General Banking Law – Riguera Lecture

Bank – ELF DP
- Engaged in
- Lending of
- Funds obtained in the form of
- Deposits
- funds are obtained from the Public (20 or more lenders)

Bank is both borrower and lender

Bank deposit
- mutuum and not “Deposit” as defined in civcode
- governed by provisions of simple loans (art. 1980 civcode)
- legal compensation can take place between the depositor and bank who are debtor and
creditor of each other (Gullas v PNB)
- No legal compensation between foreign branches of US bank (Citibank NA v Sabeniano)
o Foreign branches of an American bank are considered as SEPARATE ENTITIES
thus there can be no legal compensation
- Bank deposit is contract of mutuum wherein ownership over money passes to the
borrower (bank) (Guingona v City Fiscal Manila)
o No estafa. One cannot misappropriate what he owns.
- Mandamus does not lie to compel bank to pay deposit
o Relationship being CONTRACTUAL, mandamus does not lie to enforce the
performance of contractual obligations. (Lucman v Malawi)

Kinds of bank deposits or accounts

- Savings acc
o They can/may technically require advance notice before withdrawal (Rarely
exercised by banks)
- Time deposit
o Cant be withdrawn prior maturity date
o Cant pre-terminate unless you pay termination fee
- Demand deposit or current acc or checking acc
o Payable upon demand
- Joint acc
o Held jointly by 2 or more persons
o Joint “and” acc
o Joint “or” acc
o Joint “and/or” acc
 In effect an authorization by one depositor to another depositor to
withdraw or deposit from the acc w/o notice
 Creates an agency
  A joint acc holder who deposits funds in a joint “and/or” acc does not
convey ownership thereof to his co-depositor and such co-depositor
cannot convert such funds to her personal and exclusive ownership and
use. (Van Twest v CA)
 As between acc holders, the right against each other may depend on
what they agree upon, and purpose for which acc was created.
 “and” means co-ownership. Need notice to withdraw/deposit.
 “or” is also agency, like “and/or”
 Presumption of co-ownership of joint acc is not conclusive and may be
overturned by contrary evidence. (Tan v Rodriguez 2018)
- ITF Acc (In Trust For)
o Does not create trust relationship
- BPI v Fernandez
o Even if conjugal, contractual terms must be followed. Cant withdraw without
CTD (Cert of Time Dep)
- Interest-escalation clause (unconstitutional)
o Stipulation in loan contract whereby bank reserves right to unilaterally increase
interest rate “within the limits allowed by law” violates the principle of mutuality
of contracts in Art. 1308. (PNB v CA)
o Legal rate 6% per annum (before July 1, 2013 = 12%)
o Benchmark of “prevailing market or lending rate” valid
 Interest may be adjusted on prevailing market or lending rate
- Unconscionable or excessive or predatory
o Interest rate of 5% per month is unconscionable (60% per annum)
o Annual rate of 26% above is unconscionable
- Art 2209 civcode (punitive interest)
o Interest by way of damages
o Debtor incurs delay, indemnity for damages shall be:
 Agreed upon indemnity
 Rate of interest agreed upon
 Legal rate 6%
- CB Circular 416 (eff July 29 1974) (NOT ANYMORE) (CHECK BSP CIRC 799)
o In absence of stipulated rate, rate on interest on LOAN, FORBEARANCE of
money, goods, or credit, and rate on judgments shall be 12% p.a.
- BSP Circ 799 series 2013
o Legal rate of interest for all = 6%
o July 1 2013

Form of entity
- A stock corporation.
- Must not be a close corp
- Must issue par-value stocks only (BSP requires certain ACS for banks)
- Banks and quasi-banks may not incorporate OPC
Types of banks
- RURAL
o Country side dev. Agri
- THRIFT
o Retail lending, small scale ent, to engage in quasi-banking, need authorization
from Monetary Board
- COMMERCIAL
o Big corps, big enterprise, can engage in quasi-banking and create demand
deposits as matter of right
- UNIVERSAL (expanded commercial bank)
o Underwriting of securities
o Investment house
o Investment house/bank – underwriting securities
- COOP
o Exception to “only corps can engage in banking”
- ISLAMIC

Authority from BSP

- No person or entity shall engage in banking operations or quasi-banking without
authority from the BSP

Foreclosure of REM
- In extrajudicial foreclosure, mortgagor has a one-year redemption period.
- In judicial foreclosure, no right of redemption, only equity of redemption (R68 ROC)
o Equity of redemption = not less than 90 days nor more than 120 days from entry
of judgment (to pay the debt) (to prevent a foreclosure sale)
- Foreclosure by a bank, whether judicial or extra, the mortgagor has 1 year after the date
of sale within which to redeem the property by paying the amount due.
o JD: 1 year after the registration of certificate of sale
o Registration is the operative act

AICE
- Amount due under mortgage deed
- Interest thereon at the rate specified in the mortgage deed
- Costs and Expenses incurred by the bank from the sale and custody of said property
o LESS any income derived from the realty (sec 47, GBL)

- Purchaser at auction (judicial or extra) shall have the right to enter and take possession
of the property IMMEDIATELY after the confirmation of the auction sale, and he need
not post bond.
- Special redemption period for juridical persons whose realty extrajudicially foreclosed
by bank: (JEB)
 o Up to registration of the certificate of foreclosure sale or up to 3 months after
the foreclosure sale, whichever is earlier.
- Goldenway Merchandising v Equitable PCIB
o Special redemption period under sec. 47 of GBL applicable even where mortgage
executed prior to effectivity of GBL (June 13 2000) where foreclosure took place
in December 2000. Such application will not violate the non-impairment clause.
- Shorter redemption period under sec. 47 of GBL inures to benefit of bank’s assignee.
(White Marketing Dev Corp v Grandwood Furniture & Woodwork Inc 2016)
o Assignee merely steps into the shoes of assignor
o Special redemption period applies to assignee

Dragnet clause
- A clause in a REM which provides that the REM covers also future or after-acquired
obligations of the mortgagor to the mortgagee.
- Benefits borrower who can obtain further loans without executing new security
arrangements. (producers bank v excelsa industries)

Outsourcing Ban
- A bank is prohibited from outsourcing inherent banking functions, like lending, deposit-
taking, and trust services. Those functions which are not inherent to banking may be
outsourced like security, mailing, marketing, and collection. (sec. 55 GBL)

Degree of Diligence required of banks

- Banking business is imbued with public interest. Consequently, the highest degree of
diligence is expected, and high standards of integrity and performance are required of
it.

Fiduciary nature
- By nature of its functions, a bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship. (Citibank v Sps. Cabamongan)

Dishonor of check even if there were sufficient funds

- A bank which dishonors its depositor’s check even if there were sufficient funds is liable
for moral damages even if malice or bad faith was not proved. (Prudential bank v CA)

Requirement of Passbook Presentation

- A bank which allowed the withdrawal from a savings account of the proceeds of an
uncleared check without the passbook being presented is liable for the resulting loss.
(BPI v CA)
- A bank which allowed the deposit and withdrawal of the proceeds of a crossed check to
the account of a person other than the payee is liable in moral damages to payee even if
no loss was shown. (Go v Metrobank)
Four-corners (four corners of the document) rule not applicable to bank
- Banks cannot merely rely on certificates of titles in ascertaining the status of mortgaged
properties; as their business is impressed with public interest, they are expected to
exercise more care and prudence in their dealings than private individuals.
- Bank must undertake ocular inspection of property
- Don’t rely on four-corners rule
- A bank should inquire whether the developer obtained the HLURB’s prior written
approval to mortgage, as required by PD 957, before accepting developer’s property as
collateral. (Prudential Bank v Rapanot 2017)

Failure of mortgagee-bank to file insurance claim over mortgaged car rendered it liable as agent
(International exchange bank v Briones, Leonen case, 2017)
- Should have run after the insurance company for the proceeds of the insurance
- SC held that the mortgagor was released from his obligation from the mortgage
- Bank acted negligently in not filing a claim in the insurance proceeds that covered the
property that was mortgaged

DOSRI Loans
- Loans or financial accommodations incurred by a director, officer, stockholder, and his
related interest.
- Stockholder in DOSRI
o One whose shareholding in the bank (together with that of his spouse or
relatives within the 1st degree by consanguinity, affinity, or adoption) is at least
2% of the subscribed capital stock.
- Related interest
o Spouse or relative within the 1st degree by consanguinity, affinity, or adoption of
a director, officer, or stockholder, holding at least 2% subscribed capital stock.
- DOSRI restrictions (BaLLS)
o DOSRI loans are not prohibited per se but subject to the following restrictions:
 Board approval
 Director or officer cannot borrow or in any manner be an obligor
to the bank without written approval of the majority of all the
directors of the bank, excluding the director concerned.
o Even if the amount loaned does not exceed the limit
prescribed.
 Exception: Fringe-benefit plans approved by the BSP (sec. 36 GBL)
 Level terms
 Dealings of a bank with the DOSRI shall be on terms not less
favorable to the bank than those offered to others.
 Limit
 Loan shall not exceed amount equivalent to unencumbered
deposits and book value of their paid-in capital contribution to the
bank. (DP)
  Exception: BSP-approved fringe-benefit plan; and loans secured
by non-risk assets. (sec. 36 GBL)
 Waiver of bank Secrecy
 A DOSRI who contracts a loan from his bank is less than 5% of the
bank’s net worth shall be required by the lending bank to waive
the secrecy of his deposits in all banks in the Philippines.
o Go v BSP
 Bank director liable for violation of S36 GBL where no written approcal of
the majority of the board, even if amount borrowed did not exceed
amount of unencumbered deposits and book value of his paid-in capital
contribution to the bank.
o Soriano v Pp
 President of rural bank who falsified a document to make it appear that a
person had borrowed money from his bank but the President was the
one who got the loan proceeds may be prosecuted both for estafa thru
falsification of public documents and for violation of the law on DOSRI
loans.

New Central Bank Act (RA 7653)

- Sec 20, art. 12 of the Consti provides that Congress shall establish an independent
central monetary authority and that the majority of the members of its governing board
must come from the private sector.
o BSP
o Money of Central Bank CANNOT be touched by the government.
- Framers sought to avoid what happened to the Central Bank which was under the sway
of politicians resulting in the grant of the so-called “behest or crony loans.”
- BSP responsibilities (PS)
o Provide policy directions in the areas of money, banking, and credit.
o Supervise the operations of banks and quasi-banks.
 Monetary policies control exclusively belong to BSP
- Foreign Loans
o Foreign loans may be incurred only in accordance with law and BSP regulations.
(sec. 20, art. 12 Consti)
o President may contract or guarantee foreign loans in behalf of PH only with the
prior concurrence of the MB. (Sec. 20, art. 7 Consti)
- BSP objectives (NOT IN BAR COVERAGE)
o PRICE STABILITY (inflation and deflation)
o MONETARY STABILITY (depreciation and appreciation) and PESO CONVERTIBILITY
- Koruga v Arcenas
o RTC has no jurisdiction over a complaint against alleged self-dealing and
unsound practices by bank directors and seeking to place the bank under
receivership.
 o Under sec. 37 of the NCBA, it is the MB (Monetary Board) which has the power
to impose administrative sanctions against banks and under Sec. 29-30, it is the
MB that exercises exclusive jurisdiction over proceedings for receivership of
banks.
- In an admin case v bank employee before the Office of the General Counsel-BSP, the
latter did not gravely abuse its discretion in denying request for written interrogatories
and production of documents. (Admin bodies are not bound by technical rules of
procedure) (Sibayan v Ada 2018)
o Are written interrogatories applicable in admin cases before the BSP?
o SC: No, rules of procedure do not apply to admin cases
- UCPB v E Ganzon Inc
o R43 ROC, the CA has appellate jurisdiction over orders/decisions of the BSP
Monetary Board in administrative cases against bank officers.
 MB considered as a quasi-judicial body
- Ban on TRO and Prelim Injuction
o A court may not issue a restraining order or preliminary injunction enjoining the
BSP from examining any institution subject to supervision or examination by the
BSP.
o Exception: Convincing proof that the BSP’s action is plainly arbitrary and in bad
faith and the petitioner or plaintiff files a bond executed in favor of the BSP, in an
amount to be fixed by the court.

How BSP handles banks in distress (NCBA, PDIC Charter, RA 11211)(Feb 14 2019)(very new law)
- Conservatorship (sec. 29)
o Whenever a bank or quasi-bank is in:
 A state of continuing inability or unwillingness to maintain a condition of
liquidity deemed adequate to protect the interest of depositors and
creditors.
o In such a case, the MB may appoint a conservator to (RTC V)
 Take charge, for a period not exceeding 1 year, of the Assets, Liabilities,
and Management (ALM) of the bank or QB;
 Reorganize the management
 Collect all monies and debts due to the bank
 Exercise all powers necessary to restore its Viability, with the power to
overrule or revoke the actions of previous management and board of
directors of the bank or QB.
 Producers Bank v NLRC
o A bank conservator appointed by the BSP has no power to
unilaterally rescind contracts entered into by the previous
management, such as a CBA, on the mere assertion that
such contracts are highly disadvantageous to the bank.
o Power to overrule and revoke actions of previous
management DOES NOT APPLY to PERFECTED
 CONTRACTS, because it will go against constitutional right
against impairment of obligations.
o A CBA is already a perfected contract, can’t revoke.

o A bank under conservatorship is still doing business but under management of

the conservator.
o Designation of a conservator or the appointment of a receiver shall be vested
exclusively with the MB. Designation of a conservator is not a precondition to
the designation of a receiver.
o End of conservatorship
 MB satisfied that bank or QB can continue to operate on its own and the
conservatorship is no longer necessary.
 MB determines that the continuance in business of the bank or QB would
involve probable loss (absolute certainty is NOT required) to its
depositors or creditors, in which case proceedings on receivership and
liquidation shall be pursued. (delikado na ito kasi ibig sabihin isasarado
na)

- Receivership and Liquidation (UCLA)

o Whenever the MB finds that a bank or QB:
 Has notified the BSP or publicly announced a unilateral closure or has
been dormant for 60 days or more, or in any manner has suspended the
payment of its deposit/deposit substitute liabilities or is unable to pay its
liabilities as they become due in the ordinary course of business.
 Has insufficient realizable assets to meet its liabilities.
 Continuance in business would involve probable losses to its depositors
or creditors.
 Has willfully violated a cease-and-desist order that has become final,
involving acts or transactions which amount to fraud or a dissipation of
the assets of the institution;
 (must involve fraud and dissipation of assets)
o Close now, Hear later
 MB may summarily and without need of prior hearing, forbid the
institution from doing business in the PH and designate the PDIC as
receiver of the bank and direct the PDIC to proceed with the liquidation
of the closed bank pursuant to sec. 30 of NCBA and PDIC Charter.
o Banks closed by MB shall no longer be rehabilitated. (PDIC Charter, as amended
by RA 10846, June 11 2016).
o In no case shall a bank be re-opened and permitted to resume banking business
after being placed under liquidation.
o Designation of a conservator is not a pre-condition to the designation of a
receiver.
 o A bank ordered closed by the BSP is placed under the receivership of the PDIC.
The closed bank may sue and be sued only through the PDIC. Any action filed by
the closed bank without its receiver may be dismissed for lack of legal capacity to
sue. (Banco Filipino v BSP, 2018, Leonen case)
o Vivas v MB
 Remedy of an aggrieved controlling shareholder from the MB order
placing the rural bank under receivership is a petition for certiorari, NOT
prohibition, pursuant to sec. 30 of NCBA.
 Sec. 4, R65, certiorari to CA not SC
 MB = quasi-judicial body
o BSP exercises its quasi-judicial functions through the MB. Any petition for
certiorari against an act or omission of BSP, when its acts through the MB, must
be filed with the CA pursuant to sec.4 R65. The RTC has no jurisdiction over such
petition. (Banco Filipino v BSP, 2018, Leonen case)
o Certiorari is sui generis (special case)
 Petition may only be filed by the stockholders of record representing the
majority of the capital stock within 10 days from receipt by the board of
directors of the institution of the order directing receivership, liquidation
or conservatorship. (usually certiorari is 60 days)
o A judicial proceeding
 Receiver shall then file ex parte with the RTC, and without the
requirement of prior notice or any other action, a Petition for Assistance
in the Liquidation of the Institution (PALI).
 Special proceeding, in rem
 Petition shall be filed in the RTC which has jurisdiction over the principal
office of the closed bank or the principal office of the receiver, at the
receiver’s option. (PDIC Charter).
o Nothing in sec 30 of NCBA which requires that the MB must first make its own
independent finding that the bank could no longer be rehabilitated before
ordering the liquidation of bank. (Apex Bancrights Holdings v BSP, 2017,
Bernabe)
o Receiver’s power to rescind contracts
 May terminate, rescind, or repudiate any contract of the closed bank
that is not necessary for its orderly liquidation or is grossly
disadvantageous to the closed bank. (PDIC Charter, sec.13(e)(5))
 Pertains to PERFECTED CONTRACTS (unlike in conservatorship)

Bank Secrecy Laws

- RA 1405 (1955)
- RA 6426 (1972, 1977)
- SEC. 55.1(b), GBL (2000)

Laws affecting bank secrecy

 - Anti-graft law
- Ombudsman law
- NIRC
- PDIC Charter
- AMLA
- Human Securities Act
- Terrorism Financing Prevention and Security Act
- Foreign Currency Deposits Act (RA 6426)
- SEC.103, NCBA, re: reserves with BSP.

Bank Secrecy Law (RA 1405)

- Bank deposits, including investments in government bonds, are of an absolutely
confidential nature and may not be inquired into, save for certain exceptions.
- It shall be unlawful for any official or employee of a bank to disclose to any person any
information concerning said deposits or investments.
- No director, officer, employee, or agent of any bank shall without order of a court of
competent jurisdiction, disclose to any unauthorized person any information relative to
the funds or properties in the custody of the bank belonging to private individuals,
corporations, or any other entity.
- Trust accounts covered by RA 1405
o Trust accounts are covered by the term “deposits”. The phrase “of whatever
nature” means that “deposits” are to be understood broadly and not limited to
accounts which give rise to a creditor-debtor relationship between the depositor
and the bank. (Ejercito v Sadiganbayan)
- Exceptions to bank secrecy (PICUN GUAPO TH)
o Written permission of the depositor/investor.
o In cases of impeachment.
o Upon order of a competent court in cases involving
 Bribery or dereliction of duty of public officials; and
 Where the money deposited or invested is the subject matter of the
litigation.
 Mellon bank v Magsino (1990, wala pa AMLA)
 Onate v Abrogar (1995)
o Examination of bank acc to which money paid by an
insurance company for purchase of treasury bills was
deposited is prohibited even if the insurance company
sued the T-bill seller for failure to deliver the T-bills.
o The money deposited is NOT the “subject matter of
litigation”, therefore examination was prohibited.
o Unexplained wealth under Anti-graft law
 PNB v Gancayco
o Incidental exposure due to unclaimed balances law
 o NIRC
 Estate tax cases
 Tax compromise
 Request by foreign taxing authority pursuant to international agreement
or convention
o Garnishment
o AMLA
 Money laundering
 Unlawful activity
 Reporting suspicious transactions
 BSP power to inquiry and investigation
o PDIC Charter
 Power to examine in cases of unsound bank practices
 Failure of prompt and corrective action
 Due to capital deficiency
o Ombudsman Law
 Marquez v Desierto
 There must pe a pending case before a court of competent
jurisdiction before an in camera inspection by Ombudsman may
be allowed.
o Terrorism Financing Prevention and Security Act
 Here, AMLAC has authority to examine
o Human Security Act
 Here, police or law enforcement officer authorized by CA to examine
bank accs of:
 Person charged or suspected of terrorism
 Terrorist organization
 Member of a terrorist organization

Exceptions to confidentiality of Foreign Currency Deposits (NAP PT)

- Depositor’s written Permission.
- Authority of the AMLAC to examine or inquire into any particular deposit or investment
with any banking institution upon order of any competent court.
- PDIC Act
o Unsafe and unsound banking practice
- Terrorism Financing Prevention and Security Act
- Commissioner of Internal Revenue to inquire into the bank deposits of a decedent for
estate tax purposes or in case of a tax compromise or request for supply of tax
information from foreign tax authority under sec. 6(f) of the NIRC.

Money Laundering (TCC ACFA) & R

- Committed by any person, who knowing that any monetary instrument or property
relates to the proceeds of any unlawful activity:
o Transacts said monetary instrument or property
o Converts, acquires, moves, possesses, or uses said monetary instrument or
property
o Conceals the true nature, source, location, movement or ownership of or rights
with respect to said monetary instrument or property
o Attempts or Conspires to commit money laundering offenses referred to in pars.
(a)(b)(c)
o Facilitates TCC
o Aids and Abets TCC
o Any covered person who, knowing that a covered or suspicious transaction is
required to be Reported to the AMLC, fails to do so.
- Covered Transaction
o Transaction, in cash or other equivalent monetary instrument, involving total
amount greater than P500,000 within one banking day.
o For casinos, a single casino transaction greater than P5,000,000 or its equivalent
in other currency.
o A transaction with a covered institution, regardless of the amount involved,
where any of the following circumstances exists: (SUSU DIC)
 Structured (500k, 5 chops of 100k) (Smurfing)
 Similar analogous situations
 No Underlying trade, obligation, economic justification
 Unlawful Acts
 Deviates from client’s profile
 Client not Identified
 Not Commensurate to client’s profile or past transactions
- Any person may be charged with and convicted of both the offense of money laundering
and the unlawful activity as herein defined.
- Prosecution of any offense or violation under this act shall proceed independently of
any proceeding relating to the unlawful activity.
- No court order shall be required for inquiry in: (TTDK Foreign HAM)
o Terrorism
o Terrorism Financing
o Kidnapping for ransom
o Drug offenses
o Hijacking, destructive Arson, and Murder, including those perpetrated by
terrorists against non-combatants and civilian targets.
o Similar Foreign offenses