ATENEO DE MANILA LAW SCHOOL

BANKING LAW I OUTLINE1

DY FIRST SEMESTER, SY 2009-2010 2009

ATTY. ALEXANDER C. FRIDAY, 19 JUNE

I. GENERAL CONCEPTS
A. CONCEPT OF BANKING
1. Definition Sec. 3.1, GBL2 2. Elements Republic v. Security Credit and Acceptance Corporation , 19 SCRA 58 (1967); Central Bank v. Morfe, 20 SCRA 507 (1967); Baas v. Asia Pacific Finance Corporation , 343 SCRA 527 (2000) a. Engaged in lending of funds b. Obtained in the form of deposits c. From the public, which shall mean 20 or more persons Sec. 8.2, GBL

B. BANKING DISTINGUISHED FROM QUASI-BANKING

1. Elements of Quasi-Banking Sec. 4, par. 3, GBL; xSec. X234, MRB3 a. Borrowing of funds for borrowers own account b. From 20 or more lenders at any one time c. Through issuance, endorsement or assignment with recourse or acceptance of deposit substitutes Sec. 95, NCBA4 d. For purposes of relending or purchasing of receivables and other obligations 2. Requirement of Separate License Sec. 6, par. 1, GBL

C. BANKS DISTINGUISHED FROM OTHER FINANCIAL INSTITUTIONS

1

The Outline presents the manner by which Banking Law I will be taken up in class. The x's and those footnoted in the Outline represent cases or topics which need no extended discussions, either because the essence of the rulings are already summarized in the Outline or they contain similar rulings or doctrines as other cases to be discussed. 2 Republic Act No. 8791 (General Banking Law of 2000), which repealed Republic Act No. 337 (General Banking Act) 3 Manual for Regulation of Banks 4 Republic Act No. 7653 (New Central Bank Act), which repealed Republic Act No. 265 (Central Bank Act)

2 1. Investment Houses xSecs. 2 and 3, Investment Houses Law5 2. Financing Companies xSec. 3(a), Financing Company Act6 3. Investment Companies xSec. 4, Investment Company Act7 4. Non-Stock Savings and Loans Associations xSec. 3, Revised NonStock Savings and Loans Association Act of 1997 8 5. Cooperatives xArt. 3, Cooperative Code9; But See xArt. 100, Cooperative Code 6. Insurance Companies xSec. 2, Insurance Code10 D. NATURE OF BANKING BUSINESS Sec. 2, GBL 1. Vital Role in Economy11 Simex International (Manila) Inc. v. Court of Appeals, 183 SCRA 360 (1990) a. Subject to reasonable regulation by the State Central Bank of the Philippines v. Court of Appeals, 208 SCRA 652 (1992) b. Strikes and Lockouts Sec. 22, GBL; xBSP12 Circular No. 299 (Series of 2001); Article 263(g), Labor Code 2. Fiduciary Nature of Banking Business a. Degree of diligence required13 Simex International (Manila) Inc. v. Court of Appeals, 183 SCRA 360 (1990); Bank of the Philippine Islands v. Intermediate Appellate Court, 206 SCRA 408 (1992) b. When utmost diligence required (i) In dealing with accounts of depositors 14 Philippine Banking Corporation v. Court of Appeals , 419 SCRA 487 (2004); Bank of the Philippine Islands v. Casa Montessori Internationale , 430 SCRA 261 (2004) In selection and supervision of employees 15 Philippine Commercial and International Bank v. Court of Appeals , 350

(ii)
5 6

Presidential Decree No. 129, as amended Republic Act No. 59080, as amended by Republic Act No. 8556 7 Republic Act No. 2629 8 Republic Act No. 8367 9 Republic Act No. 6938 10 Presidential Decree No. 612, as amended 11 Prudential Bank v. Lim, 474 SCRA 485 (2005) 12 Bangko Sentral ng Pilipinas 13 Solidbank Corporation/Metropolitan Bank and Trust Company v. Tan , 520 SCRA123 (2007) 14 Simex International (Manila) Incorporated v. Court of Appeals , 183 SCRA 360 (1990); Bank of the Philippine Islands v. Court of Appeals , 326 SCRA 641 (2000); Philippine Commercial International Bank v. Court of Appeals , 350 SCRA 446 (2001); Firestone Tire & Rubber Company of the Philippines v. Court of Appeals , 353 SCRA 601 (2001); Westmont Bank v. Ong, 375 SCRA 212 (2002); Traders Royal Bank v. Radio Philippines Network, Inc. , 390 SCRA 608 (2002); Consolidated Bank and Trust Corporation v. Court of Appeals , 410 SCRA 562 (2003)

3 SCRA 446 (2001); Philippine National Bank v. Pike, 470 SCRA 328 (2005) (iii) To be mortgagees in good faith 16 Cruz v. Bancom Finance Corporation, 379 SCRA 490 (2002) (iv) In the custody of documents; integrity of records 17 Heirs of Eduardo Manlapat v. Court of Appeals, 459 SCRA 412 (2005) (v) Exception: does not cover transactions outside bank deposits Reyes v. Court of Appeals, 363 SCRA 51 (2001)

c. Applicability to government financial institutions xGovernment Service Insurance System v. Santiago, 414 SCRA 563 (2003) d. Liability for negligence (i) Rules on determination of negligence Philippine Bank of Commerce v. Court of Appeals , 269 SCRA 695 (1997); Consolidated Bank and Trust Corporation v. Court of Appeals, 410 SCRA 562 (2003) Award of actual, moral, compensatory or temperate damages Araneta v. Bank of America, 40 SCRA 144 (1970); Prudential Bank v. Court of Appeals , 328 SCRA 264 (2000); Citytrust Banking Corporation v. Villanueva, 361 SCRA 446 (2001)

(ii)

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

E. AUTHORITY TO OPERATE
1. Incorporation Secs. 17 and 46, Corporation Code; Sec. 14, GBL 2. Operation Sec. 6, GBL a. Authority required Sec. 6, par. 1, GBL b. MB18 determination Sec. 6, par. 2, GBL c. Unauthorized advertisement/ business representation Sec. 64, GBL d. Change in name xP.C. Javier & Sons, Inc. v. Court of Appeals , 462 SCRA 36 (2005)
15

Metropolitan Bank and Trust Company v. Cabilzo, 510 SCRA 259 (2006); But See Go v. Intermediate Appellate Court, 197 SCRA 22 (1991) 16 Development Bank of the Philippines v. Court of Appeals , 331 SCRA 267 (2000); Canlas v. Court of Appeals, 326 SCRA 425 (2000); Premiere Development Bank v. Court of Appeals , 453 SCRA 630 (2005); Private Development Corporation of the Philippines v. Court of Appeals , 475 SCRA 591 (2005); Citibank, N.A. v. Cabamongan, 488 SCRA 517 (2006); Metropolitan Bank and Trust Company, Inc. v. SLGT Holdings, Inc. , 536 SCRA 517 (2007); Omengan v. Philippine National Bank, 512 SCRA 305 (2007) 17 See Also United Coconut Planters Bank v. Basco, 437 SCRA 325 (2004) 18 Monetary Board

4 e. Sanctions for operating without authority Sec. 6, par. 4, in rel. to Sec. 66, GBL; Republic v. Security Credit and Acceptance Corporation, 19 SCRA 58 (1967); Central Bank v. Morfe, 20 SCRA 507 (1967); xPerez v. Monetary Board, 20 SCRA 502 (1957)

II. CLASSIFICATION OF BANKS

A. UNIVERSAL BANKS (UB) Sec. 3.2(a), GBL 1. Governing Law xGBL 2. Powers Sec. 23, GBL; xSec. X101(b)(1), MRB a. Commercial Bank (KB) powers xSec. 29, GBL; xSec. X101(b)(2), MRB b. Investment House powers xSec. 7, Investment Houses Law; xSEC Omnibus Rules and Regulations for Investment Houses and Universal Banks Registered as Underwriter of Securities (i) Definition/function of investment house any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the underwriting ( i.e., guaranteeing distribution and sale) of securities of any kind issued by another corporation xSec. 3, Investment Houses Law; xSec. 2(a), IRR of Investment Houses Law19 Limitations on UBs exercise of investment house powers xSec. 101(b)(1), MRB: (a) (b) (c) subject to pertinent laws and SEC regulations if investment house functions performed directly by UB, such functions shall be undertaken by separate department/unit UB cannot perform functions of investment house both directly (i.e., through a separate department/unit) and indirectly (i.e., through a subsidiary)

(iI)

c. To invest in equity of non-allied enterprises xSec. 27, GBL; xSec. 1381, MRB B. COMMERCIAL BANKS (KB) Sec. 3.2(b), GBL 1. Governing Law xGBL 2. Powers xSec. X101(b)(2), MRB a. KB powers Sec. 29, GBL (i) (ii)
19

Accepting drafts Issuing letters of credit (L/Cs)

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

5 (iii) Discounting and negotiating promissory notes (PNs), drafts, bills of exchange, and other evidences of debt (iv) Accepting or creating demand deposits (i) Receiving other types of deposits and deposit substitutes (ii) Buying and selling foreign exchange and gold or silver bullion (iii) Acquiring marketable bonds and other debt securities (iv) Extending credit b. Engage in quasi-banking functions xSec. 6, par. 1, GBL c. To invest in equity of allied enterprises xSecs. 31 and 32, GBL d. To purchase, hold and convey real estate xSecs. 51 and 52, GBL e. Other services xSec. 53, GBL (i) (ii) Receive in custody funds, documents and valuable objects Act as financial agent and buy and sell, by order of and for the account of customers, shares, evidences of indebtedness and all types of securities (iii) Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business (iv) Upon prior MB approval, act as managing agent, adviser, consultant or administrator of investment management/advisory/ consultancy accounts (v) Rent out safety deposit boxes f. To issue guarantees See xSec. 74, General Banking Act C. THRIFT BANKS (TB) Secs. 3.2(c), GBL 1 2 1. Governing Law Sec. 71, pars. 1 and 3, GBL a. Organization, ownership, capital requirements, powers, supervision, and general conduct of business xThrift Banks Act20 b. Net worth to risk assets ratio xSec. 71, par. 3, in rel. to Sec. 33, GBL c. Other matters: GBL of suppletory application 3 4 2. Declaration of Policy Sec. 2, Thrift Banks Act 3. Definition/Purpose Sec. 3.2(c), GBL; Sec. 3(a), Thrift Banks Act a. Composed of: (i) Savings and mortgage banks (ii) Stock savings and loans associations; and (iii) Private development banks b. For purposes of:
20

Republic Act No. 7906

6 (i) Accumulating savings of depositors and investing them in marketable bonds and other debt securities, commercial papers and accounts receivable, drafts, bills of exchange, acceptances, or notes arising out of commercial transactions (ii) Providing short-term working capital, medium- and long-term financing, to businesses engaged in agriculture, services, industry and housing (iii) Providing diversified financial and allied services for its chosen market and constituencies specially for small and medium enterprises and individuals 4. Powers Sec. 10, Thrift Banks Act; xSec. X101(b)(3), MRB D. RURAL BANKS (RB) Sec. 3.2(d), GBL 5 6 1. Governing Law Sec. 71, pars. 1 and 3, GBL; a. Organization, ownership, capital requirements, powers, supervision, and general conduct of business xRural Banks Act21 b. Other matters: GBL of suppletory application 7 2. Declaration of Policy Sec. 2, Rural Banks Act 3. Powers Sec. 12, Rural Banks Act; xSec. X101(b)(4), MRB E. COOPERATIVE BANKS (Coop Banks) Sec. 3.2(e), GBL 8 9 1. Governing Law Sec. 71, pars. 1 and 3, GBL; Art. 99, Cooperative Code a. Organization, ownership, capital requirements, powers, supervision, and general conduct of business xArts. 99 to 109, Cooperative Code b. Other matters: GBL of suppletory application 10 2. Declaration of Policy Art. 2, Cooperative Code 11 3. Definition/Functions Art. 100, Cooperative Code a. Definition: Organized by, the majority shares of which is owned and controlled by, cooperatives primarily to provide financial and credit services to cooperatives b. Functions xArt. 100 Cooperative Code 4. Powers: Same as RB xSec. X101(b)(5), MRB F. ISLAMIC BANKS (IB) Sec. 3.2(f), GBL 12 13 1. Governing Law Sec. 71, par. 2, GBL
21

Republic Act No. 7353

7 a. Organization, ownership, capital requirements, powers, supervision, and general conduct of business xIslamic Bank Charter22 2. Purpose Sec. 3, Islamic Bank Charter 3. Powers Sec. 6, Islamic Bank Charter; xSec. X101(b)(6), MRB G. OTHER CLASSIFICATIONS OF BANKS Sec. 3.2(g), GBL 1. Land Bank of the Philippines (Land Bank) xSecs. 74 to 100-A, Code of Agrarian Reform of the Philippines23 2. Development Bank of the Philippines (DBP) xRevised Charter of Development Bank of the Philippines24 3. Philippine Veterans Bank (PVB) xPhilippine Veterans Bank Act25; xAn Act to Rehabilitate the PVB26 4. Philippine National Bank (PNB) but now privatized xRevised Charter of Philippine National Bank27; xPhilippine National Bank v. Velasco , 564 SCRA 512 (2008) 5. Pawnshops? First Planters Pawnshop, Inc. v. Commissioner of Internal Revenue, 560 SCRA 606 (2008) H. FOREIGN BANKS 1. Entry of Foreign Banks a. Modes of entry Sec. 2, Foreign Banks Liberalization Act28 (i) (ii) By acquiring, purchasing or owning up to 60% of the voting stock of an existing domestic bank By investing in up to 60% of a new banking subsidiary incorporated under the laws of the Philippines

(iii) By establishing branches with full banking authority b. Subject to MB approval, guidelines Secs. 2 and 3, Foreign Banks Liberalization Act c. Foreign bank may avail of only 1 mode of entry Sec. 2, Foreign Banks Liberalization Act; But may change from one mode of entry to another xSubsec. 121.10, MRB

22 23

Republic Act No. 6848 (Charter of Al Amanah Islamic Development Bank of the Philippines) Republic Act No. 3844 24 Executive Order No. 81, Series of 1986 25 Republic Act No. 3518 26 Republic Act No. 7169 27 Executive Order No. 80 Series of 1986 28 Republic Act No. 7221

8 d. Control of 70% of resources or assets of entire banking system must be held by banks which are at least majority-owned by Filipinos Sec. 73, par. 3, GBL; Sec. 3, par. 3, Foreign Banks Liberalization Act e. Equal treatment of local banks Sec. 73, par. 4, GBL; Sec. 8, Foreign Banks Liberalization Act 2. Rules on Acquisition of Voting Stock in Existing Domestic Bank a. May own up to 60% voting stock of only 1 domestic bank Sec. 2, Foreign Banks Liberalization Act b. Within 7 years from GBL effectivity, MB may authorize foreign bank: (i) To acquire up to 100% of voting stock of only 1 domestic bank Sec. 73, par. 1, GBL (ii) Which acquired up to 60% of voting stock under the Foreign Banks Liberalization Act and Thrift Banks Act, to further acquire up to 100% voting stock thereof Sec. 73, par. 2, GBL c. MB shall secure the listing in the PSE 29 of shares of stocks of banks established under this mode of entry Sec. 3, par. 3, Foreign Banks Liberalization Act d. License to do business not required: Equity investment is not deemed doing business Sec. 3(d), Foreign Investments Act of 199130 3. Rules on Acquisition of Voting Stock in New Domestic Bank a. May own up to 60% of the voting stock of only 1 new banking subsidiary Sec. 2, Foreign Banks Liberalization Act b. Must be among top 150 foreign banks in the world or top 5 in their country of origin as of application date Sec. 3, par. 2, Foreign Banks Liberalization Act c. MB shall secure the listing in the PSE of shares of stocks of banks established under this mode of entry Sec. 3, par. 3, Foreign Banks Liberalization Act d. Must be widely-owned and publicly-listed in its country of origin, unless applicant is owned by government thereof Sec. 3, par. 4, Foreign Banks Liberalization Act e. Capitalization Sec. 4(i), Foreign Banks Liberalization Act f. License to do business not required: Equity investment is not deemed doing business Sec. 3(d), Foreign Investments Act of 1991 4. Rules on Establishing Branches a. Governing Laws
29 30

Philippine Stock Exchange Republic Act No. 7042

9 (i) Creation, formation, organization or dissolution of corporations; fixing of relations, liabilities, responsibilities, or duties of stockholders, members, directors or officers of corporations to each other and the corporation: Law of place where foreign bank established Sec. 77, GBL Entry into the Philippines through establishment of branches: xForeign Banks Liberalization Act Sec. 72, par. 1, GBL

(ii)

(iii) Conduct of offshore banking business: xOffshore Banking System Decree31; xChapter 1, Part Three, BSP Circular No. 1389 Sec. 72, par. 2, GBL (iv) All other matters: GBL Sec. 77, GBL b. Must be among top 150 foreign banks in the world or top 5 in country of origin Sec. 3, par. 2, Foreign Banks Liberalization Act c. Must be widely-owned and publicly-listed in country of origin, unless government-owned Sec. 3, par. 4, Foreign Banks Liberalization Act d. Time limitation on entry Sec. 6, Foreign Banks Liberalization Act e. Capitalization Sec. 4(ii), Foreign Banks Liberalization Act f. Treatment of multiple branches Sec. 74, GBL; Citibank, N.A. v. Sabeniano, 514 SCRA 441 (2007) g. Head office guarantee Sec. 75, GBL; Sec. 5, Foreign Banks Liberalization Act h. Must be licensed to transact business Sec. 133, Corporation Code; Hang Lung Bank, Ltd. v. Saulog, 201 SCRA 137 (1991) i. Summons and legal processes Sec. 76, GBL; Sec. 12, Rule 14, 1997 Rules of Civil Procedure j. Revocation of license Sec. 78, GBL 5. Offshore Banking Units (OBU) Secs. 1(a) and 1(b), Offshore Banking System Decree a. Qualification Sec. 2, Offshore Banking System Decree b. Certificate of authority to operate Sec. 3, Offshore Banking System Decree c. Head office guarantee Sec. 4, Offshore Banking System Decree d. Effects of certain laws Sec. 8, Offshore Banking System Decree

31

Presidential Decree No. 1034, as amended

10

III. DEPOSIT FUNCTION

A. NATURE OF DEPOSIT
1. Deposits as Simple Loans 32 Arts. 1953 and 1980, Civil Code ; Serrano v. Central Bank, 96 SCRA 96 (1980) 2. Bank as Debtor a. Deposit is voluntary agreement; Know Your Customer standards xMemorandum dated 1 October 2002; xSec. X262.1, MRB b. Bank acquires ownership of money deposited; obligation to pay amount, but no obligation to return the same money 33 Guingona, Jr. v. City Fiscal of Manila , 128 SCRA 577 (1984); BPI Family Bank v. Franco, 538 SCRA 184 (2007) c. Payment to proper party-depositor Fulton Iron Works Co. v. China Banking Corp., 58 Phil. 206 (1930); Bank of the Philippine Islands v. Court of Appeals, 232 SCRA 302 (1994) d. Deposits are not preferred credits Central Bank v. Morfe, 63 SCRA 114 (1975) e. Bank has right to compensation Gullas v. Philippine National Bank, 62 Phil. 519 (1935); Republic v. Court of Appeals, 65 SCRA 186 (1975); Bank of the Philippine Islands v. Court of Appeals , 512 SCRA 620 (2007) f. No breach of trust; Mandamus not a remedy xLucman v. Malawi, 511 SCRA 268 (2006) 3. Banks Duty of Utmost Care34 Sec. 2, GBL

B. KINDS OF DEPOSIT
1. Demand Deposits Secs. 58-60, NCBA; xSecs. X201 to X204, MRB a. For UB and KB Sec. 33, GBL b. For TB Sec. 10(b), Thrift Banks Act
32

San Carlos Milling Co., Ltd. v. Bank of the Philippine Islands , 59 Phil. 59 (1933); Hilado v. De la Costa, 83 Phil. 471 (1949); People v. Ong, 204 SCRA 942 (1991); Moran v. Court of Appeals, 230 SCRA 799 (1994); Consolidated Bank and Trust Corporation v. Court of Appeals , 410 SCRA 562 (2003) 33 Serrano v. Central Bank, 96 SCRA 96 (1980); People v. Puig, 563 SCRA 564 (2008). 34 Simex International (Manila), Inc. v. Court of Appeals , 183 SCRA 360 (1990); Go v. Intermediate Appellate Court, 197 SCRA 22 (1991); Bank of the Philippine Islands v. Intermediate Appellate Court, 206 SCRA 408 (1992); Philippine Bank of Commerce v. Court of Appeals, 269 SCRA 695 (1997); Bank of the Philippine Islands v. Court of Appeals , 326 SCRA 641 (2000); Firestone Tire & Rubber Company of the Philippines v. Court of Appeals , 353 SCRA 601 (2001)

11 c. For RB/Coop Bank Sec. 12(b), Rural Banks Act; xSubsec. X201.1, MRB d. For Islamic Banks Sec. 6, par. (7)(a), Islamic Bank Charter 2. Savings Deposits xSec. X213 and X214, MRB; International Exchange Bank v. Commissioner of Internal Revenue , 520 SCRA 688 (2007) 3. Negotiable Order of Withdrawal (NOW) Accounts xSecs. X223 to X226, MRB; People v. Reyes, 454 SCRA 635 (2005) 4. Time Deposits xSecs. X231, MRB; BPI Family Savings Bank v. First Metro Investment Corporation, 429 SCRA 30 (2004) 5. Foreign Currency Deposits Secs. 2 and 3, FCDA35 6. Money Market Placements? Allied Banking Corporation v. Lim Sio Wan, 549 SCRA 504 (2008)

C. CAPACITY OF DEPOSITORS
1. Minors Sec. 1, Presidential Decree No. 734 ; Sec. 22, Thrift Banks Act 2. Married Women Sec. 5, Republic Act No. 7192 3. Corporations: Through signatories designated by Board of Directors Sec. 23, Corporation Code 4. Bank Officers and Employees: Prohibited from maintaining demand deposits or current accounts in banking office where they are assigned xSec. X204, MRB

D. OPENING OF DEPOSIT ACCOUNTS

1. Know Your Customer Standards: At least 3 specimen signatures updated every 5 years, ID optional xSubsec. X262.1, MRB 2. Prohibitions: a. Anonymous Accounts/Fictitious Names Sec. 9(a), AMLA36 b. Pseudonyms xArt. 178, Revised Penal Code; xCommonwealth Act No. 142, as amended; xArts. 379-380, Civil Code c. Exception: Numbered accounts Sec. 9(a), AMLA; Sec. 3(1), FCDA 3. Joint Accounts Arts. 485, 1207 and 1208, Civil Code

E. ADMINISTRATION OF DEPOSIT ACCOUNTS

35 36

Republic Act No. 6426, as amended (Foreign Currency Deposit Act) Republic Act No. 9160, as amended by Republic Act No. 9194 (Anti-Money Laundering Act of 2001)

12

1. Deposit of Funds a. Delivery required Art. 1934, Civil Code b. Acceptability of withdrawal slips as deposits Firestone Tire & Rubber Co. of the Phil. v. Court of Appeals, 353 SCRA 601 (2001) 2. Withdrawal of Funds a. From current accounts: Allowing withdrawal of value of check drawn: (i) (ii) In case of insufficiency of funds Moran v. Court of Appeals, 230 SCRA 799 (1994); Villanueva v. Nite, 496 SCRA 459 (2006) Prior to clearing Associated Bank v. Tan, 446 SCRA 282 (2004)

(iii) In favor of other persons when check crossed Traders Royal Bank v. Radio Philippines Network, Inc., 390 SCRA 608 (2002) (iv) By issuing a managers check Equitable PCI Bank v. Ong , 502 SCRA 119 (2006) b. From savings accounts: Presentation of passbook and withdrawal slip Bank of the Philippine Islands v. Court of Appeals , 326 SCRA 641 (2000) c. From time deposits: Surrender of certificate of deposit Far East Bank and Trust Company v. Querimit, 373 SCRA 665 (2002) d. From foreign currency deposit accounts : Based on contract Sec. 5, FCDA e. If deceased depositor: (i) (ii) Tax clearance required Sec. 97, NIRC; But See: xSec. 28(A)(1) (a) and (6), NIRC Survivorship Agreements Vitug v. Court of Appeals, 183 SCRA 755 (1990)

3. Booking of Deposits xSec. X261, MRB 4. Interest on Deposits Citibank, N.A. v. Cabamongan , 488 SCRA 517 (2006) a. Not subject to interest ceilings xSec. X242, MRB b. Time of payment of interest on time deposits xSubsec. X242.1, MRB c. Matured time deposits xSubsec. X242.2, MRB d. Disclosure requirements xSec. X243, MRB 5. Closing of Account Far East Bank and Trust Company v. Pacilan, Jr., 465 SCRA 372 (2005)

13

F. SECRECY OF BANK DEPOSITS

1. General Rules a. Rationale: right to privacy Art. III, Secs. 2, 3, and 7 and Art. II, Sec. 28, 1987 Constitution; Republic v. Eugenio, 545 SCRA 384 (2008) b. Applicable law Intengan v. Court of Appeals, 377 SCRA 63 (2002) c. Applicability of exclusionary rule Art. III, Secs. 2 and 3, 1987 Constitution; Ejercito v. Sandiganbayan (Special Division) , 509 SCRA190 (2006) 2. Rules for Peso Deposits a. Coverage Sec. 2, Law on Secrecy of Bank Deposits 37; Ejercito v. Sandiganbayan (Special Division), 509 SCRA190 (2006) b. Prohibitions Secs. 2 and 3, Law on Secrecy of Bank Deposits ; Secs. 55.1(b) and 55.4, GBL c. Exceptions (i) Under the Law on Secrecy of Bank Deposits Sec. 2, Law on Secrecy of Bank Deposits (a) Upon written permission of the depositor or investor: (1) (2) (b) (c) (d) (ii) DOSRI38 loans Sec. 26, NCBA; xSec. X337, MRB For loans secured by hold-out or assignment of CTDs xSec. X315(f), MRB

In cases of impeachment Upon the order of a competent court in cases of bribery or dereliction of duty of public officials In cases where the money deposited or invested is the subject of litigation

Under the Anti-Graft and Corrupt Practices Act 39: In cases involving unexplained wealth Sec. 8, Anti-Graft and Corrupt Practices Act; Philippine National Bank v. Gancayco, 15 SCRA 91 (1965); Banco Filipino Savings and Mortgage Bank v. Purisima, 161 SCRA 576 (1988)

(iii) Under the Ombudsman Act40 Sec. 15(8), Ombudsman Act; Marquez v. Disierto, 359 SCRA 772 (2001); Ejercito v. Sandiganbayan (Special Division), 509 SCRA190 (2006)

37 38

Republic Act No. 1405, as amended Directors, Officers, Stockholders, Related Interests 39 Republic Act No. 3019, as amended 40 Republic Act No. 6770

14 (iv) Under the Plunder Law41 Secs. 1(d) and 4, Plunder Law ; Ejercito v. Sandiganbayan (Special Division) , 509 SCRA190 (2006) (v) Under the AMLA Sec. 11, AMLA; Republic v. Eugenio, 545 SCRA 384 (2008) (a) Upon order of a competent court in cases of violation of the AMLA where there is probable cause of money laundering, except that no court order is required in cases of: (1) (2) (3) kidnapping for ransom drug trafficking hijacking, destructive arson and murder, including those perpetrated by terrorists against non-combatants and similar targets

(b)

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

(vi) Independent auditor hired by the bank to conduct its regular audit, provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank xDOJ Opinion No. 243 (Series of 1957); xMarquez v. Disierto , 359 SCRA 772 (2001) (vii) Under the PDIC42 Charter43 Sec. 8, par. Eighth, PDIC Charter (vii) Under the Human Security Act 44 Secs. 27-43, Human Security Act (viii) Under the NIRC Sec. 6(F), NIRC (a) Upon inquiry by the Commissioner of Internal Revenue for the purpose of determining the net estate of a deceased depositor In case a taxpayer files and application to compromise his tax liabilities on the ground of financial incapacity (waiver required)

(b)

(ix) Under the Unclaimed Balances Law 45 Disclosure to the Treasurer of the Philippines for dormant deposits for at least ten (10) years Sec. 2, Unclaimed Balances Law; xDOJ Opinion No. 104 (Series of 1975) (x)
41 42

Under the Rules of Court

Republic Act No. 7080, as amended Philippine Deposit Insurance Corporation 43 Republic Act No. 3591, as amended by Republic Act No. 7400 and Republic Act No. 9576 44 Republic Act No. 9732 45 Act No. 3936, as amended by Presidential Decree No. 679

15 (a) Garnishment Sec. 9(c), Rule 39, 1997 Revised Rules of Civil Procedure; China Banking Corporation v. Ortega , 49 SCRA 356 (1973); xPhilippine Commercial and Industrial Bank v. Court of Appeals, 193 SCRA 452 (1991) Preliminary attachment Sec. 10, Rule 57, 1997 Revised Rules of Civil Procedure;

(b)

d. Penalty for Violation Sec. 5, Law on Secrecy of Bank Deposits 3. Rules for Foreign Currency Deposits a. Coverage Sec. 8, FCDA; Estrada v. Disierto, 445 SCRA 655 (2004); Salvacion v. Central Bank of the Philippines , 278 SCRA 27 (1997) b. Prohibition Sec. 8, FCDA c. Exceptions (i) Upon written consent of the depositor 46 Sec. 8, FCDA; China Banking Corporation v. Court of Appeals, 511 SCRA 110 (2006) Upon order of a competent court in cases of violation of the AMLA where there is probable cause of money laundering, except that no court order is required in specified cases Sec. 11, AMLA

(ii)

(iii) BSP inquiry into or examination of deposits or investments with any bank, when the inquiry or examination is made in the course of the BSPs periodic of special examination of said bank Sec. 11, AMLA (iv) Under the PDIC47 Charter48 Sec. 8, par. Eighth, PDIC Charter d. Penalty for Violation Sec. 10, FCDA 4. Rules for Deposits in Specific Banks and Financial Institutions a. Under the GBL Sec. 55.1(b), GBL a. Islamic Banks Secs. 33 and 45, Islamic Bank Charter b. Rural Banks Sec. 26(a)(2), Rural Banks Act c. Thrift Banks Sec. 21(a)(2), Thrift Banks Act d. Non-Stock Savings and Loans Association xSec. 6, Revised NonStock Savings and Loans Association Act of 1997

46 47

Intengan v. Court of Appeals, 377 SCRA 63 (2002); Estrada v. Desierto, 445 SCRA 655 (2004) Philippine Deposit Insurance Corporation 48 Republic Act No. 3591, as amended by Republic Act No. 7400 and Republic Act No. 9576

16

G. GARNISHMENT
1. Procedure Sec. 9(c), Rule 39, 1997 Rules of Civil Procedure 2. Exempt Deposits a. Foreign currency deposits Sec. 8, FCDA; But See xSalvacion v. Central Bank of the Philippines, 278 SCRA 27 (1997) b. Under the Rules of Court Sec. 13, Rule 39, 1997 Rules of Civil Procedure 3. No violation of Law on Secrecy of Bank Deposits xChina Bank v. Ortega, 49 SCRA 356 (1973); xPhilippine Commercial and Industrial Bank v. Court of Appeals, 193 SCRA 452 (1991) 4. Liability for Release Rizal Commercial Banking Corporation v. De Castro, 168 SCRA 49 (1988); xPhilippine Commercial and Industrial Bank v. Court of Appeals, 193 SCRA 452 (1991)

H. DEPOSIT INSURANCE
1. Coverage Sec. 4, PDIC49 Charter50; Sec. 9, FCDA 2. Amount Insured: Maximum of P500,000.00 Sec. 4(g), PDIC Charter51 3. Rules on Payment Secs. 10(b) to (d), PDIC Charter 4. Liability of PDIC Philippine Deposit Insurance Corp. v. Court of Appeals, 283 SCRA 462 (1997) I. UNCLAIMED BALANCES 1. Definition Sec. 1, Unclaimed Balances Law 2. Report to Treasurer; Notice, Posting, Publication Sec. 2, Unclaimed Balances Law; Republic v. Court of Appeals, 345 SCRA 63 (2000) 3. Escheat Proceedings Sec. 3, Unclaimed Balances Law 4. Effects of Compliance/Non-Compliance Secs. 4 and 5, Unclaimed Balances Law

49 50

Philippine Deposit Insurance Corporation Republic Act No. 3591, as amended by Republic Act No. 7400 and Republic Act No. 9576 51 As further amended by Secs. 3 and 4, Republic Act No. 9576

17 J. ANTI-MONEY LAUNDERING ACT 1. Declared Policy Sec. 2, AMLA 2. Covered Transactions: Transaction, in cash or other equivalent monetary instrument in excess of P500,000 within 1 banking day Sec. 3(b), AMLA 3. Suspicious Transactions: Transaction with Covered Institution, regardless of amount involved, where any of the enumerated suspicious circumstances exist Sec. 3(b-1), AMLA 4. Covered Institutions Sec. 3(a), AMLA a. Banks and other entities, supervised/regulated by BSP their subsidiaries and affiliates,

b. Insurance companies and other entities supervised/regulated by Insurance Commission c. SEC supervised/regulated entities52 5. Obligations of Covered Institutions Sec. 9, AMLA a. Customer Identification: Establish and record, and maintain a system of verifying true identities of clients, including legal existence and organizational structure of corporate clients, and their representatives, based on official documents b. Record Keeping: Keep records for 5 years c. Reporting of Covered and Suspicious Transactions: Report Covered Transactions and Suspicious Transactions to AMLC 53, within 5 working days from occurrence, which shall not violate the Law on Secrecy of Bank Deposits, FCDA, and GBL 6. Money-Laundering Crime: Committed when the proceeds of an Unlawful Activity are transacted to make them appear to have originated from legitimate sources, by the following acts: Sec. 4, AMLA a. Transacting or attempting to transact, with monetary instrument or property, knowing it represents, involves, or relates to proceeds of any Unlawful Activity b. Facilitating money-laundering referred to in Item (a) above, by failing to perform an act
52

(a) Securities dealers, brokers, salesmen, investment houses, and other entities managing securities or rendering services as investment agents, advisor, or consultants; (b) Mutual funds, closed-end investment companies, common trust funds, pre-need companies, and other similar entities; (c) Foreign exchange corporations, money changers, money payment, remittance, and transfer companies, and other similar entities; (d) Other entities administering or dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or property 53 Anti-Money Laundering Council

18 c. Failing to disclose and file report with AMLC of any monetary instrument or property as required under AMLA 7. Unlawful Activities: Act or omission or series or combination thereof, involving or having relation to the crimes enumerated Sec. 3(i), AMLA 8. Jurisdiction: Regional Trial Court/Sandiganbayan Sec. 5, AMLA 9. Prosecution Sec. 6, AMLA 10. Prohibition against Political Harassment Sec. 16, AMLA 11. Penalties and Other Consequences a. Penalties Sec. 14, AMLA (i) (ii) (iii) (iv) Money laundering Failure to keep records Malicious reporting Breach of confidentiality

b. Forfeiture Sec. 12, AMLA; xRules on Civil Forfeiture54; Republic v. Glasgow Credit and Collection Services, Inc., 542 SCRA 95 (2008) 12. Freezing of Accounts: Issued by Court of Appeals upon ex-parte application of AMLC after determination of probable cause that monetary instrument or property is in any way related to Unlawful Activity, for 20 days unless extended Sec. 10, AMLA; Republic v. Eugenio, 545 SCRA 384 (2008) 13. Examination of Accounts Sec. 11, AMLA; xRepublic v. Eugenio, 545 SCRA 384 (2008) a. Upon order of a competent court in cases of violation of the AMLA where there is probable cause of money laundering, except that no court order is required in cases of kidnapping for ransom, drug trafficking, hijacking, destructive arson and murder, including those perpetrated by terrorists against non-combatants and similar targets. b. BSP inquiry into or examination of deposits or investments with any bank, when the inquiry or examination is made in the course of the BSPs periodic of special examination of said bank to ensure compliance with AMLA 14. AMLC; Composition and Powers Sec. 7, AMLA 15. Mutual Assistance among States Sec. 13, AMLA

54

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

19

IV. LOAN FUNCTION

A. BASIC CONCEPTS
1. Grant, Purpose, and Requirement of Loans Secs. 39 and 40, GBL; xSecs. X301, X302 and 304, MRB; United Coconut Planters Bank v. Ramos, 415 SCRA 596 (2003); Banco de Oro-EPCI, Inc. v. JAPRL Development Corporation, 551 SCRA342 (2008) 2. Prohibited Transactions Secs. 55.1(c), 55.1(d), and 55.2, GBL 3. MB Regulation a. Unsecured loans Sec. 41, GBL b. Other security requirements Sec. 42, GBL; Sec. 106, NCBA c. Terms and conditions Sec. 43, GBL d. Renewal or extension Sec. 48 GBL; xSec. X332, MRB e. Provisions for losses and write-offs Sec. 49 GBL; xSecs X302 and X306 MRB, xRepublic Act No. 9182 (Special Purpose Vehicle Act of 2002) 4. Development Assistance Incentives Sec. 46, GBL 5. Disclosure Requirements Secs. 2, 4 and 6, Truth in Lending Act 55; xSec. X307, MRB; New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine National Bank, 435 SCRA 565 (2004)

B. TERMS AND CONDITIONS

1. Amortization Sec. 44, GBL 2. Pre-Payment Sec. 45, GBL 3. Interest Art. 1956, Civil Code a. No ceiling xSec. 1-a, 4-a, 45 of Usury Law 56; xSec. X305, MRB; Bulos, Jr. v. Yasuma, 527 SCRA 727 (2007); Bacolor v. Bango Filipino Savings and Mortgage Bank, Dagupan City Branch , 515 SCRA 79 (2007) b. In the absence of stipulation xSec. X305, MRB c. Escalation clause; when allowable Art. 1308, Civil Code; xSec. X305, MRB; Philippine National Bank v. Court of Appeals , 196 SCRA 536 (1991); New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine National Bank, 435 SCRA 565 (2004); But See xLlorin, Jr. v. Court of Appeals, 218 SCRA 426 (1993)
55 56

Republic Act No. 3765 Act No. 2655 as amended

20 d. Floating rates of interest xSec. X305, MRB; Consolidated Bank and Trust Corporation (Solid Bank) v. Court of Appeals , 356 SCRA 671 (2001) 4. Extraordinary Inflation/Deflation Art. 1250, Civil Code; Equitable PCI Bank v. Ng Sheung Ngor, 541 SCRA 223 (2007) 5. Restructuring xSec. X322, MRB

C. SINGLE BORROWERS LIMIT Sec. 35, GBL

1. Ceilings Sec. 35.1 and 35.2, in rel. to Sec. 24, GBL; xSec. X303, MRB 2. What is Included in Ceiling Secs. 35.3 to 35.7, GBL57; xSubsec X303.1 to 303.4, MRB 3. Exceptions a. As MB may otherwise prescribe for reasons of national interest Sec. 35.1, GBL b. Deposits of RB with government financial institutions Sec. 17, Rural Banks Act 4. Sanctions xSubsec. 303.5, MRB

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

1. Coverage: Persons and Transactions Covered xSecs. X326 to X329, MRB 2. Ceilings: Individual and Aggregate Ceilings and Exclusions xSecs. X330 to X332, MRB 3. Requirements: Procedural and Reportorial xSecs. X334 and X335, MRB 4. Sanctions xSec. X336, MRB

E. COLLATERAL/SECURITY
1. Unsecured Loans xSec. X319, MRB 2. Joint and Solidary Signature (JSS) Art. 2047, Civil Code; xArts. 1207 to 1225, Civil Code; Security Bank and Trust Company, Inc. v. Cuenca , 341 SCRA 781 (2000); Philippine National Bank v. Court of Appeals , 198 SCRA 767 (1991); xOng v. Philippine Commercial Industrial Bank , 448 SCRA 705 (2005) 3. Loans Secured by Chattels or Intangible Property
57

Government of the Philippine Islands v. Judge of First Instance of Iloilo , 34 Phil. 157 (1916); Tolentino v. Carlos, 66 Phil. 140 (1938); Gutierrez v. Camus, 96 Phil. 144 (1954); Araneta v. Hon. Gatmaitan., 101 Phil. 323 (1957)

21 a. Limits Sec. 38, GBL; xSec. X313, MRB b. Types of security (i) (ii) Chattel Mortgage xChattel Mortgage Law58 Pledge xArts. 2085-2123, Civil Code

(iii) Hold-out and/or Assignment xArts. 1624-1635, Civil Code 4. Loans Secured by Real Estate Mortgages (REMs) a. Limits Sec. 37, GBL; xSec. X311, MRB b. Mortgagee in good faith vs. mortgagee in bad faith Philippine National Cooperative Bank v. Carandang-Villalon , 139 SCRA 570 (1985) Development Bank of the Philippines v. Court of Appeals , 331 SCRA 267 (2000); Canlas v. Court of Appeals, 326 SCRA 425 (2000); xMetropolitan Bank and Trust Co. v. Pascual , 547 SCRA 246 (2009) c. Acquisition of property by way of satisfaction of claims Sec. 52, GBL d. Dragnet Clause Union Bank of the Philippines v. Court of Appeals, 471 SCRA 751 (2005) 5. Foreclosure of REMs Sec. 47, GBL a. Types of foreclosure (i) (ii) Judicial Rule 68, Rules of Court Extra-judicial Act No. 3135, as amended

(iii) Specific rules for TB/RB/Coop Banks Sec. 6, Rural Banks Act; xSubsecs.2311.4 and 3311.4, MRB b. Right and period of redemption Sec. 47, par. 1, GBL; xSC Circular AM No. 99-10-05 (as further amended on 7 August 2001) (i) (ii) Natural persons vs. juridical persons Sec. 47, par. 2, GBL Exercise of right of redemption Metropolitan Bank and Trust Company v. Tan, 569 SCRA 814 (2009)

(iii) Extension of redemption period Lazo v. Republic Surety and Insurance Co., 31 SCRA 329 (1970); Ibaan Rural Bank, Inc. v. Court of Appeals, 321 SCRA 88 (1999) (iv) Tolling of redemption period Sumerariz v. Development Bank of the Philippines, 21 SCRA 1374 (1967); Peoples Financing Corporation v. Court of Appeals, 192 SCRA 34 (1990); But see Consolidated Bank and Trust Corporation (Solidbank) v. Intermediate Appellate Court, 150 SCRA 591 (1987); See also CMS Stock Brokerage, Inc. v. Court of Appeals , 275 SCRA 790 (1997)
58

Act No. 1508

22 (v) Payment of CGT and DST xBIR Ruling 0046-2001; Letter dated 26 September 2001 addressed to Ayala Life.

c. Redemption Price Sec. 47, par. 1, GBL; Sec. 6, Act No. 3135, as amended; Sec. 28, Rule 39, 1997 Rules of Civil Procedure ; Union Bank of the Philippines v. Court of Appeals , 359 SCRA 480 (2001); Development Bank of the Philippines v. West Negros College, Inc., 391 SCRA 330 (2002) d. Possession Sec. 47, par. 1, GBL; Samson v. Rivera, 428 SCRA 759 (2004) e. Injunction and Bond Sec. 47, par. 1, GBL

V. INVESTMENTS AND OTHER FUNCTIONS OF BANKS

A. EQUITY INVESTMENTS
1. Limits on Equity Investments of UB a. In general Sec. 24, par. 1, GBL ; xSec. X376, MRB; xAgan, Jr. v. Philippine International Air Terminals Co., Inc., 402 SCRA 612 (2003) (i) (ii) Must be with prior approval of MB Sec. 24, par. 4, GBL Total investment in equities of allied and non-allied enterprises Sec. 24.1, GBL; xSec. X383(b), MRB

(iii) Investment in equity of any one enterprise Sec. 24.2, GBL; xSec. X383(a), MRB (iv) Definition of net worth Sec. 24, par. 3, GBL (v) Do the foregoing limits apply to debt-to-equity conversions? No. xSubsec. X116.3(i)., MRB; xSec. 52, GBL (by analogy)

(vi) Sanctions if without prior MB approval xSec. 385, MRB b. In specific areas (i) (ii) In financial allied enterprises Sec. 25, GBL; xSec. 378, MRB In Venture Capital Corporations (VCCs) xSec. X379, MRB

(iii) In non-financial allied enterprises Sec. 26, GBL; xSec. X380, MRB (iv) In non-allied enterprises Sec. 27, GBL; xSec. 1381, MRB (v) In quasi-banks Sec. 28, GBL (vi) In subsidiaries and affiliates abroad - xSec. X382, MRB 2. Limits on Equity Investments of KB

23 a. In general Sec. 30, par. 1, GBL (i) (ii) Must be with prior approval of MB Sec. 30, par. 3, GBL Total investment in equities of allied (financial or non-financial) enterprises Sec. 30.1, GBL

(iii) Investment in equity of any one enterprise Sec. 30.2, GBL (iv) Definition of net worth Sec. 24, par. 3, GBL (v) (i) (ii) Sanctions if without prior MB approval xSec. 385, MRB In financial allied enterprises Sec. 31, GBL In VCCs xSec. X379, MRB b. In specific areas

(iii) In non-financial allied enterprises Sec. 32, GBL (iv) In quasi-banks Sec. 28, GBL (v) In subsidiaries and affiliates abroad - xSec. X382, MRB

3. Limits on Equity Investments of TB Sec. 12, Thrift Banks Act 4. Limits on Equity Investments of RB Sec. 13, Rural Banks Act; 5. Limits on Equity Investments of Islamic Bank Sec. 6(11), Islamic Bank Charter

B. OTHER KB FUNCTIONS Sec. 29, GBL; xBSP Circular No. 271 (Series of
2001) 1. Non-Core/Quasi-Banking Functions Sec. 4, GBL; Sec. 95, NCBA 2. Issuing L/Cs59 Sec. 105, NCBA; Bank of America, NT & SA v. Court of Appeals, 228 SCRA 357 (1993); Transfield Philippines, Inc. v. Luzon Hydro Corporation, 443 SCRA 307 (2004); Vintola v. Insular Bank of Asia and America, 150 SCRA 578 (1987)60 3. Foreign Exchange Operations: Buying and selling foreign exchange and gold or silver bullion Secs. 76-80, NCBA

59

Abad v. Court of Appeals, 181 SCRA 191 (1990); Reliance Commodities, Inc. v. Daewoo Industrial Co., Ltd., 228 SCRA 545 (1993);Metropolitan Waterworks and Sewerage System v. Daway, 432 SCRA 559 (2004); 60 Philippine National Bank v. Pineda, 197 SCRA 1 (1991); People v. Nitafan, 207 SCRA 726 (1991); Allied Banking Corporation v. Ordoez, 192 SCRA 246 (1990)

24

C. OTHER SERVICES Sec. 53, pars. 1-3, GBL

1. Custodian of Funds, Documents, Valuable Objects Sec. 53.1, GBL 2. Financial Agent Sec. 53.2, GBL; Panlilio v. Citibank, N.A., 539 SCRA 69 (2007) 3. Collection/Payment Agent Sec. 53.3, GBL 4. Financial Adviser Sec. 53.4, GBL 5. Renting Out Safety Deposit Boxes Sec. 53.5, GBL; CA AgroIndustrial Development Corporation v. Court of Appeals , 219 SCRA (1993); Sia v. Court of Appeals, 222 SCRA 24 (1993)

D. OTHER FUNCTIONS/OPERATIONS
1. Issue Guarantees See Sec. 74, General Banking Act 2. Act as Correspondent Bank Feati Bank & Trust Company v. Court of Appeals, 196 SCRA 576 (1991); Philippine National Bank v. Court of Appeals, 259 SCRA 174 (1996) 3. Credit Card Operations xSec. X320, MRB

E. TRUST OPERATIONS Secs. 79 to 93, GBL F. PROHIBITED ACTS

1. Insurance business Sec. 54, GBL; Sec. 2, Insurance Code 2. Outsourcing of bank functions Sec. 55(1)(e), GBL

VI. BANK REGULATIONS

A. OWNERSHIP/CAPITALIZATION OF BANKS
1. Organization Sec. 8, GBL; xBasic Guidelines for Establishment of Banks (BSP Circular-Letter dated 13 July 1998) a. Stock corporation Sec. 8.1, GBL (i) (ii) Issuance of stocks Sec. 9, GBL Treasury stocks Sec. 10, GBL; Fua Cun v. Summers, 44 Phil. 705 (1923); Filipinas Mils, Inc. v. Dayrit, 192 SCRA 177 (1990)

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

25 d. Capability and other requirements Sec. 8, par. 2, GBL 2. Stockholdings a. Foreign stockholdings (i) (ii) Individuals and non-banks Sec. 11, GBL; xBSP Circular No. 256 (Series of 2000) Foreign banks Secs. 11 and 73, GBL; Foreign Banks Liberalization Act

b. Filipino stockholdings Sec. 11, par. 1, GBL; xBSP Circular No. 256 (Series of 2000); xBSP Circular No. 332 (Series of 2002) c. Stockholdings of family groups or related interests Secs. 12 and 13, GBL; xBSP Circular No. 332 (Series of 2002) d. Required public offering: At least 10% of capital stock of UB xSec. 2.2, BSP Circular No. 271 (Series of 2001)

B. DIRECTORS AND OFFICERS

1. Composition of Board Secs. 15 and 17, GBL; Sec. 7, Foreign Banks Liberalization Act; Sec. 23, Corporation Code 2. Qualifications a. Own at least one share Sec. 23, Corporation Code b. Fit and proper rule Sec. 16, GBL; Busuego v. Court of Appeals, 304 SCRA 473 (1999); xSubsec. X141.1, MRB c. Other minimum qualifications xGuidelines for the Establishment of Banks; xSubsec. X141.2, MRB 3. Disqualifications xGuidelines for the Establishment of Banks; xSubsec. X141.2, MRB a. Criminal conviction Sec. 27, Corporation Code; Sec. 17, PDIC Charter b. Public officials Sec. 19, GBL; Sec. 5, Rural Banks Act ; xSec. 10, Appendix 38, MRB (Guidelines For The Organization Of Cooperative Banks) c. MB member/BSP personnel Secs. 9 and 27, NCBA 4. Compensation and Other Benefits Sec. 18, GBL; Sec. 30, Corporation Code 5. Meetings Sec. 15, par. 3, GBL; Sec. 25, Corporation Code; xSEC Memorandum Circular No. 15 dated 20 November 2001 6. Powers of Directors

26 a. General Powers xBSP Circular No. 283 (Series of 2001); xSubsec. X141.3, MRB b. Specific Duties/ Responsibilities xSubsec. X141.5 and 4141Q5, MRB c. Certification of Directors xBSP Circular No. 283 (Series of 2001) 7. Doctrine of Apparent Authority 61 Prudential Bank v. Court of Appeals, 223 SCRA 350 (1993); First Philippine International Bank v. Court of Appeals, 252 SCRA 259 (1996); BPI Family Savings Bank, Inc. v. First Metro Investment Corporation , 429 SCRA 30 (2004) 8. Prohibited Acts Sec. 55.1, GBL

C. BANK OPERATIONS
1. Branches Secs. 20, 74 to 75, GBL 2. Banking Days and Hours Sec. 21, GBL; xSec. X156, MRB; xCircular No. 500, Series of 2005 3. Independent Auditor Sec. 58, GBL 4. Financial Statements Secs. 60 to 62, GBL 5. Electronic Transactions Sec. 59, GBL 6. Unsound Banking Practice Sec. 56, GBL; xBSP Circular No. 341 (Series of 2002) 7. Settlement of Disputes Sec. 63, GBL; Home Bankers Savings and Trust Co. v. Court of Appeals , 318 SCRA 558 (1999); Allied Banking Corporation v. Court of Appeals , 294 SCRA 803 (1998); Insular Savings Bank v. Far East Bank and Trust Company , 492 SCRA 145 (2006)

D. OTHER REGULATIONS
1. Risk Based Capital Sec. 34, GBL 2. Major Investments/Ownership of Real Property Secs. 50 to 52, GBL 3. Declaration of Dividends Sec. 57, GBL E. PENALTY FOR VIOLATIONS Sec. 66, GBL; Sec. 34-37, NCBA; Perez v. Monetary Board, 20 SCRA 592 (1967)

61

Limketkai Sons Milling, Inc. v. Court of Appeals, 1 December 1995; Rural Bank of Milaor (Camarines Sur) v. Ocfemia, 325 SCRA 99 (2000); Philippine Commercial and International Bank v. Court of Appeals, 350 SCRA 446 (2001)

27

VII. BANKS IN DISTRESS; CESSATION OF BANKING BUSINESS

A. LOANS TO BANKS
1. Loans without collateral Sec. 83, NCBA 2. Emergency loans Sec. 84, NCBA B. CONSERVATORSHIP Sec. 67, GBL; Secs. 29 and 30, NCBA 1. Grounds Sec. 29, par. 1, NCBA 2. Appointment of Conservator Sec. 29, par. 1 and Sec. 30, last par. NCBA 3. Powers of Conservator Sec. 29, par. 1, NCBA; First Philippine International Bank v. Court of Appeals, 252 SCRA 259 (1996) 4. Qualifications and Remuneration Sec. 29, pars. 2 and 3, NCBA 5. Termination of Conservatorship Sec. 29, last par., NCBA 6. Effect: Bank cannot be compelled to pay same bonuses to employees xProducers Bank of the Philippines v. NLRC, 355 SCRA 489 (2001) 7. Judicial Review Sec. 30, 2nd to last par., NCBA C. VOLUNTARY LIQUIDATION Sec. 68, GBL D. RECEIVERSHIP AND INVOLUNTARY LIQUIDATION Sec. 69, GBL; Sec. 30, NCBA 1. Governing Law In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc., PDIC v. Bureau of Internal Revenue, 511 SCRA 123 (2006) 2. Grounds Secs. 30 and 36, 2nd par., NCBA; Sec. 53, last par., GBL ; Banco Filipino Savings and Mortgage Bank v. Monetary Board , 204 SCRA 767 (1991); Rural Bank of San Miguel, Inc. v. Monetary Board, Bangko Sentral ng Pilipinas, 516 SCRA 154 (2007) 2. Who May Be Receiver Sec. 30, 1st and 2nd pars., NCBA 3. Duties of Receiver Larrobis, Jr. v. Philippine Veterans Bank , 440 SCRA 34 (2004)

28 4. Close Now-Hear Later Doctrine62 Central Bank of the Philippines v. Court of Appeals, 220 SCRA 536 (1993) 5. Liquidation a. As opposed to rehabilitation Philippine Veterans Bank Employees Union-N.U.B.E. v. Hon. Benjamin Vega, 360 SCRA 33 (2001) b. Actions to take Sec. 30, NCBA c. How assets are distributed Secs. 31 and 32, NCBA d. All claims filed in liquidation court Ong v. Court of Appeals , 253 SCRA 105 (1996); Manalo v. Court of Appeals , 366 SCRA 752 (2001) e. Disposition of banking franchise Sec. 33, NCBA 6. Effects of Receivership and Liquidation a. Restriction on capacity to act Villanueva v. Court of Appeals , 244 SCRA 395 (1995); Abacus Real Estate Development Center, Inc. v. The Manila Banking Corporation, 455 SCRA 97 (2005) b. Penalties for transaction after Bank becomes insolvent Sec. 70, GBL c. Effect on garnishment, levy on attachment or execution Sec. 30, NCBA; Lipana v. Development Bank of Rizal, 154 SCRA 257 (1987) d. Stoppage of business Provident Savings Bank v. Court of Appeals, 222 SCRA 125 (1993) e. Interest on deposits63 Fidelity Savings and Mortgage Bank v. Cenzon, 184 SCRA 141 (1990); But See Rural Bank of Sta. Catalina, Inc. v. Land Bank of the Philippines , 435 SCRA 183 (2004) 7. Judicial Review a. Availability of remedy Sec. 30, NCBA b. Ground: grave abuse of discretion Central Bank v. Court of Appeals, 106 SCRA 143 (1981); Banco Filipino Savings and Mortgage Bank v. Monetary Board, 204 SCRA 767 (1991) c. Jurisdiction Sec. 4, Rule 65, Rules of Court d. Who may question Central Bank of the Philippines v. Court of Appeals, 220 SCRA 537 (1993); xCentral Bank of the Philippines v. Court of Appeals, 208 SCRA 652 (1992)
62

Rural Bank of Buhi v. Court of Appeals, 162 SCRA 288 (1988); Rural Bank of Lucena, Inc. v. Arca, 15 SCRA 66 (1965); Banco Filipino Savings and Mortgage Bank v. Monetary Board , 204 SCRA 767 (1991); Central Bank of the Philippines v. Court of Appeals , 220 SCRA 536 (1993) 63 Integrated Realty Corporation v. Philippine National Bank , 174 SCRA 295 (1989); The Overseas Bank of Manila v. Court of Appeals, 105 SCRA 49 (1981) and 113 SCRA 778 (1982)

29 e. Actions of the MB final and executory; Injunction Central Bank of the Philippines v. Dela Cruz , 191 SCRA 346 (1990); Sec. 22, PDIC Charter f. Effect of Filing Petition for Review Banco Filipino Savings and Mortgage Bank v. Ybaez, SCRA (2004) g. Liability of the MB and PDIC Miranda v. Philippine Deposit Insurance Corporation, 501 SCRA 288 (2006) E. PDIC FINANCIAL ASSISTANCE Sec. 12(c), PDIC Charter