Law On Public Officers

BANKING LAW REVIEWER – San Beda, College of Law BY: Section 2S - Manila, Intig and De Jesus
BANKING LAWS AND JURISPRUDENCE  It is not a trust agreement and failure

to pay a loan is not a breach of trust
 It is not a trust agreement because
banks do not accept deposits to
Topic Page
Chapter 1 – Banks and Business of Banking 1 enrich depositors but to earn for
Chapter 2 – Organization, Management, 3 themselves
Administration Of Banks 4. Indispensable Institution
Chapter 3 – Deposit Functions Of Banks 6  Has a vital role in economic life
Chapter 4 – Investments, Loans and Other Bank 10  Significance of banking institution to
Functions commercial transactions
Chapter 5 – Prohibited Transactions and Cessation 22 (Metropolitan Bank & Trust Co. vs.
Of Banking Business Cabilzo)
Chapter 6 – Foreign Banks and Trust Operations 28 5. Impressed with public interest
 Has public interest because people
depend on the honesty and efficiency
CHAPTER 1 – Banks and Business of Banking of banks
 Stability of banks largely depends on
 Declaration of the state with regards to the confidence of the people in the
banking – recognize vital role of the banks honesty and efficiency of banks.
to provide environment conducive to 6. Degree of diligence
development of national economy  Diligence higher than that of a good
o It also states that banks need high father. It must be extraordinary
standards of integrity and diligence
performance  In Simex International vs. CA, the
 Banks – entities engaged in the lending of bank is under obligation to treat the
funds obtained in the form of deposits accounts of its depositors with
(borrowing, lending, safe-keeping) meticulous care and always have in
 Banks may engage in other activities mind the fiduciary nature of banks
allowed by the law other than lending  Not enough that he exerted
reasonable diligence to ascertain the
Nature of Banking Business
safety of his clients
1. Debtor-Creditor Relationship  Such diligence is only required in its
 It is a contract of loan and not fiduciary relationship with its
deposit depositors and not to other
 Contract between bank and depositor transactions such as sale of foreign
is governed by the provisions of the exchange demand draft
NCC on simple loan (Consolidated  Sec 2 of GBL prescribes the
Bank and Trust Corp vs. CA) statutory diligence required from
2. Fiduciary duty banks – “high standards of integrity
 Fiduciary relationship – bank’s and performance” in serving its
obligation to observe high standard depositors.
of integrity and performance (Phil.  Diligence required of banks is more
Banking Corp. vs. CA) than that of a good father (PBCom
3. Not a trust agreement vs. CA)
1
 Diligence extends to financial 13. Charging interest for loans

institutions (e.g. GSIS)  It is considered the very core of the
7. Treatment of accounts with meticulous care banking’s very existence
 Must treat every account with utmost
fidelity regardless of amount Liability for Acts of Officers and Employees
 There is no law mandating banks to
 A bank is liable for the wrongful acts of its
call up their clients whenever a
officers done in the interest of the bank or
significant amount shall be
dealings as bank representatives but not for
withdrawn from their account
acts outside the scope of their authority.
8. Duty to keep records
9. Banks are not gratuitous bailees 1. Negligence of Manager – employer is liable
10. Banks not expected to be infallible
to the acts of the manager
 However, they must bear the loss for
2. Negligence of officer – general rule: tortious
not discovering mistakes if there are
acts of officers within their scope of
established procedures not followed
employment shall make banks liable
11. Dealing with registered lands
3. Negligence of tellers – tellers must exercise
 General Rule: mortgagee can rely on
high degree of diligence
title and does not need to investigate
 Teller should not give passbook to
further
wrong person as a person in
 Exception: mortgagee cannot close
possession of passbook is presumed
his eyes to facts which should put a
the owner
reasonable man on his guard, and yet
 Appropriation of deposited money
claim that he is in good faith
by the teller is not estafa but
 With banking institutions, mere
considered as theft as the client only
reliance on the title is not enough as
had material possession of it. Such
they need to investigate also
deposit money are considered owned
 Doctrine of the “mortgagee in good
by the bank
faith” – all persons dealing with
4. Right to recover from employees
property covered by the Torrens 5. Liability for damages
Certificates of Title are not required  Actual, exemplary, moral
to go beyond what appears on the  Actual and compensatory – the
face of the title. (Cavite interest due shall itself earn interest
Development Bank vs. Spouses Lim) from the time it is judicially
 The business o a bank is one affected demanded
with public interest, for which reason  12% - legal interest when
ghe bank should guard against loss judgment becomes final and
due to negligence or bad faith (Sps. executory
Omengan vs. PNB)  6% - interest for obligations not
 Where the mortgagee does not constituting a loan or forbearance of
directly deal with the registered money
owner of real property, the law  Moral damages
requires higher degree of prudence  Gen. Rule – a corporation is not
be exercised by the mortgagee (Abad entitled to moral damages
vs. Guimba)  Exception – when its good
12. Banks may exclude persons in their reputation is besmirched by breach
premises of fiduciary duty.
2
 In culpa contractual – recoverable associations and (3) private

if there is fraud or bad faith development banks
 Depositor may recover even if  Thrift Banks Act (RA 7906)
bank’s negligence not attended by 5. Cooperative banks – organized by
bad faith if he suffered mental cooperatives to provide financial and credit
anguish, serious anxiety, etc. services to cooperatives
6. Respondeat superior of employees  Cooperative Code (RA 6938)
 Command responsibility  Membership of a cooperative bank
 A bank is bound by the negligence of shall include ONLY cooperative and
its employees federations of cooperatives
6. Islamic Banks – promote socio-economic
Classification of Banks (CUT-RICO-NQU) development in autonomous region by
performing banking and investment function
1. Universal Banks – large commercial banks
based on Islamic concept of banking
that can do both commercial and investment
 Islamic Bank – RA 6848
banking
 Subject to the principles and rulings
 They have the power of both
of Islamic Shari’a
commercial bank and investment 7. Others banks:
house  Philippine Veterans Bank – created
 Have the power to invest in non- to provide government depository to
allied enterprises veterans for appreciation of grateful
2. Commercial banks – general powers
nation (RA 3518)
incident of corporation and can perform
 Land bank of the Philippines –
commercial banking
finance distribution of estate to
 Does not have the power to invest in
resale to small landholders (RA
non-allied enterprises
3844)
3. Rural banks – banks that promote rural
 Development Bank of Philippines –
development
provide credit facilities for
 They can extend loan or advances to
development in agriculture,
primarily meet the normal credit
commerce and industry
needs of farmers, fishermen and their
 DBP was previously named
families
as Rehabilitation Finance
 Can also deposit in private banks
Corporation (RFC)
more than the amount prescribed by
8. Non-stock savings and loan associations –
Single Borrower’s Limit in case
non-stock, non-profit corporation engage in
there are no government banks
accumulation of savings of its members and
 Rural Banks Act (RA 7353)
4. Thrift banks – encourages the industry, loans to meet its members’ needs
 Confines exclusive membership and
frugality and accumulation of savings of the
cannot transact business with the
public
 To make it within easy reach to the general public
9. Quasi-banks – engaged in borrowing of
people the credit facilities at
funds through issuance of deposit substitute
reasonable cost
 Includes: (1) savings and mortgage for purpose of relending or purchasing
receivables and other obligations
bank, (2) stock savings and loan
3
10. Offshore Banks – deals with transaction charges a commission to lender and banker,
with foreign currencies in receiving funds it is a bank
from external sources and utilization of such  Investment company engages primarily in
 Governed by PD 1034 the investing or trading of securities and is
not a bank
Authority to Engage in Banking and Quasi-Banking
Functions Bank name
 No person or entity shall engage in baking  Only universal and commercial banks may
operations without authority from Bangko represent itself to the public as such in
Sentral connection with its business name
 Universal or commercials banks may engage  Thirft banks can be allowed to have a
in quasi-banking functions business name of its own provided that “A
 Under Corporation Code: thrift bank, savings bank or private
o No articles of incorporation or development bank” shall be added
amendment of banks shall be given  Above rule is also available to Rural/Coop
unless accompanied by
recommendation of appropriate
government agency (MB) CHAPTER 2 – Organization, Management,
 The determination whether the person or
Administration of Banks
entity is performing banking or quasi-
banking functions without authority of BSP Organization of Banks
shall be determined by MB
o MB may examine the books and  MB can authorize the organization of a bank
records to achieve this purpose based on the following conditions:
 The department head and examiners can 1. Entity is a stock corporation (par
administer oaths and compel presentation of value stocks only)
2. Funds are obtained from the public
books, documents or records
 BSP can examine a bank or an enterprise which shall mean twenty persons or
that is wholly or majority-owned by the more
3. Minimum capital requirement
bank
o This can only be done when BSP is prescribed by MB shall be satisfied
 MB shall take into consideration the
examining bank
capabilities of the entity in terms of their
 SEC shall not register articles of
financial resources, technical expertise and
incorporation of bank unless it is
integrity
accompanied by authority of MB
 Bank licensing process shall incorporate
 SEC shall not register by-laws of bank
assessment of:
unless accompanied by authority of BSP
1. Banks’ ownership structure
Service of summons upon banks
2. Director management
o May be made on the president, managing
3. Operating plan
partner, general manager, corporate 4. Internal controls
secretary, treasurer, in-house counsel 5. Projected financial condition
(domestic)  Capital requirements:
o Upon resident agent or BSP (foreign bank)
 As long as institute loans out money to its Type of Bank Amount (M)
customers and collect the interest and Universal 4,950
4
Commercial 2,400 1. Except if it approved

Thrift banks by MB and will be
1. Head office in Manila 325 returned in 6 months
2. Otherwise 52  Reason: if banks were allowed to
Rural Banks have a lien in their own stocks for
1. Within Manila 26
indebtedness of stockholders,
2. Cebu/Davao 13
st rd st prohibition against granting loans or
3. 1 -3 class city and 1 class 6.5
municipality discounts upon security would
4. 4th-6th class city and 2-4th 3.9 become ineffective
class municipality 2. Foreign stockholdings:
5. 5th-6th class municipality 2.6  Foreign individuals and non-banks
 At least 25% of total authorized capital can own 40% of voting stock of
stock shall be subscribed by subscribers of domestic bank.(aggregate foreign
proposed bank voting stocks)
 25% of such subscription shall be paid-up. It  A Filipino individual and domestic
shall not be less than the minimum capital non-bank may each own up to 40%
requirement of the voting stock (no aggregate
 Incorporators/subscribers and proposed ceiling)
directors and officers must be (2) persons of  Citizenship of the corporation shall
integrity and (1) good credit standing follow the citizenship of the
 Such persons must (1) not be convicted of controlling stockholders (>50%)
crime involving moral turpitude and (2) not  The percentage of foreign-owned
officers of government agency or voting stocks in a bank shall be
department charged with granting loans to determined by the citizenship of
banks individual stockholders
 Bank is organized 5-15 people  At least 60% of voting stock in any
(incorporators) commercial bank shall be owned by
 Cooperatives may organized a rural bank Filipino citizens
upon consultation with the rural banks in the  In thrift banks, it shall be at least
area 40%
 Bank and its branches shall be treated as one  Rural banks, 100% Filipinos
unit  In determining nationality of banks,
 Universal and commercial banks may open control test is applied
branches within or outside the Philippines  Family groups or related interest
upon prior approval of BSP must be fully disclosed in all
 Other banks shall be governed by their transactions of the individual
pertinent laws
Board of Directors
Stockholdings
 According to Corporation Code, there shall
1. Treasury Stocks be at least five and maximum of 15 board of
 GBL provides that NO bank shall: directors of bank
i. Purchase or acquire shares of  Two of such shall be independent directors.
its own capital stock Independent director – person other than
ii. accept own shares as security officer or employee of bank
for loan
5
 All must be of legal age and majority of f. Administratively liable for violation
them are residents of the Philippines of banking laws with penalty of
 Non-Filipino citizens may become members removal from office
of board of directors of bank up to the extent g. Found unfit for position
of allowed foreign participation  There can be also temporary
 Directors of merged or consolidated banks disqualifications and shall exist until DQ is
shall not exceed 21 gone
 Election: President, Treasurer (director or  Under CC (Corporation Code)
not), Secretary (resident citizen). Not disqualification is only with (1)
allowed position: President/Secretary, imprisonment more than 6 years or (2)
President/Treasurer violation of code committed within 5 years
 Meetings may be conducted through modern  NCBA also provides DQ for members of
technologies MB that is connected with bank under
 A foreigner may be a member of the Board supervision or examination of BSP
of directors of a rural bank at the time of  Public officials cannot also be an officer of
their assumption of office any private bank unless position is incidental
 To protect funds of depositors and creditors, to office
MB shall regulate payment of directors  Rural Banks Act – public official may be
under certain circumstances: director (exception)
1. Comptrollership  PDIC – conviction of any criminal offenses
2. Business in unsafe or unsound involving breach of trust
manner
3. Bank is found to be in an Banking Days and Hours
unsatisfactory financial condition
 At least 6 hours a day on working days
Fit and Proper Rule (Mon-Fri except holidays)
 May open in Saturdays, Sundays and
 Powers of MB against directors: holidays for 3 hours (to report to BSP)
a. Review qualifications and DQs of  For purposes of deposits and withdrawals,
directors bank can extend beyond or early of 8AM
b. After due notice, may disqualify, and 8PM
suspend or remove director  If it is for other purposes, they can exceed 6
c. Fit and proper rule shall be hours minimum but not extend beyond or
determine by - integrity, experience, early of 8AM and 8PM
education, training, competence of  Banks in airports or major fish ports can
the director open 24hours
 Disqualifications of directors:  Changes in banking days and hours can be
a. Convicted of final judgment
made once every 30 days except during
involving dishonesty or breach of
emergencies
trust
b. Persons convicted of final judgment ATMs
with a maximum imprisonment term
of more than 6 years  Classes: 1.) Offsite 2.) Mobile
c. Convicts of banking laws
d. Persons judicially declared insolvent  Banks may establish off-site ATMS
e. Culpable of bank’s closure provided that there is report on BSP and
6
adequate security measures. They are between any of them which they are
installed only in centers of activity directors, officers, or stockholders
 Mobile ATMS are allowed to visit places
with large crowds of people provided it has Strike and Lockouts
adequate security
 Any unsettled strike or lockouts involving
Independent Auditor banks after 7 days shall be reported by BSP
to DOLE who will assume jurisdiction
 MB may require bank to engage services of  Banks, through their president, shall inform
independent auditor from list of CPA BSP of the cause of the strike and the
acceptable to MB operations affected
Financial Statements
 Every bank, quasi-bank or trust entity shall

submit to the BSP its financial statements
 Such statements must show the actual CHAPTER 3 – Deposit Functions of Banks
financial condition of its institution, I. Kinds of Deposits
including its operations
 Must publish such in an understandable 1. Demand deposits
knowledge once every quarter in a
newspaper of general circulation  All those liabilities of BSP and of other
 Consolidated financial statement – banks which are denominated in Philippine
combined statement of balance sheet and currency and are subject to payment in legal
income expenses of two or more corporate tender upon demand by presentation of
entity checks
 Subsidiary – corporation where more 50%  Only universal and commercial banks may
of its voting stock is owned by a bank accept or create demand deposits without
 Affiliate – linked directly/indirectly to the prior authority from BSP
bank by 1.) 10% ownership or control 2.)  Other types of bank require such authority.
interlocking directorship 3.) common This considered as the current account in the
stockholders owning 10% of each bank
intermediary 4.) management contract 5.) 1.a. Temporary over drawings and DAUD
permanent proxy or voting trust of 10%
 Temporary overdrawings are not allowed
Publication of Capital Stocks
except normal bank charges and other fees
 Bank, quasi-bank or trust entity shall not incidental to handling such accounts
publish the amount of its subscribed capital  Violations of temporary overdrawings will
stock without indicating the amount of its cause (1/10 of 1%) fine per day computed
capital actually paid-up on the basis of the amount of overdrawn but
not to exceed P30,000.00 per day
Settlement of Disputes  Drawings against uncollected deposits
(DAUD) – prohibited. Exception: made
 BSP shall be consulted by (1) government against uncollected deposits representing
agencies in actions initiated or brought manager’s, cashier’s, treasury warrants,
before them by banks and (2) disputes postal money order and on us check
7
1.b. Current accounts of officers  A bank can set off or compensate by

debiting a personal account of depositor for
 All officers, employees of bank in cash an amount erroneously credits to the
departments and other employees who have person’s proprietorship account
direct responsibility in handling deposit
transactions are not allowed to maintain 1.e. Relationship of Payee or Holder and the Bank
demand deposits or current accounts  Principal and agent – relationship between
payee or holder of commercial paper and the
1.c. Checks
bank to which it is sent for collection (PCIB
 A written order addressed to a bank or vs. CA)
person carrying banking business, by a party
having money in their hands, requesting 2. Savings Deposits
them to pay on presentment, to a person
named therein or to bearer or to order, a  Banks may be authorized by the BSP to
named sum of money (Moran vs. CA) solicit and accept deposits outside their bank
premises
1.d. Duty of bank to honor checks
2.a. Individual and Joint Accounts
 When bank sees that depositor’s account has
sufficient amount, then it shall honor such  If the joint account is “and”, both signatures
 If there is sufficient amount but bank of co-depositors are required before
dishonored, then bank is liable. Otherwise if withdrawals
there is no sufficient amount  If “and/or” either their signature is sufficient
 Banks must ensure that the check is only
2.b. Withdrawals
paid to its designated payee
 Drawer must remember every time he issues  There must always be a presentation of
a check and a bank must know the former’s passbook and accomplishing necessary
signature
withdrawal slips before withdrawal except if
 A bank is under no obligation to make
authorized by BSP
partial payment on the check only upon the
amount in the drawer’s funds 3. Negotiable Order of Withdrawal Accounts
 The cannot also compensate the lack of
money in the deposit account to the savings  NOW accounts are interest bearing deposit
account accounts that combine the payable on
 Cross-check must be: (1) may not be demand feature of checks and investment
encashed but only deposited (2) check feature of savings account
negotiated only once – to one who has an  Universal and Commercial banks may offer
account with a bank and (3) serves as NOW accounts but other banks need prior
warning to holder (State Investment House approval of MB
vs. IAC)
4. Time Deposits
 Cashier’s check – bank’s own check and is
treated as PN with the bank as maker  Time deposits – one the payment of which
 - deemed as cash (New Pacific Timber & cannot be legally required within such
Supply Co. Inc. Cs. Señeris) specified number of days
1.d. Set off Rule
8
 Special time deposits from the Agrarian 3. The balance shall be in form of
Reform Fund Commission with lower foreign currency loans/securities
interest shall be exempt from legal reserve which are short-term maturities and
requirements readily marketable
 Certificated of Time Deposits can either be 4. Such loans can be extended to
negotiable or non-negotiable. Only domestic enterprises to cover the
Universal or commercial banks can issue 100% foreign currency cover
negotiable CTDs without prior approval of  Depository banks under the expanded
BSP foreign currency deposit system shall be
exempt from the 15% requirement of deposit
5. Deposit Substitute (Quasi-Banking Function) with BSP
 There is no restriction on withdrawals by
Essential Elements of quasi-banking are:
depositor of his deposit of the same abroad
1. Borrowing funds for the borrower’s account except does arising from contract of
2. Twenty or more lenders at any one time depositor and bank
3. Methods of borrowing are issuance,
endorsement or acceptance of debt 7. Anonymous and Numbered accounts
instruments
 Such accounts are not allowed. Numbered
4. Purpose is for relending and purchasing
accounts is only allowed in foreign currency
receivables
 Borrowing – all forms of obtaining or deposits
 However, banks/non-banks should ensure
raising funds
 For the borrower’s own account – that the client is identified in an official
assumption of liability in one’s own capacity document
 Relending – refer to the extension of loans II. Administration of Deposits
by an institution with antecedent borrowing
transactions 1. Specimen signature, ID photos
6. Foreign Currency Deposits  All banking institutions are required to set a

minimum of 3 specimen signature from their
 Any person, natural or juridical may deposit depositors every 5 years or sooner
with such any bank in good standing  Banks may also require submission of ID
designated by BSP, foreign currencies which photos
are acceptable as part of international  First time depositors require the presentation
reserve, except those which are required by of at least 2 valid phot-bearing Ids
BSP to be surrendered  Students who are beneficiaries of OFW are
 Such banks can accept deposits and accept also required to present 2 Ids
foreign currencies in trust  Submission is one-time basis only
1. Numbered accounts for recording
and servicing of deposits are allowed 2. Minors and Corporations as Depositors
 The depository bank shall
1. Maintain at all times a 100% foreign  Minors can have savings and time deposit
currency cover for their liabilities accounts without assistance of parents
2. 15% of such must be in the form of 1. Must be at least 7 yrs old
foreign currency deposit with BSP 2. Able to read and write
3. Sufficient discretion
4. Not otherwise DQed by law
9
 Parents can still deposit money to minor  “on us” checks, manager’s/cashier’s checks,
 For deposits of minors in thrift banks, demand drafts received after clearing cut-
guardian may make notice that payment off time may, at the option of the bank, be
(deposits, interest, dividends) be made to booked on the day of receipt. Other non-
him and not to the minor cash deposits are treated as contingent
 Corporations may open bank accounts as accounts on the day of receipt and shall be
follows: (1) Incorporation stage and (2) Post booked as deposits the following day
incorporation stage
3. Time of payment of interest in time deposits 8. Booking Deposits after regular banking hours
 Interest on time deposit may be paid upon  Deposits, whether cash or not, received
maturity, withdrawal or advance provided after close of regular banking hours shall be
that the interest paid in advance shall not treated as contingent accounts and booked
exceed interest for one year the following day
4. Treatment of matured time deposits 9. Average Daily Balance
 Time deposits not withdrawn or renewed on  Banks may impose and collect service
its due date shall be treated as a savings charge or maintenance fee on savings and
deposit and shall earn interest until actual current accounts that fall below minimum
withdrawal with rates of savings deposit monthly average daily balance (ADB)
 Deposit substitute not withdrawn shall have  must be properly disclosed in the terms of
a maturity rate applicable to a deposit deposit
substitute  For dormant accounts: fall below 2
consecutive months
5. Clearing Cut-off Time
III. Survivorship Agreement
 General rule: all deposits and withdrawals
during regular banking hours shall be  There is survivorship agreement when joint
credited/debited to accounts on date of owners of a deposit agree that either of them
receipt or payment could withdraw any part or whole of account
 If there is BSP clearing arrangement, not during lifetime of both and the balance upon
earlier than 2 hours before BSP clearing death of either belongs to the survivor
time in head offices and 3.5 hours in  It is an aleatory contract
branches  Survivorship agreement is per se not
 If there is no BSP clearing arrangement 2 contrary to law but may be violative
hours before local clearing time  Agreement can be a mere cloak to hide in
inofficious donation to transfer property in
6. Booking Cash Deposits fraud
 Cash deposits received after clearing cut-off IV. Nature of Bank Deposits
time shall be book as deposits on day of
receipt 1. Deposits are considered simple loans and
not preferred credits
7. Booking Non-cash Deposits 2. Bank deposits are in the nature of irregular
deposits as they are loans who earn interest
(BPI vs. CA)
10
3. Relationship between depositor and Savings permission by depositor (3) subject matter of
and Loan Association is that of creditor and litigation
debtor
4. Contract between bank and its depositors VII. Exceptions to Secrecy of Deposits
are governed by NCC
 They are already stated above
5. Bank ultimately acquires ownership of
 Accounts can be garnished to insure
deposits but has obligation to pay back
satisfaction of judgment as there is no real
equal amount
6. Banks can set-off or compensate inquiry and some disclosure are merely
incidental
V. Duties of Banks  Congress not intended for debtors to escape
 General exemption against garnishment
 Meticulous care with deposits of clients due shall not apply to foreign transients
to fiduciary relationship  Foreign currency deposits of a foreigner
 Banks must give payment to the proper who was convicted of crime of rape may be
party, thus collecting bank has obligation to garnished to satisfy judgment
ascertain that the drawer truly intended that  Under RA 1405 and Anti-Money
the depositor is the payee Laundering Act, the secrecy of deposits do
 In case of death of depositor and the bank not apply
knew of it, there shall be no further  BSP can also inquire in deposits for periodic
withdrawal and special examinations
 Administrators or heirs can withdraw up to  Ombudsman has the In-Camera Inspection
20k without certification of CIR power to look into deposits provided that
there is a pending case is court and 1.) the
VI. Secrecy of Bank Deposits
account must be properly identified 2.)
 Purpose is to (1) give encouragement to the inspection limited to the subject matter
people to deposit their money in banking  CIR can also look into deposits to determine
institution and (2) discourage private gross estate of a decedent or he has applied
hoarding of depositors so that could be used for compromise tax liability
in economic development
 All deposits of whatever nature with bas
including investment bonds are considered CHAPTER 4 – Investments, Loans and Other
absolutely confidential and may not be Bank Functions
examined, inquired or looked into even by
government officials I. Universal Operation of Universal banks
 RA 8367 prohibits inquire or disclosure of Powers of Universal bank
deposits
 Exception: (1) written permission of 1. Commercial bank
depositor, (2) impeachment, (3) order of 2. Investment house
court in case of bribery or dereliction or (4) 3. Invest in non-allied enterprises
subject matter of litigation
Equity Investments of Universal bank
 It shall also apply to foreign currency
deposits with the only exception of written  Allied enterprises are those which enhance
permission or complement banking
 In Islamic banks that only exceptions are:
(1) inspection of bank auditor, (2) written
11
 If it is a financial allied enterprise, then it 6. Home building and development

involves money matters. Otherwise it shall 7. Service bureaus
be non-financial 8. PCHC
 Total investments in equities of allied and  Rural and cooperative banks can invest in
non-allied enterprises shall not exceed 50% non-financial allied enterprises such as:
1. Warehousing
of the net worth of the bank
2. Fertilize and agricultural chemical
 Equity investment in any one enterprise, 3. Farm equipments
whether allied or non, shall not exceed 25% 4. Trucking and transportation
 Net worth – total of the unimpaired paid in 5. Marketing agricultural products
capital including paid-in surplus, retained 6. Leasing
earnings and undivided profit
Equity investment of Universal Bank in Non-allied
Equity investments of Universal bank in Financial enterprise
Allied enterprise
 Equity investment in a single non-allied
 Universal bank can own 100% of the equity enterprise shall not exceed 35% in total
in a thrift, rural bank or financial allied equity or voting stock
enterprise
 Publicly-listed universal or commercial bank Investments in non-allied enterprises
may own 100% of voting stock of another
 Universal bank may invest in equity of
universal or commercial bank
enterprise of eligibles:
 If not publicly-list then only 49% own
1. Enterprises engaged in agriculture,
 Following are financial allied enterprises:
mining, quarrying, manufacturing,
1. Leasing companies
2. Banks public utilities
3. Investment houses 2. Industrial parks
4. Financing companies 3. Commercial project with
5. Credit card companies government privatization program
6. Financial institutions  Equity investment in Quasi-banks –
7. Companies in stock brokerage and universal bank can only invest up to 40% in
foreign exchange dealership equity of quasi-banks
8. Insurance companies
9. Holding company provided that the II. Operations of Commercial Banks
equities of the entity is confined
Powers of Commercial banks
under universal bank BSP regulation
1. General powers incident to corporations
Equity investments of universal bank in non-
2. All power necessary to carry business of
financial allied enterprise
commercial banking such as:
a. Accepting draft and issuing letters of
 Universal bank may own up to 100% of
credit
equity in non-financial allied
b. Discounting
 Examples are:
c. Creating demand deposits
1. Warehousing companies
d. Buy and selling Forex
2. Storage
3. Safe deposit box Issuance of Letters of Credit
4. Companies engaged in management
of mutual funds and not funds itself
5. Computer services
12
 Letter of credit – financial device developed  However cannot own 100% of equity of
by merchants as convenient mode of dealing financial allied enterprise other than above
with sales of goods banks
 The buyer will apply for a letter of credit in
the issuing bank Equity investment in commercial bank on non-
 The seller will then send the goods to the financial allied enterprises
carrier and he will make a draft, called bill
 Can own 100% of said enterprises
of exchange
 Seller will present the draft and the III. Risk-Based Capital
necessary documents, such as bill of lading
to issuing bank to receive the payment Minimum Ratio
 While the goods are in transit, it shall be
 MB shall prescribe minimum ratio
owned by issuing bank
 It will be based on the net worth and risk
 When the goods arrived at the port of the
assets of a banks well as its compositions
buyer, the buyer will pay the corresponding
 It may alter compliance with ratio for a max
payment and also gain the documents
period of 1 year
 Since the buyer gain the documents, he can
 Ratio shall be uniformly applied to banks of
now acquire the delivered goods
same category
 Independence principle – bank determines
compliance with letter of credit only by Effect of Non-compliance
examining shipping documents presented
and need not examine the goods  If a bank does not comply then the MB can:
 There are three contracts: 1. Limit distribution of net profits and
1. buyer-seller be used to increase capital accounts
2. buyer-bank until minimum requirement is met
3. seller-bank 2. Restrict acquisition of major assets
 There can be other parties such as notifying and new investments except with
bank (inform seller), confirming bank (lend purchase of readily marketable
credence to letter of credit), paying bank and evidence of indebtedness of RP BSP
negotiating bank (discounter)  In case of merger, rehabilitation, MB may
temporarily relieve such bank with
Equity investments on commercial bank
compliance with capital ratio
 Commercial bank may invest only in
IV. Limit on loans, credit accommodation and
equities of allied enterprises
guarantees
 Total investment in equities of allied
enterprises shall not exceed 35% Single Borrowers Limit
 Equity investment in one enterprise shall
not exceed 25%  Total amount of loans, credits
accommodation and guarantees extended to
Equity investment of commercial bank on financial any person, partnership or corporation shall
allied enterprises not exceed 20% of net worth of bank
 In Circular 425 of 2004 of BSP, the SBL
 Can own up to 100% in equity of thrift and
was increased to 25%
rural bank
 Exceptions to SBL:
13
1. MB may otherwise prescribe for  Credit Risk Transfer – arrangement that

reasons of national interest allows the bank to transfer the credit risk
2. Deposit of rural banks with GOC associated with its loan or other credit
financial institutions such as LB, accommodation to a third party
DBP and PNB  Control of majority interest or controlling
 Basis for determining SBL is the total credit interest – parent owns, directly or indirectly
commitment of bank to borrower through its subsidiaries, more than half of
 Loans - to all accounts under loan portfolio voting power of enterprise
 Credit accommodations - to credit and  Even if less than half of said voting power, it
market risk exposure of banks arising from shall still have controlling interest if:
accommodation other than the loan 1. Agreement with investors
 Total credit commitment - include loans, 2. Govern financial and operations
credit accommodation, deferred letters of 3. Can appoint majority of directors
credit less margin deposits and guarantees 4. Cast majority vote on meetings
 Total credit commitment can be increased by  Subsidiary – corporation where more than
10% provided additional liabilities are 50% of the voting stock is owned by a
secured by trust receipts, shipping parent corporation
documents or readily marketable goods  Bill of exchange drawn in good faith
 Readily marketable goods – articles of against actually existing values – drawn by
commerce, agriculture or industry as a seller on the purchase for the price of
constant dealings in ready market and price commodity sold
is easily ascertainable and disposable  Commercial paper owned by person
 Parent corporation’s total credit commitment negotiating the same – paper arising from
shall also include its subsidiaries’ if it business transaction
guarantees, accommodate or subsidiary is  Exclusion from SBL:
1. Discount bills of exchange and
merely a department of it
 Wholesale lending of government banks discount commercial paper
2. Credit accommodation to finance
shall not exceed 35% of net worth to
importation of rice or corn up to
participating financial institutions
 PFI – institutions for relending to end-user 100% net worth of bank
 Must be approved by NEDA
borrowers 3. Loans and credit accommodation
 The end-user borrower shall be subject to
guaranteed by Industrial Guarantee
the 25% SBL
and Loan Fund
 In municipalities where there are no
4. Liabilities of commercial paper
government banks, deposits of rural and
issuer for commercial paper held by
coop banks in private banks shall not be
UB as firm underwriter. Only 180
subject to SBL
days and not exceed 5% from normal
 Deposit in private depository bank used by
SBL
thrift, rural and coop banks, with authority 5. Loans and credit accommodations
to accept demand deposits, after being covered by international or regional
cleared, shall be exempted from SBL institutions where Philippines is
 Bank guarantee – irrevocable commitment
shareholder such as ADB
of a bank binding to pay a sum of money in 6. Loans and credit accommodations
event of non-performance of third party with valuation reserves provided that
14
bank has no unbooked valuation 4. Loans and credit accommodations under

reserves letters of credit covered by margin deposits
7. Loans and credit accommodations as 5. Loans and credit accommodations
a result of underwriting agreement of determined by MB as non-risk items
debt securities not exceeding 30 days
Assignment of Credits
Violations
 It is the agreement where the owner of
 Monetary penalties – 1/10 of 1% of excess credit, know as assignor, by legal cause,
over the ceiling but not exceed 30k per day transfer his credit to another, known as
 If bank resource is less than 50M, then only assignee without need of consent of debtor
a max penalty of P500 shall be imposed  Assignee acquires powers of assignor
 There will also be reprimand to  There is no new obligation in assignment
directors/officers  However, there must be a notice given to
 In subsequent offense, a 1k fine shall be debtor so that he will know whom to pay
imposed on the directors who approved it  Consent is not necessary in order that
 There can also be suspension of bank’s assignment may fully produce legal effects
branching privilege and rediscounting (Sison & Sison vs. Yap Tico and Avanceña)
facility of BSP
Pacto commisorio
Inclusion to Limit
 Appropriating a thing given by pledge or
 The following shall be included mortgage
1. Maker, acceptor of paper discounted  It is not allowed. Encashment of deposit
and general indorser, drawer or certificates is not pacto commissorio
guarantor  It is intended to protect the obligor against
2. Individual who controls majority being overreached by creditor
interest in corporation
3. In case of corporation, all liabilities V. Restriction on Bank Exposure to Directors,
to such bank of all subsidiaries it has Officers, Stockholder and related interests (DOSRI)
majority interest
4. Partnership, liabilities of members  No DOSRI can directly or indirectly borrow
 Also includes parent coporations with from such bank or become a guarantor,
majority interest indorser or surety for loan
 Exception is when there is a written
approval of the majority of all directors of
the bank excluding the DOSRI concerned
 Such approval is not required if it is under a
Exclusion to limit fringe benefit plan approved by BSP
 Directors include those named in
1. Loans and credit accommodations secured incorporations, elected or filled
by BSP or RP. State is always solvent  Officers shall include any person who
2. Loans and credit accommodations performs function of management
guaranteed by government  Stockholder – stockholder of record in the
3. Loans and credit accommodations covered books of the bank
by assigned of deposits by lending bank  Related interest includes souse or relative
within 1st degree or by legal adoption. This
15
includes partnership, co-ownership of VI. Securities on Loans and credit accommodations

DOSRIs
 Corporations where the above mentioned Loans and credit accommodations against real
owns 20% of subscribed capital, then the estate
prohibition shall apply
 Shall not exceed 75% of appraised value of
 Can also be less than 50% if the DOS sits as
respective real estate security plus 60% of
representative of the bank in the board of
the appraised value of the insure
such corporation
improvements
Effect of violation
Loans and credit accommodations on security of
 The director or officer who violates may be chattels and intangible properties
declared vacant and subject to penal
 Shall also not exceed 75% of the appraised
provisions of NCBA
value of the security
Limit on loans
Join and Solidary agreement
 MB can limit the valid loan given to DOSRI
 JSA is surety and not guarantee. It is an
provided that it shall be based on their
agreement where parties consent to be
unencumbered deposits and book value of
solidarily liable
their paid in capital contribution
 As a contract of adhesion, JSA should be
Exclusion to the Limit taken contra proferentum against the party
who may have caused any ambiguity
 Loans and credit accommodations therein.
considered as non-risk
 Loans and credit accommodations to Effect of Surety Agreement
officers in for of fringe benefits
 Agreement is onerous and construed against
 Limit on loans and credit accommodations
credtor
shall not apply on those extended by coop
 Requires that creditor obtain consent of the
bank to its coop shareholders
surety before there can be material alteration
Applicability of DOSRI rules and regulation to to the loan
government borrowing  If surety director is not anymore party of the
board then he cannot be held liable
 Circular 547 of 2006 provides that DOSRI  Surety cannot extend to more than what is
rules shall also apply to loans and credit stipulated
accommodations granted to RP,  Joint and solidary signature of major
subdivisions, instrumentalities and GOCCs stockholder or officer constitutes as an
 Exceptions would be: additional security for loans granted to
1. Loans and credit accommodations corporations (Security Bank & Trust
that are non-risk and not subject to Company vs. Cuenca)
ceiling  Joint and solidary agreement – agreement
2. Those made by BSP where the contracting parties consent to be
3. LGU due to full autonomy in their jointly and severally liable in a loan
propriety function obligation
4. Director who acts as government
representative
16
VII. Grant and purposes of loans and credit Unsecured loans and other credit accommodation
accommodations
 MB shall authorize regulations with respect
Amount and purpose of loan to such
 Bank must grant loans and credit Other security requirements for bank credits
accommodations only in amounts and for
period of time essential for effective  MB may prescribe security requirements to
completion which bank credits shall be subject and
 Must be consistent with safe and sound reduce or increase maximum ratio
banking practice
Authority to prescribe terms and condition of loans
 Purpose of loan shall be stated in application
and other credit accommodations
 If bank finds that proceeds have been
employed without its approval, the bank  MB may prescribe maturities as well as
shall have the right to terminate the loan and related conditions of varios bank loans and
demand immediate repayment credit accommodations
 Any change in maximum maturity shall only
Requirement for grant of loan
apply to those made after such action
 Bank must first ascertain if debtor is capable
Amortization on loans and other credit
of fulfilling his commitments to the bank. It
accommodations
must consists of:
1. Statement of assets and liabilities  Amortization schedule of bank loans and
2. Statement of income and expenditure
other credit accommodations shall be
3. Prescribed by law and MB to
adopted based on nature of operation
evaluate credit application
 If loans and other credit accommodations
 Even in the absence of such provision in
has maturity of more than 5 years, must
GBL, Art 1198 of the NCC allows the
have periodic amortization payments and
creditor to demand full payment when
must be made annually
debtor is insolvent, fails to give guarantee,
 If borrowed funds are to be used for
impaired guarantee, lost thing through
purposes which do not initially produce
fortuitous event, violate undertaking or
revenues for payment of regular
attempts to abscond
amortization, bank may defer such time until
 MB shall recognize peculiar characteristic of
revenues are sufficient. In no case shall
micro financing such as cash flow-based
initial amortization date be later than 5 years
lending
 In case of loans and other credit
 Microfinancing loans – small loans granted
accommodations to microfinance sectors,
to basic sectors usually unsecured and given
schedule shall consider cash flow of
to small businesses
borrowers
Reason for stringent rule in granting loans
Escalation Clause
 Banking corporation holds the money of the
 Parties to an agreement pertaining to loan of
depositors. Due to the nature that it is
may agree upon an increase in the event that
affected public interest, the bank must
the applicable maximum interest is
ensure that the loan shall be repaid
increased by MB
17
 PROVIDED: such stipulation shall only be  Escalation clause are valid to maintain fiscal
valid if there is also a stipulation that the stability and retain the value of money on
interest rate agreed upon shall be reduced in long-term contracts
the even maximum interest rate is also  However, other party there must be right to
reduced by MB assent to an important modification of
 Escalation clause are not void per se contract
 It is void when it grants creditor unbridled  Contract of adhesion – parties do not
right to adjust interest independently, bargain on equal footing, the weaker party’s
completely depriving debtor of right to participation being reduced to a take or
assent leave it
 Such clause violate the mutuality of
contracts Iniquitous, unconscionable and exorbitant interests
 In escalation clause there should be:
 Though usury law is not inexistent, interest
1. Increase in interest if increased by
may be agreed upon by lender and borrower
law or MB (escalation clause)
2. Include provision for reduction of  However, the same must be equitable
stipulated interest in the event reduced for being iniquitious,
maximum interest is also reduced by unconscionable and exorbitant
 In Medel vs. CA, SC found that 66% interest
law or MB (de-escalation clause)
 Purpose of including de-escalation clause – rate per anum is unconscionable
 In Cuaton vs. Salud, interest rate was 120%
prevent one-sidedness in favour of lender an
per annum interest rate is unconscionable
repugnant to mutuality of contracts
 Absence of de-escalation clause will render and should be lowered to 12% per annum
escalation clause void interest rate
 Dio vs. Virgilio, interest rate was 120% per
annum also, reduction of interest must be
made
Effect of annulment of escalation clause  Bacolor vs. Banco Filipino, a 24% interest
 In case the escalation clause is annulled, rate per annum is not unconscionable or
principal amount of loan is subject to excessive
original interest rate
Effect of void interest rate
Exception
 If interest rate is void, it is as if no express
 If there is no de-escalation clause, the contract thereon and court may reduce
escalation clause is still valid if the creditor
unilaterally and actually decreased the Prepayment of loans and other credit
interest charges whenever the interest rate is accommodations
reduced by law or MB (Llorin vs. CA)
 A borrower may at any time prior to agreed
Unilateral increase of rates maturity date, prepay in whole or in part the
unpaid balance subject to reasonable terms
 Such violates the principle of mutuality of
contracts in Art 1308 of NCC Legal compensation
 Any contract which appears to be heavily
weighed in favour of any one party that will
lead to unconscionable result is void
18
 Under Art. 1278, compensation can take 3. Parties expressly agreed to

place where the parties are creditors and considered effects of extraordinary
debtors of each other inflation or deflation
 A person who secures a loan of money  Extraordinary Inflation exist when there is
acquires ownership and is bond to pay the an unusual decrease in the purchasing power
creditor an equal amount of the currency and such decrease could not
 Deposits in bank can be set-off against be reasonably foreseen or was manifest
obligation of depositor beyond the contemplation of the parties at
 Subsidiary has an independent and separate the time of the obligation
juridical personality from parent company
and any claim against the subsidiary is not a Purpose of Attorney’s Fees
claim against the parent
 Attorney’s fees are not integral part of cost
Development assistance incentives of borrow but arise when collecting upon the
Notes becomes necessary
 BSP shall provide incentives to banks,
without government guarantee, which VIII. Truth in Lending
extend loans to financial educational Policy
institutions, cooperatives, hospitals
 Protect citizen from lack of awareness of
Banks cannot extend peso loans to non-resident
trust cost of credit to the user by assuring
 Reason for this: full disclosure of such cost and prevent
1. To curb undue speculation in foreign uninformed use of credit
exchange market
Disclosure
2. Further reinforce memorandum that
peso deposits should be funded  The creditor shall furnish the debtor a clear
inward foreign exchange remittances statement in writing setting forth the
 OFWs are residents and can avail peso loans following:
1. Cash price or delivered price to be
Provisions for losses and write-offs
acquired
 Bad debts - all debts due to any bank on 2. Amount to be credited as DP
which interest is past due and unpaid 3. Difference between 1 and 2
4. Charges individually itemized
Extraordinary inflation or deflation 5. Total amount to be financed
6. Finance charge
 Under Art 1250 of NCC, in case of 7. Percentage that finance bears to the
extraordinary inflation or deflation of total amount to the financed
currency stipulated, value of currency at  Rationale: protect users of credit from lack
time of establishment of contract shall be the of awareness of true cost
basis of payment Definition
 For extraordinary inflation or deflation to
affect obligation, the following must be  Credit – any loan, mortgage, deed of trsust,
proven: advance, conditional sale contract, rental
1. There must first be official
declaration from BSP
2. Obligation is contractual
19
 Finance charge – interest, fees, service Exempted transactions

charges, discounts and other charges
incident to extension of credit  Disclosure requirement on consumer credit
 Creditor – any person engaged in business transactions shall not apply to those
of extending credit who requires finance extension of credits for business or
charge commercial purpose or to government
Penalties IX. Foreclosure of real estate mortgage
1. Civil – any creditor who fails to disclose Procedure

shall be liable for P100 or amount equal to
 In the event of foreclosure of any mortgage,
twice of finance charge required
the mortgagor has the right to redeem the
a. Whichever is higher
b. Liability shall not exceed 2k property within one year after sale of real
c. Must be brought within 1 year from estate
date of occurrence  Purchaser at auction sale shall have the right
2. Criminal – fine not less than 1k or not more to enter upon and take possession of such
than 5k or imprisonment for not less than 6 after date of confirmation of auction sale
mos nor more than 1 year or both  In GBL, if purchased y banks, they are not
 Both actions can be instituted independently required to set up bond before they can enter
of each other the property immediately during redemption
 But there can also be a joinder of cause period
 Writ of possession may also be issued after
consolidation of ownership of property in
name of buyer
Effect of violation
 Buyer becomes absolute owner of property
 Violation shall not affect the validity or if not redeemed during the 1 year after
enforceability of any contract registration of sale
 In Consolidated Bank vs. CA, SC said that  If the property extrajudicially foreclosed
lender cannot charge interests not stipulated belong to a juridical persons, right to redeem
in promissory note property shall be counted until, not after, the
 In UCP vs. Beluso, interest rate provisions registration of the certificate of foreclosure
are illegal due to violation of mutuality of  It shall be no more than 3 months after
contracts and also violate TILA foreclosure whichever is earlier
 Accessory contract of real mortgage is used
Exemption of government as security for fulfilment of principal
obligation
 TILA shall not apply to Philippine  A loan value is only 70 percent of the
Government appraised value so that a low bid price will
Required disclosure on consumer loans not under be made and will be easier to redeem
open-end credit plan  Real property may be mortgaged to aliens
 Redemption period is counted from date of
 Any creditor extending consumer loan or registration of the certificate of sale with
transaction which neither consumer credit register of deeds
sale nor open-end consumer credit plan shall
also need to disclose information
20
 An action for annulment of mortgage does  The buyer is not bound to accept repurchase
not stop the running of the period of unlike in redemption
redemption  The buyer shall also not be bound by the bid
 Otherwise there shall be frivolous suits price as it now belongs to him
instigated to give mortgagor more time to  An alien-owned bank cannot acquire
redeem ownership of residential lot by virtue of
 The amount redeemable is the amount under deed of transfer as settlement of debt
the mortgage deed or the outstanding  Transfer of ownership, even for a limited
obligation plus interest and expense in Sec period or in foreclosure, cannot be made to
47 of GBL alien
 No personal notice in required in
extrajudicial foreclosure of sale since it is Offer to repurchase not waiver to question sale
action in rem  If there was an offer to repurchase, it shall
Demand before foreclosure essential not be construed as waiver of right to
question foreclosure sale
 There must first be demand before there can  Mortgagee has no right to recover the
be foreclosure as where demand was not deficiency from the mortgagor of value of
made, the loan shall not become due and loan if foreclosure is invalid
demandable
Preferred status of banks not impaired in case
Equity of redemption vs. Right of redemption borrower under rehabilitation
 Where foreclosure is judicially made, no  In case of rehabilitation of corporation

right of redemption exist in case the debtor, the right of a creditor bank is merely
mortgagee is not a PNB or bank suspended
 In such a case, the mortgagor is given the
right to extinguish the mortgage and retain Writ of possession
ownership of property by paying debt within  After consolidation of title in buyer’s name
90 days after judgment due to failure of mortgage to redeem, the
Right of redemption may be extended by agreement writ of possession becomes a matter of right
and its issuance in a extra-judicial
Estoppel foreclosure is merely ministerial
 Injunction to prohibit issuance of writ of
 Bank or any purchaser is deemed consented possession is utterly out of place
to extension of redemption if it had time to  Proceeding in petition for writ of possession
object but it did not is ex-parte and summary in nature
 However, mortgagor still have right of
Redemption after prescriptive period
recourse to petition to set aside foreclosure
 Right to redeem becomes functus officio on sale and cancel writ of possession in same
the date of its expiry proceeding
 Redemption is by force of law, the buyer is
X. Major investments
bound to accept redemption
 However, there can be right to repurchase  MB shall establish criteria for reviewing
depending on the will of buyer major acquisitions or investments of bank
21
Ceiling on investments in certain assets  A bank may also perform the following
services:
 Bank may acquire real estate as necessary 1. Receive custody of funds, documents
for its conduct of business and other valuable objects
 Total investment on such real estate shall not 2. Act as financial agent to buy and sell
exceed 50% of capital accounts for their customers
 Equity investment of a bank in another 3. Make collection for accounts of
corporation engaged in real estate shall be other
considered part of investment in real estate 4. Act as managing agent of investment
 In determining compliance with the ceiling, management accounts
the following shall apply 5. Rent out safety deposit boxes
o Investment shall include real estate  Bank shall perform 1-4 as a depositary or as
and equipment necessary for bank an agent
use such as bank premises and real  It shall be duly separated from bank’s own
property of bank under its name assets and liabilities
o The cost of real estate leased by bank
Safety deposit box
from corporation and amount of
equity in lessor shall also be included  It is considered as a special kind of deposit
 In case of Tala vs. Banco Filipino, BF  It cannot be an ordinary contract of lease
reached its maximum 50% capacity in real because the absolute control and possession
estate and Tala was created by major of safety deposit box is not given to renters
stockholders to buyer bak sites of BF and  The guard key remains with bank and
leases it back to them. However, BF renters key remain in customer
defaulted and Tala wants the payment of  Where the renter keys are duplicated, the
rents bank is not liable to either renters in case of
 The court rules that Tala cannot be allowed loss attributable to them
to collect rent as it clearly shows that the  The SC said that it can be considered as a
tried to circumvent the real estate investment bailor and bailee relationship
limit in GBL  Duties of the parties may be defined by them
 The company renting safe-deposit boxed
Acquisition of real estate by way of satisfaction of cannot exempt itself from liability due to
claims fault of its own agents
 In Sia vs. CA, a bank was held liable for not
 Notwithstanding the limitations, bank may
immediately informing the customer that his
still acquire the following property:
1. Mortgage to it in good faith for safety deposit box was flooded which
security caused damage to the items of the customer
2. Conveyed for satisfaction of debt
XII. Electronic transactions
3. Purchase under judgement or
mortgage  BSP shall have full authority to regulate use
 Any real property held in such circumstance of electronic devices in connection with
must be disposed within 5 years bank operations
 After said period, those properties shall now
be included in the 50% limitation XIII. Outsourcing of information technology
XI. Other Banking Services
22
 Bank may outsource information  Before issuing credit cards, banks must
technology systems and processes except exercise proper diligence by ascertaining
inherent banking functions applicant possess good credit standing and
 Functions that are not outsourced: are financially capable to fulfil payments
1. Strategic planning for use of IT  All applications must go under strict credit
2. Determination of system risk assessment process
functionalities
3. Change management inclusive of Information to be disclosed
quality assurance
4. Service level and contract  Banks shall disclose to each prospective
management cardholder non-financial charges, percentage
5. Security policy and administration of interests, interest rate per annum,
instalment details, default fees, etc.
XIV. Outsourcing of other functions
Accrual of interest earned
 Subject to prior approval of MB, banks may
outsource data imaging, storage, retrieval  Interest accrued shall be reserved and no
and other related systems accrual shall be allowed 90 days after credit
 Banks may outsource credit card services card receivable has become past due
XV. Credit Card Transactions Finance charges – interest charged to cardholder
General policy Deferral charges
 BSP shall develop consumer credit through  Parties can agree to a deferral of all or partly
innovative products of unpaid instalments and will subsequently
collect deferral charge
Definition of terms
Late payment and penalty fees
 Credit card – any card, plate, coupon book
or other credit device for the purpose of  No late payment or penalty fee shall be
obtaining money, property, labor or credit collected unless it is fully disclosed in the
 Credit card receivables – total outstanding contract
balance of cardholders
 Minimum amount due - minimum amount Confidentiality if information
that cardholder needs to pay on due date
 Banks shall keep strictly confidential data on
 Default – non-payment of minimum amount
cardholder except when there is consent,
due within two cycle dates
 Acceleration clause – gives bank the right to exchange of information with other credit
demand obligation in full in case of default card companies, disclosure to collecting
agent
Risk management system
Suspension, termination of effectivity and
 System that shall safeguard interests, banks reactivation
and subsidiary credit card companies
 banks shall formulate parameters for such
Minimum requirements
Inspection of records covering credit card
truncations
23
 banks shall make available for inspection  It is necessary to consider business practices
credit card information to BSP relative to mode of payment under Price Tag
Law
Offset  When consumer pays in cash, he shall only
pay the price indicated
 Banks can offset their obligations with
 When consumer pays through
cardholder with the latter’s debts provided
credit/ATM/debit card, he shall only pay
there is notice
price indicated in tag
Handling of complaints  When retailer offers consumer option to pay
in cash or card, the same is allowed
 bank shall give cardholder 20 days to provided that options are disclosed by
examine charges and after 2 billing cycles, separate information but not on the price tag
bank can correct error  Price that indicates separate cash price and
regular cash price is not allowed
Unfair collection practices  Price tag that indicates separate price tag
 banks shall resort to legally permissible and card price is also not allowed
means to collect amount due under credit
card agreement
 There shall be no use of threat or violence to Prohibition against surcharging
coerce payment and no false representation
 Retailers who honor credit/ATM/debit cards
Additional deposit does not increase credit limit for payment shall not require payment of
surcharge over and above the price tag
Contract of adhesion
 Contract between cardholders and credit

card companies are contract of adhesion CHAPTER 5 – Prohibited Transactions and
becomes they are prepared only by one party Cessation of Banking Business
and the other party only signifies
I. Prohibited Transactions
Blanket freedom from liability is invalid
Prohibited to act as insurer
 The credit card company cannot excuse
itself from liability completely as with  Bank shall not directly engage in insurance
blanket of freedom business as insurer
 Insurance act shall include making insurance
XVI. Rules of Price tags contract, surety contract, doing business of
reinsurance
One price tag requirement  Fact that no profit is derived shall not be
deemed conclusive to show that there is no
 Every retailer is required to display price tag
insurance business
to indicate price of good or service
 Price tag must be written clearly indicating Prohibited acts
the price including VAT. Service charge
shall not be included in price tag  No director shall:
1. Make false entries in any bank report
Mode of payment
24
2. Without order of court, disclose to an 1. Resulted in material damage or

unauthorized persons an information abnormal risk to stability, solvency
relative to funds or properties in of bank
custody of customers 2. Resulted damage in depositors,
3. Accept gifts, fees or commission in creditors, investor or public
connection for approval of loan 3. Cause undue injury or unwarranted
4. Overvalue a security for purpose of benefits to any party
influencing actions of bank 4. Involves entering contract manifestly
5. Outsource inherent banking disadvantageous to bank regardless if
functions DO will profit
 This is to ensure secrecy of  MB can take action and exclude erring bank
bank deposits from clearing
 No borrow shall
1. Fraudulently overvalue security for
loan
2. Furnish false material facts to obtain
or increase loan
3. Attempt to defraud bank in event of
court action to recover loan III. Prohibition on dividend declaration
4. Offer any DOE any gift, fee,
commission to influence person to  No bank shall declare dividends greater than
approve loan its accumulated net profits on hand,
 No examiner, officer or employee of BSP deducting its losses and bad debts
assigned to supervise, examiner rendering  The bank shall also not declare dividends if
technical assistance to bank shall commit the at time there is:
foregoing acts o Clearing account in BSP is
 No bank shall employ causal or non-regular overdrawn
personnel or too lengthy probationary o Deficient in require liquidity floor
personnel in business involving bank for 5 or more consecutive days
deposits o Does not comply with liquidity
standards
Prohibition against Outsourcing Certain o Committed major violation
Banking Functions  Banks are entities exempted from
 Outsourcing inherent banking function improperly accumulated earnings tax (10%
shall refer to any contract between the of said income) by NIRC
bank and service provider for the latter
IV. Unauthorized advertisement or business
to supply, or any act whereby the latter
representation
supplies, the manpower to service the
deposit transaction of the former.  No persons or corporation shall engage in
banking business shall advertise that it has a
II. Conducting business in an unsafe or unsound business of a bank, quasi-bank or trust entity
manner V. Placement under conservatorship
 To determine whether act or omission is Grounds for appointment of conservator
considered unsafe or unsound for banking,
the following shall be considered:
25
 Whenever the MB finds the bank in a state  Conservator shall receive remuneration to be
of: fixed by MB in an amount not to exceed 2/3
1. Continuing inability or the salary of president of bank in 1 year,
2. Unwillingness to maintain a payable in 12 equal instalments
condition of liquidity deemed  If within one year the conservatorship is
adequate to protect depositors and terminated on ground that institution can
creditors operate on its own, conservator shall receive
 MB may appoint conservator with following balance
powers:  But if it is terminated on some other ground,
1. Take charge of assets, liabilities and conservator shall not be entitled to
management thereof remaining balance
2. Reorganize management  MB can appoint conservator connected to
3. Collect monies and debs due
4. Exercise all powers necessary to BSP in which case he shall not receive
restore viability remuneration from BSP
 Conservator shall report to MB and shall Expenses of conservatorship
have the power to overrule or revoke actions
of previous management  It shall be borne by bank concerned
 Rehabilitation proceedings provide for
equitable distribution of insolvent debtor’s Terminations of conservatorship
remaining assets to its creditors and give
 MB shall terminate the conservatorship is it
debtor a fresh start by relieving them of the
is satisfied that bank can continue operations
weight of their debts  Conservatorship can also be terminated on
 Liquidity – ability of an asset to be
basis of report of conservator or its own
converted in cash quickly and without
findings would involve loss
discount  In such as case, there shall be receivership
 Solvency – liabilities amount to less than
or liquidation
total assets providing ability to pay debts
 Test of insolvency – determining realizable Final and executory
assets of bank is less than its liabilities
 Insolvency of bank occurs when actual cash  Action of MB shall be final except on
market value of its asset is insufficient to petition for certiorari in case of grave abuse
pay its liabilities of discretion
 BSP is vested with exclusive authority to  It shall be filed within 10 days from receipt
assess, evaluate and determine condition of of notice of board of directors of
a bank whether it is insolvent or not. If conservatorship, receivership or liquidation
insolvent, receivership proceedings
Exclusive power to appoint conservator shall lie in
Qualification of conservator MB
 Conservator must be competent and Designation of conservator is not precondition to

knowledgeable in bank operations and designation of receiver
management
Power of conservator cannot impair obligations of
 Period of conservatorship shall not exceed 1
contracts
year
Remuneration
26
 Conservator power to revoke contracts 4. Wilfully violated cease and desist

cannot post-facto affect perfected order involving transactions of fraud
transaction as it would infringe non- 5. In case a bank notifies BSP or public
impairment clause announces bank holiday where it
 Conservator is given power to revoke suspends payment of its deposit
contracts only those that are defect (void, liabilities continuously for more than
voidable, unenforceable, rescissible) 30 days
 Conservator merely takes place of board of  For quasi-banks any persons recognize in
directors competence in banking may be designated
 Conservator cannot simply repudiate valid as receiver
obligations of the bank and must bring them
1. Current and complete examination not necessary
to court actions
 In FPIB vs. CA the court ruled that the  In Rural Bank of San Miguel vs. MB, the
conservator cannot revoke a previously valid SC ruled that there is no need for complete
contract entered by the bank even though the examination because it only needs a report
object of the contract has a higher price  A report is something that gives information
 In conservatorship, the banking functions while examination is a search, investigation
continue unlike in receivership and or scrutiny
liquidation  Absence of examination before closure of
VI. Cessation of banking business bank does not mean that there is no basis for
closure
Voluntary liquidation
2. Procedure
 In voluntary liquidation, bank sends to MB
notice of liquidation  Receiver shall immediately:
1. Take charge of all assets and
 No voluntary dissolution shall be undertaken
liabilities
by a bank without prior approval of MB.
2. Administer the same for benefit of
Request of voluntary dissolution shall be
creditors
accompanied by liquidation plan 3. Exercise general power of receiver
Receivership and liquidation under ROC
4. Shall not pay or any act that involves
 The MB can summarily and without need of transfer of asset of bank
prior hearing forbid the institution from  Receiver may deposit or place funds of bank
doing business and designate PDIC as in non-speculative investments
receiver  Receiver shall determine within 90 days
 Grounds for receivership and liquidation: from takeover, whether institution may be
1. Unable to pay liabilities that are due. rehabilitated or otherwise
This shall not include inability to pay  Determination of resumption of business is
cause by extraordinarily demands by subject to approval of MB
financial panic  In Teal Motor vs. CFI, receiver was defined
2. Insufficient realizable assets as a indifferent person appoint by the court
3. Cannot continue business without to preserve the funds of the in litigation
involving probable loss to depositors pendent lite
or creditors  He is not an agent or representative of any
party
27
3. Prohibited acts stop operations and placed under

receivership
 Any director or officer declared insolvent or  Previous hearing before closure is not
under receivership shall not commit: required in the law and does not infringe due
1. Refuse to turn over bank records and process
assets to receiver  However, bank can question the receivership
2. Tamper with bank records
within 10 days after receivership
3. Appropriate for himself or other
 Close now hear later – practical
party assets of bank
consideration to prevent unwarranted
4. Receive bank deposits or collect
dissipation of bank’s assets and valid
loans
5. Paying funds of bank exercise of police power to protect
6. Transferring security of bank depositors, creditors and public
 If otherwise, there mere filing of
4. When institution cannot be rehabilitated receivership by BSP can trigger bank run
and drain its assets in days or hour leading
 If receiver determines that bank cannot be
to insolvency
rehabilitated, MB shall notify the board of
directors that it shall proceed with Effect of filing petition for review
liquidation
 The receiver shall file ex parte with RTC a  Pendency of case questioning receivership
petition for assistance in the liquidation of does not diminish of receiver to administer
the bank pursuant to liquidation plan of bank’s transactions pertaining to normal
PDIC operations of the bank
 Court shall adjudicate disputed claims, assist
Reasons behind receivership and involuntary
the enforcement of liabilities
 Receiver shall pay cost of proceedings from liquidation
assets of institution 1. Banking business is subject to regulation
 Receiver shall convert assets of institution to under police power and are affected with
money and dispose the same to creditors and public interest
other parties to pay bank debts 2. It is the government responsibility to see
that financial interest of depositors and
5. Final and executory
others are protected. Done through BSP
 Just like in the case of conservatorship, the 3. Public faith in banking system may
action of MB shall be final and executor deteriorate if depositors, creditors are not
unless there has been certiorari protected. BSP shall step in and salvage
 In Rural Bank of San Miguel vs. MB, remaining resources of bank
closure of a bank is an exercise of police 4. Absence of notice and hearing is not a groun
power to annul MB resolution
 In only stockholders of bank can file action
Effects of receivership
for annulment of MB resolution of placing
bank in receivership 1. Retention of juridical personality
Close Now Hear Later Scheme  There shall be retention of judicial

personality even though it is ordered closed
 The law does not contemplate prior notice
by MB
and hearing before bank may be directed to
28
 The suing must be done through the receiver must collect debts in favour of the
liquidator bank that will form part on bank asset
 Foreclosure falls within board definition of
2. Not liable to pay interest “doing business”
 Doing business - continuity of commercial
 Banks declared insolvent and ordered closed
dealings and arrangements incident to object
by BSP cannot be held liable to pay interest
of organization
 When bank is closed, it cannot lend money,
 However, it shall not be included in those
engage in transactions or any banking
act prohibited from doing business
activities where it can derive income from
 Thus even if there is receivership or
 Thus there is no way the bank can pay the
liquidation, the period of prescription to
interest the accrues in favour of its
foreclose continues to run
depositors
 In BF vs. Ybanez, the court ruled that
 However, there are two types of deposits
receiver ca still collect interest on loans
that earn interest. The first one, deposit that
during period of closure
earn from the existence until the bank cease
to operate. This one must be paid. The 6. Exercise of jurisdiction of liquidation court
second interest earned from the time the
bank closed until payment of deposits. The  All claims of bank must be filed in BSP
interest here must not be paid  It is to prevent multiplicity of against bank
 Exclusive jurisdiction of liquidation court
3. Assets deemed under Custodia Legis pertains only to adjudication claims against
bank and does not cover reverse situation
 Assets if the bank becomes beyond its  Not necessary that claim is initially disputed
control. Receiver operates to suspend the before it is filed
authority of the bank to its properties  In Ong vs. CA, if buyer bought a property
 Assets of bank shall be custodia legis in from the bank who is already declared
hands of receiver and exempted from insolvent, sale is void
garnishment, levy, attachment
 Liquidator – task is to dispose all assets of VII. Disposition and distribution of assets
the bank and effect partial payments of
banks obligations  In case of liquidation, after payment of cost
of proceedings, receiver shall pay debts of
4. Stay of execution institution in accordance with preference of
credit in NCC
 Stay of execution is warrant if bank is  Current accounts and savings accounts are
placed under receivership not preferred credits in cases involving
 To execute a judgment against a bank under insolvency where there are various creditors
receivership would unduly deplete its assets
to the prejudice of depositors and creditors Disposition of revenues and earnings
5. Restriction of bank’s capacity to Act  All revenues and earning realized by

receiver during receivership shall be used to
 Insolvency of bank restricts its capacity to pay costs of proceedings
act  The balance of revenues shall form part of
 Bank cannot make new business such as assets available to payment of creditors
accept new deposits or grant loans. But
29
Disposition of banking franchise banks to acquire 100% voting stock

of 1 domestic bank
 BSP, if public interest requires, award to 2. Within same period, MB may allow
another institution the banking franchise foreign bank which prior to GBL has
under liquidation already acquired 60% voting stock
 Whatever proceeds may be realized from can now acquire 100%
award shall be subject to exclusive 3. MB must ensure that 70% of
disposition of MB resources of banking system are held
by majority-owned Filipinos
Liabilities
Local branches of foreign banks
 Bank is bound by the acts or failure to act of
receiver  Foreign banks which has more than 1 branch
 Receiver is liable to bank for culpable and in the Philippines, all such branches shall be
negligent failure to collect and safeguard treated as 1 unit
assets of such banks
Head office guarantee

CHAPTER 6 – Foreign Banks and Trust
Operations  Head office shall fully guarantee prompt
payment of all liabilities of its Philippines
I. Foreign Banks branch
 Residents and citizens of the Philippines that
Transacting business in the Philippines
are creditors of foreign banks shall have
 RA 7721 – Foreign Banks Liberalization Act preferential right to assets of such banks
 PD 1034 – Conduct of offshore banking  Under RA 7721, foreign banks have three
business modes of entry in the country:
 Offshore banking – conduct of banking 1. Acquiring 60 of voting stock of
transaction in foreign currencies existing bank
 Offshore banking unit – branch of a foreign 2. Investing 60% of voting stock of
baking corporation authorized by BSP to new banking subsidiary incorporated
transact offshore banking in Philippines
 Foreign corporation doing business in the 3. Establishing branches with full
Philippines are required to obtain a license baking authority
 However, even if foreign corporations do  A foreign bank may only avail only 1 mode
not have a license, they can still be sued or of entry
 GBL only stated that branches of foreign
be sued
 License is only necessary if it is for banks will be treated as one and shall have
transacting or doing business in the country the head office guarantee to creditor Filipino
citizens
Acquisition of voting stock in domestic bank  However, there is nothing in the law that
states that citizens that are debtors to foreign
 Foreign banks are allowed entry in the bank local branches shall also be debtors to
Philippines subject to the following rules the head office
1. Within 7 years from effectivity of
GBL, MB shall authorize foreign
30
 There is also nothing in the law that the head 5. Consider willingness to fully share
office and its local foreign branches shall be technology
treated as one  Only those belonging to top 150 in the world
 Thus, compensation with Philippine or top 5 banks in their country of origin shall
branches with foreign branches cannot be be allowed entry
effected as they cannot be considered  To establish a branch or subsidiary, foreign
creditors and debtors of each other bank must be widely-owned and publicly
listed in its country origin unless
Summons and legal process government owned
 Capital requirement:
 Summons must be given to the Philippine 1. For locally incorporated subsidiaries
agent or head of foreign bank to have – same minimum capital with
jurisdiction domestic banks
 If there is no agent, summons may be made 2. Foreign bank branches – US dollar
upon BSP deputy governor in-charge equivalent of P219M at exchange
 Once given, it shall be effect as if made rate during effectivity of Act. The
upon bank or agent foreign bank shall be entitle to 3
 BSP deputy governor in-charge shall mail it 3. Foreign banks may open 3 additional
to the bank and sending copy is a necessary branches designated by MB – P35M
part to complete service. per additional branches
 In the corporation code, the service, in case  Foreign banks within 5 year from effectivity
of absence of agent, shall be given to SEC of this act is only allowed 6 foreign bank to
Laws applicable enter the country
 An additional 4 foreign banks may be
 Foreign banks shall be governed by GBL allowed entry by recommendation of MB
and other applicable laws such as  Non-Filipino citizens can be members of
Corporation Code board of directors up to the extent of the
allowed foreign participation
Revocation of license of foreign banks  Philippine corporations who have listed
share of stock in PSE or long standing for 10
 MB may revoke license if it find foreign
year shall have right to own 60% voting
bank insolvent or imminent danger of
stock of a domestic bank
insolvency and will involve probable loss  Existing local branches of foreign banks
 After revocation, it shall be unlawful for
shall be given 1.5 years to comply with
foreign bank to transact business in the
minimum capital requirement
Philippines  RA 7721 was approved on May 18, 1994
II. Entry of Foreign Banks
 State shall devote self-reliant and III. Trust Operations

independent national economy
 Guidelines for approval: Authority to engage in trust business
1. Ensure geographic representation
2. Consider strategic trade relationships  Trust business – any activity resulting in
3. Study demonstrated capacity trustor-trustee relationship involving
4. See reciprocity of right appointment of a trustee by a trustor for the
31
administration, holding, management of 2. Act under order of any court as guardian,

funds or properties of trustor by the trustee receiver, trustee or depositary of estate of
 It is for the use, benefit or advantage of the minor or incompetent person
trustor or other beneficiaries 3. Act as executor of any will
 Cardinal principle of trust and other 4. Act as executor of estate of any deceased
fiduciary relationship is fidelity person with a will or administrator without a
will
Conduct of trust business 5. Accept and execute trust for holding,
management, administration of estate and
 Trust entity shall administer the funds or
rents, issues, profits thereof
property under its custody with diligence 6. Establish and manage common trust funds
that a prudent man would exercise
 Trust entity – stock corporation or person Transactions requiring prior authority
authorized by MB to engage in trust
business shall act as trustee or administer  Trustee or trust entity shall not undertake
any trust or hold property in trust any of the following transactions for the
 No trust entity shall for the account of the account of the client unless there is prior full
trustor or beneficiary, disclosure and authorization by client
1. purchase, acquire, sell, property 1. Lend, sell, transfer or assign money
2. transfer or purchase money or debt or property to DOSRI of trustee,
instruments from/to DORSI of trust relatives of trustee or related interest
entity and relatives of first civil of such DOSRI where trustee owns
degree at least 50% of voting stock
3. unless authorized by the trustor after 2. Purchase and acquire property or
prior full disclosure of transaction debt instrument in the same manner
3. Invest in equities or in securities
Registration of articles of incorporation and by-laws underwritten by trustee in which
of trust entity trustee has interest
4. Sell, transfer, assign or lend money
 SEC shall not register such unless or property from one trust account to
accompanied by certificate of authority from another account
BSP
 A trust business shall start from the moment Deposit for the faithful performance of trust duties
their articles of incorporations are registered
 Before transacting trust business, they must
Minimum capitalization deposit to BSP for faithful performance of
trust duties an amount not less than 500k or
 A trust entity, before engage in trust
higher as may be fixed by BSP
business, shall comply with minimum paid-  MB shall require trust entity to increase the
in capital requirement by MB amount whenever the increase is necessary
Powers of trust entity by reason of trust business
 Paid-in capital and surplus of each entity
1. Act as trustee on any mortgage or bond and must be equal to the amount required to be
accept and execute any trust consistent with deposited in BSP
law  In case it shall not meet the required paid-in
capital, the MB shall limit or prohibit
32
distribution of profits by trust entity until  They shall be physically separated from
minimum requirement is met assets of its other business
 Trust entity, as long as solvent and comply  They shall be under the joint custody of at
with laws, shall have the right to collect least two persons who are officers of the
interest earned on security deposited to BSP trust department
 If trust entity fails to comply with law, BSP
shall retain interest of securities for benefit Investment limitation of a trust entity
of rightful claimants
 Unless otherwise directed by instrument
 All claims arising from trust business shall
creating the trust, the lending or investment
have priority over all claims as regard to the
of funds by trust entity shall be limited to
security deposited
loans and investment as prescribed by law,
IV. Bond of Certain Persons for the Faithful MB or court
Performance of Duties  Assets received in trust shall be
administered with terms of the instrument
Bond requirement creating the trust
 If trust entity is given discretionary powers
1. Before executor, administrator, guardian,
to invest, loans and investments shall be
trustee, receiver or depositary appointed by
limited to:
the court enter upon execution of dues, court 1. Evidence of indebtedness of RP and
may order bond BSP
2. Upon application of such persons, after 2. Loans guarantee by government
notice and hearing, court shall order that 3. Loans fully secured by hold-out on,
subject matter of trust be deposited with assignment or pledge of deposits that
trust entity are maintained
3. Upon presentation of proof that subject 4. Loans fully secured by real estate or
matter have been deposited to trust entity, chattels
court may order that bond be given by such  The following shall be required to be given
persons for faithful performance as information
4. Reduce bond shall be sufficient to secure 1. Transaction to be entered
adequately the proper administration of any 2. Borrower’s name
property 3. Amount involved
4. Collateral security
Exemption of trust entity from bond requirement
Real estate acquire by trust entity
 No bond shall be required by court from
trust entity for faithful performance  Trust entity may acquire real property under
 However court may order bond for the following circumstances:
protection of funds or property confided 1. Mortgage to it in good faith by way
of security to debts
2. Conveyed to it for satisfaction of
debts previously contracted
V. Operations of Trust Entity 3. Purchase at sales under judgment,
decrees, mortgages or trust deeds
Separation of trust business from general business
 Any property acquire under circumstances
 The trust business shall be kept separate and shall be disposed within 5 years
distinct from the general business
33
 After said period, bank can still continue to diligence but any violation of this duty by
hold property subject to limitations: the bank is not a valid ground for the grant
1. Total investment in real estate shall of exemplary damages to the depositor.
not exceed 50% of combined capital False
accounts 5. Thrift banks may not act as correspondent
2. Equity investment of bank in another for other financial institutions. False
corporation engage in real estate
shall be considered a part of 50% 6. A non-stock corporation may act as a trustee
or administer any trust or hold property in
Exemption of trust assets from claims trust or on deposit for the benefit of others.
False
 No assets held by trust entity shall be subject
7. A bank cannot use any of its branches as
to claims other than those parties interested outlets for the sale of the financial products
in specific trusts of its allied undertaking or its investment
 Property held in trust by insolvent debtor house units. True
shall be excluded from insolvency
proceedings 8. A bank may declare dividends greater than
its accumulated net profits then on hand,
 Trust entity and its branches shall be treated
deducting there from its losses and bad
as one unit debts. False
 Trust entities shall advertise services in a
dignified manner 9. The appointment of a receiver is vested
exclusively with the Monetary Board. True
Money of government
10. The MB cannot appoint a conservator
 Banks may not receive as trustee the funds connected with BSP. False
of the government except GOCC banks 11. In a judicial foreclosure of mortgage, there
is an equivalent right of redemption. False
12. No late payment of penalty fee shall be
QUIZZES: collected from cardholders unless the
collection thereof is fully disclosed in the
True or False:
contract between the issuer and the
1. The fiduciary nature of the relationship of a cardholder. True
depositor with the depositary bank imposes 13. A bank which had been ordered closed by
on the latter the obligation to discharge the the monetary board does not retain its
highest standard of trust and integrity and a juridical personality which can sue and be
violation thereof is considered a breach of sued through its liquidator. False
trust. False
2. The humble wage-earner has not hesitated to
entrust his life’s savings to the bank
knowing that they will be safe in the custody
of the banks. True Fill in the blanks
3. Banks are gratuitous bailees of the funds 1. The law governing the creation, organization
deposited with them by their clients. False and operation of rural banks is Rural Banks
4. The public relies on the banks’ fiduciary Act.
duty to observe the highest degree of
34
2. The total investment in equities of allied transferring the balance to the survivor upon
enterprise shall not exceed 35 % of the net the death of one of them.
worth of the bank.
11. In the case of Consolidated Bank and Trust
3. Subsidiary shall refer to a corporation or Co., the SC ruled that the contract between
firm more than 50% of the outstanding the bank and its depositor is governed by the
voting stock of which is directly or provisions of the Civil Code on simple
indirectly owned. loan/mutuum.
4. The rule that the total amount of loans that 12. In the case of Serrano vs. Central Bank of
may be extended by a bank to any person or the Phil., the SC held that bank deposits are
entity shall at no time exceed 20% of the net in the nature of irregular deposits.
worth of such bank is called Single
Borrower’s Limit. 13. In Simex International Case, the SC said that
the banking system is an indispensable
5. Credit Risk Transfer shall refer to any institution that plays a vital role in the
agreement that allows the bank to transfer economic life of the nation.
the credit risk associated with its loan or
other credit accommodation to a third party. 14. It is basic that after consolidation of title in
the buyer’s name for failure of the
6. The term Legal Compensation refers to that mortgagor to redeem, the writ of possession
situation when two persons, in their own becomes a matter of right and its issuance to
right, are creditors and debtors of each other. a purchaser is merely a ministerial function.
7. The contracts between cardholders and 15. Acceleration Clause means any provision in
credit card companies are called contracts of the contract between the bank and the
adhesion because their terms are prepared by cardholder that gives the bank the right to
only one party while the other merely demand the obligation in full in case of
affixes his signature signifying his default or non-payment for whatever reason.
conformity thereto.
16. The law that protects its citizens from a lack
8. Net worth means the total unimpaired paid- of awareness of the true cost of credit to the
in capital including paid-in surplus, retained user by assuring full disclosure of such cost
earnings and undivided profit, net of is Truth in Lending Act.
valuation reserves and other adjustments as
maybe required by BSP. 17. The agreement between the parties in a loan
transaction which stipulate that the rate of
9. Letter of Credit refers to a financial device interest agreed upon may be increased in the
availed of by businessmen as a convenient event that the applicable maximum rate of
mode of dealing with sales of goods to interest is increased by the MB is called
satisfy the seemingly irreconcilable interests escalation clause.
of a seller who refuses to part with his goods
before he is paid. 18. Joint and Solidary Agreement is an
agreement where the contracting parties
10. Survivorship agreement is the agreement consent to be jointly and severally liable in a
that allows joint depositors to withdraw loan obligation.
the whole deposit during their lifetime and
35
19. A bank guarantee is an irrevocable denominated in the Philippine currency and are
commitment of a bank binding itself to pay subject to payment in legal tender upon demand
sum of money in the event of non- by presentation of depositor’s check.
performance of a contract by a third party. 29. The rule intended to maintain the quality of bank
20. Assignment of credit is an agreement by management and afford better protection to
depositors and the public in general is called fit
virtue of which the owner of credit, known
and proper rule
as the assignor, by a legal cause, such as sale
or dation in payment transfers his credit to 30. Off shore banking units refer to a branch,
another known as the assignee who acquires subsidiary or affiliate of a foreign banking
the power to enforce it. corporation which is duly authorized by the
Banko Sentral to transact offshore banking
21. All foreign currency deposit are of absolute business in the Philippines
confidential nature as a general rule and said
deposit shall be exempt from attachment 31. A bank is bound by the negligence of its
pursuant to RA No. 6426 otherwise known as employees under the principle of Respondeat
Foreign Currency Deposit Act of the Superior
Philippines.
32. Quasi banks refer to entities engaged in the
22. Negotiable Order of Withdrawal Accounts are barrowing of funds through the issuance,
interest bearing deposit accounts that combine endorsement or assignment with recourse or
the payable on demand feature of checks and acceptance of deposit substitutes for the purpose
investment feature of savings account. of relending or purchasing receivables and other
obligation
23. Independent Auditor means a person other than
an officer or employee of the bank, its 33. The business of banking is imbued with public
subsidiaries or affiliates or related companies, or interest in order to assure the stability of banks
its majority shareholders. which largely depends on the confidence of the
people in the honesty and efficiency of banks.
24. Interest Rate Differential refers to the difference
or margin between interest rates such as the
difference between domestic and foreign interest
rates. Summary of Laws
25. Secrecy of Bank Deposit Act is the law that was Chapter 1
passed to give encouragement to people to
RA 8791 General Banking Law of 2000
deposit their money in banking institutions.
RA 7353 an act providing for the creation, organization
26. The Securities and Exchange Commission shall and operation of rural banks
not register the articles of incorporation of any
bank unless accompanied by certificate of RA 7906 an act providing for the regulation of the
authority issued by the monetary board. organization and operations of the thrift banks
27. The equity investment of a universal bank or its RA 6938 an act to ordain a cooperative code of the
wholly or majority owned subsidiaries, in a Philippines
single non-allied enterprise shall not exceed
20% of the total equity. RA 6848 an act providing for the 1989 charter of the Al-
Amanah Islamic bank of the Phil
28. Demand deposit are all those liabilities of the
Banko Sentral and of the other banks which are
36
RA 6426 an act instituting a foreign currency deposit

system in the Philippines
BP 68 Corporation code
Chapter 2
RA 7653 The New Central Bank Act
Chapter 3
RA 1405 Secrecy of bank Deposit Act
RA 8367 an act providing for the organization and

operation of non stock savings and loan association
RA 9160 an act defining the crime money laundering
RA 6770 the ombudsman act of 1989
Chapter 4
RA 7394 Consumer Act
Act No 3135 an act to regulate the sale of property under

special powers inserted in or annexed to real estate
mortgages
Chapter 6
PD 1034 Offshore Banking System Decree
RA 7721 Foreign Bank liberalization Act
---------------------GOD BLESS!!!----------------------
37

Law On Public Officers

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Law On Public Officers

Caricato da

Copyright:

Formati disponibili

BANKING LAW REVIEWER – San Beda, College of Law BY: Section 2S - Manila, Intig and De Jesus

BANKING LAWS AND JURISPRUDENCE  It is not a trust agreement and failure

 Diligence extends to financial 13. Charging interest for loans

 In culpa contractual – recoverable associations and (3) private

Commercial 2,400 1. Except if it approved

 Every bank, quasi-bank or trust entity shall

1.b. Current accounts of officers  A bank can set off or compensate by

6. Foreign Currency Deposits  All banking institutions are required to set a

4. Treatment of matured time deposits 9. Average Daily Balance

 If it is a financial allied enterprise, then it 6. Home building and development

1. MB may otherwise prescribe for  Credit Risk Transfer – arrangement that

bank has no unbooked valuation 4. Loans and credit accommodations under

includes partnership, co-ownership of VI. Securities on Loans and credit accommodations

 Under Art. 1278, compensation can take 3. Parties expressly agreed to

 Finance charge – interest, fees, service Exempted transactions

Penalties IX. Foreclosure of real estate mortgage

1. Civil – any creditor who fails to disclose Procedure

 Where foreclosure is judicially made, no  In case of rehabilitation of corporation

XI. Other Banking Services

XV. Credit Card Transactions Finance charges – interest charged to cardholder

General policy Deferral charges

 Contract between cardholders and credit

2. Without order of court, disclose to an 1. Resulted in material damage or

 Conservator must be competent and Designation of conservator is not precondition to

 Conservator power to revoke contracts 4. Wilfully violated cease and desist

3. Prohibited acts stop operations and placed under

Close Now Hear Later Scheme  There shall be retention of judicial

5. Restriction of bank’s capacity to Act  All revenues and earning realized by

Disposition of banking franchise banks to acquire 100% voting stock

Head office guarantee

 State shall devote self-reliant and III. Trust Operations

administration, holding, management of 2. Act under order of any court as guardian,

RA 6426 an act instituting a foreign currency deposit

RA 7653 The New Central Bank Act

RA 1405 Secrecy of bank Deposit Act

RA 8367 an act providing for the organization and

RA 9160 an act defining the crime money laundering

RA 6770 the ombudsman act of 1989

RA 7394 Consumer Act

Act No 3135 an act to regulate the sale of property under

PD 1034 Offshore Banking System Decree

RA 7721 Foreign Bank liberalization Act

Potrebbero piacerti anche