IV.

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

B. TERMS AND CONDITIONS

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

Republic Act No. 3765

Act No. 2655 as amended

2
d. Floating rates of interest xSec. X305, MRB; Consolidated Bank
and Trust Corporation (Solid Bank) v. Court of Appeals, 356 SCRA
671 (2001)
4. Extraordinary Inflation/Deflation Art. 1250, Civil Code; Equitable PCI
Bank v. Ng Sheung Ngor, 541 SCRA 223 (2007)
5. Restructuring xSec. X322, MRB - BALOIS

C. SINGLE BORROWERS LIMIT Sec. 35, GBL

1. Ceilings Sec. 35.1 and 35.2, in rel. to Sec. 24, GBL; xSec. X303, MRB
2. What is Included in Ceiling Secs. 35.3 to 35.7, GBL3; xSubsec
X303.1 to 303.4, MRB
3. Exceptions
a. As MB may otherwise prescribe for reasons of national interest Sec.
35.1, GBL
b. Deposits of RB with government financial institutions Sec. 17, Rural
Banks Act
4. Sanctions xSubsec. 303.5, MRB

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

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

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

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

3
a. Limits Sec. 38, GBL; xSec. X313, MRB
b. Types of security
(i)

Chattel Mortgage xChattel Mortgage Law4

(ii)

Pledge xArts. 2085-2123, Civil Code

(iii) Hold-out and/or Assignment xArts. 1624-1635, Civil Code

4. Loans Secured by Real Estate Mortgages (REMs)
a. Limits Sec. 37, GBL; xSec. X311, MRB
b. Mortgagee in good faith vs. mortgagee in bad faith Philippine
National Cooperative Bank v. Carandang-Villalon, 139 SCRA 570
(1985) Development Bank of the Philippines v. Court of Appeals, 331 SCRA 267 (2000); - CAPATI
Canlas v. Court of Appeals, 326 SCRA 425 (2000); xMetropolitan
Bank and Trust Co. v. Pascual, 547 SCRA 246 (2009)
c. Acquisition of property by way of satisfaction of claims Sec. 52, GBL
d. Dragnet Clause Union Bank of the Philippines v. Court of
Appeals, 471 SCRA 751 (2005) - CHOI
5. Foreclosure of REMs Sec. 47, GBL
a. Types of foreclosure
(i)

Judicial Rule 68, Rules of Court

(ii)

Extra-judicial Act No. 3135, as amended

(iii) Specific rules for TB/RB/Coop Banks Sec. 6, Rural Banks Act;
xSubsecs.2311.4 and 3311.4, MRB
b. Right and period of redemption Sec. 47, par. 1, GBL; xSC Circular
AM No. 99-10-05 (as further amended on 7 August 2001)
(i)

Natural persons vs. juridical persons Sec. 47, par. 2, GBL

(ii)

Exercise of right of redemption Metropolitan Bank and Trust

Company v. Tan, 569 SCRA 814 (2009) - DELOSO

(iii) Extension of redemption period Lazo v. Republic Surety and

Insurance Co., 31 SCRA 329 (1970); Ibaan Rural Bank, Inc. v.
Court of Appeals, 321 SCRA 88 (1999) - FERNANDEZ
(iv) Tolling of redemption period Sumerariz v. Development Bank
of the Philippines, 21 SCRA 1374 (1967); Peoples Financing
Corporation v. Court of Appeals, 192 SCRA 34 (1990); GARCIA
4

Act No. 1508

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But see Consolidated Bank and Trust Corporation
(Solidbank) v. Intermediate Appellate Court, 150 SCRA 591
(1987); See also CMS Stock Brokerage, Inc. v. Court of
Appeals, 275 SCRA 790 (1997)
(v)

Payment of CGT and DST xBIR Ruling 0046-2001; Letter dated

26 September 2001 addressed to Ayala Life. - JAVIER

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