CHAPTER I

I. Role of Banks (RA 8791):

Provide conducive environment to sustain the

development of the national economy

The fiduciary nature of banking that requires

high standards of integrity and performance
II. Definition of Banks:
General: They are entities engaged in the lending of funds obtained
in the form of deposits (RA 8791)
Other:
A moneyed institute
An investment company
It involves any person engaged in the business carried on by
the banks of deposit of discount, or of circulation
A financial institution
III. Nature of Banking Business:
a.) Debtor-Creditor Relationship governed by the provisions
concerning loan
-Bank deposits are in the nature of irregular deposits. They
are really loans because they earn interest (Serrano vs.
central Bank of the Philippines).
b.) Fiduciary duty
- High standards of integrity and performance
> it requires the banks to treat the accounts of its
depositors with meticulous care, always having in mind
the fiduciary nature of their relationship
- banks are required to assume a degree of diligence higher
than that of a good father of a family
c.) Not a Trust Agreement
- contract is a simple loan
- failure of the bank to pay the depositor is not considered a
breach of trust
- the fiduciary nature of banking does not convert a simple
loan into a trust agreement because banks do not accept
deposits to enrich depositors but to earn money for
themselves
d.) Indispensible Institution

- banks play an indispensible institution in the modern world

and plays a vital role in the economic life of every civilized
nation
- as to a humble wage-earner
>banks help in safekeeping if his money and will give
some interest to help him earn more
- as to an ordinary person
>banks assists in securing his money in order to give
convenience in the settling of his monthly bills and
the payment of ordinary expenses
- as to business entities
>banks may serve as associates to help in the form of
loans and the issuance or encashment of checks
e.) Impressed with Public Interest
- trust and confidence of the public
- the stability of banks largely depends on the confidence of
the people in the honesty and efficiency of banks
f.) Degree of Diligence
- the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the
fiduciary nature of their relationship (Simex International vs.
CA)
-banks are entirely bound to treat the deposit accounts of
their depositors with the highest degree of care
Exception: commercial transactions that do not
involve their fiduciary relationship with their
depositors, ex. Issuance if foreign exchange demand
draft because it does not involve handling of deposit
(relationship is that of a buyer and seller)
NOTE: diligence extends to financial institutions
g.) Treatment of Accounts with Meticulous Care
- utmost fidelity
h.) Duty to Keep Records
-banks shall have a true and accurate account, record or
statement of their daily transactions particularly those
referring to their deposit liabilities
- false entry or the willful omission of entries relevant to any
transaction is a ground of administrative sanctions and
disqualification from office
i.) Banks are not Gratuitous Bailees

-they run for gain

j.) Banks not expected to be Infallible
- however, it must bear the blame for not discovering
mistakes of there are established procedures and the same
have not been followed
k.) Dealing with Registered Lands
-banks should exercise moir care and prudence in dealing
with registered lands than private individuals
-absent good faith, banks would be denied the protective
mantle of the land registration statute
-a mortgagee-bank must exercise due diligence before
entering into said contract
-doctrine of mortgagee in good faith
> all persons dealing with property property covered
by the torrens certificate of title, as buyers or
mortgagees, are not required to go beyond what
appears on the title
> does not apply in a situation where the mortgagor
was not the registered owner and merely represented
himself to be the attorney-in-fact
- principle to follow when mortgagee is a bank: a banking
institution is expected to exercise due diligence before
entering into a mortgage contract. The ascertainment of the
status or condition of a property offered to it as security for a
loan must be a standard and indispensible part of its
operations (Cruz vs. Bancom Finance Corp.)
- to person applying for the loan is other than the registered
owner of the real property being mortgaged should already
raise a red flag and which should induce a bank to make
inquiries into and confirm the authority to mortgage
anothers property
l.) Banks may Exclude Persons in their Premises
-banks are mandated to exercise a higher degree of diligence
in the handling of its affairs than that expected of an ordinary
business enterprise
-banks may impose reasonable conditions or limitations to
access by non-employees from the working areas for
employees
m.) Charging of Interest for Loans
- essential and fundamental element of banking business

- the very core of such business

IV. Liability for Acts of Officers and Employees
- a banks liability as obligor is not merely vicarious but primary
-banks are expected to exercise the highest degree of diligence in
the selection and supervision of their employees
- A bank is liable for the wrongful acts of its officers done in the
interest of the bank or in their dealings as bank representatives but
not for acts outside the scope of their authority (Prudential Bank vs.
CA)
A.) Negligence of Manager
- bank, as employer, is liable for the negligence or the
misdeed of its branch manager
B.) Negligence of Officers
- a bank is liable for the negligence of its officers or agents
when acting within the course and scope of their employment
C.) Negligence of Tellers
-tellers should exercise a high degree of diligence in insuring
that they return the passbook only to the depositor or his
authorized representatives
-appropriation of money for personal gain by a teller is not
estafa but theft. Since the relationship between the bank and the
teller involves confidence, such felony would be that of qualified
theft
D.) Right to Recover from Employees
- banks may recover from its employees for any payments
made in view of the latters negligent or criminal acts
E.) Liability for Damages
- there must be breach before damages may be awarded and
the breach of such duty should be the proximate cause of the injury
1.) Actual and Compensatory Damages
- the given damages may be imposed as follows:
> when the obligation is breached, the interest
due should be that which may have been
stipulated in writing and the interest due shall
itself earn legal interest from the time it is
judicially demanded

> or in the absence of such, the rate and

interest shall be 12 % per annum to be
computed from default.
> when an obligation, not constituting a loan or
forbeareance of money, is reached, an interest
on the amount of damages awarded may be
imposed at the discretion of the court at the
rate of 6% per annum
> when the judgment of the court awarding a
sum of money becomes final and executory, the
rate of legal interest is 12% per annum from
such finality until its satisfaction
2.) Exemplary Damages
- by way of example for the public good
3.) Moral Damages
- General rule: corporation, being an artificial person,
without feelings, emotions, and senses, and having
existence only in legal contemplation-is not entitled to
moral damages because it cannot experience physical
suffering and mental anguish
Exception: for breach of fiduciary duty, a
corporate client may claim such damages when
its good reputation is besmirched by such
breach, and social humiliation results therefrom
-the bank cannot be held liable for such damages in
the absence of fraud, bad faith, malice, or wanton
attitude
- a depositor has the right to recover reasonable moral
damages even if the banks negligence may not have
been attended with malice and bad faith, if the former
suffered mental anguish, serious anxiety,
embarrassment and humiliation

A. Conditions
Monetary Board ( MB) may authorize the organization of a bank or
quasi- bank subject to the following conditions: (SPC)
1. That the entity is a stock corporation
2. That its funds are obtained from the public, which shall mean
twenty 20 or more person s
3. That the minimum capital requirements prescribed by the Monetary
Board for each category of banks are satisfied.
B. Capabilities
MB shall take into consideration in terms of financial resources and
technical expertise and integrity:
1. Banks ownership structure
2. Directors and senior management
3. Its operating plan
4. Internal control
5. Its projected financial condition and Capital base (Sec. 8 GBL)
C. Capital Requirements
1. Bank to be establish the said requirements must observed
Amounts
Type of Bank

CHAPTER 2
ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS,
QUASI- BANKS AND TRUST ENTITIES
I.

Organization of Banks

( in Million
Pesos)

1. Universal Bank
4,950.0

2. At least 25% of total authorized capital stock shall be subscribed

by capital bank, at least 25% of such bank should be paid- up,
provided that paid-up capital be less than minimum required capital

2. Commercial Bank
2,400.0

D. Incorporators/ Subscribers an d Proposed directors

a. Must be in persons of integrity and good credit standing in the
business community

3. Thrift Bank

With head office in

Metro Manila

With head office

outside Metro
Manila

b. Must not have been convicted of any crime involving moral

turpitude, unless otherwise provided of existing law

325.0

c. Organization of bank:
52.0

-not less than 5 incorporators but Not more than 15.

-in case there are more than 15, excess may be listed among the
original subscribers in Articles of corporation

4. Rural Bank

Within Metro Manila

26.0

Note: Cooperatives may organized a rural bank

Cities of Cebu and

Davao

13.0

In 1st, 2nd, 3rd class

cities and 1st class
municipalities

In 5th and 6th class

cities and 2nd, 3rd
and 4th class
municipalities

6.5

3.9

Upon consultation with rural banks in the area

Provided, cooperative or corporation owning or controlling the
whole or majority of the voting stock of the rural bank shall be
subject to special examination and to the such rules and regulations
as MB prescribes

E. Bank Branches
1. Universal and commercial banks may open branches or offices
within o outside the Philippines upon prior approval of Sentral Bank.

In 5th and 6th class

municipality

2. Banks and its branches and offices shall be treated in one unit. (Sec
20, GBL)

2.6

II.

Stockholdings

A. Treasury Stocks
1. No Bank shall:
a. Purchase or acquire shares of its own capital stock

holder. Citizen shall follow the stockholders of the corporation

irrespective of the place of corporation.
3. Percentage of voting stock
Commercial Bank 60% be owned by Filipino citizen

b. Accepts its own shares as a security for a loan

Thrift Bank 40%
Exception: when authorized by MB.
Stocks acquired should be sold or disposed 6 months from
acquisition.(Section 10, GBL)
2. No bank shall make any loan or discount in security of the shares of
its own capital stock, nor be the purchaser or holder on any shares,
unless, purchase shall be necessary to prevent loss.
3. Corporation has no lien upon the shares of stockholders for any
indebtedness to the corporation.
Reason: if banking were given a lien on their own stock for
indebtedness of the stockholders, the prohibition against granting
loans or discount upon the security of the stock would become
largely ineffective.
B. Foreign Stockholders
1. Ownership- Foreign individual and non-bank corporation May own
40%of the voting stock of a domestic bank. (Sec . 11 GBL)
Provided:

The aggregate foreign voting stocks owned by foreign individuals

and nonbank corporation in a domestic bank shall not exceed 40%
of outstanding voting stock of the bank.
A Filipino individual and a domestic non Bank Corporation may
each own up to 40% of voting stock of domestic bank. No
aggregate ceiling on the ownership.

2. The percentage determination- of foreign- on voting stocks in a

bank shall be determined by citizenship of the individual stock

Rural Bank be fully and held, directly or indirectly by Filipino or

corporations, associations or cooperatives, qualified under
Philippine law.
Note: the following shall not apply in determining nationality of the bank
a. War- time test
b. Investment test
c. Place of incorporation test
d. Grandfather rule
e. Principal place of business test
C. Acquisition of Voting Stock in a Domestic Bank
1. Within seven years from the affectivity of the GBL subject to the
guidelines of Foreign Banks Liberalization act MB may authorize:
Foreign bank to acquired 100% of voting stock of only one bank
organized under the law of Phil.
2. Within seven years before the affectivity of the GBL availed itself
of privilege to acquired 60% of voting stock under Foreign Banks
Liberalization act and Thrift bank act, further acquire voting to
acquire 100% necessary for its own.
3. MB shall ensure70% of resources or assets of the entire banking
system which are at least majority owned by Filipino.
D. Family Groups or Related Interests
The following are considered as family group:

1. Individual related to each other within 4th civil degree of

consanguinity or affinity, legitimate or common law.
2. Two or more corporation owned or controlled by the same family
group of persons.

1. Meeting of the board of directors may be conducted through

modern technologies, such as but not limited to teleconferencing or
video conferencing
D. Compensation and Other Benefits of Directors and Officers

III.

Board of Directors
IV.

Fit and Proper Rule

A. Number of Directors
A. Power of Monetary Board
There shall be at least 5 and maximum of 15 members of board of
directors of bank, 2 of whom are independent directors.

INDPENDENT DIRECTOR- person other than an officer or employee of

the bank , its subsidiaries or related interests
Specifically:
a. Not had been an officer or employee of he bang during 3 yrs
counted from the date of his election.
b. Not a director or officer of the related company of the institutions
majority stockholder

1. Review the qualifications and disqualifications of individuals elected

or appointed officer unfit to the said position
2. After due notice MB may disqualify, suspend or remove individuals
elected or appointed officer unfit to the said position
3. In determination of remove individuals elected or appointed officer
unfit to the said position, the preference are his integrity,
experience, education, training, and competence
B. Disqualifications
1. The following are permanently disqualified:

c. Not a majority stockholder of the institution

a. Convicted by final judgment of court for offenses involving

dishonesty or b reach of trust

d. Not a relative within 4th civil degree of consanguinity or affinity,

legitimate or common law of any director, officer o stockholder.

b. Convicted of final judgment with a term of more than 6 years

e. Not acting as a nominee or representation of any director or any

substantial holder of the bank.

d. Those declared insolvent

f.

Free from any business or other relationship with the institution or

any substantial holder of the bank.

B. Director of Merged or Consolidated Banks

Bank merger or consolidation should not be more than 21 directors.
C. Meetings

c. Convicted of final judgment in violation of banking laws

2. The following are permanently disqualified:

a. Refuses to disclose his business interest
b. Directors who have been absent 50% of all meeting, 25% of all
board meeting in a year
c. Persons who are delinquent in payment of their obligations
d. Convicted by court for offenses involving dishonesty or b reach of
trust has not become final and executory

C. Disqualifications/ Prohibitions Under the Corporation Code

H. Prohibition on Public officials

Directors, trustee or officers are disqualified when:

Imprison for more than 6 years,

Violation of a Corporation code committed within 5 yrs prior to
election or appointment

D. Disqualifications/ Prohibitions Under the Corporation NCBA

V.

Public official are prohibited to assume office in a private bank

Banking Days and Hour

A. Numbers of Days and Hours

6 hours per day, 3 hours in Saturday, Sunday or holiday

MB disqualify from being a director, officer, employee, consultant,

lawyer, agent or stockholder of bank

B. Rules and Regulation

MB members from private sector prohibited to hold public office

Bank shall conduct business 5 days a week

MB shall not connected in multilateral banking 1yr prior to the

appointment

For purposes of withdrawals and deposits, banks may remain open

beyond 6 hours (must have prior notice)

MB shall not employ 2 yrs. After the expiration of his term, except if
he serves govt. institution

Banks at international airport or major fish port m ay open within 24

hours( must inform the BSP)

Banks may change working days and hours (must have prior notice,
changes must be 7 days before intended effectivity)

Without any prior approval with BSP Bank may close to a certain
days in celebration of important historical and/or religious event.

E. Disqualifications/ Prohibitions Under PDIC Law

PDIC prohibit to director, officer or employee of insured bank to

serve if he is convicted of any criminal offense

Bank involve may be held liable no more than100 pesos for each
day of violation

F. Disqualifications/ Prohibitions Under RA 7353

Member of the board of directors of rural bank shall be a citizen of

the Phil. From the time of assumption of office

G. Disqualifications/ Prohibitions Under Appendix 38, Manual

of Regulations for Banks (Guidelines for the Organization of
Cooperative Banks)

Cooperative bank shall disqualify to be elected or appointed to an y

position of coop. bank

Elective official of govt. except barangay official shall be ineligible

Kinds of Deposits
Demand Deposits
all those liabilities of the Bangko Sentral and of other banks which are
denominated in Philippines currency and are subject to payment in
legal tender upon demand by the presentation of the depositors
check
Who can accept or create demand deposits?
Without prior authority from BSP (Sec 33, GBL)
Universal banks
Commercial Banks
Prior Authority from BSP (Sec 58, GBL)
Thrift banks
Rural Banks
Commercial Banks

 Manner of Making Deposits

(Philippine Bank of Commerce VS CA, GR 97626)
In the ordinary and usual course of banking business:
accepted by the bank on the basis of deposit slips
prepared and signed by depositor
or by the representative of depositor
indicating the account number for crediting the deposit
the name of depositor or account holder
date of deposit
amount of deposit
indicating cash or checks
upper portion of deposit slip is detached and given to
depositor
or to the representative of depositor
lower portion kept by the bank
OR duplicates are made by depositor
original kept by the bank
duplicate copy returned to depositor
Temporary Over Drawings; Drawings against Uncollected
Deposits (DAUDS)
General Rule: Temporary Over Drawings are NOT allowed
Exception: caused by normal banks charges or other fees
incidental to account handling
Violation of the Rule
fine of 1/10th of 1% of amount overdrawing or fines
amount determined by the Monetary Board
not to exceed P30,0000
which ever is lower
Technical overdrawings arising from force posting
debited by banks in Other Assets
Returned Checks and other Cash Items no in Process of
Collection
Checks lodged will be returned or honored
Honored checks are covered by:
cash
Cashiers, Managers, Certified checks
Bank Drafts
Postal Money Orders

Treasury Warrants
Duly Funded On Us checs
Fund transfer/credit memos in the same bank
Peso demand deposits of foreign correspondent banks with
commercial banks
not subject to the same rules as above
Provided:
there is an reciprocal arrangement
covered within 15 days
credited through foreign exchange inward remittance
DAUDS

PROHIBITED
Except: drawings represented by
managers, cashiers, treasurers checks
treasury warrant
postal money order
duly funded on us (discretion of the bank)
Current
Accounts
of Bank officers and employees

Not allowed in the same banking office they are assigned

all officers
employees of cash units or cash department
other employees
directly and immediately responsible to demand deposits or
current accounts:
Records
Transactions
Extends to officers and employees
Spouses and relatives within the 2nd degree of
consanguinity and affinity
business interests: individually own or control majority
single proprietorships
partnerships
corporations
What are CHECKS?
a bill of exchange drawn on a bank payable on demand
a written order to a bank by a party having money in their hands
requesting to pay on presentment
to the bearer or order

 in a sum of money
Fixed saving and current deposits are simple loans, thus:
banker agrees to pay checks drawn by the depositor
provided there is money in the accounts
creditor is the depositor, bank is the debtor
Duty to honor checks (Moran vs CA, GR 105836)
when the bank possess the funds of the depositor, bound to honor
checks
failure to do so:
drawer is entitled to substantial damages
no need to prove actual damages
Bank is not liable when there is insufficient funds and refuses to
honor
bank notifies and endeavors the drawer to make good on his
account
not withstanding a deposit made later in the day
Depositor must show he had sufficient funds before suing to
recover a specific amount
Responsibilities of the drawer
drawer must keep track of his accounts
cannot rely notification of the bank
check is meant for immediate payment, as distinguished from a
bill of exchange
Banks to know signatures
forged checks cannot be drawn against account of depositor
No obligation to make partial payments
check drawn larger than the amount in the account
partial payment does not allow surrender of the check nor
voucher of payment
If
the
depositor has two accounts, deficiency of one cannot be

compensated by the other

refusal of payment by the bank is valid
Checks
are not legal tender

acceptance in payment is at the discretion of creditor

Sec 60, New Central Bank Act:
That a check which has been cleared and credited to the account
of the creditor shall be be equivalent to a delivery to the creditor
of cash in an amount equal to the amount credited to his account.

Savings Deposits; solicit and accept

Servicing outside bank premises
financial condition of bank is sound
operational and quality of management reasonably assuring
proposed area clearly defined
confined in a locality with no other banks in operation
OR locality untapped of deposit potentials
Maintain
safeguards

P1000 bond on deposit solicitors, subject to increase

solicitors wearing proper identification and signature
adequate insurance coverage during transit
deposit slips in booklet form, in triplicate
all collections turned over to cashier
with Collection Summary Report
date of report
names and addresses of depositors
slip numbers
amounts
account numbers
name and signature of solicitor
Depositors makes a signature card
deposits and withdrawals made by bookkeeper
End of each month, depositors are advised of the balance in
their accounts
places of assignments shall have a quarterly rotation of
solicitors
Withdrawals
Need of passbooks, accomplishing of withdrawal slips
unless authorized otherwise by BSP
NOW accounts (Negotiable Order of Withdrawals)
NOW accounts are:
interest bearing accounts
combines:
demandability of checks
investment feature of savings
Universal Banks and Commercial Banks may offer without prior
authrization
Rules on NOW accounts

 inform terms and conditions prior to opening

banks responsibility of proper identification, 2 specimen
signatures, other info
deposit slips in duplicate, validated, and initialed by teller
receiving deposit
kept and maintained separately from other accounts
blank forms shall be prenumbered and be controlled in case of
unissued and blank checks
statements sent at the end of each month
use prescribed forms
Time Deposits
one the payment of which cannot legally required within such a
specified number of days
term shall be specific period
Special time deposits
Agrarian Reform Fund commission
exemption from legal reserve requirement
Negotiable Certificates
Universal and Commercial banks can issue without prior approval
all others upon prior approval
Non-Negotiable Certificates
any bank may issue without prior approval
long-term, tax exempted
Quasi Banking Functions (Deposit Substitute Operations)
Essential Elements
Borrowing funds for the borrowerss own account (not in
representation, agent or trustee)
borrowing refers raising funds by methods for the two
purposes
real or contingent liability of borrower
20 or more lenders at any one time
Methods of borrowing:
issuance, endorsement, or acceptance of debt instruments of
any kind
except deposits
Purpose
relending

refers to extension of loans by an institution with

antecedent borrowing transactions
presumption of regularly engaged in lending
regularly engaged in lending practice of extending
loans, advances, discounts or rediscount as a matter of
business
distinguish from isolated lending transactions
purchasing receivables or other obligations
refers to acquisition of claims collectible in money
interbank borrowing
refers to acquisition of securities
any amount and maturity
foreign or domestic
Foreign
Currency
Deposits

any person may deposit

natural or juridical
in Philippine banks
good standing
designated by Central bank
upon application
foreign currencies acceptable as part of international reserve
WITH AUTHORITY TO ACCEPT
accept deposits and currencies in trust
issue certificate of evidence
discount certificate
accept said deposits as collateral
pay interest in foreign currency
Cover Requirements
100% liability coverage
15% of which shall be with Central Bank
exempted if on account of:
net worth
resources
past performances
other criteria by Monetary Board
balance
in the form of foreign loans and securities

short term maturities

readily marketable

 may include loans to domestic enterprises

export oriented or
registered with Board of Investments
cover the same currency corresponding with liablity
Central bank may pay interest
if requested, exchange into instruments draw on its
depository banks
No
restriction
on withdrawal or transferring except stipulated by

contract
Anonymous and Fictitious accounts not allowed
numbered accounts
the client is identified in an official or identifying documents
Administration of Deposits
Requirements of three specimen signatures
updated every 5 years
at the banks option submit also ID
Minors as depositors
vested with special capacity and power
in their own right and name
savings and receive interest
without assistance of parents or guardians
Must be:
at least 7 years of age
able to read and write
sufficient discretion
not disqualified by other incapacities
parents may deposit for their minor children
In
thrift banks

Same
parents or guardians can give notice to make payments of
deposits, interest or dividends to them
Corporations as depositors
Incorporation Stage
Bank Certificate required by SEC
in case of payment of subscription is in cash
paid up capital
notarized where signed
Post Incorporation Stage

Board of Directors issues resolution authorizing signatories

specifying the depository bank
Time
of
interest
payment deposits/deposit substitutes

Paid upon
maturity
withdrawal
in advance
advance shall not exceed one year
Interest rate
cost of borrowing money or
amount paid for lending money
expressed as a percentage of principal
Interest rate differential
difference or margin between interest rates
example: between domestic and foreign interest rates
Treatment of matured time deposits/deposit substitutes
a time deposit not withdraw or renewed
on it due date
treated as a savings deposit
earn interest from maturity
until date of actual withdrawal or renewal
rate applicable to savings deposit
a deposit substitute not withdrawn or renewed
on its maturity date
payable on demand
shall earn interest or yield
until actual withdrawal or renewel
rate applicable to deposit substitute with a maturity of 15
days
Banks
performing quasi-banking functions

consider matured and unwithdrawn

subject to reserves
Clearing Cut off time
General rule:
deposits and withdrawals during regular banking hours shall be
credited and debited on the date of receipt
Exception:
a bank may set up a clearing cut off time for its head office

not earlier than 2 hours before start of clearing at BSP

not earlier than 3.5 hours before start of clearing of branches,
agencies, and extension offices doing business in the
Phlippines
Provided further:
areas without BSP regional/clearing arrangements
no more than two hours of local clearing time
Booking of cash deposits
after clearing hours until regular closing of the bank
booked as deposits on day of receipt
Booking of non-cash deposits
Deposits of checks
managers, cashiers, on us, treasures checks, demand drafts
drawn against the depository bank and all its offices
including treasury warrants and postal money orders
at
their discretion, after clearing before regular closing

book as deposits on the day of receipt

other deposits shall be treated as contingent accounts on day of
receipt
booked on the following banking day
Booking of deposits after banking hours
as contingent accounts, booked on the following banking day
whether cash or non-cash
AVERAGE DAILY BALANCE
imposition and collection of service charges or maintenance fees
active or dormant accounts
falling below ADB
Conditions:
Clearly stated of such charges and fees in the terms and
conditions
rate or amount properly disclosed
fallen below minimum ADB for dormant
for at least 2 consecutive months for active
dormancy fees shall disclose
period of dormancy
informed by registered mail
at least 60 days prior to imposition of fees

any changes in terms and conditions of ADB must be

communicated at least 60 days prior to effectivity
regular mail, e-mail, courier or other alternative modes of
communication
failure to protest of depositor within 30 days of notice
constitute as acceptance
posting of said changes
on websites
ATMs
conspicuous spaces with bank premises
SURVIVORSHIP AGREEMENT
joint and several owners of a deposit agree that either of them
could withdraw any part or the whole of said account during the
lifetime of both, and the balance, if any upon the death of the
either, belonged to the survivor.
not necessarily contrary to law, but may be in the guise for: (can
be annulled)
inofficioius donation
transfer property to defraud creditors
defeat legitime
Nature
of Bank Deposits

Not preferred credits, considered as simple loans

irregular deposits because they earn interest
creditor = depositor
debtor = bank
failure to honor time deposit
breach of contract to pay
not a breach of trust
obligated to return the amount deposited
not the exact bills
ownership
of the money transmitted to the bank upon perfection

of contract
can make use of the money for its banking operations and
business
obliged to pay interest and withdrawals
See Article 1960 of NCC - simple loans govern bank deposits
Duties of a bank
Meticulous care

 nature of its function

high standards of integrity and performance
depositors are not estopped from questioning wrongful
withdrawals
even if they failed to question those errors sent for
verification
expected to treat with utmost fidelity, no matter the amount
record every single transaction promptly
See BPI vs IAC GR 69162
Payment to proper party
no right to pay other persons that do have the right or
authority to receive
payment to wrong party does not extinguish obligation
good faith or mistake not a defense
with out negligence or fault to the creditor
In Case of death of Depositor
NIRC Section 97, provides
Not allow withdrawal until certified by CIR
taxes have been paid
administrator or any one heir may withdraw
with certification from CIR
not more than P20,000
Secrecy of Bank Deposits
Purpose
encouragement to deposit money in banking institutions
discourage private hoarding
proper utilization for economic development
Absolute Confidentiality
All deposits of whatever nature
including investments bonds
Foreign investment accounts
Islamic Banks
exceptions:
inspection of banks auditor
permission of bank auditor
subject to a court order
Exceptions under Bank Secrecy Law
written permission of depositor

in cases of impeachment
upon order of a competent court
cases of public officials
bribery
dereliction of duty
money deposited or invested is subject matter of litigation
Garnishment
See Rule 39, Sections 9(c) and 13
Section 13 are the exempted properties
no
real inquiry in garnishment

disclosure is purely incidental to the execution of

garnishment
Foreign
currency law cannot be used to shield wrong

doing
see case of Salvacion vs Central Bank GR 94723
not the intent of the legislature
Graft and Corruption cases inquiries can be made
bank deposits can be inquired into for unexplained wealth
public office is a public trust
inquiry extends itself to cases of property concealed
illegally acquired
held or recorded in the name of another person
AMLC (Anti-Money Laundering Council) & AMLA
AMLC may inquire if:
probable cause deposits or investment are related to
unlawful activity
a money laundering offense
no court order required if:
kidnapping for ransom
violation of Comprehensive Dangerous Drugs Act
Hijacking
destructive arson and murder
including terrorist against non-combatant persons
Periodic or Special Examinations by BSP
BSP may inquire in accordance with rules of examination
Monetary Board
reasonable ground to believe there is bank fraud or
serious irregularity

specifically authorized bank by Monetary Board

Independent Auditor hired by the bank
audit purposely only
exclusively to the bank
natural consequence of examination
In Camera Inspection by Ombudsman
there must be a pending case before a competent court of
jurisdiction
account clearly identified
limited to the subject matter of litigation
bank personnel and account holders duly notified
to be present during inspection
cover
only the account identified

investigation is not considered a pending case

before a competent court of jurisdiction
Preliminary attachment
part of the subject matter under litigation
does not conflict with bank secrecy law
Disclosure of dormant account
Act 3936 Section 2
An Act Requiring Banks, Trust Companies... and Banking
Institutions of Every Kind to Transfer Unclaimed
Balances Held by Them to the Insular Treasurer
name and address of last know place of residence
amount and date of outstanding deposit (money or
security)
date of death depositor or date of his last deposit or
withdrawal
interest due, if any
publish info in 2 newspapers of general circulation for 3
consecutive weeks
Authority of CIR to inquire into Deposits
Section 6 of NIRC
determine gross estate of decedent
any tax payer who filed for compromise
reason of financial incapacity
application will not be considered without a
written waiver from tax payer

Waivers by: DORIS

Director
Officer
Related Interest
Stockholder
Requirements
obtains:
a loan; or
financial accommodation
From:

his bank
from a bank
subsidiary of a bankholding company
a.
which his bank AND the lending bank are
subsidiaries
OR in which a controlling proportion of the shares
is owned by the same interest that owns a
controlling proportion of the shakes of his bank,
1. in excess of 5% of the capital and surplus of the
bank or
2. in the maximum amount permitted by law
III. Survivorship Agreement
There is survivorship agreement when joint (and several) owners of
a deposit agree that either of them could withdraw any part or the whole
of the said account during the lifetime of both, and the balance, if any,
upon the death of either, belonged to the survivor. It is an aleatory
contract. Article 1790 states that by an aleatory contract one of the
parties binds himself, or both reciprocally bind themselves, to give or to
do something as an equivalent for that which the other party is to give or
do in case of the occurrence of an event which is uncertain or will happen
at an indeterminate time.
Survivorship agreement is not invalid per se but its operation or
effect may be violative of law. For instance, if it be shown in a given case
that such agreement is a mere cloak to hide an inofficious donation, it
may be assailed and annulled upon such ground.
IV. Nature of Bank Deposits
Fixed, savings and current deposits of money in banks and similar
institutions are considered simple loans and not preferred credits.

Bank deposits are in the nature of irregular deposits. They are really
loans because they earn interest. A depositor is in reality a creditor
of the bank and the bank is in turn a debtor of a depositor. Failure of
the bank to honor the time deposit is failure to pay its obligation as
a debtor and not a breach of trust arising from a depositarys failure
to return the subject matter of the deposit.

Where the ownership of the deposit remained undetermined,

a bank, as the debtor, had no right to pay to persons other than

those in whose favour the obligation was constituted or whose right
or authority to receive payment is indisputable. Payment made by
the debtor to the wrong party does not extinguish the obligation as
to the creditor who is without fault or negligence, even if the debtor
acted in utmost good faith and by mistake as to the person of the
creditor, or through error induced by fraud of a third person.

The ownership of the amount deposited was transmitted to the

bank upon the perfection of the contract and it can make use of the
amount deposited for its banking operations. The bank, therefore,
has no obligation to return or deliver the same money that was
deposited but it has the obligation to return the amount deposited.
Failure of the bank to return the amount deposited will not
constitute estafa through misappropriation but will only give rise to
civil liability.

The contract between the bank and its depositor is covered by the
provisions of the Civil Code on simple loan. 1

The bank ultimately acquires ownership of the deposits but such

ownership is coupled with a corresponding obligation to pay the
depositor the equal amount on demand. Thus, a bank does not
have a unilateral right to freeze the accounts of a depositor based
on its mere suspicion that the funds therein were proceeds of a
scam the depositor was allegedly involved in.

V. Duties of Banks
A bank is required to take meticulous care of the deposits of

its clients, who have the right to expect high standards of integrity
and performance from it.

Set-off. As a general rule, when a depositor is indebted to a bank

and the debts are mutual, that is, between the same parties and in
the same right, the bank may apply the deposit or a part thereof to
the payment of the debt due it by the depositor, provided there is
no express agreement to the contrary and the deposit is not
specifically applicable to some other particular purpose.

The National Internal Revenue Code provides: (section 97,

check later)2
VI. Secrecy of Bank Deposits
Purposes:
To give encouragement to the people to deposit their money

in banking institutions; and

To discourage private hoarding so that the same may be

properly utilized by banks in authorized loans to assist in the

economic development of the country.
Zones of privacy are recognized and protected in our laws. Invasion of
privacy is an offense in special laws like the Secrecy of Bank Deposits Act. 3
All deposits of whatever nature with banks or banking institutions in
the Philippines including investments in bonds issued by the Government
of the Philippines, its political subdivisions and its instrumentalities, are

2
Sec. 97, NIRC

3
Article 1980, NCC

RA No. 1405

considered as of an absolutely confidential nature and may not be

examined, inquired or looked into by any person, government official,
bureau or office. It is provided for in RA 8637 that inquiry into and
disclosure of deposits is prohibited.
All foreign currency deposits are also of an absolutely confidential
nature and in no instance shall it be examined, inquired or looked into by
any person, government official, bureau or office whether judicial or
administrative or private except upon the written permission of the
depositor. 4
In Islamic banks, banking transactions relating to all deposits of
whatever nature are also confidential and may not be examined, inquired
or looked into by any person, government official, bureaus or office
except: inspection by the banks auditor, upon written permission by the
depositor or in cases where the money deposited or the transaction
concerned is the subject of a court order. 5
VII. Exceptions to Secrecy of Deposits
Upon written permission of the depositor

Exemption from attachment, garnishment, or any other order or

process of any court, legislative body, government agency or any
administrative body whatsoever, is not applicable to a foreign currency
deposit. It cannot be used as a device for wrongdoing, and in so doing,
acquitting the guilty at the expense of the innocent.
The Anti-Graft Law directs in mandatory terms that bank deposits
shall be taken into consideration in its enforcement, notwithstanding
any provision of law to contrary. Cases of unexplained wealth are
similar to cases of bribery and dereliction of duty; hence, the rule
making bank deposits confidential is not applicable in such case. This
policy expresses the notion that a public office is a public trust and any
person who enters upon its discharge does so with full knowledge that
his life, so far as relevant to his duty, is open to public scrutiny.
The AMLC may inquire into or examine any particular deposit or
investment with any banking institution or non-bank financial
institution upon order of any competent court in cases of violation,
when it has been established that:
There is probable cause that the deposits or investments are
related to an unlawful activity; or

In cases of impeachment

Upon order of a competent court in cases of bribery or

dereliction of duty of public officials

In cases where the money deposited or invested is the

subject matter of the litigation

The prohibition against examination of or inquiry into a bank
deposit does not preclude its being garnished to insure satisfaction of
judgment. Indeed there is no real inquiry in such a case, and if the
existence of the deposit is disclosed, the disclosure is purely incidental
to the execution process. It was not the intention of the lawmakers to
place bank deposits beyond the reach of execution to satisfy a final
judgment.

4
Sec. 8, RA No. 6426

A money laundering offense.6

The Bangko Sentral ng Pilipinas may inquire into or examine any

deposit or investment with any banking institution or non-bank financial
institution when the examination is made in the course of periodic or
special examination, in accordance with the rules on examination of the
BSP. Disclosure is also allowed in an examination authorized by the
Monetary Board after being satisfied that there is a reasonable ground to
believe that a bank fraud or serious irregularity has been or is being
committed. Another exception id the examination made by an
independent auditor hired by the bank to conduct its regular audit
provided that the examination is for audit purposes only and the results
thereof shall be for the exclusive use of the bank.
The Ombudsman has the power to examine and have access to
bank accounts and records, provided that there must be a pending case
before a court of competent jurisdiction. The account must be clearly
identified and the bank personnel and the account holder must be notified

6
Sec. 17, RA No. 6848

RA No. 9160

to be present during the inspection and such inspection may cover only
the account identified in the pending case. 7
Section 10, Rule 57 of the Rules of Court provides: Examination of
party whose property is attached and persons indebted to him or
controlling his property; delivery of property to sheriff. Any person owing
debts to the party whose property is attached or having in his possession
or under his control any credit or other personal property belonging to
such party, may be required to attend before the court in which the action
is pending, or before a commissioner appointed by the court, and be
examined on oath respecting the same. The party whose property is
attached may also be required to attend for the purpose of giving
information respecting his property, and may be examined on oath. x x x
The said rule is not incompatible with the law on secrecy of bank deposits
because it provides an exception in cases where the money deposited or
invested is the subject matter of the litigation.
Disclosure of dormant accounts is also an exception in the Secrecy
of Bank Deposits since it is provided for by law that x x x all banks shall
forward to the Insular Treasurer a statement, under oath of their
respective managing officers, of all credits and deposits held by them in
favour of persons known to be dead, or who have not made further
deposits or withdrawals during the preceding ten years or more, x x x. 8
The Commissioner of Internal Revenue has the authority to inquire
into deposits as provided in Section 6 of the 1997 National Internal
Revenue Code, specifically to inquire into the bank deposits of:
A decedent to determine his gross estate

Any taxpayer who has filed an application for

compromise of his tax liability under Sec. 204(A)(2) of this

Code by reason of financial incapacity to pay his tax liability.
However, his application shall not be considered unless and
until he waives in writing his privilege under RA No. 1045 or

7
Sec. 15(8), RA No. 6770

8
Sec. 2, RA No. 3936

under other general or special laws, and such waiver shall

constitute the authority of the Commissioner to inquire into
the bank deposits of the taxpayer.

Section 26 of the New Central Bank Act also provides:

Bank Deposits and Investments. Any director, officer or
stockholder who, together with his related interest, contracts a loan or any
form of financial accommodation from: (1) his bank; or (2) from a bank (a)
which is a subsidiary of a bank holding company of which both his bank
and the lending bank are subsidiaries or (b) in which a controlling
proportion of the shares is owned by the same interest that owns a
controlling proportion of the shares of his bank, in excess of five percent
(5%) of the capital and surplus of the bank, or in the maximum amount
permitted by law, whichever is lower, shall be required by the lending
bank to waive the secrecy of his deposits of whatever nature in all banks
in the Philippines. Any information obtained from an examination of his
deposits shall be held strictly confidential and may be used by the
examiners only in connection with their supervisory and examination
responsibility or by the Bangko Sentral in an appropriate legal action it has
initiated involving the deposit account.