominations of twenty-five centavos and above, and in amounts not exceeding Twenty
pesos (P20) for denominations of ten centavos or less.
 The government fully guarantees the notes and coins issued by the BSP and such are legal tender
 BSP has its own rules and regulations on how much it can issue. It doesn’t just end with its assets; there are many factors to
consider

iv. Legal Tender

 The form of payment where the creditor is compelled to accept.If you pay by check, the creditor is not compelled to
accept. In fact in your Obligations and Contracts, payment by check will not extinguish your obligation until it is encashed.
Unlike cash, it is legal tender, the creditor will be compelled to accept.
 Limitations (can be amended by the MB, they can issue regulations on this):
- denominations of 25 centavos and above, legal tender for 50 pesos
- denominations of 10 centavos or less, 20 pesos

b. Liquidity management
o Under this function, the BSP formulates and implements monetary policy aimed at influencing money supply consistent with its
primary objective to maintain price stability
o Other than currency issue, you can influence money supply by:

i. Set interest rate policy

 They cannot fix interest rates because that depends on the banks but they can set the policy as to how the banks will
determine their interest rates
 If there is too much money circulating in the economy, the BSP will set a higher interest rate so that people will want to
deposit their money because it will earn more and it will be a deterrent from borrowing money, because if you borrow
money the interest rate is high. It has the effect of lessening the money circulating in the economy
 When the BSP finds that inflation is too low, or inflation rate is going down to the extent that it isn’t desirable anymore, the
BSP can reduce interest rates. People will want to take out their money from banks and instead use it or invest it where it
can earn more. People will be induced to borrow also because the rates they will pay are low.
 Through its interest rates policy, BSP can influence money supply

ii. Open market operations

 This was discussed in BOC vs Planters Bank
 BSP is authorized to issue, buy and sell government securities
 Instead of buying goods, you buy investment or securities from the government. If the BSP finds that there is too much
money circulating, they will CB bills, in which case the money will go to the BSP and out of circulation. If it finds that there is
too few, it will repurchase the securities, or it will buy them at a discount. The money goes out to the circulation again. That
is open market operation
 Sec 61 provides the guiding principle of liquidity management.

SEC. 61.Guiding Principle._ The Monetary Board shallendeavor to control any expansion or contraction in monetary
aggregates which is prejudicial to the attainment or maintenance of price stability.

If the BSP finds there is too much money, prices are going up, it will want to contract the money supply. If there is too little
money circulating, it will want to expand money supply. This is done through interest rates policy and open market
operations

c. Lender of last resort

o If banks need money and they cannot borrow from each other, their last resort is to borrow from the BSP. Sec 82, 83, and 84 of
the NCBA provides the instances when the BSP can lend money to banks
o Sec 82 describes the normal credit operations of banks; the day-to-day ordinary loans given by BSP to banks

o NORMAL CREDIT OPERATIONS

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SEC. 82.Authorized Types of Operations. _ Subject to the principle stated in the preceding section of this Act, the BangkoSentral may
normally and regularly carry on the following credit operations with banking institutions operating in the Philippines.
(a) Commercial credits. - The BangkoSentral may rediscount, discount, buy and sell bills, acceptances, promissory notes and other
credit instruments with maturities of not more than one hundred eighty (180) days from the date of their rediscount, discount or
acquisition by the BangkoSentral and resulting from transactions related to:
(1) the importation, exportation, purchase or sale of readily saleable goods and products, or their transportation within the Philippines;
or
(2) the storing of nonperishable goods and products which are duly insured and deposited, under conditions assuring their
preservation, in authorized bonded warehouses or in other places approved by the Monetary Board.
(b) Production credits. - The BangkoSentral may rediscount, discount, buy and sell bills, acceptances, promissory notes and other credit
instruments having maturities of not more than three hundred sixty (360) days from the date of their
rediscount, discount or acquisition by the BangkoSentral and resulting from transactions related to the production or processing of
agricultural, animal, mineral, or industrial products. Documents or instruments acquired in accordance with this subsection shall be
secured by a pledge of the respective crops or products: Provided, however, That the crops or products need not be pledged to secure
the documents if the original loan granted by the BangkoSentral is secured by a lien or mortgage on real estate property seventy
percent (70%) of the appraised value of which equals or exceeds the amount of the loan granted.
(c) Other credits. - Special credit instruments not otherwise rediscountable under the immediately preceding subsections (a) and (b)
may be eligible for rediscounting in accordance with rules and regulations which the BangkoSentral shall prescribe. Whenever
necessary, the BangkoSentral shall provide funds from noninflationary sources: Provided, however, That the Monetary Board shall
prescribe additional safeguards for disbursing these funds.
(d) Advances. - The BangkoSentral may grant advances against the following kinds of collaterals for fixed periods which, with the
exception of advances against the collateral named in clause (4) of the present subsection, shall not exceed one hundred eighty (180)
days:
(1) gold coins or bullion;
(2) securities representing obligations of the BangkoSentral or of other domestic credit institutions of recognized solvency;
(3) the credit instruments to which reference is made in subsection (a) of this section;
(4) the credit instruments to which reference is made in subsection (b) of this section, for periods which shall not exceed three hundred
sixty (360) days;
(5) utilized portions of advances in current account covered by regular overdraft agreements related to operations included under
subsections (a) and (b) of this section, and certified as to amount and liquidity by the institution soliciting the advance;
(6) negotiable treasury bills, certificates of indebtedness, notes and other negotiable obligations of the Government maturing within
three (3) years from the date of the advance; and
(7) negotiable bonds issued by the Government of the Philippines, by Philippine provincial, city or municipal governments, or by any
Philippine Government instrumentality, and having maturities of not more than ten (10) years from the date of the advance.
The rediscounts, discounts, loans and advances made in accordance with the provisions of this section may not be renewed or
extended unless extraordinary circumstances fully justify such renewal or extension. Advances made against the collateral named in
clauses (6) and (7) of subsection (d) of this section may not exceed eighty percent (80%) of the current market value of the collateral.

o (Those underlined) the BSP has authority to lend money to banks for these purposes

o We also have special credit operations, which are loans for liquidity purposes. Liquidity means your liquid assets or your current
assets are less than your current liabilities. You cannot pay your obligations as they become due, although you have sufficient
assets to pay up your liabilities. It’s just that your assets are not liquid, not cash. So you need more time to convert to cash. You
are not insolvent or bankrupt. If a bank is suffering from liquidity problems, it has sufficient assets but more people are
withdrawing. Then they can borrow from the BSP for 7 days. This will grant them the time to at least convert their non-current
assets into liquid assets or to cash

C. SPECIAL CREDIT OPERATION

SEC. 83.Loans for Liquidity Purposes. _ The BangkoSentral may extend loans and advances to banking institutions for a
period of not more than seven (7) days without any collateral for the purpose of providing liquidity to the banking
system in times of need.

o There are also emergency credit operations.

D. EMERGENCY CREDIT OPERATION

SEC. 84.Emergency Loans and Advances._ In periods of national and/or local emergency or of imminent financial
panicwhich directly threaten monetary and banking stability, the Monetary Board may, by a vote of at least five (5) of
its members, authorize the BangkoSentralto grant extraordinary loans or advances to banking institutions secured by
assets as defined hereunder: xxxx

When the BSP gives loans to these financial institutions, the loans will ultimately go to the public thereby increasing monetary
supply. And when the BSP demands payment, it will also contract the monetary supply. So its role as a lender of last resort
affects price stability

d. Banker/financial advisor and official depositary of the government

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o The BSP keeps the government’s money
o Now, the BSP allows also the government to deposit in ordinary UBs and KBs subject to compliance with rules and regulations
issued by the BSP

 Through these 4 basic functions (a, b, c, d), the BSP tries to maintain price stability. These are the tools used by the BSP

2. Promote and maintain monetary stability and convertibility of the peso

Convertibility: international. Exchange peso with another foreign currency.

Interconvertibility: local (provided under Section 55). When one denomination is exchange with another denomination but same
currency

 Section 55. Interconvertibility of Currency. - The BangkoSentral shall exchange, on demand and without charge, Philippine currency of any
denomination for Philippine notes and coins of any other denomination requested. If for any reason the BangkoSentral is temporarily
unable to provide notes or coins of the denominations requested, it shall meet its obligations by delivering notes and coins of the
denominations which most nearly approximate those requested.
 The BangkoSentral is obliged to exchange one denomination of any other because the currency is the liability of the BangkoSentral
so you can go there and have the BSP exchange it same goes with bank. Unless the money is a counterfeit.

 How do you promote and maintain monetary stability and convertability of the peso?

a. Management of Foreign Exchange Reserves

 Buy and sell foreign exchange under Section 70 which states that the BangkoSentral may buy and sell foreign notes and coins,
and documents and instruments of types customarily employed for the international transfer of funds. The BangkoSentral may
engage in future exchange operations.
 If the BSP has foreign exchange reserves, you don’t need to look outside the country to look for foreign currency so it helps
stabilize the peso.
 BSP is also authorized to purchase and sell Gold- the ultimate currency. Since under the international currency market, your
currency is worthless if not backed up with gold.

b. Determine the Foreign exchange rate policy

 Currently using the open market approach/ market-oriented exchange rate policy- letting market factors determine exchange
rates- make sure it’s not too high or low.

Section 74. Exchange Rates. - The Monetary Board shall determine the exchange rate policy of the country.
          The Monetary Board shall determine the rates at which the BangkoSentral shall buy and sell spot exchange, and shall
establish deviation limits from the effective exchange rate or rates as it may deem proper. The BangkoSentral shall not collect
any additional commissions or charges of any sort, other than actual telegraphic or cable costs incurred by it.
            The Monetary Board shall similarly determine the rates for other types of foreign exchange transactions by the
BangkoSentral, including purchases and sales of foreign notes and coins, but the margins between the effective exchange rates
and the rates thus established may not exceed the corresponding margins for spot exchange transactions by more than the
additional costs or expenses involved in each type of transactions. (NCBA)

3. Financial supervision

Section 4. Supervisory Powers. The operations and activities of banks shall be subject to supervision of the BangkoSentral. "Supervision"
shall include the following:
4.1. The issuance of rules of, conduct or the establishment standards of operation for uniform application to all institutions or functions
covered, taking into consideration the distinctive character of the operations of institutions and the substantive similarities of specific
functions to which such rules, modes or standards are to be applied;
4.2 The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the
Monetary Board;
4.3 Overseeing to ascertain that laws and regulations are complied with;
4.4 Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether an
institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found by or discovered by an
audit shall be immediately addressed;
4.5 Inquiring into the solvency and liquidity of the institution (2-D); or
4.6 Enforcing prompt corrective action. (n)
The BangkoSentral shall also have supervision over the operations of and exercise regulatory powers over quasi-banks, trust entities and
other financial institutions which under special laws are subject to BangkoSentral supervision. (GBL)

Aspects of supervision:

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1. Examination- can look into the documents; active power
2. Oversight-report to you; passive power (Banks are required to report to the BSP in relation to election of BOD, loan, stretch SBL)
3. Investigation- aside from looking at documents, you make verbal inquiries or interviews
4. Enforcing prompt corrective action- if BSP finds that bank is about to breach limits, enforce to comply remedies

How does BSP enforce/ carry out supervision of banks?

Pursuant to Section 25:
1.) BSP can administer oaths so that investigatory power of BSP can be coupled with criminal liability. They can make inquiry through a sworn
affidavit which can make affiant liable for perjury.
2.) Power to issue subpoena

CASE: BANK OF COMMERCE vs PLANTERS BANK

Facts:
7 Central Bank bills was owned by RCBC and subsequently, sold these to Bank of Commerce. The latter delivered Detached
Assignments to the PDB and in turn, PDB sold BOC treasury bills. Instead of delivering treasury bills, it delivered the CB bills to BOC.
Nevertheless, PDB retained possession of the Detached Assignments. There was the motion to interplead. BOC prayed for it to be declared
the rightful owner and to deliver sales transactions. Since it was filed in the RTC, there was the issue of WON RTC has jurisdiction over the
case.
Ruling:
As aptly observed by the CA, the BSP Monetary Board is an independent central monetary authority and a body corporate with fiscal
and administrative autonomy, mandated to provide policy directions in the areas of money, banking and credit. It has power to issue
subpoena, to sue for contempt those refusing to obey the subpoena without justifiable reason, to administer oaths, and compel
presentation of books, records and others, needed in its examination, to impose fines and other sanctions and to issue cease and desist
order. Section 37 of R.A. 7653, in particular explicitly provides that BSP Monetary Board shall exercise its discretion in determining whether
administrative sanctions should be imposed on banks and quasi banks, which necessarily implies that the BSP Monetary Board must conduct
some form of investigation or hearing regarding the same.Moreover,the grant of quasi-judicial authority to the BSP cannot possibly extend
to situations which do not call for the exercise of its supervisory or regulatory functions over entities within its jurisdiction.

Discussion:
 According to PDB, they had no intention of selling, in effect saying that they are still owners of the bills
 The CB bills was negotiated PDB to BOC, BOC in turn negotiated it to several others but ultimately, BOC reacquired all and was holding the
CB Bills
 When BSP filed interpleader, it told court that it has nothing to do with it, let other parties decide and court allowed such.
 The BOC prayed that it be declared the owner of the bills and the money put in escrow be paid to BOC
 PDB said that RTC has no jurisdiction, and it lies with BSP since it has power to adjudicate the claim- quasi judicial power
 Thus, BSP has quasi-judicial power(See Ruling above for instances when it can exercise such, the entire ruling above-the whole paragraph
was recited by Maam so just be familiar with it)
 But of course, if BSP wants to impose a criminal penalty it has to go to court. However, fines, sanctions- the BSP can do them by itself.
 The issuance of CB Bills is in accordance to open market operations which is part of the objective to maintain price stability. BSP’s quasi-
judicial power does NOT include the adjudication of ownership of the CB bills
 There are 7 basic functions but are grouped into 3 and these are- The objective of –
1.)Price Stability,
2.) Monetary Stability &
3.) Supervision
 However, the quasi judicial power is limited only to its SUPERVISORY AND REGULATORY powers . Meaning, no quasi-judicial power if it’s
not within your supervisory power.
 So RTC has jurisdiction and thus, may continue hearing the case.

SUMMARY OF THE BASIC FUNCTIONS

1. Currency issue
2. Liquidity management
3. Lender of last resort
4. Banker/financial advisor and official depositary of the government
5. Foreign reserves
6. Determination of foreign exchange rate policy
7. Financial supervision

MONETARY BOARD
The Monetary Board is composed of 7 members:
 1 of whom is the Governor of BSP,
 another is a member of the Cabinet (which does not exactly say who but normally, the Secretary of Finance but law does not
specifically state it should be the SOF),
 5 members of private sector which must serve full time so as to avoid conflict of interest.
Limitations to avoid conflict of interest:

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1) Anyone who has been affiliated with a bank under the supervisory and regulatory power of the BangkoSentral cannot join the
Monetary Board for 1 year from the time of his termination with the bank.
2) After you stopped being a member of the MB, you have to wait for 2 years before going back to a banking institution.

Powers of Monetary Board

 The powers can be exercised through a group- just like the BOD. So 7, in order to have a valid quorum of 4. Among the 4 must always
be the Governor. But Section 19 is the exception:

Section 19. Authority of the Governor in Emergencies. - In case of emergencies where time is sufficient to call a meeting of the Monetary Board,
the Governor of the BangkoSentral, with the concurrence of two (2) other members of the Monetary Board, may decide any matter or take
any action within the authority of the Board.

            The Governor shall submit a report to the President and Congress within seventy-two (72) hours after the action has been taken.
At the soonest possible time, the Governor shall call a meeting of the Monetary Board to submit his action for ratification.

Section 15. Exercise of Authority. - In the exercise of its authority, the Monetary Board shall:

(a) issue rules and regulations it considers necessary for the effective discharge of the responsibilities and exercise of the powers vested upon
the Monetary Board and the BangkoSentral. The rules and regulations issued shall be reported to the President and the Congress within
fifteen (15) days from the date of their issuance;

(b) direct the management, operations, and administration of the BangkoSentral, reorganize its personnel, and issue such rules and
regulations as it may deem necessary or convenient for this purpose. The legal units of the BangkoSentral shall be under the exclusive
supervision and control of the Monetary Board

(c) establish a human resource management system which shall govern the selection, hiring, appointment, transfer, promotion, or dismissal of
all personnel. Such system shall aim to establish professionalism and excellence at all levels of the BangkoSentral in accordance with sound
principles of management.

A compensation structure, based on job evaluation studies and wage surveys and subject to the Board's approval, shall be instituted as an
integral component of the BangkoSentral's human resource development program: Provided, That the Monetary Board shall make its own
system conform as closely as possible with the principles provided for under Republic Act No. 6758: Provided, however, That compensation
and wage structure of employees whose positions fall under salary grade 19 and below shall be in accordance with the rates prescribed under
Republic Act No. 6758.

(d) adopt an annual budget for and authorize such expenditures by the BangkoSentral as are in the interest of the effective administration and
operations of the BangkoSentral in accordance with applicable laws and regulations; and

(e) indemnify its members and other officials of the BangkoSentral, including personnel of the departments performing supervision and
examination functions against all costs and expenses reasonably incurred by such persons in connection with any civil or criminal action, suit
or proceedings to which he may be, or is, made a party by reason of the performance of his functions or duties, unless he is finally adjudged in
such action or proceeding to be liable for negligence or misconduct.

(a) issue rules and regulations- MORB and BSP circulars

(b) direct the management, operations, and administration – this is a manifestation of administrative autonomy, internal operations
(c) establish a human resource management system– this is a manifestation of administrative autonomy
(d) adopt an annual budget for and authorize such expenditures- fiscal autonomy
(e) indemnify- fiscal autonomy

The 2nd paragraph regarding the compensation structure of the-Salary Standardization Law as discussed in the case of:

CASE: CENTRAL BANK (BSP) Employees Association, Inc. vs BSP

Facts:
On July 1993, The New Central Bank Act (R.A. 7653) took effect, abolishing the Old Central Bank of the Phil and created a new BSP.
Almost 8 years after, petitioner BSP Employees Association filed a petition for prohibition to restrain BSP from implementing the last proviso
of Section 15 (c) Article II of R.A. 7653 constitutes discrimination on the 2,994 rank-and-file employees of the BSP on the ground that it is
unconstitutional.
Ruling:
The passage of subsequent laws amending the charter of 7 other governmental financial institutions (GFI’s), the continued operation
of the last proviso of Section 15 (c) Article II of R.A. 7653 constitutes discrimination on the 2,994 rank-and-file employees of the BSP.
Discussion:

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 As is, this law is valid because there is substantial distinction of employees and R.A. 7653 alone is valid. The problem is when
subsequently, Congress passed laws for some government agencies exempting employees- all their employees.
 So the Sc said that it is indeed a violation of equal protection and thus, the BSP employees- officers to its rank-and-file are now
exempt. So no more Salary Standardization.

THE GOVERNOR

 Section 17. Powers and Duties of the Governor. - The Governor shall be the chief executive officer of the BangkoSentral. His powers and duties
shall be to:
(a) prepare the agenda for the meetings of the Monetary Board and to submit for the consideration of the Board the policies and measures
which he believes to be necessary to carry out the purposes and provisions of this Act;
(b) execute and administer the policies and measures approved by the Monetary Board;
(c) direct and supervise the operations and internal administration of the BangkoSentral. The Governor may delegate certain of his
administrative responsibilities to other officers or may assign specific tasks or responsibilities to any full-time member of the Monetary Board
without additional remuneration or allowance whenever he may deem fit or subject to such rules and regulations as the Monetary Board may
prescribe;
(d) appoint and fix the remunerations and other emoluments of personnel below the rank of a department head in accordance with the
position and compensation plans approved by the Monetary Board, as well as to impose disciplinary measures upon personnel of the
BangkoSentral, subject to the provisions of Section 15(c) of this Act: Provided, That removal of personnel shall be with the approval of the
Monetary Board;
(e) render opinions, decisions, or rulings, which shall be final and executory until reversed or modified by the Monetary Board, on matters
regarding application or enforcement of laws pertaining to institutions supervised by the BangkoSentral and laws pertaining to quasi-banks, as
well as regulations, policies or instructions issued by the Monetary Board, and the implementation thereof; and
(f) exercise such other powers as may be vested in him by the Monetary Board.

 There are 3 Deputy Governors:

2. Deputy for Monetary Stability
3. Deputy for Supervisory and Examination
4. Deputy for Resource Management Sector- Internal Operations Of BSP

 The place/bldg where money is printed- Security Plant Complex (just in case this is asked in the bar)

CONSERVATORSHIP

SEC. 29.Appointment of Conservator._ Whenever, on thebasis of a report submitted by the appropriate supervising or examining
department, the Monetary Board finds that a bank or a quasi-bank is in a state of continuing inability or unwillingness to maintain a
condition of liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a
conservator with such powers as the Monetary Board shall deem necessary to take charge of the assets, liabilities, and the
management thereof, reorganize the management, collect all monies and debts due said institution, and exercise all powers necessary
to restore its viability. The conservator shall report and be responsible to the Monetary Board and shall have the power to overrule or
revoke the actions of the previous management and board of directors of the bank or quasi-bank.
The conservator should be competent and knowledgeable in bank operations and management. The conservatorship shall not exceed
one (1) year.The conservator shall receive remuneration to be fixed by the Monetary Board in an amount not to exceed two-thirds (2/3)
of the salary of the president of the institution in one (1) year, payable in twelve (12) equal monthly payments: Provided, That, if at any
time within the one-year period, the conservatorship is terminated on the ground that the institution can operate on its own, the
conservator shall receive the balance of the remuneration which he would have received up to the end of the year; but if the
conservatorship is terminated on other grounds, the conservator shall not be entitled to such remaining balance. The Monetary Board
may appoint a conservator connected with the BangkoSentral, in which case he shall not be entitled to receive any remuneration or
emolument from the BangkoSentral during the conservatorship. The expenses attendant to the conservatorship shall be borne by the
bank or quasi-bank concerned.
The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to operate on its own and
the conservatorship is no longer necessary. The conservatorship shall likewise be terminated should the Monetary Board, on the basis of
the report of the conservator or of its own findings, determine that the continuance in business of the institution would involve
probable loss to its depositors or creditors, in which case the provisions of Section 30 shall apply.

 Conservatorship is a set of procedure or measure undertaken to restore the viability of the bank
 It is an administrative measure: “to take charge of the assets, liabilities, and the management”
 Organizational in nature: “reorganize the management”
 Financial: “collect all monies and debts due said institution”
 Thus, Conservatorship is an organizational, financial and administrative measures which are undertaken in order to restore the viability
of a bank, or to address a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect
the interest of depositors and creditors

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 If there is an indication that a bank cannot maintain that percentage of liquidity that is sufficient to protect its depositors or
creditors,conservatorship is undertaken to address the situation
 It is very comprehensive: administrative, organizational and financial
 LIQUIDITY: the ability to pay your liabilities as they become due. Although your assets are enough, you cannot pay your liabilities as they
become due because your assets are not liquid enough; you do not have enough cash. You still have to convert your assets to cash.
Insolvency is different because our assets really are not sufficient to pay your liabilities even if you convert your assets to cash
 Conservatorship applies only when there is an issue on liquidity. However, conservatorship is not the only measure. BSP can give out
emergency loans, or they require more capital infusion. This latter power is (as stated under sec 4 of GBL) the power to enforce prompt
corrective action. This is one of the supervisory powers of the BSP. This was undertaken by BSP in that (?) case where the BSP required
the shareholders of the bank to infuse more capital to the bank
 IOW, if a bank is experiencing liquidity problems, conservatorship is not the only measure. Normally, there will be less drastic measures
like emergency loans, like in the cases assigned. The emergency loan is under the function as lender of last resort and also to enforce
prompt corrective action

REQUISITES FOR CONSERVATORSHIP

1. Report from the supervising and examining department (SED) of the BSP

2. Finding by the MB that the bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of depositors and creditors
 The liquidity status is not sufficient to protect the interest of the depositors and creditors
 Even if the bank is still liquid but its liquidity status is very low, the BSP can already enforce the order of conservatorship. The law
says “sufficient to protect”. So the liquidity must not only be present but also sufficient

3. MB must provide the BOD of the bank of the copy of the order of conservatorship
 This order contains the finding of the MB that the ground for conservatorship exists. Once that finding is made, the MB will issue an
order declaring conservatorship and that order must be provided to the BOD of the bank
 This requirement is found under sec 30 because if you read that carefully, you will see it does not only apply to receivership but also
to conservatorship

POWERS AND DUTIES OF THE CONSERVATOR

1. To take charge of the assets, liabilities, and the management of the bank
2. Reorganize the management
3. Collect all monies and debts due said institution
4. Exercise all powers necessary to restore its viability
5. Power to overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank
 By looking at the enumeration, one can say thepowers are all-encompassing.

CASE: FIRST PHIL BANK vs. CA

Facts:
Demetria and Janolo negotiated with Rivera for the sale of land. River approved the sale when the bank was under
conservatorship. When a new conservator took over, he revoked the power of Rivera to make a binding offer.
Ruling:
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it
must be pointed out that such powers must be related to the "(preservation of) the assets of the bank, (the reorganization of) the
management thereof and (the restoration of) its viability." Such powers, enormous and extensive as they are, cannot extend to the  post-
facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution. 44 If
the legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator under
Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law,
deemed to be defective — i.e., void, voidable, unenforceable or rescissible . Hence, the conservator merely takes the place of a bank's
board of directors. What the said board cannot do — such as repudiating a contract validly entered into under the doctrine of implied
authority — the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of
the Bank. His authority would be only to bring court actions to assail such contracts— as he has already done so in the instant case. A
contrary understanding of the law would simply not be permitted by the Constitution. Neither by common sense. To rule otherwise
would be to enable a failing bank to become solvent, at the expense of third parties, by simply getting the conservator to unilaterally
revoke all previous dealings which had one way or another come to be considered unfavorable to the Bank, yielding nothing to perfected
contractual rights nor vested interests of the third parties who had dealt with the Bank.

Discussion:
 Does the conservator have the power to repudiate or revoke previous acts of the management of the bank? Yes, he has the power
under sec 29
 In this case however , the conservator cannot revoke it because the contract was already declared to be a valid contract

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 Thus, the power can only apply with respect to defective contracts. SC said even Congress cannot repudiate perfected contracts
which are valid because that will violate non-impairment clause of the Constitution. If congress itself cannot repudiate, all the more it
cannot grant that power to the conservator.
 This power is limited to revocation of acts/contracts which are defective: void, voidable, unenforceable, rescissible
 Even this power is not unilateral; he has to follow the procedure in the Civil Code. If you want to rescind a contract, you have to go to
court to annul it. His authority will only be to bring court actions to assail the contract. He cannot unilaterally revoke it

PRE-TERMINATION OF CONSERVATORSHIP
 He cannot serve for more than 1 year
 Pre-termination
1. If there is a finding of the conservator as approved by the MB that the bank can continue its operations on its own and that
conservatorship is no longer necessary
 Bank can now continue its normal operations free from the conservator and BSP

2. If there is a finding of the inability of the bank to continue its operations without probable loss to its depositors and creditors
 Sec 29: “The conservatorship shall likewise be terminated should the Monetary Board, on the basis of the report of the
conservator or of its own findings, determine that the continuance in business of the institution would involve probable loss to
its depositors or creditors, in which case the provisions of Section 30 shall apply.”
 Receivership now will take place and sec 30 will be applied
 If conservatorship is terminated based on the 2nd ground, we now go to status of receivership

RECEIVERSHIP
 It is a condition or a status whereby a receiver is assigned for the purpose of protecting the assets of the bank
 Differences between conservatorship and receivership
1. Purpose: In receivership, it is to protect the assets of the bank. In conservatorship, it is to restore the viability of the bank
2. Grounds: There is only 1 ground for conservatorship which is when the bank is in a state of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors. In receivership, there are 4
grounds under sec 30
SEC. 30.Proceedings in Receivership and Liquidation. _Whenever, upon report of the head of the supervising or examining
department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not
include inability to pay caused by extraordinary demands induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the BangkoSentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or transactions
which amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary Board may
summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate
the Philippine Deposit Insurance Corporation as receiver of the banking institution.

 Another ground is in sec 36 NCBA

Sec 36: xxx
Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or unsafe manner, the Board may,
without prejudice to the penalties provided in the preceding paragraph of this section and the administrative sanctions
provided in Section 37 of this Act, take action under Section 30 of this Act.

 Another ground in sec 53 GBL

Sec 53: xxx
In case a bank or quasi-bank notifies the BangkoSentral or publicly announces a bank holiday, or in any manner suspends
the payment of its deposit liabilities continuously for more than thirty (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.

 There are 6 grounds for receivership

3. Term:Conservator has not more than 1 year. In receivership, there are only 90 days

REQUISITES FOR RECEIVERSHIP

1. Report from SED
 Report is something which gives information

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CASE: RBSM vs MB
Facts:
The comptroller submitted her report and on the basis of the report, SED in turn submitted a report to the MB which issued
a resolution placing RBSM under receivership.
Ruling:
Petitioners' contention has no merit.  Banco Filipino and other cases petitioners cited were decided using Section 29 of the
old law (RA 265). Thus in Banco Filipino, we ruled that an "examination [conducted] by the head of the appropriate supervising or
examining department or his examiners or agents into the condition of the bank" is necessary before the MB can order its closure.
However, RA 265, including Section 29 thereof, was expressly repealed by RA 7653 which took effect in 1993. In RA 7653, only a "report of
the head of the supervising or examining department" is necessary. The word "report" has a definite and unambiguous meaning which
is clearly different from "examination." A report, as a noun, may be defined as "something that gives information" or "a usually detailed
account or statement." On the other hand, an examination is "a search, investigation or scrutiny."
Using the literal meaning of "report" does not lead to absurdity, contradiction or injustice. Neither does it defeat the intent
of the legislators. The purpose of the law is to make the closure of a bank summary and expeditiousin order to protect public
interest.This is also why prior notice and hearing are no longer required before a bank can be closed.
Laying down the requisites for the closure of a bank under the law is the prerogative of the legislature and what its wisdom
dictates. The lawmakers could have easily retained the word "examination" but they did not and instead opted to use the word "report."
The insistence on an examination is not sanctioned by RA 7653 
The absence of an examination before the closure of RBSM did not mean that there was no basis for the closure order. But
it is clear under RA 7653 that the basis need not arise from an examination as required in the old law. We thus rule that the MB had
sufficient basis to arrive at a sound conclusion that there were grounds that would justify RBSM's closure. It relied on the report of Mr.
Domo-ong, the head of the supervising or examining department, with the findings that: (1) RBSM was unable to pay its liabilities as they
became due in the ordinary course of business and (2) that it could not continue in business without incurring probable losses to its
depositors and creditors. The report was a 50-page memorandum detailing the facts supporting those grounds, an extensive chronology
of events revealing the multitude of problems which faced RBSM and the recommendations based on those findings.
MB and BSP complied with all the requirements of RA 7653. By relying on a report before placing a bank under receivership,
the MB and BSP did not only follow the letter of the law, they were also faithful to its spirit, which was to act expeditiously.

Discussion:
 It was the comptroller who examined RBSM. SED never made its examination, but MB based its order on the SED report
 Bank argued an examination must be made pursuant to Banco Filipino case. Here it was only based on a report, not an examination.
SED must be required to examine.
 SC said they cannot cite Banco Filipino because that was decided under the old law. SC also said if examination was still required,
Congress could have retained “examination” in the law than just putting there “report”
 Before, examination was required, but under the new law, only a report is required. That ruling in Banco Filipino no longer applies

2. Finding from MB that grounds for receivership exist

 Grounds for Receivership:
Under Section 30 of NCBA
1. Unable to pay its liabilities as they become due in the ordinary course of business
- Which is called as “failure to maintain liquidity”.BangkoSentral has actually has the option of either enforcing Section
29 or Section 30 since this also a ground for receivership. You can go directly to receivership without first going to
conservatorship. This is also called the EQUITY TEST.

2. Insufficient realizable assets, as determined by the BangkoSentral, to meet its liabilities

- This is a situation of “ insolvency”. This is also called the BALANCE SHEET TEST since you are only to look at the
balance sheet, assets minus liabilities. If asset is more than liability, you are solvent. If it is less, you are insolvent. In
determining the accounts of the bank, the BangkoSentral normally has set a technical definition of these accounts. The
BangkoSentral normally will dictate what could be included in its assets, or liabilities. In applying this test, do we
aplyBangkoSentral’s technical definition or the layman’s definition?

CASE: BANCO FILIPINO vs MB

Facts:
Monetary Board issued a resolution based on the old law R.A. 265, from a series of reports. The bank assailed the resolution to
close because according to the report, during the time of the examination, it was not really clear that the bank was insolvent. The assets
amounted to 4.9 billion but the liabilities amounted to 5.2 million. So liabilities were higher than the assets. The reports regarding the
insolvency was not clear since it was partial and incomplete.
Ruling:
Valuation reserves can not be legally deducted as there was no truthful and complete evaluation thereof as admitted by the
Tiaoqui report itself, then an adjustment of the figures show that the liabilities of P5, 282.1 million will not exceed the total assets which
will amount to 5, 595.4 if the 612.2 million allotted to valuation reserves will not be deducted from the assets. There can be no basis
therefore for both the conclusion of insolvency and for the decision of the respondent board to close petitioner bank and place it under
receivership.

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Discussion:
 Valuation reserves- when a bank has certain amount of deposits, it is required to keep a certain percentage of that deposit or the
amount of such deposits be posted with the BangkoSentral in reserve. Basically an asset of the bank segregated and deposited with
the BangkoSentral to protect the depositors.
 When the BSP requires the bank to report its financial condition, it requires that the valuation reserves be taken out of the financial
statements of the bank. So it is not part of the assets of the bank.
 So when the report of Tiaoqui was made, he said that we have assets of 5.5 million but we take out valuation reserve because based
from the rules and procedures, it should not be shown in the financial statements of the bank. So only an amount of 4.9 assets
remain. And the liabilities amounted to 5.2 million.
 The BSP said that your rules are only applicable if the bank is a growing/going concern. Based on the assumption that the bank will
continue in operation. But this is not the case at present since the bank is already closed. So you do not apply the technical rules
anymore.
 In order to determine WON bank is insolvent, Section 29 is very simple and clear. It just says that when the realizable assets of the
bank or nonbank financial intermediary performing QB are insufficient to meet its liability, basically the same wording as Section 30.
 The SC went on further to say that the test of insolvency is measured by determining WON realizable assets of the bank are less than
its liabilities. Hence, a bank is solvent if the fair cash value of all is assets, realizable within a reasonable time by a reasonable prudent
person would equal or exceed its total liabilities exclusive of its stock liability but if such fair cash value so realizable is not sufficient
to pay such liabilities within a reasonable time, the banks is insolvent.
 The SC said for purpose of determining solvency, take a look at actual assets of the bank, how much is its assets, and take a look at
its liabilities. Never mind the technical requirements, since that only applies to one with continuing operation.
 So assets are 5.5 and liability is 5.2. So there are more assets.
 But take a look at the dissenting opinion- that the body how has more knowledge is the BangkoSentral so we should not meddle
with the determination of the BangkoSentral WON bank is solvent or insolvent, which I agree since the bank is virtually insolvent
already. For me, the SC with its layman’s understanding should not have ruled that way and allowed determination of BangkoSentral.
But take note, it also said that BSP did not follow due process since the requisite for ordering receivership is not clearly a report but
an examination.
 Since this case has not been overturned, then we follow the simplistic view of the SC- simply FMV of assets minus FMV of liabilities.

3. cannot continue in business without involving probable losses to its depositors or creditor
-this is related to conservatorship. The second ground for terminating conservatorship is a ground for receivership. But it
maybe, that there is no more conservatorship based on the equity test.
4. willfully violated a cease and desist order under Section 37 that has become final, involving acts or transactions which
amount to fraud or a dissipation of the assets of the institution

Section 36 of NCBA

5. whenever a bank or quasi-bank persists in carrying on its business in an unlawful or unsafe manner

Section 53 of GBL

6. In case a bank or quasi-bark notifies the BangkoSentral or publicly announces a bank holiday, or in any manner suspends
the payment of its deposit liabilities continuously for more than thirty (30) days.
-Based on the report of the SED, that any of the grounds exist not all but any one.

3. Decision of Monetary Board to forbid the Bank or Quasi Bank from conducting business in the Philippines
- This is summary in nature, the decision doesn’t need prior notice and hearing. This step is not found under conservatorship and does
not apply to conservatorship. This is another difference between a receivership and conservatorship. When the conservator is assigned,
the bank will continue with its operations to restore viability. But when a receiver is assigned, the bank will stop operations.

CASE: RURAL BANK OF BUHI vs CA

Facts:
An examination of the books of Buhi was ordered – a general examination of the bank’s affairs and operations found massive
irregularities of loans to unknown and fictitious borrowers. Respondent Odra submitted a recommendation to the Monetary Board of the
placing of Buhi under receivership. The monetary board issued Resolution no 583. Petitioner Bank’s petition is to the effect that due
process was not observed since it was not given the chance to deny and disprove such claim of insolvency.
Ruling:
The closure and liquidation may be considered an exercise of police power. The appointment of a receiver may be made without
notice and hearing but its action is subject to judicial inquiry to insure the protection of the banking institution. Due process does not
necessarily require a prior hearing; a hearing or opportunity to be heard may be SUBSEQUENT to the closure . One can just imagine the
dire consequences of a prior hearing: bank runs would be the order of the day, resulting in panic and hysteria.

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Discussion:
 Bank said the you did not give us the chance to present evidence that we are not insolvent. You have to allow us to show. So you
have no basis, you should’ve given us prior notice and opportunity to be heard before actual finding of insolvency and actual order of
receivership
 There should be no notice since the moment depositors hear such news, everyone will go to the bank and get their money- bank run.
Even if the bank had sufficient money to pay off withdrawals in the normal course of business, now all their liquid assets will be gone.
Or make them all the more unliquid.
 The SC said that you don’t give them the chance to be heard because if you weigh the prejudice against the bank and the prejudice
against the public and depositors, the latter should win out.
 In any case SC said that due process is sufficient if opportunity to be heard is given subsequently.

4. Furnish a copy of the order of receivership to the Board of Directors of the Bank
- Under Section 30, the majority of the stockholders of the bank may file a petition for Certiorari.

CASE: CENTRAL BANK vs CA

Facts:
Based on examination reports submitted by SES, the Monetary Board issued Resolution no. 596 ordering the closure of Triumph
Savings Bank (TSB), placing it under receivership. TSB file d a complaint to annul said resolution challenging the constitutionality of Sec.
29 of R.A. 269 insofar as it authorizes Central Bank to take over even if its not charged with violation of any law or regulation, much less
found guilty thereof.
Ruling:
Previous hearing is nowhere required in Section 29, it is enough that subsequent judicial review be provided. This “clo se now and
hear later” scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of bank’s assets and as a valid
exercise of police power to protect depositors, creditors, stockholders and the general public.

Discussion:
 Same issue as Rural Bank of Buhi
 It mentioned the “close now and hear later” scheme which also used in section 53 of the GBL.
 The scheme is actually steps 3 and 4 of the order of receivership which means that when BSP finds that there’s ground for
receivership and orders receivership, it also automatically orders the closure of the bank.
 This order doesn’t require hearing. Hear later within 10 days after the copy of the order.
 There is also the issue of who has authority to question, since the BSP said the BOD no longer has authority because of receivership
and so all the actions may be brought by me as the receiver. So TSB said that’s absurd since of course, you will not file a case against
yourselves questioning the validity of your order.
 SC upheld neither. The action can only be brought by the stockholders holding the majority of the outstanding capital stock of the
bank.
 In all eventuality, it maybe that the BOD are the ones dissipating the assets, so it is elf-serving of you to question. The person whose
rights need to be protected are the real owners, the stockholders and only they have the personality to question.
 The rule of filing of a case by the stockholders is an amendment to the old central bank law.

Effect of Declaration of Receivership

 Assets of the bank are deemed to be in custodia legis. Receiver will now have the authority to gather and take charge of all the
assets, administer the same for the benefit of the creditors and exercise the general powers of the receiver under the rules of
court. Basically, the receiver then replaces the BOD and the officers of the bank.

CASE: VILLANUEVA vs. CA

Facts:
The disputed lots are originally owned by Sps Villanueva. There was an offer to purchase. Ong made an offer and went to the States.
Bank accepted his offer when he was in the States. Subsequently, the bank became insolvent. Ong came bank and learned about the
acceptance of the offer. Now, he filed an action for specific performance to compel the bank to sign the deed of sale.
Ruling:
The insolvency of the bank and the consequent appointment of a receiver restrict the bank’s capacity to act, especially in relation to
its property. Applying Art 1323 of the NCC, Ong’s offer to purchase the subject lots became ineffective because PVB became insolvent
before the bank’s acceptance of the offer came to his knowledge. Hence, the purported contract of sale between them did not reach the
stage of perfection.

Discussion:
 There was no perfected contract of sale- knowledge of acceptance came after PVB was now under receivership.
 Remember, the Civil Code states that an offer becomes ineffective if one of the parties becomes insolvent prior to perfection of
contract.

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 The SC said that where upon the insolvency of a bank a receiver has been appointed, the assets of the bank pass beyond its control
into the possession and control of the receiver whose duty is to administer the assets for the benefit of the creditors of the
bank.Thus , the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its
property and effects, such authority being reposed in the receiver and in this respect, the receivership is equivalent to an injunction
to restrain the bank officers from intermeddling with the property of the bank in any way.
 The assets of the bank is deemed in custodialegis

What about if the receiver sells the property?

CASE: ABACUS vs MANILA BANKING CORP

Facts:
BangkoSentral ordered the closure of Manila bank and placed it under receivership. There was the contention that the receiver approved the
sale, there was the lease with option to purchase that was entered into after the bank has been declared insolvent. The bank’s president
entered into this contract of lease and buyer contended that the receiver approved of the contract.

Ruling:

The receiver appointed by the Central Bank to take charge of the properties ONLY had the authority to administer the same for the benefit
of the creditors. Granting or approving an “exclusive option to purchase” is not an act of administration, but an act of strict ownership,
involving the disposition of property of the bank. Not being an act of administration, the so-called “approval” of Atty. Renan Santos amounts
to no approval at all.

Discussion:

 The SC said the hey you officers, you no longer have the authority to bind the bank.
 Here, there was such an approval of the receiver, unlike in the case of Villanueva where there is none. However, it doesn’t matter
because thepower of a receiver is only of administration and NOT of strict ownership.

OTHER POWERS OF THE RECEIVER

 Section 30. Proceedings in Receivership and Liquidation.

The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the same for the benefit of
its creditors, and exercise the general powers of a receiver under the Revised Rules of Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the institution: Provided, That the receiver may
deposit or place the funds of the institution in non-speculative investments. The receiver shall determine as soon as possible, but not later
than ninety (90) days from take over, whether the institution may be rehabilitated or otherwise placed in such a condition so that it may be
permitted to resume business with safety to its depositors and creditors and the general public: Provided, That any determination for the
resumption of business of the institution shall be subject to prior approval of the Monetary Board.
            If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in accordance with the next
preceding paragraph, the Monetary Board shall notify in writing the board of directors of its findings and direct the receiver to proceed with
the liquidation of the institution.

 Found under Section 30 and you take note of Banco Filipino case where the powers of the receiver are outlined. And there is the issue
that there was this TRO given over the liquidation proceedings, but the receiver continued to file cases against the borrowers of the bank.
So those borrowers said that there’s already a TRO so receiver no longer has authority.
 The SC said this is NOT true. There was a TRO only on the liquidation proceedings, the receiver can still do all his other task.
 So from receivership, you have 90 days and at the end of such, receiver will determine WON bank will be rehabilitated. If based on Section
30, the bank is on the condition that it can be permitted to do business- then rehabilitate. Or if receiver cannot be rehabilitated, the
Monetary Board shall notify the BOD.
 Take note that rehabilitation and liquidation is EXCLUSIVE. You cannot have one if you also have the other. Such is in the case of PNB vs
Vega

CASE: PVB vs VEGA

Facts:
Central Bank in year 1985 filed a Petition for Assistance in the Liquidation of the Philippine Veterans Bank (PVB). Subsequently in
1992, Congress enacted R.A. 7169 providing for the rehabilitation of the PVB. Petitioners argue that with the passage of this law, the
liquidation court became functus officio and no longer has authority to continue with the liquidation proceedings.
Ruling:
R.A. 7169 provides in part for the reopening of the PVB and likewise provides for the creation of a rehabilitation committee. Clearly,
the enactment of such law has rendered the liquidation court functus officio. Consequently, the respondent judge has been stripped off the
authority to issue orders involving acts of liquidation. Liquidation connotes a winding up and on the opposite end of the spectrum is

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rehabilitation which connotes reopening or reorganization. It is crystal clear that the concept of liquidation is diametrically opposed or
contrary to the concept of rehabilitation, such that both cannot be undertaken at the same time.

Discussion:
 The SC said when you liquidate, you convert the assets into cash and you pay off all the creditors. On the opposite end, rehabilitation
which connotes reorganization.
 It is similar when you are operating a person, you put him in the ICU- that’s rehabilitation. When he’s in there, you do not cut him out to
donate his organ and give to other persons- that’s liquidation. They cannot exist at the same time.

DIFFERENCE BETWEEN A RECEIVER AND LIQUIDATOR:

1. Appointing Authority
 Receiver- appointed by the Monetary board, recommended by SED
 Liquidator- appointed by the Monetary board, recommended by the receiver
2. Grounds
 Receiver- 6 grounds
 Liquidator- only 1 (cannot resume business with the safety to its depositors)
3. Term
 Receiver- 90 days
 Liquidator- indefinite, for as long as it will take convert all assets to cash and pay put liabilities
4. Purpose
 Receiver- administer assets
 Liquidator- convert assets to cash
5. Sequence
 Receiver- always comes first before liquidation
 Liquidator- always comes after
Note: Unlike in conservatorship and receivership
6. Nature of proceeding/action
 Liquidation- special proceeding

CASE: PACIFIC BANKIG CORP EE’S ORG vs CA

Facts:
Pacific Banking Corporation was placed under receivership by the Central Bank of the Philippines. Central Bank filed a petition for
assistance in the liquidation. The liquidator received a copy of the order on September 16, 1991 and filed a Motion for Reconsideration and
Clarification order on October 16,1991. The lower court judge denied such motion which order was received on Dec 9. Following day, he filed a
notice of appeal. Respondent judge disallowed the liquidator’s notice of appeal on the ground that such was more than 15 days after the
receipt of such decision.
Ruling:
A petition for liquidation of an insolvent corporation should be classified as a special proceeding and NOT an ordinary action . Such
petition does not seek an enforcement or protection of a right nor prevention or redress of a wrong. What it seeks is merely a declaration so
that its creditors may file their claims. The liquidator filed within 30 days, the respondent judge thus erred in disallowing the appeal.

Discussion:
 The SC described liquidation as having 2 phases
1.) Case is filed in court as stated in Section 30. Upon filing, there’s publication and everyone who has a claim in the bank will file the claim
in the liquidation court and such court will determine their claims one by one. There will be as many rulings as there are claims. If there are
1000 creditors, the court will issue 1000 orders. And because each claim is a ruling in itself, the SC said that this is a special proceeding and
therefore, you appeal by records on appeal. How come? Because it maybe that you have one case decided already so you go up but the
records will remain in the trial court because there are still other claims to be adjudicated.

2.) Approval of the rehabilitation plan and actual conversion of the assets into cash and payment of the creditors in the order of
preference as stated in the Civil code. Remember class, deposits are ordinary debts and not preferred so the preferred obligations of the
bank are claims where there’s mortgage or other security, those that will be preferred than the claims of the depositors.
 Special proceeding because you don’t adjudicate a right and you don’t declare a status. You merely state what has already been
determined. Because the BangkoSentral already determined that the bank is insolvent. So the court doesn’t need to make that ruling and
will just confirm the ruling of the BangkoSentral.
 And you have 10 days to question the order of liquidation. The 10 days applies to receivership, liquidation, and conservatorship.

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