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STUDY GUIDE ON BANKING AND RELATED LAWS*

I

BANGKO SENTRAL NG PILIPINAS LAWRA 7653 (1993).

1.1 Topics

State policies (Sec. 1)

SECTION 1. DECLARATION OF POLICY. - THE STATE SHALL MAINTAIN A CENTRALMONETARY AUTHORITY THAT SHALL—

A. FUNCTION AND OPERATE AS AN INDEPENDENT AND ACCOUNTABLE BODYCORPORATE IN THE DISCHARGE OF ITS MANDATED RESPONSIBILITIESCONCERNING MONEY, BANKING AND CREDIT.

B. IN LINE WITH THIS POLICY, AND CONSIDERING ITS UNIQUE FUNCTIONS ANDRESPONSIBILITIES, THE CENTRAL MONETARY AUTHORITY ESTABLISHEDUNDER THIS ACT, WHILE BEING A GOVERNMENT-OWNED CORPORATION,ENJOY FISCAL AND ADMINISTRATIVE AUTONOMY.

How State policies are to be achieved (compare, e.g., Secs. 2, 6, 9, 11, 15, 16,18 and 47 of RA 7653 with similar provisions in RA 265) [SEE PAGE 2 OF BOOK]

A. Capital [Sec. 2]

SECTION 2. CREATION OF THE BANGKO SENTRAL. - THE CAPITAL OF THE BANGKOSENTRAL SHALL BE FIFTY BILLION PESOS (P50,000,000,000.

B. MB Composition [Sec. 6]

SECTION 6. COMPOSITION OF THE MONETARY BOARD. - (C) FIVE (5) MEMBERSWHO SHALL COME FROM THE PRIVATE SECTOR, ALL OF WHOM SHALL SERVE FULL-TIME: PROVIDED, HOWEVER, THAT OF THE MEMBERS FIRST APPOINTED UNDERTHE PROVISIONS OF THIS SUBSECTION, THREE (3) SHALL HAVE A TERM OF SIX (6)YEARS, AND THE OTHER TWO (2), THREE (3) YEARS.

C. Reappointment of MB Members [Sec. 6]

SECTION 6. COMPOSITION OF THE MONETARY BOARD. - NO MEMBER OF THEMONETARY BOARD MAY BE REAPPOINTED MORE THAN ONCE.

* Expanded Outline (based on Banking Study Guide by Prof. Tristan A. Catindig)

Comment [WU1]:

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D. Additional disqualifications for MB Members [Sec. 9]; Divestment requirement[Sec. 9]; Post-BSP restriction [Sec. 9]

SECTION 9. DISQUALIFICATIONS. - IN ADDITION TO THE DISQUALIFICATIONSIMPOSED BY REPUBLIC ACT NO. 6713, A MEMBER OF THE MONETARY BOARD ISDISQUALIFIED FROM BEING A DIRECTOR, OFFICER, EMPLOYEE, CONSULTANT,LAWYER, AGENT OR STOCKHOLDER OF ANY BANK, QUASI-BANK OR ANY OTHERINSTITUTION WHICH IS SUBJECT TO SUPERVISION OR EXAMINATION BY THEBANGKO SENTRAL, IN WHICH CASE SUCH MEMBER SHALL RESIGN FROM, ANDDIVEST HIMSELF OF ANY AND ALL INTERESTS IN SUCH INSTITUTION BEFOREASSUMPTION OF OFFICE AS MEMBER OF THE MONETARY BOARD.

THE MEMBERS OF THE MONETARY BOARD COMING FROM THE PRIVATE SECTORSHALL NOT HOLD ANY OTHER PUBLIC OFFICE OR PUBLIC EMPLOYMENT DURINGTHEIR TENURE.

NO PERSON SHALL BE A MEMBER OF THE MONETARY BOARD IF HE HAS BEENCONNECTED DIRECTLY WITH ANY MULTILATERAL BANKING OR FINANCIALINSTITUTION OR HAS A SUBSTANTIAL INTEREST IN ANY PRIVATE BANK IN THEPHILIPPINES, WITHIN ONE (1) YEAR PRIOR TO HIS APPOINTMENT; LIKEWISE, NOMEMBER OF THE MONETARY BOARD SHALL BE EMPLOYED IN ANY SUCHINSTITUTION WITHIN TWO (2) YEARS AFTER THE EXPIRATION OF HIS TERM EXCEPTWHEN HE SERVES AS AN OFFICIAL REPRESENTATIVE OF THE PHILIPPINEGOVERNMENT TO SUCH INSTITUTION.

E. Who can call meetings [Sec. 11]

SECTION 11. MEETINGS. - THE MONETARY BOARD SHALL MEET AT LEAST ONCE AWEEK. THE BOARD MAY BE CALLED TO A MEETING BY THE GOVERNOR OF THEBANGKO SENTRAL OR BY TWO (2) OTHER MEMBERS OF THE BOARD.

F. Reorganization of personnel [Sec. 15]

G. Indemnification [Sec. 15(e)]

SECTION 15. EXERCISE OF AUTHORITY. - IN THE EXERCISE OF ITS AUTHORITY,THE MONETARY BOARD SHALL: (E) INDEMNIFY ITS MEMBERS AND OTHEROFFICIALS OF THE BANGKO SENTRAL, INCLUDING PERSONNEL OF THEDEPARTMENTS PERFORMING SUPERVISION AND EXAMINATION FUNCTIONS AGAINSTALL COSTS AND EXPENSES REASONABLY INCURRED BY SUCH PERSONS INCONNECTION WITH ANY CIVIL OR CRIMINAL ACTION, SUIT OR PROCEEDINGS TOWHICH HE MAY BE, OR IS, MADE A PARTY BY REASON OF THE PERFORMANCE OFHIS FUNCTIONS OR DUTIES, UNLESS HE IS FINALLY ADJUDGED IN SUCH ACTION ORPROCEEDING TO BE LIABLE FOR NEGLIGENCE OR MISCONDUCT.

IN THE EVENT OF A SETTLEMENT OR COMPROMISE, INDEMNIFICATION SHALL BEPROVIDED ONLY IN CONNECTION WITH SUCH MATTERS COVERED BY THESETTLEMENT AS TO WHICH THE BANGKO SENTRAL IS ADVISED BY EXTERNALCOUNSEL THAT THE PERSON TO BE INDEMNIFIED DID NOT COMMIT ANYNEGLIGENCE OR MISCONDUCT.

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H. Greater responsibility [Sec. 16]I. Transparency [Sec. 16]

How the BSP handles banks in distress

Emergency loans and advances (Sec. 84)

SECTION 84. EMERGENCY LOANS AND ADVANCES. – THE MONETARY BOARDMAY, BY A VOTE OF AT LEAST FIVE (5) OF ITS MEMBERS, AUTHORIZE THEBANGKO SENTRAL TO GRANT EXTRAORDINARY LOANS OR ADVANCES TOBANKING INSTITUTIONS SECURED BY ASSETS AS DEFINED HEREUNDER—

1. IN PERIODS OF NATIONAL AND/OR LOCAL EMERGENCY OR2. OF IMMINENT FINANCIAL PANIC WHICH DIRECTLY THREATEN MONETARY

AND BANKING STABILITY

PROVIDED, THAT WHILE SUCH LOANS OR ADVANCES ARE OUTSTANDING, THEDEBTOR INSTITUTION SHALL NOT, EXCEPT UPON PRIOR AUTHORIZATION BYTHE MONETARY BOARD, EXPAND THE TOTAL VOLUME OF ITS LOANS ORINVESTMENTS.

SECTION 84. EMERGENCY LOANS AND ADVANCES. – THE MONETARY BOARDMAY, AT ITS DISCRETION, LIKEWISE AUTHORIZE THE BANGKO SENTRAL TOGRANT EMERGENCY LOANS OR ADVANCES TO BANKING INSTITUTIONS, EVENDURING NORMAL PERIODS, FOR THE PURPOSE OF ASSISTING A BANK—

1. IN A PRECARIOUS FINANCIAL CONDITION OR2. UNDER SERIOUS FINANCIAL PRESSURES BROUGHT BY UNFORESEEN

EVENTS, OR3. EVENTS WHICH, THOUGH FORESEEABLE, COULD NOT BE PREVENTED

BY THE BANK CONCERNED:

PROVIDED, HOWEVER—

1. THAT A CONCURRENT VOTE OF AT LEAST FIVE (5) MEMBERS OF THEMONETARY BOARD IS OBTAINED.

2. THAT THE MONETARY BOARD HAS ASCERTAINED THAT THE BANK ISNOT INSOLVENT AND HAS THE ASSETS DEFINED HEREUNDER TOSECURE THE ADVANCES.

SECTION 84. EMERGENCY LOANS AND ADVANCES. – THE AMOUNT OF ANYEMERGENCY LOAN OR ADVANCE SHALL NOT EXCEED THE SUM OF FIFTYPERCENT (50%) OF TOTAL DEPOSITS AND DEPOSIT SUBSTITUTES OF THEBANKING INSTITUTION AND SHALL BE DISBURSED IN TWO (2) OR MORETRANCHES. XXX.

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Conservatorship (Sec. 29; Sec, 67, RA 8791)

SECTION 29. APPOINTMENT OF CONSERVATOR. - WHENEVER, ON THE BASISOF A REPORT SUBMITTED BY THE APPROPRIATE SUPERVISING OR EXAMININGDEPARTMENT, THE MONETARY BOARD FINDS THAT A BANK OR A QUASI-BANKIS IN A STATE OF CONTINUING INABILITY OR UNWILLINGNESS TO MAINTAIN ACONDITION OF LIQUIDITY DEEMED ADEQUATE TO PROTECT THE INTEREST OFDEPOSITORS AND CREDITORS, THE MONETARY BOARD MAY APPOINT ACONSERVATOR WITH SUCH POWERS AS THE MONETARY BOARD SHALL DEEMNECESSARY TO:

1. TAKE CHARGE OF THE ASSETS, LIABILITIES, AND THE MANAGEMENTTHEREOF,

2. REORGANIZE THE MANAGEMENT,3. COLLECT ALL MONIES AND DEBTS DUE SAID INSTITUTION, AND4. EXERCISE ALL POWERS NECESSARY TO RESTORE ITS VIABILITY.

THE CONSERVATOR SHALL REPORT AND BE RESPONSIBLE TO THE MONETARYBOARD AND SHALL HAVE THE POWER TO OVERRULE OR REVOKE THE ACTIONSOF THE PREVIOUS MANAGEMENT AND BOARD OF DIRECTORS OF THE BANK ORQUASI-BANK.

THE CONSERVATOR SHOULD BE COMPETENT AND KNOWLEDGEABLE IN BANKOPERATIONS AND MANAGEMENT. THE CONSERVATORSHIP SHALL NOT EXCEEDONE (1) YEAR. XXX.

THE MONETARY BOARD SHALL TERMINATE THE CONSERVATORSHIP WHEN IT ISSATISFIED THAT THE INSTITUTION CAN CONTINUE TO OPERATE ON ITS OWNAND THE CONSERVATORSHIP IS NO LONGER NECESSARY. THECONSERVATORSHIP SHALL LIKEWISE BE TERMINATED SHOULD THE MONETARYBOARD, ON THE BASIS OF THE REPORT OF THE CONSERVATOR OR OF ITS OWNFINDINGS, DETERMINE THAT THE CONTINUANCE IN BUSINESS OF THEINSTITUTION WOULD INVOLVE PROBABLE LOSS TO ITS DEPOSITORS ORCREDITORS, IN WHICH CASE THE PROVISIONS OF SECTION 30 SHALL APPLY.

SECTION 67, R.A.8791 CONSERVATORSHIP. - THE GROUNDS ANDPROCEDURES FOR PLACING A BANK UNDER CONSERVATORSHIP, AS WELL AS,THE POWERS AND DUTIES OF THE CONSERVATOR APPOINTED FOR THE BANKSHALL BE GOVERNED BY THE PROVISIONS OF SECTION 29 AND THE LAST TWOPARAGRAPHS OF SECTION 30 OF THE NEW CENTRAL BANK ACT: PROVIDED,THAT THIS SECTION SHALL ALSO APPLY TO CONSERVATORSHIP PROCEEDINGSOF QUASI-BANKS. (N)

SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. – THEACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION OR UNDERSECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAY NOT BERESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FORCERTIORARI ON THE GROUND THAT THE ACTION TAKEN WAS IN EXCESS OFJURISDICTION OR WITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TOLACK OR EXCESS OF JURISDICTION. THE PETITION FOR CERTIORARI MAY ONLYBE FILED BY THE STOCKHOLDERS OF RECORD REPRESENTING THE MAJORITYOF THE CAPITAL STOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARDOF DIRECTORS OF THE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP,LIQUIDATION OR CONSERVATORSHIP.

Comment [WU2]: Section 28-A merely givesthe conservator power to revoke contracts thatare, under existing law, deemed to be defective— i.e., void, voidable, unenforceable orrescissible. Hence, the conservator merelytakes the place of a bank's board of directors.What the said board cannot do — such asrepudiating a contract validly entered into underthe doctrine of implied authority — theconservator cannot do either. Ineluctably, hispower is not unilateral and he cannot simplyrepudiate valid obligations of the Bank. Hisauthority would be only to bring court actions toassail such contracts — as he has already doneso in the instant case. [First Bank v. CA, 1996]

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THE DESIGNATION OF A CONSERVATOR UNDER SECTION 29 OF THIS ACT ORTHE APPOINTMENT OF A RECEIVER UNDER THIS SECTION SHALL BE VESTEDEXCLUSIVELY WITH THE MONETARY BOARD. FURTHERMORE, THEDESIGNATION OF A CONSERVATOR IS NOT A PRECONDITION TO THEDESIGNATION OF A RECEIVER.

Closure (Sec. 30; Secs. 53 and 56.4, RA 8791)Receivership (Sec. 30; Secs. 69-70, RA 8791)

SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. –

THE MONETARY BOARD MAY SUMMARILY AND WITHOUT NEED FOR PRIORHEARING FORBID THE INSTITUTION FROM DOING BUSINESS IN THE PHILIPPINESAND DESIGNATE THE PHILIPPINE DEPOSIT INSURANCE CORPORATION ASRECEIVER OF THE BANKING INSTITUTION. [FOR A QUASI-BANK, ANY PERSON OFRECOGNIZED COMPETENCE IN BANKING OR FINANCE MAY BE DESIGNED ASRECEIVER.] WHENEVER, UPON REPORT OF THE HEAD OF THE SUPERVISING OREXAMINING DEPARTMENT, THE MONETARY BOARD FINDS THAT A BANK ORQUASI-BANK:

(A) IS UNABLE TO PAY ITS LIABILITIES AS THEY BECOME DUE IN THEORDINARY COURSE OF BUSINESS: PROVIDED, THAT THIS SHALL NOTINCLUDE INABILITY TO PAY CAUSED BY EXTRAORDINARY DEMANDSINDUCED BY FINANCIAL PANIC IN THE BANKING COMMUNITY;

(B) HAS INSUFFICIENT REALIZABLE ASSETS, AS DETERMINED BY THEBANGKO SENTRAL, TO MEET ITS LIABILITIES; OR

(C) CANNOT CONTINUE IN BUSINESS WITHOUT INVOLVING PROBABLELOSSES TO ITS DEPOSITORS OR CREDITORS; OR

(D) HAS WILLFULLY VIOLATED A CEASE AND DESIST ORDER UNDERSECTION 37 THAT HAS BECOME FINAL, INVOLVING ACTS OR TRANSACTIONSWHICH AMOUNT TO FRAUD OR A DISSIPATION OF THE ASSETS OF THEINSTITUTION;

SECTION 53. RA 8791. OTHER BANKING SERVICES. - IN CASE A BANK ORQUASI-BARK NOTIFIES THE BANGKO SENTRAL OR PUBLICLY ANNOUNCES ABANK HOLIDAY, OR IN ANY MANNER SUSPENDS THE PAYMENT OF ITS DEPOSITLIABILITIES CONTINUOUSLY FOR MORE THAN THIRTY (30) DAYS, THEMONETARY BOARD MAY SUMMARILY AND WITHOUT NEED FOR PRIOR HEARINGCLOSE SUCH BANKING INSTITUTION AND PLACE IT UNDER RECEIVERSHIP OFTHE PHILIPPINE DEPOSIT INSURANCE CORPORATION. (72A)

SECTION 56. RA 8791. CONDUCTING BUSINESS IN AN UNSAFE OR UNSOUNDMANNER - WHENEVER A BANK, QUASI-BANK OR TRUST ENTITY PERSISTS INCONDUCTING ITS BUSINESS IN AN UNSAFE OR UNSOUND MANNER, THEMONETARY BOARD MAY, WITHOUT PREJUDICE TO THE ADMINISTRATIVESANCTIONS PROVIDED IN SECTION 37 OF THE NEW CENTRAL BANK ACT, TAKEACTION UNDER SECTION 30 OF THE SAME ACT AND/OR IMMEDIATELY EXCLUDETHE ERRING BANK FROM CLEARING, THE PROVISIONS OF LAW TO THECONTRARY NOTWITHSTANDING.

Comment [WU3]: In RA 7653, only a "reportof the head of the supervising or examiningdepartment" is necessary. It is an establishedrule in statutory construction that where thewords of a statute are clear, plain and free fromambiguity, it must be given its literal meaningand applied without attemptedinterpretation.Laying down the requisites for theclosure of a bank under the law is theprerogative of the legislature and what itswisdom dictates. The lawmakers could haveeasily retained the word "examination" (and inthe process also preserved the jurisprudenceattached to it) but they did not and insteadopted to use the word "report." The insistenceon an examination is not sanctioned by RA7653 and we would be guilty of judiciallegislation were we to make it a requirementwhen such is not supported by the language ofthe law.

Comment [O4]: 56.1 The act or omission hasresulted or may result in material loss ordamage, or abnormal risk or danger to thesafety, stability, liquidity or solvency of theinstitution;

56.2 The act or omission has resulted or mayresult in material loss or damage or abnormalrisk to the institution's depositors, creditors,investors, stockholders or to the Bangko Sentralor to the public in general;

56.3 The act or omission has caused any undueinjury, or has given any unwarranted benefits,advantage or preference to the bank or anyparty in the discharge by the director or officerof his duties and responsibilities throughmanifest partiality, evident bad faith or grossinexcusable negligence; or

56.4 The act or omission involves entering intoany contract or transaction manifestly andgrossly disadvantageous to the bank, quasi-bank or trust entity, whether or not the directoror officer profited or will profit thereby.

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SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. - THERECEIVER SHALL :

1. IMMEDIATELY GATHER AND TAKE CHARGE OF ALL THE ASSETS ANDLIABILITIES OF THE INSTITUTION,

2. ADMINISTER THE SAME FOR THE BENEFIT OF ITS CREDITORS,3. AND EXERCISE THE GENERAL POWERS OF A RECEIVER UNDER THE

REVISED RULES OF COURT4. BUT SHALL NOT, WITH THE EXCEPTION OF ADMINISTRATIVE

EXPENDITURES, PAY OR COMMIT ANY ACT THAT WILL INVOLVE THETRANSFER OR DISPOSITION OF ANY ASSET OF THE INSTITUTION:

PROVIDED, THAT THE RECEIVER MAY DEPOSIT OR PLACE THE FUNDS OF THEINSTITUTION IN NON-SPECULATIVE INVESTMENTS. THE RECEIVER SHALLDETERMINE AS SOON AS POSSIBLE, BUT NOT LATER THAN NINETY (90) DAYSFROM TAKE OVER, WHETHER THE INSTITUTION MAY BE REHABILITATED OROTHERWISE PLACED IN SUCH A CONDITION SO THAT IT MAY BE PERMITTED TORESUME BUSINESS WITH SAFETY TO ITS DEPOSITORS AND CREDITORS ANDTHE GENERAL PUBLIC: PROVIDED, THAT ANY DETERMINATION FOR THERESUMPTION OF BUSINESS OF THE INSTITUTION SHALL BE SUBJECT TO PRIORAPPROVAL OF THE MONETARY BOARD.

SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. – THEACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION OR UNDERSECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAY NOT BERESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FORCERTIORARI ON THE GROUND THAT THE ACTION TAKEN WAS IN EXCESS OFJURISDICTION OR WITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TOLACK OR EXCESS OF JURISDICTION. THE PETITION FOR CERTIORARI MAY ONLYBE FILED BY THE STOCKHOLDERS OF RECORD REPRESENTING THE MAJORITYOF THE CAPITAL STOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARDOF DIRECTORS OF THE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP,LIQUIDATION OR CONSERVATORSHIP.

THE DESIGNATION OF A CONSERVATOR UNDER SECTION 29 OF THIS ACT ORTHE APPOINTMENT OF A RECEIVER UNDER THIS SECTION SHALL BE VESTEDEXCLUSIVELY WITH THE MONETARY BOARD. FURTHERMORE, THEDESIGNATION OF A CONSERVATOR IS NOT A PRECONDITION TO THEDESIGNATION OF A RECEIVER.

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BAR Q [2009]: TRUE OF FALSE—A BANK UNDER RECEIVERSHIP CAN STILLGRANT NEW LOANS AND ACCEPT NEW DEPOSITS.

SUGGESTED ANSWER: FALSE. During the receivership, the assets andproperties of the corporation into cash in preparation for distribution tocreditors. Granting new loans and accepting new deposits wouldconstitute doing business for the bank in the ordinary course of businesswhich is contrary to the nature and purpose of a receivership proceeding.

BAR Q [2009]: MAHARLIKANG PILIPINO BANKING CORPORATION [MPBC]OPERATES SEVERAL BRANCHES OF MAHARLIKANG PILIPINO RURAL BANK INEASTERN VISAYAS. ALMOST ALL THE BRANCH MANAGERS ARE CLOSE RELATIVESOF THE MEMBERS OF THE BOARD OF DIRECTORS OF THE CORPORATION. MANYUNDESERVING RELATIVES OF THE BRANCH MANAGERS WERE GRANTED LOANS. INTIME, THE BRANCHES COULD NOT SETTLE THEIR OBLIGATIONS TO DEPOSITORSAND CREDITORS.

RECEIVING REPORTS OF THESE IRREGULARITIES, THE SUPERVISING ANDEXAMINING DEPARTMENT [SED] OF THE MONETARY BOARD PREPARED ADETAILED REPORT SPECIFYING THE FACTS AND THE CHRONOLOGY OF EVENTSRELATIVE TO THE PROBLEMS THAT BESET MPBC RURAL BANK BRANCHES. THEREPORT CONCLUDED THAT THE BANK BRANCHES WERE UNABLE TO PAY THEIRLIABILITIES AS THEY FELL DUE, AND COULD NOT POSSIBLY CONTINUE IN BUSINESSWITHOUT INCURRING SUBSTANTIAL LOSSES TO ITS DEPOSITORS.

A. MAY THE MONETARY BOARD ORDER THE CLOSURE OF THE MPBC RURALBANKS RELYING ONLY ON THE SED REPORT, WITHOUT NEED OF ANEXAMINATION?

B. IF MPBC HIRES YOU AS A LAWYER BECAUSE THE MONETARY BOARD HASFORBIDDEN IT FROM CARRYING ON ITS BUSINESS DUE TO ITS IMMINENTINSOLVENCY, WHAT ACTION WILL YOU INSTITUTE TO QUESTION THEMONETARY BOARD’S ORDER?

SUGGESTED ANSWER:

A. Yes. Upon receipt of the report of the SED, the Monetary Board isauthorized to take any of the actions enumerated under the Sec. 30,RA 7653, otherwise known as the New Central Bank Act, leading tothe receivership and liquidation of a bank or quasi-bank. There is norequirement that an examination be first conducted before a bankinginstitution may be placed under receivership. [RURAL BANK OF SANMIGUEL V. MONETARY BOARD, 2007]

B. The order of the Monetary Board may be questioned on a petition forcertiorari on the ground that the action taken was in excess ofjurisdiction or with grave abuse of discretion amounting to lack orexcess of jurisdiction. The petition of certiorari may only be filed by thestockholders representing the majority of the capital stock within 10days from receipt by the board of directors of MPBC of the orderdirecting receivership, liquidation or conservatorship. [SEC. 30, PAR.[2], RA 7653]

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BAR Q [2002]: DISTINGUISH BETWEEN THE ROLE OF A CONSERVATOR AND THATOF A RECEIVER OF A BANK.

SUGESTED ANSWER: The Conservator is appointed for a period notexceeding one (1) year, to take charge of the assets, liabilities, andthe management of a bank or a quasi-bank in a state of continuinginability, or unwillingness to maintain a condition of liquidity deemedadequate to protect the interest of depositors and creditors.

On the other hand, the Receiver is appointed to manage a bank orquasi-bank that is unable to pay its liabilities in the ordinary course ofbusiness, or has insufficient realizable assets to meet its liabilities, orcannot continue in business without probable losses to its depositorsor creditors; or has willfully violated a final cease and desist order,involving acts or transactions amounting to fraud or a dissipation ofthe assets of the institution. The main purpose of the Receiver is torecommend the rehabilitation or liquidation of the bank.

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Liquidation (Sec. 30; Sec. 69, RA 8791)

SECTION 30. PROCEEDINGS IN RECEIVERSHIP AND LIQUIDATION. -IF THERECEIVER DETERMINES THAT THE INSTITUTION CANNOT BE REHABILITATED ORPERMITTED TO RESUME BUSINESS IN ACCORDANCE WITH THE NEXTPRECEDING PARAGRAPH, THE MONETARY BOARD SHALL NOTIFY IN WRITINGTHE BOARD OF DIRECTORS OF ITS FINDINGS AND DIRECT THE RECEIVER TOPROCEED WITH THE LIQUIDATION OF THE INSTITUTION. THE RECEIVER SHALL:

(1) FILE EX PARTE WITH THE PROPER REGIONAL TRIAL COURT, ANDWITHOUT REQUIREMENT OF PRIOR NOTICE OR ANY OTHER ACTION, APETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE INSTITUTIONPURSUANT TO A LIQUIDATION PLAN ADOPTED BY THE PHILIPPINE DEPOSITINSURANCE CORPORATION FOR GENERAL APPLICATION TO ALL CLOSEDBANKS. IN CASE OF QUASI-BANKS, THE LIQUIDATION PLAN SHALL BEADOPTED BY THE MONETARY BOARD. UPON ACQUIRING JURISDICTION,THE COURT SHALL, UPON MOTION BY THE RECEIVER AFTER DUE NOTICE,ADJUDICATE DISPUTED CLAIMS AGAINST THE INSTITUTION, ASSIST THEENFORCEMENT OF INDIVIDUAL LIABILITIES OF THE STOCKHOLDERS,DIRECTORS AND OFFICERS, AND DECIDE ON OTHER ISSUES AS MAY BEMATERIAL TO IMPLEMENT THE LIQUIDATION PLAN ADOPTED. THE RECEIVERSHALL PAY THE COST OF THE PROCEEDINGS FROM THE ASSETS OF THEINSTITUTION.

(2) CONVERT THE ASSETS OF THE INSTITUTIONS TO MONEY, DISPOSE OFTHE SAME TO CREDITORS AND OTHER PARTIES, FOR THE PURPOSE OFPAYING THE DEBTS OF SUCH INSTITUTION IN ACCORDANCE WITH THERULES ON CONCURRENCE AND PREFERENCE OF CREDIT UNDER THE CIVILCODE OF THE PHILIPPINES AND HE MAY, IN THE NAME OF THE INSTITUTION,AND WITH THE ASSISTANCE OF COUNSEL AS HE MAY RETAIN, INSTITUTESUCH ACTIONS AS MAY BE NECESSARY TO COLLECT AND RECOVERACCOUNTS AND ASSETS OF, OR DEFEND ANY ACTION AGAINST, THEINSTITUTION. THE ASSETS OF AN INSTITUTION UNDER RECEIVERSHIP ORLIQUIDATION SHALL BE DEEMED IN CUSTODIA LEGIS IN THE HANDS OF THERECEIVER AND SHALL, FROM THE MOMENT THE INSTITUTION WAS PLACEDUNDER SUCH RECEIVERSHIP OR LIQUIDATION, BE EXEMPT FROM ANYORDER OF GARNISHMENT, LEVY, ATTACHMENT, OR EXECUTION.

THE ACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION ORUNDER SECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAYNOT BE RESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FORCERTIORARI ON THE GROUND THAT THE ACTION TAKEN WAS IN EXCESS OFJURISDICTION OR WITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TOLACK OR EXCESS OF JURISDICTION. THE PETITION FOR CERTIORARI MAY ONLYBE FILED BY THE STOCKHOLDERS OF RECORD REPRESENTING THE MAJORITYOF THE CAPITAL STOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARDOF DIRECTORS OF THE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP,LIQUIDATION OR CONSERVATORSHIP.

SECTION 69. RA 8791. RECEIVERSHIP AND INVOLUNTARY LIQUIDATION. - THEGROUNDS AND PROCEDURES FOR PLACING A BANK UNDER RECEIVERSHIP ORLIQUIDATION, AS WELL AS THE POWERS AND DUTIES OF THE RECEIVER ORLIQUIDATOR APPOINTED FOR THE BANK SHALL BE GOVERNED BY THEPROVISIONS OF SECTIONS 30, 31, 32, AND 33 OF THE NEW CENTRAL BANK

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ACT: PROVIDED, THAT THE PETITIONER OR PLAINTIFF FILES WITH THE CLERKOR JUDGE OF THE COURT IN WHICH THE ACTION IS PENDING A BOND,EXECUTED IN FAVOR OF THE BANGKO SENTRAL, IN AN AMOUNT TO BE FIXEDBY THE COURT. THIS SECTION SHALL ALSO APPLY TO THE EXTENT POSSIBLETO THE RECEIVERSHIP AND LIQUIDATION PROCEEDINGS OF QUASI-BANKS. (N)

SECTION 70. RA 8791. PENALTY FOR TRANSACTIONS AFTER A BANKBECOMES INSOLVENT. - ANY DIRECTOR OR OFFICER OF ANY BANK DECLAREDINSOLVENT OR PLACED UNDER RECEIVERSHIP BY THE MONETARY BOARD WHOREFUSES TO TURN OVER THE BANK'S RECORDS AND ASSETS TO THEDESIGNATED RECEIVERS, OR WHO TAMPERS WITH BANKS RECORDS, OR WHOAPPROPRIATES FOR HIMSELF FOR ANOTHER PARTY OR DESTROYS OR CAUSESTHE MISAPPROPRIATION AND DESTRUCTION OF THE BANK'S ASSETS, OR WHORECEIVES OR PERMITS OR CAUSES TO BE RECEIVED IN SAID BANK ANYDEPOSIT, COLLECTION OF LOANS AND/OR RECEIVABLES, OR WHO PAYS OUTOR PERMITS OR CAUSES TO BE TRANSFERRED ANY SECURITIES OR PROPERTYOF SAID BANK SHALL BE SUBJECT TO THE PENAL PROVISIONS OF THE NEWCENTRAL BANK ACT. (85A)

How the BSP handles exchange crises (Sec. 72)

SECTION 72. EMERGENCY RESTRICTIONS ON EXCHANGE OPERATIONS. - IN ORDERTO ACHIEVE THE PRIMARY OBJECTIVE OF THE BANGKO SENTRAL AS SET FORTH INSECTION 3 OF THIS ACT, OR PROTECT THE INTERNATIONAL RESERVES OF THEBANGKO SENTRAL IN THE IMMINENCE OF, OR DURING AN EXCHANGE CRISIS, OR INTIME OF NATIONAL EMERGENCY AND TO GIVE THE MONETARY BOARD AND THEGOVERNMENT TIME IN WHICH TO TAKE CONSTRUCTIVE MEASURES TO FORESTALL,COMBAT, OR OVERCOME SUCH A CRISIS OR EMERGENCY, THE MONETARY BOARD,WITH THE CONCURRENCE OF AT LEAST FIVE (5) OF ITS MEMBERS AND WITH THEAPPROVAL OF THE PRESIDENT OF THE PHILIPPINES, MAY—

1. TEMPORARILY SUSPEND OR RESTRICT SALES OF EXCHANGE BY THEBANGKO SENTRAL, AND

2. MAY SUBJECT ALL TRANSACTIONS IN GOLD AND FOREIGN EXCHANGE TOLICENSE BY THE BANGKO SENTRAL, AND

3. MAY REQUIRE THAT ANY FOREIGN EXCHANGE THEREAFTER OBTAINED BYANY PERSON RESIDING OR ENTITY OPERATING IN THE PHILIPPINES BEDELIVERED TO THE BANGKO SENTRAL OR TO ANY BANK OR AGENTDESIGNATED BY THE BANGKO SENTRAL FOR THE PURPOSE, AT THEEFFECTIVE EXCHANGE RATE OR RATES:

PROVIDED, HOWEVER, THAT FOREIGN CURRENCY DEPOSITS MADE UNDERREPUBLIC ACT NO. 6426 SHALL BE EXEMPT FROM THESE REQUIREMENTS.

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Functions of the BSP (e.g., Secs. 49-60; 61-63, 81-89, 109; 64-66; 82-84; 94 and103; 102; 110-116; 117-122; 123-124)

Exclusive issue power (Sec. 50); liability for notes and coins (Sec. 51); legaltender power (Sec. 53)

SECTION 50. EXCLUSIVE ISSUE POWER. - THE BANGKO SENTRAL SHALL HAVETHE SOLE POWER AND AUTHORITY TO ISSUE CURRENCY, WITHIN THETERRITORY OF THE PHILIPPINES. NO OTHER PERSON OR ENTITY, PUBLIC ORPRIVATE, MAY PUT INTO CIRCULATION NOTES, COINS OR ANY OTHER OBJECTOR DOCUMENT WHICH, IN THE OPINION OF THE MONETARY BOARD, MIGHTCIRCULATE AS CURRENCY, NOR REPRODUCE OR IMITATE THE FACSIMILES OFBANGKO SENTRAL NOTES WITHOUT PRIOR AUTHORITY FROM THE BANGKOSENTRAL. XXX.

SECTION 51. LIABILITY FOR NOTES AND COINS. - NOTES AND COINS ISSUEDBY THE BANGKO SENTRAL SHALL BE LIABILITIES OF THE BANGKO SENTRALAND MAY BE ISSUED ONLY AGAINST, AND IN AMOUNTS NOT EXCEEDING, THEASSETS OF THE BANGKO SENTRAL. SAID NOTES AND COINS SHALL BE A FIRSTAND PARAMOUNT LIEN ON ALL ASSETS OF THE BANGKO SENTRAL.

THE BANGKO SENTRAL'S HOLDINGS OF ITS OWN NOTES AND COINS SHALL NOTBE CONSIDERED AS PART OF ITS CURRENCY ISSUE AND, ACCORDINGLY, SHALLNOT FORM PART OF THE ASSETS OR LIABILITIES OF THE BANGKO SENTRAL.

SECTION 52. LEGAL TENDER POWER. - ALL NOTES AND COINS ISSUED BY THEBANGKO SENTRAL SHALL BE FULLY GUARANTEED BY THE GOVERNMENT OFTHE REPUBLIC OF THE PHILIPPINES AND SHALL BE LEGAL TENDER IN THEPHILIPPINES 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(P50.00) FOR DENOMINATIONS OF TWENTY-FIVE CENTAVOS AND ABOVE, ANDIN AMOUNTS NOT EXCEEDING TWENTY PESOS (P20.00) FOR DENOMINATIONSOF TEN CENTAVOS OR LESS.

DTC SUPPLEMENT TO PARAGRAPH 1.17 (A), PP. 12-13

On account of the issuance by the BSP of new coins in higherdenominations after the affectivity of the BSP Law in 1993, the BSP,pursuant to Section 52 of the BSP Law and Monetary BoardResolution No. 862, dated July 6, 2006, issued Circular No. 537,dated July 18, 2006, which adjusted the maximum amount of coins tobe considered as legal tender as follows:

1. (P1,000) for denominations of 1-Piso, 5-Piso and 10-Piso coins;and

2. (P100) for denominations of 1-sentimo, 5-sentimo, 10-sentimo,and 25-sentimo

Instruments of action (e.g., Secs. 68; 69-79; 81-89, 93; 90-92; 94-103; 104-108)

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Setting of bank reserve requirements (Secs. 94-103)

SECTION 94. RESERVE REQUIREMENTS. - IN ORDER TO CONTROL THE VOLUMEOF MONEY CREATED BY THE CREDIT OPERATIONS OF THE BANKING SYSTEM,ALL BANKS OPERATING IN THE PHILIPPINES SHALL BE REQUIRED TO MAINTAINRESERVES AGAINST THEIR DEPOSIT LIABILITIES: PROVIDED, THAT THEMONETARY BOARD MAY, AT ITS DISCRETION, ALSO REQUIRE ALL BANKSAND/OR QUASI-BANKS TO MAINTAIN RESERVES AGAINST FUNDS HELD IN TRUSTAND LIABILITIES FOR DEPOSIT SUBSTITUTES AS DEFINED IN THIS ACT. THEREQUIRED RESERVES OF EACH BANK SHALL BE PROPORTIONAL TO THEVOLUME OF ITS DEPOSIT LIABILITIES AND SHALL ORDINARILY TAKE THE FORMOF A DEPOSIT IN THE BANGKO SENTRAL. RESERVE REQUIREMENTS SHALL BEAPPLIED TO ALL BANKS OF THE SAME CATEGORY UNIFORMLY AND WITHOUTDISCRIMINATION.

RESERVES AGAINST DEPOSIT SUBSTITUTES, IF IMPOSED, SHALL BEDETERMINED IN THE SAME MANNER AS PROVIDED FOR RESERVEREQUIREMENTS AGAINST REGULAR BANK DEPOSITS, WITH RESPECT TO THEIMPOSITION, INCREASE, AND COMPUTATION OF RESERVES.

THE MONETARY BOARD MAY EXEMPT FROM RESERVE REQUIREMENTSDEPOSITS AND DEPOSIT SUBSTITUTES WITH REMAINING MATURITIES OF TWO(2) YEARS OR MORE, AS WELL AS INTERBANK BORROWINGS.

SINCE THE REQUIREMENT TO MAINTAIN BANK RESERVES IS IMPOSEDPRIMARILY TO CONTROL THE VOLUME OF MONEY, THE BANGKO SENTRALSHALL NOT PAY INTEREST ON THE RESERVES MAINTAINED WITH IT UNLESS THEMONETARY BOARD DECIDES OTHERWISE AS WARRANTED BYCIRCUMSTANCES.

SECTION 95. DEFINITION OF DEPOSIT SUBSTITUTES. - THE TERM "DEPOSITSUBSTITUTES" IS DEFINED AS—

1. AN ALTERNATIVE FORM OF OBTAINING FUNDS FROM THE PUBLIC,OTHER THAN DEPOSITS,

2. THROUGH THE ISSUANCE, ENDORSEMENT, OR ACCEPTANCE OF DEBTINSTRUMENTS

3. FOR THE BORROWER'S OWN ACCOUNT,4. FOR THE PURPOSE OF RELENDING OR PURCHASING OF RECEIVABLES

AND OTHER OBLIGATIONS.

THESE INSTRUMENTS MAY INCLUDE, BUT NEED NOT BE LIMITED TO, BANKERSACCEPTANCES, PROMISSORY NOTES, PARTICIPATIONS, CERTIFICATES OFASSIGNMENT AND SIMILAR INSTRUMENTS WITH RECOURSE, AND REPURCHASEAGREEMENTS. THE MONETARY BOARD SHALL DETERMINE WHAT SPECIFICINSTRUMENTS SHALL BE CONSIDERED AS DEPOSIT SUBSTITUTES FOR THEPURPOSES OF SECTION 94 OF THIS ACT: PROVIDED, HOWEVER, THATDEPOSIT SUBSTITUTES OF COMMERCIAL, INDUSTRIAL AND OTHER NON-FINANCIAL COMPANIES FOR THE LIMITED PURPOSE OF FINANCING THEIR OWNNEEDS OR THE NEEDS OF THEIR AGENTS OR DEALERS SHALL NOT BE COVEREDBY THE PROVISIONS OF SECTION 94 OF THIS ACT.

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SECTION 96. REQUIRED RESERVES AGAINST PESO DEPOSITS. - THEMONETARY BOARD MAY FIX AND, WHEN IT DEEMS NECESSARY, ALTER THEMINIMUM RESERVE RATIOS TO PESO DEPOSITS, AS WELL AS TO DEPOSITSUBSTITUTES, WHICH EACH BANK AND/OR QUASI-BANK MAY MAINTAIN, ANDSUCH RATIO SHALL BE APPLIED UNIFORMLY TO ALL BANKS OF THE SAMECATEGORY AS WELL AS TO QUASI-BANKS.

SECTION 97. REQUIRED RESERVES AGAINST FOREIGN CURRENCY DEPOSITS. -THE MONETARY BOARD IS SIMILARLY AUTHORIZED TO PRESCRIBE AND MODIFYTHE MINIMUM RESERVE RATIOS APPLICABLE TO DEPOSITS DENOMINATED INFOREIGN CURRENCIES.

SECTION 98. RESERVES AGAINST UNUSED BALANCES OF OVERDRAFT LINES. -IN ORDER TO FACILITATE BANGKO SENTRAL CONTROL OVER THE VOLUME OFBANK CREDIT, THE MONETARY BOARD MAY ESTABLISH MINIMUM RESERVEREQUIREMENTS FOR UNUSED BALANCES OF OVERDRAFT LINES.

THE POWERS OF THE MONETARY BOARD TO PRESCRIBE AND MODIFYRESERVE REQUIREMENTS AGAINST UNUSED BALANCES OF OVERDRAFT LINESSHALL BE THE SAME AS ITS POWERS WITH RESPECT TO RESERVEREQUIREMENTS AGAINST DEMAND DEPOSITS.

SECTION 99. INCREASE IN RESERVE REQUIREMENTS. - WHENEVER IN THEOPINION OF THE MONETARY BOARD IT BECOMES NECESSARY TO INCREASERESERVE REQUIREMENTS AGAINST EXISTING LIABILITIES, THE INCREASE SHALLBE MADE IN A GRADUAL MANNER AND SHALL NOT EXCEED FOUR PERCENTAGEPOINTS IN ANY THIRTY-DAY PERIOD. BANKS AND OTHER AFFECTED FINANCIALINSTITUTIONS SHALL BE NOTIFIED REASONABLY IN ADVANCE OF THE DATE ONWHICH SUCH INCREASE IS TO BECOME EFFECTIVE.

SECTION 100. COMPUTATION ON RESERVES. - THE RESERVE POSITION OFEACH BANK OR QUASI-BANK SHALL BE CALCULATED DAILY ON THE BASIS OFTHE AMOUNT, AT THE CLOSE OF BUSINESS FOR THE DAY, OF THEINSTITUTION'S RESERVES AND THE AMOUNT OF ITS LIABILITY ACCOUNTSAGAINST WHICH RESERVES ARE REQUIRED TO BE MAINTAINED: PROVIDED,THAT WITH REFERENCE TO HOLIDAYS OR NON-BANKING DAYS, THE RESERVEPOSITION AS CALCULATED AT THE CLOSE OF THE BUSINESS DAY IMMEDIATELYPRECEDING SUCH HOLIDAYS AND NON-BANKING DAYS SHALL APPLY ON SUCHDAYS.

FOR THE PURPOSE OF COMPUTING THE RESERVE POSITION OF EACH BANK ORQUASI-BANK, ITS PRINCIPAL OFFICE IN THE PHILIPPINES AND ALL ITSBRANCHES AND AGENCIES LOCATED THEREIN SHALL BE CONSIDERED AS ASINGLE UNIT.

SECTION 101. RESERVE DEFICIENCIES. - WHENEVER THE RESERVE POSITIONOF ANY BANK OR QUASI-BANK, COMPUTED IN THE MANNER SPECIFIED IN THEPRECEDING SECTION OF THIS ACT, IS BELOW THE REQUIRED MINIMUM, THEBANK OR QUASI-BANK SHALL PAY THE BANGKO SENTRAL ONE-TENTH OF ONEPERCENT (1/10 OF 1%) PER DAY ON THE AMOUNT OF THE DEFICIENCY OR THEPREVAILING NINETY-ONE-DAY TREASURY BILL RATE PLUS THREE PERCENTAGEPOINTS, WHICHEVER IS HIGHER: PROVIDED, HOWEVER, THAT BANKS ANDQUASI-BANKS SHALL ORDINARILY BE PERMITTED TO OFFSET ANY RESERVEDEFICIENCY OCCURRING ON ONE OR MORE DAYS OF THE WEEK WITH ANY

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EXCESS RESERVES WHICH THEY MAY HOLD ON OTHER DAYS OF THE SAMEWEEK AND SHALL BE REQUIRED TO PAY THE PENALTY ONLY ON THE AVERAGEDAILY DEFICIENCY DURING THE WEEK. IN CASES OF ABUSE, THE MONETARYBOARD MAY DENY ANY BANK OR QUASI-BANK THE PRIVILEGE OF OFFSETTINGRESERVE DEFICIENCIES IN THE AFORESAID MANNER.

IF A BANK OR QUASI-BANK CHRONICALLY HAS A RESERVE DEFICIENCY, THEMONETARY BOARD MAY LIMIT OR PROHIBIT THE MAKING OF NEW LOANS ORINVESTMENTS BY THE INSTITUTION AND MAY REQUIRE THAT PART OR ALL OFTHE NET PROFITS OF THE INSTITUTION BE ASSIGNED TO SURPLUS.

THE MONETARY BOARD MAY MODIFY OR SET ASIDE THE RESERVE DEFICIENCYPENALTIES PROVIDED IN THIS SECTION, FOR PART OR THE ENTIRE PERIOD OF ASTRIKE OR LOCKOUT AFFECTING A BANK OR A QUASI-BANK AS DEFINED IN THELABOR CODE, OR OF A NATIONAL EMERGENCY AFFECTING OPERATIONS OFBANKS OR QUASI-BANKS. THE MONETARY BOARD MAY ALSO MODIFY OR SETASIDE RESERVED DEFICIENCY PENALTIES FOR REHABILITATION PROGRAM OF ABANK.

SECTION 102. INTERBANK SETTLEMENT. - THE BANGKO SENTRAL SHALLESTABLISH FACILITIES FOR INTERBANK CLEARING UNDER SUCH RULES ANDREGULATIONS AS THE MONETARY BOARD MAY PRESCRIBE: PROVIDED, THATTHE BANGKO SENTRAL MAY CHARGE ADMINISTRATIVE AND OTHER FEES FORTHE MAINTENANCE OF SUCH FACILITIES.

THE DEPOSIT RESERVES MAINTAINED BY THE BANKS IN THE BANGKO SENTRALIN ACCORDANCE WITH THE PROVISIONS OF SECTION 94 OF THIS ACT SHALLSERVE AS BASIS FOR THE CLEARING OF CHECKS AND THE SETTLEMENT OFINTERBANK BALANCES, SUBJECT TO SUCH RULES AND REGULATIONS AS THEMONETARY BOARD MAY ISSUE WITH RESPECT TO SUCH OPERATIONS:PROVIDED, THAT ANY BANK WHICH INCURS ON OVERDRAWING IN ITS DEPOSITACCOUNT WITH THE BANGKO SENTRAL SHALL FULLY COVER SAID OVERDRAFT,INCLUDING INTEREST THEREON AT A RATE EQUIVALENT TO ONE-TENTH OF ONEPERCENT (1/10 OF 1%) PER DAY OR THE PREVAILING NINETY-ONE-DAYTREASURY BILL RATE PLUS THREE PERCENTAGE POINTS, WHICHEVER ISHIGHER, NOT LATER THAN THE NEXT CLEARING DAY: PROVIDED, FURTHER,THAT SETTLEMENT OF CLEARING BALANCES SHALL NOT BE EFFECTED FOR ANYACCOUNT WHICH CONTINUES TO BE OVERDRAWN FOR FIVE (5) CONSECUTIVEBANKING DAYS UNTIL SUCH TIME AS THE OVERDRAWING IS FULLY COVERED OROTHERWISE CONVERTED INTO AN EMERGENCY LOAN OR ADVANCE PURSUANTTO THE PROVISIONS OF SECTION 84 OF THIS ACT: PROVIDED, FINALLY, THATTHE APPROPRIATE CLEARING OFFICE SHALL BE OFFICIALLY NOTIFIED OF BANKSWITH OVERDRAWN BALANCES. BANKS WITH EXISTING OVERDRAFTS WITH THEBANGKO SENTRAL AS OF THE EFFECTIVITY OF THIS ACT SHALL, WITHIN SUCHPERIOD AS MAY BE PRESCRIBED BY THE MONETARY BOARD, EITHER CONVERTTHE OVERDRAFT INTO AN EMERGENCY LOAN OR ADVANCE WITH A PLAN OFPAYMENT, OR SETTLE SUCH OVERDRAFTS, AND THAT, UPON FAILURE TO SOCOMPLY HEREWITH, THE BANGKO SENTRAL SHALL TAKE SUCH ACTIONAGAINST THE BANK AS MAY BE WARRANTED UNDER THIS ACT.

SECTION 103. EXEMPTION FROM ATTACHMENT AND OTHER PURPOSES. -DEPOSITS MAINTAINED BY BANKS WITH THE BANGKO SENTRAL AS PART OFTHEIR RESERVE REQUIREMENTS SHALL BE EXEMPT FROM ATTACHMENT,GARNISHMENTS, OR ANY OTHER ORDER OR PROCESS OF ANY COURT,

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GOVERNMENT AGENCY OR ANY OTHER ADMINISTRATIVE BODY ISSUED TOSATISFY THE CLAIM OF A PARTY OTHER THAN THE GOVERNMENT, OR ITSPOLITICAL SUBDIVISIONS OR INSTRUMENTALITIES.

Control of bank credit (Secs. 104-108; Secs. 37-38 and 43, RA 8791)

SECTION 104. GUIDING PRINCIPLE. - THE MONETARY BOARD SHALL USE THEPOWERS GRANTED TO IT UNDER THIS ACT TO ENSURE THAT THE SUPPLY,AVAILABILITY AND COST OF MONEY ARE IN ACCORD WITH THE NEEDS OF THEPHILIPPINE ECONOMY AND THAT BANK CREDIT IS NOT GRANTED FORSPECULATIVE PURPOSES PREJUDICIAL TO THE NATIONAL INTERESTS.REGULATIONS ON BANK OPERATIONS SHALL BE APPLIED TO ALL BANKS OF THESAME CATEGORY UNIFORMLY AND WITHOUT DISCRIMINATION.

SECTION 105. MARGIN REQUIREMENTS AGAINST LETTERS OF CREDIT. - THEMONETARY BOARD MAY AT ANY TIME PRESCRIBE MINIMUM CASH MARGINS FORTHE OPENING OF LETTERS OF CREDIT, AND MAY RELATE THE SIZE OF THEREQUIRED MARGIN TO THE NATURE OF THE TRANSACTION TO BE FINANCED.

SECTION 106. REQUIRED SECURITY AGAINST BANK LOANS. - IN ORDER TOPROMOTE LIQUIDITY AND SOLVENCY OF THE BANKING SYSTEM, THEMONETARY BOARD MAY ISSUE SUCH REGULATIONS AS IT MAY DEEMNECESSARY WITH RESPECT TO THE MAXIMUM PERMISSIBLE MATURITIES OFTHE LOANS AND INVESTMENTS WHICH THE BANKS MAY MAKE, AND THE KINDAND AMOUNT OF SECURITY TO BE REQUIRED AGAINST THE VARIOUS TYPES OFCREDIT OPERATIONS OF THE BANKS.

SECTION 107. PORTFOLIO CEILINGS. - WHENEVER THE MONETARY BOARDCONSIDERS IT ADVISABLE TO PREVENT OR CHECK AN EXPANSION OF BANKCREDIT, THE BOARD MAY PLACE AN UPPER LIMIT ON THE AMOUNT OF LOANSAND INVESTMENTS WHICH THE BANKS MAY HOLD, OR MAY PLACE A LIMIT ONTHE RATE OF INCREASE OF SUCH ASSETS WITHIN SPECIFIED PERIODS OF TIME.THE MONETARY BOARD MAY APPLY SUCH LIMITS TO THE LOANS ANDINVESTMENTS OF EACH BANK OR TO SPECIFIC CATEGORIES THEREOF.

IN NO CASE SHALL THE MONETARY BOARD ESTABLISH LIMITS WHICH AREBELOW THE VALUE OF THE LOANS OR INVESTMENTS OF THE BANKS ON THEDATE ON WHICH THEY ARE NOTIFIED OF SUCH RESTRICTIONS. THERESTRICTIONS SHALL BE APPLIED TO ALL BANKS UNIFORMLY AND WITHOUTDISCRIMINATION.

SECTION 108. MINIMUM CAPITAL RATIOS. - THE MONETARY BOARD MAYPRESCRIBE MINIMUM RATIOS WHICH THE CAPITAL AND SURPLUS OF THE BANKSMUST BEAR TO THE VOLUME OF THEIR ASSETS, OR TO SPECIFIC CATEGORIESTHEREOF, AND MAY ALTER SAID RATIOS WHENEVER IT DEEMS NECESSARY.

Moral influence (Sec. 68)

SECTION 68. MEANS OF ACTION. - IN ORDER TO ACHIEVE THE PRIMARYOBJECTIVE OF PRICE STABILITY, THE MONETARY BOARD SHALL RELY ON ITSMORAL INFLUENCE AND THE POWERS GRANTED TO IT UNDER THIS ACT FORTHE MANAGEMENT OF MONETARY AGGREGATES.

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1.2 Cases

Authority of conservator to revoke contracts

FIRST PHILIPPINE INTERNATIONAL BANK VS. CA, ET AL.,G.R. 115849, JANUARY 24, 1996.

FACTS: First Bank is refusing the tender of payment being made by the private respondentsfor an alleged perfected sale of certain parcels of land owned by First Bank.To justify its refusal, First Bank brought forth the argument that the person whom the privaterespondents have been negotiating with had no authority to represent First Bank; that at thetime the negotiations between First Bank and the private respondents took place, itsappointed conservator [First Bank has been placed by the Central Bank underconservatorship] had already repudiated the authority of said person.

ISSUE: Was the repudiation valid?

HELD: NO. It is not disputed that the petitioner Bank was under a conservator placed by theCentral Bank of the Philippines during the time that the negotiation and perfection of thecontract of sale took place. Petitioners energetically contended that the conservator has thepower to revoke or overrule actions of the management or the board of directors of a bank,under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act).

While admittedly, the Central Bank law gives vast and far-reaching powers to theconservator 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 thereofand (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 wouldinfringe against the non-impairment clause of the Constitution. If the legislature itself cannotrevoke an existing valid contract, how can it delegate such non-existent powers to theconservator under Section 28-A of said law?

Obviously, therefore, Section 28-A merely gives the conservator power to revokecontracts 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'sboard of directors. What the said board cannot do — such as repudiating a contract validlyentered 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 theBank. His authority would be only to bring court actions to assail such contracts — as he hasalready done so in the instant case.

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No need for prior hearing

RURAL BANK OF BUHI VS. CA,G.R. L-61689, JUNE 20, 1988

FACTS: On January 10, 1980, a general examination of the bank's affairs and operations wasconducted and there were found by the Rural Banks and Savings and Loan Association[DRBSLA] represented byConsolacion V. Odra, Director of DRBSLA, among others,massive irregularities in its operations consisting of loans to unknown and fictitiousborrowers, where the sum of P 1,704,782.00 was past due and another sumof P1,130,000.00 was also past due in favor of the Central Bank. The promissory notesevidencing these loans were rediscounted with the Central Bank for cash. As a resultthereof, the bank became insolvent and prejudiced its depositors and creditors.

Consolacion V. Odra, submitted a report recommending to the Monetary Board of theCentral Bank the placing of Buhi under receivership in accordance with Section 29 ofRepublic Act No. 265, as amended, the designation of the Director, DRBSLA, as receiverthereof. On March 28, 1980, the Monetary Board, finding the report to be true, adoptedResolution No. 583 placing Buhi, petitioner herein, under receivership and designatedrespondent, Consolacion V. Odra, as Receiver, pursuant to the provisions of Section 29 ofRepublic Act No. 265 as amended.

Ïssue: Petitioner Rural Bank's position is to the effect that due process was not observed bythe Monetary Board before said bank was placed under receivership. Said Rural Bankclaimed that it was not given the chance to deny and disprove such claim of insolvencyand/or any other ground which the Monetary Board used in justification of its action.

HELD: Prior hearing not required under the law.

It will be observed from the foregoing provision of law, that there is no requirement whetherexpress or implied, that a hearing be first conducted before a banking institution may beplaced under receivership. On the contrary, the law is explicit as to the conditionsprerequisite to the action of the Monetary Board to forbid the institution to do business in thePhilippines and to appoint a receiver to immediately take charge of the bank's assets andliabilities. They are: (a) an examination made by the examining department of the CentralBank; (b) report by said department to the Monetary Board; and (c) prima facie showing thatthe bank is in a condition of insolvency or so situated that its continuance in business wouldinvolve probable loss to its depositors or creditors.

Due process does not necessarily require a prior hearing; a hearing or an opportunity to beheard may be subsequent to the closure. One can just imagine the dire consequences of aprior hearing: bank runs would be the order of the day, resulting in panic and hysteria. In theprocess, fortunes may be wiped out, and disillusionment will run the gamut of the entirebanking community.

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Section 30 of the BSP Law merely requires a report, not an examination, by the head of thesupervising or examining department before a bank could be closed

RURAL BANK OF SAN MIGUEL, ET AL. VS. MONETARY BOARD, ET AL.,G.R. 150886, FEBRUARY 16, 2007.

FACTS: On the basis of the comptrollership/monitoring report as of October 31, 1999 asreported by Mr. Wilfredo B. Domo-ong, Director, Department of Rural Banks, in hismemorandum dated January 20, 2000, which report showed that [RBSM] (a) is unable topay its liabilities as they become due in the ordinary course of business; (b) cannot continuein business without involving probable losses to its depositors and creditors; that themanagement of the bank had been accordingly informed of the need to infuse additionalcapital to place the bank in a solvent financial condition and was given adequate time withinwhich to make the required infusion and that no infusion of adequate fresh capital wasmade, Monetary Board (MB), the governing board of respondent Bangko Sentral ng Pilipinas(BSP), issued Resolution No. 105 prohibiting RBSM from doing business in the Philippines,placing it under receivership and designating respondent Philippine Deposit InsuranceCorporation (PDIC) as receiver.

ISSUE: Petitioners argue that Resolution No. 105 was bereft of any basis considering that nocomplete examination had been conducted before it was issued. This case essentially boilsdown to one core issue: whether Section 30 of RA 7653 (also known as the New CentralBank Act) and applicable jurisprudence require a current and complete examination of thebank before it can be closed and placed under receivership.

HELD: In RA 7653, only a "report” of the head of the supervising or examining department"is necessary. It is an established rule in statutory construction that where the words of astatute are clear, plain and free from ambiguity, it must be given its literal meaning andapplied without attempted interpretation.

Laying down the requisites for the closure of a bank under the law is the prerogative of thelegislature and what its wisdom dictates. The lawmakers could have easily retained the word"examination" (and in the process also preserved the jurisprudence attached to it) but theydid not and instead opted to use the word "report." The insistence on an examination is notsanctioned by RA 7653 and we would be guilty of judicial legislation were we to make it arequirement when such is not supported by the language of the law.

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BSP, not RTC, has jurisdiction over acts complained of that pertain to bank’sbusiness

KORUGA VS. ARCENAS, ET AL.,G.R. 168332, JUNE 19, 2009.

FACTS: Koruga’s Complaint charged defendants with violation of Sections 31 to 34 of theCorporation Code, prohibiting self-dealing and conflict of interest of directors and officers;invoked her right to inspect the corporation’s records under Sections 74 and 75 of theCorporation Code; and prayed for Receivership and Creation of a Management Committee,pursuant to Rule 59 of the Rules of Civil Procedure, the Securities Regulation Code, theInterim Rules of Procedure Governing Intra-Corporate Controversies, the General BankingLaw of 2000, and the New Central Bank Act.

ISSUE: Who has jurisdiction over the complaint [BSP or RTC]?

HELD: Whether the loans referred to in Koruga’s complaint are covered by the prohibitionon self-dealing or not is a matter for the BSP to determine [not the RTC]. These are notordinary intra-corporate matters. The acts complained of pertain to the conduct of BancoFilipino’s banking business. A bank, as defined in the General Banking Law, refers to anentity engaged in the lending of funds obtained in the form of deposits. The law vests in theBSP the supervision over operations and activities of banks.

Also, it is the BSP [and not the RTC] which has jurisdiction to hear and decide the suit thatseeks to place Banco Filipino under receivership. Following the principle of “generaliaspecialibus non derogant,” is not the Interim Rules of Procedure on Intra-CorporateControversies nor Rule 59 of the Rules of Civil Procedure on Receivership, that would applyto this case. Instead, Sections 29 and 30 of the New Central Bank Act should be followed.

Crystal clear in Section 30 is the provision that says the "appointment of a receiver underthis section shall be vested exclusively with the Monetary Board." The term "exclusively"connotes that only the Monetary Board can resolve the issue of whether a bank is to beplaced under receivership and, upon an affirmative finding, it also has authority to appoint areceiver. This is further affirmed by the fact that the law allows the Monetary Board to takeaction "summarily and without need for prior hearing." And, as a clincher, the law explicitlyprovides that "actions of the Monetary Board taken under this section or under Section 29 ofthis Act shall be final and executory, and may not be restrained or set aside by the courtexcept on a petition for certiorari on the ground that the action taken was in excess ofjurisdiction or with such grave abuse of discretion as to amount to lack or excess ofjurisdiction."

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“Close now, hear later” doctrine

BANGKO SENTRAL, ET AL. VS. VALENZUELA, ET AL.,G.R. 184778, OCTOBER 2, 2009.

FACTS: Acting on a BSP Report of Examination [on the books of the private respondents],the BSP required the private respondents to undertake certain remedial measures. Privaterespondents are asking for the nullification of a BSP Report of Examination (ROE) and theissuance of a writ of preliminary investigation on the ground that they were not furnishedcopies of the ROE, despite the fact that they’ve been requesting for copies of the said report.The lower court nevertheless granted the request.

ISSUE: Was the issuance of the writ valid?

HELD: NO.

The respondent banks have shown no necessity for the writ of preliminary injunction toprevent serious damage. The serious damage contemplated by the trial court was thepossibility of the imposition of sanctions upon respondent banks, even the sanction ofclosure. Under the law, the sanction of closure could be imposed upon a bank by the BSPeven without notice and hearing. The apparent lack of procedural due process would notresult in the invalidity of action by the MB. This "close now, hear later" scheme is groundedon practical and legal considerations to prevent unwarranted dissipation of the bank’s assetsand as a valid exercise of police power to protect the depositors, creditors, stockholders, andthe general public. The writ of preliminary injunction cannot, thus, prevent the MB fromtaking action, by preventing the submission of the ROEs and worse, by preventing the MBfrom acting on such ROEs.

The "close now, hear later" doctrine has already been justified as a measure for theprotection of the public interest. Swift action is called for on the part of the BSP when it findsthat a bank is in dire straits. Unless adequate and determined efforts are taken by thegovernment against distressed and mismanaged banks, public faith in the banking system iscertain to deteriorate to the prejudice of the national economy itself, not to mention thelosses suffered by the bank depositors, creditors, and stockholders, who all deserve theprotection of the government.

1.3 Additional Materials

BSP Circular No. 537, dated July 18, 2006, re adjustment of maximum amount ofcoins to be considered as legal tender.

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II

THE GENERAL BANKING LAW OF 2000RA 8791 (2000).

2.1 Topics

State policy

SECTION 2. DECLARATION OF POLICY. - THE STATE RECOGNIZES THE VITAL ROLEOF BANKS PROVIDING AN ENVIRONMENT CONDUCIVE TO THE SUSTAINEDDEVELOPMENT OF THE NATIONAL ECONOMY AND THE FIDUCIARY NATURE OFBANKING THAT REQUIRES HIGH STANDARDS OF INTEGRITY AND PERFORMANCE. INFURTHERANCE THEREOF, THE STATE SHALL PROMOTE AND MAINTAIN A STABLEAND EFFICIENT BANKING AND FINANCIAL SYSTEM THAT IS GLOBALLY COMPETITIVE,DYNAMIC AND RESPONSIVE TO THE DEMANDS OF A DEVELOPING ECONOMY. (N)

Concept of intermediation

Distinction between banks (Sec. 3) and quasi-banks (Sec. 4)

SECTION 3.1. "BANKS" SHALL REFER TO ENTITIES ENGAGED IN THE LENDING OFFUNDS OBTAINED IN THE FORM OF DEPOSITS. (2A)

SECTION 4. FOR THE PURPOSES OF THIS ACT, "QUASI-BANKS" SHALL REFER TOENTITIES ENGAGED IN THE BORROWING OF FUNDS THROUGH THE ISSUANCE,ENDORSEMENT OR ASSIGNMENT WITH RECOURSE OR ACCEPTANCE OF DEPOSITSUBSTITUTES AS DEFINED IN SECTION 95 OF REPUBLIC ACT NO. 7653(HEREAFTER THE "NEW CENTRAL BANK ACT") FOR PURPOSES OF RE-LENDING ORPURCHASING OF RECEIVABLES AND OTHER OBLIGATIONS. (2-DA)

SECTION 95. RA 7653. DEFINITION OF DEPOSIT SUBSTITUTES. - THE TERM"DEPOSIT SUBSTITUTES" IS DEFINED AS—

1. AN ALTERNATIVE FORM OF OBTAINING FUNDS FROM THE PUBLIC, OTHERTHAN DEPOSITS,

2. THROUGH THE ISSUANCE, ENDORSEMENT, OR ACCEPTANCE OF DEBTINSTRUMENTS

3. FOR THE BORROWER'S OWN ACCOUNT,4. FOR THE PURPOSE OF RELENDING OR PURCHASING OF RECEIVABLES AND

OTHER OBLIGATIONS.

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Classification of banks (Secs. 3.2 and 71)

SECTION. 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 DEVELOPMENTBANKS, AS DEFINED IN THE REPUBLIC ACT NO. 7906 (HEREAFTER THE"THRIFT BANKS ACT");

(D) RURAL BANKS, AS DEFINED IN REPUBLIC ACT NO. 73S3 (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, OTHERWISEKNOWN AS THE "CHARTER OF AL AMANAH ISLAMIC INVESTMENT BANK OF THEPHILIPPINES"; AND

(G) OTHER CLASSIFICATIONS OF BANKS AS DETERMINED BY THE MONETARYBOARD OF THE BANGKO SENTRAL NG PILIPINAS. (6-AA)

SECTION 71. OTHER BANKING LAWS. - THE ORGANIZATION, THE OWNERSHIP ANDCAPITAL REQUIREMENTS, POWERS, SUPERVISION AND GENERAL CONDUCT OFBUSINESS OF THRIFT BANKS, RURAL BANKS AND COOPERATIVE BANKS SHALL BEGOVERNED BY THE PROVISIONS OF THE THRIFT BANKS ACT, THE RURAL BANKSACT, AND THE COOPERATIVE CODE, RESPECTIVELY. THE ORGANIZATION,OWNERSHIP AND CAPITAL REQUIREMENTS, POWERS, SUPERVISION AND GENERALCONDUCT OF BUSINESS OF ISLAMIC BANKS SHALL BE GOVERNED BY SPECIALLAWS. THE PROVISIONS OF THIS ACT, HOWEVER, INSOFAR AS THEY ARE NOT INCONFLICT WITH THE PROVISIONS OF THE THRIFT BANKS ACT, THE RURAL BANKSACT, AND THE COOPERATIVE CODE SHALL LIKEWISE APPLY TO THRIFT BANKS,RURAL BANKS, AND COOPERATIVE BANKS, RESPECTIVELY. HOWEVER, FORPURPOSES OF PRESCRIBING THE MINIMUM RATIO WHICH THE NET WORTH OF ATHRIFT BANK MUST BEAR TO ITS TOTAL RISK ASSETS, THE PROVISIONS OFSECTION 33 OF THIS ACT SHALL GOVERN. (N)

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Distinction between universal banks and commercial banks (Secs. 23, 24 and 30)

SECTION 23. POWERS OF A UNIVERSAL BANK - A UNIVERSAL BANK SHALL HAVETHE AUTHORITY TO EXERCISE, IN ADDITION TO THE POWERS AUTHORIZED FOR ACOMMERCIAL BANK IN SECTION 29,

1. THE POWERS OF AN INVESTMENT HOUSE AS PROVIDED IN EXISTING LAWSAND

2. THE POWER TO INVEST IN NON-ALLIED ENTERPRISES AS PROVIDED IN THISACT. (21-B)

SECTION 30. EQUITY INVESTMENTS OF A COMMERCIAL BANK. - A COMMERCIALBANK MAY, SUBJECT TO THE CONDITIONS STATED IN THE SUCCEEDINGPARAGRAPHS, INVEST ONLY IN THE EQUITIES OF ALLIED ENTERPRISES AS MAY BEDETERMINED BY THE MONETARY BOARD.

SECTION 24. EQUITY INVESTMENTS OF A UNIVERSAL BANK. - A UNIVERSAL BANKMAY, SUBJECT TO THE CONDITIONS STATED IN THE SUCCEEDING PARAGRAPH,INVEST IN THE EQUITIES OF ALLIED AND NON-ALLIED ENTERPRISES AS MAY BEDETERMINED BY THE MONETARY BOARD.

SECTION 24. EQUITY INVESTMENTS OF AUNIVERSAL BANK. - EXCEPT AS THE MONETARYBOARD MAY OTHERWISE PRESCRIBE:

SECTION 30. EQUITY INVESTMENTS OF ACOMMERCIAL BANK. - EXCEPT AS THEMONETARY BOARD MAY OTHERWISE PRESCRIBE:

24.1. THE TOTAL INVESTMENT IN EQUITIES OFALLIED AND NON-ALLIED ENTERPRISES SHALLNOT EXCEED FIFTY PERCENT (50%) OF THENET WORTH OF THE BANK; AND

30.1. THE TOTAL INVESTMENT IN EQUITIES OFALLIED ENTERPRISES SHALL NOT EXCEEDTHIRTY-FIVE PERCENT (35%) OF THE NETWORTH OF THE BANK; AND

24.2. THE EQUITY INVESTMENT IN ANY ONEENTERPRISE, WHETHER ALLIED OR NON-ALLIED, SHALL NOT EXCEED TWENTY-FIVEPERCENT (25%) OF THE NET WORTH OF THEBANK.

30.2. THE EQUITY INVESTMENT IN ANY ONEENTERPRISE SHALL NOT EXCEED TWENTY-FIVE PERCENT (25%) OF TILE NET WORTH OFTHE BANK.

THE ACQUISITION OF SUCH EQUITY OR EQUITIESIS SUBJECT TO THE PRIOR APPROVAL OF THEMONETARY BOARD WHICH SHALL PROMULGATEAPPROPRIATE GUIDELINES TO GOVERN SUCHINVESTMENTS. (21-BA)

THE ACQUISITION OF SUCH EQUITY OR EQUITIESIS SUBJECT TO THE PRIOR APPROVAL OF THEMONETARY BOARD WHICH SHALL PROMULGATEAPPROPRIATE GUIDELINES TO GOVERN SUCHINVESTMENT.(2LA-A; 21-CA)

AS USED IN THIS ACT, "NET WORTH" SHALL MEANTHE TOTAL OF THE UNIMPAIRED PAID-IN CAPITALINCLUDING—

1. PAID-IN SURPLUS,2. RETAINED EARNINGS AND3. UNDIVIDED PROFIT,

NET OF VALUATION RESERVES AND OTHERADJUSTMENTS AS MAY BE REQUIRED BY THEBANGKO SENTRAL.

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Distinction between universal or commercial banks and other banks (Sec. 33)

SECTION 33. ACCEPTANCE OF DEMAND DEPOSITS. - A BANK OTHER THAN AUNIVERSAL OR COMMERCIAL BANK CANNOT ACCEPT OR CREATE DEMANDDEPOSITS EXCEPT UPON PRIOR APPROVAL OF, AND SUBJECT TO SUCHCONDITIONS AND RULES AS MAY BE PRESCRIBED BY THE MONETARY BOARD. (72-AA)

SECTION 59. RA 7653 ISSUE OF DEMAND DEPOSITS. - ONLY BANKS DULYAUTHORIZED TO DO SO MAY ACCEPT FUNDS OR CREATE LIABILITIES PAYABLE INPESOS UPON DEMAND BY THE PRESENTATION OF CHECKS, AND SUCH OPERATIONSSHALL BE SUBJECT TO THE CONTROL OF THE MONETARY BOARD IN ACCORDANCEWITH THE POWERS GRANTED IT WITH RESPECT THERETO UNDER THIS ACT.

SECTION 58, RA 7653. DEFINITION. - FOR PURPOSES OF THIS ACT, THE TERM"DEMAND DEPOSITS" MEANS ALL THOSE LIABILITIES OF THE BANGKO SENTRAL ANDOF OTHER BANKS WHICH ARE DENOMINATED IN PHILIPPINE CURRENCY AND ARESUBJECT TO PAYMENT IN LEGAL TENDER UPON DEMAND BY THE PRESENTATION OFCHECKS.

SECTION 60. RA 7653. LEGAL CHARACTER. - CHECKS REPRESENTING DEMANDDEPOSITS DO NOT HAVE LEGAL TENDER POWER AND THEIR ACCEPTANCE IN THEPAYMENT OF DEBTS, BOTH PUBLIC AND PRIVATE, IS AT THE OPTION OF THECREDITOR: PROVIDED, HOWEVER, THAT A CHECK WHICH HAS BEEN CLEARED ANDCREDITED TO THE ACCOUNT OF THE CREDITOR SHALL BE EQUIVALENT TO ADELIVERY TO THE CREDITOR OF CASH IN AN AMOUNT EQUAL TO THE AMOUNTCREDITED TO HIS ACCOUNT.

Distinction between allied and non-allied enterprises (Secs. 23, et seq.)

SECTION 25. EQUITY INVESTMENTS OF A UNIVERSAL BANK IN FINANCIAL ALLIEDENTERPRISES. - A UNIVERSAL BANK CAN OWN UP TO ONE HUNDRED PERCENT(100%) OF THE EQUITY IN A THRIFT BANK, A RURAL BANK OR A FINANCIAL ALLIEDENTERPRISE. A PUBLICLY-LISTED UNIVERSAL OR COMMERCIAL BANK MAY OWN UPTO ONE HUNDRED PERCENT (100%) OF THE VOTING STOCK OF ONLY ONE OTHERUNIVERSAL OR COMMERCIAL BANK. (21-B; 21-CA)

SECTION 26. EQUITY INVESTMENTS OF A UNIVERSAL BANK IN NON-FINANCIALALLIED ENTERPRISES. - A UNIVERSAL BANK MAY OWN UP TO ONE HUNDREDPERCENT (100%) OF THE EQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (21-BA)

SECTION 27. EQUITY INVESTMENTS OF A UNIVERSAL BANK IN NON-ALLIEDENTERPRISES. - THE EQUITY INVESTMENT OF A UNIVERSAL BANK, OR OF ITSWHOLLY OR MAJORITY-OWNED SUBSIDIARIES, IN A SINGLE NON-ALLIEDENTERPRISE SHALL NOT EXCEED THIRTY-FIVE PERCENT (35%) OF THE TOTALEQUITY 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 PROMOTECOMPETITIVE CONDITIONS IN FINANCIAL MARKETS, THE MONETARY BOARD MAY

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FURTHER LIMIT TO FORTY PERCENT (40%) EQUITY INVESTMENTS OF UNIVERSALBANKS IN QUASI-BANKS. THIS RULE SHALL ALSO APPLY IN THE CASE OFCOMMERCIAL BANKS. (12-E) ARTICLE II. OPERATIONS OF COMMERCIAL BANKS

Institutions subject to BSP supervisory and regulatory powers (Sec. 4; see Sec. 25,RA 7653)

SECTION 4. SUPERVISORY POWERS. THE OPERATIONS AND ACTIVITIES OF BANKSSHALL BE SUBJECT TO SUPERVISION OF THE BANGKO SENTRAL.

THE BANGKO SENTRAL SHALL ALSO HAVE SUPERVISION OVER THE OPERATIONSOF AND EXERCISE REGULATORY POWERS OVER QUASI-BANKS, TRUST ENTITIESAND OTHER FINANCIAL INSTITUTIONS WHICH UNDER SPECIAL LAWS ARE SUBJECTTO BANGKO SENTRAL SUPERVISION. (2-CA)

SECTION 25, RA 7653. SUPERVISION AND EXAMINATION. - THE BANGKO SENTRALSHALL HAVE SUPERVISION OVER, AND CONDUCT PERIODIC OR SPECIALEXAMINATIONS OF, BANKING INSTITUTIONS AND QUASI-BANKS, INCLUDING THEIRSUBSIDIARIES AND AFFILIATES ENGAGED IN ALLIED ACTIVITIES.

FOR PURPOSES OF THIS SECTION, A SUBSIDIARY MEANS A CORPORATION MORETHAN FIFTY PERCENT (50%) OF THE VOTING STOCK OF WHICH IS OWNED BY ABANK OR QUASI-BANK AND AN AFFILIATE MEANS A CORPORATION THE VOTINGSTOCK OF WHICH, TO THE EXTENT OF FIFTY PERCENT (50%) OR LESS, IS OWNEDBY A BANK OR QUASI-BANK OR WHICH IS RELATED OR LINKED TO SUCHINSTITUTION OR INTERMEDIARY THROUGH COMMON STOCKHOLDERS OR SUCHOTHER FACTORS AS MAY BE DETERMINED BY THE MONETARY BOARD.

SECTION 25, RA 7653. SUPERVISION AND EXAMINATION. - NO RESTRAININGORDER OR INJUNCTION SHALL BE ISSUED BY THE COURT ENJOINING THE BANGKOSENTRAL FROM EXAMINING ANY INSTITUTION SUBJECT TO SUPERVISION OREXAMINATION BY THE BANGKO SENTRAL, UNLESS—

1. THERE IS CONVINCING PROOF THAT THE ACTION OF THE BANGKO SENTRALIS PLAINLY ARBITRARY AND MADE IN BAD FAITH AND

2. THE PETITIONER OR PLAINTIFF FILES WITH THE CLERK OR JUDGE OF THECOURT IN WHICH THE ACTION IS PENDING A BOND EXECUTED IN FAVOR OFTHE BANGKO SENTRAL, IN AN AMOUNT TO BE FIXED BY THE COURT.

THE PROVISIONS OF RULE 58 OF THE NEW RULES OF COURT INSOFAR AS THEYARE APPLICABLE AND NOT INCONSISTENT WITH THE PROVISIONS OF THIS SECTIONSHALL GOVERN THE ISSUANCE AND DISSOLUTION OF THE RESTRAINING ORDER ORINJUNCTION CONTEMPLATED IN THIS SECTION.

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Authority to engage in banking functions (Sec. 6)

SECTION 6. AUTHORITY TO ENGAGE IN BANKING AND QUASI-BANKINGFUNCTIONS. - NO PERSON OR ENTITY SHALL ENGAGE IN BANKING OPERATIONS ORQUASI-BANKING FUNCTIONS WITHOUT AUTHORITY FROM THE BANGKO SENTRAL:PROVIDED, HOWEVER, THAT AN ENTITY AUTHORIZED BY THE BANGKO SENTRAL TOPERFORM UNIVERSAL OR COMMERCIAL BANKING FUNCTIONS SHALL LIKEWISEHAVE THE AUTHORITY TO ENGAGE IN QUASI-BANKING FUNCTIONS.

THE DETERMINATION OF WHETHER A PERSON OR ENTITY IS PERFORMING BANKINGOR QUASI-BANKING FUNCTIONS WITHOUT BANGKO SENTRAL AUTHORITY SHALL BEDECIDED BY THE MONETARY BOARD. TO RESOLVE SUCH ISSUE, THE MONETARYBOARD MAY; THROUGH THE APPROPRIATE SUPERVISING AND EXAMININGDEPARTMENT OF THE BANGKO SENTRAL, EXAMINE, INSPECT OR INVESTIGATE THEBOOKS AND RECORDS OF SUCH PERSON OR ENTITY. UPON ISSUANCE OF THISAUTHORITY, SUCH PERSON OR ENTITY MAY COMMENCE TO ENGAGE IN BANKINGOPERATIONS OR QUASI-BANKING FUNCTION AND SHALL CONTINUE TO DO SOUNLESS SUCH AUTHORITY IS SOONER SURRENDERED, REVOKED, SUSPENDED ORANNULLED BY THE BANGKO SENTRAL IN ACCORDANCE WITH THIS ACT OR OTHERSPECIAL LAWS. XXX.

PERSONS OR ENTITIES FOUND TO BE PERFORMING BANKING OR QUASI-BANKINGFUNCTIONS WITHOUT AUTHORITY FROM THE BANGKO SENTRAL SHALL BE SUBJECTTO APPROPRIATE SANCTIONS UNDER THE NEW CENTRAL BANK ACT AND OTHERAPPLICABLE LAWS. (4A)

Stock corporation (Sec. 8)

SECTION 8. ORGANIZATION. - THE MONETARY BOARD MAY AUTHORIZE THEORGANIZATION OF A BANK OR QUASI-BANK SUBJECT TO THE FOLLOWINGCONDITIONS:

8.1 THAT THE ENTITY IS A STOCK CORPORATION (7);

8.2 THAT ITS FUNDS ARE OBTAINED FROM THE PUBLIC, WHICH SHALL MEANTWENTY (20) OR MORE PERSONS (2-DA); AND

8.3 THAT THE MINIMUM CAPITAL REQUIREMENTS PRESCRIBED BY THEMONETARY BOARD FOR EACH CATEGORY OF BANKS ARE SATISFIED. (N)

NO NEW COMMERCIAL BANK SHALL BE ESTABLISHED WITHIN THREE (3) YEARSFROM THE EFFECTIVITY OF THIS ACT. IN THE EXERCISE OF THE AUTHORITYGRANTED HEREIN, THE MONETARY BOARD SHALL TAKE INTO CONSIDERATIONTHEIR CAPABILITY IN TERMS OF THEIR FINANCIAL RESOURCES AND TECHNICALEXPERTISE AND INTEGRITY. THE BANK LICENSING PROCESS SHALLINCORPORATE AN ASSESSMENT OF THE BANK'S OWNERSHIP STRUCTURE,DIRECTORS AND SENIOR MANAGEMENT, ITS OPERATING PLAN AND INTERNALCONTROLS AS WELL AS ITS PROJECTED FINANCIAL CONDITION AND CAPITALBASE.

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Not a close corporation (Sec. 96, Corporation Code)

SECTION 96. DEFINITION AND APPLICABILITY OF TITLE. - ANY CORPORATIONMAY BE INCORPORATED AS A CLOSE CORPORATION, EXCEPT MINING OR OILCOMPANIES, STOCK EXCHANGES, BANKS, INSURANCE COMPANIES, PUBLICUTILITIES, EDUCATIONAL INSTITUTIONS AND CORPORATIONS DECLARED TO BEVESTED WITH PUBLIC INTEREST IN ACCORDANCE WITH THE PROVISIONS OFTHIS CODE.

Par value stock (Sec. 9)

SECTION 9. ISSUANCE OF STOCKS. - THE MONETARY BOARD MAY PRESCRIBERULES AND REGULATIONS ON THE TYPES OF STOCK A BANK MAY ISSUE,INCLUDING THE TERMS THEREOF AND RIGHTS APPURTENANT THERETO TODETERMINE COMPLIANCE WITH LAWS AND REGULATIONS GOVERNING CAPITALAND EQUITY STRUCTURE OF BANKS; PROVIDED, THAT BANKS SHALL ISSUE PARVALUE STOCKS ONLY.

Ownership of shares (Sec. 11)

SECTION 11. FOREIGN STOCKHOLDINGS. - FOREIGN INDIVIDUALS AND NON-BANK CORPORATIONS MAY OWN OR CONTROL UP TO FORTY PERCENT (40%)OF THE VOTING STOCK OF A DOMESTIC BANK. THIS RULE SHALL APPLY TOFILIPINOS AND DOMESTIC NON-BANK CORPORATIONS. (12A; 12-AA) THEPERCENTAGE OF FOREIGN-OWNED VOTING STOCKS IN A BANK SHALL BEDETERMINED BY THE CITIZENSHIP OF THE INDIVIDUAL STOCKHOLDERS IN THATBANK. THE CITIZENSHIP OF THE CORPORATION WHICH IS A STOCKHOLDER IN ABANK SHALL FOLLOW THE CITIZENSHIP OF THE CONTROLLING STOCKHOLDERSOF THE CORPORATION, IRRESPECTIVE OF THE PLACE OF INCORPORATION.

MB certificate of authority

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Powers of a universal bank (Secs. 23-29, 53)

SECTION 23. POWERS OF A UNIVERSAL BANK - A UNIVERSAL BANK SHALL HAVETHE AUTHORITY TO EXERCISE THE POWERS OF AN INVESTMENT HOUSE ASPROVIDED IN EXISTING LAWS; AND—

POWERS AUTHORIZED FOR A

COMMERCIAL BANK IN SECTION 29,POWER TO INVEST IN ALLIED

ENTERPRISES

POWER TO INVEST IN NON-ALLIED

ENTERPRISES

SECTION 29. POWERS OF ACOMMERCIAL BANK. - ACOMMERCIAL BANK SHALL HAVE, INADDITION TO THE GENERAL POWERSINCIDENT TO CORPORATIONS, ALLSUCH POWERS AS MAY BENECESSARY TO CARRY ON THEBUSINESS OF COMMERCIAL BANKINGSUCH AS –

1. ACCEPTING DRAFTS AND ISSUINGLETTERS OF CREDIT;

2. DISCOUNTING AND NEGOTIATINGPROMISSORY NOTES, DRAFTS,BILLS OF EXCHANGE, AND OTHEREVIDENCES OF DEBT;

3. ACCEPTING OR CREATINGDEMAND DEPOSITS;

4. RECEIVING OTHER TYPES OFDEPOSITS AND DEPOSITSUBSTITUTES;

5. BUYING AND SELLING FOREIGNEXCHANGE AND GOLD OR SILVERBULLION;

6. ACQUIRING MARKETABLE BONDSAND OTHER DEBT SECURITIES;

7. EXTENDING CREDIT, SUBJECT TOSUCH RULES AS THE MONETARYBOARD MAY PROMULGATE.THESE RULES MAY INCLUDE THEDETERMINATION OF BONDS ANDOTHER DEBT SECURITIESELIGIBLE FOR INVESTMENT, THEMATURITIES AND AGGREGATEAMOUNT OF SUCH INVESTMENT.

SECTION 25. UP TO 100% OF THEEQUITY IN A THRIFT BANK, A RURALBANK OR A FINANCIAL ALLIEDENTERPRISE.

A PUBLICLY-LISTED UNIVERSAL ORCOMMERCIAL BANK MAY OWN UPTO 100% OF THE VOTING STOCKOF ONLY ONE OTHER UNIVERSALOR COMMERCIAL BANK.

SECTION 26. UP TO 100% OF THEEQUITY IN A NON-FINANCIAL ALLIEDENTERPRISE. (21-BA)

SECTION 28. THE MONETARYBOARD MAY FURTHER LIMIT TO40% EQUITY INVESTMENTS OFUNIVERSAL BANKS IN QUASI-BANKS.THIS RULE SHALL ALSO APPLY INTHE CASE OF COMMERCIAL BANKS.

SECTION 27. THE EQUITYINVESTMENT OF A UNIVERSALBANK, OR OF ITS WHOLLY ORMAJORITY-OWNED SUBSIDIARIES,IN A SINGLE NON-ALLIEDENTERPRISE SHALL NOT EXCEED35% OF THE TOTAL EQUITY INTHAT ENTERPRISE NOR SHALL ITEXCEED 35% OF THE VOTINGSTOCK IN THAT ENTERPRISE. (21-B)

SECTION 24. EQUITY INVESTMENTS OF A UNIVERSAL BANK.

24.1. THE TOTAL INVESTMENT IN EQUITIES OF ALLIED AND NON-ALLIEDENTERPRISES SHALL NOT EXCEED FIFTY PERCENT (50%) OF THE NETWORTH OF THE BANK; AND

24.2. THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE, WHETHERALLIED 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 THEUNIMPAIRED PAID-IN CAPITAL INCLUDING PAID-IN SURPLUS, RETAINEDEARNINGS AND UNDIVIDED PROFIT, NET OF VALUATION RESERVES ANDOTHER ADJUSTMENTS AS MAY BE REQUIRED BY THE BANGKO SENTRAL.

THE ACQUISITION OF SUCH EQUITY OR EQUITIES IS SUBJECT TO THEPRIOR APPROVAL OF THE MONETARY BOARD WHICH SHALL PROMULGATEAPPROPRIATE GUIDELINES TO GOVERN SUCH INVESTMENTS. (21-BA)

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SECTION 53. OTHER BANKING SERVICES. - IN ADDITION TO THE OPERATIONSSPECIFICALLY AUTHORIZED IN THIS ACT, A BANK MAY PERFORM THE FOLLOWINGSERVICES:

53.1. RECEIVE IN CUSTODY FUNDS, DOCUMENTS AND VALUABLE OBJECTS;

53.2. ACT AS FINANCIAL AGENT AND BUY AND SELL, BY ORDER OF AND FORTHE ACCOUNT OF THEIR CUSTOMERS, SHARES, EVIDENCES OF INDEBTEDNESSAND ALL TYPES OF SECURITIES;

53.3. MAKE COLLECTIONS AND PAYMENTS FOR THE ACCOUNT OF OTHERS ANDPERFORM SUCH OTHER SERVICES FOR THEIR CUSTOMERS AS ARE NOTINCOMPATIBLE WITH BANKING BUSINESS;

53.4 UPON PRIOR APPROVAL OF THE MONETARY BOARD, ACT AS MANAGINGAGENT, ADVISER, CONSULTANT OR ADMINISTRATOR OF INVESTMENTMANAGEMENT/ADVISORY/CONSULTANCY ACCOUNTS; AND

53.5. RENT OUT SAFETY DEPOSIT BOXES.

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Powers of a commercial bank (Secs. 29-32, 53)

SECTION 29. POWERS OF A COMMERCIAL BANK. - A COMMERCIAL BANK SHALLHAVE, IN ADDITION TO THE GENERAL POWERS INCIDENT TO CORPORATIONS, ALLSUCH POWERS AS MAY BE NECESSARY TO CARRY ON THE BUSINESS OFCOMMERCIAL BANKING SUCH AS

1. ACCEPTING DRAFTS AND ISSUING LETTERS OF CREDIT;2. DISCOUNTING AND NEGOTIATING PROMISSORY NOTES, DRAFTS, BILLS OF

EXCHANGE, AND OTHER EVIDENCES OF DEBT;3. ACCEPTING OR CREATING DEMAND DEPOSITS;4. RECEIVING OTHER TYPES OF DEPOSITS AND DEPOSIT SUBSTITUTES;5. BUYING AND SELLING FOREIGN EXCHANGE AND GOLD OR SILVER BULLION;6. ACQUIRING MARKETABLE BONDS AND OTHER DEBT SECURITIES; AND7. EXTENDING CREDIT, SUBJECT TO SUCH RULES AS THE MONETARY BOARD

MAY PROMULGATE. THESE RULES MAY INCLUDE THE DETERMINATION OFBONDS AND OTHER DEBT SECURITIES ELIGIBLE FOR INVESTMENT, THEMATURITIES AND AGGREGATE AMOUNT OF SUCH INVESTMENT.

SECTION 30. EQUITY INVESTMENTS OF A COMMERCIAL BANK. - A COMMERCIALBANK MAY, SUBJECT TO THE CONDITIONS STATED IN THE SUCCEEDINGPARAGRAPHS, INVEST ONLY IN THE EQUITIES OF ALLIED ENTERPRISES AS MAY BEDETERMINED BY THE MONETARY BOARD. ALLIED ENTERPRISES MAY EITHER BEFINANCIAL OR NON-FINANCIAL. EXCEPT AS THE MONETARY BOARD MAYOTHERWISE PRESCRIBE:

30.1. THE TOTAL INVESTMENT IN EQUITIES OF ALLIED ENTERPRISES SHALLNOT EXCEED THIRTY-FIVE PERCENT (35%) OF THE NET WORTH OF THE BANK;AND

30.2. THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE SHALL NOT EXCEEDTWENTY-FIVE PERCENT (25%) OF TILE NET WORTH OF THE BANK. THEACQUISITION OF SUCH EQUITY OR EQUITIES IS SUBJECT TO THE PRIORAPPROVAL OF THE MONETARY BOARD WHICH SHALL PROMULGATEAPPROPRIATE GUIDELINES TO GOVERN SUCH INVESTMENT.(2LA-A; 21-CA)

SECTION 31. EQUITY INVESTMENTS OF A COMMERCIAL BANK IN FINANCIAL ALLIEDENTERPRISES. - A COMMERCIAL BANK MAY OWN UP TO ONE HUNDRED PERCENT(100%) OF THE EQUITY OF A THRIFT BANK OR A RURAL BANK. WHERE THE EQUITYINVESTMENT OF A COMMERCIAL BANK IS IN OTHER FINANCIAL ALLIEDENTERPRISES, INCLUDING ANOTHER COMMERCIAL BANK, SUCH INVESTMENT SHALLREMAIN A MINORITY HOLDING IN THAT ENTERPRISE. (21-AA; 21-CA)

SECTION 32. EQUITY INVESTMENTS OF A COMMERCIAL BANK IN NON-FINANCIALALLIED ENTERPRISES. A COMMERCIAL BANK MAY OWN UP TO ONE HUNDREDPERCENT (100%) OF THE EQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (21-AA) ARTICLE III. PROVISIONS APPLICABLE TO ALL BANKS, QUASI-BANKS, ANDTRUST ENTITIES

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SECTION 53. OTHER BANKING SERVICES. - IN ADDITION TO THE OPERATIONSSPECIFICALLY AUTHORIZED IN THIS ACT, A BANK MAY PERFORM THE FOLLOWINGSERVICES:

53.1. RECEIVE IN CUSTODY FUNDS, DOCUMENTS AND VALUABLE OBJECTS;

53.2. ACT AS FINANCIAL AGENT AND BUY AND SELL, BY ORDER OF AND FORTHE ACCOUNT OF THEIR CUSTOMERS, SHARES, EVIDENCES OF INDEBTEDNESSAND ALL TYPES OF SECURITIES;

53.3. MAKE COLLECTIONS AND PAYMENTS FOR THE ACCOUNT OF OTHERS ANDPERFORM SUCH OTHER SERVICES FOR THEIR CUSTOMERS AS ARE NOTINCOMPATIBLE WITH BANKING BUSINESS;

53.4 UPON PRIOR APPROVAL OF THE MONETARY BOARD, ACT AS MANAGINGAGENT, ADVISER, CONSULTANT OR ADMINISTRATOR OF INVESTMENTMANAGEMENT/ADVISORY/CONSULTANCY ACCOUNTS; AND

53.5. RENT OUT SAFETY DEPOSIT BOXES.

Areas of supervision and regulation of banks

Acquisition by bank of own shares (Sec. 10)

SECTION 10. TREASURY STOCKS. - NO BANK SHALL PURCHASE OR ACQUIRESHARES OF ITS OWN CAPITAL STOCK OR ACCEPT ITS OWN SHARES AS A SECURITYFOR A LOAN, EXCEPT WHEN AUTHORIZED BY THE MONETARY BOARD: PROVIDED,THAT IN EVERY CASE THE STOCK SO PURCHASED OR ACQUIRED SHALL, WITHIN SIX(6) MONTHS FROM THE TIME OF ITS PURCHASE OR ACQUISITION, BE SOLD ORDISPOSED OF AT A PUBLIC OR PRIVATE SALE. (24A)

Stockholdings of family groups and related interests (Secs. 12-13)

SECTION 12. STOCKHOLDINGS OF FAMILY GROUPS OF RELATED INTERESTS. -STOCKHOLDINGS OF INDIVIDUALS RELATED TO EACH OTHER WITHIN THE FOURTHDEGREE OF CONSANGUINITY OR AFFINITY, LEGITIMATE OR COMMON-LAW, SHALLBE CONSIDERED FAMILY GROUPS OR RELATED INTERESTS AND MUST BE FULLYDISCLOSED IN ALL TRANSACTIONS BY SUCH CORPORATIONS OR RELATED GROUPSOF PERSONS WITH THE BANK. (12-BA)

SECTION 13. CORPORATE STOCKHOLDINGS. - TWO OR MORE CORPORATIONSOWNED OR CONTROLLED BY THE SAME FAMILY GROUP OR SAME GROUP OFPERSONS SHALL BE CONSIDERED RELATED INTERESTS AND MUST BE FULLYDISCLOSED IN ALL TRANSACTIONS BY SUCH CORPORATIONS OR RELATED GROUPOF PERSONS WITH THE BANK. (12-BA)

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Independent directors (Sec. 15)

SECTION 15. BOARD OF DIRECTORS. - THE PROVISIONS OF THE CORPORATIONCODE TO THE CONTRARY NOTWITHSTANDING, THERE SHALL BE AT LEAST FIVE (5),AND A MAXIMUM OF FIFTEEN (15) MEMBERS OF THE BOARD OR DIRECTORS OF ABANK, TWO (2) OF WHOM SHALL BE INDEPENDENT DIRECTORS. AN "INDEPENDENTDIRECTOR" SHALL MEAN A PERSON OTHER THAN AN OFFICER OR EMPLOYEE OFTHE BANK, ITS SUBSIDIARIES OR AFFILIATES OR RELATED INTERESTS. (N) NON-FILIPINO CITIZENS MAY BECOME MEMBERS OF THE BOARD OF DIRECTORS OF ABANK TO THE EXTENT OF THE FOREIGN PARTICIPATION IN THE EQUITY OF SAIDBANK. (SEC. 7, RA 7721) THE MEETINGS OF THE BOARD OF DIRECTORS MAY BECONDUCTED THROUGH MODERN TECHNOLOGIES SUCH AS, BUT NOT LIMITED TO,TELECONFERENCING AND VIDEO-CONFERENCING. (N)

Qualifications of directors and officers: the fit and proper rule (Sec. 16)

SECTION 16. FIT AND PROPER RULE. - TO MAINTAIN THE QUALITY OF BANKMANAGEMENT AND AFFORD BETTER PROTECTION TO DEPOSITORS AND THE PUBLICIN GENERAL THE MONETARY BOARD SHALL PRESCRIBE, PASS UPON AND REVIEWTHE QUALIFICATIONS AND DISQUALIFICATIONS OF INDIVIDUALS ELECTED ORAPPOINTED BANK DIRECTORS OR OFFICERS AND DISQUALIFY THOSE FOUND UNFIT.AFTER DUE NOTICE TO THE BOARD OF DIRECTORS OF THE BANK, THE MONETARYBOARD MAY DISQUALIFY, SUSPEND OR REMOVE ANY BANK DIRECTOR OR OFFICERWHO COMMITS OR OMITS AN ACT WHICH RENDER HIM UNFIT FOR THE POSITION. INDETERMINING WHETHER AN INDIVIDUAL IS FIT AND PROPER TO HOLD THE POSITIONOF A DIRECTOR OR OFFICER OF A BANK, REGARD SHALL BE GIVEN TO HISINTEGRITY, EXPERIENCE, EDUCATION, TRAINING, AND COMPETENCE. (9-AA)

Prohibition on public officials (Sec. 19)

SECTION 19. PROHIBITION ON PUBLIC OFFICIALS. - EXCEPT AS OTHERWISEPROVIDED IN THE RURAL BANKS ACT, NO APPOINTIVE OR ELECTIVE PUBLICOFFICIAL WHETHER FULL-TIME OR PART-TIME SHALL AT THE SAME TIME SERVE ASOFFICER OF ANY PRIVATE BANK, SAVE IN CASES WHERE SUCH SERVICE ISINCIDENT TO FINANCIAL ASSISTANCE PROVIDED BY THE GOVERNMENT OR AGOVERNMENT OWNED OR CONTROLLED CORPORATION TO THE BANK OR UNLESSOTHERWISE PROVIDED UNDER EXISTING LAWS. (13)

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Compensation and other benefits of directors and officers (Sec. 18)

SECTION 18. COMPENSATION AND OTHER BENEFITS OF DIRECTORS ANDOFFICERS. TO PROTECT THE FINDS OF DEPOSITORS AND CREDITORS THEMONETARY BOARD MAY REGULATE THE PAYMENT BY THE BARK TO ITS DIRECTORSAND OFFICERS OF COMPENSATION, ALLOWANCE, FEES, BONUSES, STOCKOPTIONS, PROFIT SHARING AND FRINGE BENEFITS ONLY IN EXCEPTIONAL CASESAND WHEN THE CIRCUMSTANCES WARRANT, SUCH AS BUT NOT LIMITED TO THEFOLLOWING:

18.1. WHEN A BANK IS UNDER COMPTROLLERSHIP OR CONSERVATORSHIP; OR

18.2. WHEN A BANK IS FOUND BY THE MONETARY BOARD TO BE CONDUCTINGBUSINESS IN AN UNSAFE OR UNSOUND MANNER; OR

18.3. WHEN A BANK IS FOUND BY THE MONETARY BOARD TO BE IN ANUNSATISFACTORY FINANCIAL CONDITION. (N)

Ratio of net worth to total risk assets (Sec. 34); the Basle Accord

SECTION 34. RISK-BASED CAPITAL. - THE MONETARY BOARD SHALL PRESCRIBETHE MINIMUM RATIO WHICH THE NET WORTH OF A BANK MUST BEAR TO ITS TOTALRISK ASSETS WHICH MAY INCLUDE CONTINGENT ACCOUNTS. FOR PURPOSES OFTHIS SECTION, THE MONETARY BOARD MAY REQUIRE SUCH RATIO BE DETERMINEDON THE BASIS OF THE NET WORTH AND RISK ASSETS OF A BANK AND ITSSUBSIDIARIES, FINANCIAL OR OTHERWISE, AS WELL AS PRESCRIBE THECOMPOSITION AND THE MANNER OF DETERMINING THE NET WORTH AND TOTALRISK ASSETS OF BANKS AND THEIR SUBSIDIARIES:

PROVIDED, THAT IN THE EXERCISE OF THIS AUTHORITY, THE MONETARY BOARDSHALL, TO THE EXTENT FEASIBLE CONFORM TO INTERNATIONALLY ACCEPTEDSTANDARDS, INCLUDING THOSE OF THE BANK FOR INTERNATIONALSETTLEMENTS(BIS), RELATING TO RISK-BASED CAPITAL REQUIREMENTS:

PROVIDED FURTHER, THAT IT MAY ALTER OR SUSPEND COMPLIANCE WITH SUCHRATIO WHENEVER NECESSARY FOR A MAXIMUM PERIOD OF ONE (1) YEAR:

PROVIDED, FINALLY, THAT SUCH RATIO SHALL BE APPLIED UNIFORMLY TO BANKSOF THE SAME CATEGORY. IN CASE A BANK DOES NOT COMPLY WITH THEPRESCRIBED MINIMUM RATIO, THE MONETARY BOARD MAY LIMIT OR PROHIBIT THEDISTRIBUTION OF NET PROFITS BY SUCH BANK AND MAY REQUIRE THAT PART ORALL OF THE NET PROFITS BE USED TO INCREASE THE CAPITAL ACCOUNTS OF THEBANK UNTIL THE MINIMUM REQUIREMENT HAS BEEN MET.

THE MONETARY BOARD MAY, FURTHERMORE, RESTRICT OR PROHIBIT THEACQUISITION OF MAJOR ASSETS AND THE MAKING OF NEW INVESTMENTS BY THEBANK, WITH THE EXCEPTION OF PURCHASES OF READILY MARKETABLE EVIDENCESOF INDEBTEDNESS OF THE REPUBLIC OF THE PHILIPPINES AND OF THE BANGKOSENTRAL AND ANY OTHER EVIDENCES OF INDEBTEDNESS OR OBLIGATIONS THESERVICING AND REPAYMENT OF WHICH ARE FULLY GUARANTEED BY THE REPUBLIC

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OF THE PHILIPPINES, UNTIL THE MINIMUM REQUIRED CAPITAL RATIO HAS BEENRESTORED.

IN CASE OF A BANK MERGER OR CONSOLIDATION, OR WHEN A BANK IS UNDERREHABILITATION UNDER A PROGRAM APPROVED BY THE BANGKO SENTRAL,MONETARY BOARD MAY TEMPORARILY RELIEVE THE SURVIVING BANK,CONSOLIDATED BANK, OR CONSTITUENT BANK OR CORPORATIONS UNDERREHABILITATION FROM FULL COMPLIANCE WITH THE REQUIRED CAPITAL RATIOUNDER SUCH CONDITIONS AS IT MAY PRESCRIBE.

BEFORE THE EFFECTIVITY OF RULES WHICH THE MONETARY BOARD ISAUTHORIZED TO PRESCRIBE UNDER THIS PROVISION, SECTION 22 OF THEGENERAL BANKING ACT, AS AMENDED, SECTION 9 OF THE THRIFT BANKS ACT,AND ALL PERTINENT RULES ISSUED PURSUANT THERETO, SHALL CONTINUE TO BEIN FORCE. (22A)

Limits on loans: the SBL rules (Sec. 35)

SECTION 35. LIMIT ON LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES

35.1 EXCEPT AS THE MONETARY BOARD MAY OTHERWISE PRESCRIBE FORREASONS OF NATIONAL INTEREST, THE TOTAL AMOUNT OF LOANS, CREDITACCOMMODATIONS AND GUARANTEES AS MAY BE DEFINED BY THE MONETARYBOARD THAT MAY BE EXTENDED BY A BANK TO ANY PERSON, PARTNERSHIP,ASSOCIATION, CORPORATION OR OTHER ENTITY SHALL AT NO TIME EXCEEDTWENTY PERCENT (20%) OF THE NET WORTH OF SUCH BANK. THE BASIS FORDETERMINING COMPLIANCE WITH SINGLE BORROWER LIMIT IS THE TOTAL CREDITCOMMITMENT OF THE BANK TO THE BORROWER.

35.2. UNLESS THE MONETARY BOARD PRESCRIBES OTHERWISE, THE TOTALAMOUNT OF LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES PRESCRIBED INTHE PRECEDING PARAGRAPH MAY BE INCREASED BY AN ADDITIONAL TEN PERCENT(10%) OF THE NET WORTH OF SUCH BANK PROVIDED THE ADDITIONAL LIABILITIESOF ANY BORROWER ARE ADEQUATELY SECURED BY TRUST RECEIPTS, SHIPPINGDOCUMENTS, WAREHOUSE RECEIPTS OR OTHER SIMILAR DOCUMENTSTRANSFERRING OR SECURING TITLE COVERING READILY MARKETABLE, NON-PERISHABLE GOODS WHICH MUST BE FULLY COVERED BY INSURANCE.

35.3 THE ABOVE PRESCRIBED CEILINGS SHALL INCLUDE—

1. THE DIRECT LIABILITY OF THE MAKER OR ACCEPTOR OF PAPERDISCOUNTED WITH OR SOLD TO SUCH BANK AND THE LIABILITY OF AGENERAL ENDORSER, DRAWER OR GUARANTOR WHO OBTAINS A LOAN OROTHER CREDIT ACCOMMODATION FROM OR DISCOUNTS PAPER WITH ORSELLS PAPERS TO SUCH BANK;

2. IN THE CASE OF AN INDIVIDUAL WHO OWNS OR CONTROLS A MAJORITYINTEREST IN A CORPORATION, PARTNERSHIP, ASSOCIATION OR ANY OTHERENTITY, THE LIABILITIES OF SAID ENTITIES TO SUCH BANK;

3. IN THE CASE OF A CORPORATION, ALL LIABILITIES TO SUCH BANK OF ALLSUBSIDIARIES IN WHICH SUCH CORPORATION OWNS OR CONTROLS AMAJORITY INTEREST; AND

4. IN THE CASE OF A PARTNERSHIP, ASSOCIATION OR OTHER ENTITY, THELIABILITIES OF THE MEMBERS THEREOF TO SUCH BANK.

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35.4. EVEN IF A PARENT CORPORATION, PARTNERSHIP, ASSOCIATION, ENTITY ORAN INDIVIDUAL WHO OWNS OR CONTROLS A MAJORITY INTEREST IN SUCH ENTITIESHAS NO LIABILITY TO THE BANK, THE MONETARY BOARD MAY PRESCRIBE THECOMBINATION OF THE LIABILITIES OF SUBSIDIARY CORPORATIONS OR MEMBERS OFTHE PARTNERSHIP, ASSOCIATION, ENTITY OR SUCH INDIVIDUAL UNDER CERTAINCIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO ANY OF THE FOLLOWINGSITUATIONS—

1. THE PARENT CORPORATION, PARTNERSHIP, ASSOCIATION, ENTITY ORINDIVIDUAL GUARANTEES THE REPAYMENT OF THE LIABILITIES;

2. THE LIABILITIES WERE INCURRED FOR THE ACCOMMODATION OF THEPARENT CORPORATION OR ANOTHER SUBSIDIARY OR OF THEPARTNERSHIP OR ASSOCIATION OR ENTITY OR SUCH INDIVIDUAL; OR

3. THE SUBSIDIARIES THOUGH SEPARATE ENTITIES OPERATE MERELY ASDEPARTMENTS OR DIVISIONS OF A SINGLE ENTITY.

35.5. FOR PURPOSES OF THIS SECTION, LOANS, OTHER CREDITACCOMMODATIONS AND GUARANTEES SHALL EXCLUDE—

1. LOANS AND OTHER CREDIT ACCOMMODATIONS SECURED BY OBLIGATIONSOF THE BANGKO SENTRAL OR OF THE PHILIPPINE GOVERNMENT:

2. LOANS AND OTHER CREDIT ACCOMMODATIONS FULLY GUARANTEED BYTHE GOVERNMENT AS TO THE PAYMENT OF PRINCIPAL AND INTEREST;

3. LOANS AND OTHER CREDIT ACCOMMODATIONS COVERED BY ASSIGNMENTOF DEPOSITS MAINTAINED IN THE LENDING BANK AND HELD IN THEPHILIPPINES;

4. LOANS, CREDIT ACCOMMODATIONS AND ACCEPTANCES UNDER LETTERSOF CREDIT TO THE EXTENT COVERED BY MARGIN DEPOSITS; AND

5. OTHER LOANS OR CREDIT ACCOMMODATIONS WHICH THE MONETARYBOARD MAY FROM TIME TO TIME, SPECIFY AS NON-RISK ITEMS.

35.6. LOANS AND OTHER CREDIT ACCOMMODATIONS, DEPOSITS MAINTAINED WITH,AND USUAL GUARANTEES BY A BANK TO ANY OTHER BANK OR NON-BANK ENTITY,WHETHER LOCALLY OR ABROAD, SHALL BE SUBJECT TO THE LIMITS AS HEREINPRESCRIBED.

35.7. CERTAIN TYPES OF CONTINGENT ACCOUNTS OF BORROWERS MAY BEINCLUDED AMONG THOSE SUBJECT TO THESE PRESCRIBED LIMITS AS MAY BEDETERMINED BY THE MONETARY BOARD.(23A)

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Restrictions on bank exposure: the DOSRI rules (Sec. 36)

SECTION 36. RESTRICTION ON BANK EXPOSURE TO DIRECTORS, OFFICERS,STOCKHOLDERS AND THEIR RELATED INTERESTS. - NO DIRECTOR OR OFFICER OFANY BANK SHALL, DIRECTLY OR INDIRECTLY, FOR HIMSELF OR AS THEREPRESENTATIVE OR AGENT OF OTHERS—

1. BORROW FROM SUCH BANK2. NOR SHALL HE BECOME A GUARANTOR, ENDORSER OR SURETY FOR LOANS

FROM SUCH BANK TO OTHERS, OR3. IN ANY MANNER BE AN OBLIGOR OR INCUR ANY CONTRACTUAL LIABILITY TO

THE BANK

EXCEPT WITH THE WRITTEN APPROVAL OF THE MAJORITY OF ALL THE DIRECTORSOF THE BANK, EXCLUDING THE DIRECTOR CONCERNED: PROVIDED, THAT SUCHWRITTEN APPROVAL SHALL NOT BE REQUIRED FOR LOANS, OTHER CREDITACCOMMODATIONS AND ADVANCES GRANTED TO OFFICERS UNDER A FRINGEBENEFIT PLAN APPROVED BY THE BANGKO SENTRAL. THE REQUIRED APPROVALSHALL BE ENTERED UPON THE RECORDS OF THE BANK AND A COPY OF SUCHENTRY SHALL BE TRANSMITTED FORTHWITH TO THE APPROPRIATE SUPERVISINGAND EXAMINING DEPARTMENT OF THE BANGKO SENTRAL.

DEALINGS OF A BANK WITH ANY OF ITS DIRECTORS, OFFICERS OR STOCKHOLDERSAND THEIR RELATED INTERESTS SHALL BE UPON TERMS NOT LESS FAVORABLE TOTHE BANK THAN THOSE OFFERED TO OTHERS.

AFTER DUE NOTICE TO THE BOARD OF DIRECTORS OF THE BANK, THE OFFICE OFANY BANK DIRECTOR OR OFFICER WHO VIOLATES THE PROVISIONS OF THISSECTION MAY BE DECLARED VACANT AND THE DIRECTOR OR OFFICER SHALL BESUBJECT TO THE PENAL PROVISIONS OF THE NEW CENTRAL BANK ACT.

THE MONETARY BOARD MAY REGULATE THE AMOUNT OF LOANS, CREDITACCOMMODATIONS AND GUARANTEES THAT MAY BE EXTENDED, DIRECTLY ORINDIRECTLY, BY A BANK TO ITS DIRECTORS, OFFICERS, STOCKHOLDERS AND THEIRRELATED INTERESTS, AS WELL AS INVESTMENTS OF SUCH BANK IN ENTERPRISESOWNED OR CONTROLLED BY SAID DIRECTORS, OFFICERS, STOCKHOLDERS ANDTHEIR RELATED INTERESTS.

HOWEVER, THE OUTSTANDING LOANS, CREDIT ACCOMMODATIONS ANDGUARANTEES WHICH A BANK MAY EXTEND TO EACH OF ITS STOCKHOLDERS,DIRECTORS, OR OFFICERS AND THEIR RELATED INTERESTS, SHALL BE LIMITED TOAN AMOUNT EQUIVALENT TO THEIR RESPECTIVE UNENCUMBERED DEPOSITS ANDBOOK VALUE OF THEIR PAID-IN CAPITAL CONTRIBUTION IN THE BANK:

1. PROVIDED, HOWEVER, THAT LOANS, CREDIT ACCOMMODATIONS ANDGUARANTEES SECURED BY ASSETS CONSIDERED AS NON-RISK BY THEMONETARY BOARD SHALL BE EXCLUDED FROM SUCH LIMIT:

2. PROVIDED, FURTHER, THAT LOANS, CREDIT ACCOMMODATIONS ANDADVANCES TO OFFICERS IN THE FORM OF FRINGE BENEFITS GRANTED INACCORDANCE WITH RULES AS MAY BE PRESCRIBED BY THE MONETARYBOARD SHALL NOT BE SUBJECT TO THE INDIVIDUAL LIMIT.

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THE MONETARY BOARD SHALL DEFINE THE TERM "RELATED INTERESTS." THELIMIT ON LOANS, CREDIT ACCOMMODATIONS AND GUARANTEES PRESCRIBEDHEREIN SHALL NOT APPLY TO LOANS, CREDIT ACCOMMODATIONS ANDGUARANTEES EXTENDED BY A COOPERATIVE BANK TO ITS COOPERATIVESHAREHOLDERS. (83A)

BAR Q [2006]: PIO IS THE PRESIDENST OF WESTERN BANK. HIS WIFE APPLIEDFOR A LOAN WITH THE SAID BANK TO FINANCE AN INTERNET CAFE. THE LOANOFFICER TOLD HER THAT HER APPLICATION WILL NOT BE APPROVED BECAUSETHE GRANT OF LOANS TO RELATED INTERESTS OF BANK DIRECTORS, OFFICERS,AND STOCKHOLDERS IS PROHIBITED BY THE GENERAL BANKING LAW. EXPLAINWHETHER THE LOAN OFFICER IS CORRECT. (5%)

SUGGESTED ANSWER: Section 36 of the General Banking Law of 2000does not entirely prohibit directors or officers of the bank, directly orindirectly, from borrowing from the bank. In this case, Pio is thepresident of Western Bank, which makes him an officer, director andstockholder of the said bank. The General Banking Law provides foradditional restrictions to the bank before it can lend to its directors orofficers. A written approval of the majority vote of all the directors ofthe bank, excluding the director concerned, is required. Furthermore,such dealings must be upon terms not less favorable to the bank thanthose offered to others (Section 1326, Central Bank's "Manual ofRegulations for Banks and Other Financial Intermediaries, cited inRanioso v. CA, G.R. No. 117416, December 8, 2000).

A violation of this provision will cause his or her position to bedeclared vacant and the erring director or officer subjected to thepenal provisions of the New Central Bank Act.

Microfinancing (Secs. 40, 43-44)

SECTION 40. REQUIREMENT FOR GRANT OF LOANS OR 0THER CREDITACCOMMODATIONS. - BEFORE GRANTING A LOAN OR OTHER CREDITACCOMMODATION, A BANK MUST ASCERTAIN THAT THE DEBTOR IS CAPABLE OFFULFILLING HIS COMMITMENTS TO THE BANK.

TOWARD THIS END, A BANK MAY DEMAND FROM ITS CREDIT APPLICANTS ASTATEMENT OF THEIR ASSETS AND LIABILITIES AND OF THEIR INCOME ANDEXPENDITURES AND SUCH INFORMATION AS MAY BE PRESCRIBED BY LAW OR BYRULES AND REGULATIONS OF THE MONETARY BOARD TO ENABLE THE BANK TOPROPERLY EVALUATE THE CREDIT APPLICATION WHICH INCLUDES THECORRESPONDING FINANCIAL STATEMENTS SUBMITTED FOR TAXATION PURPOSESTO THE BUREAU OF INTERNAL REVENUE. SHOULD SUCH STATEMENTS PROVE TOBE FALSE OR INCORRECT IN ANY MATERIAL DETAIL, THE BANK MAY TERMINATE ANYLOAN OR OTHER CREDIT ACCOMMODATION GRANTED ON THE BASIS OF SAIDSTATEMENTS AND SHALL HAVE THE RIGHT TO DEMAND IMMEDIATE REPAYMENT ORLIQUIDATION OF THE OBLIGATION. IN FORMULATING RULES AND REGULATIONSUNDER THIS SECTION, THE MONETARY BOARD SHALL RECOGNIZE THE PECULIARCHARACTERISTICS OF MICRO FINANCING, SUCH AS CASH FLOW-BASED LENDING TOTHE BASIC SECTORS THAT ARE NOT COVERED BY TRADITIONAL COLLATERAL. (76A)

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SECTION 43. AUTHORITY TO PRESCRIBE TERMS AND CONDITIONS OF LOANS ANDOTHER CREDIT ACCOMMODATIONS. - THE MONETARY BOARD, MAY, SIMILARLY INACCORDANCE WITH THE AUTHORITY GRANTED TO IT IN SECTION 106 OF THE NEWCENTRAL BANK ACT, AND TAKING INTO ACCOUNT THE REQUIREMENTS OF THEECONOMY FOR THE EFFECTIVE UTILIZATION OF LONG-TERM FUNDS, PRESCRIBETHE MATURITIES, AS WELL AS RELATED TERMS AND CONDITIONS FOR VARIOUSTYPES OF BANK LOANS AND OTHER CREDIT ACCOMMODATIONS. ANY CHANGE BYTHE BOARD IN THE MAXIMUM MATURITIES, AS WELL AS RELATED TERMS ANDCONDITIONS FOR VARIOUS TYPES OF BANK LOANS AND OTHER CREDITACCOMMODATIONS. ANY CHANGE BY THE BOARD IN THE MAXIMUM MATURITIESSHALL APPLY ONLY TO LOANS AND OTHER CREDIT ACCOMMODATIONS MADE AFTERTHE DATE OF SUCH ACTION. THE MONETARY BOARD SHALL REGULATE THEINTEREST IMPOSED ON MICRO FINANCE BORROWERS BY LENDING INVESTORS ANDSIMILAR LENDERS SUCH AS, BUT NOT LIMITED TO, THE UNCONSCIONABLE RATESOF INTEREST COLLECTED ON SALARY LOANS AND SIMILAR CREDITACCOMMODATIONS. (78A)

SECTION 44. AMORTIZATION ON LOANS AND OTHER CREDIT ACCOMMODATIONS. -THE AMORTIZATION SCHEDULE OF BANK LOANS AND OTHER CREDITACCOMMODATIONS SHALL BE ADAPTED TO THE NATURE OF THE OPERATIONS TOBE FINANCED. IN CASE OF LOANS AND OTHER CREDIT ACCOMMODATIONS WITHMATURITIES OF MORE THAN FIVE (5) YEARS, PROVISIONS MUST BE MADE FORPERIODIC AMORTIZATION PAYMENTS, BUT SUCH PAYMENTS MUST BE MADE ATLEAST ANNUALLY: PROVIDED, HOWEVER, THAT WHEN THE BORROWED FUNDS ARETO BE USED FOR PURPOSES WHICH DO NOT INITIALLY PRODUCE REVENUESADEQUATE FOR REGULAR AMORTIZATION PAYMENTS THEREFROM, THE BANK MAYPERMIT THE INITIAL AMORTIZATION PAYMENT TO BE DEFERRED UNTIL SUCH TIMEAS SAID REVENUES ARE SUFFICIENT FOR SUCH PURPOSE, BUT IN NO CASE SHALLTHE INITIAL AMORTIZATION DATE BE LATER THAN FIVE (5) YEARS FROM THE DATEON WHICH THE LOAN OR OTHER CREDIT ACCOMMODATION IS GRANTED. (79A) INCASE OF LOANS AND OTHER CREDIT ACCOMMODATIONS TO MICRO FINANCESECTORS, THE SCHEDULE OF LOAN AMORTIZATION SHALL TAKE INTOCONSIDERATION THE PROJECTED CASH FLOW OF THE BORROWER AND ADOPT THISINTO THE TERMS AND CONDITIONS FORMULATED BY BANKS. (N)

Prepayment of loans (Sec. 45)

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 OTHERCREDIT ACCOMMODATION, SUBJECT TO SUCH REASONABLE TERMS ANDCONDITIONS AS MAY BE AGREED UPON BETWEEN THE BANK AND ITS BORROWER.(80A)

Real estate investments and acquisitions (Secs. 51-52)

SECTION 51. CEILING ON INVESTMENTS IN CERTAIN ASSETS. - ANY BANK MAYACQUIRE REAL ESTATE AS SHALL BE NECESSARY FOR ITS OWN USE IN THECONDUCT OF ITS BUSINESS: PROVIDED, HOWEVER, THAT THE TOTAL INVESTMENTIN SUCH REAL ESTATE AND IMPROVEMENTS THEREOF INCLUDING BANKEQUIPMENT, SHALL NOT EXCEED FIFTY PERCENT (50%) OF COMBINED CAPITALACCOUNTS: PROVIDED, FURTHER, THAT THE EQUITY INVESTMENT OF A BANK INANOTHER CORPORATION ENGAGED PRIMARILY IN REAL ESTATE SHALL BE

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CONSIDERED AS PART OF THE BANK'S TOTAL INVESTMENT IN REAL ESTATE,UNLESS OTHERWISE PROVIDED BY THE MONETARY BOARD. (25A)

SECTION 52. ACQUISITION OF REAL ESTATE BY WAY OF SATISFACTION OFCLAIMS. - NOTWITHSTANDING THE LIMITATIONS OF THE PRECEDING SECTION, ABANK MAY ACQUIRE, HOLD OR CONVEY REAL PROPERTY UNDER THE FOLLOWINGCIRCUMSTANCES:

52.1. SUCH AS SHALL BE MORTGAGED TO IT IN GOOD FAITH BY WAY OFSECURITY FOR DEBTS;

52.2. SUCH AS SHALL BE CONVEYED TO IT IN SATISFACTION OF DEBTSPREVIOUSLY 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 PURCHASETO SECURE DEBTS DUE IT.

ANY REAL PROPERTY ACQUIRED OR HELD UNDER THE CIRCUMSTANCESENUMERATED IN THE ABOVE PARAGRAPH SHALL BE DISPOSED OF BY THE BANKWITHIN A PERIOD OF FIVE (5) YEARS OR AS MAY BE PRESCRIBED BY THEMONETARY BOARD: PROVIDED, HOWEVER, THAT THE BANK MAY, AFTER SAIDPERIOD, CONTINUE TO HOLD THE PROPERTY FOR ITS OWN USE, SUBJECT TO THELIMITATIONS OF THE PRECEDING SECTION. (25A)

Outsourcing of bank functions (Sec. 55.1[e])

SECTION 55. PROHIBITED TRANSACTIONS. 55.1. NO DIRECTOR, OFFICER,EMPLOYEE, OR AGENT OF ANY BANK SHALL - (E) OUTSOURCE INHERENT BANKINGFUNCTIONS

Employment of casual and probationary personnel (Sec. 55.4)

Section 55. Prohibited Transactions. 55.4. Consistent with the provisions ofRepublic Act No. 1405, otherwise known as the Banks Secrecy Law, no bankshall employ casual or non regular personnel or too lengthy probationarypersonnel in the conduct of its business involving bank deposits.

Declaration of dividends (Sec. 57)

SECTION 57. PROHIBITION ON DIVIDEND DECLARATION. - NO BANK OR QUASI-BANK SHALL DECLARE DIVIDENDS, IF AT THE TIME OF DECLARATION:

57.1 ITS CLEARING ACCOUNT WITH THE BANGKO SENTRAL IS OVERDRAWN; OR

57.2 IT IS DEFICIENT IN THE REQUIRED LIQUIDITY FLOOR FOR GOVERNMENTDEPOSITS FOR FIVE (5) OR MORE CONSECUTIVE DAYS, OR

57.3 IT DOES NOT COMPLY WITH THE LIQUIDITY STANDARDS/RATIOSPRESCRIBED BY THE BANGKO SENTRAL FOR PURPOSES OF DETERMININGFUNDS AVAILABLE FOR DIVIDEND DECLARATION; OR

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57.4 IT HAS COMMITTED A MAJOR VIOLATION AS MAY BE DETERMINED BY THEBANGKO SENTRAL (84A)

Authority to engage in trust business (Sec. 79, et seq.)

Trust entity (Sec. 79)

SECTION 79. AUTHORITY TO ENGAGE IN TRUST BUSINESS. - ONLY A STOCKCORPORATION OR A PERSON DULY AUTHORIZED BY THE MONETARY BOARD TOENGAGE IN TRUST BUSINESS SHALL ACT AS A TRUSTEE OR ADMINISTER ANY TRUSTOR HOLD PROPERTY IN TRUST OR ON DEPOSIT FOR THE USE, BENEFIT, OR BEHOOFOF OTHERS. FOR PURPOSES OF THIS ACT, SUCH A CORPORATION SHALL BEREFERRED TO AS A TRUST ENTITY. (56A; 57A)

Diligence required (Sec. 80)

SECTION 80. CONDUCT OF TRUST BUSINESS. - A TRUST ENTITY SHALLADMINISTER THE FUNDS OR PROPERTY UNDER ITS CUSTODY WITH THE DILIGENCETHAT A PRUDENT MAN WOULD EXERCISE IN THE CONDUCT OF AN ENTERPRISE OF ALIKE CHARACTER AND WITH SIMILAR AIMS. NO TRUST ENTITY SHALL, FOR THEACCOUNT OF THE TRUSTOR OR THE BENEFICIARY OF THE TRUST, PURCHASE ORACQUIRE PROPERTY FROM, OR SELL, TRANSFER, ASSIGN, OR LEND MONEY ORPROPERTY 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 THERELATED INTERESTS, OF SUCH DIRECTORS, OFFICERS AND STOCKHOLDERS,UNLESS THE TRANSACTION IS SPECIFICALLY AUTHORIZED BY THE TRUSTOR ANDTHE RELATIONSHIP OF THE TRUSTEE AND THE OTHER PARTY INVOLVED IN THETRANSACTION IS FULLY DISCLOSED TO THE TRUSTOR OF BENEFICIARY OF THETRUST PRIOR TO THE TRANSACTION. THE MONETARY BOARD SHALL PROMULGATESUCH RULES AND REGULATIONS AS MAY BE NECESSARY TO PREVENTCIRCUMVENTION OF THIS PROHIBITION OR THE EVASION OF THE RESPONSIBILITYHEREIN IMPOSED ON A TRUST ENTITY. (56)

Deposit required as security for faithful performance of trust duties (Sec. 84)

SECTION 84. DEPOSIT FOR THE FAITHFUL PERFORMANCE OF TRUST DUTIES. -BEFORE TRANSACTING TRUST BUSINESS, EVERY TRUST ENTITY SHALL DEPOSITWITH THE BANGKO SENTRAL, AS SECURITY FOR THE FAITHFUL PERFORMANCE OFITS TRUST DUTIES, CASH OR SECURITIES APPROVED BY THE MONETARY BOARD INAN AMOUNT EQUAL TO OR NOT LESS THAN FIVE HUNDRED THOUSAND PESOS(P500,000.00) OR SUCH HIGHER AMOUNT AS MAY FIXED BY THE MONETARYBOARD: PROVIDED, HOWEVER, THAT THE MONETARY BOARD SHALL REQUIREEVERY TRUST ENTITY TO INCREASE THE AMOUNT OF ITS CASH OR SECURITIES ONDEPOSIT WITH THE BANGKO SENTRAL IN ACCORDANCE WITH THE PROVISIONS OFTHIS PARAGRAPH. SHOULD THE CAPITAL AND SURPLUS FALL BELOW SAID AMOUNT,THE MONETARY BOARD SHALL HAVE THE SAME AUTHORITY AS THAT GRANTED TOIT UNDER THE PROVISIONS OF THE FIFTH PARAGRAPH OF SECTION 34 OF THISACT. A TRUST ENTITY SO LONG AS IT SHALL CONTINUE TO BE SOLVENT ANDCOMPLY WITH LAWS OR REGULATIONS SHALL HAVE THE RIGHT TO COLLECT THEINTEREST EARNED ON SUCH SECURITIES DEPOSITED WITH THE BANGKO SENTRAL

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AND, FROM TIME TO TIME, WITH THE APPROVAL OF THE BANGKO SENTRAL, TOEXCHANGE THE SECURITIES FOR OTHERS. IF THE TRUST ENTITY FAILS TO COMPLYWITH ANY LAW OR REGULATION, THE BANGKO SENTRAL SHALL RETAIN SUCHINTEREST ON THE SECURITIES DEPOSITED WITH IT FOR THE BENEFIT OF RIGHTFULCLAIMANTS. AL CLAIMS RISING OUT OF THE TRUST BUSINESS OF A TRUST ENTITYSHALL HAVE PRIORITY OVER ALL OTHER CLAIMS AS REGARDS THE CASH ORSECURITIES DEPOSITED AS ABOVE PROVIDED. THE MONETARY BOARD MAY NOTPERMIT THE CASH OR SECURITIES DEPOSITED IN ACCORDANCE WITH THEPROVISIONS OF THIS SECTION TO BE REDUCED BELOW THE PRESCRIBED MINIMUMAMOUNT UNTIL THE DEPOSITING ENTITY SHALL DISCONTINUE ITS TRUST BUSINESSAND SHALL SATISFY THE MONETARY BOARD THAT IT HAS COMPLIED WITH ALL ITSOBLIGATIONS IN CONNECTION WITH SUCH BUSINESS. (65A)

Separation of trust business from general business (Sec. 87)

SECTION 87. SEPARATION OF TRUST BUSINESS FROM GENERAL BUSINESS. - THETRUST BUSINESS AND ALL FUNDS, PROPERTIES OR SECURITIES RECEIVED BY ANYTRUST ENTITY AS EXECUTOR, ADMINISTRATOR, GUARDIAN, TRUSTEE, RECEIVER,OR DEPOSITARY SHALL BE KEPT SEPARATE AND DISTINCT FROM THE GENERALBUSINESS INCLUDING ALL OTHER FUNDS, PROPERTIES, AND ASSETS OF SUCHTRUST ENTITY. THE ACCOUNTS OF ALL SUCH FUNDS, PROPERTIES, OR SECURITIESSHALL LIKEWISE BE KEPT SEPARATE AND DISTINCT FROM THE ACCOUNTS OF THEGENERAL BUSINESS OF THE TRUST ENTITY. (61)

Exemption of trust assets from claims (Sec. 92)

SECTION 92. EXEMPTION OF TRUST ASSETS FROM CLAIMS. - NO ASSETS HELD BYA TRUST ENTITY IN ITS CAPACITY AS TRUSTEE SHALL BE SUBJECT TO ANY CLAIMSOTHER THAN THOSE OF THE PARTIES INTERESTED IN THE SPECIFIC TRUSTS. (65)

Penalties for violationsFine, imprisonment, etc. (Secs. 34-37, RA 7653)Suspension or removal of director or officer (Sec. 66)Dissolution of bank (Sec. 66)

SECTION 66. PENALTY FOR VIOLATION OF THIS ACT. - UNLESS OTHERWISEHEREIN PROVIDED, THE VIOLATION OF ANY OF THE PROVISIONS OF THIS ACT SHALLBE SUBJECT TO SECTIONS 34, 35, 36 AND 37 OF THE NEW CENTRAL BANK ACT. IFTHE OFFENDER IS A DIRECTOR OR OFFICER OF A BANK, QUASI-BANK OR TRUSTENTITY, THE MONETARY BOARD MAY ALSO SUSPEND OR REMOVE SUCH DIRECTOROR OFFICER. IF THE VIOLATION IS COMMITTED BY A CORPORATION, SUCHCORPORATION MAY BE DISSOLVED BY QUO WARRANTO PROCEEDINGS INSTITUTEDBY THE SOLICITOR GENERAL. (87)

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2.2 Cases

Fiduciary nature of banking requires high standards of integrity and performance

Philippine Banking Corporation vs. CA,G.R. 127469, January 15, 2004.

The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory note.The BANK’s failure to explain the absence of the original documents and to maintain arecord of the offsetting of this loan with the time deposits bring to fore the BANK’s dismalfailure to fulfill its fiduciary duty to Marcos.

Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes thisfiduciary duty on banks when it declares that the State recognizes the "fiduciary nature ofbanking that requires high standards of integrity and performance." This statutorydeclaration merely echoes the earlier pronouncement of the Supreme Court in SimexInternational (Manila) Inc. v. Court of Appeals requiring banks to "treat the accounts of itsdepositors with meticulous care, always having in mind the fiduciary nature of theirrelationship." The Court reiterated this fiduciary duty of banks in subsequent cases.

The fiduciary nature of banking requires banks to assume a degree of diligencehigher than that of a good father of a family.

Thus, the BANK’s fiduciary duty imposes upon it a higher level of accountability than thatexpected of Marcos, a businessman, who negligently signed blank forms and entrusted hiscertificates of time deposits to Pagsaligan without retaining copies of the certificates. As theBANK’s depositor, Marcos had the right to expect that the BANK was accurately recordinghis transactions with it. Upon the maturity of his time deposits, Marcos also had the right towithdraw the amount due him after the BANK had correctly debited his outstandingobligations from his time deposits.

By the very nature of its business, the BANK should have had in its possession the originalcopies of the disputed promissory note and the records and ledgers evidencing the offsettingof the loan with the time deposits of Marcos. The BANK inexplicably failed to produce theoriginal copies of these documents. Clearly, the BANK failed to treat the account of Marcoswith meticulous care.

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Banks have the duty to exercise the highest degree of diligence when transactingwith the public

Solidbank Corporation, et al. vs. Spouses Tan,G.R. 167346, April 2, 2007.

FACTS: The private respondents are accusing Solidbank Corp. of negligence as the latterallegedly lost one of 10 checks they were trying to deposit with the bank. [Privaterespondents delivered 10 checks; but only 9 checks were credited to their account.] The lostcheck was later on discovered to have been deposited by a certain Dolores Lagsac inPremier Bank in San Pedro, Laguna.

The lower court found Solidbank negligent; it awarded exemplary damages to the SpousesTan, among others. Petitioner argues the award of exemplary damages was without basis.According to it, such award is justified only when the act complained of was done in awanton, fraudulent and oppressive manner.

ISSUE: W/N THE SPOUSES TAN ARE ENTITLED TO EXEMPLARY DAMAGES?

HELD:As to the award of exemplary damages, the law allows it by way of example for the publicgood. The business of banking is impressed with public interest and great reliance ismade on the bank’s sworn profession of diligence and meticulousness in givingirreproachable service. For petitioner’s failure to carry out its responsibility and to accountfor respondents’ lost check, we hold that the lower courts did not err in awarding exemplarydamages to the latter.

Interpretation of Section 83 of RA 337 (now Sec. 36 of RA 8791)

Go vs. Bangko Sentral,G.R. 178429, October 23, 2009.

FACTS: Go, President and CEO of Oriental Bank] was charged with violating Section 83 ofRA 337 [for being a borrower and/or a guarantor for loans borrowed from Oriental Bankwithout Board approval].

He filed a motion to quash on the ground that the facts allged do not constitute a crime.According to him, Sec. 83 of RA 337 penalized only directors and officers of bankinginstitutions who acted either as borrower or as guarantor, but not as both.

Go further pointed out that the Information failed to state that his alleged act ofborrowing and/or guarantying was not among the exceptions provided for in the law.According to Go, the second paragraph of Section 83 allowed banks to extend creditaccommodations to their directors, officers, and stockholders, provided it is "limited to anamount equivalent to the respective outstanding deposits and book value of the paid-incapital contribution in the bank." Extending credit accommodations to bank directors,officers, and stockholders is not per se prohibited, unless the amount exceeds the legal limit.Since the Information failed to state that the amount he purportedly borrowed and/orguarantied was beyond the limit set by law, Go insisted that the acts so charged did notconstitute an offense.

HELD: MOTION TO QUASH WITHOUT MERIT.

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Under Section 83, RA 337, the following elements must be present to constitute a violationof 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; orb. he becomes a guarantor, indorser, or surety for loans from such bank to

others, orc. he becomes in any manner an obligor for money borrowed from bank or

loaned by it3. 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 directorconcerned.

A simple reading of the above elements easily rejects Go’s contention that the law penalizesa bank director or officer only either for borrowing the bank’s deposits or funds or forguarantying loans by the bank, but not for acting in both capacities. The essence of thecrime is becoming an obligor of the bank without securing the necessary written approval ofthe majority of the bank’s directors. The second element merely lists down the variousmodes of committing the offense. The third mode, by declaring that "[no director or officer ofany banking institution shall xxx] in any manner be an obligor for money borrowed from thebank or loaned by it," in fact serves a catch-all phrase that covers any situation when adirector or officer of the bank becomes its obligor. The prohibition is directed against a bankdirector or officer who becomes in any manner an obligor for money borrowed from orloaned by the bank without the written approval of the majority of the bank’s board ofdirectors. To make a distinction between the act of borrowing and guarantying istherefore unnecessary because in either situation, the director or officer concernedbecomes an obligor of the bank against whom the obligation is juridicallydemandable. The language of the law is broad enough to encompass either act ofborrowing or guaranteeing, or both.

The approval requirement (found in the first sentence of the first paragraph of the law)refers to the written approval of the majority of the bank’s board of directors required beforebank directors and officers can in any manner be an obligor for money borrowed from orloaned by the bank. Failure to secure the approval renders the bank director or officerconcerned liable for prosecution and, upon conviction, subjects him to the penalty providedin the third sentence of first paragraph of Section 83.

As to his second ground for the quashal: Credit accommodation limit is not an exception noris it an element of the offense. Contrary to Go’s claims, the second paragraph of Section 83,RA 337 does not provide for an exception to a violation of the first paragraph thereof, nordoes it constitute as an element of the offense charged. Section 83 of RA 337 actuallyimposes three restrictions: approval, reportorial, and ceiling requirements.

The reportorial requirement, on the other hand, mandates that any such approval shouldbe entered upon the records of the corporation, and a copy of the entry be transmitted to theappropriate supervising department. The reportorial requirement is addressed to the bankitself, which, upon its failure to do so, subjects it to quo warranto proceedings under Section87 of RA 337.

The ceiling requirement under the second paragraph of Section 83 regulates the amount ofcredit accommodations that banks may extend to their directors or officers by limiting theseto an amount equivalent to the respective outstanding deposits and book value of the paid-in

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capital contribution in the bank. Again, this is a requirement directed at the bank. In this light,a prosecution for violation of the first paragraph of Section 83, such as the one involvedhere, does not require an allegation that the loan exceeded the legal limit. Even if the loaninvolved is below the legal limit, a written approval by the majority of the bank’s directors isstill required; otherwise, the bank director or officer who becomes an obligor of the bank isliable. Compliance with the ceiling requirement does not dispense with the approvalrequirement.

Evidently, the failure to observe the three requirements under Section 83 paves the way forthe prosecution of three different offenses, each with its own set of elements.

PNB not a mortgagee in good faith for failure to conduct exhaustive investigation ofmortgagor’s title before extending a loan

PNB vs. Corpuz,G.R. 180945, February 12, 2010.

ISSUE: The sole issue presented in this case is whether or not petitioner PNB is a mortgageein good faith, entitling it to its lien on the title to the property in dispute. Petitioner PNB pointsout that, since it did a credit investigation, inspected the property, and verified the cleanstatus of the title before giving out the loan to the Songcuans, it should be regarded as amortgagee in good faith. PNB claims that the precautions it took constitute sufficientcompliance with the due diligence required of banks when dealing with registered lands.

HELD: As a rule, the Court would not expect a mortgagee to conduct an exhaustiveinvestigation of the history of the mortgagor’s title before he extends a loan. But petitionerPNB is not an ordinary mortgagee; it is a bank. Banks are expected to be more cautiousthan ordinary individuals in dealing with lands, even registered ones, since the business ofbanks is imbued with public interest. It is of judicial notice that the standard practice forbanks before approving a loan is to send a staff to the property offered as collateral andverify the genuineness of the title to determine the real owner or owners.

One of the CA’s findings in this case is that in the course of its verification, petitioner PNBwas informed of the previous TCTs covering the subject property. And the PNB has notcategorically contested this finding. It is evident from the faces of those titles that theownership of the land changed from Corpuz to Bondoc, from Bondoc to the Palaganases,and from the Palaganases to the Songcuans in less than three months and mortgaged toPNB within four months of the last transfer. The above information in turn should have driventhe PNB to look at the deeds of sale involved. It would have then discovered that theproperty was sold for ridiculously low prices: Corpuz supposedly sold it to Bondoc forjustP50,000.00; Bondoc to the Palaganases for just P15,000.00; and the Palaganases to theSongcuans also for justP50,000.00. Yet the PNB gave the property an appraised valueof P781,760.00. Anyone who deliberately ignores a significant fact that would createsuspicion in an otherwise reasonable person cannot be considered as an innocentmortgagee for value.

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2.3 Additional Materials

(a) BSP Circulars Nos. 488 (issued June 21, 2005), 493 (issued September 16,2005), 543 (issued September 8, 2006), 548 (issued September 25, 2006), and642 (issued January 30, 2009) re functions that banks could outsource;

(b) BSP Circular No. 341 (issued August 6, 2002) and 640 (issued January 16,2009) re unsafe and unsound banking practices;

(c) BSP Circular No. 650 (issued March 9, 2009) re authority of thrift banks to issueforeign letters of credit, etc.

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III

PHILIPPINE DEPOSIT INSURANCE CORPORATION ACTRA 3591 (1963), as amended by RA 6037 (1969), PD 120 (1973), PD 1094 (1977), PD 1451 (1978),

PD 1935 (1984), RA 7400 (1992), RA 8791 (2000), RA 9302 (2004), and RA 9576 (2009).

3.1 Topics

Basic policy (Sec. 1)

SECTION 1. THERE IS HEREBY CREATED A PHILIPPINE DEPOSIT INSURANCECORPORATION HEREINAFTER REFERRED TO AS THE “CORPORATION” WHICH SHALLINSURE, AS HEREIN PROVIDED, THE DEPOSITS OF ALL BANKS WHICH ARE ENTITLEDTO THE BENEFITS OF INSURANCE UNDER THIS ACT, AND WHICH SHALL HAVE THEPOWERS HEREINAFTER GRANTED.

THE CORPORATION SHALL, AS A BASIC POLICY, PROMOTE AND SAFEGUARD THEINTERESTS OF THE DEPOSITING PUBLIC BY WAY OF PROVIDING PERMANENT ANDCONTINUING INSURANCE COVERAGE ON ALL INSURED DEPOSITS.

Main functions

Insurance of banks (Sec. 5, et seq.)

SECTION 5. THE DEPOSIT LIABILITIES OF ANY BANK OR BANKING INSTITUTION,WHICH IS ENGAGED IN THE BUSINESS OF RECEIVING DEPOSITS AS HEREIN DEFINEDON THE EFFECTIVE DATE OF THIS ACT, OR WHICH THEREAFTER MAY ENGAGE INTHE BUSINESS OF RECEIVING DEPOSITS, SHALL BE INSURED WITH THECORPORATION. (AS AMENDED BY R.A. 6037, 04 AUGUST 1969; RENUMBEREDFROM SEC. 4 BY R.A. 9302, 12 AUGUST 2004)

Examination of banks (Secs. 8 and 9)

SECTION 8.THE CORPORATION AS A CORPORATE BODY SHALL HAVE THE POWER- EIGHTH – TO CONDUCT EXAMINATION OF BANKS WITH PRIOR APPROVAL OF THEMONETARY BOARD: PROVIDED, THAT NO EXAMINATION CAN BE CONDUCTEDWITHIN TWELVE (12) MONTHS FROM THE LAST EXAMINATION DATE: PROVIDED,HOWEVER, THAT THE CORPORATION MAY, IN COORDINATION WITH THE BANGKOSENTRAL, CONDUCT A SPECIAL EXAMINATION AS THE BOARD OF DIRECTORS, BYAN AFFIRMATIVE VOTE OF A MAJORITY OF ALL OF ITS MEMBERS, IF THERE IS ATHREATENED OR IMPENDING CLOSURE OF A BANK; PROVIDED, FURTHER, THAT,NOTWITHSTANDING THE PROVISIONS OF REPUBLIC ACT NO. 1405, AS AMENDED,REPUBLIC ACT NO. 6426, AS AMENDED, REPUBLIC ACT NO. 8791, AND OTHERLAWS, THE CORPORATION AND/OR THE BANGKO SENTRAL, MAY INQUIRE INTO OREXAMINE DEPOSIT ACCOUNTS AND ALL INFORMATION RELATED THERETO IN CASETHERE IS A FINDING OF UNSAFE OR UNSOUND BANKING PRACTICE; PROVIDED,FINALLY, THAT TO AVOID OVERLAPPING OF EFFORTS, THE EXAMINATION SHALLMAXIMIZE THE EFFICIENT USE OF THE RELEVANT REPORTS, INFORMATION, ANDFINDINGS OF THE BANGKO SENTRAL, WHICH IT SHALL MAKE AVAILABLE TO THECORPORATION;

Rehabilitation of banks (Sec. 17)

Comment [WU5]: The purpose of the law isto create a government-owned and controlledentity, the Philippine Deposit InsuranceCorporation, which shall insure the depositliabilities of all banks entitled to the benefits ofinsurance under the Act. Such insurance isintended to protect depositors from situationsthat prevent banks from paying out deposits, asin bank failures or closures, and to encouragepeople to deposit in banks.

Comment [WU6]: Insurance of banks (Sec. 5,et seq.) – The PDIC insures the depositliabilities of banks. For this purpose, it assessesand collects insurance assessments frommember-banks. Whenever an insured bank isclosed, the PDIC processes and services claimsof insured deposits.

Comment [WU7]: The PDIC may examine abank with the prior approval of the MonetaryBoard of the Bangko Sentral ng Pilipinas. Suchexamination may extend to all the affairs of thebank and includes the authority to investigatefrauds, irregularities and anomalies committedin the bank.

Comment [WU8]: – Upon determination bythe PDIC that (i) a bank is in danger of closing,(ii) the continued operation of such bank isessential to provide adequate banking service inthe community or maintain financial stability inthe economy, and (iii) the actual liquidation andpayoff of the bank will be more expensive thanthe extension of financial assistance to thebank, it may make loans to, purchase theassets or assume the liabilities of, or makedeposits in, said bank to prevent its closing.Authority may also be exercised by the PDICover a closed bank.

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Receivership of closed banks (Secs. 8 and 10; see also Sec. 30, RA 7653)

SECTION 8.THE CORPORATION AS A CORPORATE BODY SHALL HAVE THE POWER-NINTH - TO ACT AS RECEIVER;

SECTION 10.

a. THE PROVISIONS OF OTHER LAWS, GENERAL OR SPECIAL, TO THE CONTRARYOTWITHSTANDING, WHENEVER IT SHALL BE APPROPRIATE FOR THE MONETARYBOARD OF THE BANGKO SENTRAL NG PILIPINAS TO APPOINT A RECEIVER OFANY BANKING INSTITUTION PURSUANT TO EXISTING LAWS, THE MONETARYBOARD SHALL GIVE PRIOR NOTICE AND APPOINT THE CORPORATION ASRECEIVER. (AS AMENDED/RENUMBERED FROM SEC. 9-A BY R.A. 9302, 12AUGUST 2004)

b. THE CORPORATION AS RECEIVER SHALL CONTROL, MANAGE AND ADMINISTERTHE AFFAIRS OF THE CLOSED BANK. EFFECTIVE IMMEDIATELY UPON TAKEOVERAS RECEIVER OF SUCH BANK, THE POWERS, FUNCTIONS AND DUTIES, AS WELLAS ALL ALLOWANCES, REMUNERATIONS AND PERQUISITES OF THE DIRECTORS,OFFICERS, AND STOCKHOLDERS OF SUCH BANK ARE SUSPENDED, AND THERELEVANT PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWSOF THE CLOSED BANK ARE LIKEWISE DEEMED SUSPENDED. (AS ADDED BY R.A.9302, 12 AUGUST 2004)

THE ASSETS OF THE CLOSED BANK UNDER RECEIVERSHIP SHALL BE DEEMEDIN CUSTODIA LEGIS IN THE HANDS OF THE RECEIVER. FROM THE TIME THECLOSED BANK IS PLACED UNDER SUCH RECEIVERSHIP, ITS ASSETS SHALL NOTBE SUBJECT TO ATTACHMENT, GARNISHMENT, EXECUTION, LEVY OR ANYOTHER COURT PROCESSES. THEREFORE, A JUDGE, OFFICER OF THE COURTOR ANY PERSON WHO SHALL ISSUE, ORDER, PROCESS OR CAUSE THEISSUANCE OR IMPLEMENTATION OF THE WRIT OF GARNISHMENT, LEVY,ATTACHMENT OR EXECUTION SHALL BE LIABLE UNDER SECTION 21HEREOF. (AS ADDEDBY R.A. 9302, 12 AUGUST 2004)

c. IN ADDITION TO THE POWERS OF A RECEIVER PURSUANT TO EXISTING LAWS,THE CORPORATION IS EMPOWERED TO:

1. BRING SUITS TO ENFORCE LIABILITIES TO OR RECOVERIES OF THECLOSED BANK; (AS AMENDED BY R.A. 9302, 12 AUGUST 2004)

2. APPOINT AND HIRE PERSONS OR ENTITIES OF RECOGNIZEDCOMPETENCE IN BANKING OR FINANCE AS ITS DEPUTIES ANDASSISTANTS, TO PERFORM SUCH POWERS AND FUNCTIONS OF THECORPORATION AS RECEIVER OR LIQUIDATOR OF THE CLOSEDBANK; (AS AMENDED BY R.A. 9302, 12 AUGUST 2004)

3. SUSPEND OR TERMINATE THE EMPLOYMENT OF OFFICERS ANDEMPLOYEES OF THE CLOSED BANK:PROVIDED, THAT PAYMENT OFSEPARATION PAY OR BENEFITS SHALL BE MADE ONLY AFTER THECLOSED BANK HAS BEEN PLACED UNDER LIQUIDATION PURSUANT TOTHE ORDER OF THE MONETARY BOARD UNDER SECTION 30 OF R.A.7653, AND THAT SUCH PAYMENT SHALL BE MADE FROM AVAILABLEFUNDS OF THE BANK AFTER DEDUCTING REASONABLE EXPENSES FORRECEIVERSHIP AND LIQUIDATION; (AS ADDED BY R.A. 9302, 12AUGUST 2004)

4. PAY ACCRUED UTILITIES, RENTALS AND SALARIES OF PERSONNEL OFTHE CLOSED BANK, FOR A PERIOD NOT EXCEEDING THREE (3)

Comment [WU9]: (Secs. 8 and 10; see alsoSec. 30, RA 7653) – As receiver, the PDIC shallcontrol, manage and administer the affairs ofthe closed bank for the purpose of preserving itsassets for the benefit of bank creditors .

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MONTHS, FROM AVAILABLE FUNDS OF THE CLOSED BANK; (AS ADDEDBY R.A. 9302,12 AUGUST 2004)

5. COLLECT LOANS AND OTHER CLAIMS OF THE CLOSED BANK, AND FORTHE PURPOSE, MODIFY, COMPROMISE OR RESTRUCTURE THE TERMSAND CONDITIONS OF SUCH LOANS OR CLAIMS AS MAY BE DEEMEDADVANTAGEOUS TO THE INTEREST OF THE CREDITORS AND CLAIMANTSOF THE CLOSED BANK; (AS ADDED BY. R.A. 9302,12 AUGUST 2004)

6. HIRE OR RETAIN PRIVATE COUNSELS AS MAY BE NECESSARY; (ASADDED BY R.A. 9302, 12 AUGUST 2004)

7. BORROW OR OBTAIN A LOAN, OR MORTGAGE, PLEDGE OR ENCUMBERANY ASSET OF THE CLOSED BANK, WHEN NECESSARY TO PRESERVEOR PREVENT DISSIPATION OF THE ASSETS, OR TO REDEEMFORECLOSED ASSETS OF THE CLOSED BANK, OR TO MINIMIZE LOSSESTO THE DEPOSITORS AND CREDITORS; (AS ADDED BY R.A. 9302, 12AUGUST 2004)

8. IF THE STIPULATED INTEREST ON DEPOSITS IS UNUSUALLY HIGHCOMPARED WITH THE PREVAILING APPLICABLE INTEREST RATE, THECORPORATION AS RECEIVER MAY EXERCISE SUCH POWERS WHICHMAY INCLUDE A REDUCTION OF THE INTEREST RATE TO A REASONABLERATE: PROVIDED, THAT ANY MODIFICATION OR REDUCTION SHALLAPPLY ONLY TO UNPAID INTEREST; (AS ADDED BY R.A. 9302, 12AUGUST 2004) AND

9. EXERCISE SUCH OTHER POWERS AS ARE INHERENT AND NECESSARYFOR THE EFFECTIVE DISCHARGE OF THE DUTIES OF THECORPORATION AS A RECEIVER. (AS ADDED BY R.A. 9302, 12 AUGUST2004)

THE BOARD OF DIRECTORS SHALL ADOPT SUCH POLICIES AND GUIDELINES ASMAY BE NECESSARY FOR THE PERFORMANCE OF THE ABOVE POWERS BYPERSONNEL, DEPUTIES AND AGENTS OF THE CORPORATION. (AS ADDED BYR.A. 9302, 12 AUGUST 2004)

Liquidation of closed banks (Sec. 30, RA 7653)

SECTION 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 ORDINARYCOURSE OF BUSINESS: PROVIDED, THAT THIS SHALL NOT INCLUDE INABILITYTO PAY CAUSED BY EXTRAORDINARY DEMANDS INDUCED BY FINANCIAL PANICIN 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 LOSSESTO ITS DEPOSITORS OR CREDITORS; OR

(D) HAS WILLFULLY VIOLATED A CEASE AND DESIST ORDER UNDER SECTION 37THAT HAS BECOME FINAL, INVOLVING ACTS OR TRANSACTIONS WHICH AMOUNTTO FRAUD OR A DISSIPATION OF THE ASSETS OF THE INSTITUTION; IN WHICH

Comment [WU10]: If the closed bank cannotbe rehabilitated, the PDIC would proceed withits liquidation. This would involve the conversionof the assets of the bank into cash fordistribution to the creditors in accordance withthe provisions of the NCC on concurrence andpreference of credits.

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CASES, THE MONETARY BOARD MAY SUMMARILY AND WITHOUT NEED FORPRIOR HEARING FORBID THE INSTITUTION FROM DOING BUSINESS IN THEPHILIPPINES AND DESIGNATE THE PHILIPPINE DEPOSIT INSURANCECORPORATION AS RECEIVER OF THE BANKING INSTITUTION.

FOR A QUASI-BANK, ANY PERSON OF RECOGNIZED COMPETENCE IN BANKING ORFINANCE MAY BE DESIGNED AS RECEIVER.

THE RECEIVER SHALL IMMEDIATELY GATHER AND TAKE CHARGE OF ALL THEASSETS AND LIABILITIES OF THE INSTITUTION, ADMINISTER THE SAME FOR THEBENEFIT OF ITS CREDITORS, AND EXERCISE THE GENERAL POWERS OF A RECEIVERUNDER THE REVISED RULES OF COURT BUT SHALL NOT, WITH THE EXCEPTION OFADMINISTRATIVE EXPENDITURES, PAY OR COMMIT ANY ACT THAT WILL INVOLVETHE TRANSFER OR DISPOSITION OF ANY ASSET OF THE INSTITUTION: PROVIDED,THAT THE RECEIVER MAY DEPOSIT OR PLACE THE FUNDS OF THE INSTITUTION INNON-SPECULATIVE INVESTMENTS. THE RECEIVER SHALL DETERMINE AS SOON ASPOSSIBLE, BUT NOT LATER THAN NINETY (90) DAYS FROM TAKE OVER, WHETHERTHE INSTITUTION MAY BE REHABILITATED OR OTHERWISE PLACED IN SUCH ACONDITION SO THAT IT MAY BE PERMITTED TO RESUME BUSINESS WITH SAFETY TOITS DEPOSITORS AND CREDITORS AND THE GENERAL PUBLIC: PROVIDED, THATANY DETERMINATION FOR THE RESUMPTION OF BUSINESS OF THE INSTITUTIONSHALL BE SUBJECT TO PRIOR APPROVAL OF THE MONETARY BOARD.

IF THE RECEIVER DETERMINES THAT THE INSTITUTION CANNOT BE REHABILITATEDOR PERMITTED TO RESUME BUSINESS IN ACCORDANCE WITH THE NEXT PRECEDINGPARAGRAPH, THE MONETARY BOARD SHALL NOTIFY IN WRITING THE BOARD OFDIRECTORS OF ITS FINDINGS AND DIRECT THE RECEIVER TO PROCEED WITH THELIQUIDATION OF THE INSTITUTION. THE RECEIVER SHALL:

(1) FILE EX PARTE WITH THE PROPER REGIONAL TRIAL COURT, AND WITHOUTREQUIREMENT OF PRIOR NOTICE OR ANY OTHER ACTION, A PETITION FORASSISTANCE IN THE LIQUIDATION OF THE INSTITUTION PURSUANT TO ALIQUIDATION PLAN ADOPTED BY THE PHILIPPINE DEPOSIT INSURANCECORPORATION FOR GENERAL APPLICATION TO ALL CLOSED BANKS. IN CASE OFQUASI-BANKS, THE LIQUIDATION PLAN SHALL BE ADOPTED BY THE MONETARYBOARD. UPON ACQUIRING JURISDICTION, THE COURT SHALL, UPON MOTION BYTHE RECEIVER AFTER DUE NOTICE, ADJUDICATE DISPUTED CLAIMS AGAINSTTHE INSTITUTION, ASSIST THE ENFORCEMENT OF INDIVIDUAL LIABILITIES OFTHE STOCKHOLDERS, DIRECTORS AND OFFICERS, AND DECIDE ON OTHERISSUES AS MAY BE MATERIAL TO IMPLEMENT THE LIQUIDATION PLAN ADOPTED.THE RECEIVER SHALL PAY THE COST OF THE PROCEEDINGS FROM THE ASSETSOF THE INSTITUTION.

(2) CONVERT THE ASSETS OF THE INSTITUTIONS TO MONEY, DISPOSE OF THESAME TO CREDITORS AND OTHER PARTIES, FOR THE PURPOSE OF PAYING THEDEBTS OF SUCH INSTITUTION IN ACCORDANCE WITH THE RULES ONCONCURRENCE AND PREFERENCE OF CREDIT UNDER THE CIVIL CODE OF THEPHILIPPINES AND HE MAY, IN THE NAME OF THE INSTITUTION, AND WITH THEASSISTANCE OF COUNSEL AS HE MAY RETAIN, INSTITUTE SUCH ACTIONS ASMAY BE NECESSARY TO COLLECT AND RECOVER ACCOUNTS AND ASSETS OF,OR DEFEND ANY ACTION AGAINST, THE INSTITUTION. THE ASSETS OF ANINSTITUTION UNDER RECEIVERSHIP OR LIQUIDATION SHALL BE DEEMED INCUSTODIA LEGIS IN THE HANDS OF THE RECEIVER AND SHALL, FROM THEMOMENT THE INSTITUTION WAS PLACED UNDER SUCH RECEIVERSHIP OR

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LIQUIDATION, BE EXEMPT FROM ANY ORDER OF GARNISHMENT, LEVY,ATTACHMENT, OR EXECUTION.

THE ACTIONS OF THE MONETARY BOARD TAKEN UNDER THIS SECTION OR UNDERSECTION 29 OF THIS ACT SHALL BE FINAL AND EXECUTORY, AND MAY NOT BERESTRAINED OR SET ASIDE BY THE COURT EXCEPT ON PETITION FOR CERTIORARION THE GROUND THAT THE ACTION TAKEN WAS IN EXCESS OF JURISDICTION ORWITH SUCH GRAVE ABUSE OF DISCRETION AS TO AMOUNT TO LACK OR EXCESS OFJURISDICTION. THE PETITION FOR CERTIORARI MAY ONLY BE FILED BY THESTOCKHOLDERS OF RECORD REPRESENTING THE MAJORITY OF THE CAPITALSTOCK WITHIN TEN (10) DAYS FROM RECEIPT BY THE BOARD OF DIRECTORS OFTHE INSTITUTION OF THE ORDER DIRECTING RECEIVERSHIP, LIQUIDATION ORCONSERVATORSHIP.

THE DESIGNATION OF A CONSERVATOR UNDER SECTION 29 OF THIS ACT OR THEAPPOINTMENT OF A RECEIVER UNDER THIS SECTION SHALL BE VESTEDEXCLUSIVELY WITH THE MONETARY BOARD. FURTHERMORE, THE DESIGNATION OFA CONSERVATOR IS NOT A PRECONDITION TO THE DESIGNATION OF A RECEIVER.

Concept of insured deposits (Sec. 4[g])

SECTION 4. AS USED IN THIS ACT - (RENUMBERED FROM SEC. 3 BY R.A. 9302,12 AUGUST 2004) [G] THE TERM “INSURED DEPOSIT” MEANS THE AMOUNT DUE TOANY BONA FIDE DEPOSITOR FOR LEGITIMATE DEPOSITS IN AN INSURED BANK NETOF ANY OBLIGATION OF THE DEPOSITOR TO THE INSURED BANK AS OF THE DATEOF CLOSURE, BUT NOT TO EXCEED FIVE HUNDRED THOUSAND PESOS(P500,000.00).2 SUCH NET AMOUNT SHALL BE DETERMINED ACCORDING TO SUCHREGULATIONS AS THE BOARD OF DIRECTORS MAY PRESCRIBE. IN DETERMININGSUCH AMOUNT DUE TO ANY DEPOSITOR, THERE SHALL BE ADDED TOGETHER ALLDEPOSITS IN THE BANK MAINTAINED IN THE SAME RIGHT AND CAPACITY FOR HISBENEFIT EITHER IN HIS OWN NAME OR IN THE NAME OF OTHERS. A JOINT ACCOUNTREGARDLESS OF WHETHER THE CONJUNCTION "AND," "OR," "AND/OR" IS USED,SHALL BE INSURED SEPARATELY FROM ANY INDIVIDUALLY-OWNED DEPOSITACCOUNT: PROVIDED, THAT (1) IF THE ACCOUNT IS HELD JOINTLY BY TWO ORMORE NATURAL PERSONS, OR BY TWO OR MORE JURIDICAL PERSONS OR ENTITIES,THE MAXIMUM INSURED DEPOSIT SHALL BE DIVIDED INTO AS MANY EQUAL SHARESAS THERE ARE INDIVIDUALS, JURIDICAL PERSONS OR ENTITIES, UNLESS ADIFFERENT SHARING IS STIPULATED IN THE DOCUMENT OF DEPOSIT, AND (2) IF THEACCOUNT IS HELD BY A JURIDICAL PERSON OR ENTITY JOINTLY WITH ONE OR MORENATURAL PERSONS, THE MAXIMUM INSURED DEPOSIT SHALL BE PRESUMED TOBELONG ENTIRELY TO SUCH JURIDICAL PERSON OR ENTITY: PROVIDED, FURTHER,THAT THE AGGREGATE OF THE INTEREST OF EACH CO-OWNER OVER SEVERALJOINT ACCOUNTS, WHETHER OWNED BY THE SAME OR DIFFERENT COMBINATIONSOF INDIVIDUALS, JURIDICAL PERSONS OR ENTITIES, SHALL LIKEWISE BE SUBJECTTO THE MAXIMUM INSURED DEPOSIT OF FIVE HUNDRED THOUSAND PESOS(P500,000.00): PROVIDED, FURTHERMORE, THAT THE PROVISIONS OF ANY LAWTO THE CONTRARY NOTWITHSTANDING, NO OWNER/HOLDER OF ANY NEGOTIABLECERTIFICATE OF DEPOSIT SHALL BE RECOGNIZED AS A DEPOSITOR ENTITLED TOTHE RIGHTS PROVIDED IN THIS ACT UNLESS HIS NAME IS REGISTERED ASOWNER/HOLDER THEREOF IN THE BOOKS OF THE ISSUING BANK: PROVIDED,FINALLY, THAT, IN CASE OF A CONDITION THAT THREATENS THE MONETARY ANDFINANCIAL STABILITY OF THE BANKING SYSTEM THAT MAY HAVE SYSTEMIC

Comment [WU11]: An insured deposit is theamount due any depositor for deposits in aninsured bank net of any matured or unmaturedobligation of the depositor to the insured bankas of the date of closure but not to exceedP250,000. In determining s depositor’s insureddeposit, the PDIC shall add together all depositsin the bank maintained by the depositor in thesame right and capacity for his benefit either inhis own name or in the name of others. Theoutstanding balance of each account would alsobe adjusted to take into account any interestearned by the account as of the date of closureof the bank less any withholding tax due onsuch interest.

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CONSEQUENCES, AS DEFINED IN SECTION 17 HEREOF, AS DETERMINED BY THEMONETARY BOARD, THE MAXIMUM DEPOSIT INSURANCE COVER MAY BE ADJUSTEDIN SUCH AMOUNT, FOR SUCH A PERIOD, AND/OR FOR SUCH DEPOSIT PRODUCTS,AS MAY BE DETERMINED BY A UNANIMOUS VOTE OF THE BOARD OF DIRECTORS INA MEETING CALLED FOR THE PURPOSE AND CHAIRED BY THE SECRETARY OFFINANCE, SUBJECT TO THE APPROVAL OF THE PRESIDENT OF THEPHILIPPINES. (AS AMENDED BY R.A. 9302, 12 AUGUST 2004; R.A. 9576, 2009)

Liability to depositorsDeposit liabilities required to be insured with PDIC (Sec. 5)

SECTION 5. THE DEPOSIT LIABILITIES OF ANY BANK OR BANKING INSTITUTION,WHICH IS ENGAGED IN THE BUSINESS OF RECEIVING DEPOSITS AS HEREIN DEFINEDON THE EFFECTIVE DATE OF THIS ACT, OR WHICH THEREAFTER MAY ENGAGE INTHE BUSINESS OF RECEIVING DEPOSITS, SHALL BE INSURED WITH THECORPORATION. (AS AMENDED BY R.A. 6037, 04 AUGUST 1969; RENUMBEREDFROM SEC. 4 BY R.A. 9302, 12 AUGUST 2004)

Commencement of liability (Sec. 14)

SECTION 14. WHENEVER AN INSURED BANK SHALL HAVE BEEN CLOSED BY THEMONETARY BOARD PURSUANT TO SECTION 30 OF R.A. 7653, PAYMENT OF THEINSURED DEPOSITS ON SUCH CLOSED BANK SHALL BE MADE BY THECORPORATION AS SOON AS POSSIBLE EITHER (1) BY CASH OR (2) BY MAKINGAVAILABLE TO EACH DEPOSITOR A TRANSFERRED DEPOSIT IN ANOTHER INSUREDBANK IN AN AMOUNT EQUAL TO INSURED DEPOSIT OF SUCHDEPOSITOR: PROVIDED, HOWEVER, THAT THE CORPORATION, IN ITS DISCRETION,MAY REQUIRE PROOF OF CLAIMS TO BE FILED BEFORE PAYING THE INSUREDDEPOSITS, AND THAT IN ANY CASE WHERE THE CORPORATION IS NOT SATISFIEDAS TO THE VIABILITY OF A CLAIM FOR AN INSURED DEPOSIT, IT MAY REQUIRE FINALDETERMINATION OF A COURT OF COMPETENT JURISDICTION BEFORE PAYING SUCHCLAIM: PROVIDED, FURTHER, THAT FAILURE TO SETTLE THE CLAIM, WITHIN SIX (6)MONTHS FROM THE DATE OF FILING OF CLAIM FOR INSURED DEPOSIT, WHERESUCH FAILURE WAS DUE TO GRAVE ABUSE OF DISCRETION, GROSS NEGLIGENCE,BAD FAITH, OR MALICE, SHALL, UPON CONVICTION, SUBJECT THE DIRECTORS,OFFICERS OR EMPLOYEES OF THE CORPORATION RESPONSIBLE FOR THE DELAY,TO IMPRISONMENT FROM SIX (6) MONTHS TO ONE (1) YEAR: PROVIDED,FURTHERMORE, THAT THE PERIOD SHALL NOT APPLY IF THE VALIDITY OF THECLAIM REQUIRES THE RESOLUTION OF ISSUES OF FACTS AND OR LAW BY ANOTHEROFFICE, BODY OR AGENCY INCLUDING THE CASE MENTIONED IN THE FIRSTPROVISO OR BY THE CORPORATION TOGETHER WITH SUCH OTHER OFFICE, BODYOR AGENCY. (AS AMENDED BY R.A. 9302, 12 AUGUST 2004)

Comment [WU12]: When an insured bankis closed, how will payment of the insureddeposits in such bank be made by the PDIC?(Sec. 14)

The PDIC shall pay either (i) in cash or (ii) bymaking available to each depositor a transferreddeposit in another insured bank in an amountequal to the insured deposit

Comment [WU13]: When PDIC required tosettle a claim for an insured deposit? (Sec.14)

The PDIC is required to settle the claim within 6months from the date of filing thereof providedthat the claim was filed within 2 years fromactual takeover of the closed bank by PDIC.The 6-month period shall not apply if thedocuments of the claimant are incomplete or thevalidity of the claim requires the resolution ofissues of facts or law by another office, body oragency, independently or in coordination withthe PDIC.

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Deposit accounts not entitled to payment (Sec. 4[f], as amended by Sec. 2, RA9576)

SECTION 4. [F] THE TERM “DEPOSIT” MEANS THE UNPAID BALANCE OF MONEY ORITS EQUIVALENT RECEIVED BY A BANK IN THE USUAL COURSE OF BUSINESS ANDFOR WHICH IT HAS GIVEN OR IS OBLIGED TO GIVE CREDIT TO A COMMERCIAL,CHECKING, SAVINGS, TIME OR THRIFT ACCOUNT, OR ISSUED IN ACCORDANCEWITH BANGKO SENTRAL RULES AND REGULATIONS AND OTHER APPLICABLE LAWS,TOGETHER WITH SUCH OTHER OBLIGATIONS OF A BANK, WHICH, CONSISTENT WITHBANKING USAGE AND PRACTICES, THE BOARD OF DIRECTORS SHALL DETERMINEAND PRESCRIBE BY REGULATIONS TO BE DEPOSIT LIABILITIES OF THE BANK:PROVIDED, THAT ANY OBLIGATION OF A BANK WHICH IS PAYABLE AT THE OFFICEOF THE BANK LOCATED OUTSIDE OF THE PHILIPPINES SHALL NOT BE A DEPOSITFOR ANY OF THE PURPOSES OF THIS ACT OR INCLUDED AS PART OF THE TOTALDEPOSITS OR OF INSURED DEPOSIT: PROVIDED, FURTHER, THAT, SUBJECT TO THEAPPROVAL OF THE BOARD OF DIRECTORS, ANY INSURED BANK WHICH ISINCORPORATED UNDER THE LAWS OF THE PHILIPPINES WHICH MAINTAINS ABRANCH OUTSIDE THE PHILIPPINES MAY ELECT TO INCLUDE FOR INSURANCE ITSDEPOSIT OBLIGATIONS PAYABLE ONLY AT SUCH BRANCH.

THE CORPORATION SHALL NOT PAY DEPOSIT INSURANCE FOR THE FOLLOWINGACCOUNTS OR TRANSACTIONS, WHETHER DENOMINATED, DOCUMENTED,RECORDED OR BOOKED AS DEPOSIT BY THE BANK:

1. INVESTMENT PRODUCTS SUCH AS BONDS AND SECURITIES, TRUSTACCOUNTS, AND OTHER SIMILAR INSTRUMENTS;

2. DEPOSIT ACCOUNTS OR TRANSACTIONS WHICH ARE UNFUNDED, OR THATARE FICTITIOUS OR FRAUDULENT;

3. DEPOSIT ACCOUNTS OR TRANSACTIONS CONSTITUTING, AND/OREMANATING FROM, UNSAFE AND UNSOUND BANKING PRACTICE/S, ASDETERMINED BY THE CORPORATION, IN CONSULTATION WITH THE BSP,AFTER DUE NOTICE AND HEARING, AND PUBLICATION OF A CEASE ANDDESIST ORDER ISSUED BY THE CORPORATION AGAINST SUCH DEPOSITACCOUNTS OR TRANSACTIONS; AND

4. DEPOSITS THAT ARE DETERMINED TO BE THE PROCEEDS OF AN UNLAWFULACTIVITY AS DEFINED UNDER REPUBLIC ACT 9160, AS AMENDED.

THE ACTIONS OF THE CORPORATION TAKEN UNDER THIS SECTION SHALL BE FINALAND EXECUTORY, AND MAY NOT BE RESTRAINED OR SET ASIDE BY THE COURT,EXCEPT ON APPROPRIATE PETITION FOR CERTIORARI ON THE GROUND THAT THEACTION WAS TAKEN IN EXCESS OF JURISDICTION OR WITH SUCH GRAVE ABUSE OFDISCRETION AS TO AMOUNT TO A LACK OR EXCESS OF JURISDICTION. THEPETITION FOR CERTIORARI MAY ONLY BE FILED WITHIN THIRTY (30) DAYS FROMNOTICE OF DENIAL OF CLAIM FOR DEPOSIT INSURANCE. (AS AMENDED BY P.D.1940, 27 JUNE 1984; R.A. 7400, 13 APRIL 1992; R.A. 9302, 12 AUGUST 2004;R.A. 9576, 29 APRIL 2009)

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Extent of liability (Sec. 4[g], as amended by Sec. 3, RA 9576)

Liability for contents of safety deposit box

Determination of insured deposits (Sec. 16)

SECTION 16.

a. THE CORPORATION SHALL COMMENCE THE DETERMINATION OF INSUREDDEPOSITS DUE THE DEPOSITORS OF A CLOSED BANK UPON ITS ACTUALTAKEOVER OF THE CLOSED BANK. THE CORPORATION SHALL GIVE NOTICE TOTHE DEPOSITORS OF THE CLOSED BANK OF THE INSURED DEPOSITS DUE THEMBY WHATEVER MEANS DEEMED APPROPRIATE BY THE BOARD OF DIRECTORS:PROVIDED, THAT THE CORPORATION SHALL PUBLISH THE NOTICE ONCE AWEEK FOR AT LEAST THREE (3) CONSECUTIVE WEEKS IN A NEWSPAPER OFGENERAL CIRCULATION OR, WHEN APPROPRIATE, IN A NEWSPAPERCIRCULATED IN THE COMMUNITY OR COMMUNITIES WHERE THE CLOSED BANKOR ITS BRANCHES ARE LOCATED. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

b. PAYMENT OF AN INSURED DEPOSIT TO ANY PERSON BY THE CORPORATIONSHALL DISCHARGE THE CORPORATION, AND PAYMENT OF TRANSFERREDDEPOSIT TO ANY PERSON BY THE NEW BANK OR BY AN INSURED BANK INWHICH A TRANSFERRED DEPOSIT HAS BEEN MADE AVAILABLE SHALLDISCHARGE THE CORPORATION AND SUCH NEW BANK OR OTHER INSUREDBANK, TO THE SAME EXTENT THAT PAYMENT TO SUCH PERSON BY THE CLOSEDBANK WOULD HAVE DISCHARGED IT FROM LIABILITY FOR THE INSUREDDEPOSIT. (RENUMBERED FROM SEC. 11 (A) BY R.A. 9302, 12 AUGUST 2004)

c. EXCEPT AS OTHERWISE PRESCRIBED BY THE BOARD OF DIRECTORS, NEITHERTHE CORPORATION NOR SUCH OTHER INSURED BANK SHALL BE REQUIRED TORECOGNIZE AS THE OWNER OF ANY PORTION OF A DEPOSIT APPEARING ONTHE RECORDS OF THE CLOSED BANK UNDER A NAME OTHER THAN THAT OFTHE CLAIMANT, ANY PERSON WHOSE NAME OR INTEREST AS SUCH OWNER ISNOT DISCLOSED ON THE RECORDS OF SUCH CLOSED BANK AS PART OWNER OFSAID DEPOSIT, IF SUCH RECOGNITION WOULD INCREASE THE AGGREGATEAMOUNT OF THE INSURED DEPOSITS IN SUCH CLOSED BANK. (RENUMBEREDFROM SEC. 11 (B) BY R.A. 9302, 12 AUGUST 2004)

d. THE CORPORATION MAY WITHHOLD PAYMENT OF SUCH PORTION OF THEINSURED DEPOSIT OF ANY DEPOSITOR IN A CLOSED BANK AS MAY BEREQUIRED TO PROVIDE FOR THE PAYMENT OF ANY LIABILITY OF SUCHDEPOSITOR AS A STOCKHOLDER OF THE CLOSED BANK, OR OF ANY LIABILITYOF SUCH DEPOSITOR TO THE CLOSED BANK OR ITS RECEIVER, WHICH IS NOTOFFSET AGAINST A CLAIM DUE FROM SUCH BANK, PENDING THEDETERMINATION AND PAYMENT OF SUCH LIABILITY BY SUCH DEPOSITOR ORANY OTHER LIABLE THEREFOR. (RENUMBERED FROM SEC. 11 (C) BY R.A.9302, 12 AUGUST 2004)

e. UNLESS OTHERWISE WAIVED BY THE CORPORATION, IF THE DEPOSITOR IN THECLOSED BANK SHALL FAIL TO CLAIM HIS INSURED DEPOSITS WITH THECORPORATION WITHIN TWO (2) YEARS FROM ACTUAL TAKEOVER OF THECLOSED BANK BY THE RECEIVER, OR DOES NOT ENFORCE HIS CLAIM FILEDWITH THE CORPORATION WITHIN TWO (2) YEARS AFTER THE TWO-YEARPERIOD TO FILE A CLAIM AS MENTIONED HEREINABOVE, ALL RIGHTS OF THE

Comment [WU14]: Is the PDIC required tonotify the depositors of a closed bank of thefact of such closure and the need to file theirclaims? (Sec. 16)

Yes, The PDIC shall publish the notice todepositors once a week for (3) consecutiveweeks in a newspaper of general circulation or,in a newspaper circulated in the community orcommunities where the closed bank or itsbranches are located.

Comment [WU15]: Effect of payment to thedepositor of his insured deposit? (Sec. 16[b])

It (i) discharges the PDIC from any furtherliability to the depositor, and (ii) subrogates thePDIC to all the rights of the depositor againstthe closed bank to the extent of such payment.

Comment [WU16]: Is there a prescriptiveperiod for the filing of claims with the PDICby the depositors of a closed bank? (Sec.16[e])

Yes. A depositor of a closed bank must file hisclaim with the PDIC within 2 years from actualtakeover of the closed bank by PDIC. If he doesnot, all his rights against the PDIC in respect ofthe insured deposits shall be barred. However,all the rights of the depositor against the closedbank and its shareholders or the receivershipestate to which PDIC may have becomesubrogated shall thereupon revert to thedepositor

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DEPOSITOR AGAINST THE CORPORATION WITH RESPECT TO THE INSUREDDEPOSIT SHALL BE BARRED; HOWEVER, ALL RIGHTS OF THE DEPOSITORAGAINST THE CLOSED BANK AND ITS SHAREHOLDERS OR THE RECEIVERSHIPESTATE TO WHICH THE CORPORATION MAY HAVE BECOME SUBROGATED,SHALL THEREUPON REVERT TO THE DEPOSITOR. THEREAFTER, THECORPORATION SHALL BE DISCHARGED FROM ANY LIABILITY ON THE INSUREDDEPOSIT. (AS AMENDED BY R.A. 9302, 12 AUGUST 2004)

Calculation of liability (Sec. 4[g]; see also PDIC Bulletin No. 2004-04, datedAugust 12, 2004)Per depositor, per capacity ruleJoint accounts

A JOINT ACCOUNT, REGARDLESS OF WHETHER THE CONJUNCTION “AND”, “OR”,OR “AND/OR” IS USED, SHALL BE INSURED SEPARATELY FROM ANYINDIVIDUALLY-OWNED DEPOSIT ACCOUNT. THE MAXIMUM INSURED DEPOSIT OFP250,000 SHALL BE DIVIDED INTO AS MANY EQUAL SHARES AS THERE AREDEPOSITORS UNLESS A DIFFERENT SHARING IS STIPULATED IN THE DOCUMENTOF DEPOSIT.

Example: Pedro and Mario have P400,000 in a joint savings account withABC Bank. Pedro also has P300,000 in another savings account that hemaintains with the same bank solely in his name. Mario’s total deposit isP200,000 while that of Pedro is P500,000. If ABC Bank were closed,Mario could claim P125,000 from PDIC (representing his 50% share ofthe maximum insured deposit of the joint account with Pedro) while Pedrocould claim a total of P250,000 (P125,000, representing his 50% share ofthe maximum insured deposit of the joint account with Mario), plusP125,000 out of the savings account solely in his name.

IF THE ACCOUNT WERE HELD BY A JURIDICAL PERSON JOINTLY WITH ONE ORMORE NATURAL PERSONS, THE MAXIMUM INSURED DEPOSIT SHALL BEPRESUMED TO BELONG ENTIRELY TO SUCH JURIDICAL PERSON OR ENTITY.

Example: XYZ Corporation and Pedro have P250,000 in a joint savingsaccount with ABC Bank. Pedro also has P250,000 in another savingsaccount that he maintains with the same bank solely in his name. If ABCBank were closed, XYZ Corporation could claim P250,000 from PDIC.The P250,000 in the joint account would be presumed to belong entirelyto XYZ Corporation.

IN CASE ONE OF THE CO-DEPOSITORS IN A JOINT “AND/OR” OR “OR” ACCOUNTHAS AN OBLIGATION TO THE CLOSED BANK COVERED BY A HOLD-OUTAGREEMENT (I.E., A SECURITY ARRANGEMENT WHEREBY THE OBLIGATION ISSECURED BY THE ACCOUNT), THE OBLIGATION SECURED BY THE AGREEMENTSHALL BE DEDUCTED FROM THE BALANCE OF THE JOINT ACCOUNTREGARDLESS OF THE FACT THAT ONLY ONE OF THE CO-DEPOSITORS ISINDEBTED TO THE BANK.

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Example: Pedro and Mario have P200,000 in a joint “and/or” savingsaccount with ABC Bank. Pedro borrowed P50,000 from the bank andsecured it with a hold-out on the joint “and/or” savings account. If ABCBank were closed, Pedro and Mario could each claim only P75,000 fromthe PDIC.

IN CASE THE DEPOSIT IS A JOINT “AND” ACCOUNT, THE OBLIGATION SHALL BEDEDUCTED ONLY FROM THE SHARE OF THE INDEBTED CO-DEPOSITOR UNLESSTHE OTHER CO-DEPOSITOR IS HIMSELF A CO-SIGNATORY TO THE HOLD-OUTAGREEMENT.

Example: If the account in the immediately preceding problem were ajoint “and” account, Pedro could claim only P50,000 from the PDIC. Mariocould claim P100,000.

(e) Where the deposit is not covered by a hold-out agreement, theobligation shall be deducted only from the share of the indebted co-depositor regardless of whether the deposit is a joint “and”, “or”, or“and/or” account.

Mode of payment (Sec. 14)Concept of transferred deposit (Sec. 4[h])

SECTION 4 [H] – THE TERM “TRANSFER DEPOSIT” MEANS A DEPOSIT IN ANINSURED BANK MADE AVAILABLE TO A DEPOSITOR BY THE CORPORATION ASPAYMENT OF INSURED DEPOSIT OF SUCH DEPOSITOR IN A CLOSED BANK ANDASSUMED BY ANOTHER INSURED BANK.

Effect of payment of insured deposit (Secs. 15 and 16[b])

It (i) discharges the PDIC from any further liability to the depositor, and (ii)subrogates the PDIC to all the rights of the depositor against the closedbank to the extent of such payment.

Payments of insured deposits as preferred credit under Art. 2244, Civil Code(Sec. 15)

All payments by the PDIC of insured deposits in closed banks partake ofthe nature of public funds, as such, must be considered a preferred creditsimilar to taxes due to the National Government in the order of preferenceunder Article 2244 of the NCC.

Failure of depositor to claim insured deposit (Sec. 16[e]); Is there a prescriptiveperiod for the filing of claims with the PDIC by the depositors of a closedbank? (Sec. 16[e])

Yes. A depositor of a closed bank must file his claim with the PDIC within2 years from actual takeover of the closed bank by PDIC. If he does not,all his rights against the PDIC in respect of the insured deposits shall bebarred. However, all the rights of the depositor against the closed bank

Comment [WU17]: It is a deposit in an insuredbank made available to a depositor by the PDIC aspayment of the insured deposit of such depositor in aclosed bank and assumed by another insured bank.By paying its liabilities to depositors in this manner,the PDIC hopes to persuade these depositors to keeptheir savings in banks where such funds could be lentout, rather than hoarded and kept out of the bankingsystem

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and its shareholders or the receivership estate to which PDIC may havebecome subrogated shall thereupon revert to the depositor

Examination of banks and deposit accounts (Sec. 8, Paragraph 8, as amended bySec. 5, RA 9576)

SECTION 8.THE CORPORATION AS A CORPORATE BODY SHALL HAVE THEPOWER - EIGHTH – TO CONDUCT EXAMINATION OF BANKS WITH PRIORAPPROVAL OF THE MONETARY BOARD: PROVIDED, THAT NO EXAMINATION CANBE CONDUCTED WITHIN TWELVE (12) MONTHS FROM THE LAST EXAMINATIONDATE: PROVIDED, HOWEVER, THAT THE CORPORATION MAY, IN COORDINATIONWITH THE BANGKO SENTRAL, CONDUCT A SPECIAL EXAMINATION AS THEBOARD OF DIRECTORS, BY AN AFFIRMATIVE VOTE OF A MAJORITY OF ALL OFITS MEMBERS, IF THERE IS A THREATENED OR IMPENDING CLOSURE OF ABANK; PROVIDED, FURTHER, THAT, NOTWITHSTANDING THE PROVISIONS OFREPUBLIC ACT NO. 1405, AS AMENDED, REPUBLIC ACT NO. 6426, ASAMENDED, REPUBLIC ACT NO. 8791, AND OTHER LAWS, THE CORPORATIONAND/OR THE BANGKO SENTRAL, MAY INQUIRE INTO OR EXAMINE DEPOSITACCOUNTS AND ALL INFORMATION RELATED THERETO IN CASE THERE IS AFINDING OF UNSAFE OR UNSOUND BANKING PRACTICE; PROVIDED, FINALLY,THAT TO AVOID OVERLAPPING OF EFFORTS, THE EXAMINATION SHALLMAXIMIZE THE EFFICIENT USE OF THE RELEVANT REPORTS, INFORMATION, ANDFINDINGS OF THE BANGKO SENTRAL, WHICH IT SHALL MAKE AVAILABLE TO THECORPORATION; (AS AMENDED BY R.A. 9302, 12 AUGUST 2004, R.A. 9576,29APRIL 2009)

Other powers of PDIC (Secs. 8, 9[f], 10[b] and 11)

SECTION 9[F]. THE CORPORATION SHALL UNDERWRITE OR ADVANCELITIGATION COSTS AND EXPENSES, INCLUDING LEGAL FEES AND OTHEREXPENSES OF EXTERNAL COUNSEL, OR PROVIDE LEGAL ASSISTANCE TO,DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS OF THE CORPORATION INCONNECTION WITH ANY CIVIL, CRIMINAL, ADMINISTRATIVE OR ANY OTHERACTION OR PROCEEDING, TO WHICH SUCH DIRECTOR, OFFICER, EMPLOYEE ORAGENT IS MADE A PARTY BY REASON OF, OR IN CONNECTION WITH, THEEXERCISE OF AUTHORITY OR PERFORMANCE OF FUNCTIONS AND DUTIESUNDER THIS ACT: PROVIDED, THAT SUCH LEGAL PROTECTION SHALL NOTAPPLY TO ANY CIVIL, CRIMINAL, ADMINISTRATIVE OR ANY ACTION ORPROCEEDING THAT MAY BE INITIATED BY THE CORPORATION, IN WHATEVERCAPACITY, AGAINST SUCH DIRECTOR, OFFICER, EMPLOYEE ORAGENT:PROVIDED, FURTHER, THAT DIRECTORS, OFFICERS, EMPLOYEES ORAGENTS WHO SHALL RESIGN, RETIRE, TRANSFER TO ANOTHER AGENCY OR BESEPARATED FROM THE SERVICE, SHALL CONTINUE TO BE PROVIDED WITHSUCH LEGAL PROTECTION IN CONNECTION WITH ANY ACT DONE OR OMITTEDTO BE DONE BY THEM IN GOOD FAITH DURING THEIR TENURE OR EMPLOYMENTWITH THE CORPORATION: PROVIDED, FINALLY, THAT IN THE EVENT OF ASETTLEMENT OR COMPROMISE, INDEMNIFICATION SHALL BE PROVIDED ONLY INCONNECTION WITH SUCH MATTERS COVERED BY THE SETTLEMENT AS TOWHICH THE CORPORATION IS ADVISED BY COUNSEL THAT THE PERSONS TO BEINDEMNIFIED DID NOT COMMIT ANY NEGLIGENCE OR MISCONDUCT. (AS ADDEDBY R.A. 9302, 12 AUGUST 2004)

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SECTION 10[B]. HE CORPORATION AS RECEIVER SHALL CONTROL, MANAGEAND ADMINISTER THE AFFAIRS OF THE CLOSED BANK. EFFECTIVE IMMEDIATELYUPON TAKEOVER AS RECEIVER OF SUCH BANK, THE POWERS, FUNCTIONS ANDDUTIES, AS WELL AS ALL ALLOWANCES, REMUNERATIONS AND PERQUISITES OFTHE DIRECTORS, OFFICERS, AND STOCKHOLDERS OF SUCH BANK ARESUSPENDED, AND THE RELEVANT PROVISIONS OF THE ARTICLES OFINCORPORATION AND BY-LAWS OF THE CLOSED BANK ARE LIKEWISE DEEMEDSUSPENDED. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

THE ASSETS OF THE CLOSED BANK UNDER RECEIVERSHIP SHALL BE DEEMEDIN CUSTODIA LEGIS IN THE HANDS OF THE RECEIVER. FROM THE TIME THECLOSED BANK IS PLACED UNDER SUCH RECEIVERSHIP, ITS ASSETS SHALL NOTBE SUBJECT TO ATTACHMENT, GARNISHMENT, EXECUTION, LEVY OR ANYOTHER COURT PROCESSES. THEREFORE, A JUDGE, OFFICER OF THE COURTOR ANY PERSON WHO SHALL ISSUE, ORDER, PROCESS OR CAUSE THEISSUANCE OR IMPLEMENTATION OF THE WRIT OF GARNISHMENT, LEVY,ATTACHMENT OR EXECUTION SHALL BE LIABLE UNDER SECTION 21HEREOF. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

SECTION 11. IN ALL CASES OR ACTIONS FILED BY THE CORPORATION ASRECEIVER FOR THE RECOVERY OF, OR INVOLVING ANY ASSET OF THE CLOSEDBANK, PAYMENT OF ALL DOCKET AND OTHER COURT FEES SHALL BE DEFERREDUNTIL THE ACTION IS TERMINATED WITH FINALITY. ANY SUCH FEES SHALLCONSTITUTE AS A FIRST LIEN ON ANY JUDGMENT IN FAVOR OF THE CLOSEDBANK OR IN CASE OF UNFAVORABLE JUDGMENT, SUCH FEES SHALL BE PAID ASADMINISTRATIVE EXPENSES DURING THE DISTRIBUTION OF THE ASSETS OF THECLOSED BANK. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

Prohibition against splitting of deposits (Sec. 21[f][5], as amended by Sec. 11, RA9576)

SECTION 21. [F][5]. THE PENALTY OF PRISION MAYOR OR A FINE OF NOTLESS THAN FIFTY THOUSAND PESOS (P50,000.00) BUT NOT MORE THAN TWOMILLION PESOS (P2,000,000.00), OR BOTH, AT THE DISCRETION OF THECOURT, SHALL BE IMPOSED UPON ANY DIRECTOR, OFFICER, EMPLOYEE ORAGENT OF A BANK: (AS AMENDED BY R.A. 9302, 12 AUGUST 2004) SPLITTINGOF DEPOSITS OR CREATION OF FICTITIOUS LOANS OR DEPOSIT ACCOUNTS. (ASADDED BY R.A. 9302, 12 AUGUST 2004)

SPLITTING OF DEPOSITS OCCURS WHENEVER A DEPOSIT ACCOUNT WITH ANOUTSTANDING BALANCE OF MORE THAN THE STATUTORY MAXIMUM AMOUNTOF INSURED DEPOSIT MAINTAINED UNDER THE NAME OF NATURAL ORJURIDICAL PERSONS IS BROKEN DOWN AND TRANSFERRED INTO TWO (2) ORMORE ACCOUNTS IN THE NAME/S OF NATURAL OR JURIDICAL PERSONS ORENTITIES WHO HAVE NO BENEFICIAL OWNERSHIP ON TRANSFERRED DEPOSITSIN THEIR NAMES WITHIN ONE HUNDRED TWENTY (120) DAYS IMMEDIATELYPRECEDING OR DURING A BANKDECLARED BANK HOLIDAY, OR IMMEDIATELYPRECEDING A CLOSURE ORDER ISSUED BY THE MONETARY BOARD OF THEBANGKO SENTRAL NG PILIPINAS FOR THE PURPOSE OF AVAILING OF THEMAXIMUM DEPOSIT INSURANCE COVERAGE; (AS ADDED BY R.A. 9302, 12AUGUST 2004; AS AMENDED BY R.A. 9576, 29 APRIL 2009)

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Prohibition against issuance of TROs, etc. (Sec. 22)

SECTION 22. NO COURT, EXCEPT THE COURT OF APPEALS, SHALL ISSUEANY TEMPORARY RESTRAINING ORDER, PRELIMINARY INJUNCTION ORPRELIMINARY MANDATORY INJUNCTION AGAINST THE CORPORATION FOR ANYACTION UNDER THIS ACT. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

THIS PROHIBITION SHALL APPLY IN ALL CASES, DISPUTES OR CONTROVERSIESINSTITUTED BY A PRIVATE PARTY, THE INSURED BANK, OR ANY SHAREHOLDEROF THE INSURED BANK. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

THE SUPREME COURT MAY ISSUE A RESTRAINING ORDER OR INJUNCTIONWHEN THE MATTER IS OF EXTREME URGENCY INVOLVING A CONSTITUTIONALISSUE, SUCH THAT UNLESS A TEMPORARY RESTRAINING ORDER IS ISSUED,GRAVE INJUSTICE AND IRREPARABLE INJURY WILL ARISE. THE PARTY APPLYINGFOR THE ISSUANCE OF A RESTRAINING ORDER OR INJUNCTION SHALL FILE ABOND IN AN AMOUNT TO BE FIXED BY THE SUPREME COURT, WHICH BONDSHALL ACCRUE IN FAVOR OF THE CORPORATION IF THE COURT SHOULDFINALLY DECIDE THAT THE APPLICANT WAS NOT ENTITLED TO THE RELIEFSOUGHT.(AS ADDED BY R.A. 9302, 12 AUGUST 2004)

ANY RESTRAINING ORDER OR INJUNCTION ISSUED IN VIOLATION OF THISSECTION IS VOID AND OF NO FORCE AND EFFECT AND ANY JUDGE WHO HASISSUED THE SAME SHALL SUFFER THE PENALTY OF SUSPENSION OF AT LEASTSIXTY (60) DAYS WITHOUT PAY. (AS ADDED BY R.A. 9302, 12 AUGUST 2004)

3.2 Case

Nature of liquidation proceedings

Pacific Banking Corporation Employees Organization, et al. vs. CA, et al.,G.R. 109373, March 20, 1995.

ISSUE: The principal question involved is the same: whether a petition for liquidation under§29 of Rep. Act No. 265, otherwise known as the Central Bank Act, is a special proceedingor an ordinary civil action.

[This is relevant to determine the proper period to be followed in making an appeal.] If itwere a special proceeding, the period for appealing from any decision or final order renderedtherein is 30 days [and the party appealing must, in addition to a notice of appeal, file withthe trial court a record on appeal in order to perfect his appeal]. If it were a liquidationproceeding, the period for appealing from any decision or final order rendered therein is 15days since a liquidation proceeding is an ordinary action.

HELD: Considering this distinction, a petition for liquidation of an insolvent corporation shouldbe classified a special proceeding and not an ordinary action. Such petition does not seek

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the enforcement or protection of a right nor the prevention or redress of a wrong against aparty. It does not pray for affirmative relief for injury arising from a party's wrongful act oromission nor state a cause of action that can be enforced against any person.

What it seeks is merely a declaration by the trial court of the corporation's insolvency so thatits creditors may be able to file their claims in the settlement of the corporation's debts andobligations. Put in another way, the petition only seeks a declaration of the corporation'sdebts and obligations. Put in another way, the petition only seeks a declaration of thecorporation's state of insolvency and the concomitant right of creditors and the order ofpayment of their claims in the disposition of the corporation's assets.

Contrary to the rulings of the Fourteenth Division, liquidation proceedings do not resemblepetitions for interpleader. Rather, a liquidation proceeding resembles the proceeding for thesettlement of state of deceased persons under Rules 73 to 91 of the Rules of Court.

The two have a common purpose: the determination of all the assets and the payment of allthe debts and liabilities of the insolvent corporation or the estate. The Liquidator and theadministrator or executor are both charged with the assets for the benefit of the claimants. Inboth instances, the liability of the corporation and the estate is not disputed. The court'sconcern is with the declaration of creditors and their rights and the determination of theirorder of payment

As in the settlement of estates, multiple appeals are allowed in proceedings for liquidation ofan insolvent corporation. As the Fifth Division of the Court of Appeals, quoting the Liquidator,correctly noted:

A liquidation proceeding is a single proceeding which consists of a number of casesproperly classified as "claims." It is basically a two-phased proceeding. The firstphase is concerned with the approval and disapproval of claims. Upon the approvalof the petition seeking the assistance of the proper court in the liquidation of a closeentity, all money claims against the bank are required to be filed with the liquidationcourt. This phase may end with the declaration by the liquidation court that the claimis not proper or without basis. On the other hand, it may also end with the liquidationcourt allowing the claim. In the latter case, the claim shall be classified whether it isordinary or preferred, and thereafter included Liquidator. In either case, the orderallowing or disallowing a particular claim is final order, and may be appealed by theparty aggrieved thereby.

The second phase involves the approval by the Court of the distribution planprepared by the duly appointed liquidator. The distribution plan specifies in detail thetotal amount available for distribution to creditors whose claim were earlier allowed.The Order finally disposes of the issue of how much property is available fordisposal. Moreover, it ushers in the final phase of the liquidation proceeding —payment of all allowed claims in accordance with the order of legal priority and theapproved distribution plan.

Verily, the import of the final character of an Order of allowance or disallowance of aparticular claim cannot be overemphasized. It is the operative fact that constitutes aliquidation proceeding a "case where multiple appeals are allowed by law." Theissuance of an Order which, by its nature, affects only the particular claims involved,and which may assume finality if no appeal is made therefrom, ipso facto creates asituation where multiple appeals are allowed.

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A liquidation proceeding is commenced by the filing of a single petition by theSolicitor General with a court of competent jurisdiction entitled, "Petition forAssistance in the Liquidation of e.g., Pacific Banking Corporation. All claims againstthe insolvent are required to be filed with the liquidation court. Although the claimsare litigated in the same proceeding, the treatment is individual. Each claim is heardseparately. And the Order issued relative to a particular claim applies only to saidclaim, leaving the other claims unaffected, as each claim is considered separate anddistinct from the others. Obviously, in the event that an appeal from an Orderallowing or disallowing a particular claim is made, only said claim is affected, leavingthe others to proceed with their ordinary course. In such case, the original records ofthe proceeding are not elevated to the appellate court. They remain with theliquidation court. In lieu of the original record, a record of appeal is instead requiredto be prepared and transmitted to the appellate court.

Inevitably, multiple appeals are allowed in liquidation proceedings. Consequently, arecord on appeal is necessary in each and every appeal made. Hence, the period toappeal therefrom should be thirty (30) days, a record on appeal being required.(Record pp. 162-164).

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IV

LAW ON SECRECY OF BANK DEPOSITSRA 1405 (1955), as amended by PD 1792 (1981), RA 6832 (1990) and RA 7653 (1993);

see also Sec. 6 (f), NIRC, and Sec. 15 (8), RA 6770 (Ombudsman Act of 1989);Sec. 11, RA 9160 (Anti-Money Laundering Act of 2001), as amended by

Sec. 8 of RA 9194 (2003); and RA 9576 (2009).

4.1 Topics

Purpose

SECTION 1. IT IS HEREBY DECLARED TO BE THE POLICY OF THE GOVERNMENT TOGIVE ENCOURAGEMENT TO THE PEOPLE TO DEPOSIT THEIR MONEY IN BANKINGINSTITUTIONS AND TO DISCOURAGE PRIVATE HOARDING SO THAT THE SAME MAYBE PROPERLY UTILIZED BY BANKS IN AUTHORIZED LOANS TO ASSIST IN THEECONOMIC DEVELOPMENT OF THE COUNTRY.

Prohibited acts

SECTION 2. ALL DEPOSITS OF WHATEVER NATURE WITH BANKS OR BANKINGINSTITUTIONS IN THE PHILIPPINES INCLUDING INVESTMENTS IN BONDS ISSUED BYTHE GOVERNMENT OF THE PHILIPPINES, ITS POLITICAL SUBDIVISIONS AND ITSINSTRUMENTALITIES, ARE HEREBY CONSIDERED AS OF AN ABSOLUTELYCONFIDENTIAL NATURE AND MAY NOT BE EXAMINED, INQUIRED OR LOOKED INTO BYANY PERSON, GOVERNMENT OFFICIAL, BUREAU OR OFFICE, EXCEPT UPONWRITTEN PERMISSION OF THE DEPOSITOR, OR IN CASES OF IMPEACHMENT, ORUPON ORDER OF A COMPETENT COURT IN CASES OF BRIBERY OR DERELICTION OFDUTY OF PUBLIC OFFICIALS, OR IN CASES WHERE THE MONEY DEPOSITED ORINVESTED IS THE SUBJECT MATTER OF THE LITIGATION.

SECTION 3. IT SHALL BE UNLAWFUL FOR ANY OFFICIAL OR EMPLOYEE OF ABANKING INSTITUTION TO DISCLOSE TO ANY PERSON OTHER THAN THOSEMENTIONED IN SECTION TWO HEREOF ANY INFORMATION CONCERNING SAIDDEPOSITS.

Exceptions

SECTION 2. XXX EXCEPT UPON—1. WRITTEN PERMISSION OF THE DEPOSITOR, OR

2. IN CASES OF IMPEACHMENT, OR

3. UPON ORDER OF A COMPETENT COURT IN CASES OF BRIBERY ORDERELICTION OF DUTY OF PUBLIC OFFICIALS, OR

4. IN CASES WHERE THE MONEY DEPOSITED OR INVESTED IS THE SUBJECTMATTER OF THE LITIGATION.

SEC. 6, NIRC. (F) AUTHORITY OF THE COMMISSIONER TO INQUIRE INTO BANKDEPOSIT ACCOUNTS. - NOTWITHSTANDING ANY CONTRARY PROVISION OFREPUBLIC ACT NO. 1405 AND OTHER GENERAL OR SPECIAL LAWS, THECOMMISSIONER IS HEREBY AUTHORIZED TO INQUIRE INTO THE BANK DEPOSITSOF:(1) A DECEDENT TO DETERMINE HIS GROSS ESTATE; AND(2) ANY TAXPAYER

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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 HISTAX LIABILITY.IN CASE A TAXPAYER FILES AN APPLICATION TO COMPROMISE THEPAYMENT OF HIS TAX LIABILITIES ON HIS CLAIM THAT HIS FINANCIAL POSITIONDEMONSTRATES A CLEAR INABILITY TO PAY THE TAX ASSESSED, HIS APPLICATIONSHALL NOT BE CONSIDERED UNLESS AND UNTIL HE WAIVES IN WRITING HISPRIVILEGE UNDER REPUBLIC ACT NO. 1405 OR UNDER OTHER GENERAL ORSPECIAL LAWS, AND SUCH WAIVER SHALL CONSTITUTE THE AUTHORITY OF THECOMMISSIONER TO INQUIRE INTO THE BANK DEPOSITS OF THE TAXPAYER.

SECTION 15, RA 6770. POWERS, FUNCTIONS AND DUTIES. — THE OFFICE OF THEOMBUDSMAN SHALL HAVE THE FOLLOWING POWERS, FUNCTIONS AND DUTIES: (8)ADMINISTER OATHS, ISSUE SUBPOENA AND SUBPOENA DUCES TECUM, AND TAKETESTIMONY IN ANY INVESTIGATION OR INQUIRY, INCLUDING THE POWER TOEXAMINE AND HAVE ACCESS TO BANK ACCOUNTS AND RECORDS;

SEC. 11, RA 9160. 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 OTHERLAWS, THE AMLC MAY INQUIRE INTO OR EXAMINE ANY PARTICULAR DEPOSIT ORINVESTMENT WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIALINSTITUTION UPON ORDER OF ANY COMPETENT COURT IN CASES OF VIOLATION OFTHIS ACT, WHEN IT HAS BEEN ESTABLISHED THAT THERE IS PROBABLE CAUSETHAT THE DEPOSITS OR INVESTMENTS ARE RELATED TO AN UNLAWFUL ACTIVITIESAS DEFINED IN SECTION 3(I) HEREOF OR A MONEY LAUNDERING OFFENSE UNDERSECTION 4 HEREOF, EXCEPT THAT NO COURT ORDER SHALL BE REQUIRED INCASES INVOLVING UNLAWFUL ACTIVITIES DEFINED IN SECTIONS 3(I)1, (2) AND(12).

TO ENSURE COMPLIANCE WITH THIS ACT, THE BANGKO SENTRAL NG PILIPINAS(BSP) MAY INQUIRE INTO OR EXAMINE ANY DEPOSIT OF INVESTMENT WITH ANYBANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION WHEN THEEXAMINATION IS MADE IN THE COURSE OF A PERIODIC OR SPECIAL EXAMINATION,IN ACCORDANCE WITH THE RULES OF EXAMINATION OF THE BSP.

SEC. 8 (8), RA 3591. — EIGHTH - TO CONDUCT EXAMINATION OF BANKS WITHPRIOR APPROVAL OF THE MONETARY BOARD: PROVIDED, THAT NO EXAMINATIONCAN BE CONDUCTED WITHIN TWELVE (12) MONTHS FROM THE LAST EXAMINATIONDATE: PROVIDED, HOWEVER, THAT THE CORPORATION MAY, IN COORDINATIONWITH THE BANGKO SENTRAL, CONDUCT A SPECIAL EXAMINATION AS THE BOARDOF DIRECTORS, BY AN AFFIRMATIVE VOTE OF A MAJORITY OF ALL OF ITS MEMBERS,IF THERE IS A THREATENED OR IMPENDING CLOSURE OF ABANK: PROVIDED, FURTHER, THAT NOTWITHSTANDING THE PROVISIONS OFREPUBLIC ACT NO. 1405, AS AMENDED, REPUBLIC ACT NO. 6426, AS AMENDED,REPUBLIC ACT NO. 8791, AND OTHER LAWS, THE CORPORATION AND/OR BANGKOSENTRAL MAY INQUIRE INTO OR EXAMINE DEPOSIT ACCOUNTS AND ALLINFORMATION RELATED THERETO IN CASE THERE IS A FINDING OF UNSAFE ORUNSOUND BANKING PRACTICE: PROVIDED, FINALLY, THAT TO AVOID OVERLAPPINGOF EFFORTS, THE EXAMINATION SHALL MAXIMIZE THE EFFICIENT USE OF THERELEVANT REPORTS, INFORMATION, AND FINDINGS OF THE BANGKO SENTRAL,WHICH IT SHALL MAKE AVAILABLE TO THE CORPORATION.

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Garnishment of depositsSafety deposit box

4.2 Cases

Unexplained wealth exception

PNB vs. Gancayco,G.R. No. L-18343, September 30, 1965

ISSUE: The principal question presented in this case is whether a bank can be compelled todisclose the records of accounts of a depositor who is under investigation for unexplainedwealth.

Defendants cite the Anti-Graft and Corrupt Practices Act (Republic Act No. 3019) in supportof their claim of authority—

SEC. 8. Dismissal due to unexplained wealth. — If in accordance with the provisionsof RA 1379, a public official has been found to have acquired during his incumbency,whether in his name or in the name of other persons, an amount of property and/ormoney manifestly out of proportion to his salary and to his other lawful income, thatfact shall be a ground for dismissal or removal. Properties in the name of the spouseand unmarried children of such public official may be taken into consideration, whentheir acquisition through legitimate means cannot be satisfactorily shown. Bankdeposits shall be taken into consideration in the enforcement of this section,notwithstanding any provision of law to the contrary.

HELD: YES; THE BANK MAY BE COMPELLED TO DISCLOSE SUCH BANK RECORDS.

RA 1405 and RA 3019 [with respect to secrecy of bank accounts] are so repugnant to eachother than no reconciliation is possible. Thus, while Republic Act No. 1405 provides thatbank deposits are "absolutely confidential ... and [therefore] may not be examined, inquiredor looked into," except in those cases enumerated therein, the Anti-Graft Law directs inmandatory terms that bank deposits "shall be taken into consideration in the enforcement ofthis section, notwithstanding any provision of law to the contrary." The only conclusionpossible is that section 8 of the Anti-Graft Law is intended to amend section 2 ofRepublic Act No. 1405 by providing additional exception to the rule against thedisclosure of bank deposits.

With regard to the claim that disclosure would be contrary to the policy making bankdeposits confidential, it is enough to point out that while section 2 of Republic Act 1405declares bank deposits to be "absolutely confidential," it nevertheless allows such disclosurein the following instances: (1) Upon written permission of the depositor; (2) In cases ofimpeachment; (3) Upon order of a competent court in cases of bribery or dereliction of dutyof public officials; (4) In cases where the money deposited is the subject matter of thelitigation. Cases of unexplained wealth are similar to cases of bribery or dereliction ofduty and no reason is seen why these two classes of cases cannot be excepted fromthe rule making bank deposits confidential.

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Garnishment of deposit

China Banking vs. Ortega,G.R. L-34964, January 31, 1973

ISSUE: Whether or not a banking institution may validly refuse to comply with a court processgarnishing the bank deposit of a judgment debtor, by invoking the provisions of Republic ActNo. 1405.

The petitioners argue that the disclosure of the information required by the court does not fallwithin any of the four (4) exceptions enumerated in Section 2, and that if the questionedorders are complied with Tan Kim Liong may be criminally liable under Section 5 and thebank exposed to a possible damage suit by B & B Forest Development Corporation.Specifically referring to this case, the position of the petitioners is that the bankdeposit of judgment debtor B & B Forest Development Corporation cannot be subjectto garnishment to satisfy a final judgment against it in view of the aforequotedprovisions of law.

HELD: A BANK MAY NOT REFUSE TO COMPLY WITH ORDER OF GARNISHMENT SIMPLY BY INVOKINGTHE SECRECY OF BANK ACCOUNTS UNDER RA 1405.

The lower court, in issuing an order of garnishment, did not order an examination of orinquiry into the deposit of B & B Forest Development Corporation, as contemplated inthe law. It merely required Tan Kim Liong to inform the court whether or not the defendant B& B Forest Development Corporation had a deposit in the China Banking Corporation onlyfor purposes of the garnishment issued by it, so that the bank would hold the same intactand not allow any withdrawal until further order. Indeed there is no real inquiry in such acase, and if the existence of the deposit is disclosed the disclosure is purely incidental to theexecution process.

It will be noted from the discussion of the conference committee report on Senate Bill No.351 and House Bill No. 3977, which later became Republic Act 1405, that it was not theintention of the lawmakers to place bank deposits beyond the reach of execution to satisfy afinal judgment. It is hard to conceive that it was ever within the intention of Congress toenable debtors to evade payment of their just debts, even if ordered by the Court, throughthe expedient of converting their assets into cash and depositing the same in a bank.

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G.R. 84526, January 28, 1991.

ISSUE: Whether or not a bank violates Republic Act No. 1405, otherwise known as theSecrecy of Bank Deposits Act, when it allowes the sheriff to garnish the deposit of one of itsdepositors.

HELD: NO VIOLATION

The Court in China Banking Corporation vs. Ortega had the occasion to dispose of thisissue when it stated, thus: t is clear from the discussion of the conference committee reporton Senate Bill No. 351 and House Bill No. 3977, which later became Republic Act 1405, thatthe prohibition against examination of or inquiry into a bank deposit under Republic Act 1405does not preclude its being garnished to insure satisfaction of a judgment. Indeed there is noreal inquiry in such a case, and if existence of the deposit is disclosed the disclosure ispurely incidental to the execution process. It is hard to conceive that it was ever within theintention of Congress to enable debtors to evade payment of their just debts, even if orderedby the Court, through the expedient of converting their assets into cash and depositing thesame in a bank.

Since there is no evidence that the petitioners themselves divulged the information that theprivate respondent had an account with the petitioner bank and it is undisputed that the saidaccount was properly the object of the notice of garnishment and writ of execution carriedout by the deputy sheriff, a duly authorized officer of the court, we can not therefore hold thepetitioners liable under R.A. 1405.

Concealment of illegally acquired property

Banco Filipino vs. Purisima,

G.R. No. L-56429, May 28, 1988

ISSUE: WHETHER OR NOT INQUIRY MAY BE MADE WITH RESPECT TO THE BANK ACCOUNTS OF

PERSONS OTHER THAN THE PERSON UNDER INVESTIGATION UNDER THE ANTI-GRAFT ANDCORRUPT PRACTICES ACT?

HELD: INQUIRY MAY EXTEND TO BANK ACCOUNTS OF PEOPLE OTHER THAN PERSON BEINGINVESTIGATED; ACCOUNTS OF RESPONDENTS’ SPOUSE, ASCENDANTS, DESCENDANTS, RELATIVES,OR ANY OTHER PERSONS MAY BE INQUIRED INTO.

The inquiry into illegally acquired property — or property NOT "legitimately acquired" —extends to cases where such property is concealed by being held by or recorded in thename of other persons. This proposition is made clear by R.A. No. 3019 which quitecategorically states that the term, "legitimately acquired property of a public officer oremployee shall not include property unlawfully acquired by the respondent, but its ownershipis concealed by its being recorded in the name of, or held by, respondent's spouse,ascendants, descendants, relatives or any other persons."

To sustain the petitioner's theory, and restrict the inquiry only to property held by or in thename of the government official or employee, or his spouse and unmarried children is

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unwarranted in the light of the provisions of the statutes in question, and would makeavailable to persons in government who illegally acquire property an easy and fool-proofmeans of evading investigation and prosecution; all they would have to do would be tosimply place the property in the possession or name of persons other than their spouse andunmarried children. This is an absurdity that we will not ascribe to the lawmakers.

Mellon Bank vs. Magsino, et al.,G.R. No. 71479, October 18, 1990

FACTS: MELLON bank inadvertently caused the transfer of US$1,000,000.00 [instead of onlyUS$1,000.00] into Victoria Javier’s account. Victoria Javier, transferred the wrongfullytransferred amount into several new accounts. Eventually, the amount was converted intoseveral cashier’s checks, which Javier used to pay several of her obliglations. Mellon Banknow wants to inquire into the bank accounts of the people who transacted with Javier [andwho deposited the cashier’s checks received from her]; it filed Civil Case No. 26899.

ISSUE: WOULD THE INQUIRY INTO THE BANKS ACCOUNTS OF PEOPLE WHO WERE NOTRESPONSIBLE FOR THE ‘ILLEGAL ACQUISITION’ VIOLATE THE BANK SECRECY LAW?

HELD: NO.

Section 2 of RA 1405 allows the disclosure of bank deposits in cases where the moneydeposited is the subject matter of the litigation. Inasmuch as Civil Case No. 26899 is aimedat recovering the amount converted by the Javiers for their own benefit, necessarily, aninquiry into the whereabouts of the illegally acquired amount extends to whatever isconcealed by being held or recorded in the name of persons other than the one responsiblefor the illegal acquisition.

Case pending in court required before Ombudsman can examine bank accounts

Marquez vs. Desierto, et al.,G.R. 135882, June 27, 2001.

The order of the Ombudsman to produce for in camera inspection the subject accounts withthe Union Bank of the Philippines, Julia Vargas Branch, is based on a pending investigationat the Office of the Ombudsman against Amado Lagdameo, et. al. for violation of R.A. No.3019, Sec. 3 (e) and (g) relative to the Joint Venture Agreement between the Public EstatesAuthority and AMARI.

We rule that before an in camera inspection may be allowed, there must be a pending casebefore a court of competent jurisdiction. Further, the account must be clearly identified, theinspection limited to the subject matter of the pending case before the court of competentjurisdiction. The bank personnel and the account holder must be notified to be presentduring the inspection, and such inspection may cover only the account identified in thepending case.

In the case at bar, there is yet no pending litigation before any court of competent authority.What is existing is an investigation by the Office of the Ombudsman. In short, what the officeof the ombudsman would wish to do is to fish for additional evidence to formally charge

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Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending case incourt which would warrant the opening of the bank account for inspection.

Zone of privacy are recognized and protected in our laws. The Civil Code provides that"[e]very person shall respect the dignity, personality, privacy and peace of mind of hisneighbors and other persons" and punishes as actionable torts several acts for meddlingand prying into the privacy of another. It also holds public officer or employee or any privateindividual liable for damages for any violation of the rights and liberties of another person,and recognizes the privacy of letters and other private communications. The Revised PenalCode makes a crime of the violation of secrets by an officer, revelation of trade andindustrial secrets, and trespass to dwelling. Invasion of privacy is an offense in special lawslike the Anti-Wiretapping Law, the Secrecy of Bank Deposits Act, and the IntellectualProperty Code.

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4.3 Related statutes

(a) Foreign Currency Deposit Act - RA 6426 (1972), as amended by PD 1035 (1976),PD 1246 (1977), PD 1453 (1978), and Sec. 11, RA 9160, as amended by Sec. 8of RA 9194 (2003);

SECTION 8, FCDA. SECRECY OF FOREIGN CURRENCY DEPOSITS. – ALL FOREIGNCURRENCY 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 ABSOLUTELYCONFIDENTIAL NATURE AND, EXCEPT UPON THE WRITTEN PERMISSION OF THEDEPOSITOR, IN NO INSTANCE SHALL FOREIGN CURRENCY DEPOSITS BE EXAMINED,INQUIRED OR LOOKED INTO BY ANY PERSON, GOVERNMENT OFFICIAL, BUREAU OROFFICE WHETHER JUDICIAL OR ADMINISTRATIVE OR LEGISLATIVE, OR ANY OTHERENTITY WHETHER PUBLIC OR PRIVATE; PROVIDED, HOWEVER, THAT SAID FOREIGNCURRENCY DEPOSITS SHALL BE EXEMPT FROM ATTACHMENT, GARNISHMENT, ORANY OTHER ORDER OR PROCESS OF ANY COURT, LEGISLATIVE BODY,GOVERNMENT AGENCY OR ANY ADMINISTRATIVE BODY WHATSOEVER. (ASAMENDED BY PD NO. 1035, AND FURTHER AMENDED BY PD NO. 1246, PROM.NOV. 21, 1977.)

SEC. 11. AUTHORITY TO INQUIRE INTO BANK DEPOSITS. -- NOTWITHSTANDING THEPROVISIONS OF REPUBLIC ACT NO. 1405, AS AMENDED, REPUBLIC ACT NO. 6426,AS AMENDED, REPUBLIC ACT NO. 8791, AND OTHER LAWS, THE AMLC MAYINQUIRE INTO OR EXAMINE ANY PARTICULAR DEPOSIT OR INVESTMENT WITH ANYBANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION UPON ORDER OF ANYCOMPETENT COURT IN CASES OF VIOLATION OF THIS ACT, WHEN IT HAS BEENESTABLISHED THAT THERE IS PROBABLE CAUSE THAT THE DEPOSITS ORINVESTMENTS ARE RELATED TO AN UNLAWFUL ACTIVITIES AS DEFINED IN SECTION3(I) HEREOF OR A MONEY LAUNDERING OFFENSE UNDER SECTION 4 HEREOF,EXCEPT THAT NO COURT ORDER SHALL BE REQUIRED IN CASES INVOLVINGUNLAWFUL ACTIVITIES DEFINED IN SECTIONS 3(I)1, (2) AND (12).

TO ENSURE COMPLIANCE WITH THIS ACT, THE BANGKO SENTRAL NG PILIPINAS(BSP) MAY INQUIRE INTO OR EXAMINE ANY DEPOSIT OF INVESTMENT WITH ANYBANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION WHEN THEEXAMINATION IS MADE IN THE COURSE OF A PERIODIC OR SPECIAL EXAMINATION,IN ACCORDANCE WITH THE RULES OF EXAMINATION OF THE BSP.

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Salvacion, et al. vs. Central Bank, et al.,G.R. 94723, August 21, 1997.

FACTS: Salvacion is trying to garnish the dollar accounts of Greg Bartelli to satisfy thejudgment for damages rendered by the RTC of Makati against the latter. [Damages weresought for because Greg Bartelli raped and illegally detained Salvacion]

Issue: China Bank refuses to comply with the writ of execution issued by the RTC of Makatiarguing that Section 11 of Central Bank Circular No. 960 exempts foreign currency depositsfrom attachment, garnishment, or any other order or process of any court, legislative body,government agency or any administrative body whatsoever.

HELD: China Bank must comply with the writ of execution.

If Karen's sad fate had happened to anybody's own kin, it would be difficult for him to fathomhow the incentive for foreign currency deposit could be more important than his child's rightsto said award of damages; in this case, the victim's claim for damages from this alien whohad the gall to wrong a child of tender years of a country where he is a mere visitor. Thisfurther illustrates the flaw in the questioned provisions.

It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when thecountry's economy was in a shambles; when foreign investments were minimal andpresumably, this was the reason why said statute was enacted. But the realities of thepresent times show that the country has recovered economically; and even if not, thequestioned law still denies those entitled to due process of law for being unreasonable andoppressive. The intention of the questioned law may be good when enacted. The law failedto anticipate the iniquitous effects producing outright injustice and inequality such asthe case before us.

In fine, the application of the law depends on the extent of its justice. Eventually, if werule that the questioned Section 113 of Central Bank Circular No. 960 which exempts fromattachment, garnishment, or any other order or process of any court, legislative body,government agency or any administrative body whatsoever, is applicable to a foreigntransient, injustice would result especially to a citizen aggrieved by a foreign guest likeaccused Greg Bartelli. This would negate Article 10 of the New Civil Code which providesthat "in case of doubt in the interpretation or application of laws, it is presumed that thelawmaking body intended right and justice to prevail. "Ninguno non deue enriquecersetortizeramente con dano de otro." Simply stated, when the statute is silent or ambiguous,this is one of those fundamental solutions that would respond to the vehement urge ofconscience. (Padilla vs. Padilla, 74 Phil. 377).

It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would beused as a device by accused Greg Bartelli for wrongdoing, and in so doing, acquitting theguilty at the expense of the innocent.

Call it what it may — but is there no conflict of legal policy here? Dollar against Peso?Upholding the final and executory judgment of the lower court against the Central BankCircular protecting the foreign depositor? Shielding or protecting the dollar deposit of atransient alien depositor against injustice to a national and victim of a crime? This situationcalls for fairness against legal tyranny.

We definitely cannot have both ways and rest in the belief that we have served the ends ofjustice

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(b) Human Security Act – RA 9372 (2007)(i) Judicial authorization to examine bank deposits, accounts, and records

(Sec. 27)

SEC. 27. JUDICIAL AUTHORIZATION REQUIRED TO EXAMINE BANK DEPOSITS,ACCOUNTS, AND RECORDS. - THE PROVISIONS OF REPUBLIC ACT NO. 1405AS AMENDED, TO THE CONTRARY NOTWITHSTANDING, THE JUSTICES OF THECOURT OF APPEALS DESIGNATED AS A SPECIAL COURT TO HANDLE ANTI-TERRORISM CASES AFTER SATISFYING THEMSELVES OF THE EXISTENCE OFPROBABLE 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 OUTLAWEDORGANIZATION, ASSOCIATION, OR GROUP OF PERSONS, MAY AUTHORIZE INWRITING ANY POLICE OR LAW ENFORCEMENT OFFICER AND THE MEMBERSOF HIS/HER TEAM DULY AUTHORIZED IN WRITING BY THE ANTI-TERRORISMCOUNCIL TO:A. EXAMINE, OR CAUSE THE EXAMINATION OF, THE DEPOSITS,

PLACEMENTS, TRUST ACCOUNTS, ASSETS AND RECORDS IN A BANK ORFINANCIAL INSTITUTION; AND

B. GATHER OR CAUSE THE GATHERING OF ANY RELEVANT INFORMATIONABOUT SUCH DEPOSITS, PLACEMENTS, TRUST ACCOUNTS, ASSETS,AND RECORDS FROM A BANK OR FINANCIAL INSTITUTION.

THE BANK OR FINANCIAL INSTITUTION CONCERNED, SHALL NOT REFUSE TOALLOW SUCH EXAMINATION OR TO PROVIDE THE DESIRED INFORMATION, WHENSO, ORDERED BY AND SERVED WITH THE WRITTEN ORDER OF THE COURT OFAPPEALS.

(ii) Application to examine bank deposits, accounts, and records (Sec. 28)

SEC. 28. APPLICATION TO EXAMINE BANK DEPOSITS, ACCOUNTS,AND RECORDS. - THE WRITTEN ORDER OF THE COURT OF APPEALSAUTHORIZING THE EXAMINATION OF BANK DEPOSITS, PLACEMENTS,TRUST ACCOUNTS, ASSETS, AND RECORDS:1. OF A PERSON CHARGED WITH OR SUSPECTED OF THE CRIME OF

TERRORISM OR CONSPIRACY TO COMMIT TERRORISM;2. OF ANY JUDICIALLY DECLARED AND OUTLAWED TERRORIST

ORGANIZATION, ASSOCIATION, OR GROUP OF PERSONS,3. OF ANY MEMBER OF SUCH ORGANIZATION, ASSOCIATION, OR

GROUP OF PERSONS IN A BANK OR FINANCIAL INSTITUTION,

AND THE GATHERING OF ANY RELEVANT INFORMATION ABOUT THESAME FROM SAID BANK OR FINANCIAL INSTITUTION, SHALL ONLY BEGRANTED BY THE AUTHORIZING DIVISION OF THE COURT OF APPEALSUPON AN EX PARTE APPLICATION TO THAT EFFECT OF A POLICE OR OFA LAW ENFORCEMENT OFFICIAL WHO HAS BEEN DULY AUTHORIZED IN

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WRITING TO FILE SUCH EX PARTE APPLICATION BY THE ANTI-TERRORISM COUNCIL CREATED IN SECTION 53 OF THIS ACT TO FILESUCH EX PARTE APPLICATION, AND UPON EXAMINATION UNDER OATHOR AFFIRMATION OF THE APPLICANT AND, THE WITNESSES HE MAYPRODUCE TO ESTABLISH THE FACTS THAT WILL JUSTIFY THE NEED ANDURGENCY OF EXAMINING AND FREEZING THE BANK DEPOSITS,PLACEMENTS, TRUST ACCOUNTS, ASSETS, AND RECORDS: (1) OF THEPERSON CHARGED WITH OR SUSPECTED OF THE CRIME OF TERRORISMOR CONSPIRACY TO COMMIT TERRORISM; (2) OF A JUDICIALLYDECLARED AND OUTLAWED TERRORIST ORGANIZATION, ASSOCIATIONOR GROUP OF PERSONS; OR (3) OF ANY MEMBER OF SUCHORGANIZATION, ASSOCIATION, OR GROUP OF PERSONS.

(iii) Effective period of court authorization to examine and obtain information onbank deposits, accounts, and records (Sec. 30)

SEC. 30. EFFECTIVE PERIOD OF COURT AUTHORIZATION TOEXAMINE AND OBTAIN INFORMATION ON BANK DEPOSITS,ACCOUNTS, AND RECORDS. - THE AUTHORIZATION ISSUED ORGRANTED BY THE AUTHORIZING DIVISION OF THE COURT OF APPEALSTO EXAMINE OR CAUSE THE EXAMINATION OF AND TO FREEZE BANKDEPOSITS, PLACEMENTS, TRUST ACCOUNTS, ASSETS, AND RECORDS,OR TO GATHER INFORMATION ABOUT THE SAME, SHALL BE EFFECTIVEFOR THE LENGTH OF TIME SPECIFIED IN THE WRITTEN ORDER OF THEAUTHORIZING DIVISION OF THE COURT OF APPEALS, WHICH SHALL NOTEXCEED A PERIOD OF THIRTY (30) DAYS FROM THE DATE OF RECEIPTOF THE WRITTEN ORDER OF THE AUTHORIZING DIVISION OF THECOURT OF APPEALS BY THE APPLICANT POLICE OR LAWENFORCEMENT OFFICIAL.

THE AUTHORIZING DIVISION OF THE COURT OF APPEALS MAY EXTENDOR RENEW THE SAID AUTHORIZATION FOR ANOTHER PERIOD, WHICHSHALL NOT EXCEED THIRTY (30) DAYS RENEWABLE TO ANOTHERTHIRTY (30) DAYS FROM THE EXPIRATION OF THE ORIGINAL PERIOD:PROVIDED, THAT THE AUTHORIZING DIVISION OF THE COURT OFAPPEALS IS SATISFIED THAT SUCH EXTENSION OR RENEWAL IS IN THEPUBLIC INTEREST: AND, PROVIDED, FURTHER, THAT THE APPLICATIONFOR EXTENSION OR RENEWAL, WHICH MUST BE FILED BY THE ORIGINALAPPLICANT, HAS BEEN DULY AUTHORIZED IN WRITING BY THE ANTI-TERRORISM COUNCIL.

IN CASE OF DEATH OF THE ORIGINAL APPLICANT OR IN CASE HE ISPHYSICALLY DISABLED TO FILE THE APPLICATION FOR EXTENSION ORRENEWAL, THE ONE NEXT IN RANK TO THE ORIGINAL APPLICANTAMONG THE MEMBERS OF THE REAM NAMED IN THE ORIGINAL WRITTENORDER OF THE AUTHORIZING DIVISION OF THE COURT OF APPEALSSHALL FILE THE APPLICATION FOR EXTENSION OR RENEWAL:

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PROVIDED, THAT, WITHOUT PREJUDICE TO THE LIABILITY OF THEPOLICE OR LAW ENFORCEMENT PERSONNEL UNDER SECTION 19HEREOF, THE APPLICANT POLICE OR LAW ENFORCEMENT OFFICIALSHALL HAVE THIRTY (30) DAYS AFTER THE TERMINATION OF THEPERIOD GRANTED BY THE COURT OF APPEALS AS PROVIDED IN THEPRECEDING PARAGRAPHS WITHIN WHICH TO FILE THE APPROPRIATECASE BEFORE THE PUBLIC PROSECUTOR'S OFFICE FOR ANYVIOLATION OF THIS ACT.

IF NO CASE IS FILED WITHIN THE THIRTY (30)-DAY PERIOD, THEAPPLICANT POLICE OR LAW ENFORCEMENT OFFICIAL SHALLIMMEDIATELY NOTIFY IN WRITING THE PERSON SUBJECT OF THE BANKEXAMINATION AND FREEZING OF BANK DEPOSITS, PLACEMENTS, TRUSTACCOUNTS, ASSETS AND RECORDS. THE PENALTY OF TEN (10) YEARSAND ONE DAY TO TWELVE (12) YEARS OF IMPRISONMENT SHALL BEIMPOSED UPON THE APPLICANT POLICE OR LAW ENFORCEMENTOFFICIAL WHO FAILS TO NOTIFY IN WRITING THE PERSON SUBJECT OFTHE BANK EXAMINATION AND FREEZING OF BANK DEPOSITS,PLACEMENTS, TRUST ACCOUNTS, ASSETS AND RECORDS.

ANY PERSON, LAW ENFORCEMENT OFFICIAL OR JUDICIAL AUTHORITYWHO VIOLATES HIS DUTY TO NOTIFY IN WRITING AS DEFINED ABOVESHALL SUFFER THE PENALTY OF SIX YEARS AND ONE DAY TO EIGHTYEARS OF IMPRISONMENT.

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V

TRUTH IN LENDING ACTRA 3765 (1963).

5.1 Topics

Purpose

SECTION 2. DECLARATION OF POLICY. IT IS HEREBY DECLARED TO BE THE POLICYOF THE STATE TO PROTECT ITS CITIZENS FROM A LACK OF AWARENESS OF THETRUE COST OF CREDIT TO THE USER BY ASSURING A FULL DISCLOSURE OF SUCHCOST WITH A VIEW OF PREVENTING THE UNINFORMED USE OF CREDIT TO THEDETRIMENT OF THE NATIONAL ECONOMY.

Obligation of creditors

SEC. 4. ANY CREDITOR SHALL FURNISH TO EACH PERSON TO WHOM CREDIT ISEXTENDED, PRIOR TO THE CONSUMMATION OF THE TRANSACTION, A CLEARSTATEMENT IN WRITING SETTING FORTH, TO THE EXTENT APPLICABLE AND INACCORDANCE WITH RULES AND REGULATIONS PRESCRIBED BY THE BOARD, THEFOLLOWING INFORMATION:

1. THE CASH PRICE OR DELIVERED PRICE OF THE PROPERTY OR SERVICE TOBE ACQUIRED;

2. THE AMOUNTS, IF ANY, TO BE CREDITED AS DOWN PAYMENT AND/ORTRADE-IN;

3. THE DIFFERENCE BETWEEN THE AMOUNTS SET FORTH UNDER CLAUSES (1)AND (2);

4. THE CHARGES, INDIVIDUALLY ITEMIZED, WHICH ARE PAID OR TO BE PAID BYSUCH PERSON IN CONNECTION WITH THE TRANSACTION BUT WHICH ARENOT INCIDENT TO THE EXTENSION OF CREDIT;

5. THE TOTAL AMOUNT TO BE FINANCED;6. THE FINANCE CHARGE EXPRESSED IN TERMS OF PESOS AND CENTAVOS;

AND7. THE PERCENTAGE THAT THE FINANCE BEARS TO THE TOTAL AMOUNT TO

BE FINANCED EXPRESSED AS A SIMPLE ANNUAL RATE ON THEOUTSTANDING UNPAID BALANCE OF THE OBLIGATION.

Covered and excluded transactions

SECTION 3. AS USED IN THIS ACT, THE TERM: (2) "CREDIT" MEANS ANY LOAN,MORTGAGE, DEED OF TRUST, ADVANCE, OR DISCOUNT; ANY CONDITIONAL SALESCONTRACT; ANY CONTRACT TO SELL, OR SALE OR CONTRACT OF SALE OFPROPERTY OR SERVICES, EITHER FOR PRESENT OR FUTURE DELIVERY, UNDERWHICH PART OR ALL OF THE PRICE IS PAYABLE SUBSEQUENT TO THE MAKING OFSUCH SALE OR CONTRACT; ANY RENTAL-PURCHASE CONTRACT; ANY CONTRACTOR ARRANGEMENT FOR THE HIRE, BAILMENT, OR LEASING OF PROPERTY; ANYOPTION, DEMAND, LIEN, PLEDGE, OR OTHER CLAIM AGAINST, OR FOR THEDELIVERY OF, PROPERTY OR MONEY; ANY PURCHASE, OR OTHER ACQUISITION OF,OR ANY CREDIT UPON THE SECURITY OF, ANY OBLIGATION OF CLAIM ARISING OUTOF ANY OF THE FOREGOING; AND ANY TRANSACTION OR SERIES OF TRANSACTIONSHAVING A SIMILAR PURPOSE OR EFFECT.

Comment [WU18]: Penalty charge, which isliquidated damages resulting from a breach,falls under item (6) or finance charge. A financecharge “represents the amount to be paid by thedebtor incident to the extension of credit.” Thelender may provide for a penalty clause so longas the amount or rate of the charge and theconditions under which it is to be paid aredisclosed to the borrower before he enters intothe credit agreement.

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Finance and non-finance charges

SECTION 3. AS USED IN THIS ACT, THE TERM: (3) "FINANCE CHARGE" INCLUDESINTEREST, FEES, SERVICE CHARGES, DISCOUNTS, AND SUCH OTHER CHARGESINCIDENT TO THE EXTENSION OF CREDIT AS THE BOARD MAY BE REGULATIONPRESCRIBE.

Consequences of non-compliance with obligation

SECTION 6. (A) ANY CREDITOR WHO IN CONNECTION WITH ANY CREDITTRANSACTION FAILS TO DISCLOSE TO ANY PERSON ANY INFORMATION INVIOLATION OF THIS ACT OR ANY REGULATION ISSUED THEREUNDER SHALL BELIABLE TO SUCH PERSON IN THE AMOUNT OF P100 OR IN AN AMOUNT EQUAL TOTWICE THE FINANCE CHARGED REQUIRED BY SUCH CREDITOR IN CONNECTIONWITH SUCH TRANSACTION, WHICHEVER IS THE GREATER, EXCEPT THAT SUCHLIABILITY SHALL NOT EXCEED P2,000 ON ANY CREDIT TRANSACTION. ACTION TORECOVER SUCH PENALTY MAY BE BROUGHT BY SUCH PERSON WITHIN ONE YEARFROM THE DATE OF THE OCCURRENCE OF THE VIOLATION, IN ANY COURT OFCOMPETENT JURISDICTION. IN ANY ACTION UNDER THIS SUBSECTION IN WHICH ANYPERSON IS ENTITLED TO A RECOVERY, THE CREDITOR SHALL BE LIABLE FORREASONABLE ATTORNEY'S FEES AND COURT COSTS AS DETERMINED BY THECOURT.

(B) EXCEPT AS SPECIFIED IN SUBSECTION (A) OF THIS SECTION, NOTHINGCONTAINED IN THIS ACT OR ANY REGULATION CONTAINED IN THIS ACT OR ANYREGULATION THEREUNDER SHALL AFFECT THE VALIDITY OR ENFORCEABILITY OFANY CONTRACT OR TRANSACTIONS.

(C) ANY PERSON WHO WILLFULLY VIOLATES ANY PROVISION OF THIS ACT OR ANYREGULATION ISSUED THEREUNDER SHALL BE FINED BY NOT LESS THAN P1,00 ORMORE THAN P5,000 OR IMPRISONMENT FOR NOT LESS THAN 6 MONTHS, NORMORE THAN ONE YEAR OR BOTH.

(D) NO PUNISHMENT OR PENALTY PROVIDED BY THIS ACT SHALL APPLY TO THEPHILIPPINE GOVERNMENT OR ANY AGENCY OR ANY POLITICAL SUBDIVISIONTHEREOF.

(E) A FINAL JUDGMENT HEREAFTER RENDERED IN ANY CRIMINAL PROCEEDINGUNDER THIS ACT TO THE EFFECT THAT A DEFENDANT HAS WILLFULLY VIOLATEDTHIS ACT SHALL BE PRIMA FACIE EVIDENCE AGAINST SUCH DEFENDANT IN ANACTION OR PROCEEDING BROUGHT BY ANY OTHER PARTY AGAINST SUCHDEFENDANT UNDER THIS ACT AS TO ALL MATTERS RESPECTING WHICH SAIDJUDGMENT WOULD BE AN ESTOPPEL AS BETWEEN THE PARTIES THERETO.

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5.2 Cases

Excessive interests, penalties and other charges not revealed in disclosurestatements issued by banks, even if stipulated in the promissory notes, cannot begiven effect under the Truth in Lending Act

NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC., ET AL.VS. PNB, G.R. 148753, JULY 30, 2004.

ISSUE: Whether or not PNB may collect penalty charges contained in the Promissory Notes,but not in the Disclosure Statements issued prior to the execution of the notes.

HELD: No penalty charges or increases thereof appear either in the Disclosure Statements orin any of the clauses in the second and the third Credit Agreements earlier discussed. Whilea standard penalty charge of 6 percent per annum has been imposed on the amounts statedin all three Promissory Notes still remaining unpaid or unrenewed when they fell due, thereis no stipulation therein that would justify any increase in that charges. The effect, therefore,when the borrower is not clearly informed of the Disclosure Statements -- prior to theconsummation of the availment or drawdown -- is that the lender will have no right tocollect upon such charge or increases thereof, even if stipulated in the Notes.

Although the first Disclosure Statement was furnished Petitioner NSBCI prior to theexecution of the transaction, it is not a contract that can be modified by the relatedPromissory Note, but a mere statement in writing that reflects the true and effective cost ofloans from respondent. Novation can never be presumed, and the animus novandi “mustappear by express agreement of the parties, or by their acts that are too clear andunequivocal to be mistaken.” To allow novation will surely flout the “policy of the Stateto protect its citizens from a lack of awareness of the true cost of credit.”

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Failure to disclose required information in disclosure statement cured by disclosurethereof in loan transaction documents

DBP vs. Arcilla,G.R. 161397 and G.R. 161426, June 30, 2005.

FACTS: Arcilla availed of of a loan under the Individual Housing Project of DBP. TheDisclosure Statement made by DBP did not include some of the required items under R.A.No. 3765 and CB Circular No. 158. These infromation were, however, indicated in the otherdocuments that were executed pursuant to the Individual Housing Project [Deed ofConditional Sale, Promissory Notes, etc.]

ISSUE: Arcilla avers that the disclosure of the details of the loan contained in the deed ofconditional sale and the supplement thereto, the promissory notes and release sheet, do notconstitute substantial compliance with the law and the CB Circular.

HELD: Under Circular 158 of the Central Bank, the lender is required to include theinformation required by R.A. 3765 in the contract covering the credit transaction or anyother document to be acknowledged and signed by the borrower. In the present case,DBP failed to disclose the requisite information in the disclosure statement form authorizedby the Central Bank, but did so in the loan transaction documents between it and Arcilla.

Furthermore, the Court is convinced that Arcilla’s claim of not having been furnished thedata/information required by R.A. No. 3765 and CB Circular No. 158 was but anafterthought.

The appellee had been sufficiently informed of the terms and the requisite chargesnecessarily included in the subject loan. It must be stressed that the Truth in Lending Act(R.A. No. 3765), was enacted primarily “to protect its citizens from a lack of awareness ofthe true cost of credit to the user by using a full disclosure of such cost with a view ofpreventing the uninformed use of credit to the detriment of the national economy”

Contrary to appellee’s claim that he was not sufficiently informed of the details of the loan,the records disclose that the required information were readily available in the 3 promissorynotes he executed. Precisely, the said promissory notes were executed to apprise appelleeof the remaining balance on his loan when the same was converted into a regular housingloan. And on its face, the promissory notes signed by no less than the appellee readilyshows all the data required by the Truth in Lending Act (R.A. No. 3765).

Appellee, a lawyer, would not be so gullible or negligent as to sign documents withoutknowing fully well the legal implications and consequences of his actions, and that appelleewas a former employee of appellant. As such employee, he is as well presumedknowledgeable with matters relating to appellant’s business and fully cognizant of the termsof the loan he applied for, including the charges that had to be paid.

It might have been different if the borrower was, say, an ordinary employee eager to buy hisfirst house and is easily lured into accepting onerous terms so long as the same is payableon installments. In such cases, the Court would be disposed to be stricter in the applicationof the Truth in Lending Act, insisting that the borrower be fully informed of what he isentering into. But in the case at bar, considering appellee’s education and training, We musthold, in the light of the evidence at hand, that he was duly informed of the necessarycharges and fully understood their implications and effects. Consequently, the trial court’sannulment of the rescission anchored on this ground was unjustified.

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Arcilla decision followed

BPI v. Spouses Yu,G.R. No. 184122, January 20, 2010

FACTS: BPI failed to state the penalty charges in the disclosure statement, the promissorynote that the Yus signed, on the same date as the disclosure statement, however, containeda penalty clause that said: “I/We jointly and severally, promise to further pay a late paymentcharge on any overdue amount herein at the rate of 3% per month.”

ISSUE: Whether or not the reference to the penalty charges in the promissory noteconstitutes substantial compliance with the disclosure requirement of the Truth in LendingAct.

HELD: The Court has affirmed that financial charges are amply disclosed if stated in thepromissory note in the case of Development Bank of the Philippines v. Arcilla, Jr. The Courtthere said, “Under Circular 158 of the Central Bank, the lender is required to include theinformation required by R.A. 3765 in the contract covering the credit transaction or any otherdocument to be acknowledged and signed by the borrower. In addition, the contract ordocument shall specify additional charges, if any, which will be collected in case certainstipulations in the contract are not met by the debtor.” In this case, the promissory notessigned by the Yus contained data, including penalty charges, required by the Truth inLending Act. They cannot avoid liability based on a rigid interpretation of the Truth inLending Act that contravenes its goal.

NOTE: The court said that the New Samaguita case [first TILA case in the outline] is notapplicable to the facts of the case: “What New Sampaguita disallowed, because it was notmentioned either in the disclosure statement or in the promissory note, was the unilateralincrease in the rates of penalty charges that the creditor imposed on the borrower.” But if Iread the case correctly, the penalty charges being contested in that case were contained inthe Promissory Notes, though not in the Disclosure Statements issued prior to theexecution of the notes.

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5.3 Additional materials

(a) Implementing Rules: CB Circular No. 158-63, dated October 29, 1963;(b) Additional Implementing Rules: CB Circular No. 431-74, dated September 2,

1974.

5.4 Related statute

Access Devices Regulation Act of 1998 (RA 8484)(a) Disclosure required upon application or solicitation (Sec. 4);

SECTION 4. CREDIT CARD APPLICATION AND SOLICITATION. – ANY APPLICATIONTO OPEN A CREDIT CARD ACCOUNT FOR ANY PERSON UNDER AN OPEN-ENDCREDIT PLAN OR A SOLICITATION TO OPEN SUCH AN ACCOUNT, EITHER BY MAIL,TELEPHONE OR OTHER MEANS, SHALL DISCLOSE IN WRITING OR ORALLY, AS THECASE MAY BE, THE FOLLOWING INFORMATION:

(A) ANNUAL PERCENTAGE RATE

1) EACH ANNUAL PERCENTAGE RATE OF INTEREST ON THE AMOUNTOF CREDIT OBTAINED BY THE CREDIT CARD HOLDER UNDER SUCHCREDIT PLAN. WHERE AN EXTENSION OF CREDIT IS SUBJECT TO AVARIABLE RATE, THE FACT THAT THE RATE IS VARIABLE, AND THEANNUAL PERCENTAGE RATE IN EFFECT AT THE TIME OF THEMAILING.

2) WHERE MORE THAN ONE RATE APPLIES, THE RANGE OF BALANCESTO WHICH EACH RATE APPLIES.

(B) ANNUAL AND OTHER FEES

1) ANY ANNUAL FEE, OTHER PERIODIC FEE, OR MEMBERSHIP FEEIMPOSED FOR THE ISSUANCE OR AVAILABILITY OF A CREDIT CARD,INCLUDING ANY ACCOUNT MAINTENANCE FEE OR ANY OTHERCHARGE IMPOSED BASED ON ACTIVITY OR INACTIVITY FOR THEACCOUNT DURING THE BILLING CYCLE.

2) ANY MINIMUM FINANCE CHARGE IMPOSED FOR EACH PERIODDURING WHICH ANY EXTENSION OF CREDIT WHICH IS SUBJECT TO AFINANCE CHARGE IS OUTSTANDING.

3) ANY TRANSACTION CHARGE IMPOSED IN CONNECTION WITH USEOF THE CARD TO PURCHASE GOODS OR SERVICES.

4) ANY FEE, PENALTY OR SURCHARGE IMPOSED FOR THE DELAY INPAYMENT OF AN ACCOUNT.

(C) BALANCE CALCULATION METHOD – THE NAME OR A DETAILEDEXPLANATION OF THE BALANCE CALCULATION METHOD USED INDETERMINING THE BALANCE UPON WHICH THE FINANCE CHARGE ISCOMPUTED.

(D) CASH ADVANCE FEE – ANY FEE IMPOSED FOR AN EXTENSION OFCREDIT IN THE FORM OF CASH.

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(E) OVER-THE-LIMIT-FEE – ANY FEE IMPOSED IN CONNECTION WITH ANEXTENSION OF CREDIT IN EXCESS OF THE AMOUNT OF CREDIT AUTHORIZEDTO BE EXTENDED WITH RESPECT TO SUCH AMOUNT: PROVIDED, HOWEVER,THAT IN CASE THE APPLICATION OR SOLICITATION TO OPEN A CREDIT CARDACCOUNT FOR ANY PERSON UNDER AN OPEN-END CONSUMER CREDITPLAN BE MADE THROUGH CATALOGS, MAGAZINES, OR OTHERPUBLICATIONS, THE FOLLOWING ADDITIONAL INFORMATION SHALL BEDISCLOSED:

1) A STATEMENT, IN A CONSPICUOUS AND PROMINENT LOCATION ONTHE APPLICATION OR SOLICITATION, THAT:

I) THE INFORMATION IS ACCURATE AS OF THE DATE THEAPPLICATION OR SOLICITATION WAS PRINTED;

II) THE INFORMATION CONTAINED IN THE APPLICATION ORSOLICITATION IS SUBJECT TO CHANGE AFTER SUCH DATE;

III) THE APPLICANT SHOULD CONTACT THE CREDITOR FORINFORMATION ON ANY CHANGE IN THE INFORMATIONCONTAINED IN THE APPLICATION OR SOLICITATION SINCE ITWAS PRINTED;

2) THE DATE THE APPLICATION OR SOLICITATION WAS PRINTED; AND3) IN A CONSPICUOUS AND PROMINENT LOCATION ON THE

APPLICATION OR SOLICITATION, A TOLL FREE TELEPHONE NUMBEROR MAILING ADDRESS WHICH THE APPLICANT MAY CONTACT TOOBTAIN ANY CHANGE IN THE INFORMATION PROVIDED IN THEAPPLICATION OR SOLICITATION SINCE IT WAS PRINTED.

(b) Detailed explanation and clear illustration of computation of charges and fees(Sec. 5);

SECTION 5. COMPUTATIONS. – IN ADDITION TO THE FOREGOING, A CREDIT CARDISSUER MUST, TO THE EXTENT PRACTICABLE, PROVIDE A DETAILED EXPLANATIONAND A CLEAR ILLUSTRATION OF THE MANNER BY WHICH ALL CHARGES AND FEESARE COMPUTED.

(c) Exceptions to the disclosure requirement (Sec. 6);

SECTION 6. EXCEPTIONS. – THE DISCLOSURES REQUIRED UNDER SECTION 4 OFTHIS ACT MAY BE OMITTED IN ANY TELEPHONE SOLICITATION OR APPLICATION IFTHE CREDIT CARD ISSUER:

(A) DOES NOT IMPOSE ANY FEE IN CONNECTION WITH PARAGRAPH (B)(1),SECTION 4 OF THIS ACT;

(B) DOES NOT IMPOSE ANY FEE IN CONNECTION WITH TELEPHONESOLICITATION UNLESS THE CONSUMER SIGNIFIES ACCEPTANCE BY USINGTHE CARD;

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(C) DISCLOSES CLEARLY THE INFORMATION DESCRIBED IN SECTION 4 OFTHIS ACT IN WRITING WITHIN THIRTY (30) DAYS AFTER THE CONSUMERREQUESTS THE CARD, BUT IN NO EVENT LATER THAN THE DATE OFDELIVERY OF THE CARD; AND

(D) DISCLOSES CLEARLY THAT THE CONSUMER IS NOT OBLIGATED TOACCEPT THE CARD OR ACCOUNT AND THE CONSUMER WILL NOT BEOBLIGATED TO PAY ANY FEES OR CHARGES DISCLOSED UNLESS THECONSUMER ELECTS TO ACCEPT THE CARD OR ACCOUNT BY USING THECARD.

(d) Disclosure required prior to renewal (Sec. 7);

SECTION 7. DISCLOSURE PRIOR TO RENEWAL. – EXCEPT IN TELEPHONESOLICITATIONS A CARD ISSUER THAT IMPOSES ANY FEE DESCRIBED IN SECTION 4SHALL TRANSMIT TO A CONSUMER'S CREDIT CARD ACCOUNT A CLEAR ANDCONSPICUOUS DISCLOSURE OF:

(A) THE DATE BY WHICH, THE MONTH BY WHICH, OR THE BILLING PERIOD ATTHE CLOSE OF WHICH, THE ACCOUNT WILL EXPIRE IF NOT RENEWED;

(B) THE INFORMATION DESCRIBED IN SECTION 4 WHICH SHALL BETRANSMITTED TO A CONSUMER AT LEAST THIRTY (30) DAYS PRIOR TO THESCHEDULED RENEWAL DATE OF THE CONSUMER'S CREDIT CARD ACCOUNT;

(C) THE INFORMATION DESCRIBED IN SECTION 4 (A) (1) WHICH SHALL BETRANSMITTED TO A CONSUMER'S CREDIT CARD ACCOUNT; AND

(D) THE METHOD BY WHICH THE CONSUMER MAY TERMINATE CONTINUEDCREDIT AVAILABILITY UNDER THE ACCOUNT: PROVIDED, THAT THEDISCLOSURES REQUIRED BY THIS SECTION MUST BE MADE PRIOR TOPOSTING A FEE DESCRIBED IN SECTION 4 (B) (1) TO THE ACCOUNT, ORWITH THE PERIODIC BILLING STATEMENT FIRST DISCLOSING THAT THE FEEHAS BEEN POSTED TO THE ACCOUNT SUBJECT TO THE CONDITION THATTHE CONSUMER IS GIVEN THIRTY (30) DAY PERIOD TO AVOID PAYMENT OFTHE FEE OR TO HAVE THE FEE RECREDITED TO THE ACCOUNT IN ANY CASEWHERE THE CONSUMER DOES NOT WISH TO CONTINUE THE AVAILABILITYOF THE CREDIT.

(e) Penalty for failure to disclose (Sec. 8).

SECTION 8. FAILURE TO DISCLOSE. – CREDIT CARD COMPANIES WHICHSHALL FAIL TO DISCLOSE THE INFORMATION REQUIRED UNDER SECTIONS4, 5 AND 7 OF THIS ACT, AFTER DUE NOTICE AND HEARING, SHALL BESUBJECT TO SUSPENSION OR CANCELLATION OF THEIR AUTHORITY TOISSUE CREDIT CARDS BY THE BANGKO SENTRAL NG PILIPINAS,SECURITIES AND EXCHANGE COMMISSION AND SUCH OTHERGOVERNMENT AGENCIES.

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VI

ANTI-MONEY LAUNDERING ACTRA 9160 (2001), as amended by RA 9194 (2003).

6.1 Topics

Background on money laundering and RAs 9160 and 9194;

Common stages of money laundering (i.e., placement, layering, and integration);

Covered institutions (Sec. 3[a]);

SECTION 3. DEFINITIONS. FOR PURPOSES OF THIS ACT, THE FOLLOWING TERMSARE HEREBY DEFINED AS FOLLOWS: (A) "COVERED INSTITUTION" REFERS TO:

1. BANKS, NON-BANKS, QUASI-BANKS, TRUST ENTITIES, AND ALL OTHERINSTITUTIONS AND THEIR SUBSIDIARIES AND AFFILIATES SUPERVISED ORREGULATED BY THE BANGKO SENTRAL NG PILIPINAS (BSP);

2. INSURANCE COMPANIES AND ALL OTHER INSTITUTIONS SUPERVISED ORREGULATED BY THE INSURANCE COMMISSION; AND

3. (I) SECURITIES DEALERS, BROKERS, SALESMEN, INVESTMENT HOUSES ANDOTHER SIMILAR ENTITIES MANAGING SECURITIES OR RENDERING SERVICESAS INVESTMENT AGENT, ADVISOR, OR CONSULTANT, (II) MUTUAL FUNDS,CLOSE AND INVESTMENT COMPANIES, COMMON TRUST FUNDS, PRE-NEEDCOMPANIES AND OTHER SIMILAR ENTITIES, (III) FOREIGN EXCHANGECORPORATIONS, MONEY CHANGERS, MONEY PAYMENT, REMITTANCE, ANDTRANSFER COMPANIES AND OTHER SIMILAR ENTITIES, AND (IV) OTHERENTITIES ADMINISTERING OR OTHERWISE DEALING IN CURRENCY,COMMODITIES OR FINANCIAL DERIVATIVES BASED THEREON, VALUABLEOBJECTS, CASH SUBSTITUTES AND OTHER SIMILAR MONETARYINSTRUMENTS OR PROPERTY SUPERVISED OR REGULATED BY SECURITIESAND EXCHANGE COMMISSION.

Covered transactions (Sec. 3[b]);

SECTION 3. DEFINITIONS. (B) 'COVERED TRANSACTION' IS A TRANSACTION INCASH OR OTHER EQUIVALENT MONETARY INSTRUMENT INVOLVING A TOTALAMOUNT IN EXCESS OF FIVE HUNDRED THOUSAND PESOS (PHP 500,000.00)WITHIN ONE (1) BANKING DAY.

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Suspicious transactions (Sec. 3[b-1]);

SECTION 3. DEFINITIONS. (B) "(B-1) 'SUSPICIOUS TRANSACTION' ARETRANSACTIONS WITH COVERED INSTITUTIONS, REGARDLESS OF THE AMOUNTSINVOLVED, WHERE ANY OF THE FOLLOWING CIRCUMSTANCES EXIST:

1. THERE IS NO UNDERLYING LEGAL OR TRADE OBLIGATION, PURPOSE ORECONOMIC JUSTIFICATION;

2. THE CLIENT IS NOT PROPERLY IDENTIFIED;3. THE AMOUNT INVOLVED IS NOT COMMENSURATE WITH THE BUSINESS OR

FINANCIAL CAPACITY OF THE CLIENT;4. TAKING INTO ACCOUNT ALL KNOWN CIRCUMSTANCES, IT MAY BE

PERCEIVED THAT THE CLIENT'S TRANSACTION IS STRUCTURED IN ORDERTO AVOID BEING THE SUBJECT OF REPORTING REQUIREMENTS UNDER THEACT;

5. ANY CIRCUMSTANCES RELATING TO THE TRANSACTION WHICH ISOBSERVED TO DEVIATE FROM THE PROFILE OF THE CLIENT AND/OR THECLIENT'S PAST TRANSACTIONS WITH THE COVERED INSTITUTION;

6. THE TRANSACTIONS IS IN A WAY RELATED TO AN UNLAWFUL ACTIVITY OROFFENSE UNDER THIS ACT THAT IS ABOUT TO BE, IS BEING OR HAS BEENCOMMITTED; OR

7. ANY TRANSACTIONS THAT IS SIMILAR OR ANALOGOUS TO ANY OF THEFOREGOING."

Unlawful activities or predicate crimes (Sec. 3[i]);

SECTION 3. DEFINITIONS. "(I) 'UNLAWFUL ACTIVITY' REFERS TO ANY ACT OROMISSION OR SERIES OR COMBINATION THEREOF INVOLVING OR HAVING DIRECTRELATION TO FOLLOWING:

1. KIDNAPPING FOR RANSOM UNDER ARTICLE 267 OF ACT NO. 3815,OTHERWISE KNOWN AS THE REVISED PENAL CODE, AS AMENDED;

2. SECTIONS 4, 5, 6, 8, 9, 10, 12, 13, 14, 15, AND 16 OF REPUBLIC ACT NO.9165, OTHERWISE KNOWN AS THE COMPREHENSIVE DANGEROUS ACT OF2002;

3. SECTION 3 PARAGRAPHS B, C, E, G, H AND I OF REPUBLIC ACT NO. 3019,AS AMENDED, OTHERWISE KNOWN AS THE ANTI-GRAFT AND CORRUPTPRACTICES ACT;

4. PLUNDER UNDER REPUBLIC ACT NO. 7080, AS AMENDED;5. ROBBERY AND EXTORTION UNDER ARTICLES 294, 295, 296, 299, 300,

301 AND 302 OF THE REVISED PENAL CODE, AS AMENDED;6. JUETENG AND MASIAO PUNISHED AS ILLEGAL GAMBLING UNDER

PRESIDENTIAL DECREE NO. 1602;7. PIRACY ON THE HIGH SEAS UNDER THE REVISED PENAL CODE, AS

AMENDED AND PRESIDENTIAL UNDER THE REVISED PENAL CODE, ASAMENDED AND PRESIDENTIAL DECREE NO. 532;

8. QUALIFIED THEFT UNDER ARTICLE 310 OF THE REVISED PENAL CODE, ASAMENDED;

9. SWINDLING UNDER ARTICLE 315 OF THE REVISED PENAL CODE, ASAMENDED;

10. SMUGGLING UNDER REPUBLIC ACT NOS. 455 AND 1937;

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11. VIOLATIONS UNDER REPUBLIC ACT NO. 8792, OTHERWISE KNOWN AS THEELECTRINIC COMMERCE ACT OF 2000;

12. HIJACKING AND OTHER VIOLATIONS UNDER REPUBLIC ACT NO. 6235;DESTRUCTIVE ARSON AND MURDER, AS DEFINED UNDER THE REVISEDPENAL CODE, AS AMENDED, INCLUDING THOSE PERPETRATED BYTERRORISTS AGAINST NON-COMBATANT PERSONS AND SIMILAR TARGETS;

13. FRAUDULENT PRACTICES AND OTHER VIOLATIONS UNDER REPUBLIC ACTNO. 8799, OTHERWISE KNOWN AS THE SECURITIES REGULATION CODE OF2000;

14. FELONIES OR OFFENSES OF A SIMILAR NATURE THAT ARE PUNISHABLEUNDER THE PENAL LAWS OF OTHER COUNTRIES."

Money laundering offenses (Sec. 4);

SEC. 4. MONEY LAUNDERING OFFENSE. -- MONEY LAUNDERING IS A CRIMEWHEREBY THE PROCEEDS OF AN UNLAWFUL ACTIVITY AS HEREIN DEFINED ARETRANSACTED, THEEBY MAKING THEM APPEAR TO HAVE ORIGINATED FROMLEGITIMATE SOURCES. IT IS COMMITTED BY THE FOLLOWING:

a. ANY PERSON KNOWING THAT ANY MONETARY INSTRUMENT OR PROPERTYREPRESENTS, INVOLVES, OR RELATES TO, THE PROCEEDS OF ANYUNLAWFUL ACTIVITY, TRANSACTS OR ATTEMPTS TO TRANSACTS SAIDMONETARY INSTRUMENT OR PROPERTY.

b. ANY PERSON KNOWING THAT ANY MONETARY INSTRUMENT OR PROPERTYINVOLVES THE PROCEEDS OF ANY UNLAWFUL ACTIVITY, PERFORMS ORFAILS TO PERFORM ANY ACT AS A RESULT OF WHICH HE FALICITATES THEOFFENSE OF MONEY LAUNDERING REFERRED TO IN PARAGRAPH (A)ABOVE.

c. ANY PERSON KNOWING THAT ANY MONETARY INSTRUMENT OR PROPERTYIS REQUIRED UNDER THIS ACT TO BE DISCLOSED AND FILED WITH THEANTI-MONEY LAUNDERING COUNCIL (AMLC), FAILS TO DO SO.

Anti-Money Laundering Council (Sec. 7);

SEC.7. CREATION OF ANTI-MONEY LAUNDERING COUNCIL (AMLC). -- THE ANTI-MONEY LAUNDERING COUNCIL IS HEREBY CREATED AND SHALL BE COMPOSED OFTHE GOVERNOR OF THE BANGKO SENTRAL NG PILIPINAS AS CHAIRMAN, THECOMMISSIONER OF THE INSURANCE COMMISSION AND THE CHAIRMAN OF THESECURITIES AND EXCHANGE COMMISSION AS MEMBER. THE AMLC SHALL SHALLACT UNANIMOUSLY IN THE DISCHARGE OF ITS FUNCTIONS AS DEFINEDHEREUNDER:

"(1) TO REQUIRE AND RECEIVE COVERED OR SUSPICIOUS TRANSACTIONREPORTS FROM COVERED INSTITUTIONS;

"(2) TO ISSUE ORDERS ADDRESSED TO THE APPROPRIATE SUPERVISINGAUTHORITY OR THE COVERED INSTITUTIONS TO DETERMINE THE TRUEIDENTITY OF THE OWNER OF ANY MONETARY INSTRUMENT OR PREPERTYSUBJECT OF A COVERED TRANSACTION OR SUSPICIOUS TRANSACTIONREPORT OR REQUEST FOR ASSISTANCE FROM A FOREIGN STATE, OR

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BELIEVED BY THE COUNCIL, ON THE BASIS FO SUBSTANTIAL EVIDENCE, TOBE, IN WHOLE OR IN PART, WHEREVER LOCATED, REPRESENTING,INVOLVING, OR RELATED TO DIRECTLY OR INDIRECTLY, IN ANY MANNER ORBY ANY MEANS, THE PROCEEDS OF AN UNLAWFUL ACTIVITITY.

"(3) TO INSTITUTE CIVIL FORFEITURE PROCEEDINGS AND ALL OTHERREMEDIAL PROCEEDINGS THROUGH THE OFFICE OF TH SOLICITORGENERAL;

"(4) TO CAUSE THE FILING OF COMPLAINTS WITH THE DEPARTMENT OFJUSTICE OR THE OMBUDSMAN FOR THE PROSECUTION OF MONEYLAUNDERING OFFENSES;

"(5) TO INVESTIGATE SUSPICIOUS TRANSACTIONS AND COVEREDTRANSACTIONS DEEMED SUSPICIOUS AFTER AN INVESTIGATION BY AMLC,MONEY LAUNDERING ACTIVITIES AND OTHER VIOLATIONS OF THIS ACT;

"(6) TO APPLY BEFORE THE COURT OF APPEALS, EX PARTE, FOR THEFREEZING OF ANY MONETARY INSTRUMENT OR PROPERTY ALLEGED TO BETHE PROCEEDS OF ANY UNLAWFUL ACTIVITY AS DEFINED IN SECTION 3(I)HEREOF;

"(7) TO IMPLEMENT SUCH MEASURES AS MAY BE NECESSARY ANDJUSTIFIED UNDER THIS ACT TO COUNTERACT MONEY LAUNDERING;

"(8) TO RECEIVE AND TAKE ACTION IN RESPECT OF, ANY REQUEST FROMFOREIGN STATES FOR ASSISTANCE IN THEIR OWN ANTI-MONEYLAUNDERING OPERATIONS PROVIDED IN THIS ACT;

"(9) TO DEVELOP EDUCATIONAL PROGRAMS ON THE PERNICIOUS EFFECTSOF MONEY LAUNDERING, THE METHODS AND TECHNIQUES USED IN THEMONEY LAUNDERING, THE VIABLE MEANS OF PREVENTING MONEYLAUNDERING AND THE EFFECTIVE WAYS OF PROSECUTING AND PUNISHINGOFFENDERS;

"(10) TO ENLIST THE ASSISTANCE OF ANY BRANCH, DEPARTMENT, BUREAU,OFFICE, AGENCY, OR INSTRUMENTALITY OF THE GOVERNMENT, INCLUDINGGOVERNMENT-OWNED AND -CONTROLLED CORPORATIONS, INUNDERTAKING ANY AND ALL ANTI-MONEY LAUNDERING OPERATIONS,WHICH MAY INCLUDE THE USE OF ITS PERSONNEL, FACILITIES ANDRESOURCES FOR THE MORE RESOLUTE PREVENTION, DETECTION, ANDINVESTIGATION OF MONEY LAUNDERING OFFENSES AND PROSECUTION OFOFFENDERS; AND

"(11) TO IMPOSE ADMINISTRATIVE SANCTIONS FOR THE VIOLATION OFLAWS, RULES, REGULATIONS, AND ORDERS AND RESOLUTIONS ISSUEDPURSUANT THERETO."

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Basic activities required of covered institutions to prevent money laundering (Sec. 9);

SECTION 9. PREVENTION OF MONEY LAUNDERING; CUSTOMER IDENTIFICATIONREQUIREMENTS AND RECORD KEEPING. –

a. CUSTOMER IDENTIFICATION, - COVERED INSTITUTIONS SHALL ESTABLISHAND RECORD THE TRUE IDENTITY OF ITS CLIENTS BASED ON OFFICIALDOCUMENTS. THEY SHALL MAINTAIN A SYSTEM OF VERIFYING THE TRUEIDENTITY OF THEIR CLIENTS AND, IN CASE OF CORPORATE CLIENTS,REQUIRE A SYSTEM OF VERIFYING THEIR LEGAL EXISTENCE ANDORGANIZATIONAL STRUCTURE, AS WELL AS THE AUTHORITY ANDIDENTIFICATION OF ALL PERSONS PURPORTING TO ACT ON THEIR BEHALF.

THE PROVISIONS OF EXISTING LAWS TO THE CONTRARYNOTWITHSTANDING, ANONYMOUS ACCOUNTS, ACCOUNTS UNDERFICTITIOUS NAMES, AND ALL OTHER SIMILAR ACCOUNTS SHALL BEABSOLUTELY PROHIBITED. PESO AND FOREIGN CURRENCY NON-CHECKINGNUMBERED ACCOUNTS SHALL BE ALLOWED. THE BSP MAY CONDUCTANNUAL TESTING SOLELY LIMITED TO THE DETERMINATION OF THEEXISTENCE AND TRUE IDENTITY OF THE OWNERS OF SUCH ACCOUNTS.

b. RECORD KEEPING – ALL RECORDS OF ALL TRANSACTIONS OF COVEREDINSTITUTIONS SHALL BE MAINTAINED AND SAFELY STORED FOR FIVE (5)YEARS FROM THE DATE OF TRANSACTIONS. WITH RESPECT TO CLOSEDACCOUNTS, THE RECORDS ON CUSTOMER IDENTIFICATION, ACCOUNTFILES AND BUSINESS CORRESPONDENCE, SHALL BE PRESERVED ANDSAFETY STORED FOR AT LEAST FIVE (5) YEARS FROM THE DATES WHENTHEY WERE CLOSED.

c. REPORTING OF COVERED AND SUSPICIOUS TRANSACTIONS. -- COVEREDINSTITUTIONS SHALL REPORT TO THE AMLC ALL COVERED TRANSACTIONSAND SUSPICIOUS TRANSACTIONS WITHIN FIVE(5) WORKING DAYS FROMOCCURRENCES THEREOF, UNLESS THE SUPERVISING AUTHORITYPRESCRIBES A LONGER PERIOD NOT EXCEEDING TEN (10) WORKING DAYS.

SHOULD A TRANSACTION BE DETERMINED TO BE BOTH A COVEREDTRANSACTION AND A SUSPICIOUS TRANSACTION, THE COVEREDINSTITUTION SHALL BE REQUIRED TO REPORT THE SAME AS A SUSPICIOUSTRANSACTION.

WHEN REPORTING COVERED OR SUSPICIOUS TRANSACTIONS TO THEAMLC, COVERED INSTITUTIONS AND THEIR OFFICERS AND EMPLOYEESSHALL NOT BE DEEMED TO HAVE VIOLATED REPUBLIC ACT NO. 1405, ASAMENDED, REPUBLIC ACT NO. 6426, AS AMENDED, REPUBLIC ACT NO.8791 AND OTHER SIMILAR LAWS, BUT ARE PROHIBITED FROMCOMMUNICATING, DIRECTLY OR INDIRECTLY, IN ANY MANNER OR BY ANMEANS, TO ANY PERSON, THE FACT THAT A COVERED OR SUSPICIOUSTRANSACTION REPORT WAS MADE, THE CONTENTS THEREOF, OR ANYOTHER INFORMATION IN RELATION THERETO. IN CASE OF VIOLATIONTHEREOF, THE CONCERNED OFFICER AND EMPLOYEE OF THE COVEREDINSTITUTION SHALL BE CRIMINALLY LIABLE. HOWEVER, NOADMINISTRATIVE, CRIMINAL OR CIVIL PROCEEDINGS, SHALL LIE AGAINSTANY PERSON FOR HAVING MADE A COVERED OR SUSPICIOUS TRANSACTION

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REPORT IN THE REGULAR PERFORMANCE OF HIS DUTIES IN GOOD FAITH,WHETHER OR NOT SUCH REPORTING RESULTS IN ANY CRIMINALPROSECUTION UNDER THIS ACT OF ANY OTHER LAW.

WHEN REPORTING COVERED OR SUSPICIOUS TRANSACTIONS TO THEAMLC, COVERED INSTITUTING AND THEIR OFFICERS AND EMPLOYEES AREPROHIBITED FROM COMMUNICATING DIRECTLY OR INDIRECTLY, IN ANYMANNER OR BY ANY MEANS, TO ANY PERSON OR ENTITY, THE MEDIA, THEFACT THAT A COVERED OR SUSPICIOUS TRANSACTION REPORT WAS MADE,THE CONTENTS THEREOF, OR ANY OTHER INFORMATION IN RELATIONTHERETO. NEITHER MAY SUCH REPORTING BE PUBLISHED OR AIRED IN ANYMANNER OR FORM BY THE MASS MEDIA, ELECTRONIC MAIL, OR OTHERSIMILAR DEVICES. IN CASE OF VIOLATION THEREOF, THE CONCERNEDOFFICER AND EMPLOYEE OF THE COVERED INSTITUTION AND MEDIA SHALLBE HELD CRIMINALLY LIABLE.

Freezing of monetary instrument or property (Sec. 10);

SEC 10. FREEZING OF MONETARY INSTRUMENT OR PROPERTY. -- THE COURTOF APPEALS, UPON APPLICATION EX PARTE BY THE AMLC AND AFTERDETERMINATION THAT PROBABLE CAUSE EXISTS THAT ANY MONETARYINSTRUMENT OR PROPERTY IS IN ANY WAY RELATED TO AN UNLAWFUL ACTIVITY ASDEFINED IN SECTION 3(I) HEREOF, MAY ISSUE A FREEZE ORDER WHICH SHALL BEEFFECTIVE IMMEDIATELY. THE FREEZE ORDER SHALL BE FOR A PERIOD OFTWENTY (20) DAYS UNLESS EXTENDED BY THE COURT.

Authority to inquire into bank deposits (Sec. 11);

SEC. 11. AUTHORITY TO INQUIRE INTO BANK DEPOSITS. -- NOTWITHSTANDING THEPROVISIONS OF REPUBLIC ACT NO. 1405, AS AMENDED, REPUBLIC ACT NO. 6426,AS AMENDED, REPUBLIC ACT NO. 8791, AND OTHER LAWS, THE AMLC MAYINQUIRE INTO OR EXAMINE ANY PARTICULAR DEPOSIT OR INVESTMENT WITH ANYBANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION UPON ORDER OF ANYCOMPETENT COURT IN CASES OF VIOLATION OF THIS ACT, WHEN IT HAS BEENESTABLISHED THAT THERE IS PROBABLE CAUSE THAT THE DEPOSITS ORINVESTMENTS ARE RELATED TO AN UNLAWFUL ACTIVITIES AS DEFINED IN SECTION3(I) HEREOF OR A MONEY LAUNDERING OFFENSE UNDER SECTION 4 HEREOF,EXCEPT THAT NO COURT ORDER SHALL BE REQUIRED IN CASES INVOLVINGUNLAWFUL ACTIVITIES DEFINED IN SECTIONS 3(I)1, (2) AND (12).

TO ENSURE COMPLIANCE WITH THIS ACT, THE BANGKO SENTRAL NG PILIPINAS(BSP) MAY INQUIRE INTO OR EXAMINE ANY DEPOSIT OF INVESTMENT WITH ANYBANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION WHEN THEEXAMINATION IS MADE IN THE COURSE OF A PERIODIC OR SPECIAL EXAMINATION,IN ACCORDANCE WITH THE RULES OF EXAMINATION OF THE BSP.

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Penal provisions (Sec. 14);

Prohibitions against political harassment (Sec. 16).

SECTION 16. PROHIBITIONS AGAINST POLITICAL HARASSMENT. – THIS ACT SHALLNOT BE USED FOR POLITICAL PROSECUTION OR HARASSMENT OR AS ANINSTRUMENT TO HAMPER COMPETITION IN TRADE AND COMMERCE.

NO CASE FOR MONEY LAUNDERING MAY BE FILED AGAINST AND NO ASSETS SHALLBE FROZEN, ATTACHED OR FORFEITED TO THE PREJUDICE OF A CANDIDATE FOR ANELECTORAL OFFICE DURING AN ELECTION PERIOD.

6.2 Case:

Bank inquiry order under Section 11 cannot be made ex parte

Republic vs. Eugenio, et al.,G.R. 174269, February 14, 2008

ISSUE1: Respondents posit that a bank inquiry order under Section 11 may be obtained onlyupon the pre-existence of a money laundering offense case already filed before thecourts. The conclusion is based on the phrase “upon order of any competent court in casesof violation of this Act,” the word “cases” generally understood as referring to actual casespending with the courts.

HELD1: We are unconvinced by this proposition, and agree instead with the then SolicitorGeneral who conceded that the use of the phrase “in cases of” was unfortunate, yetsubmitted that it should be interpreted to mean “in the event there are violations” of theAMLA, and not that there are already cases pending in court concerning suchviolations. If the contrary position is adopted, then the bank inquiry order would be limited inpurpose as a tool in aid of litigation of live cases, and wholly inutile as a means for thegovernment to ascertain whether there is sufficient evidence to sustain an intendedprosecution of the account holder for violation of the AMLA. Should that be the situation, inall likelihood the AMLC would be virtually deprived of its character as a discovery tool, andthus would become less circumspect in filing complaints against suspect account holders.After all, under such set-up the preferred strategy would be to allow or even encourage theindiscriminate filing of complaints under the AMLA with the hope or expectation that theevidence of money laundering would somehow surface during the trial. Since the AMLCcould not make use of the bank inquiry order to determine whether there is evidentiary basisto prosecute the suspected malefactors, not filing any case at all would not be analternative. Such unwholesome set-up should not come to pass. Thus Section 11 cannot beinterpreted in a way that would emasculate the remedy it has established and encourage theunfounded initiation of complaints for money laundering.

ISSUE2: Petitioner argues that a bank inquiry order necessitates a finding of probable cause,a characteristic similar to a search warrant which is applied to and heard ex parte.

HELD2: Still, even if the bank inquiry order may be availed of without need of a pre-existing case under the AMLA, it does not follow that such order may be availed of exparte. Such orders cannot be issued unless notice is given to the owners of the account,allowing them the opportunity to contest the issuance of the order. Without such aconsequence, the legislated distinction between ex parte proceedings under Section 10 andthose which are not ex parte under Section 11 would be lost and rendered useless.

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Furthermore, the Court is unconvinced by the supposed analogy between a search warrantand a bank inquiry forwarded by petitioner. The Constitution and the Rules of Courtprescribe particular requirements attaching to search warrants that are not imposed by theAMLA with respect to bank inquiry orders. A constitutional warrant requires that the judgepersonally examine under oath or affirmation the complainant and the witnesses he mayproduce such examination being in the form of searching questions and answers. Those areimpositions which the legislative did not specifically prescribe as to the bank inquiry orderunder the AMLA, and we cannot find sufficient legal basis to apply them to Section 11 of theAMLA. Simply put, a bank inquiry order is not a search warrant or warrant of arrest as itcontemplates a direct object but not the seizure of persons or property.

Even as the Constitution and the Rules of Court impose a high procedural standard for thedetermination of probable cause for the issuance of search warrants which Congress chosenot to prescribe for the bank inquiry order under the AMLA, Congress nonethelessdisallowed ex parte applications for the inquiry order. We can discern that in exchange forthese procedural standards normally applied to search warrants, Congress chose instead tolegislate a right to notice and a right to be heard— characteristics of judicial proceedingswhich are not ex parte. Absent any demonstrable constitutional infirmity, there is no reasonfor us to dispute such legislative policy choices.