GENERAL BANKING LAWS

Banks; Mortgage; Redemption (2007)

On December 4, 2003, RED Corporation executed a real estate mortgage in favor of BLUE Bank. RED Corporation
defaulted in the payment of its loan. Consequently, on June 4, 2004, BLUE Bank extra judicially foreclosed the property.
Being the highest bidder in the auction sale conducted, the Bank was issued a Certificate of Sale which was registered on
August 4, 2004.

Does RED Corporation still have the right to redeem the property as of September 14, 2007? Reason briefly. (5%)

SUGGESTED ANSWER:

No, RED Corporation has lost its right to redeem the property. Juridical persons whose property is sold pursuant to an
extrajudicial foreclosure, shall have the right to redeem the property until registration of the certificate of sale with the
Register of Deeds, which shall in no case be more than three months after foreclosure, whichever is earlier (Section 47,
General Banking Law).

(Goldenway Case)

Single Borrower’s Limit

Q: What is the single borrower’s limit? (2015 Bar)

A: Under the single borrower’s limit, the total amount of loans, credit accommodations and guarantee that the bank
may extend to any person shall not exceed 25% of the bank’s net worth. While the law sets the ceiling at 20% of the
bank’s networth, it also empowers the BSP to modify the ceiling. The current SBL as set by BSP is 25% of the Bank’s net
worth.

Banks; Single Borrower’s Limit; Collateral Security (2008)

[Link]. Industry Bank, which has a net worth of P1 Billion, extended a loan to Celestial Properties Inc. amounting to
P270 Million. The loan was secured by a mortgage over a vast commercial lot in the Fort Bonifacio Global City, appraised
at P350 Million. After audit, the Banko Sentral ng Pilipinas gave notice that the loan to Celestial Properties exceeded the
single borrower’s limit of 25% of the bank’s net worth under a recent BSP Circular. In light of other previous similar
violations of the credit limit requirement, the BSP advised Industry Bank to reduce the amount of the loan to Celestial
Properties under pain of severe sanctions. When Industry Bank informed Celestial Properties that it intended to reduce
the loan by P50 Million, Celestial Properties countered that the bank should first release a part of the collateral worth
P50 Million. Industry Bank rejected the counter-proposal, and referred the matter to you as counsel. How would you
advise Industry Bank to proceed, with its best interests in mind? (5%) SUGGESTED ANSWER:

With a net worth of P1.0 Billion, the maximum loan exposure of the bank to Celestial Properties can reach up to P250.0
Million. The bank should proceed with to reduce the loan of Celestial properties by P20.0 Million, but should not release
any part of the collateral by the amount of reduction.

The collateral is a single commercial lot in the Fort, covered by a single title and beings essentially indivisible in
character, the mortgage cannot be “partially released.” Besides, since a real estate mortgage cannot be “partially
released.” Besides, since a real estate mortgage is merely a collateral contract, it can be enforced only to the amount of
the loan; and the moment the loan exposure is reduced, then automatically, reduction of the collateral coverage of the
real estate mortgage follows.

DOSRI
Banks; Restrictions on Loan Accommodations (2006)

Pio is the president of Western Bank. His wife applied for a loan with the said bank to finance an internet cafe. The loan
officer told her that her application will not be approved because the grant of loans to related interests of bank
directors, officers, and stockholders is prohibited by the General Banking Law. Explain whether the loan officer is
correct. (5%)

SUGGESTED ANSWER: Section 36 of the General Banking Law of 2000 does not entirely prohibit directors or officers of
the bank, directly or indirectly, from borrowing from the bank. In this case, Pio is the president of Western Bank, which
makes him an officer, director and stockholder of the said bank. The General Banking Law provides for additional
restrictions to the bank before it can lend to its directors or officers. A written approval of the majority vote of all the
directors of the bank, excluding the director concerned, is required. Furthermore, such dealings must be upon terms not
less favorable to the bank than those offered to others (Section 1326, Central Bank's "Manual of Regulations for Banks
and Other Financial Intermediaries, cited in Ranioso v. CA, G.R. No. 117416, December 8, 2000). A violation of this
provision will cause his or her position to be declared vacant and the erring director or officer subjected to the penal
provisions of the New Central Bank Act.

Banks; Insolvency; Requirements (1997)

Give the basic requirements to be complied with by the BSP before the Monetary Board can declare a bank
insolvent, order it closed and forbid it from doing further business in the Philippines?
SUGGESTED ANSWER:
Before the Monetary Board can declare a bank insolvent, order it closed and forbid it from doing further
business in the Philippines, the following basic requirements must be complied with by the BSP, to wit: 1 There
must be an examination by the head of the Department of Supervision or his examiners or agents into the
condition of the bank. 2 The examination discloses that the condition of the bank is one of insolvency, or that its
continuance in business would involve probable loss to creditors or depositors. 3 The head of said Department
shall inform in writing the Monetary Board of such facts. 4 Upon finding said information or statement to be
true, the Monetary Board shall appoint a receiver to take charge of the assets and liabilities of the bank. 5
Within 60 days, the Monetary Board shall determine and confirm if the bank is insolvent, and public interest
requires, to order the liquidation of the bank.
PDIC
Banks; Insolvency; Claims (2010)

When OCCIDENTAL Bank folded up due to insolvency, Manuel had the following separate deposits in his name: P200,000
in savings deposit; P250,000 in time deposit; P50,000 in current account; P1 million in a trust account and P3 million in
money market placement. Under the Philippine Deposit Insurance Corporation Act, how much could Manuel recover?
Explain. (2%)

SUGGESTED ANSWER: Manuel can recover P500, 000.00, because this is the total of his savings deposit, time deposit
and current account (Section 4(g) of Republic Act No. 3591, as amended). The trust account and the money market
placements are not included in the insured deposits (section 4(f) of Republic Act No. 3591, as amended).

NCBA
Banks; Receivership (2007)

Due to growing financial difficulties, Z Bank was unable to finish construction of its 21-storey building on a prime lot
located in Makati City. Inevitably, the Bangko Sentral ordered the closure of Z Bank and consequently placed it under
receivership. In a bid to save the bank’s property investment, the President of Z Bank entered into a financing
agreement with a group of investors for the completion of the construction of the 21-storey building in exchange for a
ten-year lease and the exclusive option to purchase the building. (10%)

(A) Is the act of the President valid? Why or why not?

SUGGESTED ANSWER:

No, the bank president’s act is not valid. He had no authority to enter into the financing agreement. Z Bank was ordered
closed and placed under receivership. Control over the properties of Z Bank passed to the receiver. The appointment of
a receiver operates to suspend the authority of the bank and its officers over the bank’s assets and properties, such
authority being reposed in the receiver (Abacus Real Estate Development Center, Inc. v. Manila Banking Corporation,
455 SCRA 97 (2005)).

(B) Will a suit to enforce the exclusive right of the investors to purchase the property prosper? Reason briefly.

SUGGESTED ANSWER:

No, the exclusive options granted to the investors, having been entered into by one without authority to do so, is
unenforceable. The bank, therefore, cannot be compelled to sell the property. Under Section 30 of Republic Act No.
7653, New Central Bank Act, the properties of Z Bank should be administered for the benefit of its creditors. The
property in question can be disposed of only for the purpose of paying the debts of Z Bank (Sec. 30, Republic Act No.
7653, and New Central Bank Act).

Legal Tender (2000)

After many years of shopping in the Metro Manila area, housewife HW has developed the sound habit of making cash
purchases only, none on credit. In one shopping trip to Mega Mall, she got the shock of her shopping life for the first
time, a store‘s smart salesgirl refused to accept her coins in payment for a purchase worth not more than one hundred
pesos. HW was paying seventy pesos in 25centavo coins and twenty five pesos in 10 centavo coins. Strange as it may
seem, the salesgirl told HW that her coins were not ―legal tender.‖ Do you agree with the salesgirl in respect of her
understanding of ―legal tender?‖ Explain (2%)

SUGGESTED ANSWER: No. The salesgirl‘s understanding that coins are not legal tender is not correct. Coins are legal
tender in amounts not exceeding fifty pesos for denominations from twenty five centavos and above, and in amounts
not exceeding twenty pesos for denominations ten centavos and less.

AMLC
Banks; Secrecy of Bank Deposit; AMLC (2013)

From his first term in 2007, Congressman Abner has been endorsing his pork barrel allocations to Twin Rivers in
exchange for a commission of 40% of the face value of the allocation. Twin Rivers is a non-governmental organization
whose supporting papers, after audit, were found by the Commission on Audit to be fictitious. Other than to prepare
and submit falsifies papers to support the encashment of the pork barrel checks, Twin Rivers does not appear to have
done anything on the endorsed projects and Congressman Abner likewise does not appear to have bothered to monitor
the progress of the project he endorsed. The congressmen converted most of the commissions he generated into US
dollars, and deposited these in a foreign currency account with Banco de Plata (BDP).

Based on amply-supported tips given by a congressman from another political party, the Anti-Money Laundering Council
sent B DP an order: (1) to confirm Cong. Abner’s deposits with the bank and to provide details of these deposits; and (2)
to hold all withdrawals and other transactions involving the congressman’s bank accounts. As counsel for BDP, would
you advise the bank to comply with the order? (8%)

SUGGESTED ANSWER: I shall advise Banco de Plata not to comply with the order of the Anti-Money Laundering Council.
It cannot inquire into the deposits of Congressman Abner, regardless of currency, without a bank inquiry order from a
competent court, because crimes involved are not kidnapping for ransom, violations of the Comprehensive Dangerous
Drugs Act, hijacking and other violations of Republic Act No. 6235, destructive arson, murder, and terrorism and
conspiracy to commit terrorism (Section 11 of Anti-Money Laundering Act).

The Anti-Money Laundering Council cannot order Banco de Plata to hold all withdrawals and other transactions
involving the accounts of Congressman Abner. It is the Court of Appeals which has the power to issue a freeze order
over the accounts upon petition of the Anti-Money Laundering Council (AntiMoney Laundering Act; Republic v. Cabrini
Green Ross, 489 SCRA 644, 2006)

Q: Rudy is jobless but is reputed to be a jueteng operator. He has never been charged or convicted of any crime. He
maintains several banks accounts and has purchased 5 houses and lots for his children from the Luansing Realty, Inc.
since he does not have any visible job, the company reported his purchases to the AMLC. Thereafter, AMLC charged him
with violation of the Anti-Money Laundering Law. Upon request of the AMLC, the bank disclosed to it Rudy’s bank
deposits amounting to P100M. Subsequently, he was charged in court for violation of the Anti-Money Laundering Law.

1. Can Rudy move to dismiss the case on the ground that he has no criminal record?
A: No. As with any crime, the absence of a criminal record is not a defense against a charge for violation of the
AntiMoney Laundering Law. Moreover, having a criminal record is not an element of Money Laundering Offense defined
under Section 4 of the Anti-Money Laundering Law.

2. To raise funds for his defense, Rudy sold the houses and lots to a friend. Can Luansing Realty, Inc. be compelled to
transfer to the buyer ownership of the houses and lots?

A: Yes. In the absence of a freeze order on the subject houses and lots pending criminal proceedings against Rudy, the
ownership thereof may be validly transferred to another, and Luansing Realty, Inc. can be compelled to recognize the
rights of the buyer as the new owner. Section 7(6) in relation to Section 10 of the Anti-Money Laundering Law required
an Order from the Court of Appeals for the freezing of any money or property believed to be the proceeds of any
unlawful activity.

3. In disclosing Rudy’s bank accounts to the AMLC, did the bank violate any law?

A: Yes. The bank violated RA No. 1405 (Secrecy of Bank Deposits Act), which considers all deposits of whatever nature
with banks or banking institutions as absolutely confidential and may not be examined, inquired or looked into by any
person, government officials, bureau or office except upon depositor’s written permission; in cases of impeachment;
upon order of a competent court in cases of bribery of, or dereliction of duty by public official; and in cases where the
money deposited or invested is the subject matter of the litigation. The disclosure was made before Rudy was charged in
court for violation of the Anti-Money Laundering Law. Hence, his deposits were technically not yet the subject matter of
litigation.

Moreover, under RA No. 9160, the AMLC may inquire into or examine any particular deposit or investment with any
banking institution upon order of any competent court for violation of the said Act. In the case at bar, the AMLC merely
requested the disclosure; it did not secure the requisite court order. The bank, therefore, was under no obligation to
disclose Rudy’s deposits.

4. Supposing the titles of the houses and lots are in possession of the Luansing Realty, Inc., is it under obligation to
deliver the titles to Rudy? (2006 Bar)

A: Yes. There being no freeze order over the subject houses and lots, Luansing Realty, Inc., is obliged to deliver the titles
to Rudy who is the owner thereof.

LAW ON BANK SECRECY

Q: Hi Yielding Corporation filed a complaint against five of its officers for violation of Section 31 of the
Corporation Code. The corporation claimed that the said officers were guilty of advancing their personal
interests to the prejudice of the corporation, and that they were grossly negligent in handling its affairs. Aside
from documents and contracts, the corporation also submitted in evidence records of the officers’ U.S. Dollar
deposits in several banks overseas – Boston Bank, Bank of Switzerland, and Bank of New York.

For their part, the officers filed a criminal complaint against the directors of Hi Yielding Corporation for
violation of Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act of the Philippines.
The officers alleged that their bank deposits were illegally disclosed for want of court order, and that such
deposits were not even the subject of the case against them.

a. Will the complaint filed against the directors of Hi Yielding Corporation prosper? Explain. b. Was there a
violation of Bank Secrecy Deposits Law (Republic Act No.1405)? Explain. (2014 Bar)
A:
a. No. Foreign Currency Deposits law applies to foreign currency deposit accounts constituted in the
Philippines and not when constituted abroad. In this instance, the foreign currency deposit was made abroad.
b. No. Sec. 2 of the Law on Secrecy of Bank Deposits provides that all deposits of whatever nature with banks
or banking institutions in the Philippines including investments in bonds issued by the Government of the
Philippines, its political subdivisions and instrumentalities, are hereby considered as an absolutely confidential
in nature and may not be examined, inquired or looked into by any person, government official, bureau or
office. It must be noted that Bank Secrecy Deposits Law only applies to deposits with banks in the Philippines
and not when deposited abroad as in the instant case.

Q: X, a government official, has a number of bank accounts in T Bank containing millions of pesos. He also
opened several trust accounts in the same bank which specifically covered the placement and/or investment
of funds. X was later charged with graft and corruption before the Sandiganbayan (SB) by the Ombudsman.
The Special Prosecutor filed a motion praying for a court order authorizing it to look into the savings and trust
accounts of X in T Bank. X opposed the motion arguing that the trust accounts are not “deposits” under the
Law on Secrecy of Bank Deposits (Rep. Act. No. 1405). Is the contention of X correct? Explain. (2016 Bar)
A: The contention of X is not correct. Deposits in the context of the Secrecy of Philippine currency deposits
include deposits of whatever nature and kind. They include funds deposited in the bank giving rise to creditor-
debtor relationship, as well as funds invested in the bank like trust accounts (Ejercito v. Sandiganbayan, G.R.
Nos. 157294-95, Nov. 30, 2006)

Exceptions
Q: A secured a judgment by default against B for a sum of money. To satisfy judgment, A sought the
garnishment of the bank deposit of B with China Bank. The Bank refused.
a. May a writ of garnishment be issued against the bank deposit of B? Reasons. b. What are the exceptions to
the prohibition against disclosure of bank deposits? (1988 Bar)
A:
a. Yes. A writ of garnishment may be issued against the bank deposit of B with China Bank. The Law on Secrecy
of Bank Deposits is merely against inquiry or disclosure of information relative to the funds or property in the
custody of the bank. b. The exceptions to the prohibitions against disclosure of bank deposits include: 1. Upon
the written permission of the depositor; 2. in cases of impeachment; 3. upon order of a competent court in
cases of bribery or dereliction of duty or where money deposited or invested is the subject matter of litigation;
4. in anti-graft and corruption cases; and 5. when authorized by the Monetary Board if it has reasonable
ground to believe that such account is being used or was used to commit a bank fraud.

Q: Miguel, a special customs agent is charged before the Ombudsman with having acquired property out of
proportion to his salary, in violation of the Anti-Graft and Corrupt Practices Act. The Ombudsman issued a
subpoena duces tecum to the Banco de Cinco commanding its representative to furnish the Ombudsman
records of transactions by or in the name of Miguel, his wife and children. A second subpoena was issued
expanding the first by including the production of records of friends of Miguel in said bank and in all its
branches and extension offices, specifically naming them.

Miguel moved to quash the subpoenas arguing that they violate the Law on Secrecy of Bank Deposits. In
addition, he contends that the subpoenas are in the nature of “fishing expedition” or “general warrants” and
are constitutionally impermissible with respect to private individuals who are not under investigation.

Is Miguel’s contention tenable? (1994 Bar)

A: No. Miguel’s contention is not tenable. The inquiry into illegally acquired property extends to cases where
such property is concealed by being held by or recorded in the name of other persons. To sustain Miguel’s
theory and restrict the inquiry only to property held by or in the name of the government who illegally acquire
property an easy means of evading prosecution. All they have to do would be to simply place the property in
the name of persons other than their spouses and children.
Q: CDC maintained a savings account with CBank. On orders of the MM RTC, the Sheriff garnished P50, 000 of
his account, to satisfy the judgment in favor of his creditor, MO. CDC complained that the garnishment
violated the Law on the Secrecy of Bank Deposits because the existence of his saving account was disclosed to
the public.

Is CDC’s complaint meritorious or not? Reason briefly. (2004 Bar)

A: No. CDC’s complaint is not meritorious. It was held in China Banking Corporation v. Ortega, 49 SCRA 355
(1973) that peso deposits may be garnished and the depositary bank can comply with the order of
garnishment without violating the Law on the Secrecy of Bank Deposits. Execution is the goal of litigation as it
is its fruit. Garnishment is part of the execution process. Upon service of the notice of garnishment on the
bank where the defendant deposited funds, such funds become part of the subject matter of litigation.

With regards to safety deposit box

Q: X, a public official, is charged with violation of the Anti-Graft for unexplained wealth. The prosecuting
official learned that X maintains a safety deposit box at Union Bank. May the officials of the bank be
subpoenaed and examined about the safety deposit box?
A: Yes. The officials of the Union Bank may be subpoenaed and examined regarding the safety deposit box of
the accused.
A deposit in the safety deposit box is a bank deposit. The non-disclosure of deposits law includes al deposits of
whatever nature with bank and banking institutions. Also, the rule against non-disclosure provides an
exception- where the depositor is accused of an Anti-Graft case. As the exception operates against X, his
safety deposit box may be a subject of inquiry by the court trying him.

Banks; Secrecy of Bank Deposits (1995)

Michael withdrew without authority funds of the partnership in the amounts of P500th and US$50th for
services he claims he rendered for the benefit of the partnership. He deposited the P500th in his personal
peso current account with Prosperity Bank and the US$50th in his personal foreign currency savings account
with Eastern Bank.
The partnership instituted an action in court against Michael, Prosperity, and Eastern to compel Michael to
return the subject funds to the partnership and pending litigation to order both banks to disallow any
withdrawal from his accounts.
At the initial hearing of the case the court ordered Prosperity to produce the records of Michael‘s peso current
account, and Eastern to produce the records of his foreign currency savings account.
Can the court compel Prosperity and Eastern to disclose the bank deposits of Michael? Discuss fully.
SUGGESTED ANSWER: Yes, as far as the peso account is concerned. Sec 2 of RA 1405 allows the disclosure of
bank deposits in case where the money deposited is the subject matter of litigation. Since the case filed
against Michael is aimed at recovering the amount he withdrew from the funds of the partnership, which
amount he allegedly deposited in his account, a disclosure of his bank deposits would be proper.
No, with respect to the foreign currency account. Under the Foreign Currency Law, the exemption to the
prohibition against disclosure of information concerning bank deposits is the written consent of the depositor.

Foreign Currency Deposit Act

Q: Hi Yielding Corporation filed a complaint against five of its officers for violation of Section 31 of the Corporation Code.
The corporation claimed that the said officers were guilty of advancing their personal interests to the prejudice of the
corporation, and that they were grossly negligent in handling its affairs. Aside from documents and contracts, the
corporation also submitted in evidence records of the officers’ U.S. Dollar deposits in several banks overseas – Boston
Bank, Bank of Switzerland, and Bank of New York.

For their part, the officers filed a criminal complaint against the directors of Hi Yielding Corporation for violation of
Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act of the Philippines. The officers alleged that
their bank deposits were illegally disclosed for want of court order, and that such deposits were not even the subject of
the case against them.

a. Will the complaint filed against the directors of Hi Yielding Corporation prosper? Explain. b. Was there a violation of
Bank Secrecy Deposits Law (Republic Act No.1405)? Explain. (2014 Bar)

A:

a. No. Foreign Currency Deposits law applies to foreign currency deposit accounts constituted in the Philippines and not
when constituted abroad. In this instance, the foreign currency deposit was made abroad.

b. No. Sec. 2 of the Law on Secrecy of Bank Deposits provides that all deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political
subdivisions and instrumentalities, are hereby considered as an absolutely confidential in nature and may not be
examined, inquired or looked into by any person, government official, bureau or office. It must be noted that Bank
Secrecy Deposits Law only applies to deposits with banks in the Philippines and not when deposited abroad as in the
instant case.
Truth in Lending Act (1991)
Dana Gianina purchased on a 36 month installment basis the latest model of the Nissan Sentra Sedan car from
the Jobel Cars Inc. In addition to the advertised selling price, the latter imposed finance charges consisting of
interests, fees and service charges. It did not, however, submit to Dana a written statement setting forth therein
the information required by the Truth in Lending Act (RA 3765). Nevertheless, the conditional deed of sale
which the parties executed mentioned that the total amount indicated therein included such finance charges.
Has there been substantial compliance of the aforesaid Act?
If your answer to the foregoing question is in the negative, what is the effect of the violation on the contract?
In the event of a violation of the Act, what remedies may be availed of by Dana?

SUGGESTED ANSWER:
a) There was no substantial compliance with the Truth in Lending Act. The law provides that the creditor must
make a full disclosure of the credit lost. The statement that the total amount due includes the principal and the
financial charges, without specifying the amounts due on each portion thereof would be insufficient and
unacceptable.
b) A violation of the Truth in Lending Act will not adversely affect the validity of the contract itself.
c) It would allow Dana to refuse payment of financial charges or, if already paid, to recover the same. Dana may
also initiate criminal charges against the creditor. Under the Truth in Lending Act, said financial charges are valid,
and Dana may not refuse payment thereof. Only criminal charges may be initiated against the creditor.

Truth in Lending Act (2000)

Embassy Appliances sells home theater components that are designed and customized as entertainment centers
for consumers within the medium-to-high price bracket. Most, if not all, of these packages are sold on installment
basis, usually by means of credit cards allowing a maximum of 36 equal monthly payments. Preferred credit cards
of this type are those issued by banks, which regularly hold mall wide sales blitzes participated in by appliance
retailers like Embassy Appliances. You are a buyer of a home theater center at Embassy Appliances. The salesclerk
who is attending to you simply swipes your credit card on the electronic approval machine (which momentarily
prints out your charge slip since you have unlimited credit), tears the slip from the machine, hands the same over
to you for your signature, and without more, proceeds to arrange the delivery and installation of your new home
theater system. You know you will receive a statement on your credit card purchases from the bank containing an
option to pay only a minimum amount, which is usually 1/36 of the total price you were charged for your purchase.
Did Embassy Appliances comply with the provisions of the Truth in Lending Act (RA 3765)?

SUGGESTED ANSWER:
There is no need for Embassy Appliances to comply with the Truth in Lending Act. The transaction is not a sale
on installment basis. Embassy Appliances is a seller on cash basis. It is the credit card company which allows the
buyer to enjoy the privilege of paying the price on installment basis.