2004 UPDATES

272

Ateneo Law SchoolCommercial Law Review

Banking Law

I. GENERAL CONCEPTS

A. Concept of Banking

1.Definition Sec. 3.1, GBL: 2. Elements Republic v. Security Credit and Acceptance Corporation, 19 SCRA 58 (1967): receiving savings account deposits which are lent out considered as banking, even without authority from BSP; Central Bank v. Morfe, 20 SCRA 507 (1967): even if savings given as financial assistance to members, but anybody can be a depositor, then considered as banking; Baas v. Asia Pacific Finance Corporation, 343 SCRA 527 (2000): if purchase of receivables at a discount (not deposits), then investing, reinvesting or trading in securities, not considered as banking

a. Engaged in lending of funds

b. Obtained in the form of deposits

c. From the public, which shall mean 20 or more persons Sec. 8.2, GBLB. Banking Distinguished from Quasi-Banking

1.Elements of Quasi-Banking Sec. 4, par. 3, GBL; xSec. X234, MRB

a. Borrowing of funds for borrowers own account

b. From 20 or more lenders at any one time

c. Through issuance, endorsement or assignment with recourse or acceptance of deposit substitutes Sec. 95, NCBA

d. For purposes of relending or purchasing of receivables and other obligations

2.Requirement of Separate License Sec. 6, pars. 1 and 2, GBL: BSP authority required for banking and quasi-banking, except for UB and KB, which if authorized as such, are authorized to engage in quasi-banking C. Banks Distinguished From Other Financial Institutions 1.Investment Houses xSecs. 2 and 3, Investment Houses Law 2.Financing Companies xSec. 3(a), Financing Company Act

3.Investment Companies xSec. 4, Investment Company Act 4.Non-Stock Savings and Loans Associations xSec. 3, Revised Non-Stock Savings and Loans Association Act of 1997

5.Cooperatives xArt. 3, Cooperative Code; But See xArt. 100, Cooperative Code6.Insurance Companies xSec. 2, Insurance Code

D. Nature of Banking Business Sec. 2, GBL1.Vital Role in Economy Simex International (Manila) Inc. v. Court of Appeals, 183 SCRA 360 (1990): indispensable institution in modern world, vital role in economic life, whether as passive entities for safekeeping and saving of money, or as active instruments of business and commerce a. Subject to reasonable regulation by the State Central Bank of the Philippines v. Court of Appeals, 208 SCRA 652 (1992): police power allows placing of bank under conservatorship, among other remedies b. Strikes and Lockouts Sec. 22, GBL: banking industry indispensable to national interest, therefore if strike/lockout unresolved within 7 days, BSP may report it to Secretary of Labor, who shall assume jurisdiction, also, President may at any time assume jurisdiction; xBSP Circular No. 299 (Series of 2001); Article 263(g), Labor Code2. Fiduciary Nature of Banking Business

a. Degree of diligence required Simex International (Manila) Inc. v. Court of Appeals, 183 SCRA 360 (1990): banking affected by public interest, so deposits treated with utmost fidelity (bank liable for failure to credit deposit, took 23 days to correct); Bank of the Philippine Islands v. Intermediate Appellate Court, 206 SCRA 408 (1992): bank not expected to be infallible, but must observe established procedure to check errors (wrong account number on deposit slip) b. When utmost diligence required(i) In dealing with accounts of depositors Philippine Banking Corporation v. Court of Appeals, 419 SCRA 487 (2004): fiduciary obligation deemed written into every deposit agreement, even prior to GBL effectivity, bank liable for wrongful acts of officers within scope of authority, but not beyond (offset time deposit with fictitious PN); Bank of the Philippine Islands v. Casa Montessori Internationale, 430 SCRA 261 (2004): banks bound to know signatures of customers (bank failure to detect 8 instances of forgery in checks proximate cause of loss), no waiver or estoppel from failure to report error in bank statement(ii) In selection and supervision of employees Philippine Commercial and International Bank v. Court of Appeals, 350 SCRA 446 (2001): bank liability primary, not vicarious, for fraud of officers if they have apparent authority, even if bank did not benefit from such fraud (bank failed to detect no clearing stamps on switched checks); Philippine National Bank v. Pike, 470 SCRA 328 (2005): bank liability primary, not vicarious, for negligence of employees (allowing withdrawal by non-account holder without signing withdrawal slip, no passbook and authority)(iii) To be mortgagees in good faith Cruz v. Bancom Finance Corporation, 379 SCRA 490 (2002): cannot rely merely on face of title, must observe precautions to ascertain flaws in title (sale absolutely simulated) and to examine condition of property, because funds are being lent out

(iv) In the custody of documents; integrity of records Heirs of Eduardo Manlapat v. Court of Appeals, 459 SCRA 412 (2005): bank liable for delivering titles to mortgaged properties to stranger (for photocopying purposes) (v) Exception: does not cover transactions outside bank deposits Reyes v. Court of Appeals, 363 SCRA 51 (2001): exercise of utmost diligence not required in commercial transactions that do not involve their fiduciary relationship with their depositors, i.e., sale and issuance of foreign exchange demand draft (swift code error, but did everything in its power to correct)c. Applicability to government financial institutions xGovernment Service Insurance System v. Santiago, 414 SCRA 563 (2003) d. Liability for negligence

(i) Rules on determination of negligence Philippine Bank of Commerce v. Court of Appeals, 269 SCRA 695 (1997): culpa aquilana to tort rules, i.e., proximate cause, last clear chance, contributory negligence 60-40 sharing of loss (failure to duly credit deposits); Consolidated Bank and Trust Corporation v. Court of Appeals, 410 SCRA 562 (2003): culpa contractual (breach of contract raised presumption of negligence, defense of exercising required diligence not a complete defense) vs. culpa aquiliana (burden to prove bank was negligent, defense of exercising required diligence complete defense) (ii) Award of actual, moral, compensatory or temperate damages Araneta v. Bank of America, 40 SCRA 144 (1970): if no pecuniary loss, temperate damages allowed for injury to commercial credit or goodwill; Prudential Bank v. Court of Appeals, 328 SCRA 264 (2000): moral damages allowed even if no malice or bad faith, exemplary damages allowed also; Citytrust Banking Corporation v. Villanueva, 361 SCRA 446 (2001): if embarrassment or inconvenience timely and adequately corrected, no moral damages, if damnum absque injuria, no compensation allowed

(iii) Cannot rely on judgment of other banks to escape liability xMetropolitan Bank and Trust Company v. Cablizo, 510 SCRA 259 (2006)

(iv) Right to recover against erring employee xPacific Banking Corporation v. Court of Appeals, 173 SCRA 102 (1989)

E. Authority to Operate 1.Incorporation Secs. 17 and 46, Corporation Code; Sec. 14, GBL2. Operation Sec. 6, GBLa. Authority required Sec. 6, par. 1, GBLb. MB determination Sec. 6, par. 2, GBLc. Unauthorized advertisement/ business representation Sec. 64, GBL d. Change in name xP.C. Javier & Sons, Inc. v. Court of Appeals, 462 SCRA 36 (2005): no need to notify all debtors of banke. Sanctions for operating without authority: quo warranto instituted by Solicitor General Sec. 6, par. 5, in rel. to Sec. 66, GBL; Republic v. Security Credit and Acceptance Corporation, 19 SCRA 58 (1967): unauthorized banking subject to quo warranto; Central Bank v. Morfe, 20 SCRA 507 (1967) : injury not pre-requisite for quo warranto proceedings; xPerez v. Monetary Board, 20 SCRA 502 (1957)

II. CLASSIFICATION OF BANKS

A. Universal Banks (UB) Sec. 3.2(a), GBL 1.Governing Law xGBL2.Powers Sec. 23, GBL; xSec. X101(b)(1), MRBa.Commercial Bank (KB) powers xSec. 29, GBL; xSec. X101(b)(2), MRB b.Investment House powers xSec. 7, Investment Houses Law; xSEC Omnibus Rules and Regulations for Investment Houses and Universal Banks Registered as Underwriter of Securities(i)Definition/function of investment house any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the underwriting (i.e., guaranteeing distribution and sale) of securities of any kind issued by another corporation xSec. 3, Investment Houses Law; xSec. 2(a), IRR of Investment Houses Law

(iI)Limitations on UBs exercise of investment house powers xSec. 101(b)(1), MRB:

(a) subject to pertinent laws and SEC regulations

(b) if investment house functions performed directly by UB, such functions shall be undertaken by separate department/unit

(c) UB cannot perform functions of investment house both directly (i.e., through a separate department/unit) and indirectly (i.e., through a subsidiary)

c.To invest in equity of non-allied enterprises xSec. 27, GBL; xSec. 1381, MRB B. Commercial Banks (KB) Sec. 3.2(b), GBL1.Governing Law xGBL2.Powers xSec. X101(b)(2), MRBa.KB powers Sec. 29, GBL(i)Accepting drafts

(ii) Issuing letters of credit (L/Cs)

(iii)Discounting and negotiating promissory notes (PNs), drafts, bills of exchange, and other evidences of debt

(iv)Accepting or creating demand deposits

(i) Receiving other types of deposits and deposit substitutes

(ii) Buying and selling foreign exchange and gold or silver bullion

(iii) Acquiring marketable bonds and other debt securities

(iv) Extending credit

b.Engage in quasi-banking functions xSec. 6, par. 1, GBLc.To invest in equity of allied enterprises xSecs. 31 and 32, GBL

d.To purchase, hold and convey real estate xSecs. 51 and 52, GBL

e.Other services xSec. 53, GBL

(i)Receive in custody funds, documents and valuable objects

(ii) Act as financial agent and buy and sell, by order of and for the account of customers, shares, evidences of indebtedness and all types of securities

(iii) Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business

(iv) Upon prior MB approval, act as managing agent, adviser, consultant or administrator of investment management/advisory/ consultancy accounts

(v) Rent out safety deposit boxes

f.To issue guarantees See xSec. 74, General Banking ActC. Thrift Banks (TB) Secs. 3.2(c), GBL1.Governing Law Sec. 71, pars. 1 and 3, GBL

a. Organization, ownership, capital requirements, powers, supervision, and general conduct of business xThrift Banks Act

b. Net worth to risk assets ratio xSec. 71, par. 3, in rel. to Sec. 33, GBLc. Other matters: GBL of suppletory application

2.Declaration of Policy Sec. 2, Thrift Banks Act: establishment of thrift banks to meet needs for capital, personal and investment credit or medium- and long-term loans for Filipino entrepreneurs3.Definition/Purpose Sec. 3.2(c), GBL; Sec. 3(a), Thrift Banks Acta.Composed of:

(i) Savings and mortgage banks

(ii) Stock savings and loans associations; and

(iii) Private development banks

b.For purposes of:

(i)Accumulating savings of depositors and investing them in marketable bonds and other debt securities, commercial papers and accounts receivable, drafts, bills of exchange, acceptances, or notes arising out of commercial transactions

(ii)Providing short-term working capital, medium- and long-term financing, to businesses engaged in agriculture, services, industry and housing

(iii)Providing diversified financial and allied services for its chosen market and constituencies specially for small and medium enterprises and individuals

4.Powers Sec. 10, Thrift Banks Act; xSec. X101(b)(3), MRB D. Rural Banks (RB) Sec. 3.2(d), GBL1.Governing Law Sec. 71, pars. 1 and 3, GBL;

a. Organization, ownership, capital requirements, powers, supervision, and general conduct of business xRural Banks Act

b. Other matters: GBL of suppletory application

2.Declaration of Policy Sec. 2, Rural Banks Act: Establishment of rural banking system to make needed credit available and readily accessible in rural areas on reasonable terms3.Powers Sec. 12, Rural Banks Act; xSec. X101(b)(4), MRBE. Cooperative Banks (Coop Banks) Sec. 3.2(e), GBL1.Governing Law Sec. 71, pars. 1 and 3, GBL; Art. 99, Cooperative Code

a. Organization, ownership, capital requirements, powers, supervision, and general conduct of business xArts. 99 to 109, Cooperative Codeb. Other matters: GBL of suppletory application

2.Declaration of Policy Art. 2, Cooperative Code3.Definition/Functions Art. 100, Cooperative Code a.Definition: Organized by, the majority shares of which is owned and controlled by, cooperatives primarily to provide financial and credit services to cooperatives

b.Functions xArt. 100 Cooperative Code4.Powers: Same as RB xSec. X101(b)(5), MRB

F. Islamic Banks (IB) Sec. 3.2(f), GBL1.Governing Law Sec. 71, par. 2, GBLa. Organization, ownership, capital requirements, powers, supervision, and general conduct of business xIslamic Bank Charter 2.Purpose Sec. 3, Islamic Bank Charter3.Powers Sec. 6, Islamic Bank Charter; xSec. X101(b)(6), MRBG. Other Classifications of Banks Sec. 3.2(g), GBL1.Land Bank of the Philippines (Land Bank) xSecs. 74 to 100-A, Code of Agrarian Reform of the Philippines

2.Development Bank of the Philippines (DBP) xRevised Charter of Development Bank of the Philippines

3.Philippine Veterans Bank (PVB) xPhilippine Veterans Bank Act; xAn Act to Rehabilitate the PVB

4. Philippine National Bank (PNB) but now privatized xRevised Charter of Philippine National Bank; xPhilippine National Bank v. Velasco, 564 SCRA 512 (2008) 5.Pawnshops? xPawnshop Regulation Act; xBSP Circular No. 374; First Planters Pawnshop, Inc. v. Commissioner of Internal Revenue, 560 SCRA 606 (2008): non-bank financial intermediaries (since primary function is lending), i.e., principal functions include lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them, either for their own account or for the account of others H. Foreign Banks 1.Entry of Foreign Banks a.Modes of entry Sec. 2, Foreign Banks Liberalization Act

(i)By acquiring, purchasing or owning up to 60% of the voting stock of an existing domestic bank (ii)By investing in up to 60% of a new banking subsidiary incorporated under the laws of the Philippines

(iii)By establishing branches with full banking authority

b.Subject to MB approval, guidelines Secs. 2 and 3, Foreign Banks Liberalization Actc.Foreign bank may avail of only 1 mode of entry Sec. 2, Foreign Banks Liberalization Act; But may change from one mode of entry to another xSubsec. 121.10, MRBd.Control of 70% of resources or assets of entire banking system must be held by banks which are at least majority-owned by Filipinos Sec. 73, par. 3, GBL; Sec. 3, par. 3, Foreign Banks Liberalization Acte.Equal treatment of local banks Sec. 73, par. 4, GBL; Sec. 8, Foreign Banks Liberalization Act2.Rules on Acquisition of Voting Stock in Existing Domestic Bank

a.May own up to 60% voting stock of only 1 domestic bank Sec. 2, Foreign Banks Liberalization Act

b.Within 7 years from GBL effectivity, MB may authorize foreign bank:

(i)To acquire up to 100% of voting stock of only 1 domestic bank Sec. 73, par. 1, GBL(ii)Which acquired up to 60% of voting stock under the Foreign Banks Liberalization Act and Thrift Banks Act, to further acquire up to 100% voting stock thereof Sec. 73, par. 2, GBLc.MB shall secure the listing in the PSE of shares of stocks of banks established under this mode of entry Sec. 3, par. 3, Foreign Banks Liberalization Act

d.License to do business not required: Equity investment is not deemed doing business Sec. 3(d), Foreign Investments Act of 1991

3.Rules on Acquisition of Voting Stock in New Domestic Bank

a.May own up to 60% of the voting stock of only 1 new banking subsidiary Sec. 2, Foreign Banks Liberalization Act

b.Must be among top 150 foreign banks in the world or top 5 in their country of origin as of application date Sec. 3, par. 2, Foreign Banks Liberalization Act

c.MB shall secure the listing in the PSE of shares of stocks of banks established under this mode of entry Sec. 3, par. 3, Foreign Banks Liberalization Actd.Must be widely-owned and publicly-listed in its country of origin, unless applicant is owned by government thereof Sec. 3, par. 4, Foreign Banks Liberalization Acte.Capitalization Sec. 4(i), Foreign Banks Liberalization Actf.License to do business not required: Equity investment is not deemed doing business Sec. 3(d), Foreign Investments Act of 1991

4.Rules on Establishing Branchesa.Governing Laws

(i)Creation, formation, organization or dissolution of corporations; fixing of relations, liabilities, responsibilities, or duties of stockholders, members, directors or officers of corporations to each other and the corporation: Law of place where foreign bank established Sec. 77, GBL

(ii)Entry into the Philippines through establishment of branches: xForeign Banks Liberalization Act Sec. 72, par. 1, GBL

(iii)Conduct of offshore banking business: xOffshore Banking System Decree; xChapter 1, Part Three, BSP Circular No. 1389 Sec. 72, par. 2, GBL(iv)All other matters: GBL Sec. 77, GBLb.Must be among top 150 foreign banks in the world or top 5 in country of origin Sec. 3, par. 2, Foreign Banks Liberalization Act

c.Must be widely-owned and publicly-listed in country of origin, unless government-owned Sec. 3, par. 4, Foreign Banks Liberalization Actd.Time limitation on entry Sec. 6, Foreign Banks Liberalization Act

e.Capitalization Sec. 4(ii), Foreign Banks Liberalization Actf.Treatment of multiple branches Sec. 74, GBL; Citibank, N.A. v. Sabeniano, 514 SCRA 441 (2007): Sec. 20 of GBL treats domestic bank and all branches as one unit, but Sec. 74 of GBL treats all branches of a foreign bank as one unit, but as to relation of local branches, Sec. 75 of GBL and Sec. 5 of Foreign Banks Liberalization Act provide for Head Office Guarantee for clients to invoke in order to establish accountability of head office for liabilities of its foreign branches. But does not apply in the reverse, i.e., clients liability to RP branch does not extend to liability to head office and branch in other countries, so off-setting cannot be effected. g.Head office guarantee Sec. 75, GBL; Sec. 5, Foreign Banks Liberalization Acth.Must be licensed to transact business Sec. 133, Corporation Code; Hang Lung Bank, Ltd. v. Saulog, 201 SCRA 137 (1991): foreign bank not doing business in RP need not obtain license in order to suei.Summons and legal processes Sec. 76, GBL; Sec. 12, Rule 14, 1997 Rules of Civil Procedure

j.Revocation of license Sec. 78, GBL5.Offshore Banking Units (OBU) Secs. 1(a) and 1(b), Offshore Banking System Decreea.Qualification Sec. 2, Offshore Banking System Decree

b.Certificate of authority to operate Sec. 3, Offshore Banking System Decree

c.Head office guarantee Sec. 4, Offshore Banking System Decreed.Effects of certain laws Sec. 8, Offshore Banking System Decree

III. DEPOSIT FUNCTION

A. Nature of Deposit

1.Deposits as Simple Loans Arts. 1953 and 1980, Civil Code; Serrano v. Central Bank, 96 SCRA 96 (1980): bank deposits (fixed, savings, current) are irregular deposits which are really loans; hence, failure to honor time deposit is failure to pay obligation as debtor, and not breach of trust from failure to return subject matter of deposit.2.Bank as Debtor

a. Deposit is voluntary agreement; Know Your Customer standards xMemorandum dated 1 October 2002; xSec. X262.1, MRBb. Bank acquires ownership of money deposited; obligation to pay amount, but no obligation to return the same money Guingona, Jr. v. City Fiscal of Manila, 128 SCRA 577 (1984): hence, bank not liable for estafa for failure to pay deposit; BPI Family Bank v. Franco, 538 SCRA 184 (2007): deposit of money is generic and fungible, so Art. 559 of Civil Code (which allows owner unlawfully deprived of movable property to recover the same from current possessor) does not apply.c. Payment to proper party-depositor Fulton Iron Works Co. v. China Banking Corp., 55 Phil. 208 (1930): depositor presumed owner of funds, bank without notice justified in paying out to depositor; Bank of the Philippine Islands v. Court of Appeals, 232 SCRA 302 (1994): since ownership of deposit disputed, determination by probate court provisional, authority of heirs to withdraw not equivalent to court order to release deposit to heirs, hence, bank no right to pay persons indisputably entitled theretod. Deposits are not preferred credits Central Bank v. Morfe, 63 SCRA 114 (1975): if bank insolvent, deposits non-preferred credits subject to rules on preference of credits

e. Bank has right to compensation Gullas v. Philippine National Bank, 62 Phil. 519 (1935): general rule, bank has a right to set off of the deposit in its hands for payment of any indebtedness to it on part of depositor; Republic v. Court of Appeals, 65 SCRA 186 (1975): depositor has every right to apply his credit with bank to loans he obtained, compensation takes place ipso jure?; Bank of the Philippine Islands v. Court of Appeals, 512 SCRA 620 (2007): while bank has right to set-off, it should act judiciously, i.e., notify depositor

f. No breach of trust; Mandamus not a remedy xLucman v. Malawi, 511 SCRA 268 (2006)3.Banks Duty of Utmost Care Sec. 2, GBL; Consolidated Bank and Trust Corporation v. Court of Appeals, 410 SCRA 562 (2003): fiduciary nature does not convert contract between bank and its depositors from simple loan to trust agreement, whether express or implied; because banks do not accept deposits to enrich depositors but to enrich themselves, thus banks allowed to offer lowest possible interest rate on deposits and charge highest possible interest rate on loans, and failure to pay deposit is failure to pay simple loan, not breach of trust

B. Kinds of Deposit

1.Demand Deposits Secs. 58-60, NCBA: MRB; BPI Family Savings Bank v. First Metro Investment Corporation, 429 SCRA 30 (2004): liabilities of banks denominated in RP currency and subject to payment in legal tender upon demand by presentation of depositors checks, no prohibition against demand deposits earning interest; xSecs. X201 to X204, MRB

a.For UB and KB Sec. 33, GBL

b.For TB Sec. 10(b), Thrift Banks Actc.For RB/Coop Bank Sec. 12(b), Rural Banks Act; xSubsec. X201.1, MRBd.For Islamic Banks Sec. 6, par. (7)(a), Islamic Bank Charter2.Savings Deposits xSec. X213 and X214, MRB; International Exchange Bank v. Commissioner of Internal Revenue, 520 SCRA 688 (2007): fixed savings deposit treated as time deposit (provides higher interest rate if not withdrawn within required fixed period) as opposed to regular savings deposit (also with passbook but withdrawable any time)3.Negotiable Order of Withdrawal (NOW) Accounts xSecs. X223 to X226, MRB; People v. Reyes, 454 SCRA 635 (2005): interest-bearing accounts that combine payable on demand feature of checks and investment feature of savings account, hence, still deemed as check for purposes of estafa, although gravamen is deceit, not negotiability4.Time Deposits xSecs. X231, MRB; BPI Family Savings Bank v. First Metro Investment Corporation, 429 SCRA 30 (2004): deposit the payment of which cannot be legally required within such specified number of days; International Exchange Bank v. Commissioner of Internal Revenue, 520 SCRA 688 (2007): if withdrawn within period, will be subject to interest as if regular savings deposit5.Foreign Currency Deposits Secs. 2 and 3, FCDA

6.Money Market Placements? Allied Banking Corporation v. Lim Sio Wan, 549 SCRA 504 (2008): Money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not directly deal with each other but through middle man or dealer in open market. Money market transaction, like a deposit, is a simple loan or mutuum, with the investor as a lender who loans his money to a borrower through a middleman or dealer. Bank and client relationship is also creditor-debtor. C. Capacity of Depositors

1.Minors Sec. 1, Presidential Decree No. 734; Sec. 22, Thrift Banks Act2.Married Women Sec. 5, Republic Act No. 71923.Corporations: Through signatories designated by Board of Directors Sec. 23, Corporation Code4.Bank Officers and Employees: Prohibited from maintaining demand deposits or current accounts in banking office where they are assigned xSec. X204, MRB

D. Opening of Deposit Accounts

1.Know Your Customer Standards: At least 3 specimen signatures updated every 5 years, ID optional xSubsec. X262.1, MRB2.Prohibitions:

a.Anonymous Accounts/Fictitious Names Sec. 9(a), AMLA b.Pseudonyms xArt. 178, Revised Penal Code; xCommonwealth Act No. 142, as amended; xArts. 379-380, Civil Code

c.Exception: Numbered accounts Sec. 9(a), AMLA; Sec. 3(1), FCDA3.Joint Accounts Arts. 485, 1207 and 1208, Civil CodeE. Administration of Deposit Accounts1.Deposit of Fundsa. Delivery required Art. 1934, Civil Codeb. Acceptability of withdrawal slips as deposits Firestone Tire & Rubber Co. of the Phil. v. Court of Appeals, 353 SCRA 601 (2001): deposit slips not legal tender, not negotiable, therefore, not acceptable2.Withdrawal of Funds

a. From current accounts: Allowing withdrawal of value of check drawn:

(i)In case of insufficiency of funds Moran v. Court of Appeals, 230 SCRA 799 (1994): if deposit is sufficient, bank failure to pay entitled depositor to damages, conversely, bank not liable for refusal to pay check for insufficiency of funds, even if funds deposited later in the day; Villanueva v. Nite, 496 SCRA 459 (2006): if bank refuses to pay check, payee-holder cannot sue bank, but instead sue drawer, who in turn may sue bank(ii)Prior to clearing Associated Bank v. Tan, 446 SCRA 282 (2004): bank allowing withdrawal of face value of deposited check prior to clearing assumes risk of dishonor (iii)In favor of other persons when check crossed Traders Royal Bank v. Radio Philippines Network, Inc., 390 SCRA 608 (2002): if crossed check, bank duty bound to ascertain indorsers title to check or nature of his possession because crossed check: (a) may not be encashed but only deposited; (b) may be negotiated only once to one with account in bank; (c) serves as warning that check issued for particular purpose and bank must inquire if holder received check pursuant to said purpose, otherwise, he is not a holder in due course(iv)In contrast with managers check Equitable PCI Bank v. Ong, 502 SCRA 119 (2006): managers check is order of bank to pay, drawn upon itself, hence, regarded substantially as good as cashb. From savings accounts Bank of the Philippine Islands v. Court of Appeals, 326 SCRA 641 (2000): present passbook and withdrawal slip and, if third party, present authorization (SPA)c. From time deposits Far East Bank and Trust Company v. Querimit, 373 SCRA 665 (2002): surrender of certificate of depositd. From foreign currency deposits Sec. 5, FCDA: based on contracte. If deceased depositor:

(i)Tax clearance required Sec. 97, NIRC; But See: xSec. 28(A)(1)(a) and (6), NIRC(ii)Survivorship Agreements Vitug v. Court of Appeals, 183 SCRA 755 (1990): survivor-take-all feature allowed, obligation with a term (death), not for unlawful purpose (inofficious donation)3.Booking of Deposits xSec. X261, MRB

4.Interest on Deposits Citibank, N.A. v. Cabamongan, 488 SCRA 517 (2006): loan or forbearance of money, so interest due is that stipulated in writing, and in absence thereof, 12% per annum counted from time of demanda.Not subject to interest ceilings xSec. X242, MRBb.Time of payment of interest on time deposits xSubsec. X242.1, MRBc.Matured time deposits xSubsec. X242.2, MRBd.Disclosure requirements xSec. X243, MRB

5.Closing of Account Far East Bank and Trust Company v. Pacilan, Jr., 465 SCRA 372 (2005): bank not liable for closing of account in exercise of banks rights under express rules and regulations (due to frequent drawing of checks against insufficient funds) F. Secrecy of Bank Deposits

1.General Rules

a.Rationale: right to privacy Art. III, Secs. 2, 3, and 7 and Art. II, Sec. 28, 1987 Constitution; Republic v. Eugenio, 545 SCRA 384 (2008): right to privacy is statutory, not constitutional, thus, while bank accounts not covered by right to information or requirement of full public disclosure, neither is it subject to requirements for issuance of search or arrest warrantsb.Applicable law Intengan v. Court of Appeals, 377 SCRA 63 (2002): if accounts are U.S. Dollar deposits, applicable law is FCDA, and not R.A. 1405, which applies to Philippine Peso deposits.c.Applicability of exclusionary rule Art. III, Secs. 2 and 3, 1987 Constitution; Ejercito v. Sandiganbayan (Special Division), 509 SCRA190 (2006): fruit of the poisonous tree principle not applicable in absence of statutory provision calling for application2.Rules for Peso Deposits a.Coverage Sec. 2, Law on Secrecy of Bank Deposits: all deposits of whatever nature with banks or banking institutions in RP, including investments in bonds issued by GOP; Ejercito v. Sandiganbayan (Special Division), 509 SCRA190 (2006): of whatever nature proscribes restrictive interpretation of deposits, hence, broad enough to cover trust accountsb.Prohibitions Secs. 2 and 3, Law on Secrecy of Bank Deposits; Secs. 55.1(b) and 55.4, GBL c.Exceptions(i)Under the Law on Secrecy of Bank Deposits Sec. 2, Law on Secrecy of Bank Deposits(a)Upon written permission of the depositor or investor:(1)DOSRI loans Sec. 26, NCBA; xSec. X337, MRB(2)For loans secured by hold-out or assignment of CTDs xSec. X315(f), MRB(b)In cases of impeachment

(c)Upon the order of a competent court in cases of bribery or dereliction of duty of public officials

(d)In cases where the money deposited or invested is the subject of litigation (ii)Under the Anti-Graft and Corrupt Practices Act: In cases involving unexplained wealth Sec. 8, Anti-Graft and Corrupt Practices Act; Philippine National Bank v. Gancayco, 15 SCRA 91 (1965): clear exception to bank secrecy law, notwithstanding any provision of law to the contrary; Banco Filipino Savings and Mortgage Bank v. Purisima, 161 SCRA 576 (1988): inquiry extends to cases where property is concealed or held or recorded in name of other persons, else circumvention(iii)Under the Ombudsman Act Sec. 15(8), Ombudsman Act; Marquez v. Disierto, 359 SCRA 772 (2001): requisites for in camera inspection: (a) pending case before court of competent jurisdiction; (b) account must be clearly identified, and inspection limited to subject matter of pending case; (c) bank personnel and account holder must be notified to be present during inspection; (d) inspection may cover only the account identified in pending case Ejercito v. Sandiganbayan (Special Division), 509 SCRA190 (2006): Marquez v. Disierto ruling (accountholder must be notified) has no retroactive application(iv)Under the Plunder Law Secs. 1(d) and 4, Plunder Law; Ejercito v. Sandiganbayan (Special Division), 509 SCRA190 (2006): cases of unexplained wealth, such as plunder, which is similar to bribery, therefore, constitutes exception to confidentiality of deposits(v)Under the AMLA Sec. 11, AMLA; Republic v. Eugenio, 545 SCRA 384 (2008): even if bank inquiry order may be availed of without need of pre-existing case under AMLA, it does not follow that such order may be availed of ex parte, since nothing in Sec. 11 authorizes it, unlike freeze orders which are authorized to be issued upon application ex parte under Sec. 10 of AMLA; in case of doubt, resolved in favor of confidentiality(a)Upon order of a competent court in cases of violation of the AMLA where there is probable cause of money laundering, except that no court order is required in cases of:

(1)kidnapping for ransom

(2)drug trafficking

(3)hijacking, destructive arson and murder, including those perpetrated by terrorists against non-combatants and similar targets

(b)BSP inquiry into or examination of deposits or investments with any bank, when the inquiry or examination is made in the course of the BSPs periodic or special examination

(vi)Independent auditor hired by the bank to conduct its regular audit, provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank xDOJ Opinion No. 243 (Series of 1957); xMarquez v. Disierto, 359 SCRA 772 (2001)(vii)Under the PDIC Charter Sec. 8, par. Eighth, PDIC Charter: PDIC and BSP may inquire into and examine deposit accounts in case there is a finding of unsafe or unsound banking practice(vii)Under the Human Security Act Secs. 27-43, Human Security Act: Note that: (a) exception is only with respect to R.A. No. 1405, and not FCDA; (b) exclusionary rule is made to apply(viii)Under the NIRC Sec. 6(F), NIRC(a)Upon inquiry by the Commissioner of Internal Revenue for the purpose of determining the net estate of a deceased depositor (b)In case a taxpayer files and application to compromise his tax liabilities on the ground of financial incapacity (waiver required)(ix)Under the Unclaimed Balances Law Disclosure to the Treasurer of the Philippines for dormant deposits for at least ten (10) years Sec. 2, Unclaimed Balances Law; xDOJ Opinion No. 104 (Series of 1975)(x)Under the Rules of Court (a)Garnishment Sec. 9(c), Rule 39, 1997 Revised Rules of Civil Procedure; China Banking Corporation v. Ortega, 49 SCRA 356 (1973): disclosure purely incidental to execution process, and no legislative intent to place accounts beyond reach of execution to satisfy final judgment; xPhilippine Commercial and Industrial Bank v. Court of Appeals, 193 SCRA 452 (1991)(b)Preliminary attachment Sec. 10, Rule 57, 1997 Revised Rules of Civil Procedure;d.Penalty for Violation Sec. 5, Law on Secrecy of Bank Deposits3.Rules for Foreign Currency Deposits

a.Coverage Sec. 8, FCDA: all foreign currency doposits authorized under FCDA; Salvacion v. Central Bank of the Philippines, 278 SCRA 27 (1997): FCDA intent to cover only foreign lenders and investors, not transients, but this is exceptional case; Estrada v. Disierto, 445 SCRA 655 (2004): Seems to adopt view that foreign currency deposits of Filipinos (as opposed to foreign lenders and investors, citing Salvacion v. Central Bank of the Philippines), are not covered by FCDA and thus not exempt from BIR-issued processes b.Prohibition Sec. 8, FCDAc.Exceptions(i)Upon written consent of the depositor Sec. 8, FCDA; China Banking Corporation v. Court of Appeals, 511 SCRA 110 (2006): co-payee of a foreign currency depositor in checks deposited in account of latter deemed depositor and may give consent to allow inquiry

(ii)Upon order of a competent court in cases of violation of the AMLA where there is probable cause of money laundering, except that no court order is required in specified cases Sec. 11, AMLA

(iii)BSP inquiry into or examination of deposits or investments with any bank, when the inquiry or examination is made in the course of the BSPs periodic of special examination of said bank Sec. 11, AMLA

(iv)Under the PDIC Charter Sec. 8, par. Eighth, PDIC Charter: PDIC and BSP may inquire into and examine deposit accounts in case there is a finding of unsafe or unsound banking practiced.Penalty for Violation Sec. 10, FCDA4.Rules for Deposits in Specific Banks and Financial Institutions

a.Under the GBL Sec. 55.1(b), GBLa.Islamic Banks Secs. 33 and 45, Islamic Bank Charterb.Rural Banks Sec. 26(a)(2), Rural Banks Act

c.Thrift Banks Sec. 21(a)(2), Thrift Banks Act

d.Non-Stock Savings and Loans Association xSec. 6, Revised Non-Stock Savings and Loans Association Act of 1997G. Garnishment

1.Procedure Sec. 9(c), Rule 39, 1997 Rules of Civil Procedure2. Exempt Deposits

a.Foreign currency deposits Sec. 8, FCDA; But See xSalvacion v. Central Bank of the Philippines, 278 SCRA 27 (1997)

b.Under the Rules of Court Sec. 13, Rule 39, 1997 Rules of Civil Procedure3.No violation of Law on Secrecy of Bank Deposits xChina Bank v. Ortega, 49 SCRA 356 (1973); xPhilippine Commercial and Industrial Bank v. Court of Appeals, 193 SCRA 452 (1991)

4.Liability for Release Rizal Commercial Banking Corporation v. De Castro, 168 SCRA 49 (1988): bank not liable for rlease of funds pursuant to a court order; xPhilippine Commercial and Industrial Bank v. Court of Appeals, 193 SCRA 452 (1991)

H. Deposit Insurance

1.Coverage Sec. 4, PDIC Charter; Sec. 9, FCDA2.Amount Insured: Maximum of P500,000.00 Sec. 4(g), PDIC Charter 3. Rules on Payment Secs. 10(b) to (d), PDIC Charter

4.Liability of PDIC Philippine Deposit Insurance Corp. v. Court of Appeals, 283 SCRA 462 (1997): only for deposits actually received by a bank (and therefore insured with PDIC), but not for money not received, even if time deposit certificates indicates that it is insured with PDIC I. Unclaimed Balances 1.Definition Sec. 1, Unclaimed Balances Law

2.Report to Treasurer; Notice, Posting, Publication Sec. 2, Unclaimed Balances Law; Republic v. Court of Appeals, 345 SCRA 63 (2000): publication mandatory to notify persons who may have interest in funds for purposes of escheat proceedings3. Escheat Proceedings Sec. 3, Unclaimed Balances Law4.Effects of Compliance/Non-Compliance Secs. 4 and 5, Unclaimed Balances Law

J. Anti-Money Laundering Act 1.Declared Policy Sec. 2, AMLA2.Covered Transactions: Transaction, in cash or other equivalent monetary instrument in excess of P500,000 within 1 banking day Sec. 3(b), AMLA3.Suspicious Transactions: Transaction with Covered Institution, regardless of amount involved, where any of the enumerated suspicious circumstances exist Sec. 3(b-1), AMLA4.Covered Institutions Sec. 3(a), AMLAa.Banks and other entities, their subsidiaries and affiliates, supervised/regulated by BSP

b.Insurance companies and other entities supervised/regulated by Insurance Commission

c.SEC supervised/regulated entities

5.Obligations of Covered Institutions Sec. 9, AMLAa.Customer Identification: Establish and record, and maintain a system of verifying true identities of clients, including legal existence and organizational structure of corporate clients, and their representatives, based on official documents

b.Record Keeping: Keep records for 5 years

c.Reporting of Covered and Suspicious Transactions: Report Covered Transactions and Suspicious Transactions to AMLC, within 5 working days from occurrence, which shall not violate the Law on Secrecy of Bank Deposits, FCDA, and GBL

6.Money-Laundering Crime: Committed when the proceeds of an Unlawful Activity are transacted to make them appear to have originated from legitimate sources, by the following acts: Sec. 4, AMLA

a.Transacting or attempting to transact, with monetary instrument or property, knowing it represents, involves, or relates to proceeds of any Unlawful Activity

b.Facilitating money-laundering referred to in Item (a) above, by failing to perform an act

c.Failing to disclose and file report with AMLC of any monetary instrument or property as required under AMLA

7.Unlawful Activities: Act or omission or series or combination thereof, involving or having relation to the crimes enumerated Sec. 3(i), AMLA8.Jurisdiction: Regional Trial Court/Sandiganbayan Sec. 5, AMLA9.Prosecution Sec. 6, AMLA

10.Prohibition against Political Harassment Sec. 16, AMLA11.Penalties and Other Consequences

a.Penalties Sec. 14, AMLA

(i)Money laundering

(ii)Failure to keep records

(iii)Malicious reporting

(iv)Breach of confidentiality

b.Civil Forfeiture Sec. 12, AMLA; xRules on Civil Forfeiture; Republic v. Glasgow Credit and Collection Services, Inc., 542 SCRA 95 (2008): 2 conditions: (1) there is a suspicious transaction report or a covered transaction report deemed suspicious after investigation by AMLC; and (2) court has, in a petition filed for the purpose, ordered seizure of any monetary instrument or property related to such report. Criminal action for an unlawful activity is not a prerequisite for institution of civil forfeiture proceeding, which is in rem.12.Freezing of Accounts: Issued by Court of Appeals upon ex-parte application of AMLC after determination of probable cause that monetary instrument or property is in any way related to Unlawful Activity, for 20 days unless extended Sec. 10, AMLA; Republic v. Eugenio, 545 SCRA 384 (2008): ex-parte application allowed, unlike inquiry into deposit13.Examination of Accounts Sec. 11, AMLA; xRepublic v. Eugenio, 545 SCRA 384 (2008)a.Upon order of a competent court in cases of violation of the AMLA where there is probable cause of money laundering, except that no court order is required in cases of kidnapping for ransom, drug trafficking, hijacking, destructive arson and murder, including those perpetrated by terrorists against non-combatants and similar targets.

b.BSP inquiry into or examination of deposits or investments with any bank, when the inquiry or examination is made in the course of the BSPs periodic of special examination of said bank to ensure compliance with AMLA 14.AMLC; Composition and Powers Sec. 7, AMLA15.Mutual Assistance among States Sec. 13, AMLA

IV. LOAN FUNCTION

A.Basic Concepts

1.Grant, Purpose, and Requirement of Loans Secs. 39 and 40, GBL;a.Grant of loans Sec. 39, GBL: Only in amounts and for periods of time essential for effective completion of operations to be financed; must be consistent with safe and sound banking practicesb.Purpose of loans Sec. 39, GBL: Must be stated in application and in contract between bank and borrower; if bank finds that proceeds employed, without its approval for other purposes, bank has right to terminate loan and demand immediate repayment

c.Requirement for loans Sec. 40, GBL; xSecs. X301, X302 and 304, MRB; bank must ascertain that debtor capable of fulfilling his commitments, hence, bank may require submission of financial statements; if financial statements prove false or incorrect in any material detail, bank has right to terminate loan and demand immediate repayment; United Coconut Planters Bank v. Ramos, 415 SCRA 596 (2003); bank should verify identity and other information regarding its debtors; Banco de Oro-EPCI, Inc. v. JAPRL Development Corporation, 551 SCRA342 (2008): bank should verify capacity to repay, if financial statements falsified, bank may terminate2.Prohibited Transactions Secs. 55.1(c), 55.1(d), and 55.2, GBL: prohibition against bank officers and borrowers in overvaluing security, furnishing false statements, offering and accepting gifts, fees, commissions for loan approval3.MB Regulation

a.Unsecured loans Sec. 41, GBLb.Other security requirements Sec. 42, GBL; Sec. 106, NCBAc.Terms and conditions Sec. 43, GBLd.Renewal or extension Sec. 48 GBL; xSec. X332, MRBe.Provisions for losses and write-offs Sec. 49 GBL; xSecs X302 and X306 MRB, xRepublic Act No. 9182 (Special Purpose Vehicle Act of 2002)

4.Development Assistance Incentives Sec. 46, GBL: for banks that extend loan for social purposes without government guarantee5.Disclosure Requirements Secs. 2, 4 and 6, Truth in Lending Act; xSec. X307, MRB; New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine National Bank, 435 SCRA 565 (2004): If borrower not clearly informed of Disclosure Statements prior to consummation of loan, bank has no right to collect upon such charges, increases, even if stipulated in the loan documents (PN), for violation of Truth in Lending Act B.Terms and Conditions

1.Amortization Sec. 44, GBL: adapted to nature of operations to be financed; if maturity more than 5 years, provisions for periodic amortization; if purpose will not initially produce revenues, may defer amortization, but initial date not later than 5 years2.Pre-Payment Sec. 45, GBL: borrower may, at any time, prepay loan or portion thereof, subject to such reasonable terms agreed upon3.Interest Art. 1956, Civil Code: expressly stipulated in writinga.No ceiling xSec. 1-a, 4-a, 45 of Usury Law; xSec. X305, MRB; Bulos, Jr. v. Yasuma, 527 SCRA 727 (2007): although usury law suspended by C.B. Circular No. 905, s. 1982, still stipulated interest rates are illegal if unconscionable (here 4% per month, other cases 3% per month unconscionable), in which case, legal interest rate of 12% per annum shall apply; Bacolor v. Bangko Filipino Savings and Mortgage Bank, Dagupan City Branch, 515 SCRA 79 (2007): 24% per annum reasonable, also, banks closure does not diminish liquidators power to carry on administration of bank including imposition of interest and institution of foreclosure proceedingsb.In the absence of stipulation xSec. X305, MRBc.Escalation clause; when allowable Art. 1308, Civil Code; xSec. X305, MRB; Philippine National Bank v. Court of Appeals, 196 SCRA 536 (1991): provision allowing increase within limits allowed by law at any time depending on whatever policy it may adopt in the future invalid because it violates mutuality of contracts, especially in contracts of adhesion; New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine National Bank, 435 SCRA 565 (2004): if escalation clause annulled, subject to original or stipulated interest rate; But See xLlorin, Jr. v. Court of Appeals, 218 SCRA 426 (1993)d.Floating rates of interest xSec. X305, MRB; Consolidated Bank and Trust Corporation (Solid Bank) v. Court of Appeals, 356 SCRA 671 (2001): if no reference rate upon which to peg variable interest rate, then invalid4.Extraordinary Inflation/Deflation Art. 1250, Civil Code; Equitable PCI Bank v. Ng Sheung Ngor, 541 SCRA 223 (2007): (a) valid escalation clause provides: (i) interest rate will only be increased if applicable maximum interest rate increased by law or MB; and (ii) stipulated interest rate will be reduced if maximum interest rate is reduced by law or MB; (b) for extraordinary inflation (or deflation to apply: (i) there is an official declaration of extraordinary inflation or deflation from BSP: (ii) obligation is contractual in nature; and (iii) parties expressly agreed to consider effects of extraordinary inflation or deflation. 5.Restructuring xSec. X322, MRBC.Single Borrowers Limit Sec. 35, GBL1.Ceilings Sec. 35.1 and 35.2, in rel. to Sec. 24, GBL; xSec. X303, MRB a.Total credit commitment of bank to borrower shall at no time exceed 20% of net worth (total 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 BSP) of bankb.May be increased by an additional 10% of net worth of bank if adequately secured by trust receipts, shipping documents, warehouse receipts or other similar documents transferring or securing title covering readily marketable, non-perishable goods fully insured

2.What is Included in Ceiling Secs. 35.3 to 35.7, GBL; xSubsec X303.1 to 303.4, MRB: a.Direct liability of maker or acceptor of paper discounted with or sold to bank such bank and liability of general indorser, drawer or guarantor who obtains a loan or discounts or sells papers with such bank b.If individual, include all liabilities of corporation, partnership, or association where he owns or controls majority interest

c.If corporation, include all liabilities of subsidiaries in which corporation owns or controls majority interest

d.If partnership, association, other entity, include liabilities of all members

e.But Exclude: loans and obligations secured by obligations of BSP or GOP, fully guaranteed by GOP, covered by assignment of deposits, margin deposits, and other non-risk items

3.Exceptionsa.As MB may otherwise prescribe for reasons of national interest Sec. 35.1, GBL: Note, SBL currently set at 25% of net worth of bankb.Deposits of RB with government financial institutions Sec. 17, Rural Banks Act4.Sanctions xSubsec. 303.5, MRB

D.DOSRI Accounts Sec. 36, GBL; Sec. 26, NCBA

1.Coverage: Persons and Transactions Covered xSecs. X326 to X329, MRBa.Covered Persons: Directors, Officers, Stockholders, Related Interestsb.Excluded Persons: Shareholders Coop Bank with respect to loans, credit accommodations and guarantees extended by Coop Bank

b.Covered Transactions: DOSRI becoming a borrower (directly or indirectly, for himself or as representative of others), guarantor, indorser, surety (MB may also regulate amount of investments of bank in enterprises owned or controlled by DOSRI)

c.Excluded Transactions: Loans, credit accommodations, or advances to officers in the form of fringe benefits2.Ceilings: Individual and Aggregate Ceilings and Exclusions xSecs. X330 to X332, MRB a.Limit of loans to DOSRI amount equivalent to unencumbered deposits and book value of paid-in capital contribution in bank

b.Exclusions from limit loans secured by non-risk assets

3.Requirements: Procedural and Reportorial xSecs. X334 and X335, MRBa.If Director or Officer loan must be approved in writing by majority of all directors of bank, excluding director concerned, and approval shall be entered upon records of bank and copy transmitted to BSPs SED; Note that if there is a violation of Sec. 36 of GBL, upon due notice to Board of Directors, the office of director or officer who violates may be declared vacant and the director or officer may be subject to penal provisions of NCBAb.If DOSRI dealings shall be upon terms not less favorable to bank than those offered to others4.Sanctions xSec. X336, MRBE.Collateral/Security

1.Unsecured Loans xSec. X319, MRB2.Joint and Solidary Signature (JSS) Art. 2047, Civil Code; xArts. 1207 to 1225, Civil Code; Philippine National Bank v. Court of Appeals, 198 SCRA 767 (1991): liability of surety based on contract; Security Bank and Trust Company, Inc. v. Cuenca, 341 SCRA 781 (2000): suretyship strictly construed against creditor, hence, surety not liable beyond amount or period stipulated, even if continuing surety agreement, absent clear showing that surety waived right to be notified or to give consent; xOng v. Philippine Commercial Industrial Bank, 448 SCRA 705 (2005)3.Loans Secured by Chattels or Intangible Property

a.Limits Sec. 38, GBL: not exceed 75% appraised value of security; xSec. X313, MRBb.Types of security(i)Chattel Mortgage xChattel Mortgage Law

(ii)Pledge xArts. 2085-2123, Civil Code(iii)Hold-out and/or Assignment xArts. 1624-1635, Civil Code 4.Loans Secured by Real Estate Mortgages (REMs)

a.Limits Sec. 37, GBL: not exceed 75% appraised value of real estate, plus 60% appraised value of insured improvements; xSec. X311, MRBb.Mortgagee in good faith vs. mortgagee in bad faith Philippine National Cooperative Bank v. Carandang-Villalon, 139 SCRA 570 (1985): old rule, bank not required to investigate title of property; Development Bank of the Philippines v. Court of Appeals, 331 SCRA 267 (2000): due diligence required of banks: (i) send representatives to premises; and (ii) investigate who are real owners of property; Canlas v. Court of Appeals, 326 SCRA 425 (2000): degree of diligence more than good father of a family, because public interest; xMetropolitan Bank and Trust Co. v. Pascual, 547 SCRA 246 (2009)c.Acquisition of property by way of satisfaction of claims Sec. 52, GBL: Property (i) mortgaged to bank in good faith by way of security for debts, (ii) conveyed to bank in satisfaction of previously contracted debt, or (iii) purchased under judgments, decrees, mortgages, trust deeds, bank may acquire but must dispose within 5 yearsd.Dragnet Clause or Blanket Mortgage Clause Union Bank of the Philippines v. Court of Appeals, 471 SCRA 751 (2005): mortgage liability usually limited to amount in contract, but if manifest intent of parties that mortgaged property shall also answer for future loans, valid 5.Foreclosure of REMs Sec. 47, GBLa.Types of foreclosure(i)Judicial Rule 68, Rules of Court(ii)Extra-judicial Act No. 3135, as amended(iii)Specific rules for TB/RB/Coop Banks Sec. 6, Rural Banks Act; xSubsecs.2311.4 and 3311.4, MRBb.Right and period of redemption Sec. 47, par. 1, GBL: General rule, one (1) year from registration of certificate of sale; xSC Circular AM No. 99-10-05 (as further amended on 7 August 2001)(i) Exception: Extrajudicial foreclosure of property mortgaged by juridical person Sec. 47, par. 2, GBL: registration of certificate of sale, but not exceeding three (3) months(ii) Exercise of right of redemption Metropolitan Bank and Trust Company v. Tan, 569 SCRA 814 (2009): statement of intent to redeem must be with actual and simultaneous tender of payment (iii) Extension of redemption period Lazo v. Republic Surety and Insurance Co., 31 SCRA 329 (1970): legal redemption converted by agreement of parties to conventional redemption; Ibaan Rural Bank, Inc. v. Court of Appeals, 321 SCRA 88 (1999): estoppel (iv) Tolling of redemption period Sumerariz v. Development Bank of the Philippines, 21 SCRA 1374 (1967): Not; Peoples Financing Corporation v. Court of Appeals, 192 SCRA 34 (1990): Not even by TRO; But see Consolidated Bank and Trust Corporation (Solidbank) v. Intermediate Appellate Court, 150 SCRA 591 (1987): Yes; See also CMS Stock Brokerage, Inc. v. Court of Appeals, 275 SCRA 790 (1997): in prior case of Consolidated, there was fraud, hence, period tolled(v) Payment of CGT and DST xBIR Ruling 0046-2001; Letter dated 26 September 2001 addressed to Ayala Life.c.Redemption Price Sec. 47, par. 1, GBL: amount due under mortgage deed plus stipulated interest, costs, expenses less income; Sec. 6, Act No. 3135, as amended; Sec. 28, Rule 39, 1997 Rules of Civil Procedure; Union Bank of the Philippines v. Court of Appeals, 359 SCRA 480 (2001): governed by GBL (GBA then) which amends Act No. 3135, hence, Section 30, Rule 39 of Rules of Court not applicable; Development Bank of the Philippines v. West Negros College, Inc., 391 SCRA 330 (2002): DBP governed by charterd.Possession Sec. 47, par. 1, GBL; Samson v. Rivera, 428 SCRA 759 (2004): Issue of WOP ministerial, even within redemption period e.Injunction and Bond Sec. 47, par. 1, GBL

V. INVESTMENTS AND OTHER FUNCTIONS OF BANKSA.Equity Investments1.Limits on Equity Investments of UBa. In general Sec. 24, par. 1, GBL: May invest in equity of allied (financial or non-financial) and non-allied enterprises; xSec. X376, MRB; xAgan, Jr. v. Philippine International Air Terminals Co., Inc., 402 SCRA 612 (2003) (i)Must be with prior approval of MB Sec. 24, par. 4, GBL

(ii)Total investment in equities of allied and non-allied enterprises Sec. 24.1, GBL: Max. 50% of net worth; xSec. X383(b), MRB

(iii)Investment in equity of any one enterprise Sec. 24.2, GBL: Max. 25% of net worth; xSec. X383(a), MRB(iv)Definition of net worth Sec. 24, par. 3, GBL: total unimpaired paid-in capital including paid-in surplus, retained earnings and undivided profits, net of valuation reserves and other adjustments as may be required by BSP(v)Do the foregoing limits apply to debt-to-equity conversions? No. xSubsec. X116.3(i)., MRB; xSec. 52, GBL (by analogy)

(vi)Sanctions if without prior MB approval xSec. 385, MRBb. In specific areas (i)In financial allied enterprises Sec. 25, GBL: Up to 100% of TB, RB, or financial allied enterprise; if UB publicly listed, up to 100% of only one other UB or KB; xSec. 378, MRB

(ii)In Venture Capital Corporations (VCCs) xSec. X379, MRB(iii)In non-financial allied enterprises Sec. 26, GBL: Up to 100% of equity; xSec. X380, MRB(iv)In non-allied enterprises Sec. 27, GBL: Whether UB or its wholly or majority-owned subsidiary, max. 35% of equity and voting stock of non-allied enterprise; xSec. 1381, MRB(v)In quasi-banks Sec. 28, GBL: MB may limit to 40% of equity to promote competitive conditions(vi)In subsidiaries and affiliates abroad - xSec. X382, MRB2. Limits on Equity Investments of KBa. In general Sec. 30, par. 1, GBL(i) Must be with prior approval of MB Sec. 30, par. 3, GBL

(ii)Total investment in equities of allied (financial or non-financial) enterprises Sec. 30.1, GBL: Max. 35% of net worth

(iii)Investment in equity of any one enterprise Sec. 30.2, GBL: Max. 25% of net worth(iv)Definition of net worth Sec. 24, par. 3, GBL (see above)(v)Sanctions if without prior MB approval xSec. 385, MRBb. In specific areas (i)In financial allied enterprises Sec. 31, GBL: Up to 100% of TB or RB; if other financial allied enterprise, including another commercial bank, minority holding only (ii)In VCCs xSec. X379, MRB(iii)In non-financial allied enterprises Sec. 32, GBL: Up to 100% of equity(iv)In quasi-banks Sec. 28, GBL: MB may limit to 40% of equity to promote competitive conditions (v)In subsidiaries and affiliates abroad - xSec. X382, MRB3.Limits on Equity Investments of TB Sec. 12, Thrift Banks Act4.Limits on Equity Investments of RB Sec. 13, Rural Banks Act;

5.Limits on Equity Investments of Islamic Bank Sec. 6(11), Islamic Bank CharterB. Other KB Functions Sec. 29, GBL; xBSP Circular No. 271 (Series of 2001)1.Non-Core/Quasi-Banking Functions Sec. 4, GBL; Sec. 95, NCBA2.Issuing L/Cs Sec. 105, NCBA; Bank of America, NT & SA v. Court of Appeals, 228 SCRA 357 (1993); Transfield Philippines, Inc. v. Luzon Hydro Corporation, 443 SCRA 307 (2004); Vintola v. Insular Bank of Asia and America, 150 SCRA 578 (1987) (previously discussed under Letters of Credit and Trust Receipts)3.Foreign Exchange Operations: Buying and selling foreign exchange and gold or silver bullion Secs. 76-80, NCBA

C.Other Services Sec. 53, pars. 1-3, GBL

1.Custodian of Funds, Documents, Valuable Objects Sec. 53.1, GBL2.Financial Agent Sec. 53.2, GBL; Panlilio v. Citibank, N.A., 539 SCRA 69 (2007): investment management activities may be exercised by bank, and it creates principal-agent, not trustor-trustee (trusts) or creditor-debtor (deposits), relationship, so governed by rules on agency3.Collection/Payment Agent Sec. 53.3, GBL4.Financial Adviser Sec. 53.4, GBL5.Renting Out Safety Deposit Boxes Sec. 53.5, GBL; CA Agro-Industrial Development Corporation v. Court of Appeals, 219 SCRA (1993): (a) not ordinary contract of lease (because full and absolute control and possession of safety deposit box not with renter) but special kind of deposit; (b) stipulation exempting from liability for loss due to fraud, negligence or delay is void as contrary to law and public policy; (c) if no stipulation, degree of diligence is good father of family; Sia v. Court of Appeals, 222 SCRA 24 (1993): while fortuitous event may exempt bank from liability, its failure to give notice of fact renders it liable (flooding which damaged stamp collection)D.Other Functions/Operations1.Issue Guarantees See Sec. 74, General Banking Act

2.Act as Correspondent Bank Feati Bank & Trust Company v. Court of Appeals, 196 SCRA 576 (1991): if L/C transactions, correspondent banks liability depends on whether it is merely an advising, or it is a confirming, bank; Philippine National Bank v. Court of Appeals, 259 SCRA 174 (1996): local bank, while acting as correspondent bank, cannot intercept funds coursed through it by foreign counterpart for transmittal and deposit to account of individual with another local bank, and thereafter apply funds to obligations owed to it by individual (no shortcut for set-off)3.Credit Card Operations xSec. X320, MRBE.Trust Operations Secs. 79 to 93, GBL: Essentially provides for rules on trust operations by a trust entity to govern trustor-trustee-beneficiary relationshipF.Prohibited Acts

1.Insurance business Sec. 54, GBL: bank shall not directly engage in insurance business Sec. 2, Insurance Code (definition of insurance business)2.Outsourcing of inherent bank functions Sec. 55(1)(e), GBL

VI. BANK REGULATIONS

A. Ownership/Capitalization of Banks

1.Organization Sec. 8, GBL; xBasic Guidelines for Establishment of Banks (BSP Circular-Letter dated 13 July 1998)a.Stock corporation Sec. 8.1, GBL(i)Issuance of stocks Sec. 9, GBL: MB may prescribe rules and regulations on types of stock issued by bank to ensure compliance with governing capital and equity structure; provided, only par value shares may be issued by bank(ii)Treasury stocks Sec. 10, GBL: bank cannot acquire own shares or accept own shares as security for a loan, except with MB approval; provided, if so acquired, sold within 6 months; Fua Cun v. Summers, 44 Phil. 705 (1923): bank has no lien on shares of stock for indebtedness of stockholder; Filipinas Mils, Inc. v. Dayrit, 192 SCRA 177 (1990): based on Sec. 24 of GBA, both specific and general exception; now, under Sec. 10 of GBL, only 1 exception, with MB approval

b.Funds obtained from the public (20 or more persons) Sec. 8.2, GBLc.Minimum capital requirements (amount in million Pesos) Sec. 8.3, GBL; xBSP Circular No. 257 (Series of 2000)

d.Capability and other requirements Sec. 8, par. 2, GBL: determine capability in terms of financial resources and technical expertise, assessment of ownership structure, directors, senior management, operating plan, internal controls, financial projects and capital base2.Stockholdings

a. Foreign stockholdings

(i) Individuals and non-bank corporations Sec. 11, GBL: aggregate up to 40% of voting stock of domestic bank; xBSP Circular No. 256 (Series of 2000)(ii) Foreign banks Secs. 11 and 73, GBL; Foreign Banks Liberalization Act (see previous discussions)b. Filipino stockholdings (i)Individuals and non-bank corporations Sec. 11, par. 1, GBL: individually up to 40% of voting stock of domestic bank; xBSP Circular No. 256 (Series of 2000); xBSP Circular No. 332 (Series of 2002)

(ii)Domestic banks Sec. 25, GBL (for UB); Sec. 31, GBL (for KB)

c. Stockholdings of family groups or related interests Secs. 12 and 13, GBL: What must be disclosed: transactions of (i) individual with bank if stockholdings of individuals related within 4th degree of consanguinity or affinity, legitimate or common-law (considered family groups); (ii) corporations with bank if 2 or more corporations owned by same family group or group of persons (considered related interests); xBSP Circular No. 332 (Series of 2002)d. Required public offering: At least 10% of capital stock of UB xSec. 2.2, BSP Circular No. 271 (Series of 2001)

B. Directors and Officers

1.Composition of Board Secs. 15 and 17, GBL: (a) Corp. Code notwithstanding, 5-15 Directors (but if merger or consolidation, up to 21), with 2 Independent Directors (person other than officer or employee of bank, subsidiaries, related interests); (b) Non-Filipinos may be directors to represent extent of foreign participation; Sec. 7, Foreign Banks Liberalization Act; Sec. 23, Corporation Code2.Qualifications

a.Own at least one share Sec. 23, Corporation Codeb.Fit and proper rule Sec. 16, GBL: (i) To maintain quality of bank management and afford better protection to depositors and public, MB shall prescribe, pass upon, and review qualifications and disqualifications of directors and officers and disqualify those unfit; (ii) after due notice to Board of Directors of bank, MB may disqualify, suspend, or remove any bank director or officer who commits or omits act which renders him unfit for the position; (iii) in determining fitness, consider integrity, experience, education, training, competence Busuego v. Court of Appeals, 304 SCRA 473 (1999): although involving Savings and Loans Associations, MB has wide latitude in administrative proceedings and prior notice and hearing not strictly required, so Sec. 16 of GBL controlling; xSubsec. X141.1, MRBc.Other minimum qualifications xGuidelines for the Establishment of Banks; xSubsec. X141.2, MRB

3.Disqualifications xGuidelines for the Establishment of Banks; xSubsec. X141.2, MRBa.Criminal conviction Sec. 27, Corporation Code; Sec. 17, PDIC Charterb.Public officials (whether appointive or elective) Sec. 19, GBL: cannot serve as officer in private bank, except if incidental to financial assistance of GOP/GOCC to bank, or otherwise provided by law; Sec. 5, Rural Banks Act; xSec. 10, Appendix 38, MRB (Guidelines For The Organization Of Cooperative Banks)c.MB member/BSP personnel Secs. 9 and 27, NCBA: DQ as officer, director, lawyer or agent, employee, consultant or stockholder, directly or indirectly, of any bank, quasi-bank, or BSP-regulated entity, except non-stock savings and loans associations solely for BSP employees4.Compensation and Other Benefits Sec. 18, GBL: MB may regulate compensation and other benefits in exceptional cases where circumstances warrant, i.e., bank under comptrollership or conservatorship, found by MB to be conducting business in unsafe and unsound manner, or in an unsatisfactory financial condition; Sec. 30, Corporation Code5.Meetings Sec. 15, par. 3, GBL: teleconferencing and video-conferencing allowed; Sec. 25, Corporation Code; xSEC Memorandum Circular No. 15 dated 20 November 20016.Powers of Directors

a. General Powers Sec. 23, Corporation Code; xBSP Circular No. 283 (Series of 2001); xSubsec. X141.3, MRBb. Specific Duties/ Responsibilities xSubsec. X141.5 and 4141Q5, MRBc. Certification of Directors xBSP Circular No. 283 (Series of 2001)7.Doctrine of Apparent Authority Prudential Bank v. Court of Appeals, 223 SCRA 350 (1993): bank liable to innocent third persons if representation is made in course of its business by agent acting within general scope of his authority even though agent secretly abusing the same to perpetrate fraud; First Philippine International Bank v. Court of Appeals, 252 SCRA 259 (1996): third person not chargeable with knowledge of internal memoranda showing limited actual authority; BPI Family Savings Bank, Inc. v. First Metro Investment Corporation, 429 SCRA 30 (2004): third person not chargeable with what transpires in board room; Associated Bank v. Pronstroller, 558 SCRA 113 (2008): apparent authority ascertained through: (a) general mannter in which bank holds out officer or agent as having power to act, with which it clothes him; or (b) acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond scope of his ordinary powers.8.Prohibited Acts Sec. 55.1, GBL: make false entries in bank report or participate in fraudulent transaction; disclose, without court order, information regarding deposits; accept gifts/fees/commissions for loan approval; overvalue security; outsource inherent banking functionsC. Bank Operations

1.Branches Secs. 20, 74 to 75, GBL: (a) With prior MB approval, UB or KB may open branches within or outside RP (other banks, pertinent law); (b) With prior MB approval, bank may use branches as outsets for presentation/sale of financial products of allied undertaking/investment house units; (c) Bank responsible for business in branches as if in head office, and bank and its branches treated as one unit.2.Banking Days and Hours Sec. 21, GBL: Unless BSP authorizes in interest of public, all banks including branches and offices transact business on all working days (Mondays to Fridays, except holidays) for at least 6 hours, and on Saturdays, Sundays and holidays for at least 3 hours (submit report to BSP); xSec. X156, MRB; xCircular No. 500, Series of 20053.Independent Auditor Sec. 58, GBL: MB may require bank to engage services of independent auditor4.Financial Statements Secs. 60 to 62, GBL: (a) regular submission; (b) publication; (c) capital stock5.Electronic Transactions Sec. 59, GBL: BSP may regulate6.Unsound Banking Practice Sec. 56, GBL; xBSP Circular No. 341 (Series of 2002)

a.Factors to be considered by MB: If act or omission i.Resulted or may result in material loss or damage, or abnormal risk or danger to safety, stability, liquidity and solvency of bank

ii.Resulted or may result in material loss or damage, or abnormal risk to banks depositors, creditors, investors, stockholders, BSP, public in general

iii.Caused undue injury or has given unwaranted benefits, advantage or preference to bank or any party in discharge by director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligenceiv.Involves entering into contract or transaction manifestly and grossly disadvantageous to bank, whether or not director or officer profitedb.Effect of persistence in conducting business in unsafe and unsound manner: MB may

i.Without prejudice to administrative sanctions under Sec. 37 of NCBA

ii.Take action under Sec. 30 of NCBA (receivership and liquidation)

iii.Immediately exclude erring bank from clearing, provisions of law to the contrary notwithstanding

7.Settlement of Disputes Sec. 63, GBL; Home Bankers Savings and Trust Co. v. Court of Appeals, 318 SCRA 558 (1999): Primary recourse to PCHC arbitration for disputes between banks involving check cleared, subject to right to petition court for measures to safeguard/conserve matter subject of arbitration; Allied Banking Corporation v. Court of Appeals, 294 SCRA 803 (1998): Decisions of Arbitration Committee final and executory, except by way of appeal on questions of law to RTC (Sec. 13, PCHC Rules); Insular Savings Bank v. Far East Bank and Trust Company, 492 SCRA 145 (2006): Remedies: (a) Petition RTC to issue order vacating award on grounds provided under Sec. 24 of Arbitration Law; (b) Petition for review under Rule 43 with CA on questions of fact, of law, or both; or (c) Petition for certiorari under Rule 65 with CA on grounds of grave abuse of discretion by Arbitration Committee.D. Other Regulations

1.Risk Based Capital Sec. 34, GBL: a.MB Authority MB shall prescribe minimum net-worth-to-risk-assets ratio: (i) in accordance with internationally accepted standards; (ii) which may be suspended if necessary for max. period of 1 year; and (iii) which shall be applied uniformly to all banks of same category. b.Effect of Non-Compliance MB may: (i) limit or prohibit distribution of net profits and require the same to be used to increase capital accounts of bank until minimum requirements are met; (ii) restrict or prohibit acquisition of major assets, making of new investments, except purchase of readily marketable evidences of indebtedness of GOP or BSP or obligations guaranteed by GOP, until minimum ratio restored.

2.Major Investments/Ownership of Real Property Secs. 50 to 52, GBL: (a) major acquisitions or investments subject to MB criteria to avoid undue risk; (b) real estate necessary for its own use allowed, but such real estate, improvements and equipment (including equity investment in realty company) should not exceed 50% of combined capital accounts, except Sec. 52 (see previous discussions)3.Declaration of Dividends Sec. 57, GBL: Prohibited if: (a) clearing account with BSP overdrawn; (b) deficient in liquidity floor for GOP deposits for 5 or more consecutive days; (c) non-compliance with BSP liquidity standards; (d) committed major violation as determined by BSPE. Penalty for Violations Sec. 66, GBL: quo warranto; Sec. 34-37, NCBA: refusal to make reports, false statements, proceedings upon violation, administrative sanctions on banks and officers; Perez v. Monetary Board, 20 SCRA 592 (1967): BSP may cause prosecution, but not compelled by mandamus; private person may initiate.VII. BANKS IN DISTRESS;

CESSATION OF BANKING BUSINESSA. Loans to Banks

1.Loans without collateral Sec. 83, NCBA: For purposes of providing liquidity to banking system in times of need, BSP may extend loans and advances to banks for period not exceeding 7 days without collateral 2.Emergency loans Sec. 84, NCBA: (a) in periods of national and/or local emergency or of imminent financial panic which directly threaten monetary and banking stability; (b) even during normal periods, for purpose of assisting banks in precarious financial condition or under serious financial pressures due to fortuitous events (provided bank is not insolvent), MB (by vote of at least 5 members) may authorize BSP to grant extraordinary loans or advances to banks secured by assets, in amount not exceeding 50% of total deposits and deposit substitutes of bank, released in 2 tranches of 25% max. eachB. Conservatorship Sec. 67, GBL: applies to banks and quasi-banks; Secs. 29 and 30, NCBA1.Grounds Sec. 29, par. 1, NCBA: MB may appoint conservator when, based on report submitted by appropriate SED, MB finds that bank/quasi-bank in state of continuing inability or unwillingness to maintain condition of liquidity deemed adequate to protect interest of depositors and creditors 2.Appointment of Conservator Sec. 29, par. 1 and Sec. 30, last par. NCBA: Designation of conservator vested exclusively with MB; designation of conservator not precondition to designation of receiver3.Powers of Conservator Sec. 29, par. 1, NCBA: such powers as MB deems necessary to take charge of assets, liabilities, and management, reorganize management, collect monies/debts due, and restore viability; First Philippine International Bank v. Court of Appeals, 252 SCRA 259 (1996): conservator merely takes place of banks Board of Directors; hence, powers of conservator, though enormous and extensive, cannot extend to post-facto repudiation of perfected transactions, otherwise, would infringe non-impairment clause of Constitution, at most, merely gives conservator power to revoke contracts that under existing law are deemed defective4.Qualifications and Remuneration Sec. 29, pars. 2 and 3, NCBA: 5.Period Sec. 29, par. 2, NCBA: Shall not exceed one (1) year

6.Termination of Conservatorship Sec. 29, par. 2 and last par., NCBA:a.When MB satisfied that bank can continue to operate on its won and conservatorship no longer necessary;

b.If MB, on basis of report of conservator or its own findings, determines that continuance in business of bank will involve probable loss to depositors or creditors, in which case, Sec. 30 of NCBA (receivership and liquidation) will apply6.Effect: Bank cannot be compelled to pay same bonuses to employees xProducers Bank of the Philippines v. NLRC, 355 SCRA 489 (2001)

7.Judicial Review Sec. 30, 2nd to last par., NCBA: MB action under Secs. 29 and 30 final and executory, and may not be restrained, except on petition for certiorari on ground of grave abuse of discretion amounting to lack or excess of jurisdiction. Petition may only be filed by stockholders of record representing majority of capital stock within 10 days from receipt by Board of order directing receivership, liquidation or conservatorshipC. Voluntary Liquidation Sec. 68, GBL: If voluntary liquidation of RP bank or RP branch or office of foreign bank, prior written notice sent to MB, and MB may intervene and take necessary steps to protect creditors interestD. Receivership and Involuntary Liquidation Sec. 69, GBL: applies to banks and, to extent possible, quasi-banks; Secs. 30 to 33, NCBA1.Governing Law In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc., PDIC v. Bureau of Internal Revenue, 511 SCRA 123 (2006): NCBA governs, and since it has substantially different provisions for involuntary dissolution and liquidation under Corporation Code, requirements in one cannot be imposed in other2.Grounds Secs. 30 and 36, 2nd par., NCBA; Sec. 53, last par., GBL; MB may, summarily and without need of prior hearing, close bank and designate PDIC as receiver:a.Whenever, upon report of head of SED, MB finds that bank i.Is unable to pay liabilities as they become due in ordinary course of business (not include inability to pay caused by extraordinary demands induced by financial panic in banking community)

ii.has insufficient realizable assets, as determined by BSP, to meet its liabilitiesiii.cannot continue in business without involving probable losses to its depositors or creditors

iv.has willfully violated final CDO under Sec. 37 of NCBA, involving acts or transactions amounting to fraud or dissipation of assets of bank

b.Whenever bank persists in carrying on its business in unlawful or unsafe manner c.Whenever bank notifies BSP or publicly announces bank holiday, or in any manner suspends payment of deposit liabilities continuously for more than 30 daysBanco Filipino Savings and Mortgage Bank v. Monetary Board, 204 SCRA 767 (1991): Under Sec. 29 of Central Bank Act (R.A. No. 265), MB may order closure and receivership of bank upon finding of insolvency or when continuance in business will involve probable loss to depositors and creditors, but the following are mandatory requirements: (a) examination of condition of bank conducted by head of appropriate SED or his examiners or agents; (b) examination discloses that grounds exist; (c) department head concerned shall inform MB in writing of facts; (d) MB shall find statements of department head to be true; here, no showing of insolvency, hence, closure premature; Rural Bank of San Miguel, Inc. v. Monetary Board, Bangko Sentral ng Pilipinas, 516 SCRA 154 (2007): Under NCBA, which was repealed by NCBA, in 1993, only report of head of SED is necessary, not examination conducted by head, purpose to make closure of bank summary 3.Who May Be Receiver Sec. 30, 1st and 2nd pars., NCBA: PDIC for banks; any person of recognized competence in banking or finance for quasi-banks4.Duties of Receiver Sec. 30, par. 3, NCBA: (a) immediately gather and take charge of all assets and liabilities of bank, administer the same for benefit of creditors, exercise general powers of receiver under Rules of Court, but shall not (except for administrative expenses) pay, or transfer or dispose of assets, but may make nonspeculative investments; (b) determine ASAP, not later than 90 days, if bank may be rehabilitated or otherwise placed in condition that it may be permitted (by MB) to resume business with safety to its depositors; (c) otherwise, liquidate bank; Larrobis, Jr. v. Philippine Veterans Bank, 440 SCRA 34 (2004): bank cannot do new business (grant new loans or accept new deposits) but receiver obliged to collect pre-existing debts and foreclose, if necessary5.Close Now-Hear Later Doctrine Central Bank of the Philippines v. Court of Appeals, 220 SCRA 536 (1993): No prior notice and hearing required, valid exercise of police power, and may only be annulled if resolution determined by trial court to be arbitrary and issued in bad faith6.Liquidation

a. As opposed to rehabilitation Philippine Veterans Bank Employees Union-N.U.B.E. v. Hon. Benjamin Vega, 360 SCRA 33 (2001): Liquidation connotes winding up or settling with creditors and debtors; rehabilitation connotes reopening or reorganization; concepts are diametrically opposedb. Actions to take Sec. 30, NCBA: MB shall notify in writing banks Board of Directors of findings and direct receiver to proceed with liquidation: (i) file ex-parte petition for liquidation pursuant to liquidation plan adopted by PDIC (for banks) or MB (for quasi-banks); (ii) convert assets to money, and dispose in favor of creditors in accordance with concurrence and preference of creditsc. How assets are distributed Secs. 31 and 32, NCBA: after payment of costs of liquidation proceeding (including reasonable expenses and fees of receiver), pay debts of bank in accordance with rule on concurrence preference of credits, using the assets of bank as well as revenues and earnings realized during winding up processd. All claims filed in liquidation court Ong v. Court of Appeals, 253 SCRA 105 (1996): all claims (no need for prior pending action) against insolvent bank should be filed in liquidation proceeding to avoid multiplicity of suits; Manalo v. Court of Appeals, 366 SCRA 752 (2001): does not cover reverse situation where insolvent bank is claimant.e. Disposition of banking franchise Sec. 33, NCBA: BSP may award to another institution7.Effects of Receivership and Liquidation

a. Restriction on capacity to act Villanueva v. Court of Appeals, 244 SCRA 395 (1995): appointment of receiver suspends authority of bank and its directors and officers over its property and effects, such that receivership is equivalent to injunction (if bank became insolvent before its acceptance of offer came to knowledge of offeror, then offer became ineffective; Abacus Real Estate Development Center, Inc. v. The Manila Banking Corporation, 455 SCRA 97 (2005): receiver only has authority to administer bank assets for benefit of creditors (granting exclusive option to purchase not administrative)b. Penalties for transaction after Bank becomes insolvent Sec. 70, GBL: subject to penal provisions of NCBAc. Effect on garnishment, levy on attachment or execution Sec. 30, NCBA: assets deemed in custodia legis and from moment bank placed under receivership or liquidation, exempt from order of garnishment, levy, attachment, or execution Lipana v. Development Bank of Rizal, 154 SCRA 257 (1987): stay of execution warranted, otherwise, will prejudice other depositors and creditorsd. Stoppage of business Provident Savings Bank v. Court of Appeals, 222 SCRA 125 (1993): stoppage only for new business (grant new loans and accept new deposits), not to collect existing loans and foreclosee. Interest on deposits Fidelity Savings and Mortgage Bank v. Cenzon, 184 SCRA 141 (1990): insolvent bank closed by BSP not liable to pay interest on bank deposits, because prohibited from doing business; But See Rural Bank of Sta. Catalina, Inc. v. Land Bank of the Philippines, 435 SCRA 183 (2004): here, bank was declared in default and therefore could not modify judgment ordering it to pay interest and penalties8.Judicial Review

a. Availability of remedy Sec. 30, NCBA: Petition for certiorari may only be filed by stockholders of record representing majority of capital stock within 10 days from receipt by Board of order directing receivership, liquidation or conservatorship

b. Ground: grave abuse of discretion Central Bank v. Court of Appeals, 106 SCRA 143 (1981): bank officers pressured into relinquishing management and control of bank by INK which had no intention to restore bank to original condition, BSP in promissory estoppel for committing to support bank to restore it but failing to do so; Banco Filipino Savings and Mortgage Bank v. Monetary Board, 204 SCRA 767 (1991): no basis for finding of insolvency (see above)c. Jurisdiction Sec. 4, Rule 65, Rules of Courtd. Who may question Central Bank of the Philippines v. Court of Appeals, 220 SCRA 537 (1993): only stockholders, not receiver; xCentral Bank of the Philippines v. Court of Appeals, 208 SCRA 652 (1992)

e. Actions of the MB final and executory; Injunction Central Bank of the Philippines v. Dela Cruz, 191 SCRA 346 (1990): only upon convincing proof that action is plainly arbitrary and made in bad faith (under Sec. 29, Central Bank Act), now GADALEJ (under Sec. 30, NCBA); Sec. 22, PDIC Charter: only CA (not RTC) can enjoin PDICf. Effect of Filing Petition for Review Banco Filipino Savings and Mortgage Bank v. Ybaez, SCRA (2004): does not diminish authority of designated receiver or liquidator to administer bank

g. Liability of the MB and PDIC Miranda v. Philippine Deposit Insurance Corporation, 501 SCRA 288 (2006): BSP and PDIC not solidarily liable with bank for the latters obligationsE. PDIC Financial Assistance Sec. 12(c), PDIC Charter Republic Act No. 8791 (General Banking Law of 2000), which repealed Republic Act No. 337 (General Banking Act)

Manual for Regulation of Banks

Republic Act No. 7653 (New Central Bank Act), which repealed Republic Act No. 265 (Central Bank Act)

Presidential Decree No. 129, as amended

Republic Act No. 59080, as amended by Republic Act No. 8556

Republic Act No. 2629

Republic Act No. 8367

Republic Act No. 6938

Presidential Decree No. 612, as amended

Prudential Bank v. Lim, 474 SCRA 485 (2005)

Bangko Sentral ng Pilipinas

Solidbank Corporation/Metropolitan Bank and Trust Company v. Tan, 520 SCRA123 (2007)

Simex International (Manila) Incorporated v. Court of Appeals, 183 SCRA 360 (1990); Bank of the Philippine Islands v. Court of Appeals, 326 SCRA 641 (2000); Philippine Commercial International Bank v. Court of Appeals, 350 SCRA 446 (2001); Firestone Tire & Rubber Company of the Philippines v. Court of Appeals, 353 SCRA 601 (2001); Westmont Bank v. Ong, 375 SCRA 212 (2002); Traders Royal Bank v. Radio Philippines Network, Inc., 390 SCRA 608 (2002); Consolidated Bank and Trust Corporation v. Court of Appeals, 410 SCRA 562 (2003)

Metropolitan Bank and Trust Company v. Cabilzo, 510 SCRA 259 (2006); But See Go v. Intermediate Appellate Court, 197 SCRA 22 (1991)

Development Bank of the Philippines v. Court of Appeals, 331 SCRA 267 (2000); Canlas v. Court of Appeals, 326 SCRA 425 (2000); Premiere Development Bank v. Court of Appeals, 453 SCRA 630 (2005); Private Development Corporation of the Philippines v. Court of Appeals, 475 SCRA 591 (2005); Citibank, N.A. v. Cabamongan, 488 SCRA 517 (2006); Metropolitan Bank and Trust Company, Inc. v. SLGT Holdings, Inc., 536 SCRA 517 (2007); Omengan v. Philippine National Bank, 512 SCRA 305 (2007)

See Also United Coconut Planters Bank v. Basco, 437 SCRA 325 (2004)

Monetary Board

Rules and Regulations to Implement the Provisions of Presidential Decree No. 129

Republic Act No. 7906

Republic Act No. 7353

Republic Act No. 6848 (Charter of Al Amanah Islamic Development Bank of the Philippines)

Republic Act No. 3844

Executive Order No. 81, Series of 1986

Republic Act No. 3518

Republic Act No. 7169

Executive Order No. 80 Series of 1986

Presidential Decree No. 114

Rules and Regulations for Pawnshops

Republic Act No. 7221

Philippine Stock Exchange

Republic Act No. 7042

Presidential Decree No. 1034, as amended

San Carlos Milling Co., Ltd. v. Bank of the Philippine Islands, 59 Phil. 59 (1933); Hilado v. De la Costa, 83 Phil. 471 (1949); People v. Ong, 204 SCRA 942 (1991); Moran v. Court of Appeals, 230 SCRA 799 (1994); Consolidated Bank and Trust Corporation v. Court of Appeals, 410 SCRA 562 (2003)

Serrano v. Central Bank, 96 SCRA 96 (1980); People v. Puig, 563 SCRA 564 (2008).

Simex International (Manila), Inc. v. Court of Appeals, 183 SCRA 360 (1990); Go v. Intermediate Appellate Court, 197 SCRA 22 (1991); Bank of the Philippine Islands v. Intermediate Appellate Court, 206 SCRA 408 (1992); Philippine Bank of Commerce v. Court of Appeals, 269 SCRA 695 (1997); Bank of the Philippine Islands v. Court of Appeals, 326 SCRA 641 (2000); Firestone Tire & Rubber Company of the Philippines v. Court of Appeals, 353 SCRA 601 (2001)

Republic Act No. 6426, as amended (Foreign Currency Deposit Act)

Republic Act No. 9160, as amended by Republic Act No. 9194 (Anti-Money Laundering Act of 2001)

Republic Act No. 1405, as amended

Directors, Officers, Stockholders, Related Interests

Republic Act No. 3019, as amended

Republic Act No. 6770

Republic Act No. 7080, as amended

Philippine Deposit Insurance Corporation

Republic Act No. 3591, as amended by Republic Act No. 7400 and Republic Act No. 9576

Republic Act No. 9732

Act No. 3936, as amended by Presidential Decree No. 679

Intengan v. Court of Appeals, 377 SCRA 63 (2002); Estrada v. Desierto, 445 SCRA 655 (2004)

Philippine Deposit Insurance Corporation

Republic Act No. 3591, as amended by Republic Act No. 7400 and Republic Act No. 9576

Philippine Deposit Insurance Corporation

Republic Act No. 3591, as amended by Republic Act No. 7400 and Republic Act No. 9576

As further amended by Secs. 3 and 4, Republic Act No. 9576

(a) Securities dealers, brokers, salesmen, investment houses, and other entities managing securities or rendering services as investment agents, advisor, or consultants; (b) Mutual funds, closed-end investment companies, common trust funds, pre-need companies, and other similar entities; (c) Foreign exchange corporations, money changers, money payment, remittance, and transfer companies, and other similar entities; (d) Other entities administering or dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or property

Anti-Money Laundering Council

SC Circular A.M. No. 05-11-04-SC

Republic Act No. 3765

Act No. 2655 as amended

Government of the Philippine Islands v. Judge of First Instance of Iloilo, 34 Phil. 157 (1916); Tolentino v. Carlos, 66 Phil. 140 (1938); Gutierrez v