BANKING LAWS

SEC. 20, ART. XII of the 1987 Constitution

Section 20. The Congress shall establish an independent central monetary authority, the members of whose
governing board must be natural-born Filipino citizens, of known probity, integrity, and patriotism, the majority of
whom shall come from the private sector. They shall also be subject to such other qualifications and disabilities as
may be prescribed by law. The authority shall provide policy direction in the areas of money, banking, and credit. It
shall have supervision over the operations of banks and exercise such regulatory powers as may be provided by law
over the operations of finance companies and other institutions performing similar functions.

Until the Congress otherwise provides, the Central Bank of the Philippines operating under existing laws, shall
function as the central monetary authority.
GENERAL BANKING LAWS
RA 8791
Q: What are the three primary functions of the central monetary authority as provided under Section
20, Article XII of the 1987 Constitution?
Under Section 20, Article XII of the 1987 Constitution, the three primary functions of the central monetary
authority are as follows:
(1) Policy direction in the areas of money, banking, and credit;
(2) Supervision over the operations of banks;
(3) Exercise of such regulatory powers as may be provided by law over the operations of finance
companies and other institutions performing similar functions.

DECLARED POLICY OF THE STATE

“The State recognizes the vital role of banks in providing for an environment conducive to the sustained
development of the national economy and the fiduciary nature of banking that requires high standards
of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and
efficient banking system that is globally competitive, dynamic and responsive to the demands of a
developing economy. “(Section 2 of RA 8791, General Banking Law of 2000)

BANKS are entities engaged in the lending of funds - A moneyed institute founded to facilitate
obtained in the form of deposits. (Sec.3.1 of GBL) the borrowing, lending and self-keeping of
money and to deal, in notes, bills of
GOVERNING LAW exchange, and credits.
 GENERAL BANKING LAWS (GBL - RA 8791) - - An investment company which loans out
 NEW CENTRAL BANK ACT (NCBA - RA 7653) the money of its customers, collects the
 SECRECY OF BANK DEPOSIT ACT (SBA - RA 1405) interest and charges a commission to both
 PHILIPPINE DEPOSIT INSURANCE CORP lender and borrower, is a bank.
(PDIC - RA 4093) - - Any person engaged in the business
 TRUTH IN LENDING ACT (TILA - RA 3765) carried on by banks of deposit, of discount,
 UNIFORM CURRENCY ACT (UCA - RA. 8183) or of circulation is doing a banking
business, although but one of these
 FOREIGN CURRENCY DEPOSIT ACT (FCDA)
functions is exercised.
 ANTI-MONEY LAUNDERING ACT (AMLA)

BANKING LAWS ESQUIERRA | MADRIGAL

 NATURE OF BANKING BUSINESS

(A) Debtor- Creditor Relationship (E) Impressed with Public Interest

Art. 1980. Fixed, savings, and current The stability of banks largely depends on the
deposits of money in banks and similar confidence of the people in the honesty and
institutions shall be governed by the efficiency of banks
provisions concerning loan.
(F) Degree of Diligence
(B) Fiduciary Duty Degree of diligence higher than that of a good
“fiduciary nature of banking which father of a family, as prescribed by Section 2 of
requires high standards of integrity and the GBL
performance.”
(G) Treatment of Accounts with Meticulous Care
(C) Not a Trust Agreement In every case, the depositor expects the bank to
The fiduciary nature of a bank-depositor treat his account with the utmost fidelity,
relationship does not convert the whether such account consist only of a few
contract between the bank and its hundred pesos or of millions.
depositors from a simple loan to a trust
agreement, whether express or implied. (H) Duty to Keep Records
A bank has a fiduciary duty to keep efficiently a
(D) Indispensable Institution record of its transactions with its depositors.
Plays a vital role in the economic life of Banks shall have a true and accurate account,
every civilized nation. record or statement of their daily transactions,
particularly those referring to their deposit
liabilities.

CLASSIFICATION OF BANKS (CUT-RICO)

Q: There are 6 classes of banks identified in the General Banking Law of 2000. Name at least 4 of them and
explain the distinguishing characteristic or function of each one. (2002 Bar)

1. Commercial Banks — these are ordinary or 2. Universal Banks — these are those which used to
regular commercial banks, as distinguished from a be called expanded commercial banks and the
universal bank. They have a lower capitalization operations of which are now primarily governed by
requirement than universal banks and cannot the GBL of 2000. They can exercise the powers of
exercise the powers of an investment house and an investment house and invest in non-allied
invest in non- allied enterprises. enterprises. They have the highest capitalization
requirement.
3. Thrift banks — these banks may exercise most of 4. Rural Banks — these are those which are
the powers and functions of a commercial bank organized primarily to extend loans and other
except that they cannot, among others, open current credit facilities to farmers, fishermen or farm
or check accounts without prior Monetary Board families, as well as cooperatives, merchants, and
approval, and they cannot issue letter of credit. Their private and public employees and whose
operations are governed primarily by the Thrift operations are primarily governed by the Rural
Banks Act of 1995 Banks Act of 1992
5. Islamic Banks — these are those which are 6. Cooperative Banks — these are those which are organized
organized primarily to provide financial and primarily to provide financial and credit services to cooperatives
credit services in a manner or transaction and whose operations are primarily governed by the Cooperative
consistent with the Islamic Shari’a. Code of the Philippines
Other Banks (O) - The Monetary Board is authorized to make other classification of banks, as it may deem proper.

BANKING LAWS ESQUIERRA | MADRIGAL

 OTHER CLASSIFICATION OF BANKS OTHER THAN MENTIONED IN SECTION 3 of GBL

1. Non-Stock Savings and Loan Associations - Is a non-stock, non-profit corporation engaged in the business
of accumulating engaged in the business of accumulating the savings of its members and using such
accumulations for loans to members to service the needs of households by providing long-term financing
for home building and development and for personal finance.
2. Quasi-Banks - Refers to entities engaged in the borrowing of funds through the issuance, endorsement
or assignment with recourse or acceptance of deposit substitutes for purposes of relending or purchasing
of receivables and other obligations.
3. Offshore Banks - Refers to the conduct of banking transactions in foreign currencies involving the receipt
of funds from external sources and the utilization of such funds.

Q: A commercial bank wants to acquire shares in a cement manufacturing company. Do you think it can do
that? Why or why not? (2015 Bar)

A commercial bank cannot acquire shares in a cement manufacturing company because a commercial bank
can only invest in the equity of allied undertakings, meaning, undertakings related to banking.
(Section 30 of RA 8791).

Deposit Function of Banks BASIC FUNCTIONS: DEPOSIT FUNCTION & LOAN FUNCTION

Kinds of Deposits

1) Demand Deposits – all those liabilities of the Bangko Sentral and of other banks which are denominated
in Philippine currency and are subject to payment in legal tender upon demand by the presentation of
(depositor’s) checks.
2) Savings Deposits - Servicing deposits Banks may be authorized by the BSP to solicit and accept deposits
outside their bank premises
3) Negotiable Order of Withdrawal (NOW) Accounts
NOW accounts – interest bearing accounts that combine the payable on demand feature of checks and
investment feature of savings account
4) Time Deposits – one the payment of which cannot legally be required within such a specified number of
days.
5) Deposit Substitute Operations (Quasi-Banking Functions)
6) Foreign Currency Deposits - authority to deposit foreign currencies, any person may deposit with such
Phil. Banks in good standing.
7) Anonymous and Numbered Accounts – should not be allowed. In case where numbered accounts are
allowed, banks or financial institutions should ensure that the client is identified in an official or other
identifying documents.

General Rule:
- When a depositor is indebted to a bank, and the debts are mutual, the bank may apply the deposit or
such portion thereof as may be necessary to the payment of the debt due it by the depositor.

Exception:
- There is no express agreement.
- The deposit is not specifically applicable to some other particular purpose

BANKING LAWS ESQUIERRA | MADRIGAL

Loan Function of Banks

CLASSIFICATIONS OF LOANS:

Unclassified Loans

Those that do not have a greater-than-normal risk and the borrower has apparent ability to satisfy
it in full and no loss in ultimate collection is anticipated (Circular No. 247, S2, Series of 2000)

Classified Loans

Those that have extra ordinary risks of loss in collection due some defects such as bad debts or
those under litigation. They are divided into:
Q: What is the single borrower’s limit?
a. Loans especially mentioned;
b. Substandard; Under the single borrower’s limit, the total amount
c. Doubtful; and of loans, credit accommodations and guarantee that
d. Loss (Circular No. 247, S2, Series of 2000 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 net worth, it also
Limit on Loans, Credit Accommodation & empowers the BSP to modify the ceiling. The current
Guarantees SBL as set by BSP is 25% of the Bank’s net worth.

Q: As part of the safeguards against imprudent banking, the General Banking Law imposes limits or
restrictions on loans and credit accommodations which may be extended by banks. Identify at least
2 of these limits or restrictions and explain the rationale of each of them. (2002 Bar)

Any 2 of the following limits or restrictions on loan and credit transaction which may be extended by
banks, as part of the safeguard against imprudent banking, to wit:

(1) SBL Rules

(2) DOSRI Rules—These are rules promulgated by the BSP, upon authority of Section 5 of the GBL of
2000, which regulate the amount of credit accommodations that a bank may extend to its directors,
officers, stockholders and their related interests. Generally, a bank’s credit accommodations to its
DOSRI must be in the regular course of business and on terms not less favorable to the bank than
those offered to non-DOSRI borrowers.

(3) No commercial bank shall make any loan or discount on the security of shares of its own capital
stock.

Republic v. Sandiganbayan (G.R. No. 166859, 169203, 180702) April 12, 2011

Violation of DOSRI is a crime and carries with it penal sanction. It does not
make the transaction void but only renders the responsible officers and
directors criminally liable.

BANKING LAWS ESQUIERRA | MADRIGAL

 Section 47. Foreclosure of Mortgage: In the event of foreclosure, whether judicially or
extrajudicially, of any mortgage on real estate which is security for any loan or other credit
accommodation granted, the mortgagor or debtor whose real property has been sold for
the full or partial payment of his obligation shall have the right within one year after the
sale of the real estate, to redeem the property by paying the amount due under the
mortgage deed, with interest thereon at the rate specified in the mortgage, and all the costs
and expenses incurred by the bank or institution from the sale and custody of said property
less the income derived therefrom. However, the purchaser at the auction sale concerned
whether in a judicial or extrajudicial foreclosure shall have the right to enter upon and take
possession of such property immediately after the date of the confirmation of the auction
sale and administer the same in accordance with law. Any petition in court to enjoin or
restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall
be given due course only upon the filing by the petitioner of a bond in an amount fixed by
the court conditioned that he will pay all the damages which the bank may suffer by the
enjoining or the restraint of the foreclosure proceeding.

Equity Redemption Right of Redemption

 Right of the mortgagor to redeem the  To re-acquire mortgaged property after
mortgaged property after his default in the registration of the foreclosure sale
performance of the conditions of the
mortgage but before the sale of the property  Exists only in the case of the extrajudicial
or the confirmation of the sale after judicial foreclosure of the mortgage.
foreclosure thereof.
 No such right is recognized in a judicial
 This is the right of the defendant mortgagor foreclosure except only where the
to extinguish the mortgage and retain mortgagee is the Philippine National Bank or
ownership of the property by paying the a bank or banking institution.
secured debt within a 90-day period after the
judgment becomes final or after the  Where a mortgage is foreclosed extra
foreclosure sale but prior to its confirmation judicially, Act 3135 grants to the mortgagor
the right of redemption within one (1) year
from the registration of the sheriff’s
certificate of foreclosure sale.

JUDICIAL FORECLOSURE VS. EXTRA JUDICIAL FORECLOSURE

Equity of Redemption Right of Redemption
 Mortgagor is a natural person – Within one year
after the registration of sale with the Register of
Deeds (Sec. 1(3) SC Cir. AM No. 99-10-05)
 The redemption period is one (1) year from
the date of registration of the certificate of  Mortgagor is a juridical person – At any time
sale. before the registration of the certificate of
foreclosure sale with the applicable Register of
Deeds which in no case shall be more than 3
months after foreclosure, whichever is earlier.

BANKING LAWS ESQUIERRA | MADRIGAL

 NEW CENTRAL BANK ACT
(NCBA, R.A. 7653) as amended by R.A. 11211)

State Policy
The State shall maintain a central monetary authority that shall function and operate as an independent
and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and
credit. In line with this policy, and considering its unique functions and responsibilities, the central monetary
authority established under this Act, while being a government-owned corporation, shall enjoy fiscal and
administrative autonomy. (sec. 1, NCBA)

Bangko Sentral ng Pilipinas (BSP)

It is the State’s central monetary authority. It is the government agency charged with the
responsibility of administering the monetary, banking and credit system of the country and is granted
the power of supervision and examination over bank and nonbank financial institutions performing
quasi-banking functions, including savings and loan associations (Busuego v. CA, G.R. No. L-48955,
June 30, 1987).

Responsibilities of BSP (1992, 1998 Bar)

1. To provide policy directions in the areas of money, banking, and credit.
2. To supervise bank operations.
3. To exercise regulatory and examination powers over quasi-banking operations of non-bank
financial institutions, money service businesses, credit granting businesses and payment system
operators.

Monetary Board
It is the body through which the powers and functions of the BSP are exercised (NCBA, Sec 6).

Powers and functions of the Monetary Board:

1. Issue Rules and regulations it considers necessary for the effective discharge of the
responsibilities and exercise of its powers.

2. Direct the management, operations, and Administration of the BSP, reorganize its personnel,
and issue such rules and regulations as it may deem necessary or convenient for this purpose.

3. Establish a human resource management System.

4. Adopt an annual Budget for and authorize such expenditures by the BSP as are in the interest
of the effective administration and operations of the BSP in accordance with applicable laws
and regulations.

5. Indemnify its members and other officials of the BSP, including personnel of the departments
performing supervision and examination functions against all costs and expenses reasonably
incurred by such persons in connection with any civil or criminal action (NCBA, Sec 15).

BANKING LAWS ESQUIERRA | MADRIGAL

Composition of the Monetary Board
The MB shall be composed of 7 members appointed by the President with a 6-year term. No
member of the MB may be reappointed more than once (NCBA, Sec. 6).

Members.
a. The BSP Governor or his designated alternate (a deputy governor);
b. A Cabinet member to be designated by the President or his designated alternate
(an undersecretary in his department);
c. Five (5) members from the private sector
Qualifications Disqualifications

a. Citizenship- natural- In addition to the disqualifications imposed by Republic

born citizens of the Act No. 6713, a member of the Monetary Board is disqualified
Philippines from being a director, officer, employee, consultant, lawyer,
agent or stockholder of any bank, quasi-bank or any other
b. Age GR: at least 35 institution which is subject to supervision or examination by the
years old XPN: Bangko Sentral, in which case such member shall resign from,
Governor must be at and divest himself of any and all interests in such institution
least 40 years old; before assumption of office as member of the Monetary Board.

c. Of good moral The members of the Monetary Board coming from the
character private sector shall not hold any other public office or public
employment during their tenure.
d. Of unquestionable
integrity No person shall be a member of the Monetary Board if he
has been connected directly with any multilateral banking or
e. Of known probity and financial institution or has a substantial interest in any private
patriotism; bank in the Philippines, within one (1) year prior to his
appointment; likewise, no member of the Monetary Board shall
f. With recognized be employed in any such institution within two (2) years after
competence in social the expiration of his term except when he serves as an official
and economic representative of the Philippine Government to such institution.
disciplines (NCBA,
Sec. 8).
Removal
- The President may remove any member of the Monetary Board for any of the following
reasons:
(a) If the member is subsequently disqualified under the provisions of Section 8 of this
Act; or
(b) If he is physically or mentally incapacitated that he cannot properly discharge his
duties and responsibilities and such incapacity has lasted for more than six (6)
months; or
(c) If the member is guilty of acts or operations which are of fraudulent or illegal character
or which are manifestly opposed to the aims and interests of the Bangko Sentral; or
(d) If the member no longer possesses the qualifications specified in Section 8 of this Act.

BANKING LAWS ESQUIERRA | MADRIGAL

 Conservatorship vs. Receivership vs. Liquidation
CONSERVATORSHIP RECEIVERSHIP LIQUIDATION
DEFINITION -Attempt to save the bank -Summary closure of the Bank - No hope in
from bankruptcy and by the BSP without prior rehabilitating the bank;
ultimate liquidation; notice and hearing after a At this point, it
Manner of helping a bank finding that continuation in determines and pays
by effective management business will involve probable the claims of the bank’s
reforms and/or infusion of loss to its depositors and creditors
additional capital. creditors.

INSTANCES -Based on the report of - Upon finding of the MB that: -Voluntary liquidation
WHEN PLACED MB that bank is in the 1. Unable to pay under sec. 68 of GBL or
UNDER SUCH state of inability or liabilities upon finding that bank
unwillingness to maintain 2. Insufficient realizable can no longer be
a condition of liquidity assets to meet its rehabilitated and
deemed adequate to liabilities cannot continue
protect the interest of its 3. Cannot continue business after the
depositors and creditors business without 90day receivership
involving probable period.
loss to depositors and
creditors
4. Willfully violated
cease and desist order
under sec. 37 of NCBA
that has become final
involving acts and
transactions which
amount to fraud or
dissipation of assets of
institution
5. Notifies BSP or
publicly announces
Bank Holiday
DURATION -1 year, no extensions -90 days, no extensions -No period stated in
law. May take some
time depending on the
determination and
payment of claims to
creditors.

CONSERVATORSHIP

Conservator (2006 Bar)

-One appointed if the bank is in the state of illiquidity or the bank fails or refuses to maintain a state
of liquidity adequate to protect its depositors and creditors. The bank still has more assets than its liabilities,
but its assets are not liquid or not in cash thus it cannot pay its obligation when it falls due. The bank, not
the BSP, pays for fees.
BANKING LAWS ESQUIERRA | MADRIGAL
 Powers of a conservator:

1. Collect all monies and debts due to the said bank

2. To take charge of the Assets, liabilities, and the management thereof
3. Reorganize, the management thereof
4. And such other powers as the monetary Board deems necessary
5. Exercise all powers necessary to restore its viability, with the power to overrule or
revoke the actions of the previous management and board of directors of the bank
or quasi-bank
6. To bring court actions to Assail or Repudiate contracts entered into by the bank

Termination of conservatorship:

a. Conservatorship is terminated when the Monetary Board is satisfied that the bank can
operate on its own and the conservatorship is no longer necessary; or

b. When the Monetary Board, on the basis of the report of the conservator or of its own
findings, determine that the continuance in business of the institution would involve
probable losses to its depositors or creditors (effect: the bank or quasi-bank would then
be place under receivership)

RECEIVERSHIP

Receiver (2006 Bar)

One appointed if the bank is already insolvent which means that its liabilities are greater than its
assets. The Court has no authority to appoint a receiver for a bank if the latter will function as such under
BSP law. The power to appoint belongs to BSP.
NOTE: For banks, the receiver would be the Philippine Deposit Insurance Corporation; for quasi-banks, it could be any person of
recognized competence in banking or finance (NCBA, Sec. 30).

Duties of a receiver:
1. Immediately gather and take charge of all the assets and liabilities of the institution;
2. Administer the same for the benefit of the creditors, and exercise the general powers of a
receiver under the Revised Rules of Court;
3. Not, with the exception of administrative expenditures, pay or commit any act that will
involve the transfer or disposition of any asset of the institution: Provided that the receiver
may deposit or place the funds of the institution in non-speculative investments;
4. Within 90 days from the take-over, the receiver shall determine whether the institution
may be rehabilitated or otherwise placed in such a condition that it may be permitted to
resume business with safety to its depositors and creditors and the general public; and
5. If the receiver determines that the institution cannot be rehabilitated or permitted to
resume business, then the Monetary Board shall notify in writing the board of directors of
the institution of its findings and direct the receiver to proceed with liquidation of the
institution (NCBA, Sec 30).

BANKING LAWS ESQUIERRA | MADRIGAL

 Nature of order of receivership

While resolutions of the Monetary Board forbidding a bank to do business on account of a

condition of insolvency and appointing a receiver to take charge of the bank’s assets or
determining whether the bank may be rehabilitated or should be liquidated are by law “final
and executory.” However, they can be set aside by the court on one specific ground - if the
action is plainly arbitrary and made in bad faith. Such contention can be asserted as an
affirmative defense or a counterclaim in the proceeding for assistance in liquidation (Salud v.
Central Bank, G.R. No. L-17630, August 19, 1986).

The actions of the Monetary Board taken under this Section 29 and 30 of this Act shall be final
and executory, and may not be restrained or set aside by the court except on petition for
certiorari on the ground that the action taken was in excess of jurisdiction or with such grave
abuse of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may
only be filed by the stockholders of record representing the majority of the capital stock within
ten (10) days from receipt by the board of directors of the institution of the order directing
receivership, liquidation or conservatorship.

 The insolvency of a bank and the consequent appointment of a receiver restrict

the bank's capacity to act, especially in relation to its property
- appointment of a receiver operates to suspend the authority of the bank and of its directors
and officers over its property and effects, such authority being reposed in the receiver.
 The receiver is not authorized to transact business in connection with the bank’s
assets and property
- a receiver can only perform acts of administration and not acts of dominion. The receiver
cannot approve an option to purchase real property.

LIQUIDATION

Acts of liquidation are those which constitute the conversion of the assets of the banking
institution to money or the sale, assignment or disposition of the same to creditors and other
parties for the purpose of paying debts of such institution.

Filing of the claims against the insolvent bank

GR: All claims against the insolvent bank should be filed in the liquidation proceeding. It is not
necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation
court.
XPN: Where it is the bank that files a claim against another person or legal entity, the claim should be
filed in the regular courts.

BANKING LAWS ESQUIERRA | MADRIGAL

Bank Deposits vs. Deposit Substitutes (BAR 2010)
Bank deposits are funds obtained by a bank from the public which are relent by such bank to
its own borrowers. Deposit substitutes are alternative forms of obtaining funds from the public, other
than deposits, through the issuance, endorsement, or acceptance of debt instruments for the own
account of the borrower, for the purpose of relending or purchasing of receivables and other
obligations. These instruments may include, but need not be limited to, banker’s acceptances,
promissory notes, participations, certificates of assignment and similar instruments with recourse, and
repurchase agreements (Section 95, NCBA)

Purposes for Requiring Banks to Maintain Reserves:

(1) To control the volume of money created by the credit operations of the banking system
(2) It is to enable the banks to answer any withdrawal;
(3) To help Government to finance its operation;
(4) To help the Government control money supply. (Section 94 of the New Central Bank Act)

Villanueva v. CA, G.R. No. 114870, May 26, 1995

Where upon the insolvency of a bank, a receiver therefor is appointed, the assets
of the bank pass beyond its control into the possession and control of the receiver
whose duty it is to administer the assets for the benefit of the creditors of the bank.
Thus, the appointment of a receiver operates to suspend the authority of the bank and
of its directors and officers over its property and effects, such authority being reposed
in the receiver.

Abacus Real Estate Development Center, Inc. v. Manila Banking Corp,

G.R. No. 162270, Apr. 6, 2005
A receiver can only perform acts of administration and not acts of dominion. The
receiver cannot approve an option to purchase real property. He has only the authority to
administer the same for the benefit of its creditors.

Salud v. Central Bank, G.R. No. L-17630, August 19, 1986

While resolutions of the Monetary Board forbidding a bank to do business on account of

a condition of insolvency and appointing a receiver to take charge of the bank’s assets or
determining whether the bank may be rehabilitated or should be liquidated are by law “final and
executory.” However, they can be set aside by the court on one specific ground - if the action is
plainly arbitrary and made in bad faith. Such contention can be asserted as an affirmative defense
or a counterclaim in the proceeding for assistance in liquidation.

BANKING LAWS ESQUIERRA | MADRIGAL

 LAW ON SECRECY OF BANK PURPOSE:

DEPOSITS 1. Encourage deposit in banking institutions;

and
(R.A. 1405, AS AMENDED)
2. Discourage private hoarding so that banks
may lend such funds and assist in the economic
development of the country.
PROHIBITED ACTS:

 Examination/inquiry/looking into all deposits of whatever nature with banks or banking

institutions in the Philippines (including investment in bonds issued by the government) by
any person, government official or office (RA 1405, Sec. 2).

 Disclosure by any official or employee of any banking institution to any unauthorized person
of any information concerning said deposit (RA 1405, Sec. 3).

ACTS NOT COVERED BY THE PROHIBITION

-Non-bank official or employee is not covered by the prohibition. Neither is disclosure
by a bank official or employee of information about bank deposit in favor of a co-employee in
the course of the performance of his duties covered by the prohibition.

DEPOSITS COVERED:
 All deposits of whatever nature with banks or banking institutions found in the
Philippines.
 Investments in bonds issued by the Philippine government, its branches, and
institutions
 Trust accounts
EXCEPTIONS:
1. Upon written consent of the depositor (RA 1405, Sec. 2)
2. In cases of impeachment
3. Upon order of competent court in cases of bribery or dereliction of
duty of public officials
4. In cases where the money deposited or invested is the subject
matter of the litigation

NOTE:
The Anti-Money Laundering Council (AMLC) may inquire into any deposit with any bank in case of
violation of the RA 9160 or the AMLA if there is probable cause that it is related to an unlawful activity
(RA 9160, as amended, Sec. 11)

BANKING LAWS ESQUIERRA | MADRIGAL

With court order:
(A) In cases of unexplained wealth under Sec. 8 of the Anti-Graft and Corrupt Practices Act (PNB v.
Gancayco, L-18343, September 30, 1965)
(B) In cases filed by the Ombudsman and upon the latter’s authority to examine and have access to bank
accounts and records (Marquez v. Desierto, GR 138569, September 11, 2003)

Without court order: If the AMLC determines that a particular deposit or investment with any banking
institution is related to the following:

a. Hijacking
b. Kidnapping
c. Murder
d. Destructive Arson
e. Violation of the Dangerous Drugs Act
f. Acts of Terrorism or in violation of Human Security Act.

Penalties for violation of R.A. 1405 Garnishment of a bank deposit does not violate the law
(1) Imprisonment of not more than five The prohibition against examination or inquiry
(5) years does not preclude its being garnished for satisfaction of
judgment. The disclosure is purely incidental to the
(2) Fine of not more than P20,000.00 execution process and it was not the intention of the
legislature to place bank deposits beyond the reach of
(3) Both, in the discretion of the court (RA judgment creditor (PCIB v. CA, G.R. No. 84526, January
1405, Sec. 5) 28, 1991).

BSB v. SALLY GO

Any exception to the rule of absolute confidentiality must be specifically legislated. Section 2 of
the Bank Secrecy Act itself prescribes exceptions whereby these bank accounts may be
examined by "any person, government official, bureau or office"; namely when:

(1) upon written permission of the depositor;

(2) in cases of impeachment;
(3) the examination of bank accounts is upon order of a competent court in cases of bribery or
dereliction of duty of public officials; and
(4) the money deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act
No. 3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this Court as
constituting an additional exception to the rule of absolute confidentiality, and there have been
other similar recognitions as well.

BANKING LAWS ESQUIERRA | MADRIGAL

 PHILIPPINE DEPOSIT INSURANCE CODE (PDIC)
Roles of PDIC
1) It shall ensure the deposits of all banks which are entitled to the benefits of
insurance and which shall have to powers granted by law
2) It shall promote and safeguard the interests of the depositing public by way of
providing permanent and continuing insurance coverage on all insured deposits
3) PDIC shall be entitled to the free use of Philippine mail in the same manner as
the other offices of the national government

What is the overall mandate of PDIC?

1. To promote and safeguard the interest of the depositing public by way of providing
permanent and continuing insurance coverage on all insured deposits
2. To strengthen public confidence in the banking system to foster financial stability
For purposes of computing the insured deposits, all obligations or loans of the depositor with the closed bank,
as of bank closure, shall be deducted from the depositor’s total deposits with the said bank.
(PDIC Regulatory Issuance No. 2011-04)

PROHIBITED ACTS: ACTS NOT COVERED BY THE

PROHIBITION
* Examination/inquiry/looking into all deposits of
whatever nature with banks or banking institutions Non-bank official or employee
in the Philippines (including investment in bonds is not covered by the prohibition.
issued by the government) by any person, Neither is disclosure by a bank official
government official or office (RA 1405, Sec. 2). or employee of information about
bank deposit in favor of a co-
* Disclosure by any official or employee of any
employee in the course of the
banking institution to any unauthorized person of
performance of his duties covered by
any information concerning said deposit (RA 1405,
the prohibition.
Sec. 3).

DEPOSITS COVERED
1. All deposits of whatever nature with banks or banking institutions found in the Philippines.
2. Investments in bonds issued by the Philippine government, its branches, and institutions
(R.A. 1405, Sec.
3. Trust accounts (Ejercito v. Sandiganbayan, G.R. No. 157294-95, November 30, 2006).

EXCEPTIONS
Instances where examination or disclosure of information about deposits can be allowed: (BAR
1990-1992, 1994, 1995, 1997, 1998, 2000, 2001, 2004-2006)
1. Upon written consent of the depositor (RA 1405, Sec. 2)
2. In cases of impeachment
3. Upon order of competent court in cases of bribery or dereliction of duty of public officials
4. In cases where the money deposited or invested is the subject matter of the litigation

BANKING LAWS ESQUIERRA | MADRIGAL

 MAXIMUM DEPOSIT INSURANCE COVERAGE (MDIC)

PDIC pays deposit insurance on all valid deposits up to the Maximum Deposit Insurance Coverage
(MDIC) of Php500,000 per depositor of a closed bank. For purposes of computing deposit insurance,
accounts maintained in the same right and capacity for a depositor’s benefit, whether in his own
name or in the name of others, are added together and in no case shall exceed the MDIC. Deposits
are considered valid if, upon determination by PDIC, these deposits are recorded in the bank’s
records, and are evidenced by inflow of cash.

Q: When OCCIDENTAL Bank folded up due to

What are covered by PDIC deposit insolvency, Manuel had the following separate
insurance? deposits in his name: P200,000 in savings deposit;
P250,000 in time deposit; P50,000 in current account;
PDIC insures valid deposits in domestic P1 million in a trust account and P3 million in money
offices of its member banks, as follows: market placement. Under the Philippine Deposit
Insurance Corporation Act, how much could Manuel
By Deposit Type: recover? Explain. (2010 BAR)
• Savings A: Manuel can recover P500, 000.00, because this is the
• Special Savings total of his savings deposit, time deposit and current
• Demand/Checking account (Section 4(g) of Republic Act No. 3591, as
• Negotiable Order of Withdrawal (NOW) amended). The trust account and the money market
• Time Deposits placements are not included in the insured deposits
(section 4(f) of Republic Act No. 3591, as amended).
By Deposit Account: Q: An. employee of a large manufacturing firm earns a
salary which is just a bit more than what he needs for
• Single Account
a comfortable living. He is thus able to still maintain a
• Joint Account
P10,000.00 saving account, P20,000.00 checking
• Account “By”, “In Trust For” (ITF) or “For account, a P30,000.00 money market placement and
the Account of” (FAO) another person P40,000.00 trust fund in a medium-size commercial
bank. State which of the four accounts are deemed
By Currency: insured by the Philippine Deposit Insurance
Corporation. (BAR 1997)
• Philippine peso
A: Of the four accounts, the recoverable accounts are
• Foreign currencies considered as part of only two: the saving and the checking. The last two
BSP’s international reserves accounts are excluded, not being covered by the term
deposit.

PDIC v. CA
The head office of a bank and its branches are considered as one under the eyes of the law.
While branches are treated as separate business units for commercial and financial
reporting purposes, in the end, the head office remains responsible and answerable for the
liabilities of its branches which are under its supervision and control.

BANKING LAWS ESQUIERRA | MADRIGAL

 TRUTH IN LENDING ACT (TILA)
RA 3765 SALIENT PROVISIONS OF REPUBLIC ACT NO. 3765
It is the policy of the state to protect its citizens from a lack of awareness of
the true cost of credit to the user by assuring a full disclosure of such cost
with a view of preventing the ununiformed use of credit to the detriment .

Disclosure; creditor shall furnish in a clear statement in writing:

 cash price/delivered price of property or service
 amounts credited as down-payment
 difference bet. amounts in 1 and 2
 charges, individually itemized, not incident to the extension of credit
 total amount to be financed
 finance charge in terms of pesos and centavos
 percentage/simple annual rate on the outstanding unpaid balance

Penalties for Failure to Disclose

 Civil; P100 or 2x finance charged. Limit is P2000.
 Criminal; if willfully violated, fine of P1,000-P5,000 and/or 6mos-1yr
imprisonment
Effect of Violation:
- violation shall NOT affect validity and enforceability of contract

Q: 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.
(1991 BAR)
(a) Has there been substantial compliance of the aforesaid Act?
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) If your answer to the foregoing question is in the negative, what is the effect of the
violation on the contract?
A violation of the Truth in Lending Act will not adversely affect the validity of the contract
itself.

BANKING LAWS ESQUIERRA | MADRIGAL

 UNIFORM CURRENCY ACT
(RA. 8183)

Section 1. All monetary obligations shall be settled in the Philippine currency which is legal tender
in the Philippines. However, the parties may agree that the obligation or transaction shall be
settled in any other currency at the time of payment.

***In cases of international obligations and transactions, the basis of payment would be the rate
of exchange prevailing at the time of payment.

FOREIGN CURRENCY DEPOSIT ACT

(RA. 6426) SECRECY OF FOREIGN CURRENCY DEPOSITS

GR: Foreign currency deposits cannot be inquired or looked into. All foreign
currency deposits are confidential (RA 6426, Sec. 8).

EXCEPTIONS:
1. The depositor has given his written permission.

2. A father who sued his daughter for illegally withdrawing funds from his foreign currency
deposit and transferring to another bank in the name of her sister, can inquire into the deposit
of the sister, because the money deposited belongs to him (China Banking Corp. v. CA, G.R. No.
140687, December 18, 2006).

3. The exemption from court process of foreign currency deposits under RA 6426 cannot be
invoked by a foreign transient who raped a minor, escaped and was held liable for damages to
the victim. The garnishment of his foreign currency deposit should be allowed to prevent an
injustice and for equitable grounds. The law was enacted to encourage foreign currency
deposit and not to benefit a wrongdoer (Salvacion v. Central Bank of the Philippines, G.R. No.
94723, August 21, 1997).

4. The Commissioner of Internal Revenue is authorized to inquire into bank deposits of the
following: a. A decedent to determine his estate; and b. Any taxpayer who has filed for an
application for compromise of his tax liability c. A specific taxpayer upon request for tax
information from a foreign tax authority pursuant to an international convention or agreement
on tax matters to which the Philippines is a party (NIRC, Sec. 6 [f]).

5. AMLC may inquire into any deposit with a bank or financial institution in case of violation of
RA 9160 if there is probable cause that it is related to an unlawful activity (RA 9160, Sec. 11).

BANKING LAWS ESQUIERRA | MADRIGAL

 EXCEPTIONS:
6. Upon ex parte application by a law enforcer authorized by the Anti-Terrorism Council, the
justices of the CA designated as special court to handle anti-terrorism cases may authorize the
examination of deposits in a financial institution upon finding probable cause of the
commission of terrorism or conspiracy to commit terrorism (RA 9372, Sec. 27-28).

7. PDIC and BSP may examine deposit accounts and all information related to them in case of a
finding of unsafe or unsound banking practices (RA 3591, as amended, Sec. 8).

8. AMLC can investigate (a) any property of funds related to financing terrorism; (b) property or
funds of any person if there is probable cause to believe he is committing or attempting or
conspiring to commit terrorism or financing terrorism (RA 10168, Sec. 10).

GARNISHMENT OF FOREIGN CURRENCY DEPOSITS

GR: Foreign currency deposits shall be exempt from attachment, garnishment, or any
other order or process of any court, legislative body, government agency or any
administrative body whatsoever (RA 6426, Sec 8).

XPN: The application of Sec. 8 of RA 6426 depends on the extent of its

justice. The garnishment of a foreign currency deposit should be allowed
to prevent injustice and for equitable grounds, otherwise, it would
negate Article 10 of the New Civil Code which provides that “in case of
doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail.

Salvacion v. Central Bank of the Philippines, G.R. 94723, August 21, 1997
The foreign currency deposit of a transient foreigner who illegally detained and
raped a minor Filipina can be garnished to satisfy the award for damages to the victim.

BANKING LAWS ESQUIERRA | MADRIGAL

ANTI-MONEY LAUNDERING ACT
(AMLA) Money Laundering - a crime whereby the proceeds of an unlawful activity
are transacted thereby making them appear to have originated from
legitimate sources.

3 Steps of accomplishing:
1. Placement – inserts money into a legitimate financial institution
2. Layering – sending money through various financial transactions to change its form
3. Integration – money re-enters the mainstream economy in legitimate-looking form

Institutions Covered Policies of AMLA

* Banks and other institutions supervised and regulated by 1. Protect and preserve
BSP integrity and
* Insurance Committees confidentiality of bank
accounts
* Securities, dealers, etc. 2. Ensure that Philippines
* Mutual funds, common-trust funds and other similar shall no be used as
entities money laundering site
3. Extend cooperation in
* Foreign Exchange corporations and other similar entities transnational
* Entities administering or dealing with currencies regulated investigations and
by SEC prosecutions

Money Laundering Offense

1. Person transacting or attempts to transact any monetary instrument purporting to the

proceeds of any unlawful activity
2. Performs or failure to perform any act as a result of which he facilitates the offense
mentioned in (1)
3. Failure to disclose as required by AMLC

Jurisdiction
RTC – private persons
Sandiganbayan – Public Officers and private person in conspiracy

AMLC Composition
1. Governor of BSP – Chairman
2. Commissioner of Insurance Commission – member
3. Chairman of SEC - member

BANKING LAWS ESQUIERRA | MADRIGAL

 Functions of AMLC

1. Require and receive covered or suspicious transaction from covered institutions

2. Issue orders addressed to appropriate Supervising Authority or covered institution to determine

true identity of the owner of questioned property

3. Institute civil forfeiture through Sol-Gen

4. File complaints with DOJ or Ombudsman

5. Investigation

6. Apply before CA for freezing any property alleged to be proceeds of unlawful activity

7. Implement measures necessary to counteract money laundering

8. Receive and take action in respect of any request for foreign assistance

9. Develop educational programs

10. Enlist assistance of any branch of government

11. Impose administrative sanctions for violation of rules

12. Establish by a secretariat headed by Executive director appointed by Council

Prevention of Money Laundering; Customer Identification Requirements and Record keeping

Customer Identification

1. Institutions shall establish Record Keeping

and record true identity of
its clients based on official All records of all transactions
of covered institutions shall Reporting of Covered and
documents
be maintained and safely Suspicious Transactions
2. Maintain a system of stored for five (5) years from
verifying true identity of the dates of transactions. Covered institutions shall
their clients report to the Anti-Money
Laundering Council (AMLC) all
3. Anonymous accounts, With respect to closed covered or suspicious
accounts under fictitious accounts, the records on transactions within five (5)
names are prohibited customer identification, working days from occurrence
account files and business thereof, ceding fifteen (15)
4. Peso and foreign currency
correspondence, shall be working days.
non-checking numbered
preserved and safely stored
accounts shall be allowed
for at least five (5) years from
the dates when they were Conviction of the unlawful
closed. activity is not necessary
before report is made.

BANKING LAWS ESQUIERRA | MADRIGAL

 Freezing of Monetary Instrument or Property

- The CA upon application ex parte by AMLC after determination of probable cause

- Freeze period shall be for 20 days unless extended by the court

Authority to Inquire Bank Deposits

To complete legal measures to prevent money laundering, the AMLC may inquire
into or examine any particular deposit or investment with any banking institution or non-bank
financial institution upon order of any competent court in cases of violation, it must be
established that:

1. There is probable cause that deposits are related to unlawful Unlawful Activities
activity or Money laundering offense
No court order: (1) Kidnapping for Ransom
1. Kidnapping for Ransom (2) DDA
2. DDA (3) Anti-Graft and Corrupt
3. Hi-Jacking Practices Act
4. Destructive Arson and murder (4) Plunder
(5) Robbery and extortion
BSP may inquire into or examine any deposit when (6) Jueteng
examination is made in the course of a periodic or special (7) Piracy
examination. (8) Qualified Theft
(9) Swindling
Civil Forfeiture (10) Smuggling
(11) Violations of
When there is a covered transaction report made, and the court Electronic Commerce Act
has ordered the seizure of any property related to said report, (12) Hi-jacking
the Revised Rules of Court on civil forfeiture applies. (13) Violations of
Securities Regulation Code
Payment in Lieu of Forfeiture (14) Other felonies of
Court may, instead of enforcing the order of forfeiture, order similar nature
the convicted offender to pay an amount equal to the value
when order cannot be enforced because:

1. Property cannot, with due diligence be located

2. Substantially altered, destroyed, diminished in value or otherwise rendered worthless
through an act attributable to the offender
3. Concealed, removed, converted or transferred to prevent from being found
4. Located outside the Philippines or has been placed or brought outside the jurisdiction of
the court
5. Commingled with other monetary instruments or property belonging to offender or third
persons rendering the same difficult to identify or segregated for purposes of forfeiture

BANKING LAWS ESQUIERRA | MADRIGAL

 China Banking Corporation and Tan Kim Liong vs. Hon. Wenceslao Ortega et. al

G.R. No. L-34964 31 January 1973

FACTS:

Tan Kim Liong was ordered to inform the Court whether or not there is a deposit in the China Banking Corporation
of defendant B & B Forest Development Corporation, and if there is any deposit, to hold the same intact and not
allow any withdrawal until further order from the Court. Petitioners in this case refuse to comply with a court
process garnishing the bank deposit of a judgment debtor by invoking the provisions of Republic Act No. 1405 (
Secrecy of Bank Deposits Act) which allegedly prohibits the disclosure of any information concerning to bank
deposits.

ISSUE:

Whether or not a banking institution may validly refuse to comply with a court processes garnishing the bank deposit
of a judgment debtor, by invoking the provisions of Republic Act No. 1405.

HELD:

No. The lower court did not order an examination of or inquiry into deposit of B & B Forest Development
Corporation, as contemplated in the law. It merely required Tan Kim Liong to inform the court whether or not the
defendant B & B Forest Development Corporation had a deposit in the China Banking Corporation only for the
purposes of the garnishment issued by it, so that the bank would hold the same intact and not allow any withdrawal
until further order. It is sufficiently clear that the prohibition against examination of or inquiry into bank deposit
under RA 1405 does not preclude its being garnished to insure satisfaction of a judgment. Indeed there is no real
inquiry in such a case, and the existence of the deposit is disclosed the disclosure is purely incidental to the execution
process. WHEREFORE, the orders of the lower court dated March 4 and 27, 1972, respectively, are hereby affirmed,
with costs against the petitioners-appellants.

BANKING LAWS ESQUIERRA | MADRIGAL

 Bańas et. al. vs. Asia Pacific Finance Corporation

G.R. No. 128703 18 October 2000

FACTS:

Sometime in August 1980, Bañas executed a Promissory Note in favor of C. G.Dizon Construction whereby for value
received he promised to pay to the order of C. G. Dizon Construction the sum of P390,000.00 in installments of
"P32,500.00every 25th day of the month starting from September 25, 1980 up to August 25,1981". Later, C. G. Dizon
Construction endorsed with recourse the Promissory Note to Asia Pacific Finance Corporation (Asia Pacific), and to
secure its payment, it, through its corporate officers, Dizon, President, executed a Deed of Chattel Mortgage
covering three (3) heavy equipment units of Caterpillar Bulldozer Crawler Tractors in favor of Asia Pacific. Dizon also
executed a Continuing Undertaking wherein he bound himself to pay the obligation jointly and severally with C. G.
Dizon Construction.

In compliance with the provisions of the Promissory Note, C. G. Dizon Construction made the installment payments
to Asia Pacific totaling P130,000, but thereafter defaulted in the payment of the remaining installments, prompting
Asia Pacific to send a Statement of Account to Dizon for the unpaid balance. As the demand was unheeded, Asia
Pacific sued Bañas, C. G. Dizon Construction and Dizon.

While they admitted the genuineness and due execution of the Promissory Note, the Deed of Chattel Mortgage and
the Continuing Undertaking, they nevertheless maintained that these documents were never intended by the
parties to be legal, valid and binding but a mere subterfuge to conceal the loan with usurious interests and claimed
that since Asia Pacific could not directly engage in banking business, it proposed to them a scheme wherein it could
extend a loan to them without violating banking laws.

The RTC issued writ of replevin against C. G. Dizon Construction for the surrender of the bulldozer crawler tractors
subject of the Deed of Chattel Mortgage, which of the 3, only 2 were actually turned over and were subsequently
foreclosed by Asia Pacific to satisfy the obligation. The RTC ruled in favor of Asia Pacific holding them to pay jointly
and severally the unpaid balance. On appeal, the CA affirmed in toto the decision.

ISSUE:

Whether or not they can be held liable under the said documents

HELD:

They CAN BE HELD LIABLE UNDER THE SAID DOCUMENTS BUTTHE COURT MITIGATED THE AMOUNT OF DAMAGES
AS IT WASSHOWN THAT THERE WAS A PARTIAL COMPLIANCE ON THEIR PART. Indubitably, what is prohibited by
law is for investment companies to lend funds obtained from the public through receipts of deposit, which is a
function of banking institutions. But here, the funds supposedly "lent" to petitioners have not been shown to have
been obtained from the public by way of deposits, hence, the inapplicability of banking laws.

On their submission that the true intention of the parties was to enter into a contract of loan, the Court examined
the Promissory Note and failed to discern anything therein that would support such theory. On the contrary, the
terms and conditions of the instrument clear, free from any ambiguity, and expressive of the real intent and
agreement of the parties. Likewise, the Deed of Chattel Mortgage and Continuing Undertaking were duly
acknowledged before a notary public and, as such, have in their favor the presumption of regularity. To contradict
them there must be clear, convincing and more than merely preponderant evidence. In the instant case, the records
do not show even a preponderance of evidence in their favor that the Deed of Chattel Mortgage and Continuing
Undertaking were never intended by the parties to be legal, valid and binding.

BANKING LAWS ESQUIERRA | MADRIGAL

With regard to the computation of their liability, the records show that they actually paid a total sum of P130,000.00
in addition to the P180,000.00 proceeds realized from the sale of the bulldozer crawler tractors at public auction.
Deducting these amounts from the principal obligation of P390,000.00 leaves a balance of P80,000.00, to which
must be added P7,637.50 accrued interests and charges, or a total unpaid balance of P87,637.50 for which they are
jointly and severally liable. Furthermore, the unpaid balance should earn 14% interest per annum as stipulated in
the Promissory Note, computed from 20 March 1981 until fully paid.

BANKING LAWS ESQUIERRA | MADRIGAL

 Simex International Incorporated vs. CA and Traders Royal Bank

G.R. No. 88013 - 19 March 1990

FACTS:

Simex International is a private corporation engaged in the exportation of food products. It buys
these products from various local suppliers and then sells them abroad, particularly in the United States, Canada
and the Middle East. Most of its exports are purchased by the petitioner on credit. Simex is a depositor of TRB and
maintained a checking account in its Cubao branch. Simex maintained an account in the amount ofP100,000.00,
thus increasing its balance as of that date to P190,380.74. Subsequently, the petitioner issued several (8) checks
against its deposit but was surprised to learn later that they had been dishonored for insufficient funds. As a
consequence, actions on the pending orders of SIMEX with the other suppliers (California Manufacturing Comp.,
Malabon Longlife Trading Corp., etc.) whose checks were dishonored were deferred. And thus made these
companies send demand letters to SIMEX threatening prosecution if the checks were not made good. SIMEX
complained to TRB and found out that the sum of P100,000.00 deposited had not been credited. The error was
rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited. SIMEX sent demand
letter for reparation against TRB, which was not met, thus a complaint was filed in CFI Rizal by SIMEX. The court
denied the moral & exemplary damages but upheld and ordered TRB to pay for nominal damages in the amount
of P20,000.00 plus attys fees & costs, which was then affirmed by the CA. The CA found with the trial court that the
private respondent was guilty of negligence but agreed that the petitioner was nevertheless not entitled to moral
damages. It said: The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150
SCRA 280).

Indeed, there was the omission by the defendant-appellee bank to credit appellant'sdeposit of P100,000.00 on May
25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less than a
month. The dishonored checks were eventually paid. These circumstances negate any imputation or insinuation of
malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-appellant.

ISSUE:

Whether or not TRB is guilty of negligence which warrants SIMEX reparation for damages.

HELD:

YES. Award SIMEX with moral damages (P20,000) and exemplary damages (P50,000). The initial carelessness of
the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral
damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence, if
not wanton bad faith, that the respondent court said had not been established by the petitioner. There was also
prejudice suffered by SIMEX in the fact that the petitioner's credit line was canceled and its orders were not acted
upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its
standing was reduced in the business community. All this was due to the fault of the respondent bank which was
undeniably remiss in its duty to the petitioner.

In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship.
What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to
the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three
days after the deposit was made. It bears repeating that the record does not contain any satisfactory explanation
of why the error was made in the first place and why it was not corrected immediately after its discovery. Such
ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the
imposition of exemplary damages.

BANKING LAWS ESQUIERRA | MADRIGAL

 Teofisto Guingona vs. The City Fiscal of Manila

G.R. No. L-60033 4 April 1984

FACTS:

From March 1979 to March 1981, Clement David made several investments with the National Savings and Loan
Association. On March 21, 1981, the bank was placed under receivership by the Bangko Sentral. Upon David’s
request, petitioners Guingona and Martin issued a joint promissory note, absorbing the obligations of the bank. On
July 17, 1981, they divided the indebtedness. David filed a complaint for estafa and violation of Central Bank Circular
No. 364 and related regulations regarding foreign exchange transactions before the Office of the City Fiscal of
Manila. Petitioners filed the herein petition for prohibition and injunction with a prayer for immediate issuance of
restraining order and/or writ of preliminary injunction to enjoin the public respondents to proceed with the
preliminary investigation on the ground that the petitioners’ obligation is civil in nature.

ISSUE/S:

(1) Whether the contract between NSLA and David is a contract of depositor a contract of loan, which answer
determines whether the City Fiscal has the jurisdiction to file a case for estafa

(2) Whether there was a violation of Central Bank Circular No. 364

HELD:

(1) When private respondent David invested his money on nine. and savings deposits with the aforesaid bank, the
contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. Hence, the
relationship between the private respondent and the Nation Savings and Loan Association is that of creditor and
debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of
the contract and it can make use of the amount deposited for its banking operations, such as to pay interests on
deposits and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it has, however,
no obligation to return or deliver the same money that was deposited. And, the failure of the Bank to return the
amount deposited will not constitute estafa through misappropriation punishable under Article 315, par. l(b) of the
Revised Penal Code, but it will only give rise to civil liability over which the public respondents have no jurisdiction.

But even granting that the failure of the bank to pay the time and savings deposits of private respondent David
would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient
criminal liability was deemed avoided, because when the aforesaid bank was placed under receivership by the
Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to private respondent David,
thereby resulting in the novation of the original contractual obligation arising from deposit into a contract of loan
and converting the original trust relation between the bank and private respondent David into an ordinary debtor-
creditor relation between the petitioners and private respondent. Consequently, the failure of the bank or
petitioners Guingona and Martin to pay the deposits of private respondent would not constitute a breach of trust
but would merely be a failure to pay the obligation as a debtor. Moreover, while it is true that novation does not
extinguish criminal liability, it may however, prevent the rise of criminal liability as long as it occurs prior to the filing
of the criminal information in court. In the case at bar, there is no dispute that petitioners Guingona and Martin
executed a promissory note on June 17, 1981 assuming the obligation of the bank to private respondent David;
while the criminal complaint for estafa was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it
is clear that novation occurred long before the filing of the criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a civil liability
on the part of petitioners Guingona and Martin to pay the assumed obligation.

BANKING LAWS ESQUIERRA | MADRIGAL

(2) Petitioner Guingona merely accommodated the request of the Nation Savings and loan Association in order to
clear the bank draft through his dollar account because the bank did not have a dollar account. Immediately after
the bank draft was cleared, petitioner Guingona authorized Nation Savings and Loan Association to withdraw the
same in order to be utilized by the bank for its operations. It is safe to assume that the U.S. dollars were converted
first into Philippine pesos before they were accepted and deposited in Nation Savings and Loan Association, because
the bank is presumed to have followed the ordinary course of the business which is to accept deposits in Philippine
currency only, and that the transaction was regular and fair, in the absence of a clear and convincing evidence to
the contrary.

In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no clear
showing that they engaged in foreign exchange transactions, We hold that the public respondents acted without
jurisdiction when they investigated the charges against the petitioners. Consequently, public respondents should
be restrained from further proceeding with the criminal case for to allow the case to continue, even if the petitioners
could have appealed to the Ministry of Justice, would work great injustice to petitioners and would render
meaningless the proper administration of justice.

BANKING LAWS ESQUIERRA | MADRIGAL

 Paulino Gullas vs. Philippine National Bank

G.R. No. L-43191 13 November 1935

FACTS:

The United States Veterans Bureau issued a warrant payable to the order of Francico Sabectoria Bacos. Paulino
Gullas and Pedro Lopez signed as endorsers of the aforementioned check. Thereupon, it was cashed by the
Philippine National Bank. Subsequently, the treasury warrant was dishonored. The bank sent notices by mail to Mr.
Gullas which could not be delivered to him at that time because he was in Manila. The bank then proceeded to apply
the outstanding balances of Mr. Gullas account with the part payment of the subject check.

ISSUE:

Whether or not PNB properly set off the account of Gullas with the payment of the indorsed check.

HELD:

No. Although PNB had with respect to the deposit of Gullas a right of set off, its remedy was not enforced properly.

Notice of dishonor is necessary in order to charge an indorser and that the right of action against him does not
accrue until the notice is given. Prior to the mailing of notice of dishonor, and without waiting for any action by
Gullas, the bank made use of the money standing in his account to make good for the treasury warrant. The action
of the bank was prejudicial to Gullas. As such,Gullas should be awarded nominal damages because of the premature
action of the bank.

BANKING LAWS ESQUIERRA | MADRIGAL

 Romarico G. Vitug

G.R. No. 82027 March 29, 1990

FACTS:

The case is a chapter in an earlier suit involving the issue on two (2) wills of the late Dolores Vitug who died in New
York, USA in Nov 1980. She named therein private respondent Rowena Corona (Executrix) while Nenita Alonte was
co-special administrator together with petitioner Romarico pending probate.

In January 1985, Romarico filed a motion asking for authorization of the probate court to sell shares of stocks and
real property of the estate as reimbursements for advances he made to the estate. The said amount was spent for
payment of estate tax from a savings account in the Bank of America.

Rowena Corona opposed the motion to sell contending that from the said account are conjugal funds, hence part
of the estate. Vitug insisted saying that the said funds are his exclusive property acquired by virtue of a survivorship
agreement executed with his late wife and the bank previously. In the said agreement, they agreed that in the event
of death of either, the funds will become the sole property of the survivor.

The lower court upheld the validity of the survivorship agreement and granted Romarico's motion to sell. The Court
of Appeals however held that said agreement constituted a conveyance mortis causa which did not comply with the
formalities of a valid will. Further, assuming that it is donation inter vivos, it is a prohibited donation. Vitug petitioned
to the Court contending that the said agreement is an aleatory contract.

ISSUE:

Whether or not the conveyance is one of mortis causa hence should conform to the form required of wills.

HELD:

No. The survivorship agreement is a contract which imposed a mere obligation with a term--being death. Such
contracts are permitted under Article 2012 on aleatory contracts. When Dolores predeceased her husband the latter
acquired upon her death a vested right over the funds in the account. The conveyance is therefore not mortis causa.

BANKING LAWS ESQUIERRA | MADRIGAL

 Banco Filipino vs. Purisima

G.R. No. L-56429 May 28, 1988

FACTS:

Customs special agent Manuel Caturla is accused by the Bureau of Internal Revenue of having violated R.A. No. 3019
of the "Anti-Graft and Corrupt Practices Act" for having allegedly acquired property manifestly out of proportion to
his salary and other lawful income. In the course of the preliminary investigation thereof, the Tanodbayan issued a
subpoena duces tecum to the Banco Filipino Savings & Mortgage Bank, commanding its representative to appear at
a specified time at the Office of the Tanodbayan and furnish the latter with duly certified copies of the records in all
its branches and extension offices, of the loans, savings and time deposits and other banking transactions, dating
back to 1969, appearing in the names of Caturla, His wife, Purita Caturla, their Children; Manuel, Jr., Marilyn and
Michael and Pedro Escuyos,

Caturla moved to quash the subpoena duces tecum but was denied by Tanodbayan Vicente Ericta. Petitioner Banco
Filipino filed a complaint for declaratory relief with the Court of First Instance of Manila but was denied for lack of
merit by respondent Judge Purisima.

ISSUE:

Whether or not the RA 1405 “Law on Secrecy of Bank Deposits” precludes production by subpoena duces tecum of
bank records of transactions by or in the names of the wife, children and friends of the accused.

HELD:

No. The inquiry into illegally acquired property or property NOT "legitimately acquired” extends to cases where such
property is concealed by being held by or recorded in the name of other persons. This proposition is made clear by
R.A. No. 3019 which quite categorically states that the term, "legitimately acquired property of a public officer or
employee shall not include... property unlawfully acquired by the respondent, but its ownership is concealed by its
being recorded in the name of, or held by, respondent's spouse, ascendants, descendants, relatives or any other
persons.”

To sustain the petitioner's theory, and restrict the inquiry only to property held by or in the name of the government
official or employee, or his spouse and unmarried children is unwarranted in the light of the provisions of the
statutes in question, and would make available to persons in government who illegally acquire property an easy and
fool-proof means of evading investigation and prosecution; all they would have to do would be to simply place the
property in the possession or name of persons other than their spouse and unmarried children. This is an absurdity
that we will not ascribe to the lawmakers.

BANKING LAWS ESQUIERRA | MADRIGAL

 Joseph Victor Ejercito vs. Sandiganbayan

G.R. Nos. 157294-95 - 30 November 2006

FACTS:

The Office of the Ombudsman requested the Sandiganbayan to issue subpoena duces tecum against the Urban Bank
relative to the case against President Joseph Estrada. Ms. Dela Paz, receiver of the Urban Bank, furnished the Office
of the Ombudsman certified copies of manager checks detailed in the subpoena duces tecum. The Sandiganbayan
granted the same.

However, Ejercito claims that the subpoenas issued by the Sandiganbayan are invalid and may not be enforced
because the information found therein, given their extremely detailed character and could only have been obtained
by the Special Prosecution Panel through an illegal disclosure by the bank officials. Ejercito thus contended that,
following the fruit of the poisonous tree doctrine, the subpoenas must be quashed. Moreover, the extremely-
detailed information obtained by the Ombudsman from the bank officials concerned during a previous investigation
of the charges against him, such inquiry into his bank accounts would itself be illegal.

ISSUE:

Whether or not subpoena duces tecum/ad testificandum may be issued to order the production of statement of
bank accounts even before a case for plunder is filed in court

HELD:

The Supreme Court held that plunder is analogous to bribery, and therefore, the exception to R.A. 1405 must also
apply to cases of plunder. The court also reiterated the ruling in Marquez v. Desierto that before an in camera
inspection may be allowed there must be a pending case before a court of competent jurisdiction. Further, the
account must be clearly identified, the inspection limited to the subject matter of pending case before the court of
competent jurisdiction.

As no plunder case against then President Estrada had yet been filed before a court of competent jurisdiction at the
time the Ombudsman conducted an investigation, he concludes that the information about his bank accounts were
acquired illegally, hence, it may not be lawfully used to facilitate a subsequent inquiry into the same bank accounts.
Thus, his attempt to make the exclusionary rule applicable to the instant case fails.

The high Court, however, rejected the arguments of the petitioner Ejercito that the bank accounts which where
demanded from certain banks even before the case was filed before the proper court is inadmissible in evidence
being fruits of poisonous tree. This is because the Ombudsman issued the subpoenas bearing on the bank accounts
of Ejercito about four months before Marquez was promulgated on June 27, 2001. While judicial interpretations of
statutes, such as that made in Marquez with respect to R.A. No. 6770 or the Ombudsman Act of 1989, are deemed
part of the statute as of the date it was originally passed, the rule is not absolute. Thus, the Court referred to the
teaching of Columbia Pictures Inc., v. Court of Appeals, that: It is consequently clear that a judicial interpretation
becomes a part of the law as of the date that law was originally passed, subject only to the qualification that when
a doctrine of this Court is overruled and a different view is adopted, and more so when there is a reversal thereof,
the new doctrine should be applied prospectively and should not apply to parties who relied on the old doctrine
and acted in good faith.

BANKING LAWS ESQUIERRA | MADRIGAL

 BSB Group Inc. vs. Sally Go

G.R. No. 168644 February 16, 2010

FACTS:

Petitioner, the BSB Group, Inc., is a duly organized domestic corporation presided by its herein representative,
Ricardo Bangayan (Bangayan). Respondent Sally Go, alternatively referred to as Sally Sia Go and Sally Go-Bangayan,
is Bangayan's wife, who was employed in the company as a cashier, and was engaged, among others, to receive and
account for the payments made by the various customers of the company.

In 2002, Bangayan filed with the Manila Prosecutor's Office a complaint for estafaand/or qualified theft against
respondent, alleging that several checks representing the aggregate amount of P1,534,135.50 issued by the
company's customers in payment of their obligation were, instead of being turned over to the company's coffers,
indorsed by respondent who deposited the same to her personal banking account maintained at Security Bank and
Trust Company (Security Bank) in Divisoria, Manila Branch. Upon a finding that the evidence adduced was
uncontroverted, the assistant city prosecutor recommended the filing of the Information for qualified theft against
respondent.

Accordingly, respondent was charged before the Regional Trial Court of Manila. She was found guilty; that in the
commission of the said offense, said accused acted with grave abuse of confidence, being then employed as cashier
by said complainant at the time of the commission of the said offense and as such she was entrusted with the said
amount of money.

Respondent entered a negative plea when arraigned. The trial ensued. On the premise that respondent had
allegedly encashed the subject checks and deposited the corresponding amounts thereof to her personal banking
account.

Petitioner, opposing respondent's move, argued for the relevancy of the Metrobank account on the ground that the
complaint-affidavit showed that there were two checks which respondent allegedly deposited in an account with
the said bank. To this, respondent filed a supplemental motion to quash, invoking the absolutely confidential nature
of the Metrobank account under the provisions of Republic Act(R.A.) No. 1405. The trial court did not sustain
respondent; hence, it denied the motion to quash for lack of merit.

Meanwhile, the prosecution was able to present in court the testimony of Elenita Marasigan (Marasigan), the
representative of Security Bank. In a nutshell ,Marasigan's testimony sought to prove that between 1988 and 1989,
respondent ,while engaged as cashier at the BSB Group, Inc., was able to run away with the checks issued to the
company by its customers, endorse the same, and credit the corresponding amounts to her personal deposit
account with Security Bank. In the course of the testimony, the subject checks were presented to Marasigan for
identification and marking as the same checks received by respondent, endorsed, and then deposited in her
personal account with Security Bank. CA affirmed RTC’s decision.

ISSUE:

Whether or not there is no difference between cash and check for purposes of prosecuting respondent for theft of
cash

HELD:

In theft, the act of unlawful taking connotes deprivation of personal property of one by another with intent to
gain, and it is immaterial that the offender is able or unable to freely dispose of the property stolen because the
deprivation relative to the offended party has already ensued from such act of execution.

BANKING LAWS ESQUIERRA | MADRIGAL

The allegation of theft of money, hence, necessitates that evidence presented must have a tendency to prove that
the offender has unlawfully taken money belonging to another. Interestingly, petitioner has taken pains
in attempting to draw a connection between the evidence subject of the instant review, and the allegation of theft
in the Information by claiming that respondent had fraudulently deposited the checks in her own name. But this
line of argument works more prejudice than favor, because it in effect, seeks to establish the commission, not of
theft, but rather of some other crime probably estafa.

Moreover, that there is no difference between cash and check is true in other instances. In estafa by conversion, for
instance, whether the thing converted is cash or check, is immaterial in relation to the formal allegation in an
information for that offense; a check, after all, while not regarded as legal tender, is normally accepted under
commercial usage as a substitute for cash, and the credit it represents instated monetary value is properly capable
of appropriation. And it is in this respect that what the offender does with the check subsequent to the act of
unlawfully taking it becomes material inasmuch as this offense is a continuing one. In other words, in pursuing a
case for this offense, the prosecution may establish its cause by the presentation of the checks involved. These
checks would then constitute the best evidence to establish their contents and to prove the elemental act of
conversion in support of the proposition that the offender has indeed indorsed the same in his own name.

BANKING LAWS ESQUIERRA | MADRIGAL

 Intengan vs. Court of Appeals

G.R. No. 128996 February 15, 2002

FACTS:

On September 21, 1993, Citibank filed a complaint for violation of section 31 in relation to section 144 of the
Corporation Code against two (2) of its officers, Dante L. Santos and Marilou Genuino. Attached to the complaint
was an affidavit executed by private respondent Vic Lim, a vice-president of Citibank.

As evidence, Lim annexed bank records purporting to establish the deception practiced by Santos and Genuino.
Some of the documents pertained to the dollar deposits of petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and
Rita P. Brawner. In turn, private respondent Joven Reyes, vice-president/business manager of the Global Consumer
Banking Group of Citibank, admits to having authorized Lim to state the names of the clients involved and to attach
the pertinent bank records, including those of petitioners. Petitioners aver that respondents violated RA 1405.

ISSUE:

Whether or not Respondents are liable for violation of Secrecy of Bank Deposits Act, RA 1405.

HELD:

No. The accounts in question are U.S. dollar deposits; consequently, the applicable law is not Republic Act No. 1405
but Republic Act (RA) No. 6426, known as the “Foreign Currency Deposit Act of the Philippines,” However, applying
Act No. 3326, the offense prescribes in eight years, therefore, per available records, private respondents may no
longer be haled before the courts for violation of Republic Act No. 6426.

BANKING LAWS ESQUIERRA | MADRIGAL

 PCIB vs. Court of Appeals

G.R. No. 121413 January 29, 2001

FACTS:

This case is composed of three consolidated petitions involving several checks, payable to the Bureau of Internal
Revenue, but was embezzled allegedly by an organized syndicate.

I. G. R. Nos. 121413 and 121479

On October 19, 1977, plaintiff Ford issued a Citibank check amounting to P4,746,114.41 in favor of the Commissioner
of Internal Revenue for the payment of manufacturer’s taxes. The check was deposited with defendant IBAA (now
PCIB), subsequently cleared the the Central Bank, and paid by Citibank to IBAA. The proceeds never reached BIR, so
plaintiff was compelled to make a second payment. Defendant refused to reimburse plaintiff, and so the latter filed
a complaint. An investigation revealed that the check was recalled by Godofredo Rivera, the general ledger
accountant of Ford, and was replaced by a manager’s check. Alleged members of a syndicate deposited the two
manager’s checks with Pacific Banking Corporation. Ford filed a third party complaint against Rivera and PBC. The
case against PBC was dismissed. The case against Rivera was likewise dismissed because summons could not be
served. The trial court held Citibank and PCIB jointly and severally liable to Ford, but the Court of Appeals only held
PCIB liable.

II. G. R. No. 128604

Ford drew two checks in favor of the Commissioner of Internal Revenue, amounting to P5,851,706.37 and
P6,311,591.73. Both are crossed checks payable to payee’s account only. The checks never reached BIR, so plaintiff
was compelled to make second payments. Plaintiff instituted an action for recovery against PCIB and Citibank.

On investigation of NBI, the modus operandi was discovered. Gorofredo Rivera made the checks but instead of
delivering them to BIR, passed it to Castro, who was the manager of PCIB San Andres. Castro opened a checking
account in the name of a fictitious person “Reynaldo Reyes”. Castro deposited a worthless Bank of America check
with the same amount as that issued by Ford. While being routed to the Central Bank for clearing, the worthless
check was replaced by the genuine one from Ford.
The trial court absolved PCIB and held Citibank liable, which decision was affirmed in toto by the Court of Appeals.

ISSUES:

(1) Whether there is contributory negligence on the part of Ford

(2) Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank) the
value of the checks intended as payment to the Commissioner of Internal Revenue?

HELD:

(1) The general rule is that if the master is injured by the negligence of a third person and by the concurring
contributory negligence of his own servant or agent, the latter's negligence is imputed to his superior and
will defeat the superior's action against the third person, assuming, of course that the contributory
negligence was the proximate cause of the injury of which complaint is made.
As defined, proximate cause is that which, in the natural and continuous sequence, unbroken by any
efficient, intervening cause produces the injury and without the result would not have occurred. It appears

BANKING LAWS ESQUIERRA | MADRIGAL

 that although the employees of Ford initiated the transactions attributable to an organized syndicate, in our
view, their actions were not the proximate cause of encashing the checks payable to the CIR. The degree of
Ford's negligence, if any, could not be characterized as the proximate cause of the injury to the parties. The
mere fact that the forgery was committed by a drawer-payor's confidential employee or agent, who by
virtue of his position had unusual facilities for perpertrating the fraud and imposing the forged paper upon
the bank, does notentitle the bank toshift the loss to the drawer-payor, in the absence of some circumstance
raising estoppel against the drawer. This rule likewise applies to the checks fraudulently negotiated or
diverted by the confidential employees who hold them in their possession.

(2) We have to scrutinize, separately, PCIBank's share of negligence when the syndicate achieved its ultimate
agenda of stealing the proceeds of these checks.

a. G. R. Nos. 121413 and 121479.

On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIBank
employees to verify whether his letter requesting for the replacement of the Citibank Check No. SN-04867 was duly
authorized, showed lack of care and prudence required in the circumstances. Furthermore, it was admitted that
PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty
bound to consult its principal regarding the unwarranted instructions given by the payor or its agent. It is a well-
settled rule that the relationship between the payee or holder of commercial paper and the bank to which it is sent
for collection is, in the absence of an argreement to the contrary, that of principal and agent. A bank which receives
such paper for collection is the agent of the payee or holder.

Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the check should be
deposited only in the account of the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that the
check be deposited in payee's account only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize
the check and to know its depositors before it could make the clearing indorsement "all prior indorsements and/or
lack of indorsement guaranteed".

Lastly, banking business requires that the one who first cashes and negotiates the check must take some precautions
to learn whether or not it is genuine. And if the one cashing the check through indifference or other circumstance
assists the forger in committing the fraud, he should not be permitted to retain the proceeds of the check from the
drawee whose sole fault was that it did not discover the forgery or the defect in the title of the person negotiating
the instrument before paying the check. For this reason, a bank which cashes a check drawn upon another bank,
without requiring proof as to the identity of persons presenting it, or making inquiries with regard to them, cannot
hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a
third party. In such cases the drawee bank has a right to believe that the cashing bank (or the collecting bank) had,
by the usual proper investigation, satisfied itself of the authenticity of the negotiation of the checks. Thus, one who
encashed a check which had been forged or diverted and in turn received payment thereon from the drawee, is
guilty of negligence which proximately contributed to the success of the fraud practiced on the drawee bank. The
latter may recover from the holder the money paid on the check.

b. G. R. No. 128604

In this case, there was no evidence presented confirming the conscious participation of PCIBank in the
embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their employment.

A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their
employment. It may be liable for the tortuous acts of its officers even as regards that species of tort of which malice
is an essential element. In this case, we find a situation where the PCIBank appears also to be the victim of the

BANKING LAWS ESQUIERRA | MADRIGAL

scheme hatched by a syndicate in which its own management employees had participated. But in this case,
responsibility for negligence does not lie on PCIBank's shoulders alone.

Citibank failed to notice and verify the absence of the clearing stamps. For this reason, Citibank had indeed failed to
perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only to its
designated payee. The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship. Thus, invoking the doctrine of comparative negligence, we are of
the view that both PCIBank and Citibank failed in their respective obligations and both were negligent in the
selection and supervision of their employees resulting in the encashment of Citibank Check Nos. SN 10597 AND
16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of said checks issued by
Ford in favor of the CIR.

BANKING LAWS ESQUIERRA | MADRIGAL

 Philippine Deposit Insurance Corporation vs. Citibank

GR NO.170290 April 11, 2012

FACTS:

Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government instrumentality created by virtue of
Republic Act (R.A.) No. 3591, as amended by R.A. No. 9302.

Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent Bank of America, S.T. &
N.A. (BA) is a national banking association, both of which are duly organized and existing under the laws of
the United States of America and duly licensed to do business in the Philippines, with offices in Makati City.

In 1977, PDIC conducted an examination of the books of account of Citibank. It discovered that Citibank, in
the course of its banking business, from September 30, 1974 to June 30, 1977, received from its head office and
other foreign branches a total of P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit that
were interest-bearing with corresponding maturity dates. These funds, which were lodged in the books of Citibank
under the account “Their Account-Head Office/Branches-Foreign Currency,” were not reported to PDIC as deposit
liabilities that were subject to assessment for insurance. As such, in a letter dated March 16, 1978, PDIC assessed
Citibank for deficiency in the sum of P1,595,081.96.

Similarly, sometime in 1979, PDIC examined the books of accounts of BA which revealed that from
September 30, 1976 to June 30, 1978, BA received from its head office and its other foreign branches a total
of P629,311,869.10 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with
corresponding maturity dates and lodged in their books under the account “Due to Head Office/Branches.” Because
BA also excluded these from its deposit liabilities, PDIC wrote to BA on October 9, 1979, seeking the remittance
of P109,264.83 representing deficiency premium assessments for dollar deposits.

Believing that litigation would inevitably arise from this dispute, Citibank and BA each filed a petition for
declaratory relief before the Court of First Instance (now the Regional Trial Court) of Rizal on July 19,
1979 and December 11, 1979, respectively. In their petitions, Citibank and BA sought a declaratory judgment
stating that the money placements they received from their head office and other foreign branches were not
deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of R.A. No. 3591 (the PDIC
Charter) and, as a consequence, the deficiency assessments made by PDIC were improper and erroneous. The cases
were then consolidated.

On June 29, 1998, the Regional Trial Court, Branch 163, Pasig City (RTC) promulgated its Decision in favor of
Citibank and BA. Aggrieved, PDIC appealed to the CA which affirmed the ruling of the RTC in its October 27,
2005 Decision. Hence, this petition.

ISSUE:

Whether or not a branch of a bank has a separate legal Personality.

HELD:

No. A branch has no separate legal personality. This Court is of the opinion that the key to the resolution of this
controversy is the relationship of the Philippine branches of Citibank and BA to their respective head offices and
their other foreign branches.

BANKING LAWS ESQUIERRA | MADRIGAL

 The Court begins by examining the manner by which a foreign corporation can establish its presence in
the Philippines. It may choose to incorporate its own subsidiary as a domestic corporation, in which case such
subsidiary would have its own separate and independent legal personality to conduct business in the country. In
the alternative, it may create a branch in the Philippines, which would not be a legally independent unit, and simply
obtain a license to do business in the Philippines.

In the case of Citibank and BA, it is apparent that they both did not incorporate a separate domestic
corporation to represent its business interests in the Philippines. Their Philippine branches are, as the name implies,
merely branches, without a separate legal personality from their parent company, Citibank and BA. Thus, being one
and the same entity, the funds placed by the respondents in their respective branches in the Philippines should not
be treated as deposits made by third parties subject to deposit insurance under the PDIC Charter. The purpose of
the PDIC is to protect the depositing public in the event of a bank closure. It has already been sufficiently established
by US jurisprudence and Philippine statutes that the head office shall answer for the liabilities of its branch. Now,
suppose the Philippine branch of Citibank suddenly closes for some reason. Citibank N.A. would then be required
to answer for the deposit liabilities of Citibank Philippines. If the Court were to adopt the posture of PDIC that the
head office and the branch are two separate entities and that the funds placed by the head office and its foreign
branches with the Philippine branch are considered deposits within the meaning of the PDIC Charter, it would result
to the incongruous situation where Citibank, as the head office, would be placed in the ridiculous position of having
to reimburse itself, as depositor, for the losses it may incur occasioned by the closure of Citibank Philippines. Surely
our law makers could not have envisioned such a preposterous circumstance when they created PDIC.

Finally, the Court agrees with the CA ruling that there is nothing in the definition of a “bank” and a “banking
institution” in Section 3(b) of the PDIC Charter which explicitly states that the head office of a foreign bank and its
other branches are separate and distinct from their Philippine branches.

There is no need to complicate the matter when it can be solved by simple logic bolstered by law and
jurisprudence. Based on the foregoing, it is clear that the head office of a bank and its branches are considered as
one under the eyes of the law. While branches are treated as separate business units for commercial and financial
reporting purposes, in the end, the head office remains responsible and answerable for the liabilities of its branches
which are under its supervision and control. As such, it is unreasonable for PDIC to require the respondents, Citibank
and BA, to insure the money placements made by their home office and other branches. Deposit insurance is
superfluous and entirely unnecessary when, as in this case, the institution holding the funds and the one which
made the placements are one and the same legal entity.

BANKING LAWS ESQUIERRA | MADRIGAL

 Philippine Deposit Insurance Corporation vs. Court of Appeals

G.R. No. 118917 - December 22, 1997

FACTS:

On September 22, 1983, plaintiffs-appellees invested in money market placements with the Premiere Financing
Corporation (PFC) in the sum of P10,000.00 each for which they were issued by the PFC corresponding promissory
notes and checks. On the same date (September 22, 1983), John Francis Cotaoco, for and in behalf of plaintiffs-
appellees, went to the PFC to encash the promissory notes and checks, but the PFC referred him to the Regent
Saving Bank (RSB). Instead of paying the promissory notes and checks, the RSB, upon agreement of Cotaoco, issued
the subject 13 certificates of time deposit with Nos. 09648 to 09660, inclusive, each stating, among others, that the
same certifies that the bearer thereof has deposited with the RSB the sum of P10,000.00; that the certificate shall
bear 14% interest per annum; that the certificate is insured up toP15,000.00 with the PDIC; and that the maturity
date thereof is on November 3, 1983 (Exhs. “B”, “B-1” to “B-12”).

On the aforesaid maturity dated (November 3, 1983), Cotaoco went to the RSB to encash the said
certificates. Thereat, RSB Executive Vice President Jose M. Damian requested Cotaoco for a deferment or an
extension of a few days to enable the RSB to raise the amount to pay for the same (Exh. “D”). Cotaoco
agreed. Despite said extension, the RSB still failed to pay the value of the certificates. Instead, RSB advised Cotaoco
to file a claim with the PDIC.

Meanwhile, on June 15, 1984, the Monetary Board of the Central Bank issued Resolution No. 788 (Exh. ‘2’, Records,
p. 159) suspending the operations of the RSB. Eventually, the records of RSB were secured and its deposit liabilities
were eventually determined. On December 7, 1984, the Monetary Board issued Resolution No. 1496 (Exh. ‘1’)
liquidating the RSB. Subsequently, a masterlist or inventory of the RSB assets and liabilities was prepared. However,
the certificates of time deposit of plaintiffs-appellees were not included in the list on the ground that the certificates
were not funded by the PFC or duly recorded as liabilities of RSB.

On September 4, 1984, plaintiffs-appellees filed with the PDIC their respective claims for the amount of the
certificates (Exhs. “C”, “C-1”, to “C-12”). Sabina Yu, James Ngkaion, Elaine Ngkaion and Jeffrey Ngkaion, who have
similar claims on their certificates of time deposit with the RSB, likewise filed their claims with the PDIC. To their
dismay, PDIC refused the aforesaid claims on the ground that the Traders Royal Bank Check No. 299255 dated
September 22, 1983 for the amount of P125,846.07 (Exh. “B”) issued by PFC for the aforementioned certificates was
returned by the drawee bank for having been drawn against insufficient funds; and said check was not replaced by
the PFC, resulting in the cancellation of the certificates as indebtedness or liabilities of RSB.

Consequently, on March 31, 1987, private respondents filed an action for collection against PDIC, RSB and the
Central Bank.

On September 14, 1987, the trial court, declared the Central Bank in default for failing to file an answer.

On May 29, 1989, the trial court rendered its decision ordering the defendants therein to pay plaintiffs, jointly and
severally, the amount corresponding to the latter’s certificates of time deposit.

Both PDIC and RSB appealed.

ISSUE:

Whether or not PDIC can be held liable for value of the certificates of time deposit held by the petitioners.

BANKING LAWS ESQUIERRA | MADRIGAL

HELD:

NO. Whenever an insured bank shall have been closed on account of insolvency,

payment of the insured deposits in such bank shall be made by the Corporation as soon as possible. The term
“deposit” means the unpaid balance of money or its equivalent received by a bank in the usual course of business
and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or
which is evidence by passbook, check and/or certificate of deposit printed or issued in accordance with Central Bank
rules and regulations and other applicable laws, together with such other obligations of a bank which, consistent
with banking usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit
liabilities of the Bank. These pieces of evidence convincingly show that the subject CTDs were indeed issued without
RSB receiving any money therefor. No deposit, as defined in Section 3 (f) of R.A. No. 3591, therefore came into
existence. Accordingly, petitioner PDIC cannot be held liable for value of the certificates of time deposit held by
private respondents.

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 Philippine Deposit Insurance Corporation vs. Court of Appeals

G.R. No. 126911 April 30, 2003

FACTS:

Prior to May 22, 1997, respondents had 71 certificates of time deposits denominated as "Golden Time Deposits"
(GTD) with an aggregate face value of P1,115,889.96. May 22, 1987, a Friday, the Monetary Board (MB) of the
Central Bank of the Philippines, now Bangko Sentral ng Pilipinas, issued Resolution 5052 prohibiting Manila Banking
Corporation to do business in the Philippines, and placing its assets and affairs under receivership. The Resolution,
however, was not served on MBC until Tuesday the following week, or on May 26, 1987, when the designated
Receiver took over. On May 25, 1987 - the next banking day following the issuance of the MB Resolution, respondent
Jose Abad was at the MBC at 9:00 a.m. for the purpose of pre-terminating the71 aforementioned GTDs and re-
depositing the fund represented thereby into 28 new GTDs in denominations of P40,000.00 or less under the names
of herein respondents individually or jointly with each others Of the 28 new GTDs, Jose Abad pre-terminated 8 and
withdrew the value thereof in the total amount of P320,000.00. Respondents thereafter filed their claims with the
PDIC for the payment of the remaining 20 insured GTDs. February 11, 1988, PDIC paid respondents the value of 3
claims in the total amount of P120,000.00. PDIC, however, withheld payment of the 17 remaining claims after
Washington Solidum, Deputy Receiver of MBC-Iloilo, submitted a report to the PDIC that there was massive
conversion and substitution of trust and deposit accounts on May 25, 1987 at MBC-Iloilo. Because of the report,
PDIC entertained serious reservation in recognizing respondents' GTDs as deposit liabilities of MBC-Iloilo. Thus, PDIC
filed a petition for declaratory relief against respondents with the RTC of Iloilo City, for a judicial declaration
determination of the insurability of respondents' GTD sat MBC-Iloilo. In their Answer respondents set up a
counterclaim against PDIC whereby they asked for payment of their insured deposits. The Trial Court ordered
petitioners to pay the balance of the deposit insurance to respondents. The Court of Appeals affirmed the decision
of the lower court. Petitioner posits that the trial court erred in ordering it to pay the balance of the deposit
insurance to respondents, maintaining that the instant petition stemmed from a petition for declaratory relief which
does not essentially entail an executory process, and the only relief that should have been granted by the trial court
is a declaration of the parties' rights and duties. As such, petitioner continues, no order of payment may arise from
the case as this is beyond the office of declaratory relief proceedings.

ISSUE:
Whether or not the trial court order the payment of the balance even if the petition stemmed from a petition for
declaratory relief which does not essentially entail an executor process.

HELD:
YES. Without doubt, a petition for declaratory relief does not essentially entail an executory process. There is
nothing in its nature, however, that prohibits a counter claim from being set-up in the same action. There is nothing
in the nature of a special civil action for declaratory relief that prescribes the filing of a counterclaim based on the
same transaction, deed or contract subject of the complaint. A special civil action is after all not essentially different
from an ordinary civil action, which is generally governed by Rules 1 to 56 of the Rules of Court, except that the
former deals with a special subject matter which makes necessary some special regulation. But the identity between
their fundamental nature is such that the same rules governing ordinary civil suits may and do apply to special civil
actions if not inconsistent with or if they may serve to supplement the provisions of the peculiar rules governing
special laws.

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JURISPRUDENCE

GENERAL BANKING LAW NEW CENTRAL BANK ACT

Republic of the Philippines vs Security Busuego v. CA

Credit and Acceptance Corp G.R. No. L-48955, June 30, 1987
G.R. No. L-20583, January 23, 1967
BSP Monetary Board and Chuchi Fonacier
Banas vs. Asia Pacific Finance Corporation vs. Hon. Antonio-Valenzuela, et. al.
G.R. No. 128703, October 18, 2000
Salud v. Central Bank
First Planters Pawnshop, Inc. v G.R. No. L-17630, August 19, 1986
Commissioner of Internal Revenue
GR No. 174134, July 30, 2008 Villanueva v. CA
G.R. No. 114870, May 26, 1995
Register of Deeds of Manila vs. China
Banking Corporation Abacus Real Estate Development Center,
G.R. No. L-11964, April 28, 1962 Inc. v. Manila Banking Corp
G.R. No. 162270, Apr. 6, 2005
Games and Garments Developers, Inc. vs.
Allied Banking Corporation Banco Filipino v. Central Bank
G.R. No. 181426, July 13, 2015 G.R. No. 70054, December 11, 1991

Spouses Panlilio v. Citibank Ong v. CA

G.R. No. 156335 November 28, 2007 G.R. No. 112830, Feb. 1, 1996

Simex International Incorporated vs CA FOREIGN CURRENCY DEPOSIT ACT

G.R. No. 88013, March 19, 1990
China Banking Corp. v. CA, G.R. No. 140687,
Sia vs. Court of Appeals December 18, 2006
G.R. No. 102970, May 13, 1993
Salvation v. Central Bank of the Philippines,
Reyes vs. CA G.R. No. 94723, August 21, 1997
G.R. No. 118492. August 15, 2001
PHILIPPINE DEPOSIT INSURANCE CODE
Philippine Savings Bank v. Chowking Food
Corporation PDIC vs CA
G.R. No. 177526, July 4, 2008 G.R. No. 118917, December 22, 1997

PNB vs. Rodriguez Linsangan vs. PDIC

G.R. No. 170325, September 26, 2008 G.R. No. 140687, December 18, 2006

Equitable PCI Bank vs. Tan Miranda vs PDIC

G.R. No. 165339. August 23, 2010 G.R. No. 169334, September 8, 2006

BANKING LAWS ESQUIERRA | MADRIGAL

LAW ON SECRECY OF BANK DEPOSITS

Ejercito v. Sandiganbayan
G.R. No. 157294-95, November 30, 2006

PNB v. Gancayco
G.R. No. L-18343, September 30, 1965

Marquez v. Desierto,
G.R. No.138569, September 11, 2003

PCIB v. CA
G.R. No. 84526, January 28, 1991

BSB GROUP v. Sally Go

GR No. 168644, February 16, 2010

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