Notes On Special Commercial Laws (Philippines)

Special Commercial Laws UC Law 2020
Outline by Garduce, Diane M.
Table of Contents
Topic Page
Banking and Allied Laws
I. Nature and Concept 2
II. Classification of banks 3
III. Deposit Function 16
IV. Secrecy of Bank Deposits 25
V. Exceptions to Secrecy of Bank Deposits 26
VI. Foreign Currency Deposits 38
VII. PDIC 41
VIII. Loan Function 44
IX. Ownership of Banks 62
XI. Bank Directors and Officers 64
XI. Bangko Sentral ng Pilipinas 72
Truth in Lending Act 77
Anti-Money Laundering Act 82
Securities and Regulations Code 105
Submitted by Diane M. Garduce

4SS
Submitted to Atty. Nick Gumabun

June 9, 2020
Page 1 of 147
BANKING AND ALLIED LAWS
I. NATURE AND CONCEPT OF BANKING LAWS
A. Governing Law
- RA 337, as amended by RA 8791 or The General Banking Law
of 2000 (GBL)
- RA 7653 or the New Central Bank Act (NCBA), as amended by
RA 11211
B. Nature of Business
1. Bank —Sec 3.1, GBL

It is an entity engaged in the lending of funds obtained in the form of
deposits.
2. Quasi-Bank — Sec 95, NCBA in relation to Sec. 4 GBL

It is an entity 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 or
other obligations.
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 borrower's own account, for the
purpose of relending or purchasing of receivables and other obligations.
These instruments may include, but need not be limited to:
1. bankers acceptances;
2. promissory notes;
3. participations;
4. certificates of assignment and similar instruments with recourse;
and
5. repurchase agreements.
3. One-unit rule —Sec 20, GBL

Universal or commercial banks may open branches or other offices
within or outside the Philippines upon prior approval of the Bangko
Sentral. Subject to prior approval of the Monetary Board, they may use
any or all of its branches as outlets for the presentation and/or sale of the
financial products of its allied undertaking or of its investment house
units.
A bank authorized to establish branches or other offices shall be

responsible for all business conducted in such branches and offices to
the same extent and in the same manner as though such business had
Page 2 of 147
all been conducted in the head office. A bank and its branches and
offices shall be treated as one unit.
Case — PDIC v Citibank (GR no. 170290; April 11, 2012)
Facts: This case involves two foreign banks (Citibank and Bank of
America) organized and existing under the laws of the US but duly
licensed to do business in the Philippines.
They received dollar deposits from their head office and foreign
branches. These were not reported to the PDIC (as required by the PDIC
law, for insurance purposes), thus, PDIC assessed them for deficiency
premiums.
The foreign banks contend that the dollar placements from their head
office and foreign branches were not deposits covered by the PDIC law.
They postulate that for a “deposit” to exist, there must be at least two
parties – a depositor and a depository – each with a legal personality
distinct from the other. Here, there was no creditor-debtor relationship
created as regards the dollar placements from their foreign offices,
because the foreign counterparts and the respective Philippine branches
are one and the same bank. A bank cannot have a deposit with itself.
PDIC contends that the head offices and their foreign branches are
separate and independent entities. It insists that a bank’s head office and
its branches have a principal-agent relationship only if they operate in the
same jurisdiction. In the case of foreign branches, however, no such
relationship exists because the head office and said foreign branches are
deemed to be two distinct entities. PDIC asserts that under the Philippine
law treats a branch of a foreign bank as a separate and independent
banking unit.
Issue: Whether the funds placed in the Philippine branch by the head
office and foreign branches of foreign banks are insurable deposits under
the PDIC Charter.
Ruling: No. A branch has no separate legal personality.
A foreign corporation wanting to do business here has two choices:

1. 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; or
2. 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.
Page 3 of 147
Here, Citibank and Bank of America both fall under the second option.
Their Philippine branches are merely branches, without a separate legal
personality from their parent companies.
Thus, being one and the same entity, the funds placed by the foreign
banks 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 SC adopted the ruling in Sokoloff v. The National City Bank of

New York, where the SC of New York held:
“Where a bank maintains branches, each branch becomes a separate

business entity with separate books of account. A depositor in one
branch cannot issue checks or drafts upon another branch or demand
payment from such other branch, and in many other respects the
branches are considered separate corporate entities and as distinct from
one another as any other bank. Nevertheless, when considered with
relation to the parent bank they are not independent agencies; they are,
what their name imports, merely branches, and are subject to the
supervision and control of the parent bank, and are instrumentalities
whereby the parent bank carries on its business, and are established for
its own particular purposes, and their business conduct and policies are
controlled by the parent bank and their property and assets belong to the
parent bank, although nominally held in the names of the particular
branches. Ultimate liability for a debt of a branch would rest upon the
parent bank.”
The SC also mentioned United States v. BCCI Holdings Luxembourg,

where the CA of Columbia emphasized that "while individual bank
branches may be treated as independent of one another, each branch,
unless separately incorporated, must be viewed as a part of the parent
bank rather than as an independent entity."
C. Declaration of Policy – Sec 2, GBL
The State recognizes:

1. the vital role of banks in providing an environment conducive to
the sustained development of the national economy; and
2. 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 and financial system that is:
1. globally competitive;
2. dynamic; and
3. responsive to the demands of a developing economy.
Page 4 of 147
D. Requirements to Operate – Secs 8, 14, 9, GBL
The Monetary Board may authorize the organization of a bank or

quasi-bank subject to the following conditions: (SPC)
1. The entity is a stock corporation;
- But before it can register with the SEC as a stock
corporation, it must first secure a Certificate of
Authority* from the Monetary Board.
- Banks may only issue par value stocks.
2. Its funds are obtained from the public, which shall mean 20 or
more persons; and
3. The minimum capital requirements prescribed by the
Monetary Board for each category of banks are satisfied.
The Monetary Board shall take into consideration their:

1. capability in terms of their financial resources;
2. technical expertise; and
3. integrity.
The bank licensing process shall incorporate an assessment of the

following:
1. the bank's ownership structure;
2. directors and senior management;
3. its operating plan;
4. internal controls;
5. projected financial condition; and
6. capital base.
The SEC shall not register the articles of incorporation of any bank, or
any amendment thereto, unless accompanied by a *certificate of
authority issued by the Monetary Board, under its seal.
Such certificate shall not be issued unless the Monetary Board is

satisfied from the evidence submitted to it that:
1. All requirements of existing laws and regulations to engage in
the business for which the applicant is proposed to be
incorporated have been complied with;
2. The public interest and economic conditions, both general and
local, justify the authorization; and
3. The amount of capital, the financing, organization, direction and
administration, as well as the integrity and responsibility of the
organizers and administrators reasonably assure the safety of
deposits and the public interest.
Page 5 of 147
The SEC shall likewise not register the by-laws of any bank, or any
amendment thereto, unless accompanied by a certificate of authority
from the Bangko Sentral.
The Monetary Board may prescribe rules and regulations on the types of
stock a bank may issue, including the terms and rights, in order to
determine compliance with laws and regulations governing capital and
equity structure of banks. But banks shall only issue par value stocks.
1. Treasury shares —Sec 10, GBL

No bank shall purchase or acquire shares of its own capital stock or
accept its own shares as a security for a loan, except when authorized by
the Monetary Board.
When authorized by the MB, the treasury stock so purchased or acquired

shall, within 6 months from the time of its purchase or acquisition, be sold
or disposed of at a public or private sale.
2. Degree of Care of banks in view of the fiduciary nature of banking
Case — Alano vs. Planters Development Bank, GR 171628
Facts: Armando Alano and his brother Agapito bought a house in BF

Homes. Title to the proper time was not immediately transferred to them
because of the fire in QC city hall. Agapito died. His wife Lydia and
children managed to have the title reconstituted, but they registered the
property solely in their names. Armando filed an affidavit of adverse
claim and such was annotated on the TCT.
Lydia, however, filed an affidavit to cancel the adverse claim. She

alleged that her children sold their shares in the property. Thus, the old
TCT was cancelled and a new one was issued, this time solely in her
name. Using this new TCT, Slumberworld Inc., where Lydia is a
treasurer, took a loan of P2.3 million in Maunlad Savings. The property
was mortgaged. This prompted Armando to file a complaint in the RTC
against Lydia and the bank, seeking cancellation of he new TCT and the
Real Estate Mortgage (REM), insofar as his ½ share in the property.
The RTC ruled hat while the TCT should be cancelled so that Armando’s
½ share could be properly reflected, the REM’s validity should be
sustained because the bank had the right to rely on the Torrens title. The
CA agreed and held that the bank was a mortgagor in good faith.
Issue: Is the bank a mortgagee in good faith? Is the REM valid?
Ruling: No. The general rule that a mortgagee in good faith need not
look beyond the face of the title does not apply to banks. Greater degree
Page 6 of 147
of care and due diligence is required because banks are imbued with
public interest.
Banks should conduct ocular inspections and verify the genuineness of

the title. The bank in this case neglected to do a thorough inspection.
Specifically, they failed to inspect the whole property and missed out the
fact that Armando had been living in the back portion of the property.
Case — China Banking Corporation (CBC) vs. Lagon, GR 160843
Facts: Jao Bio Tong asked for credit accomodation from CBC, to be
secured by a land covered by a TCT.
This land was in the name of Maria Lagon, who was then living in the
US. Jao presented a Special Power of Attorney (SPA). CBC granted a
P1 million credit line in his favor. Eventually his loans matured, he failed
to pay, and the bank prepared to foreclose. The Lagons were able to
obtain a TRO but their case against CBC was later dismissed by the
RTC which found the signatures on the SPA authentic.
The CA reversed the RTC, declaring the SPA and the REM void, after
finding that Jao failed to establish the due execution of the SPA because
Lagon did not personally appear during its notarization.
Issue: Were the SPA and REM valid? Was CBC a mortgagee in good
faith?
Ruling: No and no. Jao himself admitted that the SPA was not signed in
the presence of the notary public because Lagion was in the US at the
time. The notarization was therefore irregular, and the REM was
unauthorized.
The bank was not a mortgagee in good faith because it had knowledge
that Lagon was in the US yet it did not question the due execution of the
SPA. Banks are expected to exercise more care and prudence than
private individuals in their dealings, even those that involve registered
lands, because heir business is affected with public interest.
Case — Spouses Jalbay vs PNB, GR 177803
Facts: Emiliano and Mamerta Jalbay owned a lot in Novaliches. The

TCT of the lot was destroyed when the Register of Deeds of QC was
gutted by fire. The title was reconstituted but the spouses were abroad at
the time. Thus, the TCT was released to their daughter Virginia Agus.
Virginia and her husband took out a loan with PNB, using the land as
security. Later, they failed to pay the loan. PNB foreclosed the mortgage.
Page 7 of 147
Spouses Jalbay went home for a vacation and learned about the
foreclosure. They filed a case against PNB, contending that the REM and
the foreclosure were invalid for lack of consent of the real registered
owners. The RTC ruled in their favor, but the CA reversed.
Issue: Was PNB a mortgagee in good faith?
Ruling: Yes. The property was inspected and appraised. Careful credit
investigation on the borrowers and mortgagors was conducted. PNB
exerted the necessary diligence.
There are situations where the mortgagor’s title is fraudulent, where the
mortgagor is not the owner. But the mortgage would still be given effect
by reason of public policy. Under the doctrine of mortgagee in good faith
mortgagees dealing with property covered by a Torrens title are not
required to go beyond what appears on the title’s face. For banks, a
higher degree of diligence is required. They cannot solely rely on the
certificate of title. They must conduct ocular inspection and verify the
veracity of this title, in order to determine the real owners.
Case — Citibank vs. Cabamongan, GR 146918
Facts: Luis and Carmela Cabamongan opened a joint foreign currency

time deposit in trust for their sons. It was for a term of 182 days.
Before it could mature, a person who claimed to be Carmelita went to tha

bank to pre-terminate the time deposit. This “Carmelita” presented a
passport, some ATM cards, and a credit card. She was assisted by
Account Officer Yeye San Pedro. “Carmelita” failed to surrender the
original certificate of deposit, so she was asked to execute a notarized
release and waiver, pursuant to the bank’s internal procedure.
Notarization was not done on the same day. The transaction lasted for
40 minutes. After “Carmelita” left, Yeye realized that she left behind an
ID. Yeye called the house of Carmelita. The daughter-in-law answered
and was shocked to hear about the pre-termination, since the real
Carmelita was in the US at the time. It turned out that their US home was
broken into. They lost their personal items like their passports and bank
certificates.
They informed Citibank and made a formal demand but the bank insisted
that the release was done upon proper verification. They then filed a
complaint against the bank. During trial, a documents examiner from
PNB testified that there was significant difference between the
questioned signature and the samples of Carmelita’s signature.
Meanwhile, Citibank’s officers testified that they followed proper
procedure. The RTC held that Citibank was negligent. The CA affirmed.
Page 8 of 147
Issue: Was Citibank negligent?
Ruling: Yes. The release and waiver form was not notarized on the
same day. The signatures were irregular. The officer herself detected
discrepancies but she did not exercise additional precautions.
The bank had pictures of their depositors. The officer admitted that the
woman did not resemble the picture on file, but after seeing that they had
similar moles on their faces, the officer believed that the impostor was
Carmelita.
Case — BPI Family Savings Bank, Inc. (BPI-FB) vs. First Metro
Investment Corporation (FMIC), GR 132390
Facts: FMIC opened a current account with BPI-FB. On August 25,

1989, it deposited P100 million. They agreed to a 17% per annum
interest, provided that FMIC maintains its deposit for one year.
BPI-FB, four days later (August 29), fraudulently transferred P80 million
to Televesco Arrastre, leaving only P20 million on the deposit. FMIC tried
to draw a check to recover it but the check was dishonored for
insufficient funds.
FMIC filed a complaint for a sum of money. The RTC, CA, and SC all
ruled in favor of FMIC. BPI-FB filed a MR, the issue being the proper
item of the interests imposed by the CA.
The CA ruled that BPI-FB should pay the principal amount, plus 17%
annual interest from August 29, 1989 (date of fraudulent transfer), and
12% legal interest on the 17% from October 4, 1989 (date of filing) until
full payment. The SC affirmed this in its first decision.
BPI-FB contends that the 17% should only be for one year—the term of
the deposit. It had ceased to be a loan or obligation after that one year.
Thus, the interest from August 24, 1990 (end of term) should only be
12% per annum.
It would appear that the first SC decision was on May 21, 2004, and it
has been 15 years since the fraudulent transfer.
FMIC counters that if BPI-FB’s contentions were to be allowed, sun

would be tantamount to rewarding the bank’s deliberate default and
delay.
Issue: How much should BPI-FB pay?
Page 9 of 147
Ruling: BPI-FB should pay the outstanding balance of the principal

amount, plus 17% stipulated interest on the balance for 15 years, plus
12% interest per annum, until full payment.
BPI-FB’s act of transferring the P80 million constituted breach of

contract. The bank had the duty to treat the deposit account with the
highest degree of diligence. Such degree is more than that of a good
father of a family.
The Civil Code states that deposits of money in banks are governed by
the provisions on loan. A bank deposit is a contract of simple loan where
the bank is the debtor and the depositor is the creditor.
Case — Go vs. Metropolitan Bank and Trust and Co., GR 168842
Facts: Vicente Go was doing business under “Hope Pharmacy” in Cebu.

He employed Ma. Theresa Chua as trustee/caretaker, and Glyndah
Tabanag as the caretaker of receipts, invoices, and deposits.
He claims that the Chua and Tabanag made unauthorized deposits and
encashments amounting to P109,433 in one case. In another civil case,
there were 32 checks amounting to P1.5 million payable to Hope, not
endorsed, but were somehow deposited to Chua’s Metrobank account.
He posits that the checks could not have been accepted without the
participation and connivance of the bank.
The RTC dismissed both cases, after finding that there were valid
reasons for Chua and Tabanag’s actions (for instance, Go had unpaid
debts with Chua). In the second case, however, the RTC held Metrobank
liable for being negligent in allowing the deposit of crossed checks
without proper indorsements.
Issue: Is Metrobank liable to pay Go?
Ruling: Yes, but only for moral damages arising from the failure of the
bank to exercise extraordinary diligence as a business imbued with
public interest. Specifically, the bank failed to scrutinize the authenticity
of the checks and whether they were properly negotiated.
Case — PCIBank vs. CA, GR 121413
Facts: Ford Philippines drew a check in Citibank to pay its

percentage/manufacturer’s sales tax. It was deposited to PCIBank, the
collecting bank; and cleared at Central Bank, but the proceeds were
never received by the payee, the Commissioner of Internal Revenue.
Page 10 of 147
It would appear that the check was recalled by the general ledger
accountant of Ford, Mr. Rivera, on account of an error in the tax
computation. With Rivera’s instruction, PCIBank replaced the check with
2 manager’s checks with Pacific Banking Corporation.
Ford filed a case against Citibank and PCIBank. The RTC ruled against
both banks, ordering them to jointly and several pay Ford the face value
of the check with interest. The CA, however, dismissed the case against
Citibank and ordered only PCIBank to pay Ford.
In another case with similar facts, where the checks for tax payments
were stolen in transit from PCIBank, the RTC and CA absolved PCIBank
and made Citibank liable. Thus, the two banks appealed to the SC in this
consolidated case.
Issue: Are the banks (the drawee bank—Citibank, and the collecting
bank for BIR—PCIBank) liable?
Ruling: Yes. They are liable equally/jointly, or in a 50-50 ratio.
PCIBank failed to verify Rivera’s authority to negotiate the check. It was

a crossed check, so it was the bank’s responsibility to make sure that the
check was deposited in the payee(BIR)’s account only. The bank’s
negligence was the proximate cause of the loss, thus, it is liable.
In the second case, PCIBank is also liable because any theft affecting
items in transit for clearing shall be for the account of the sending bank,
which in this case was PCIBank.
Citibank is jointly liable under the doctrine of comparative negligence. It

had a contractual obligation to Ford as drawee bank. It failed to scrutinize
the checks before paying the collecting bank and to ensure that the
crossed checks should be paid only to the designated payee.
Case — Firestone Tire & Rubber Company of the Phil vs. CA and
Luzon Development Bank, GR 113236
Facts: Fojas-Arca maintained a special savings account with Luzon

Development Bank (LDB) for which it was given special withdrawal slips.
Fojas entered into a franchise dealership agreement to sell Firestone’s

products. Fojas paid the purchase price on credit via six special
withdrawal slips drawn upon LDB. In turn, these were deposited by
Firestone to its account with Citibank. (Firestone was treating the slips as
checks.) All six were honored and paid by LDB. Later, however, two slips
were dishonored by reason of “no arrangement”.
Page 11 of 147
Firestone filed a complaint. For sum of money and damages against

LDB. The RTC dismissed it. But the CA found LDB liable for giving the
slips the general appearance of checks and for failing to seasonably
warn Firestone that it won’t honor the two slips. Thus, the issue in this
case brought to the SC was whether LDB is liable for the belated notice
of nonpayment.
Ruling: The slips for withdrawal were not negotiable instruments. Hence,
the rule on immediate notice of dishonor of negotiable instruments don't
apply here.
Citibank automatically credited Firestone’s account with the amounts on

the slips instead of waiting for them to be honored first and paid by LDB.
It presumed that the slips were good. The fact that the first six were
honored was no license for Citibank to presume that the subsequent
slips would be honored immediately. By doing so, Citibank failed in its
fiduciary duty to treat its clients’ accounts with the highest degree of care.
A bank is under obligation to treat the accounts of its depositors with
meticulous care.
Case — BPI vs. Tarcila Fernandez, GR 173134
Facts: Tarcila and Manuel Fernandez opened several “and/or” deposit

accounts with BPI. They were subject to the condition that
pre-termination is subject to the discretion of BPI, and that the
endorsement and presentation of the Certificate of Deposit is necessary
for renewal or termination.
The spouses became estranged. Tarcila tried to preterminate the

accounts, bringing with her the certificates and passbook. But BPI
refused to terminate the accounts and insisted on contacting Manuel.
Later, Manuel also went to BPI to request for pre-termination. He claimed

that he lost the certificates of deposit. This time, the manager of the
branch blindly believed him and allowed him to fill up an affidavit of loss.
Two days later, he went back to BPI and the proceeds were released to
a newly-opened third-party account. Saiid third party was immediately
requested to sign blank withdrawal slips, which Manuel used to get the
funds. The third party’s account was closed on the same day.
Tarcila never received her share as co-depositor. She filed a complaint

for damages, arguing that BPI was in bad faith for allowing the
pre-termination based on the affidavit of loss when it had knowledge that
the certificates of deposit were with her. BPI contended that the accounts
were exclusively funded by Manuel, but it also admitted the conjugal
nature of the funds.
Page 12 of 147
The RTC ruled that the “and/or” accounts indicate an active solidarity that
entitled any of the account-holders to demand payment of their proceeds.
Under the NCC, the debtor may pay any one of the solidary creditors but
if any demand was made by one, payment should be made to that
person. Thus, BPI should have made the payment to Tarcila since she
was the first to demand.
Issue: Is BPI liable?
Ruling: Yes. It breached its obligation under the certificates of deposit. A

certificate of deposit is a written acknowledgment by a anak of the receipt
of a sum of money on deposit, which the bank promises to pay to the
depositor, to his order, or to the order of some other person. In this case,
the certificates state that presentation of the certificate is indispensable
to its termination. This serves as an accountability measure to other
co-depositors, that their investments won’t be indiscriminately withdrawn
by any co-depositor.
Here, BPI connived with Manuel in divesting Tarcila of her share. I acted
with bias and in bad faith when it treated Manuel as the primary despite
the nature of “and/or” accounts.
3. Strikes and Lockouts – Sec. 22, GBL
The banking industry is indispensable to national interest. Unless there is

a contrary law provision, any strike or lockout involving banks, if
unsettled after 7 calendar days:
1. It shall be reported by the Bangko Sentral to the Secretary of
Labor;
2. The Secretary of Labor may assume jurisdiction over the
dispute; or decide it; or certify the same to the NLRC for
compulsory arbitration.
3. The President of the Philippines may, at any time, intervene and
assume jurisdiction over such labor dispute in order to settle or
terminate it.
II. CLASSIFICATION OF BANKS
A. Types of Bank —Sec 23, GBL
Banks shall be classified into:

1. Universal banks;
2. Commercial banks;
3. Thrift banks, composed of:
a. Savings and mortgage banks;
b. Stock savings and loan associations;
Page 13 of 147
c. Private development banks, as defined in Republic Act

No. 7906 (Thrift Banks Act);
d. Rural banks, as defined in Republic Act No. 7353 (Rural
Banks Act);
e. Cooperative banks, as defined in Republic Act No. 6938
(Cooperative Code)
f. Islamic banks as defined in Republic Act No. 6848,
otherwise known as the "Charter of Al Amanah Islamic
Investment Bank of the Philippines"; and
g. Other classifications of banks as determined by the
Monetary Board of the Bangko Sentral ng Pilipinas.
B. Distinctions
1. A universal bank has the following powers: (a) the powers of a

commercial bank; (b) the powers of an investment house; and (c) the
power to invest in non-allied enterprises.
2. A commercial bank has the following powers: (a) general powers

incident to corporations; and (b) all such powers as may be necessary to
carry on the business of commercial banking, such as accepting drafts
and issuing letters of credit; discounting and negotiating promissory
notes, drafts, bills of exchange, and other evidences of debt; accepting or
creating demand deposits; receiving other types of deposits and deposit
substitutes; buying and selling foreign exchange and gold or silver
bullion; acquiring marketable bonds and other debt securities; and
extending credit, subject to such rules as the Monetary Board may
promulgate.
3. A thrift bank is smaller than commercial and universal banks in the
sense that it caters more to the financing needs of households; business
engaged in agriculture, services, industry, and housing; and small to
medium enterprises.
Thrift Banks Act

“Sec 3 (a): Thrift banks shall include savings and mortgage banks,
private development banks, and stock savings and loans associations
organized under existing laws, and any banking corporation that may be
organized for the following purposes:
(1) Accumulating the savings of depositors and investing them, together
with capital loans secured by bonds, mortgages in real estate and
insured improvements thereon, chattel mortgage, bonds and other
forms of security or in loans for personal or household finance, whether
secured or unsecured, or in financing for homebuilding and home
development; in readily marketable and debt securities; in commercial
papers and accounts receivables, drafts, bills of exchange, acceptances
or notes arising out of commercial transactions; and in such other
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investments and loans which the Monetary Board may determine as

necessary in the furtherance of national economic objectives;
(2) Providing short-term working capital, medium- and long-term
financing, to businesses engaged in agriculture, services, industry and
housing; and
(3)Providing diversified financial and allied services for its chosen
market and constituencies specially for small and medium enterprises
and individuals.”
4. A rural bank is more specific in scope, since it is created to make

credit accessible to the rural areas under reasonable terms.
Rural Banks Act— “Sec. 2. The State hereby recognizes the need to
promote comprehensive rural development with the end in view of
attaining equitable distribution of opportunities, income and wealth; a
sustained increase in the amount of goods and services produced by
the nation of the benefit of the people; and in expanding productivity as
a key raising the quality of life for all, especially the underprivileged.
Towards these ends, the State hereby encourages and assists in the
establishment of rural banking system designed to make needed credit
available and readily accessible in the rural areas on reasonable terms.
Sec. 3. In furtherance of this policy, the Monetary Board of the Central

Bank of the Philippines shall formulate the necessary rules and
regulations governing the establishment and operation of rural banks for
the purpose of providing adequate credit facilities to farmers and
merchants, or to cooperatives of such farmers and merchants and in
general, the people of the rural communities, and to supervise the
operation of such banks.
Sec. 4. No rural bank shall be operated without a Certificate of Authority

from the Monetary Board of the Central Bank. Rural banks shall be
organized in the form of stock corporations. Upon consultation with the
rural banks in the area, duly established cooperatives and corporations
primarily organize to hold equities in rural banks may organize a rural
bank and/or subscribe to the shares of stock of any rural bank:
Provided, That a cooperative or corporation owning or controlling the
whole or majority of the voting stock of the rural bank shall be subject to
special examination and to such rules and regulations as the Monetary
Board may prescribe. x x x
Sec. 6. Loans or advances extended by rural banks organized and

operated under this Act shall be primarily for the purpose of meeting the
normal credit needs of farmers, fishermen or farm families owning or
cultivating land dedicated to agricultural production as well as the
normal credit needs of cooperatives and merchants. In granting of
loans, the rural bank shall give preference to the application of farmers
and merchant whose cash requirements are small. x x x”
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5. A cooperative bank is more specific in purpose, as it is primarily

organized to provide financial services to cooperatives.
Cooperative Code — “Art 23 (i): Cooperative Bank is one organized for

the primary purpose of providing a wide range of financial services to
cooperatives and their members.”
6. An Islamic bank is a bank whose services and operations are based

on Islamic principles.
Charter of Al-Amanah Islamic Investment Bank —“Section 2. Name,

Domicile and Place of Business. - There is hereby created the
Al-Amanah Islamic Investment Bank of the Philippines, which shall be
hereinafter called the Islamic Bank. Its principal domicile and place of
business shall be in Zamboanga City. It may establish branches,
agencies or other offices at such places in the Philippines or abroad
subject to the laws, rules and regulations of the Central Bank.
Section 3. Purpose and Basis. - The primary purpose of the Islamic

Bank shall be to promote and accelerate the socio-economic
development of the Autonomous Region by performing banking,
financing and investment operations and to establish and participate in
agricultural, commercial and industrial ventures based on the Islamic
concept of banking.
All business dealings and activities of the Islamic Bank shall be subject
to the basic principles and rulings of Islamic Shari'a within the purview of
the aforementioned declared policy. Any zakat or "ithe" paid by the
Islamic Bank on behalf of its shareholders and depositors shall be its
obligation to appropriate said zakat fund and to disburse it in legitimate
channels to be ascertained first by the Shari'a Advisory Council.”
7. Other classification of banks as determined by the Monetary

Board of the Bangko Sentral ng Pilipinas.
III. DEPOSIT FUNCTION
A. Nature - Article 1980, NCC
Fixed, savings, and current deposits of money in banks and similar

institutions are governed by the provisions concerning simple loans,
All kinds of bank deposits are loans, where the creditor is the depositor
and the bank is the debtor.
The amount is not being held in trust for the depositor nor is it being kept
for safekeeping.
B. Relationship Between the Bank and Deposit
Page 16 of 147
Case — Gullas vs. PNB, GR L-43191
Facts: Paulino Gullas signed as indorse of a $361 check issued by the

treasurer of the US Veterans Bureau. It was later cashed by PNB.
Subsequently, it was dishonored by the Insular Treasurer. The
outstanding balance of Gullas with PNB at the time was Php 509. When
the check was dishonored, PNB applied the balance of Gullas as partial
payment of the check.
Issue: Does a bank have the right to apply a deposit to the debt of the
depositor?
Ruling: Yes. As a general rule, a bank has the right to set off deposits in
its hands for the payment of an indebtedness to it on the part of the
depositor. Under the NCC, compensation or set-off may take place when
two persons are reciprocally creditor and debtor of each other. In
connection with that, it has been held that the relation existing between a
depositor and a bank is that of creditor and debtor.
Here, Gullas had a deposit and a debt with PNB, the latter arising from
his liability as general indorser of a dishonored check.
However, the SC awarded a Php 250 damage in favor of Gullas because

PNB did not enforce the right to set off. It did so prior to the mailing of the
notice of dishonor and without waiting for an action from Gullas. Gullas
was merely an indorser, and he was in good faith. Thus, notice should
have been given to him so that he could have protected his interests.
Case — Maclaring Lucman vs. Alimatar Malawi, et al., GR 159794
Facts: Lucman was the manager of Land Bank in Marawi City. The
respondents were incumbent barangay chairmen. Land Bank was the
government depositary bank of the Internal Revenue Allotment (IRA) of
their barangays. The respondents claim that they were deprived of their
IRAs and that the funds were released by Lucman to third persons. They
filed a petition for mandamus to command Lucman to pay the
respondents. The RTC granted this, and the CA affirmed.
Ruling: Mandamus was not the proper remedy. By virtue of the deposits,
there existed between the barangays and Land Bank, a creditor-debtor
relationship.
Bank deposits are in the nature of irregular deposits. They are really
loans because they earn interest. All kinds of bank deposits, whether
fixed, savings, or current, are to be treated as loans. Failure of a bank to
honor a deposit is failure to pay its obligation as debtor.
Page 17 of 147
The relationship is therefore contractual in nature. Mandamus is not an

available remedy to enforce the performance of contractual obligations.
The IRA funds for which the bank accounts were created belong to the
barangays. They are the only lawful recipients of these funds. Any
transaction or claim involving these funds can be done only through the
proper authorization from the barangays as juridical entities. The
barangays should have been joined as parties to the action.
Case — Serrano v. Central Bank, GR L-30511
Facts: Manuel Serrano made a time deposit for one year with 6%
interest, amounting to Php 150,000, with the Overseas Bank of Manila
(OBM). Another time deposit for one year amounting to Php 200,000 with
6.5% interest was conveyed to his name. Demands for encashment were
made against the bank but not a single time deposit certificate was
honored. Thus, Serrano filed a petition for mandamus and prohibition,
with preliminary injunction, seeking the establishment joint and solidary
liabilities amounting to Php 350,000 with interest, against the respondent
banks (Central Bank and OBM), for their alleged failure to return the time
deposits, and for breach of trust.
Issue: Was there breach of trust?
Ruling: No. In the case of banks, there is no breach of trust when a

depositary bank fails too return the subject matter of the deposit.
Banks are irregular deposits. All kinds of bank deposits should be treated
as loans. Serrano, in this case, was in reality a creditor of the OBM and
not a “depositor” (as defined under the law on deposits in Credit
Transactions). The bank was in turn a debtor of Serrano.
Failure of the bank to honor the time deposit is failure to pay its obligation
as a debtor and not a breach of trust arising from a depositary’s failure to
return the subject matter of the deposit.
Case — Teofisto Guingona vs. The City of Manila, GR L-60033
Facts: The City fiscal charged Guingona, et al., with estafa and violation
of Central Bank Circular no. 364 and related regulations regarding
foreign exchange transactions.
Clement David invested with Nation Savings and Loan Association

(NSLA) the sum of P1,145,546 on nine deposits. He claims to have been
induced into making investments, by a close associate of Guingona, who
was then NSLA President. Two years later, NSLA was placed under
Page 18 of 147
receivership by the Central Bank. David filed claims. The Central Bank
reported, however, that only P305,821 was entered into the records of
NSLA as his investments. David now alleges that Guingona, et al.,
misappropriated the unrecorded amounts.
Guingona, et al., contend that their liability is just civil in nature. Thus,
they filed a petition for prohibition to prevent the city fiscal from
proceeding with the preliminary investigation.
Issue: Does failure of a bank to return the amount deposited constitute

estafa?
Ruling: No. Failure of a bank to return the amount deposited to the

depositor does not constitute estafa through misappropriation. It will only
give rise to civil liability.
When David invested money on nine deposits with NSLA, the contract
perfected was a contract of simple loan or mutuum, not a contract of
deposit. The relationship created was that of creditor-debtor. The
ownership of the amount deposited was transmitted to the bank and it
can now make use of such amount. It has the obligation to return the
amount deposited, not the same physical money deposited. Thus, there
can be no “misappropriation”.
Case — Consolidated Bank and Trust Corp. vs CA and LC Diaz and

Co., GR 138569
Facts: LC Diaz and Co., a professional partnership engaged in the

practice of accounting, opened a savings account with Solidbank
(previously known as Consolidated Bank & Trust).
Unauthorized withdrawals were made after an incident where the

messenger, Ismael Calapre, left the company’s passbook with Solidbank
while the transaction was pending. He left for a while in order to make
another deposit with another bank. When Calappre returned, the teller
told him that someone else took the passbook. P300,000 was taken from
the account. The company charged two persons with estafa but the RTC
dismissed the case.
LC Diaz then filed a complaint for recovery of a sum of money against

Solidbank. The RTC also dismissed this, app ling he rule stated on the
passbook that “possession of this book shall raise the presumption of
ownership and any payment made by the bank upon the production of
the said book...shall have the same effect as if made by the depositor
personally.”
Page 19 of 147
The CA reversed the RTC’s decision, holding that Solidbank’s

negligence was the proximate cause of the unauthorized withdrawal, and
that such act constitutes a quasi-delict. Specifically, the bank failed to
verify the identity of the impostor, and to call up the company first before
releasing money.
The CA ruled that the bank was remiss in its duty to treat the accounts
with meticulous care, having in mind the fiduciary nature of their
relationship with clients. It ordered the bank to pay LC Diaz P300,000
plus 12%.
Issue: Is the bank liable for quasi-delict or for breach of contract?
Ruling: The bank is liable for breach of contract due to negligence.

There is a contractual relationship between the bank and its depositor.
The savings deposit agreement is the contract that determines the rights
and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature
of banking. This is deemed written into every deposit agreement. This
requires banks to assume a degree of diligence higher than that of a
good father of a family.
However, the fiduciary nature of a bank-depositor relationship does not

convert the contract between them from a simple loan to a “trust
agreement”. Failure of the bank to pay the depositor is failure to pay a
simple loan, not breach of trust. The law simply imposes on the bank a
higher standard of integrity and performance in complying with its
obligations, beyond those required of non-bank debtors.
C. Relationship of Bank and Safety Deposit Box Client
Case — CA Agro-Industrial Development Corp. vs. CA, GR No.

90027, March 3, 1993
Facts: Petitioner corporation (CAIDC) purchased 2 lots from Sps. Pugao.

The payment was to be done in installments. They agreed that while
there is no full payment yet, the TCTs would be deposited in a safety
deposit box. They could only be withdrawn upon joint signatures of both
parties.
They rented a safety deposit box in Security Bank. They executed a

“lease contract” for this, agreeing that: (a) The bank is not a depositary of
the contents of the safe and it has neither the possession nor control of
the same; and (b) The bank has no interest in said contents, and it
assumes absolutely no liability. (Hereinafter referred as “Terms 13&14”)
Page 20 of 147
Two renter’s keys were given: one for CAIDC, and another to Sps.
Pugaos. A guard key remained with the Bank. The safety deposit box
has 2 keyholes, one for the guard key and the other for the renter's key,
and can be opened only with both keys.
Thereafter, a certain Mrs. Ramos offered to buy the 2 lots from CAIDC.
When the CAIDC’s representative and Sps. Pugao went to the bank to
retrieve the TCTs, the box was empty. This caused Mrs. Ramos to
withdraw her offer to purchase. CAIDC filed a complaint for damages
against the bank.
The bank contended that it cannot be made liable for the loss, invoking
Terms 13&14. The RTC agreed with this and ruled in favor of the bank.
The CA affirmed the RTC, holding that the contract was one of lease,
and concluding that the bank was not under any duty to maintain the
contents of the box.
CAIDC’s main contention is that, despite its nomenclature as a “lease”,

their contract was actually a contract of deposit, and that under the law
on deposits, the bank (depositary) should be liable for any loss, because:
“Art. 1972. The depositary is obliged to keep the thing safely and
to return it, when required, to the depositor, or to his heirs and
successors, or to the person who may have been designated in
the contract…”
CAIDC mentions the prevailing American rule: When a safety deposit

box is involved, the relation of bailee and bailor (contract of deposit) is
created. CAIDC also argues that Terms 13&14 should be declared void
because they are contrary to law and public policy.
Issue: What relation was created between the bank and the parties who
deposited the documents on a safety deposit box? Lessor-lessee
(contract of lease) or bailor-bailee (contract of deposit)?
Ruling: Neither. A safety deposit box with a bank creates a special kind
of deposit.
It is not an ordinary contract of lease because the full and absolute

possession and control of the safety deposit box was not given to the
joint renters — CAIDC and the Pugaos, on account of the guard key
which the bank held on to.
Neither is it plainly a contract of deposit. In safety deposit box contracts,

the parties are free to draw up their own terms, provided they are not
contrary to law, morals, public policy, etc. In this case, the parties did,
Page 21 of 147
and it included special terms, e.g., the depositary cannot open the box
without the renter being present.
As to the contention that Terms 13&14 are void, the SC agreed. They are
inconsistent with the Bank's responsibility as a depositary under the
GBL: “Sec. 72. In addition to the operations ... banking institutions …
may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and
rent safety deposit boxes for the s afeguarding of such effects.
The banks shall perform the services permitted under subsections (a) …
as depositories or as agents …”
With respect to property deposited in a safe-deposit box, the parties may

(by special contract) define their respective duties or provide for
increasing or limiting the liability of the deposit company, provided that
such contract is not in violation of law or public policy.
The bank, in renting safe-deposit boxes, cannot exempt itself from

liability for loss of the contents by its own fraud or negligence or that of its
agents or servants. In other words, a bank cannot limit its liability for loss
of the contents through its own negligence, but what it can do is, it may
limit its liability to some extent by agreement or stipulation.
However, it must clearly appear that there actually was such a special
contract, in order to vary the ordinary obligations implied by law. The
liability of the deposit company will not be enlarged or restricted by words
of doubtful meaning.
Thus, the SC affirmed the dismissal of this case, but it did not affirm the
CA’s reasons.
The case must be dismissed (and the bank exonerated from liability for
the loss of the TCTs) not because it was a contract of lease, but
because: (1) there was no competent proof to show that Bank was aware
of the agreement between CAIDC and the Pugaos that the TCTs were
withdrawable only upon both parties' joint signatures; and (2) there was
no evidence to reveal that the loss of the TCTs was due to the fraud or
negligence of the Bank.
D. Rules on Minors — Sec.1, PD 734
May minors deposit and withdraw money in banks?

Yes, they are authorized by law to make savings or time deposits with
banking institutions, in their own right and in their own names, without the
assistance of their parents or guardians, provided that they are:
(1) at least 7 years old;
(2) able to read and write;
Page 22 of 147
(3) have sufficient discretion; and

(4) not otherwise disqualified by any other incapacity.
E. Kinds of Deposit
1. Demand deposits — These are also known as “checking

accounts”.
These refer to all liabilities of banks which are denominated in
Philippine currency, and are subject to payment in legal tender,
upon demand, by the presentation of checks. —Sec 58, NCBA
May checks be considered “legal tender”?

Not right away. Checks representing demand deposits do not have legal
tender power, and their acceptance in the payment of debts is at the
option of the creditor. However, if the check has been cleared and
credited to the account of the creditor, it shall be equivalent to a delivery
to the creditor of cash in an amount equal to the credit amount.
—Sec 60, NCBA
2. Savings deposit — This is the most common type of deposit. It

is usually evidenced by a passbook. Nowadays, people may
easily access the funds with their ATM cards.
3. Negotiable order of Withdrawal (NOW) — It is an interest
bearing deposit account that combines the payable on demand
feature of checks and investment feature of savings accounts.
4. Time deposit — It is a deposit account with a fixed term. Money
is kept with the bank for a specified period, and payment cannot
be legally demanded until the expiration of that period. It is also
interest-bearing.
5. Trust account — It is a savings account established under a
trust agreement, containing funds administered by the
trustee-bank, for the benefit of the trustor or another beneficiary.
As to the number of depositors, deposits may either be individual or

joint. Joint accounts may either be:
1. An “and” account, where the signature of all co-depositors are
required for transactions; or
2. An “and/or” account, where any one of the co-depositors may
transact, even without the consent/signature of the other.
F. Anonymous Account —Sec 9(a), RA 9160 (AMLA)
Under the AMLA, in order to prevent money laundering, the law requires
the covered institutions (including banks) to establish and record the true
identity of its clients based on official documents. In banking practice,
they call this “KYC”, or the “know your customer” policy.
Page 23 of 147
Covered institutions should also maintain a system of verifying the true

identity of their clients and, in case of corporate clients, require a system
of verifying their legal existence and organizational structure, as well as
the authority and identification of all persons purporting to act on their
behalf.
Are anonymous accounts allowed?

No. Under the AMLA, anonymous accounts, accounts under fictitious
names, and all other similar accounts are absolutely prohibited.
Peso and foreign currency non-checking numbered accounts are
allowed. The BSP may conduct annual testing solely limited to the
determination of the existence and true identity of the owners of such
accounts.
G. Survivorship Agreement
Case — Vitug vs. CA, GR. No. 82027
Facts: The petitioner in this case is Romarico Vitug, the widower of the
late Dolores Vitug who died in 1980. In the probate of her will, the
executrix asserted that the funds in a joint savings account in Bank of
America is conjugal property and should be part of Dolores’ estate.
Romarico contends that it is now his exclusive property because of a

survivorship agreement he and his wife executed back in 1970. It stated:
“We hereby agree with each other and with the BANK OF
AMERICAN NATIONAL TRUST AND SAVINGS ASSOCIATION
(hereinafter referred to as the BANK), that all money now or
hereafter deposited by us or any or either of us with the BANK in
our joint savings current account shall be the property of all or
both of us and shall be payable to and collectible or
withdrawable by either or any of us during our lifetime, and after
the death of either or any of us shall belong to and be the sole
property of the survivor or survivors, and shall be payable to and
collectible or withdrawable by such survivor or survivors.”
What is a survivorship agreement? It is in the nature of an aleatory

contract (that is, a contract where an uncertain event determines the
parties’ rights and obligations) where one or both of the parties
reciprocally bind themselves to give or to do something in consideration
of what the other shall give or do upon the happening of an event which
is uncertain or would occur at an indeterminate time, e.g., death.
Issue: Is a survivorship agreement contrary to law and thus void?
Ruling: No. It is not contrary to law per se. It is valid, unless its operation
or effect would violate a law, such as when:
Page 24 of 147
1. It is used as a mere cloak to hide an inofficious donation;

2. It is used to transfer property in fraud of creditors; and
3. It is used to defeat the legitime of a compulsory heir.
In the case of Vitug, none of those instances were present. Thus, the
survivorship agreement is valid. As such, Romarico, as the surviving
spouse, has acquired a vested right over the amounts in the savings
account upon the death of Dolores.
IV. SECRECY OF BANK DEPOSITS
The governing law for this is RA 1405, or the Secrecy of Bank Deposits
Act (SBDA). It is a law prohibiting disclosure of, or inquiry into, deposits
with any banking institution.
A. Purpose —Sec 1, SBDA

The law was enacted to:
1. encourage people to deposit their money in banking institutions;
and
2. discourage private hoarding of their money, so that such money
may be properly utilized by banks in authorized loans to assist in
the economic development of the country.
B. Nature and coverage —Sec 2, SBDA

The law covers:
1. All deposits of whatever nature with banks or banking institutions
in the Philippines; and
2. investments in bonds issued by the Government of the
Philippines, its political subdivisions and its instrumentalities.
General rule on secrecy of bank deposits

Bank deposits and investments in government bonds are of an
absolutely confidential nature. This means they cannot be examined,
inquired, or looked into by any person, government official, bureau or
office.
Exceptions under the SBDA (PIObS)

They may be examined in the following cases:
1. upon written permission of the depositor;
2. in cases of impeachment;
3. upon order of a competent court in cases of bribery or dereliction
of duty of public officials; or
4. in cases where the money deposited or invested is the subject
matter of the litigation.
C. Acts punishable —Sec 3, SBDA

The punishable act is the disclosure of information on bank deposits.
Page 25 of 147
Who is punishable? A ny official or employee of a banking institution who

discloses to any person other than those mentioned in the exceptions
any information concerning bank deposits.
D. Penalty for violation —Sec 5, SBDA

Subject to the court’s discretion, the violator will suffer:
1. an imprisonment of not more than 5 years; or
2. a fine of not more than 20,000; or
3. both.
V. EXCEPTIONS TO BANK SECRECY
Aside from the 4 exceptions under the SBDA, there are more exceptions
stated in various laws. It is as if the general rule is the exception, and the
exceptions are the general rule.
A. Exceptions under SBDA

1st exception - Written permission of the depositor
2nd exception - Cases of i mpeachment
3rd exception - Order of a competent court in cases of bribery
or dereliction of duty of public officials
4th exception - If the money deposited or invested is the subject
matter of the litigation
Case — China Banking Corporation v Ortega (GR L-34964)
Facts: Vicente Acaban filed a case for collection of sum of money

against B&B Forest. The defendants failed to answer within the
reglementary period, thus, a default judgment was rendered against
B&B. In order to satisfy the judgment, Acaban sought the garnishment of
B&B’s deposit in Chinabank. The bank’s cashier Tan Kim Liong
(probably a law student) refused, citing RA 1405 which prohibited
disclosure of bank deposits.
Issue: May banks validly refuse to comply with a court order for the
garnishment of a bank deposit of a judgment debtor?
Ruling: No. In this case, the lower court did not order for an examination
of or inquiry into the bank deposit of B&B. It merely required Tan to
inform the court whether or not the B&B had a deposit in Chinabank, only
for purposes of the garnishment issued by it, so that the bank would hold
it intact and not allow any withdrawal until further order.
The prohibition against examination of or inquiry into a bank deposit does

not preclude its being garnished to insure satisfaction of a judgment.
Page 26 of 147
Indeed there is no real inquiry in such a case, and if the existence of the
deposit is disclosed, the disclosure is purely incidental to the execution
process.
Case — BSP Group v Sally Go (GR 168644)
Facts: Ricardo Bangayan, president of BSP, filed a complaint for estafa

or qualified theft against his wife and BSP’s cashier, Sally Go. He alleged
that Sally deposited the company’s checks to her personal bank account
at Security Bank.
During trial, the prosecution presented a representative from the bank to

testify against Sally, particularly with regard to the checks she allegedly
deosited, but before the testimony could be completed, Sally filed a
motion to suppress seeking to exclude the testimony on the ground of
confidentiality under the SBDA. The motion was denied. Thus, Sally filed
a Rule 65 petition in the CA. The CA granted this and ordered that the
testimony be stricken from the records.
Issue: Is the testimony of the Security Bank representative and the

accompanying documents violative of the confidential nature of bank
deposits? Does the case fall under the 4th exception (subject matter of
litigation)?
Ruling: Yes. This case does not fall under the 4th exception under the
SBDA.
The subject matter of the action is determined from the indictment that
charges the offense, not from the evidence sought to be admitted by the
prosecution. In this case, the indictment (criminal information)
unqualifiedly and plainly charged Sally with qualified theft by abuse of
confidence and by stealing cash amounting to P1.5 million. It made no
factual allegation that involves the checks in subject. Neither was the
bank account even mentioned in the information.
Without a proper factual allegation (that the bank account contains the
money stolen), it cannot be inferred from the indictment itself that the
bank account is the ostensible subject of the inquiry.
When there are doubts in upholding the confidential nature of bank

deposits against affirming authority to inquire into them, such doubts
must be resolved in favor of confidentiality.
Case — Ejercito v Sandiganbayan (GR 157294-95)
Facts: The Special Prosecution Panel filed a request for issuance of a

subpoena directing the President of Export and Industry Bank to produce
Page 27 of 147
documents relating to President Estrada’s trust and savings account. It

was granted.
Estrada filed a motion to quash, claiming that his accounts are covered
by the SBDA.
Issues:
1. Is a trust account covered by the term “deposit” in the SBDA?
2. Does the case fall under any of the exceptions where inquiry is
allowed, considering that the charge was for plunder and not
“bribery or dereliction of duty”?
Ruling:
1. Yes, trust accounts are included in the term “deposit”. The term
“deposits” under the SBDA is to be understood broadly.
The term “deposit” is not limited to accounts which give rise to a

creditor-debtor relationship between the bank and the depositor. If the
money deposited may be used by the banks for authorized loans to third
persons, then the account falls under the category of deposit accounts
protected by the SBDA.
2. Yes. In fact the case falls under not just one, but two, exceptions:
(3rd exception) in cases of bribery or dereliction of duty; and (4th
exception) subject matter of litigation.
Plunder, or cases of unexplained wealth, are similar to cases of bribery

or dereliction of duty. Plunder is analogous to bribery. Moreover, the
money deposited in the bank accounts is said to form part of the subject
matter of the plunder case.
Case — Lourdes Marquez v Desierto (GR 135882; June 27, 2001)
Facts: The petitioner was the branch manager of Union Bank - Julia
Vargas. The office of the Ombudsman had a pending investigation
against Amado Lagdameo for violation of RA 3019 (Anti-Graft and
Corrupt Practices Act). In relation to this, the Ombudsman issued an
order for an “in camera” inspection for his bank account.
Issue: May a bank account be open for inspection to aide the

Ombudsman’s pending investigation?
Ruling: No. Before an inspection of a bank deposit can be allowed, there

must be a pending case before a court of competent jurisdiction, not just
a pending investigation with the office of the Ombudsman, which is not a
court but an investigating and prosecuting body. The account must be
clearly identified and the inspection must be limited to the subject matter
Page 28 of 147
of the pending case. The bank personnel and account holder must be
notified and must be present during the inspection.
Case — Union Bank v CA (GR 134699)
Facts: A check in the amount of P1 million was drawn against an

account with the Allied Bank. The payee, Jose Alvarez, deposited the
check with Union bank who then credited the million to his account.
When the check was presented for clearing, however, Union Bank’s staff
under-encoded the amount of P1,000 only.
Union Bank only discovered this discrepancy a year later. It notified

Allied Bank but the latter bank refused to accept the charge slip. Thus,
Union Bank filed a case with the Arbitration Committee of the PCHC
(Philippine Clearing House).
Later, it filed a petition for the examination of the account in Allied Bank
(where the 1 million check was drawn against). The RTC dismissed this,
reasoning that the case does not fall under the exceptions to bank
secrecy. The CA affirmed, ruling that the case is not one where the
money is the subject matter of litigation, thus not an exception to bank
secrecy.
Issue: Does the case fall under the exceptions to bank secrecy?
Ruling: No. The petition to examine the bank account must fail because
Union Bank’s prayer did not specifically state that it was seeking
recovery of the amount from the depositor’s account. It merely asked that
Allied Bank should pay the P999,000 discrepancy.
The petitioner was just fishing for information so that it can determine
Allied Bank’s culpability and the amount of damages it can recover. It
appears that it does not seek the recovery of the very money contained
in the deposit.
B. Required by law —Sec 26, NCBA

5th exception - when director, officer, or stockholder of a bank
takes out a loan from said bank
Who is covered? Any director, officer or stockholder who, together with

his related interest, who contracts a loan or any form of financial
accommodation from:
1. his bank; or
2. a bank (a) which is a subsidiary of a bank holding company of
which both his bank and the lending bank are subsidiaries or (b)
in which a controlling proportion of the shares is owned by the
same interest that owns a controlling proportion of the shares of
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his bank, in excess of 5% of the capital and surplus of the bank,

or in the maximum amount permitted by law, whichever is lower.
What is required? The director, officer, or stockholder is required by the
lending bank to waive the secrecy of his deposits of whatever nature in
all banks in the Philippines.
What is the extent of this waiver? A ny information obtained from an

examination of his/her deposits shall be held strictly confidential and may
be used only:
1. by the examiners only in connection with their supervisory and
examination responsibility; or
2. by the BSP in an appropriate legal action it has initiated involving
the deposit account.
C. Under the Anti-Graft and Corrupt Practices Act —Sec 8, RA 3019

6th exception - unexplained wealth of a public official
If a public official has been found to have acquired, during his

incumbency, whether in his name or in the name of other persons, an
amount of property and/or money manifestly out of proportion to his
salary and to his other lawful income, that fact shall be a ground for
dismissal or removal.
Properties in the name of the spouse and unmarried children of such

public official may be taken into consideration, when their acquisition
through legitimate means cannot be satisfactorily shown. Bank deposits
shall be taken into consideration in the enforcement of this law provision.
D. Under the Tax Code —Sec 6(F), RA 8424, as amended

7th exception - in determining a decedent’s gross estate
8th exception - when a taxpayer applies for compromise of tax
9th exception - upon request of a foreign tax authority
The BIR Commissioner is authorized to inquire into the bank deposits

and other related information held by financial institutions of:
1. A decedent to determine his gross estate; and
2. Any taxpayer who has filed an application for compromise of his
tax liability, by reason of financial incapacity
(But he/she must put his/her waiver of the privilege of
bank secrecy in writing before the BIR can have
authority to inquire); and
3. A specific taxpayer or taxpayers subject of a request from a
foreign tax authority, pursuant to an international convention or
agreement on tax matters
(But the exchange must be done in a secure manner to
ensure confidentiality, and the information obtained may
Page 30 of 147
only be used by the BIR for tax assessment, verification,

audit and enforcement purposes).
E. Under PDIC Act —Sec 8(8), RA 3591, as amended

10th exception - examination by the PDIC
The PDIC as a corporate body has the power “to make examination of
and to require information and reports from banks”.
F. Under the Unclaimed Balances Act —Act no. 3936, PD 679

11th exception - when the deposit becomes an unclaimed
balance, for purposes of escheat proceedings
Unclaimed balances are credits or deposits of money or other evidence

of indebtedness with banks, buildings and loan associations, and trust
corporations, in favor of any person known to be dead or who has not
made further deposits or withdrawals in the last 10 years or more.
The law provides that all banks must, every January of every odd year
(bakit kaya odd year), forward to the Treasurer of the Philippines, a
sworn statement of all unclaimed balances arranged in alphabetical order
according to the names of creditors and depositors, and showing:
(a) The names and last known place of residence or post office
addresses of the persons;
(b) The amount and the date of the outstanding unclaimed balance
and whether the same is in money or in security;
(c) The date when the person died, if known, or the date when he
made his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and the
amount.
This law provides for 2 requirements:

1. A copy of this sworn statement should be posted in a
conspicuous place in the premises of the bank for at least 60
days from the date of filing;
2. But before such filing, the bank should communicate with the
persons concerned through their last known residence or post
office address.
Case — Republic v CA (GR 95533; November 20, 2000)
Facts: In 1988, a complaint for escheat was filed with the RTC by the
Republic against several banks, praying that the unclaimed balances
reported by these banks be escheated to the Republic.
The RTC ordered the Republic to publish a notice in the Mindanao

Forum Standard once a week for 2 consecutive weeks, containing the
Page 31 of 147
summons, notice to the public, the amended petition, and the list of
unclaimed balances. The notice was estimated to occupy 27 pages of
the newspaper at an estimated cost of P50,000.00.
The Republic prayed that the publication of the list of the unclaimed
balances be dispensed with, contending that the summons to the banks
and notice to concerned persons is enough, and that to require it to
publish the names and list of unclaimed balances would only result in
additional and unnecessary expense to the government.
Issue: May the requirement to publish the list of unclaimed balances be

dispensed with?
Ruling: No. The publication of the list of unclaimed balances is intended

to safeguard the right of the depositors, their heirs and successors to due
process.
How would other persons who may have an interest in any of the
unclaimed balances know what this case is all about and whether they
have an interest in this case if the amended complaint and list of
unclaimed balances are not published? Such other persons may be heirs
of the bank depositors named in the list of unclaimed balances.
The fact that the government is in a tight financial situation is not a

justification to dispense with the elementary rule of due process.
Case — RCBC v Hi-Tri Development Corp (GR 192413; 2012)
This case discussed the importance of a provision under PD 679, which

states: ”A copy of the above sworn statement shall be posted in a
conspicuous place in the premises of the bank, building and loan
association, or trust corporation concerned for at least sixty days from
the date of filing thereof: Provided, That immediately before filing the
above sworn statement, the bank, building and loan association, and
trust corporation shall communicate with the person in whose favor the
unclaimed balance stands at his last known place of residence or post
office address.”
The law sets a detailed system for notifying depositors of unclaimed

balances. This notification is meant to inform them that their deposit
could be escheated if left unclaimed.
Thus, before filing a sworn statement, banks are under obligation to

communicate with owners of dormant accounts. The purpose of this
initial notice is for a bank to determine whether an inactive account has
indeed been unclaimed, abandoned, forgotten, or left without an owner. If
the depositor simply does not wish to touch the funds in the meantime,
Page 32 of 147
but still asserts ownership and dominion over the dormant account, then
the bank is no longer obligated to include the account in its sworn
statement. It is not the intent of the law to force depositors into
unnecessary litigation and defense of their rights, as the state is only
interested in escheating balances that have been abandoned and left
without an owner.
What is the importance of this requirement on the part of the bank?

Section 5 of the law, as amended, states that if the bank has complied
with the requirements (of notice and posting), and the unclaimed
balances are eventually escheated to the Republic, then the complying
bank will no longer be liable to any person for the escheated amounts,
and any action which may be brought by any person against the bank for
unclaimed balances shall be defended by the Solicitor General without
cost to such bank. If the bank doesn’t comply with the requirement of
notice, the bank may not raise this defense under Section 5.
G. Under the AMLA —Sec 3(i) in relation to Sec 11, RA 9160

12th exception - the AMLC may inquire when there is a
probable cause that the deposit is related to: (a) any of the 34
predicate crimes; or (b) a money laundering offense
Sec 11, RA 9160 (2001) Amendment by RA 10167 (2011)
Authority to Inquire into Bank Authority to Inquire into Bank

Deposits. – xxx the AMLC may Deposits. – xxx the AMLC may
inquire into or examine any particular inquire into or examine any particular
deposit or investment with any deposit or investment, including
banking institution or non-bank related accounts, with any banking
financial institution upon order of any institution or non-bank financial
competent court in cases of violation institution upon order of any
of this Act when it has been competent court based on an ex
established that there is probable parte application in cases of
cause that the deposits or violations of this Act, when it has
investments involved are in any way been established that there is
related to a money laundering probable cause that the deposits or
offense: Provided, That this provision investments, including related
shall not apply to deposits and accounts involved, are related to an
investments made prior to the unlawful activity xxx or a money
effectivity of this Act. laundering offense xxx; except that
no court order shall be required in
cases involving activities defined in
Section 3(i)(1), (2), and (12), and
felonies or offenses of a similar
nature xxx, which are Punishable
under the penal laws of other
countries, and terrorism and
conspiracy to commit terrorism xxx
Page 33 of 147
The amendment added that “related accounts” refer to accounts with

funds and sources originating from, or are materially linked to, the
monetary instrument or property subject of the CA’s freeze order.
Sec 3(i) of the AMLA, as amended, defines an “unlawful activity” as any

act or omission or series or combination, involving or having direct
relation to the following:
“(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known
as the Revised Penal Code, as amended;
“(2) Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of Republic Act No. 9165,
otherwise known as the Comprehensive Dangerous Drugs Act of 2002;
“(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as
amended, otherwise known as the Anti-Graft and Corrupt Practices Act;
“(4) Plunder under Republic Act No. 7080, as amended;
“(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302
of the Revised Penal Code, as amended;
“(6) Jueteng and Masiao punished as illegal gambling under Presidential Decree
No. 1602;
“(7) Piracy on the high seas under the Revised Penal Code, as amended and
Presidential Decree No. 532;
“(8) Qualified theft under Article 310 of the Revised Penal Code, as amended;
“(9) Swindling under Article 315 and Other Forms of Swindling under Article 316
“(10) Smuggling under Republic Act Nos. 455 and 1937;
“(11) Violations of Republic Act No. 8792, otherwise known as the Electronic
Commerce Act of 2000;
“(12) Hijacking and other violations under Republic Act No. 6235; destructive
arson and murder, as defined under the Revised Penal Code, as amended;
“(13) Terrorism and conspiracy to commit terrorism as defined and penalized
under Sections 3 and 4 of Republic Act No. 9372;
“(14) Financing of terrorism under Section 4 and offenses punishable under
Sections 5, 6, 7 and 8 of Republic Act No. 10168, otherwise known as the
Terrorism Financing Prevention and Suppression Act of 2012:
“(15) Bribery under Articles 210, 211 and 211-A of the Revised Penal Code, as
amended, and Corruption of Public Officers under Article 212 of the Revised
Penal Code, as amended;
“(16) Frauds and Illegal Exactions and Transactions under Articles 213, 214, 215
and 216 of the Revised Penal Code, as amended;
“(17) Malversation of Public Funds and Property under Articles 217 and 222 of
the Revised Penal Code, as amended;
“(18) Forgeries and Counterfeiting under Articles 163, 166, 167, 168, 169 and
176 of the Revised Penal Code, as amended;
“(19) Violations of Sections 4 to 6 of Republic Act No. 9208, otherwise known as
the Anti-Trafficking in Persons Act of 2003;
“(20) Violations of Sections 78 to 79 of Chapter IV, of Presidential Decree No.
705, otherwise known as the Revised Forestry Code of the Philippines, as
amended;
“(21) Violations of Sections 86 to 106 of Chapter VI, of Republic Act No. 8550,
otherwise known as the Philippine Fisheries Code of 1998;
“(22) Violations of Sections 101 to 107, and 110 of Republic Act No. 7942,
otherwise known as the Philippine Mining Act of 1995;
“(23) Violations of Section 27(c), (e), (f), (g) and (i), of Republic Act No. 9147,
otherwise known as the Wildlife Resources Conservation and Protection Act;
Page 34 of 147
“(24) Violation of Section 7(b) of Republic Act No. 9072, otherwise known as the
National Caves and Cave Resources Management Protection Act;
“(25) Violation of Republic Act No. 6539, otherwise known as the
Anti-Carnapping Act of 2002, as amended;
“(26) Violations of Sections 1, 3 and 5 of Presidential Decree No. 1866, as
amended, otherwise known as the decree Codifying the Laws on Illegal/Unlawful
Possession, Manufacture, Dealing In, Acquisition or Disposition of Firearms,
Ammunition or Explosives;
“(27) Violation of Presidential Decree No. 1612, otherwise known as the
Anti-Fencing Law;
“(28) Violation of Section 6 of Republic Act No. 8042, otherwise known as the
Migrant Workers and Overseas Filipinos Act of 1995, as amended by Republic
Act No. 10022;
“(29) Violation of Republic Act No. 8293, otherwise known as the Intellectual
Property Code of the Philippines;
Anti-Photo and Video Voyeurism Act of 2009;
Anti-Child Pornography Act of 2009;
“(32) Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12 and 14 of
Republic Act No. 7610, otherwise known as the Special Protection of Children
Against Abuse, Exploitation and Discrimination;
“(33) Fraudulent practices and other violations under Republic Act No. 8799,
otherwise known as the Securities Regulation Code of 2000; and
“(34) Felonies or offenses of a similar nature that are punishable under the penal
laws of other countries.”
They are also called “predicate crimes” to the money laundering crime.
Sec 4 of the AMLA defines a money laundering offense as a crime

where the proceeds of an unlawful activity are transacted, making them
appear to have originated from legitimate sources.
The most recent amendment (RA 10365, 2012) expanded the definition
of money laundering as an act committed by any person who, knowing
that any monetary instrument or property represents, involves, or relates
to the proceeds of any unlawful activity:
a. transacts said monetary instrument or property;
b. converts, transfers, disposes of, moves, acquires, possesses or
uses said monetary instrument or property;
c. conceals or disguises the true nature, source, location,
disposition, movement or ownership of or rights with respect to
said monetary instrument or property;
d. attempts or conspires to commit money laundering offenses
referred to in paragraphs (a), (b) or (c);
e. aids, abets, assists in or counsels the commission of the money
laundering offenses referred to in paragraphs (a), (b) or (c)
above; and
f. performs or fails to perform any act as a result of which he
facilitates the offense of money laundering referred to in
paragraphs (a), (b) or (c) above.
Page 35 of 147
g. Money laundering is also committed by any covered person who,

knowing that a covered or suspicious transaction is required to
be reported to the AMLC, fails to do so.
As a general rule, the AMLC must first secure a court order before they
can inquire into the bank deposits and related accounts related to: (a)
any predicate crime; or (b) any money laundering offense. But as per the
amendment, the AMLC no longer needs a court order to inquire into bank
accounts related to the following predicate crimes:
1. Kidnapping with ransom;
2. Certain violations of the Dangerous Drugs Act;
3. Hijacking;
4. Destructive arson and murder;
5. Felonies of the same nature; and
6. Terrorism or conspiracy to commit terrorism.
Case — Republic v Eugenio (GR 174629; February 14, 2008)
Facts: The AMLC filed an ex parte application (ex parte means without
the participation of the other party) to inquire into the bank deposits and
investments of Pantaleon Alvarez. It was granted.
Alvarez filed a motion to stay the enforcement of the order granting bank
inquiry, arguing that nothing in the AMLA authorized the AMLC to seek
inquiry ex parte. The RTC ruled in favor of Alvarez at first, but it later
reinstated its order in favor of AMLC’s bank inquiry.
Issue: May the AMLC be allowed to inquire into bank accounts without
judicial order?
Ruling: Yes, but only when there is probable cause that the deposits are
related to kidnapping with ransom, certain violations of thee Dangerous
Drugs Act, hijacking and other RA 6235 violations, destructive arson, and
murder.
Those special circumstances do not apply in this case. Thus, the AMLC
must first secure a judicial order.
H. Under the Human Security Act —Sec 27, RA 9372

13th exception - police or law enforcement officers may be
authorized by the CA in anti-terrorism cases
The justices of the CA designated as a special court to handle

anti-terrorism cases may authorize any police or law enforcement officer
and the members of his/her team duly authorized in writing by the
anti-terrorism council to: (a) examine, or cause the examination of, the
deposits, placements, trust accounts, assets and records in a bank or
Page 36 of 147
financial institution; and (b) gather or cause the gathering of any relevant
information about such deposits, placements, trust accounts, assets, and
records from a bank or financial institution.
But before the CA may issue this written authorization, the court must be
satisfied of the existence of a probable cause that: (1) a person charged
with or suspected of the crime of terrorism or conspiracy to commit
terrorism; (2) of a judicially declared and outlawed terrorist organization,
association, or group of persons; and (3) of a member of such judicially
declared and outlawed organization, association, or group of persons.
The bank or financial institution concerned shall not refuse to allow such
examination or to provide the desired information, when so ordered by
and served with the written order of the CA.
I. Under the Ombudsman Act of 1989 —Sec 15(8), RA 6770

14th exception - access by the Ombudsman
The Ombudsman has the power to “administer oaths, issue subpoena

and subpoena duces tecum, and take testimony in any investigation or
inquiry, including the power to examine and have access to bank
accounts and records.”
J. Under the FRIA —Sec 17(a), RA 10141

15th exception - the receiver may inquire during rehabilitation
proceedings of an insolvent debtor
A Commencement Order in rehabilitation proceedings vests the receiver

with all the powers and functions under the FRIA, such as the right to
review and obtain all records to which the debtor’s management and
directors have access, including bank accounts of whatever nature of the
debtor.
K. Under the Terrorism Financing Prevention and Suppression Act

—Sec 10, RA 10168
16th exception - the AMLC may inquire in relation to
investigations on suspected terrorists
The AMLC, either upon its own initiative or at the request of the
Anti-Terrorism Council, is authorized to issue an ex parte order to freeze:
(a) any property or funds that are in any way related to financing of
terrorism or acts of terrorism; (b) property or funds of any person or
persons in relation to whom there is probable cause to believe that such
person or persons are committing or attempting or conspiring to commit,
or participating in or facilitating the financing of terrorism or acts of
terrorism.
Page 37 of 147
For that purpose, the AMLC is also authorized to inquire into or examine
deposits and investments with any banking institution or non-bank
financial institution and their subsidiaries and affiliates without a court
order.
VI. FOREIGN CURRENCY DEPOSIT
General rule: All foreign currency deposits are of an absolutely

confidential nature. In no instance shall they be examined, inquired or
looked into by any person, government official, bureau or office whether
judicial or administrative or legislative, or any other entity whether public
or private.
Exception: They may be examined upon the written permission of the

depositor.
Foreign currency deposits are also exempt from:

1. attachment;
2. garnishment; or
3. any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.
—Sec 8, RA 6246 or the Foreign Currency Deposit Act (FCDA)
Case — Carmen lntengan vs. CA, GR. No. 128996; Feb 15, 2000
Facts: The petitioners had savings/dollar deposits with Citibank. In the

course of an investigation of the bank’s officers, the petitioners’ accounts
were disclosed, on the ground that such disclosures were necessary to
establish the case against the corporate officers. The petitioners invoke
RA 1405 (SBDA).
Issue: Does the SBDA apply in this case?
Ruling: No. The applicable law is not RA 1405, but RA 6426 (FCDA).
Under this, there is only one exception to secrecy of foreign currency
deposits, that is, upon written permission of the depositor.
Case — Philippine Savings Bank vs. Senate impeachment Court,

GR No. 200238; Nov 20, 2012
In the impeachment case of then SC Chief Justice Corona, the Senate,

sitting as an Impeachment Court, granted the request for subpoena to
PSBank, requiring them to testify and produce documents relative to the
foreign currency accounts that were alleged to belong to Corona.
PSBank filed a petition for certiorari and prohibition, invoking RA 6426.

However, during the pendency of this petition, Corona was convicted. He
Page 38 of 147
also executed a waiver against the confidentiality of all his bank

accounts, whether in peso or foreign currency.
Thus, the issue of whether RA 6426 was violated was rendered moot
and academic, and the SC dismissed the petition.
Other exceptions to the FCDA:
1. When the deposit is related to any predicate crime under the

AMLA or a money laundering offense
—Sec. 11 of AMLA, see page 34
2. The exemption from garnishment of foreign currency deposits

cannot apply to a tourist who committed a crime here
Case — Salvacion vs. Central Bank of the Phils., GR. No. 94723
Facts: Greg Bartelli, an American tourist, was charged with serious

illegal detention and rape of 12-year-old Karen Salvacion.
Apart from the criminal case, a civil case for damages and preliminary
attachment was filed. The RTC granted the issuance of the writ of
preliminary attachment. Thus, a notice of garnishment was served on
Chinabank where Cartelli maintained a dollar account.
Chinabank invoked Central Bank Circular no. 960 which exempts dollar
deposits from attachment, garnishment, or any other order.
Issue: May a defendant tourist invoke the FCDA?
Ruling: No. The exemption from garnishment of foreign currency deposit

cannot apply to foreign transients or tourists. Laws and rules cannot be
used as devices to evade punishment for wrongdoing.
The laws protecting foreign currency deposits were designed to draw and
encourage foreign investments. A deposit made by a transient is not the
kind of deposit encouraged by the laws. A transient/tourist stays only for
a few days in the country and will maintain his deposit only for a short
time.
Case — China Banking Corp. vs. CA, GR. No. 140687
Facts: Jose Gotianuy filed a complaint for recovery of money against his
daughter Mary Margaret Dee and her husband George. Jose accused
Mary of stealing, among others, his US dollar deposits with Citibank. She
did this by depositing several Citibank checks, where she ad her father
were co-payees (“payable to Gotianuy: Jose and/or Dee: Mary
Margaret”), to her ChinaBank account.
Page 39 of 147
China Bank invoked RA 6246 (FCDA). But the CA allowed the inquiry.
The CA considered Jose as a co-depositor of Mary, because he was

named as co-payee in the checks. It held that under the law on secrecy
of foreign currency deposits, inquiry may only be allowed upon written
permission of the depositor. Since Jose was considered a co-depositor,
the CA allowed the inquiry even without the consent of Mary.
Issue: May the foreign currency deposit of an accused who was the
co-depositor of the plaintiff in a civil case be inquired into?
Ruling: Yes. Inquiry into Mary’s account may be allowed, following the
CA’s reasoning.
As the owner of the funds unlawfully taken and indisputably deposited

with Chinabank, Jose has the right to inquire into the deposits. Jose may
be considered as a “depositor” in this case because he was co-payee in
the check deposited. A depositor is one who pays money into the bank in
the usual course of business, to be placed to his credit.
3. Freeze order under the AMLA —Sec. 10, RA 10167
Upon verified ex parte petition by the AMLC and after determination that
probable cause exists that any monetary instrument or property is in any
way related to an unlawful activity (predicate crime), the CA may issue a
freeze order, which shall be effective immediately.
4. Anti-terrorism cases, Human Security Act —Sec. 27, RA 9372
The CA may authorize police or law enforcement officers or teams, duly

authorized by the Anti-Terrorism Council, to examine deposits,
placements, trust accounts, assets, and records from a bank or financial
institution, provided that the court is satisfied of the existence of:
1. a person charged with or suspected of the crime of terrorism or
conspiracy to commit terrorism;
2. a judicially declared and outlawed terrorist organization,
association, or group of persons; and
3. a member of such judicially declared and outlawed organization,
association, or group of persons.
The bank or financial institution concerned cannot refuse to allow such

examination or to provide the desired information, when so ordered by
and served with the written order of the Court of Appeals.
Page 40 of 147
VII. PDIC - DEPOSIT INSURANCE
A. Governing Laws —RA 3591, as amended by RA 10846 (2015)
The Philippine Deposit Insurance Corporation (PDIC) was created in

1963 to promote and safeguard the interests of the depositing public by
providing insurance coverage on all insured deposits and helping
maintain a sound and stable banking system. It is an attached agency of
the Department of Finance. Deposits are insured up to P500,000 per
depositor.
B. lnsurance Requirement
1. Rule on Deposit in a Domestic Bank Operating within the

Philippines
Membership of banks to PDIC is mandatory. Hence, all operating banks

are covered. Deposits of all commercial banks, savings and mortgage
banks, rural banks, private development banks, cooperative banks,
savings and loan associations are insured with PDIC.
2. Rule on Deposit in a Domestic Bank Operating Abroad
Any obligation of a bank which is payable at the office of the bank

located outside of the Philippines shall not be included as part of the
insured deposits.
But subject to the approval of the Board of Directors, any insured bank
which is incorporated under the laws of the Philippines and maintains a
branch outside the Philippines may elect to include for insurance its
deposit obligations payable only at such branch.
3. Rule on Deposit in a Foreign Bank with a Branch Operating

Within the Philippines
Branches and agencies of foreign banks and all other corporations

authorized to perform banking functions in the Philippines are also
insured by the PDIC.
Note: Foreign currency deposits are also insured by PDIC pursuant to

RA 6426 (FCDA) and Central Bank Circular No. 1389. Depositors may
receive payment in the same currency in which the insured deposit is
denominated.
C. Nature of lnsurance Policy —Sec 10(a), RA 3591, as amended
Page 41 of 147
The Deposit Insurance Fund shall be the capital account of PDIC and
shall principally consist of the following:
1. the Permanent Insurance Fund — To carry out the purposes of
the PDIC law, there is “permanent insurance fund” of
P3,000,000,000;
2. assessment collections, subject to the charges;
3. reserves for insurance and financial assistance losses; and
4. retained earnings.
The reserves for insurance and financial assistance losses and retained
earnings shall be maintained at a reasonable level to ensure capital
adequacy. Every 5 years, the PDIC may conduct a study on the need to
adjust the amount of the Permanent Insurance Fund, insurance cover,
assessment rate and assessment base, and thereafter make the
necessary recommendation to Congress.
D. Meaning of lnsured Deposit —Sec 4(g), RA 3591, as amended
Insured deposit means the amount due to any bona fide depositor for
legitimate deposits in an insured bank as of the date of closure. The
maximum insurance coverage is P500,000.
In determining the amount due to any depositor, all deposits in the bank
maintained in the same right and capacity for his or her benefit, either in
his or her own name or in the name of others shall be added together.
Rules on Joint-Account
1. A joint account, regardless of whether the conjunction ‘and’, ‘or’,
‘and/or’ is used, shall be insured separately from any
individually-owned deposit account.
1. If the account is held jointly by two or more natural persons, or
by two or more juridical persons (entities), the maximum insured
deposit shall be divided into as many equal shares as there are
persons or entities, unless a different sharing is stipulated in the
document of deposit.
2. If the account is held by a juridical person or entity jointly with
one or more natural persons, the maximum insured deposit shall
be presumed to belong entirely to such juridical person or entity.
3. The aggregate of the interest of each co-owner over several joint
accounts, whether owned by the same or different combinations
of individuals, juridical persons or entities, shall likewise be
subject to the maximum insured deposit of P500,000
Proof of deposit
No owner/holder of any passbook, certificate of deposit, or other
evidence of deposit shall be recognized as a depositor unless the
passbook, certificate of deposit, or other evidence of deposit is
Page 42 of 147
determined by the PDIC to be an authentic document or record of the

issuing bank.
Adjustment of maximum coverage

In case of a condition that threatens the monetary and financial stability
of the banking system that may have systemic consequences, as
determined by the Monetary Board, the maximum deposit insurance
cover may be adjusted in such amount, for such a period, and/or for such
deposit products, as may be determined by a unanimous vote of the
Board of Directors in a meeting called for the purpose and chaired by the
Secretary of Finance, subject to the approval of the President of the
Philippines.
E. Exclusions from lnsurance Coverage —Sec 4(f), RA 3591 as

amended by RA 9576
The PDIC shall not pay deposit insurance for the following accounts or
transactions, whether denominated, documented, recorded or booked as
deposit by the bank:
1. Investment products such as bonds, securities and trust
accounts;
2. Deposit accounts which are unfunded, fictitious or fraudulent;
3. Deposit products constituting or emanating from unsafe and
unsound banking practices; and
4. Deposits that are determined to be proceeds of an unlawful
activity as defined under the AMLA.
F. Payment of lnsured Deposit —Sec 10(c), RA 3591
Whenever an insured bank is closed pursuant to receivership and

liquidation proceedings, payment of the insured deposits on such
closed bank shall be made by the PDIC as soon as possible either:
1. by cash; or
2. by making available to each depositor a transferred deposit in
another insured bank in an amount equal to insured deposit of
such depositor.
Proof may be required

The PDIC, in its discretion, may require proof of claims to be filed before
paying the insured deposits. If the PDIC is not satisfied, it may require
final determination of a court of competent jurisdiction before paying the
claim.
Penalty for PDIC directors or employees

Directors, officers, or employees of PDIC may be subjected to
imprisonment of 6 months to 1 year if the following conditions concur:
Page 43 of 147
1. There is failure to settle the claim within 6 months from the date
of filing of claim for insured deposit;
2. Such failure was due to grave abuse of discretion, gross
negligence, bad faith, or malice; and
3. The director, officer, or employee is responsible for the delay.
However, the 6-month period shall not apply if the validity of the claim
requires the resolution of issues of facts and or law by another office,
body or agency.
VIII. LOAN FUNCTION
A. Authority to Lend Money —Sec 1, BSP Circular No. 622 (2008)
Consistent with safe and sound banking/business practices, a bank,

quasi-bank (QB), or non-bank financial institutions (NBFI) shall grant
loans or other credit accommodations only in amounts and for the
periods of time essential for the effective completion of the operation to
be financed.
B. Conditions for the Granting of Loans/ Safe and Sound Banking

Practice —Sec 39, GBL
The purpose of all loans and other credit accommodations shall be

stated in the application and in the contract between the bank and the
borrower. If the bank finds that the proceeds of the loan or other credit
accommodation have been employed for a different purpose, without the
bank’s approval, the bank has the right to terminate the loan or other
credit accommodation and demand immediate repayment of the
obligation.
C. Ascertainment of Borrower’s Capacity —Sec 40, GBL
Before granting a loan or other credit accommodation, a bank must

ascertain that the debtor is capable of fulfilling his/her commitments to
the bank.
Toward this end, a bank may require documents to enable it to properly

evaluate the credit application, such as:
1. Statement of assets and liabilities;
2. Statement of income and expenditures;
3. Financial statements submitted for taxation purposes to the BIR;
and
4. Such information as may be prescribed by law or by rules and
regulations of the Monetary Board.
Page 44 of 147
Should such statements prove to be false or incorrect in any material

detail, the bank may terminate any loan or other credit accommodation
granted on the basis of said statements and shall have the right to
demand immediate repayment or liquidation of the obligation.
The required submission of those documents shall not cover:

1. Microfinance loans;
2. Loans to registered Barangay Micro-Business Enterprises
(BMBEs);
3. Interbank loans;
4. Loans secured by hold-outs on or assignment of deposit or other
assets considered non-risk by the Monetary Board;
5. Loans to individuals not required to file ITRs;
6. Loans to those whose source of income is purely compensation
(those with Form 2316);
7. Loans not exceeding 3 million; or
8. Loans to start-up enterprise borrowers during the first 3 years of
their operations or banking relationship. —MORB X304.1
Case — Security Bank vs. Cuenca, 341 SCRA 781 (2000)
Facts: In 1980, Security Bank granted Sta. Ines Melale Corp (SMIC) a
credit line of 8M to assist it in meeting additional capitalization
requirements of its logging operations (boo). The line was to expire on
Nov. 30, 1981. One of the conditions is that the bank reserves the right to
amend any of the terms, upon written notice to the borrower.
As additional security for the credit line, Rodolfo Cuenca, then SMIC’s
president, executed a Joint and Solidary Signature/Surety (JSS) binding
himself solidarily with SIMC for the payment of the loans, including
renewals, increases, and other amendments.
In 1985, Cuenca resigned and his shares in the company were sold.
Later, SIMC encountered difficulty in paying the amortizations, thus, it
asked Security Bank for a restructuring. Security Bank approved this in
1989, without notice to Cuenca. SMIC eventually defaulted. Security filed
a case for collection against SIMC and Cuenca. Cuenca appealed.
The CA released Cuenca from liability, reasoning that the Cuenca was
only bound by the first credit line which expired in 1981.
Issue: Should Cuenca (surety in the 1980 credit line) be made liable for
the debtor’s default in the second credit line (1989) in which he was not
given notice?
Ruling: No. Cuenca was only liable for the 1980 credit accomodation
which expired in 1981.
Page 45 of 147
A contract of surety cannot extend to more than what is stipulated. It is

strictly construed against the creditor, and every doubt is resolved in
favor of the solidary debtor. The fundamental rules of fair play require the
creditor to obtain the consent of the surety to any material alteration in
the principal loan agreement, or at least to notify it.
Hence, the bank cannot hold Cuenca liable for loans obtained in excess
of the amount or beyond the period stipulated in the original agreement,
absent any clear stipulation showing that the latter waived his right to be
notified, or to give consent. This is especially true where, as in this case,
Cuenca was no longer the principal officer or major stockholder of the
corporate-debtor at the time the subsequent obligations were incurred.
He was thus no longer in a position to compel the corporation to pay the
creditor and had no more reason to bind himself anew to the subsequent
obligations.
D. Secured vs. Unsecured Loans and Other Credit Accommodation

(Notes from Mickey Ingles)
Credit transactions include all transactions involving the purchase or loan

of goods, services, or money in the present, with a promise to pay or
deliver in the future. A loan is a type of credit transaction.
There are two types:

1. Secured transactions or contracts of real security — These
are credit transactions supported by a collateral or an
encumbrance of property.
Examples: pledge, mortgage, antichresis, etc.
2. Unsecured transactions or contracts of personal security —
They are secured or supported only by a promise to pay or the
personal commitment of another.
Examples: Guarantor or surety
Security is something given, deposited, or serving as a means to ensure

the fulfillment or enforcement of an obligation or of protecting some
interest in property.
A loan is a contract where:

1. One party delivers to another something not consumable so that
the latter may use the same for a certain time and return it,
(commodatum); or
2. One party gives money or any other consumable thing, upon the
condition that the same amount of the same kind and quality
shall be paid by the debtor (simple loan or mutuum). Loans in
banks fall under mutuum.
Page 46 of 147
E. Bridge Financing
Bridge financing, often in the form of a bridge loan, is an interim

financing option used by companies and other entities to solidify their
short-term position until a long-term financing option can be arranged.
Bridge financing normally comes from an investment bank or venture
capital firm in the form of a loan or equity investment.
Bridge financing "bridges" the gap between the time when a company's
money is set to run out and when it can expect to receive an infusion of
funds later on. This type of financing is most normally used to fulfill a
company's short-term working capital needs. —investopedia
Case — De Vera vs. Court of Appeals, 367 SCRA 781
Facts: De Vera entered into a Condominium Reservation Agreement

where he undertook to buy a unit from QP San Diego Construction
(QPSDC) for 325,000. He paid a downpayment of 175,675. The 160,000
balance was secured through his PAG-IBIG and Open-Housing Loan.
Pending the release of the loan, he availed of a bridge loan with
Asiatrust.
Later, Asiatrust informed QPSDC that it could no longer extend bridge

loans to some buyers, including De Vera, because he had already
exceeded the age limit and thus was disqualified.
In other words, De Vera’s bridge loan was disapproved, thus, the

balance for the unit was not paid. De Vera wrote to QPSDC to clarify, but
the latter answered that it should address his concerns to the bank ad
not them.
Meanwhile, QPSDC also failed to pay its obligations to Asiatrust (and the
other banks, collectively “Funders”). The Funders foreclosed the
mortgage on several units, including De Vera’s. De Vera filed a case to
annul the mortgage on the ground of fraud.
The trial court ruled that De Vera’s failure to pay the balance was not his
fault. Thus, it ordered QPSDC, et al., to pay De Vera the sum necessary
to redeem the unit plus damages.
Issue: Was the failure to pay the balance De Vera’s fault? Who has
superior rights over the unit?
Ruling: No, De Vera was not at fault. He has superior right over the unit.
Asiatrust had made several representations to De Vera that his loan had
been approved. The tenor of the letters it sent would lead a reasonable
Page 47 of 147
man to believe that there was nothing left to do but await the release of
the loan. It cannot hide behind the pithy excuse that the grant of the
bridge financing loan was subject to the release of the Pag-IBIG loan.
The essence of bridge financing loans is to obtain funds through an

interim loan while the Pag-IBIG funds are not yet available.
To await the release of the Pag-IBIG loan would render any bridge
financing nugatory.
Thus, "the conclusion is inevitable that although the plaintiff was not able
to pay, he was a victim of circumstances and his failure was not due to
his own fault."
F. Fixed vs. Floating lnterest Rate and Escalation Clauses
Fixed v Floating
A fixed interest means that the interest rate remains fixed, regardless of
changes in interest rates in the market for the entire duration of the loan.
A floating interest rate means the interest rate varies, depending on the
changes that happen with the market.
The advantage of a fixed rate is there is stability and predictability in the

payments, thus, the borrower can manage his finances accordingly. The
disadvantage is, he won’t be able to enjoy lower rates when the market
conditions warrant for lower interest rates.
The disadvantage of fixed rates is the advantage of floating rates. If the

market is good, the rates are lower and the interest payments won’t be
as onerous. The disadvantage is the exposure to greater risk and
uncertainty, on account of the variability of the rates.
Escalation clause
This is a stipulation in a contract of loan where it is agreed that the
interest rate may be increased in the event that the applicable maximum
rate of interest is increased by law or by the Monetary Board.
This will be valid only if:

1. there is also a de-escalation clause, that is, a stipulation that the
interest rate shall be reduced in the event that the applicable
maximum rate of interest is reduced by law or by the Monetary
Board; and
2. the adjustment in the rate of interest agreed upon shall take
effect on or after the effectivity of the increase or decrease in the
maximum rate or interest.
—De Leon, Credit Transactions
Page 48 of 147
Case — Security Bank vs. RTC of Makati, 263 SCRA 483 (1996)
Facts: Magtanggol Eusebio executed 3 promissory notes in favor of

Security Bank in 3 different dates, all payable in 6 installments with a
stipulated interest of 23% per annum. Eusebio defaulted. The bank filed
a case for collection. The trial court ordered Eusebio to pay the unpaid
balances of the loans, plus 12% interest per annum until paid.
The bank appealed, contending that the interest should be 23% because
that was what they agreed on in the promissory notes.
Issue: Should the 23% interest rate stipulated in a contract, which is far
in excess of the ceiling prescribed under the Usury Law, prevail over the
Central Bank’s prescribed annual rate of 12%?
Ruling: Yes. 23% was the interest rate agreed upon by the parties freely.
Significantly, Eusebio did not question that rate.
The Civil Code provides that contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.
In a loan or forbearance of money, the interest due should be that rate

stipulated in writing, and in the absence of such stipulation, the rate shall
be 12% per annum.
Hence, only in the absence of a stipulation can the court impose the 12%
rate of interest.
Case — Consolidated Bank vs. CA, 355 SCRA 671 (2001)
Facts: The Continental Cement Corporation (CCC) obtained a letter of

credit from Consolidated Bank for P1,068,150 to purchase fuel oil from
Petrophil. In relation to this transaction, a trust receipt for 1,001,520 was
executed by CCC.
The bank filed a complaint for sum of money, claiming that CCC failed to
turn over the goods covered by the trust receipt. CCC contends that the
transaction was a simple loan, not a trust receipt.
Issue: What was the transaction—a loan or a trust receipt?
Ruling: The transaction was a loan, not a trust receipt.
Page 49 of 147
In a trust receipt, the ownership over the goods belong to the bank and
they will only be released to the importer in trust after the loan is granted.
In this case, the debtor (CCC) received the goods subject of the “trust
receipt” long before the “trust receipt” was entered into. Ownership over
the goods was already transferred to the debtor. This is inconsistent with
the definition of a trust receipt.
Case — Almeda vs. Court of Appeals, 256 SCRA 292 (1996)
Facts: PNB granted Sps. Almeda several loans totaling 18M payable in 6
years at an interest rate of 21% per annum. Under the loan agreement, it
was stipulated that the bank “reserves the right to increase the interest
rate within the limits allowed by law at any time depending on whatever
policy it may adopt in the future”. Later, the bank raised the rate to 28%,
and later 68%.
Issue: Was PNB authorized to raise its interest rates from 21% to 68%?
Ruling: No. The galloping increases in interest rate imposed by the bank
were arbitrary.
C.B. Circular No. 905, Series of 1982 did not authorize the bank, or any
lending institution to progressively increase interest rates on borrowings
to an extent which would have made it virtually impossible for debtors to
comply with their own obligations.
Banks are not granted carte blanche authority to raise interest rates to
levels which would either enslave its borrowers or lead to a
hemorrhaging of their assets. Borrowing represents a transfusion of
capital from lending institutions to industries and businesses in order to
stimulate growth.
The increases here were excessive and unconscionable. Between 1981

and 1984, petitioners had paid an amount equivalent to virtually half of
the entire principal (P7,735,004.66) which was applied to interest alone.
By the time the spouses tendered the amount of P40,142,518.00 in
settlement of their obligations, the bank was demanding P58,377,487.00
over and above those amounts already previously paid by the spouses.
Escalation clauses are not basically wrong so long as they are not solely
potestative but based on reasonable and valid grounds. Here, there are
no valid and reasonable standards upon which the increases are
anchored.
Moreover, the credit agreement itself specifically required that the

increase be "within the limits allowed by law".
Page 50 of 147
Case — PNB vs. Court of Appeals, 259 SCRA 174 (1996)
Facts: Sps. Basco obtained a 15,000 loan from PNB. The promissory
note stipulated an interest of 12% per annum “which the Bank may at
any time without notice, raise within the limits allowed by law”. On the
back, it was also agreed that any extension will “give the Bank the right
to charge the interest rates prescribed under its policies from the date the
account was originally granted.”
Issue: Is the escalation clause valid?
Ruling: No. The escalation clause cannot be given effect because of the
absence of a de-escalation clause in the event a reduction of interest
was ordered by law. When there is an escalation, there must be a
de-escalation clause to mitigate the one-sidedness of the escalation
clause.
G. Risk Based Capital —Sec 34, GBL
The Monetary Board (MB) shall prescribe the minimum ratio which the
net worth of a bank must bear to its total risk assets which may include
contingent accounts.
The MB may require that such ratio be determined on the basis of the net
worth and risk assets of a bank and its subsidiaries, subject to these
conditions:
1. In the exercise of this authority, the MB shall, to the extent
feasible, conform to internationally accepted standards, including
those of the Bank for International Settlements (BIS), relating to
risk-based capital requirements;
2. It may alter or suspend compliance with such ratio whenever
necessary for a maximum period of 1 year;
3. Such ratio shall be applied uniformly to banks of the same
category.
If a bank does not comply with the prescribed minimum ratio, the MB
may:
1. limit or prohibit the distribution of net profits by such bank and
may require that part or all of the net profits be used to increase
the capital accounts of the bank until the minimum requirement
has been met; and
2. restrict or prohibit the acquisition of major assets and the making
of new investments by the bank, with the exception of purchases
of readily marketable evidence of indebtedness of the Republic
of the Philippines and of the Bangko Sentral and any other
obligations which are fully guaranteed by the Republic.
Page 51 of 147
The MB may temporarily relieve a bank from full compliance with the
required capital ratio only in the following cases:
1. In case of a bank merger or consolidation; or
2. When a bank is under rehabilitation under a program approved
by the Bangko Sentral.
H. Single Borrower's Limit —Sec 35.1, GBL, in relation to Sec X303

Manual of Regulations for Banks (MORB)
Under the GBL (enacted in 2000):

Except as the MB may otherwise prescribe* for reasons of national
interest, the total amount of loans, credit accommodations and
guarantees that may be extended by a bank to any person, partnership,
association, corporation or other entity cannot exceed 20% of the net
worth of such bank.
*Thus, in the MORB (updated as of 2017):

Consistent with national interest, the total amount of loans, credit
accommodations and guarantees that may be extended by a bank to any
person, partnership, association, corporation or other entity shall at no
time exceed 25% of the net worth of such bank.
The basis for determining compliance with the single borrower’s limit
(SBL) is the total credit commitment of the bank to or on behalf of the
borrower.
Exception —Sec 35.2, GBL

Unless the MB prescribes otherwise**, the total amount of loans, credit
accommodations and guarantees may be increased by an additional
10% of the net worth of such bank, when the additional liabilities of any
borrower are adequately secured by trust receipts, shipping documents,
warehouse receipts or other similar documents transferring or securing
title covering readily marketable, non-perishable goods which must be
fully covered by insurance.
**Thus, under the MORB, there are more exceptions:

In addition, this 25% limit may be increased, subject to conditions, in the
following circumstances:
1. By an additional 10% of the net worth, provided that the
additional liabilities are adequately secured by trust receipts,
shipping documents, warehouse receipts or other similar
documents transferring or securing title covering readily
marketable, non-perishable goods which must be fully covered
by insurance;
2. By an additional 25%, provided that the additional loans, credit
accommodations, and guarantees are for the purpose of
Page 52 of 147
undertaking infrastructure and/or development projects under the

Public-Private Partnership (PPP) Program of the government;
accommodations, and guarantees are granted to finance oil
importation of oil companies, which are not affiliates of the
lending bank, engaged in energy and power generation;
accommodations, and guarantees are granted to entities, which
act as value chain aggregators of the lending banks’ clients,
and/or economically-linked entities that are also actors/players in
the value chain;
I. Inclusions to SBL —Sec X303(c), MORB
The prescribed ceilings shall include:

1. The direct liability of the maker or acceptor of paper discounted
with or sold to such bank and the liability of a general endorser,
drawer or guarantor who obtains a loan or other credit
accommodation from or discounts paper with or sells papers to
such bank;
2. In the case of an individual who owns or controls a majority
interest in a corporation, partnership, association or any other
entity, the liabilities of said entities to such bank;
3. In the case of a corporation, all liabilities to such bank of all
subsidiaries in which such corporation owns or controls a
majority interest; and
4. In the case of a partnership, association or other entity, the
liabilities of the members thereof to such bank.
J. Exclusions from SBL —Sec X303(e), MORB
1. Loans and other credit accommodations secured by obligations

of the Bangko Sentral or of the Philippine Government;
2. Loans and other credit accommodations fully guaranteed by the
government as to the payment of principal and interest;
3. Loans and other credit accommodations secured by U.S.
Treasury Notes and other securities issued by central
governments and central banks of foreign countries with the
highest credit quality given by any 2 internationally-accepted
rating agencies;
4. Loans and other credit accommodations to the extent covered by
the hold-out on or assignment of, deposits maintained in the
lending bank and held in the Philippines;
5. Loans, credit accommodations and acceptances under letters of
credit to the extent covered by margin deposits; and
6. Other loans or credit accommodations which the Monetary Board
may from time to time specify as non-risk items.
Page 53 of 147
K. DOSRI Accounts —Sec 36, GBL
To whom does this rule apply? Directors and officers of banks.
What can’t they do? T hey can’t, directly or indirectly, for himself or as the
representative or agent of others:
1. borrow from such bank;
2. become a guarantor, indorser or surety for loans from such bank;
3. in any manner be an obligor or incur any contractual liability to
the bank.
Is there an exception? Y es, if there is a written approval of the majority of

all the directors of the bank, excluding the director concerned.
- Such written approval shall not be required for loans, other credit
accommodations and advances granted to officers under a fringe
benefit plan approved by the Bangko Sentral.
- The required approval shall be entered upon the records of the
bank and a copy of such entry shall be transmitted forthwith to
the appropriate supervising and examining department of the
Bangko Sentral.
Dealings of a bank with any of its directors, officers or stockholders and

their related interests shall be upon terms not less favorable to the bank
than those offered to others.
Requisites of DOSRI —BSP Circular 170, in relation to Sec 26, NCBA
A director, officer, stockholder, and any related interest, (D.O.S.R.I.) is

required to waive the secrecy of his deposits of whatever nature in all
banks in the Philippines when the following conditions concur:
1. The borrower is a director, officer, or stockholder of a bank;
2. He contracts a loan or any form of financial accommodation;
3. The loan or financial accommodation is from (1) his bank or (2) a
bank that is a subsidiary of a bank holding company of which
both his bank and the lending bank are subsidiaries, or (3) a
bank in which a controlling proportion of the shares is owned by
the same interest that owns a controlling proportion of the shares
of his bank; an
4. The loan or financial accommodation of the director, officer or
stockholder, singly or with that of his related interest, is in excess
of 5% of the capital and surplus of the lending bank or in the
maximum amount permitted by law, whichever is lower.
A “stockholder” in this rule means one who owns 2% or more of the

subscribed capital stock of the bank.
Page 54 of 147
The term "related interest" shall include the following:

1. Spouse or relative within the 1st degree of consanguinity or
affinity, or relative by legal adoption;
2. Partnership where the DOS or his spouse or relative within the
1st degree of consanguinity or affinity, or relative by legal
adoption, is a general partner;
3. Co-owner with the DOS or his spouse or relative within the first
degree of consanguinity or affinity, or relative by legal adoption,
of the property or interest or right mortgaged, pledged or
assigned to secure the loans or credit accommodations, except
when the mortgage, pledge or assignment covers only said
co-owner's undivided interest;
4. Corporation, association, or firm of which a director or officer of
the bank, or his spouse is also director or officer of such
corporation, association or firm;
5. Corporation, association or firm of which any or a group of DOS
of the lending bank and/or their spouses or relatives within the
1st degree of consanguinity or affinity, or relative by legal
adoption, hold/own more than 20% of the subscribed capital of
such corporation, or of the equity of such association or firm;
6. Corporation, association or firm wholly or majority-owned or
controlled by any related entity or a group of related entities
mentioned in items (2), (4) and (5).
L. Loan Threshold
1. Real Estate —Sec 37, GBL
Except as the MB may otherwise prescribe, loans and other credit

accommodations against real estate shall not exceed 75% of the
appraised value of the respective real estate security, plus 60% of the
appraised value of the insured improvements, and such loans may be
made to the owner of the real estate or to his assignees.
2. Chattel —Sec 38, GBL
Except as the MB may otherwise prescribe, loans and other credit

accommodations on security of chattels and intangible properties, such
as, but not limited to, patents, trademarks, trade names, and copyrights
shall not exceed 75% of the appraised value of the security, and such
loans and other credit accommodations may be made to the title-holder
of the chattels and intangible properties or his assignees.
M. Foreclosure and Redemption of Collaterals
1. Judicial vs. Extrajudicial Foreclosure

—Rule 68 of the Rules of Court vs. Act no. 3135
Page 55 of 147
Judicial foreclosure is provided under Rule 68 of the Rules of Court. It

is a special civil action or suit filed in court by the mortgagee-creditor
against the mortgagor-debtor or any other persons claiming subordinate
interest in the property intended to secure performance of the principal
obligation by directly going after the mortgaged property.
Procedure of judicial foreclosure under Rule 68

1. The mortgagee will file a petition for judicial foreclosure in the
court which has jurisdiction over the area where the property is
situated.
2. After trial, if the court finds merit in the petition, it will render
judgment ordering the mortgagor to pay the obligation within a
period of not less than 90 but not more than 120 days from the
finality of judgment.
3. Within this period, the mortgagor has the chance to pay the
obligation to prevent his property from being sold. This is called
the equity of redemption p eriod.
4. If mortgagor fails to pay within that period, the property shall be
sold to the highest bidder at a public auction.
5. There should be a judicial confirmation of the sale.
a. If there is none, the equity of redemption is deemed
extended, until the sale is confirmed. Thus, even after
120 days, the mortgagor may still redeem, so long as
there is no confirmation of sale yet.
b. Once there is a confirmation, the right of redemption no
longer exists. The purchaser (highest bidder) is now
entitled to possession of the property and all the rights
which the mortgagor had with respect to the property.
Extrajudicial foreclosure is provided under Act no. 3135, as amended

by Act no. 4118. It is initiated by merely filing a petition with the executive
judge, through the clerk of court who is also the ex-officio sheriff.
Procedure of extrajudicial foreclosure under Act 3135, as amended:

1. An application for extra-judicial foreclosure of mortgage will be
filed with the Executive Judge, through the Clerk of Court who is
also the Ex-Officio Sheriff.
2. After the clerk of court examines the application and finds that
the applicant complied with the requirements, and after notice in
a newspaper of general circulation for 3 consecutive weeks, the
sale will be made in a public auction, between 9AM to 4PM at
the direction of the Sheriff, justice of the peace, or a notary
public. The creditor, trustee, or persons authorized to act for the
creditor may join the bid, unless expressly disallowed in the
mortgage or trust deed.
Page 56 of 147
3. Right of redemption — The debtor, his successors in interest, a

judicial creditor of the debtor, or anyone with a lien on the
property subsequent to the mortgage or trust deed, may redeem
the property within 1 year from the date of sale.
4. Within this redemption period, the purchaser in the public auction
may file a petition in the RTC where the property is situated to
give him possession during the redemption period. A bond will
be filed, equivalent to the use of the property for 12 months.
Then the court will order the sheriff to issue a writ of possession,
to be executed immediately.
5. On the part of the debtor, within 30 days after the purchaser is
given possession, he/she may file a petition to set aside the sale
and to cancel the writ of possession, on the ground that (a) the
mortgage was not violated; or (b) the sale was not in accordance
with Act no. 3135. If the court finds merit, the bond furnished by
the purchaser will be disposed to the debtor.
Case — Huerta Alba Resort, lnc. (HARI) vs. CA, GR No. 128567;
September 1, 2000
Facts: Syndicate Management Group Inc. (SMGI), as

mortgagee-assignee, filed a petition for judicial foreclosure for properties
mortgaged by HARI (mortgagor-debtor), to Intercon Fund Resources Inc.
(original creditor and predecessor in interest of SMGI).
The RTC granted the petition, ordering HARI to pay the debt plus
interest, charges, and fees “within a period of not less than 150 days
from receipt”, otherwise, the properties mortgaged would be sold to
satisfy the judgment.
HARI appealed to the CA, then to the SC, but all appeals and petitions
for certiorari were dismissed. Thus, the RTC’s decision became final on
March 14, 1994. In July, a writ of execution was issued, and a public sale
was scheduled on September 6, 1994.
Before the sale, HARI filed an Urgent Motion to Quash and Set Aside
Writ of Execution, mainly arguing that the 150-day stated in the
resolution has not yet lapsed because of the intervening appeals. The
RTC dismissed the motion, so the case was elevated to the CA.
Meanwhile, the sale pushed through on September 6, and Sydicate

emerged as highest bidder. Accordingly, a certificate of sale was issued
in its favor and the property was transferred to its name.
Going back to the appeal, the CA held that the150-day equity of

redemption period should be computed from the date HARI was notified
Page 57 of 147
of the Entry of Judgment, and such period already expired on September

11, 1994.
Unfazed by the multiple rejections, HARI initiated another Motion for

Clarification asking the RTC to clarify “whether or not the 12-month
period of redemption for ordinary execution applied in the case.”
This time, HARI invokes a provision in the GBA which states that: “in
case of a foreclosure of a mortgage in favor of a bank, banking or credit
institution, whether judicially or extrajudicially, the mortgagor shall have
the right, within one year after the sale of the real estate as a result of the
foreclosure of the respective mortgage, to redeem the property."
The RTC answered that the period of redemption is governed by Rule 68

of the Rules of Court. On appeal, the CA held that the one-year “right of
redemption” does not apply here because it was a judicial foreclosure
(equity of redemption applies) and not an extrajudicial foreclosure (where
there is a right of redemption). Moreover, the GBL provision does not
apply to it because Syndicate is not a bank or credit instruction.
Issue: May HARI exercise the one-year right of redemption provided

under the GBL?
Ruling: Yes, but HARI failed to seasonably invoke this right. The GBL
provision may apply to the case because even though the purchaser
(Syndicate) was not a bank or credit institution, its predecessor in interest
(Intercom) was a credit institution. However, HARI was late in invoking
the one-year right of redemption. It should have raised this at the earliest
opportunity, that is, when it submitted its answer to the complaint for
judicial foreclosure.
First, the SC discussed the distinctions between equity of redemption

and right of redemption:
"The right of redemption in relation to a mortgage is the prerogative to
re-acquire mortgaged property after registration of the foreclosure sale. It
exists only in the case of the extrajudicial foreclosure of the mortgage.
No such right is recognized in a judicial foreclosure except only where
the mortgagee is a bank or banking institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the

mortgagor the right of redemption within one year from the registration of
the sheriff's certificate of foreclosure sale.
Where the foreclosure is judicially effected, however, no equivalent right

of redemption exists. The law declares that a judicial foreclosure sale,
there exists only what is known as the equity of redemption. This is
simply the right of the defendant mortgagor to extinguish the mortgage
Page 58 of 147
and retain ownership of the property by paying the secured debt within
the prescribed period (note: it is now 90-120 days) after the judgment
becomes final, or even after the foreclosure sale if there was no
confirmation of sale yet. After such order of confirmation, no redemption
can be effected any longer.
2. Redemption (Mortgagee is a Bank or Quasi-Bank)
a. Natural Person
—Sec 6, Act no. 3135 in relation to Sec 47, GBL; See BSP Circular No.
337 Series of 2002
Under Act no. 3135, the debtor or any person with a lien on the property
subsequent to the mortgage under which the property was foreclosed,
may “redeem within the term of one year from and after the date of the
sale”. This applies to extrajudicial foreclosures.
Under the GBL and BSP Circular 337, the mortgagor or debtor who used
his real property as security for a loan in a bank which later foreclosed,
has the right to redeem the property within one year after its sale. This
applies whether the foreclosure was done judicially or extrajudicially.
The purchaser at the auction sale concerned shall have the right to enter
upon and take possession of the foreclosed property immediately after
the date of the confirmation of the auction sale.
Sec 47, GBL

b. Juridical Person —
Juridical persons whose property is being sold pursuant to an

extrajudicial foreclosure, have the right to redeem the property in the
same manner as above, but not after, the registration of the certificate of
foreclosure sale with the applicable Register of Deeds, which shall in no
case be more than 3 months after foreclosure, whichever is earlier.
Case — Goldenway Merchandising Corporation vs. Equitable PCI

Bank, GR No. 195540
Facts: Goldenway’s property was extrajudicially foreclosed on December

13, 2000. Equitable PCIBank was the purchaser. Accordingly, a
Certificate of Sale was issued to the bank. On February 16, 2001, the
sale was registered and inscribed on the TCTs.
On March 8, 2001, Goldenway’s counsel offered to redeem the

foreclosed properties by tendering a check in the amount of 3.5M (the
exact price it was bought in the public auction). However, Goldenway
was told that such redemption is no longer possible because the
Page 59 of 147
certificate of sale had already been registered. New certificates of title

were issued in the name of the bank on March 9, 2001.
Thus, Goldenway filed a complaint, asserting that it is the one-year

period of redemption under Act No. 3135 that should apply, and not the
shorter redemption period provided in RA 8791 (GBL).
The bank contended that Goldenway had all the opportune time to
redeem the foreclosed properties from the time it received the letter of
demand and the notice of sale before the registration of the certificate of
sale. And even if we assume that the redemption was timely made, it
was not for the amount as required by law.
Under the new GBL, juridical persons are allowed to exercise the right of
redemption only "until, but not after, the registration of the certificate of
foreclosure sale" and in no case more than 3 months after foreclosure,
whichever comes first. (Section 47)
Goldenway insists that Section 47, GBL should not apply to them
because their mortgage contract expressly stated that any foreclosure
should be in accordance with Act no. 3135. Their contract was executed
in 1985. GBL only became a law in 2000.
Issue: What is the period of redemption applicable in this case, where

the debtor-mortgagor is a juridical person?
(May Section 47, GBL be validly applied in this case when the mortgage
contract was executed in 1985 and the mortgage foreclosed when GBL
was already in effect?— Yes.)
Section 47, GBL did not divest juridical persons of the right to redeem but
only modified the time for the exercise of such right by reducing the
one-year period originally provided in Act No. 3135. The new redemption
period commences from the date of foreclosure sale, and expires upon
registration of the certificate of sale or three months after foreclosure,
whichever is earlier.
There is likewise no retroactive application of the new redemption period

because Section 47 exempts from its operation those properties
foreclosed prior to its effectivity. Here, the foreclosure happened in
December 2000. GBL took effect on June 13, 2000.
Issue: Does Section 47, GBL infringe the equal protection clause
because it discriminates against mortgagors who are juridical persons?
Ruling: No. There is reasonable classification.
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The equal protection clause is directed principally against undue favor

and individual or class privilege. It does not require absolute equality, but
merely that all persons be treated alike under like conditions.
Equal protection permits reasonable classification.
If classification is germane to the purpose of the law, concerns all

members of the class, and applies equally to present and future
conditions, the classification does not violate the equal protection
guarantee. In this case, there was valid classification:
The difference in the treatment of juridical persons and natural

persons was based on the nature of the properties foreclosed –
whether these are used as residence, for which the more liberal
one-year redemption period is retained, or used for industrial or
commercial purposes, in which case a shorter term is deemed
necessary to reduce the period of uncertainty in the ownership of
property and enable mortgagee-banks to dispose sooner of
these acquired assets.
c. Amount to be paid in redemption —Sec 47, GBL
Redemption may be done by paying:

1. Amount due under the mortgage deed;
2. Interest, at the rate specified in the mortgage; and
3. All the costs and expenses incurred by the bank or institution
from the sale and custody of said property, less the income
derived from the property.
3. Prohibited Acts of Borrowers —Sec 55.2, GBL
No borrower of a bank shall:

1. Fraudulently overvalue property offered as security for a loan or
other credit accommodation from the bank;
2. Furnish false or make misrepresentation or suppression of
material facts for the purpose of obtaining, renewing, or
increasing a loan or other credit accommodation or extending the
period;
3. Attempt to defraud the said bank in the event of a court action to
recover a loan or other credit accommodation; or
4. Offer any director, officer, employee or agent of a bank any gift,
fee, commission, or any other form of compensation in order to
influence such persons into approving a loan or other credit
accommodation application.
Page 61 of 147
IX. OWNERSHIP OF BANKS
A. Foreign Equity in a Domestic Bank —Sec 11, GBL
Foreign individuals and non-bank corporations may own or control up to

40% of the voting stock of a domestic bank. This rule shall apply to
Filipinos and domestic non-bank corporations.
The percentage of foreign-owned voting stocks in a bank shall be

determined by the citizenship of the individual stockholders in that bank.
The citizenship of the corporation which is a stockholder in a bank shall

follow the citizenship of the controlling stockholders of the corporation,
irrespective of the place of incorporation.
B. Foreign Banks Operation in the Philippines
1. Modes of Entry —Sec 2, RA 7721, "Foreign Banks Liberalization

Act", as amended by RA 10641
The MB may authorize foreign banks to operate in the Philippine banking

system through any one of the following modes of entry:
1. by acquiring, purchasing or owning up to 100% of the voting
stock of an existing bank;
2. by investing in up to 100% of the voting stock of a new banking
subsidiary incorporated under the laws of the Philippines; or
3. by establishing branches with full banking authority.
2. Limitation —Sec 2, RA 10641
Under the old law: A foreign bank may avail itself of only 1 mode of entry,
and a foreign bank or a Philippine corporation may own up to 60% of the
voting stock of only 1 domestic bank or new banking subsidiary. RA
10641 has deleted these limitations.
However, RA 10641 added these:

a. Only established, reputable and financially sound foreign banks
shall be allowed entry.
b. The foreign bank applicant must be widely-owned and
publicly-listed in its country of origin, unless the foreign bank
applicant is owned and controlled by the government of its
country of origin.
c. In the exercise of this authority, the MB shall adopt such
measures as may be necessary to ensure that the control of at
60% of the resources or assets of the entire banking system is
held by domestic banks which are majority-owned by Filipinos.
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3. Criteria/Guidelines for Entry —Sec 2, RA 10641
In approving entry applications of foreign banks, the MB shall:

1. ensure geographic representation and complementation;
2. consider strategic trade and investment relationships between
the Philippines and the country of incorporation of the foreign
bank;
3. study the demonstrated capacity, global reputation for financial
innovations and stability in a competitive environment of the
applicant;
4. see to it that reciprocity rights are enjoyed by Philippine banks in
the applicant’s country; and
5. consider willingness to fully share their technology.
4. Right of a Foreign Bank to Bid in a Foreclosure Sale

—Sec 6, RA 10641
Foreign banks authorized to do banking business in the Philippines are

allowed to:
1. bid and take part in foreclosure sales of real property mortgaged
to them;
2. avail of enforcement and other proceedings; and
3. take possession of the mortgaged property, for a period not 5
years from actual possession. However, title to the property
cannot be transferred to such foreign bank.
In case said bank is the winning bidder, it shall, during the 5-year period,
transfer its rights to a qualified Philippine national, without prejudice to a
borrower’s rights under applicable laws.
If the bank fails to transfer such property within the 5-year period, it shall
be penalized ½ of 1% per annum of the price at which the property was
foreclosed until it is able to transfer the property to a qualified Philippine
national.
C. Offshore Banking
—Sec 1, PD 1034, "Offshore Banking System Decree"
Offshore Banking shall refer to the conduct of banking transactions in

foreign currencies involving the receipt of funds from external sources
and the utilization of such funds.
Offshore Banking Unit shall mean a branch, subsidiary or affiliate of a

foreign banking corporation which is duly authorized by the Central Bank
of the Philippines to transact offshore banking business in the
Philippines.
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X. BANK DIRECTORS AND OFFICERS
A. Composition —Secs 15, 17, & 19, GBL
Board of Directors
- There shall be at least 5, and a maximum of 15 members.
- Two of whom shall be independent directors.
- An "independent director" shall mean a person other than an
officer or employee of the bank, its subsidiaries or affiliates or
related interests.
- Non-Filipino citizens may become members to the extent of the
foreign participation in the equity of said bank.
- The meetings of the board of directors may be conducted
through modern technologies such as, but not limited to,
teleconferencing and video-conferencing.
Directors of Merged or Consolidated Banks

- The number of directors shall not exceed 21.
Prohibition on Public Officials

- General rule: N o appointive or elective public official, whether
full-time or part-time, shall at the same time serve as officer of
any private bank.
- Exceptions:
1. If the bank is a rural bank;
2. In cases where such service is incident to financial
assistance provided by the government or a GOCC to
the bank; or
3. When provided under existing laws.
Board of Directors of a Rural Bank

—Sec 5, RA 7353
- All members of the Board of Directors of the rural bank shall be
citizens of the Philippines at the time of their assumption to
office.
- Appointive or elective public officials are from serving as director,
officer, consultant or in any capacity in the bank.
- The DOSRI rule and exception also apply.
- The MB may regulate the amount of credit accommodations that
may be extended directly to the directors, officers or
stockholders of rural banks of banking institutions.
- However, the outstanding credit accommodations which a rural
bank may extend to each of its stockholders owning 2% or more
of the subscribed capital stock, its directors, or officers shall be
limited to an amount equivalent to the respective outstanding
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deposits and book value of the paid-in capital contributions in the

bank.
B. Fit and Proper Rule —Sec 16, GBL
To maintain the quality of bank management and afford better protection

to depositors and the public in general, the MB shall:
1. prescribe, pass upon, and review the qualifications and
disqualifications of individuals elected or appointed bank
directors or officers; and
2. disqualify those found unfit.
After due notice to the board of directors of the bank, the MB may
disqualify, suspend, or remove any bank director or officer who commits
or omits an act which renders him unfit for the position.
In determining whether an individual is fit and proper to hold the position

of a director or officer of a bank, regard shall be given to his:
1. integrity;
2. experience;
3. education;
4. training; and
5. competence.
Case — Busuego vs. CA; G.R. No. 95326 March 11, 1999
Facts: Several anomalies and irregularities committed by certain

directors (Romeo Busuego, et al.) were uncovered during an
examination of PAL Employees Savings and Loan Association, Inc.
(PESALA)’s records, including questionable investment in multi-million
peso real estate projects, conflict of interest, unwarranted dividends, and
other unsound business practices.
The MB issued a Resolution, requiring the Board of Directors of PESALA

to file civil and criminal cases against Busuego, et al., for all the
misfeasance and malfeasance they committed, as warranted by the
evidence.
Issue: Busuego, et al., claim MB violated their right to due process and
deprived them of their opportunity to be heard before the issuance of the
Resolution.
Ruling: Their right to due process was not violated. They were given
ample opportunity by the MB to air their submission and defenses as to
the findings of irregularity during the regular examination.
The petitioners had the opportunity to present their position to the MB by
their letters-explanation, thus, they were not denied due process.
Page 65 of 147
Petitioners cite Ang Tibay v. CIR and assert that the following requisites
of procedural due process were not observed by the Monetary Board:
1. The right to a hearing, which includes the right to present one's
case and submit evidence in support;
2. The tribunal must consider the evidence presented;
3. The decision must have something to support itself;
4. The evidence must be substantial;
5. The decision must be rendered on the evidence presented at the
hearing, or at least contained in the record and disclosed to the
parties affected;
6. The tribunal or body or any of its judges must act on its or his
own independent consideration of the law and facts of the
controversy and not simply accept the view of a subordinate in
arriving at a decision;
7. The board or body should, in all controversial questions, render
its decision in such manner that the parties to the proceedings
can know the various issues involved and the reason for the
decision rendered.
All of these requisites were satisfied by the MB:

1. The petitioners were invited to a conference to discuss the
findings gathered during the examination of PESALA's records.
The requirement of a hearing is complied with as long as there
was an opportunity to be heard. It is not necessary that an actual
hearing be conducted.
2. The Monetary Board considered the evidence presented.
3. 4. and 5. The MB Resolution was adopted on the basis of said
findings unearthed during the regular examination of PESALA's
records and derived from the letter-comments submitted by the
parties.
6. The members of the MB acted independently on their own in
issuing subject Resolution, placing reliance on the said findings.
7. The reason for the issuance of the Resolution is readily
apparent, which is to prevent further irregularities from being
committed and to prosecute the officials responsible.
The MB, as an administrative agency, is legally bound to observe due

process, but they are free from the rigidity of certain procedural
requirements. The standard of due process that must be met in
administrative tribunals allows a certain latitude as long as the element of
fairness is not ignored. Hence, there is no denial of due process where
records show that hearings were held with prior notice to adverse parties.
But even in the absence of previous notice, there is no denial of
procedural due process as long as the parties are given the opportunity
to be heard.
Page 66 of 147
The Bangko Sentral, through the Monetary Board, is the government

agency charged with the responsibility of administering the monetary,
banking and credit system of the country. It is granted the power of
supervision and examination over banks and non-bank financial
institutions performing quasi-banking functions, e.g., savings and loan
associations, such as PESALA.
The special law governing savings and loan associations is RA 3779. It

authorizes the MB to conduct regular yearly examinations of the books
and records. If any irregularity is discovered in the process, the MB may
impose appropriate sanctions, such as suspending the offender from
holding office or from being employed with the Central Bank, or placing
the names of the offenders in a watchlist.
The requirement of prior notice is relaxed, as investigations or

examinations may be conducted with or without prior notice, "but always
with fairness and reasonable opportunity for the association or any of its
officials to give their side."
C. Remedies of the BSP for a Bank in Distress
1. Emergency Loan —Sec 84, NCBA
The MB may authorize Bangko Sentral to grant extraordinary loans or

advances to banking institutions, when these requisites are satisfied:
1. There is a national or local emergency, or imminent financial
panic which directly threatens monetary and banking stability;
2. There is a vote of at least 5 of its members; and
3. While such loans or advances are outstanding, the debtor
institution shall not, except upon prior authorization by the
Monetary Board, expand the total volume of its loans or
investments.
The MB may also grant emergency loans or advances to banking

institutions, even during normal periods, when:
1. The purpose is to assist a bank in a precarious financial
condition or under serious financial pressures brought by
unforeseen events, or events which, though foreseeable, could
not be prevented by the bank concerned;
2. The bank is not insolvent and has the assets to secure the
advances; and
3. There is a concurrent vote of at least 5 members of the MB.
How much emergency loan may be given?

- The amount of any emergency loan or advance shall not exceed
the sum of 50% of total deposits and deposit substitutes of the
banking institution.
Page 67 of 147
- It shall be disbursed in 2 or more tranches. The amount of the

first tranche shall be limited to 25% of the total deposit and
deposit substitutes of the institution and shall be secured by
government securities and other unencumbered first class
collaterals which the MB may approve.
- But this 25% may be more if circumstances surrounding the
emergency warrant it and the principal stockholders of the
institution furnish an acceptable undertaking to indemnify and
hold harmless from suit a conservator whose appointment the
Monetary Board may find necessary at any time.
2. Conservatorship —Sec 29, NCBA
The MB may appoint a conservator when:

1. There is a finding that a bank or a quasi-bank is in a state of
continuing inability or unwillingness to maintain a condition of
liquidity deemed adequate to protect the interest of depositors
and creditors; and
2. This finding was on the basis of a report submitted by the
appropriate supervising or examining department.
Powers of the conservator:

1. Take charge of the assets, liabilities, and the management;
2. Reorganize the management;
3. Collect all monies and debts due said institution;
4. Exercise all powers necessary to restore its viability;
5. Report and be responsible to the Monetary Board;
6. Overrule or revoke the actions of the previous management and
board of directors of the bank or quasi-bank.
Qualifications of a conservator:
1. Competent; and
2. Knowledgeable in bank operations and management.
Term: The conservatorship shall not exceed one year.
Remuneration: The conservator shall receive remuneration to be fixed by

the MB in an amount not to exceed 2/3 of the salary of the president of
the institution 1 year, payable in 12 equal monthly payments. If the
conservator is connected with the Bangko Sentral, he shall not be
entitled to receive any remuneration.
Costs: The expenses attendant to the conservatorship shall be borne by

the bank or quasi-bank concerned.
The MB shall terminate the conservatorship:
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1. When it is satisfied that the institution can continue to operate on

its own and the conservatorship is no longer necessary; or
2. When, 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 loss to its depositors or
creditors, in which case there would be a Receivership.
3. Receivership & Liquidation —Sec 30, NCBA as amended by RA

11211 (2018), in relation to Sec 56, GBL
Under the NCBA, the MB may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines and
designate the PDIC as receiver and direct it to proceed with the
liquidation of the closed bank, whenever, upon report of the head of the
supervising or examining department, the MB finds that a bank or
quasi-bank:
1. has notified the Bangko Sentral or publicly announced a
unilateral closure;
2. has been dormant for at least 60 days;
3. in any manner has suspended the payment of its deposit/deposit
substitute liabilities;
4. is unable to pay its liabilities as they become due in the ordinary
course of business (but this does not include inability to pay
caused by extraordinary demands induced by financial panic in
the banking community);
5. has insufficient realizable assets, as determined by the Bangko
Sentral, to meet its liabilities;
6. cannot continue in business without involving probable losses to
its depositors or creditors;
7. has willfully violated a cease and desist order under the NCBA
that has become final, involving acts or transactions which
amount to fraud or a dissipation of the assets of the institution.
The Monetary Board shall notify in writing, through the receiver, the
board of directors of the closed bank of its decision.
Remedy of the bank:

The actions of the MB regarding Conservatorship or Receivership are
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.
This may only be filed by the stockholders of record representing the

majority of the capital stock within 10 days from receipt by the board of
directors of the institution of the order directing receivership, liquidation
or conservatorship.
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Appointment:
- The designation of a conservator or the appointment of a
receiver under is vested exclusively with the Monetary Board.
- The designation of a conservator is not a precondition to the
designation of a receiver.
Under the GBL, in determining whether a particular act or omission,

which is not otherwise prohibited by any law, rule or regulation affecting
banks, quasi-banks or trust entities, may be deemed as conducting
business in an unsafe or unsound manner, the MB shall consider any of
the following circumstances:
1. The act or omission has resulted or may result in material loss or
damage, or abnormal risk or danger to the safety, stability,
liquidity or solvency of the institution;
2. The act or omission has resulted or may result in material loss or
damage or abnormal risk to the institution's depositors, creditors,
investors, stockholders or to the Bangko Sentral or to the public
in general;
3. The act or omission has caused any undue injury, or has given
any unwarranted benefits, advantage or preference to the bank
or any party in the discharge by the director or officer of his
duties and responsibilities through manifest partiality, evident
bad faith or gross inexcusable negligence; or
4. The act or omission involves entering into any contract or
transaction manifestly and grossly disadvantageous to the bank,
quasi-bank or trust entity, whether or not the director or officer
profited or will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its

business in an unsafe or unsound manner, the MB may, take action
under Section 30 of the NCBA (Receivership), or immediately exclude
the erring bank from clearing.
Case — Fidelity Savings and Mortgage Bank vs. Cenzon, GR. No.
L-46208; April 5, 1990
Facts: Fidelity was declared insolvent. Spouses Timoteo and Olympia

Santiago filed an action against the bank for sum of money. The CFI
issued an order against the bank, to pay accrued interests on unpaid
deposits, exemplary damages, and attorney’s fees. The liquidation of the
bank was still pending at the time.
Issue: May an insolvent bank be adjusted to pay:

1. Interest on unpaid deposits even after its closure by Bangko
Sentral; and
2. Exemplary damages?
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Ruling:
1. No. A banking institution which has been declared insolvent ands
subsequently ordered closed by the Bangko Sentral cannot be
held liable to pay interest on deposits which accrued during the
period when the bank is actually closed and non-operational.
The obligation to pay interest on the deposit ceases from the
moment the operation of the bank is completely suspended by
the Bangko Sentral.
2. There could be no moral or exemplary damages because there
was no bad faith or fraud on the part of the insolvent bank.
Case — Sps Larrobis vs. PVB, GR. No. 135706; October 1, 2004
Facts: Spouses Larrobis had a debt which fell due on February 27,
1981. The bank was placed under receivership between April 1985 and
August 1992. Thus, the extrajudicial foreclosure in relation to such debt
was only effected on October 18, 1995 — 14 years from their default.
Issue: May the receivership and liquidation period be considered a

fortuitous event which would interrupt the running of the prescriptive
period of bringing actions?
Ruling: No. Receivership is not a fortuitous event which could interrupt

the 10-year prescriptive period for actions. The foreclosure should
therefore be declared void.
When a bank is prohibited from continuing to do business by the Bangko

Sentral, and a receiver is appointed for such bank, that bank would not
be able to do new business, like grant new loans or accept new deposits.
However, the receiver of the bank is in fact obligated to collect debts

owing to the bank, assemble assets to pay the obligation of the bank,
and take steps to prevent asset dissipation. Accordingly, the receiver is
obliged to collect pre-existing debts and foreclose mortgage.
In this case, the 10-year period for bringing an action for foreclosure had
already prescribed. A bank is bound by the acts or failure to act of the
receiver.
D. Effect of Actions of the BSP in Conservatorship and

Receivership
BSP Monetary Board vs. Antonio-Valenzuela, GR. No. 184778;

October 2, 2009
Page 71 of 147
Close now, hear later doctrine: Under the law, the sanction of closure
could be imposed upon a bank by the BSP even without notice and
hearing. The lack of procedural due process would not result in the
invalidity of action by the MB.
This “close now, hear later” scheme is grounded on the practical and
legal considerations to prevent unwarranted dissipation of the bank’s
assets and as a valid exercise of police power to protect the depositors,
creditors, stockholders, and the general public.
Remedy of banks: Actions by the MB regarding receivership are final

and executory. The proper remedy of closed banks is not a writ of
preliminary injunction, but a subsequent judicial inquiry to determine
whether the closure of the bank was attended by grave abuse of
discretion (that is, petition for certiorari, Rule 65).
The “close now, hear later” doctrine has already been justified as a
measure to protect public interest. Swift action is called for on the part of
the BSP when it finds that a bank is in dire straits.
Unless adequate and determined efforts are taken by the government

against distressed and mismanaged banks, public faith in the banking
system is certain to deteriorate to the prejudice of the national economy
and the bank’s depositors, creditors, and stockholders.
XI. THE BANGKO SENTRAL NG PILIPINAS
A. Creation —Sec 2, NCBA, as amended
The NCBA established an independent central monetary authority, which

shall be a body corporate known as the Bangko Sentral ng Pilipinas.
The capital of the Bangko Sentral shall be Php200 billion, to be fully

subscribed by the Government of the Republic of the Philippines.
B. Responsibility and Objective —Sec 3, NCBA, as amended
Objectives:
1. Primary — to maintain price stability conducive to a balanced
and sustainable growth of the economy and employment; and
2. Promote and maintain monetary stability and the convertibility of
the Philippine peso.
Responsibilities and powers:

1. Provide policy directions in the areas of money, banking, and
credit;
Page 72 of 147
2. Exercise supervision over the operations of banks, and

regulatory and examination powers;
3. Exercise regulatory and examination powers over money service
businesses, credit granting businesses, and payment system
operators;
4. Promote financial stability and closely work with the National
Government, including, but not limited to, the Department of
Finance, Securities and Exchange Commission, the Insurance
Commission, and the Philippine Deposit Insurance Corporation;
5. Oversee the payment and settlement systems in the Philippines,
including critical financial market infrastructures, in order to
promote sound and prudent practices consistent with the
maintenance of financial stability.; and
6. Promote broad and convenient access to high quality financial
services and consider the interest of the general public.
C. Composition of the Monetary Board —Sec 6, NCBA
The powers and functions of the Bangko Sentral shall be exercised by

the Monetary Board:
- composed of 7 members;
- appointed by the President of the Philippines;
- for a term of 6 years. (No member of the Monetary Board may be
reappointed more than once.)
The seven members are:

1. The Governor of the Bangko Sentral, who shall be the Chairman
of the Monetary Board. He/she shall be head of a department
and his/her appointment shall be subject to confirmation by the
Commission on Appointments. Whenever the Governor is unable
to attend a meeting of the Board, he shall designate a Deputy
Governor to act as his alternate. In such event, the Monetary
Board shall designate one of its members as acting Chairman;
2. A member of the Cabinet to be designated by the President of
the Philippines. Whenever the designated Cabinet Member is
unable to attend a meeting of the Board, he shall designate an
Undersecretary in his Department to attend as his alternate; and
3. Five members from the private sector, all of whom shall serve
full-time.
D. Vacancies —Sec 7, NCBA
Any vacancy created by the death, resignation, or removal of any

member shall be filled by the appointment of a new member to complete
the unexpired period of the term of the member concerned.
E. Qualifications —Sec 8, NCBA
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The members of the Monetary Board must be:

1. natural-born citizens of the Philippines;
2. at least 35 years old, with the exception of the Governor who
should at least 40;
3. of good moral character;
4. of unquestionable integrity;
5. of known probity and patriotism; and
6. with recognized competence in social and economic disciplines.
F. Disqualifications —Sec 9, NCBA
A member of the Monetary Board is disqualified from being a director,

officer, employee, consultant, lawyer, agent, or stockholder of any bank,
quasi-bank or any other institution which is subject to supervision or
examination by the Bangko Sentral.
If he/she is any of those, he/she should resign from, and divest himself of
any and all interests in such institution before assuming office as a
member of the Monetary Board.
The members coming from the private sector shall not hold any other
public office or public employment during their tenure.
Before appointment:
No person shall be a member if he has been connected directly with any
multilateral banking or financial institution or has a substantial interest in
any private bank in the Philippines, within 1 year prior to his appointment;
After appointment:
No member of the Monetary Board shall be employed in any multilateral
banking or financial institution within 2 years after the expiration of his
term, except when he serves as an official representative of the
Philippine Government to such institution.
G. Removal —Sec 10, NCBA
The President may remove any member for any of the following reasons:
1. If the member is subsequently disqualified for not meeting the
qualifications under Section 8;
2. If he/she is physically or mentally incapacitated that he/she
cannot properly discharge his/her duties and responsibilities and
such incapacity has lasted for more than 6 months;
3. 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
4. If he/she no longer possesses the qualifications.
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H. Examination —Sec 28, NCBA, as amended
The supervising and examining department head, personally or by

deputy, shall examine the operations of every bank and quasi-bank,
including their subsidiaries and affiliates engaged in allied activities, and
other entities subject to Bangko Sentral supervision, in accordance with
the guidelines set by the Monetary Board taking into consideration sound
and prudent practices.
There are two kinds of examination by the MB:

- Regular: There shall be an interval of at least 12 months
between regular examinations.
- Special: The Monetary Board, by an affirmative vote of at least 5
members, may authorize a special examination if the
circumstances warrant.
The bank or institution concerned shall afford to the head of the

appropriate supervising and examining departments and to his
authorized deputies full opportunity to examine its books and records,
cash and assets and general condition and review its systems and
procedures at any time during business hours when requested to do so
by the Bangko Sentral.
Confidentiality:
None of the reports and other papers relative to such examinations shall
be open to inspection by the public, except:
1. Insofar as such publicity is incidental to the proceedings under
the NCBA; or
2. If it is necessary for the prosecution of violations in connection
with the business of the institution.
Supervision Fee:
Supervised institutions shall pay to the Bangko Sentral, no later than May
31 of each year, an annual supervision fee as may be prescribed by the
Monetary Board. In determining the amount of the annual supervision
fee, the Monetary Board shall consider the costs of supervision.
l. Supervisory Powers —Sec 4, GBL; Sec 25, NCBA, as amended
The Bangko Sentral has supervision over banking institutions and

quasi-banks, including their subsidiaries and affiliates engaged in allied
activities.
"Supervision" includes:
1. The issuance of rules of conduct or the establishment of
standards of operation for uniform application to all institutions or
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functions covered, taking into consideration the distinctive

character of the operations of institutions and the substantive
similarities of specific functions to which such rules, modes or
standards are to be applied;
2. The conduct of examination to determine compliance with laws
and regulations if the circumstances so warrant as determined
by the Monetary Board;
3. Overseeing to ascertain that laws and regulations are complied
with;
4. Regular investigation which shall not be more than once a year
from the last date of examination to determine whether an
institution is conducting its business on a safe or sound basis
(The deficiencies/irregularities found by or discovered by an
audit shall be immediately addressed);
5. Inquiring into the solvency and liquidity of the institution; and
6. Enforcing prompt corrective action.
The Bangko Sentral shall establish a mechanism for issues arising from
bank examinations. It shall be independent and report directly to the
Monetary Board, without prejudice to the authority of the Bangko Sentral
and its Monetary Board to take enforcement and supervisory actions
against supervised entities.
The department heads and the examiners of the supervising and/or

examining departments are authorized:
1. to administer oaths to any director, officer, or employee of any
institution under their supervision or subject to their examination;
and
2. to compel the presentation of all books, documents, papers or
records necessary in their judgment to ascertain the facts
relative to the true condition of any institution, subject to secrecy
or confidentiality of bank deposits and bond investments.
J. lnjunction —Sec 25, NCBA as amended by RA 11211
he court cannot issue a restraining order or injunction to

General rule: T
enjoin the Bangko Sentral from examining any institution subject to its
supervision or examination.
Exception: Injunction may be issued if there is convincing proof that the

action of the Bangko Sentral is plainly arbitrary and made in bad faith.
The petitioner must file a bond in favor of the Bangko Sentral.
K. Money Function of the BSP —Sec 50 & 52 NCBA
Exclusive Issue Power: The Bangko Sentral has the sole power and
authority to issue currency within the territory of the Philippines.
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- Punishable acts: N o other person or entity may: (a) put into

circulation notes, coins or any other object or document which
might circulate as currency; nor (b) reproduce or imitate the
facsimiles of Bangko Sentral notes without prior authority.
- The Bangko Sentral is authorized to investigate, make arrests,
conduct searches and seizures in accordance with law, for the
purpose of maintaining the integrity of the currency.
- Violation of this shall constitute an offense punishable by
imprisonment of not less than 5 years but not more than 10
years. In case the Revised Penal Code provides for a greater
penalty, then that penalty shall be imposed.
Legal Tender Power: All notes and coins issued by the Bangko Sentral
are fully guaranteed by the Government of the Republic of the
Philippines and shall be legal tender in the Philippines for all debts, both
public and private.
L. Concept of legal Tender —BSP Circular No. 537 Series of 2006
Under the NCBA: Unless otherwise fixed by the Monetary Board*, coins
shall be legal tender in amounts not exceeding P50 for denominations of
25 centavos and above, and in amounts not exceeding P20 for
denominations of 10 centavos or less.
Thus, the amounts were adjusted under *BSP Circular 537 (2006). The
maximum amount of coins to be considered as legal tender are:
1. P1,000.00 for denominations of 1-Piso, 5-Piso and 10-Piso
coins; and
2. P100.00 for denominations of 1-sentimo, 5-sentimo, 10-sentimo,
and 25-sentimo coins.
————————————————————————————————
TRUTH IN LENDING
l. Duty to Disclose —Sec 4, RA 3765, "Truth in Lending Act"
reditors.
Who is obliged under this law? C
What is required of them? P rior to the consummation of the transaction,

the creditors furnish to each person to whom credit is extended, a clear
written statement setting forth the following information:
1. the cash price or delivered price of the property or service to be
acquired;
2. the amounts, if any, to be credited as down payment and/or
trade-in;
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3. the difference between the amounts set forth under clauses (1)
and (2);
4. the charges, individually itemized, which are paid or to be paid
by such person in connection with the transaction but which are
not incident to the extension of credit;
5. the total amount to be financed;
6. the finance charge expressed in terms of pesos and centavos;
and
7. the percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.
ll. Effect of Non-Compliance
Case — Silos vs. PNB, 728 SCRA 617 (2014)
Facts: Spouses Silos took a loan in PNB. There was a provision in their
credit agreement stating that the fixing of interest rate and its increase
are to be solely determined by PNB.
Spaces for interest rates in the Credit Agreements and promissory notes
were left blank for PNB to unilateral fill, without the need to obtain the
consent of the petitioners as regards such rates.
Spouses Silos filed the case to have said provision nullified for violating
the Civil Code, particularly the rule on mutuality of contracts. PNB
contended that the petitioners are deemed estopped by their failure to
question the imposed rates, and by their continued payments without
opposition.
Issue: Was the unilateral fixing of interest rates valid?
Ruling: No. In order that obligations arising from contracts may have the
force of law between the parties, there must be mutuality between the
parties based on their essential equality.
A contract containing a condition which makes its fulfillment dependent

exclusively upon the uncontrolled will of one of the contracting parties, is
void. Contract changes, like interest rates, must be made with the
consent of both parties.
Even though they did not question the rates then and still paid them,
estoppel should not apply to the petitioner, because estoppel cannot be
predicated on an illegal act.
By requiring the petitioners to sign the credit documents and the

promissory notes in blank, and then unilaterally filling them up later on,
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PNB violated RA 3765, which was enacted to protect citizens from a lack
of awareness of the true cost of credit to the user by using a full
disclosure of such cost with a view of preventing the uninformed use of
credit to the detriment of the national economy. The law gives a detailed
enumeration of the specific information required to be disclosed, among
which are the interest and charges.
What’s the effect? Since the escalation clause is annulled, the principal
amount of the loan is subject to the original or stipulated rate of interest,
and upon maturity, the amount due shall be subject to legal interest at
the rate of 12% per annum.
The interests paid by petitioners should be applied first to the payment of

the stipulated or legal and unpaid interest, as the case may be, and later,
to the capital or principal. Respondent should then refund the excess
amount of interest that it has illegally imposed upon the petitioner. The
amount to be refunded refers to that paid by petitioners when they had
no obligation to do so.
Case — New Sampaguita Builders Construction, lnc. vs. PNB, GR.

No. 148753, July 30, 2004
Facts: New Sampaguita took out a loan with PNB in an aggregate

amount of Php 8 million. Among the issues raised here was the
baselessness of the increases in interest rates.
There was a uniform clause in the Promissory Notes that permitted the
bank to increase the rate “within the limits allowed by law at any time
depending on whatever policy it may adopt in the future” without giving
prior notice to New Sampaguita. In each drawdown, the Promissory
Notes specified the interest rate to be charged: 19.5% in the first, 21.5%
in the second and third.
Issue: Were the increases in interest valid?
Ruling: No. No interest shall be due, unless expressly stipulated in

writing.
The unilateral and unbridled determination and imposition of increased

rates violates the principle of mutuality of contracts under the Civil Code.
One-sided impositions do not have the force of law between the parties,
because such impositions are not based on the parties’ essential
equality.
The clause in the Promissory Note made the fulfillment of the contracts
dependent exclusively upon the uncontrolled will of PNB and is therefore
void. They have the character of a contract of adhesion, where the
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parties do not bargain on equal footing and the weaker party’s (debtor’s)
participation is reduced to “take it or leave it”.
Nothing in the laws authorized each party to unilaterally raise interests

without the other’s consent.
Case — DBP vs. Felipe Arcilla, GR. No. 161426, June 30, 2005
Facts: Arcilla availed of a loan under the Individual Housing Project of

the bank. He obliged himself to pay the loan in 25 years through monthly
amortizations with 9% interest per annum, to be deducted from his salary
since he was an employee of the bank. Later, he resigned from DBP. He
failed to pay his loan account, advances, penalties, and interests. Thus,
DBP rescinded the Deed of Conditional Sale of the house acquired thru
the loan, and converted it into a regular loan account.
Arcilla filed a complaint against DBP, alleging that the bank failed to
furnish him with the disclosure statement required under the Truth in
Lending Act (RA 3765).
The DBP answered that it had substantially complied with RA 3765

because the details were particularly disclosed in the Promissory Notes
and notices were sent to Arcilla. The Promissory Notes Arcilla signed
contained stipulations on charges, interests, and penalties.
Issue: Did the bank substantially comply with RA 3765?
Ruling: Yes. Although DBP failed to disclose the requisite information in

the disclosure statement for, it did so in the loan transaction documents
(Promissory Notes).
DBP did not seek to collect any charges other than those disclosed in the
documents. It did not demand something that wasn’t stated in the
documents Arcilla signed.
Under Central Bank Circular no. 158, in addition to the 7 items under Sec
4, RA 3765, the contract shall specify additional charges, if any, which
will be collected in case certain contract stipulations are not met by the
debtor. If the borrower is not duly informed of the data required by law,
the lender will have no right to collect such charge or increases, even if
stipulated in the promissory note. However, such failure shall not affect
the validity or enforceability of any contract.
The SC also noted that Arcilla was a lawyer and a former employee of
the bank. He is therefore presumed to to be knowledgeable with these
matters. He was duly informed of the charges and the implications.
Page 80 of 147
Case — Consolidated Bank vs. CA, 246 SCRA 193 (1995)
Facts: George King Tim Pa took out several loans with Consolidated
Bank. In the promissory notes, it was stated that in case of default, the
debtors agree to pay:
(a) 14% interest per annum on the amount due, compounded
monthly, until fully paid;
(b) an additional 10% of the total amount due;
(c) attorney's fees in addition to expenses and costs of suit, which
would bear 1% monthly interest until paid; and
(d) a penalty of 3% per annum on the amount due until fully paid.
After defaulting, the bank filed a case for the recovery of the unpaid
balances on the promissory notes.
Issue: Were the stipulations on (a) interests, (b) handling charges, (c)
penalty charges, and (d) attorney’s fees proper?
Ruling: (a) Yes as to the interests. The charging of compounded interest

is proper as long as the payment has been agreed upon by the parties.
Parties may, by stipulation, capitalize the interest due and unpaid, can
earn new interest. Here, the debtors agreed to the interest stipulations.
(b) No as to handling charges. Under the "Truth in Lending Act", banks

must make the true and effective cost of borrowing an integral part of
every loan contract. The promissory notes signed by the debtors do not
contain any stipulation on the payment of handling charges. The bank
cannot, therefore, charge such handling charges.
(c) Yes as to the penalty charges. The payment of penalty is sanctioned

by law, although the penalty may be reduced by the courts if it is
iniquitous or unconscionable/. The payment of penalty was provided for
under the terms and conditions of the promissory notes. The rate of 3%
per annum of the unpaid balance is considered reasonable and proper.
(d) No as to the attorney’s fees stipulated in the promissory notes. A

stipulation regarding the payment of attorney's fees is neither illegal nor
immoral, and is enforceable, as long as such stipulation does not
contravene law, good morals, good customs, public order or public
policy.
As stated in the promissory notes, George agreed to pay attorney's fees

only "in addition to expenses and costs of suit." In other words, the bank
is entitled to the attorney's fees only in case it was compelled to litigate
with third persons or to incur expenses to protect its interest. Here, there
was no need for the bank to litigate because the debtors had fully paid
Page 81 of 147
their obligations months before it filed the complaint for recovery of sum
of money.
Case — UCPB vs. Beluso, 530 SCRA 567 (2007)
Facts: In the promissory notes of Spouses Samuel and Odette Beluso

with UCPB, it was stated that interest would be “at the rate indicative of
DBD retail rate or as determined by the Branch Head”, determined solely
by the bank. Spouses Beluso questions the validity of this clause.
UCPB contends that while the interest rate was not numerically
quantified in the face of the promissory notes, it was nonetheless
categorically fixed, at the time of execution, because of the phrase "rate
indicative of the DBD retail rate."
First issue: Was the interest stipulation valid?
Ruling: No. The interest rate provision is illegal not only because of the
provisions of the Civil Code on mutuality of contracts, but also because
they violate the Truth in Lending Act. Not disclosing the true finance
charges in connection with the extensions of credit is a form of
deception.
Second issue: The CA imposed a fine of Php26,000 for violation of the

Truth in Lending Act. UCPB contests this, arguing that the original
complaint did not explicitly allege a violation of the said law, thus, there
was no basis for the fine. Was the imposition of the fine proper?
Ruling: Yes, it is proper despite the lack of express allegation in the

original complaint. Infringement of the Truth in Lending Act may be
inferred or implied from allegations that when Spouses Beluso executed
the promissory notes, the interest rate chargeable were left blank. It can
be inferred from this that UCPB failed to discharge its duty to disclose in
full the charges applicable on their loan.
————————————————————————————————
ANTI-MONEY LAUNDERING
l. Governing Laws
RA 9160 or the "Anti-Money Laundering Act of 2001", as amended by:
1. RA 9194 (2002) which amended:

- Sec 3(b) defining ‘covered transaction’
- Inserted Sec 3(b-1) on ‘suspicious transaction’
- Sec 3(i) enumerating what counts as ‘unlawful activity’
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-Sec 4 defining ‘money laundering offense’

-Sec 7 creating the AMLC
-Sec 9(c) on reporting covered and suspicious
transactions
- Sec 10 on freeze order
- Sec 11 on authority to inquire into bank deposits
- Sec 14(c) on malicious reporting, and (d) breach of
confidentiality
- Repealed Sec 15 on system of incentives and rewards
2. RA 10167 (2011) further amending:
- Sec 10 on freeze order
- Sec 11 on authority to inquire into bank deposits
3. RA 10365 (2012) amending:
- Sec 3(a) defining ‘covered persons’
- Sec 3(i) on ‘unlawful activity’— now 34 predicate crimes
- Sec 4 on the definition of a ‘money laundering offense’
- Section 6(a) on the prosecution of money laundering,
which shall proceed independently of any proceeding
relating to the unlawful activity (predicate crime)
- Sec 7 on the AMLC’s power to apply for an ex parte
petition for a freeze order, and to require the LRA and
RODs to submit reports on all real estate transactions
over Php500,000 within 15 days from their registration
- Sec 9(c) on the reporting of covered and suspicious
transactions
- Sec 10 on freeze order, insofar as it can only be
effective for 6 months
- Sec 12 on civil forfeiture
- Sec 14 on penalties
- Inserted Sec 20 which states that thee AMLC cannot
intervene or participate in any manner in the operations
of the BIR
- Inserted Sec 21 which states that inquiry into bank
accounts shall comply with the constitutional provisions
against unreasonable searches and seizures; and on
privacy of communication (Art III, Secs 2 and 3)
ll. Declaration of State Policy

—Sec 2, RA 9160
Purpose of the AMLA: ( 1) to protect and preserve the integrity and

confidentiality of bank accounts; and (2) to ensure that the Philippines
shall not be used as a money laundering site for the proceeds of any
unlawful activity.
Page 83 of 147
Consistent with its foreign policy, the State shall extend cooperation in
transnational investigations and prosecutions of persons involved in
money laundering activities wherever committed.
lll. Money laundering

—Sec 4, as amended by RA 10365
A. Persons liable
1. Any person who, knowing that any monetary instrument or

property represents, involves, or relates to the proceeds of any
unlawful activity:
b. converts, transfers, disposes of, moves, acquires,
possesses or uses said monetary instrument or property;
disposition, movement or ownership of or rights with
respect to said monetary instrument or property;
d. attempts or conspires to commit money laundering
offenses referred to in a, b, and c;
e. aids, abets, assists in or counsels the commission of the
money laundering offenses in a, b, and c.
f. performs or fails to perform any act as a result of which
he facilitates the offense of money laundering referred to
in (a), (b) or (c).
2. Any covered person who, knowing that a covered or suspicious
transaction is required to be reported to the AMLC, fails to do so.
B. Elements of money laundering
1. A person has knowledge that any monetary instrument or

property represents, involves, or relates to the proceeds of any
unlawful activity;
2. Despite that knowledge, the person:
b. converts, transfers, disposes of, moves, acquires,
possesses or uses said monetary instrument or property;
disposition, movement or ownership of or rights with
respect to said monetary instrument or property;
d. attempts or conspires to commit money laundering
offenses;
e. aids, abets, assists in or counsels the commission of the
money laundering offenses;
f. performs or fails to perform any act as a result of which
he facilitates the offense of money laundering.
- OR -
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1. A person is a “covered person” under Sec 3(a) of the AMLA;

2. That person knows that there is a covered or suspicious
transaction that is required to be reported to the AMLA; and
3. That person failed to make such report.
lV. Unlawful Activities / Predicate Crimes

—Sec 3(i), as amended by RA 10365
Unlawful activity refers to any act or omission or series or combination

thereof involving or having direct relation to the following:
“(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the
Revised Penal Code, as amended;
“(2) Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of Republic Act No. 9165, otherwise
known as the Comprehensive Dangerous Drugs Act of 2002;
“(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended,

otherwise known as the Anti-Graft and Corrupt Practices Act;
“(4) Plunder under Republic Act No. 7080, as amended;
“(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the
“(6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602;
“(7) Piracy on the high seas under the Revised Penal Code, as amended and Presidential
Decree No. 532;
“(8) Qualified theft under Article 310 of the Revised Penal Code, as amended;
“(9) Swindling under Article 315 and Other Forms of Swindling under Article 316 of the
“(10) Smuggling under Republic Act Nos. 455 and 1937;
“(11) Violations of Republic Act No. 8792, otherwise known as the Electronic Commerce
Act of 2000;
“(12) Hijacking and other violations under Republic Act No. 6235; destructive arson and
murder, as defined under the Revised Penal Code, as amended;
“(13) Terrorism and conspiracy to commit terrorism as defined and penalized under
Sections 3 and 4 of Republic Act No. 9372;
“(14) Financing of terrorism under Section 4 and offenses punishable under Sections 5, 6, 7
and 8 of Republic Act No. 10168, otherwise known as the Terrorism Financing Prevention
and Suppression Act of 2012:
“(15) Bribery under Articles 210, 211 and 211-A of the Revised Penal Code, as amended,
and Corruption of Public Officers under Article 212 of the Revised Penal Code, as
amended;
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“(16) Frauds and Illegal Exactions and Transactions under Articles 213, 214, 215 and 216
“(17) Malversation of Public Funds and Property under Articles 217 and 222 of the Revised
Penal Code, as amended;
“(18) Forgeries and Counterfeiting under Articles 163, 166, 167, 168, 169 and 176 of the
“(19) Violations of Sections 4 to 6 of Republic Act No. 9208, otherwise known as the
Anti-Trafficking in Persons Act of 2003;
“(20) Violations of Sections 78 to 79 of Chapter IV, of Presidential Decree No. 705,

otherwise known as the Revised Forestry Code of the Philippines, as amended;
“(21) Violations of Sections 86 to 106 of Chapter VI, of Republic Act No. 8550, otherwise
known as the Philippine Fisheries Code of 1998;
“(22) Violations of Sections 101 to 107, and 110 of Republic Act No. 7942, otherwise known
as the Philippine Mining Act of 1995;
“(23) Violations of Section 27(c), (e), (f), (g) and (i), of Republic Act No. 9147, otherwise
known as the Wildlife Resources Conservation and Protection Act;
“(24) Violation of Section 7(b) of Republic Act No. 9072, otherwise known as the National
Caves and Cave Resources Management Protection Act;
“(25) Violation of Republic Act No. 6539, otherwise known as the Anti-Carnapping Act of
2002, as amended;
“(26) Violations of Sections 1, 3 and 5 of Presidential Decree No. 1866, as amended,

otherwise known as the decree Codifying the Laws on Illegal/Unlawful Possession,
Manufacture, Dealing In, Acquisition or Disposition of Firearms, Ammunition or Explosives;
“(27) Violation of Presidential Decree No. 1612, otherwise known as the Anti-Fencing Law;
“(28) Violation of Section 6 of Republic Act No. 8042, otherwise known as the Migrant
Workers and Overseas Filipinos Act of 1995, as amended by Republic Act No. 10022;
“(29) Violation of Republic Act No. 8293, otherwise known as the Intellectual Property Code
of the Philippines;
“(30) Violation of Section 4 of Republic Act No. 9995, otherwise known as the Anti-Photo
and Video Voyeurism Act of 2009;
“(31) Violation of Section 4 of Republic Act No. 9775, otherwise known as the Anti-Child
Pornography Act of 2009;
“(32) Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12 and 14 of Republic Act No.
7610, otherwise known as the Special Protection of Children Against Abuse, Exploitation
and Discrimination;
“(33) Fraudulent practices and other violations under Republic Act No. 8799, otherwise
known as the Securities Regulation Code of 2000; and
“(34) Felonies or offenses of a similar nature that are punishable under the penal laws of
other countries.”
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Same Conduct Approach

In determining whether or not a felony or offense punishable under the
penal laws of other countries is “of a similar nature” so as to constitute an
unlawful activity under the AMLA, it is sufficient that both the Philippines
and the other jurisdiction criminalize the conduct or activity underlying the
offense, regardless of whether both countries place the offense within the
same category, or denominate the offense under the same
nomenclature.
V. Covered Person
—Sec 3(a), as amended by RA 10365
Covered persons may be natural or juridical. There are 7 groups:

1. banks, non-banks, quasi-banks, trust entities, foreign exchange
dealers, pawnshops, money changers, remittance and transfer
companies, other similar entities, and all other persons and their
subsidiaries and affiliates supervised or regulated by the Bangko
Sentral ng Pilipinas (BSP);
2. insurance companies, pre-need companies and all other persons
supervised or regulated by the Insurance Commission (IC);
3. (i) securities dealers, brokers, salesmen, investment houses and
other similar persons managing securities or rendering services
as investment agent, advisor, or consultant, (ii) mutual funds,
close-end investment companies, common trust funds, and other
similar persons, and (iii) other entities administering or otherwise
dealing in currency, commodities or financial derivatives based
thereon, valuable objects, cash substitutes and other similar
monetary instruments or property supervised or regulated by the
Securities and Exchange Commission (SEC);
4. jewelry dealers in precious metals, who trade in precious metals
for transactions in excess of P1,000,000.00;
5. jewelry dealers in precious stones, who trade in precious stones,
for transactions in excess of P1,000,000.00;
6. company service providers which, as a business, provide any of
the following services to third parties: (i) acting as a formation
agent of juridical persons; (ii) acting as (or arranging for another
person to act as) a director or corporate secretary of a company,
a partner of a partnership, or a similar position in relation to other
juridical persons; (iii) providing a registered office, business
address or accommodation, correspondence or administrative
address for a company, a partnership or any other legal person
or arrangement; and (iv) acting as (or arranging for another
person to act as) a nominee shareholder for another person; and
7. persons who provide any of the following services: (i) managing
of client money, securities or other assets; (ii) management of
bank, savings or securities accounts; (iii) organization of
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contributions for the creation, operation or management of

companies; and (iv) creation, operation or management of
juridical persons or arrangements, and buying and selling
business entities.
Covered persons exclude lawyers and accountants acting as

independent legal professionals, provided that:
a. Their engagement is in relation to information concerning their
clients or where disclosure of information would compromise
client confidences or the attorney-client relationship; and
b. They are authorized to practice in the Philippines and shall
continue to be subject to the provisions of their respective codes
of conduct or professional responsibility.
Vl. Anti-Money Laundering Council, "AMLC"

—Sec 7, RA 9160
Composition:
1. Governor of the BSP as Chairman;
2. Commissioner of the Insurance Commission; and
3. Chairman of the SEC.
The AMLC shall act unanimously in the discharge of its functions.
Functions:
1. to require and receive covered or suspicious transaction reports
from covered institutions;
2. to issue orders addressed to the appropriate Supervising
Authority or the covered institution to determine the true identity
of the owner of any monetary instrument or property subject of a
covered transaction or suspicious transaction report or request
for assistance from a foreign State, or believed by the Council,
on the basis of substantial evidence, to be, in whole or in part,
wherever located, representing, involving, or related to, directly
or indirectly, in any manner or by any means, the proceeds of an
unlawful activity.
3. to institute civil forfeiture proceedings and all other remedial
proceedings through the Office of the Solicitor General;
4. to cause the filing of complaints with the Department of Justice
or the Ombudsman for the prosecution of money laundering
offenses;
5. to investigate suspicious transactions and covered transactions
deemed suspicious after an investigation by AMLC, money
laundering activities, and other violations of the AMLA;
6. to apply before the Court of Appeals, ex parte, for the freezing of
any monetary instrument or property alleged to be laundered,
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proceeds from, or instrumentalities used in or intended for use in

any unlawful activity;
7. to implement such measures as may be necessary and justified
under this Act to counteract money laundering;
8. to receive and take action in respect of, any request from foreign
states for assistance in their own anti-money laundering
operations;
9. to develop educational programs on the pernicious effects of
money laundering, the methods and techniques used in money
laundering, the viable means of preventing money laundering
and the effective ways of prosecuting and punishing offenders;
10. to enlist the assistance of any branch, department, bureau,
office, agency or instrumentality of the government, including
GOCCs, in undertaking any and all anti-money laundering
operations, which may include the use of its personnel, facilities
and resources for the more resolute prevention, detection and
investigation of money laundering offenses and prosecution of
offenders;
11. to impose administrative sanctions for the violation of laws, rules,
regulations and orders and resolutions issued pursuant to the
AMLA;
12. to require the Land Registration Authority and all its Registries of
Deeds to submit to the AMLC, reports on all real estate
transactions involving an amount in excess of Php500,000 within
15 days from the date of registration of the transaction, in a form
to be prescribed by the AMLC. The AMLC may also require the
Land Registration Authority and all its Registries of Deeds to
submit copies of relevant documents of all real estate
transactions.
Vll. Prevention of Money laundering
A. Customer ldentification —Sec 9(a), RA 9160
Who are obliged? Covered institutions.
What are they obliged to do under the AMLA?

1. Establish and record the true identity of its clients based on
official documents;
2. Maintain a system of verifying the true identity of their clients
(known in practice as “KYC” or “know your customer/client”;
3. In case of corporate clients, require a system of verifying their
legal existence and organizational structure, as well as the
authority and identification of all persons purporting to act on
their behalf.
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Anonymous accounts, accounts under fictitious names, and all other

similar accounts are absolutely prohibited.
Peso and foreign currency non-checking numbered accounts shall be

allowed. The BSP may conduct annual testing solely limited to the
determination of the existence and true identity of the owners of such
accounts.
B. Record Keeping —Sec 9(b), RA 9160
What records should be kept and for how long?

- All records of all transactions of covered institutions shall be
maintained and safely stored for 5 years from the dates of
transactions.
- With respect to closed accounts, the records on customer
identification, account files and business correspondence, shall
be preserved and safely stored for at least 5 years from the
dates when they were closed.
C. Reporting of Covered and Suspicious Transaction —Sec 9(c)
Covered persons shall report to the AMLC all covered transactions and
suspicious transactions, within 5 working days from occurrence, unless
the AMLC prescribes a different period not exceeding 15 working days.
Should a transaction be determined to be both a covered transaction and

a suspicious transaction, the covered institution shall be required to
report the same as a suspicious transaction.
Exemption — Who are not covered by this duty to report?

Lawyers and accountants acting as independent legal professionals are
not required to report covered and suspicious transactions if the relevant
information was obtained in circumstances where they are subject to
professional secrecy or legal professional privilege.
Protection for Reporting

When reporting covered or suspicious transactions to the AMLC, covered
institutions and their officers and employees shall not be deemed to have
violated the laws on: (1) Secrecy of Bank Deposits Act; (2) Foreign
Currency Deposit Act; (3) General Banking Law; and (4) other similar
laws.
Confidentiality of Reports
- Covered persons are prohibited from communicating, directly or
indirectly, in any manner or by any means, to any person, the
fact that a covered or suspicious transaction report was made,
the contents, or any other relative information.
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- If they communicate such fact to any person, the concerned

officer and employee of the covered institution shall be criminally
liable.
Safe Harbor provision

No administrative, criminal, or civil proceedings, shall lie against any
person for having made a covered or suspicious transaction report in the
regular performance of his duties in good faith, whether or not such
reporting results in any criminal prosecution under the laws.
RA 10365 (2012) has added that:

- Covered persons are also prohibited from communicating, to the
media, the fact that a covered or suspicious transaction has
been reported or is about to be reported, the contents of the
report, or any other information.
- Neither may such reporting be published or aired in any manner
or form by the mass media, electronic mail, or other similar
devices.
- In case of violation, the concerned officer and employee of the
covered person and media shall be held criminally liable.
Vlll. Covered Transaction

—Sec 3(b), as amended by RA 9194
Covered transaction is a transaction in cash or other equivalent

monetary instrument involving a total amount in excess of Php500,000
within one banking day.
Under the IRR, covered transaction also includes:

1. A transaction involving jewelry dealers, dealers in precious
metals, and dealers in precious stones in cash or other
equivalent monetary instrument exceeding Php1,000,000;
2. A casino cash transaction exceeding Php5,000,000 or its
equivalent in other currency. —Rule 2(w), 2018 IRR
lX. Suspicious Transaction

—Sec 3(b-1), as amended by RA 9194
Suspicious transactions are those transactions with covered

institutions, regardless of the amounts involved, where any of the
following circumstances exist:
1. there is no underlying legal or trade obligation, purpose or
economic justification;
2. the client is not properly identified;
3. the amount involved is not commensurate with the business or
financial capacity of the client;
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4. taking into account all known circumstances, it may be perceived

that the client’s transaction is structured in order to avoid being
the subject of reporting requirements under the AMLA;
5. any circumstance relating to the transaction which is observed to
deviate from the profile of the client and/or the client’s past
transactions with the covered institution;
6. the transaction is in any way related to an unlawful activity or
offense under the AMLA that is about to be, is being or has been
committed; or
7. any transaction that is similar or analogous to any of the
foregoing.
X. Safe Harbor
—Sec 9, 2nd par., RA 9160;
Rule 22, Sec 5, 2018 IRR
No administrative, criminal or civil proceedings shall lie against any

person for having made a CTR (covered transaction report) or an STR
(suspicious transaction report) in the regular performance of his duties
and in good faith, whether or not such reporting results in any criminal
prosecution under the AMLA or any other Philippine law.
Xl. Authority to inquire into Bank Deposits

—Sec 11, RA 9160 as amended by RA 10167
Bank Inquiry refers to a provisional remedy that allows the AMLC to

examine or inquire into particular bank accounts or investment with a
financial institution, notwithstanding the bank secrecy laws. —2018 IRR
There are two kinds:

1. Bank inquiry by court order
2. Bank inquiry by AMLC without the need for a court order
Bank Inquiry With Court Order —Rule 11, Sec 1, 2018 IRR
By authority of the Council, the AMLC Secretariat may file before the CA,
through the OSG, an Ex Parte Application for the Issuance of Bank
Inquiry Order to examine or inquire into any particular deposit or
investment account that is related to an unlawful activity or ML offense.
Sec 11, RA 9160 (2001) Sec 11 as amended by RA 10167 (2011)
Authority to Inquire into Bank Authority to Inquire into Bank

Deposits. – xxx the AMLC may Deposits. – xxx the AMLC may inquire
inquire into or examine any into or examine any particular deposit or
particular deposit or investment investment, including related accounts,
with any banking institution or with any banking institution or non-bank
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non-bank financial institution upon financial institution upon order of any

order of any competent court in competent court based on an ex parte
cases of violation of this Act when application in cases of violations of this
it has been established that there Act, when it has been established that
is probable cause that the there is probable cause that the deposits
deposits or investments involved or investments, including related
are in any way related to a money accounts involved, are related to an
laundering offense: Provided, That unlawful activity xxx or a money
this provision shall not apply to laundering offense xxx; except that no
deposits and investments made court order shall be required in cases
prior to the effectivity of this Act. involving activities defined in Section
3(i)(1), (2), and (12), and felonies or
offenses of a similar nature xxx, which
are Punishable under the penal laws of
other countries, and terrorism and
conspiracy to commit terrorism xxx
Rules relating to bank inquiry with court order:

1. Prior criminal charge, pendency of a case, or conviction for an
unlawful activity or ML offense is not necessary for the filing or
the resolution of an application for bank inquiry order.
2. The authority to inquire into or examine the main account and
the related accounts shall comply with the requirements of Article
III, Sections 2 (unreasonable searches and seizures) and 3
(privacy of communication) of the 1987 Constitution.
3. Period to Resolve Application — T he Court of Appeals shall
resolve the application within 24 hours from filing.
4. Ground for Approval — A bank inquiry order will be issued in
cases of violation of the AMLA when it has been established that
probable cause exists that the deposits or investments involved,
including related accounts, are in any way related to an unlawful
activity or ML offense.
Xll. Bank lnquiry Without Court Order

—Sec 3(i) in relation to Section 11 of RA 9160, as amended;
Rule 11, Sec 2, 2018 IRR
The AMLC may issue an ex parte order authorizing the AMLC
Secretariat to inquire into or examine any particular deposit or investment
account, including related accounts, with any banking institution or
non-bank financial institution and their subsidiaries and affiliates.
Grounds
This AMLC inquiry without court order may only be done when it has
been established that probable cause exists that the deposits or
investments involved, including related accounts, are in any way related
to any of the following unlawful activities:
Page 93 of 147
1. Kidnapping for ransom under Article 267 of the RPC;

2. Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of RA 9165,
or the Comprehensive Dangerous Drugs Act of 2002;
3. Hijacking and other violations under RA 6235; destructive arson
and murder, as defined under the RPC;
4. Felonies or offenses of a nature similar to (1), (2), or (3), which
are punishable under the penal laws of other countries;
○ Same Conduct Approach — In determining whether or
not a felony or offense punishable under the penal laws
of other countries is “of a similar nature” so as to
constitute an unlawful activity under the AMLA, it is
sufficient that both the Philippines and the other
jurisdiction criminalize the conduct or activity underlying
the offense, regardless of whether both countries place
the offense within the same category, or denominate the
offense under the same nomenclature.
5. Terrorism and conspiracy to commit terrorism as defined and
penalized under RA 9372; and
6. Financing of terrorism and offenses punishable under Sections
5, 6, 7 and 8 of RA 10168 or the Terrorism Financing Prevention
and Suppression Act.
The relevant requirements for Bank Inquiry with Court Corder shall apply
to Bank Inquiry Order by the AMLC, including the procedure for inquiry
into related accounts.
Xlll. Jurisdiction Over Money Laundering

—Sec 5, RA 9160 as amended
Which court has jurisdiction over ML offenses?

- The RTCs have jurisdiction to try all cases on money laundering.
- The Sandiganbayan has jurisdiction over those committed by
public officers and private persons who are in conspiracy with
such public officers.
XlV. Freeze Order

—Sec. 10, RA 9160 as amended
RA 9194 (2002) RA 10167 (2011) RA 10365 (2012)
Freezing of Monetary Freezing of Monetary Freezing of Monetary

Instrument or Property. Instrument or Property. Instrument or Property.
— The Court of Appeals, — Upon verified ex parte — Upon a verified ex parte
upon application ex parte
petition by the AMLC and petition by the AMLC and
by the AMLC and after
determination that probable after determination that after determination that
cause exists that any probable cause exists that probable cause exists that
monetary instrument or any monetary instrument or any monetary instrument or
property is in any way property is in any way property is in any way
Page 94 of 147
related to an unlawful related to an unlawful related to an unlawful

activity as defined in activity as defined in activity as defined in
Section 3(i) hereof, may Section 3(i) hereof, the Section 3(i) hereof, the
issue a freeze order which
Court of Appeals may Court of Appeals may
shall be effective
immediately. The freeze issue a freeze order, which issue a freeze order which
order shall be for a period shall be effective shall be effective
of twenty (20) days unless immediately. The freeze immediately, and which
extended by the court.” order shall be for a period shall not exceed six (6)
of twenty (20) days unless months depending upon
extended by the court. the circumstances of the
case: Provided, That if
there is no case filed
against a person whose
account has been frozen
within the period
determined by the court,
the freeze order shall be
deemed ipso facto lifted:
Provided, further, That this
new rule shall not apply to
In any case, the pending cases in the
court should act on the courts. In any case, the
petition to freeze within court should act on the
twenty-four (24) hours from petition to freeze within
filing of the petition. If the twenty-four (24) hours from
application is filed a day filing of the petition. If the
before a nonworking day, application is filed a day
the computation of the before a nonworking day,
twenty-four (24)-hour the computation of the
period shall exclude the twenty-four (24)-hour
nonworking days.” period shall exclude the
nonworking days.
“A person whose account
has been frozen may file a “A person whose account
motion to lift the freeze
has been frozen may file a
order and the court must
resolve this motion before motion to lift the freeze
the expiration of the twenty order and the court must
(20)-day original freeze resolve this motion before
order.” the expiration of the freeze
order.
“No court shall issue a
temporary restraining order
“No court shall issue a
or a writ of injunction
against any freeze order, temporary restraining order
except the Supreme or a writ of injunction
Court.” against any freeze order,
except the Supreme
Court.”
A. Elements of a Freeze Order
1. Ex-Parte Petition: For the freezing of any monetary instrument or

property alleged to be laundered, proceeds from, or instrumentalities
used in or intended for use in any predicate crime, the AMLC has the
power to file an ex-parte petition with the Court of Appeals.
Page 95 of 147
—Sec 7(6) in relation to Sec. 10, RA 9160 as amended
2. Probable Cause: Probable Cause refers to such facts and

circumstances which would lead a reasonably discreet, prudent, or
cautious man to believe that:
(a) any monetary instrument or property sought to be frozen,
inquired into or preserved is in any way related to any unlawful
activity or money laundering offense; or
(b) money laundering or terrorism financing has been committed
and that the respondent is probably guilty of it. —2018 IRR
Case — Ligot vs. Republic, GR. No. 176944, March 6, 2013
Facts: In 2005, the AMLC filed an urgent ex-parte application for the
issuance of a freeze order against Lt. Gen. Jacinto Ligot’s monetary
instruments and properties.
In his 2003 SALN, Ligot declared total assets of Php3,848,003. In 1982,

he only declared Php105,000. The Ombudsman’s investigation revealed
that Ligot and his family had undeclared assets amounting to
Php54,001,217, including properties allegedly owned by Edgardo
Yambao who the Ombudsman believed was Ligot’s dummy, having
declared certain properties that actually belonged to Ligot.
The CA granted the freeze order, ruling that probable cause existed that
an unlawful activity or money laundering offense had been committed by
Ligot and his family. The basis of the freeze order were 4 cases (plunder,
perjury, violation of RA 3019, and malicious mischief) being investigated
by the Ombudsman. The freeze order was to be valid or 20 days.
Later, the Republic filed an urgent motion for extension, arguing that if
the bank accounts and properties were not continuously frozen, they
could be placed beyond the reach of law enforcement authorities and the
government’s efforts would be frustrated.
The CA also granted the extension. Thus, the freeze order was to be
effective until after all the appropriate proceedings or investigations are
terminated.
The Ligots filed a motion to lift the freeze order, arguing that there was
no evidence to support the extension, that they were deprived of their
property without due process, and that they were punished before their
guilt could be proven. The CA denied the motion.
Over a month after the denial, the Rule in Civil Forfeiture Cases took
effect on December 15, 2005. Here, a freeze order could be extended for
a maximum of 6 months only. Thus, the Ligots filed a MR, insisting that
Page 96 of 147
the freeze order should now be lifted because 6 months have lapsed
since its issuance (July 5, 2005). The MR was filed on January 31, 2006.
The Republic argued that the Rule in Civil Forfeiture does not apply
because the CA’s resolution extending the freeze order was issued
before such Rule took effect.
First issue: Does the 6-month extension period in the Rule of Civil
Forfeiture apply in this case involving a freeze order under the AMLA?
Ruling: Yes. While it is true that the order for extension was issued
before the Rule’s effectivity (issuance was on September 20, 2005;
effectivity of the Rule was on December 15, 2005), the Ligots filed an
opposing motion on the extension which was still pending when the Rule
took effect. The motion was only denied on January 4, 2006. Thus, the
provisions of the Civil Procedure limiting an extension of a freeze order to
6 months only, should apply to this case.
Second issue: Was there probable cause?
Ruling: Yes. There are two requisites for the issuance of a freeze order:
1. Application ex parte by thee AMLC; and
2. Determination of probable cause by the CA.
This probable cause for freeze orders differs from probable cause in
criminal actions. The probable cause in freeze orders means such facts
and circumstances which would lead a reasonably discreet, prudent, or
cautious man to believe that an unlawful activity or money laundering
offense is about to be, is being, or has been committed and that the
subject of the order is in any way related to said unlawful activity.
Thus, in determining probable cause in freeze orders, the question is not
whether there was probable commission of an unlawful activity, but
rather whether the assets sought to be frozen are in any way related to
any of the illegal activities under the AMLA.
A freeze order is not dependent on a separate criminal charge, nor is it

dependent on a conviction.
Going back to first issue: So even if there was probable cause for the
issuance, the freeze order must be lifted.
A freeze order cannot be issued for an indefinite period. It is meant to

have a temporary effect. It is pre-emptive, which means it is issued to
prevent an owner from disposing of his property and thwarting the State’s
effort in building its case. The 6-month maximum period of extension is
Page 97 of 147
reasonable and enough time to build a case. Here it has already been 6
years since the freeze order. Hence, it must be lifted.
Case — Subido Pagente Certeza Mendoza & Binay Law Offices

(SPCMB) vs. CA, GR No. 216914, December 6, 2016
Facts: In 2015, the Ombudsman and Senate conducted investigations

and inquiries on the “supposed disproportionate wealth” of then VP
Jejomar Binay and his family.
The Manila Times published an article stating that the AMLC has asked
the CA to allow examination of the bank accounts of the Binays, their
corporations, and SPCMB Law Offices where the VP’s daughter was a
former partner. The law office wrote to CA Justice Andres Reyes,
requesting for a comment on the presumed petition for bank inquiry.
They wanted a verification from Justice Reyes, as well as copies of
relevant documents.
Justice Reyes denied the request, reasoning that the petition is strictly
confidential. Days later, the Manila Times published another article
reporting that the CA has granted the AMLC’s application to examine the
accounts of the Binays, including the law office.
The law office then filed a petition for certiorari and prohibition in the SC,
arguing that Section 11 of the AMLA is unconstitutional because:
1. It violates the right to due process;
2. It violates the right to privacy;
3. Even if it is constitutional, the CA committed grave abuse of
discretion because:
a. it refused to provide a copy of the AMLC’s ex-parte
application, violating its right to due process;
b. the carte blanche authority to examine the law office’s
accounts would violate attorney-client privilege;
c. the blanket authority to examine all transactions,
partakes the nature of a general warrant for a mere
fishing expedition;
d. there is nothing in the AMLA that justifies withholding of
records especially if the application for bank inquiry was
already granted;
e. the law office did not commit any predicate crime that
would justify inquiry; and
f. this is a form of political persecution or harassment.
First issue: Does Section 11 violate substantive due process?
Ruling: No. Section 11 of the AMLA providing for ex-parte application

and inquiry by the AMLC into certain bank deposits and investments
Page 98 of 147
does not violate substantive due process, there being no physical seizure
of property involved at that stage.
A bank inquiry order under Section 11 does not necessitate any form of
physical seizure of property of the account holder. What the bank inquiry
order authorizes is the examination of the particular deposits or
investments in banking institutions or non-bank financial institutions. The
monetary instruments or property deposited with such banks or financial
institutions are not seized in a physical sense, but are examined on
particular details such as the account holder's record of deposits and
transactions. Unlike the assets subject of the freeze order, the records to
be inspected under a bank inquiry order cannot be physically seized or
hidden by the account holder.
Second issue: Does Section 11 violate procedural due process?
Ruling: No. The AMLC is not an adjudicatory body, but merely an

investigatory one. Its investigation of money laundering offenses and its
determination of possible money laundering offenses, specifically its
inquiry into certain bank accounts allowed by court order, does not
transform it into an investigative body exercising quasi-judicial powers.
Hence, Section 11 of the AMLA, authorizing a bank inquiry court order,
cannot be said to violate SPCMB's constitutional right to procedural due
process.
Third issue: Does Section 11 violate the constitutional right to privacy?
Ruling: No. Bank inquiry by the AMLC, upon court order, is one of the
exceptions to the general rule of confidentiality of bank deposits.
The general rule of absolute confidentiality of bank deposits is simply

statutory, i.e. not specified in the Constitution. Exceptions to the general
rule of absolute confidentiality have been carved out by the Legislature.
One such legislated exception is Section 11 of the AMLA.
Moreover, there are safeguards before a bank inquiry order is issued,

ensuring adherence to the general state policy of preserving the
absolutely confidential nature of Philippine bank accounts:
1. The AMLC is required to establish probable cause as basis for
its ex-parte application for bank inquiry order;
2. The CA itself makes a finding of probable cause, independent
from the AMLC’s finding, that the deposits or investments are
related to an unlawful activity or a money laundering offense;
3. A bank inquiry court order ex-parte for related accounts is
preceded by a bank inquiry court order ex-parte for the principal
account which court order ex-parte for related accounts is
Page 99 of 147
separately based on probable cause that such related account is

materially linked to the principal account inquired into; and
4. The authority to inquire into or examine the main or principal
account and the related accounts shall comply with the
requirements of Article III, Sections 2 and 3 of the Constitution.
Those safeguards provide well-defined limits, and demonstrate that the

inquiry into the bank account is not undertaken whimsically and solely
based on the investigative discretion of the AMLC.
Further, there is nothing in Section 11 nor the IRR which prohibits the
owner of the bank account to ascertain from the CA, post issuance of the
bank inquiry order, if his account is indeed the subject of an examination.
There is nothing in the law which precludes the owner of the account
from challenging the basis for the issuance of the order.
Fourth issue: Does a bank inquiry partake the nature of a general

warrant?
Ruling: No. The Constitution and the Rules of Court prescribe particular
requirements attaching to search warrants that are not imposed by the
AMLA with respect to bank inquiry orders. A constitutional warrant
requires that the judge personally examine under oath or affirmation the
complainant and the witnesses he may produce, such examination being
in the form of searching questions and answers. Those are impositions
which the legislative did not specifically prescribe as to the bank inquiry
order under the AMLA and we cannot find sufficient legal basis to apply
them to Section 11 of the AMLA. Simply put, a bank inquiry order is not a
search warrant or warrant of arrest as it contemplates a direct object but
not the seizure of persons or property.
B. Duration —Sec 10, as amended
The freeze order issued by the CA is effective immediately, and cannot

exceed 6 months, depending upon the circumstances of the case.
How may a freeze order be lifted?

1. If there is no case filed against a person whose account has
been frozen within the period determined by the court, the freeze
order shall be deemed ipso facto lifted.
2. A person whose account has been frozen may also file a motion
to lift the freeze order and the court must resolve this motion
before the expiration of the freeze order.
C. lnjunction
Page 100 of 147

General rule: No court shall issue a temporary restraining order or a writ

of injunction against any freeze order.
Exception: The Supreme Court may issue a TRO or injunction against

any freeze order.
D. Remedy —Sec 57, Rules of Civil Forfeiture (AM 05-11-04-SC)
Any party aggrieved by the decision or ruling of the court may appeal to
the Supreme Court by petition for review on certiorari under Rule 45 of
the Rules of Court. The appeal shall not stay the enforcement of the
subject decision or final order unless the SC directs otherwise.
XV. Civil Forfeiture

—Sec 12, as amended
Initiator of Civil Forfeiture Proceedings

The AMLC shall institute civil forfeiture proceedings and all other
remedial proceedings, through the OSG, to confiscate all monetary
instruments or properties related to money laundering, terrorism
financing, or associated unlawful activity.
—Sec 1.11, Rule 6, 2018 IRR of AMLA
Sec 12, RA 9160 Sec 12 as amended by RA 10365
(a) Civil Forfeiture. - When there is a (a) Civil Forfeiture. – Upon determination
covered transaction report made, and the by the AMLC that probable cause exists
court has, in a petition filed for the purpose that any monetary instrument or property
ordered seizure of any monetary is in any way related to an unlawful activity
instrument or property, in whole or in part, as defined in Section 3(i) or a money
directly or indirectly, related to said report, laundering offense under Section 4 hereof,
the Revised Rules of Court on civil the AMLC shall file with the appropriate
forfeiture shall apply. court through the Office of the Solicitor
General, a verified ex parte petition for
forfeiture, and the Rules of Court on Civil
Forfeiture shall apply.
The forfeiture shall include those other

monetary instrument or property having an
equivalent value to that of the monetary
instrument or property found to be related
in any way to an unlawful activity or a
money laundering offense, when with due
diligence, the former cannot be located, or
it has been substantially altered,
destroyed, diminished in value or
otherwise rendered worthless by any act
or omission, or it has been concealed,
removed, converted, or otherwise
transferred, or it is located outside the
Philippines or has been placed or brought
Page 101 of 147

outside the jurisdiction of the court, or it

has been commingled with other monetary
instrument or property belonging to either
the offender himself or a third person or
entity, thereby rendering the same difficult
to identify or be segregated for purposes
of forfeiture.
(b) Claim on Forfeited Assets. - Where (b) Claim on Forfeited Assets. – Where
the court has issued an order of forfeiture the court has issued an order of forfeiture
of the monetary instrument or property in a of the monetary instrument or property in a
criminal prosecution for any money criminal prosecution for any money
laundering offense defined under Section laundering offense defined under Section
4 of this Act, the offender or any other 4 of this Act, the offender or any other
person claiming an interest therein may person claiming an interest therein may
apply, by verified petition, for a declaration apply, by verified petition, for a declaration
that the same legitimately belongs to him that the same legitimately belongs to him
and for segregation or exclusion of the and for segregation or exclusion of the
monetary instrument or property monetary instrument or property
corresponding thereto. The verified corresponding thereto. The verified
petition shall be filed with the court which petition shall be filed with the court which
rendered the judgment of conviction and rendered the judgment of forfeiture, within
order of forfeiture, within fifteen (15) days fifteen (15) days from the date of the
from the date of the order of forfeiture, in finality of the order of forfeiture, in default
default of which the said order shall of which the said order shall become final
become final and executory. This provision and executory. This provision shall apply
shall apply in both civil and criminal in both civil and criminal forfeiture.
forfeiture.
General Rules on Asset Forfeiture —Rule 12, 2018 IRR of AMLA

1. No prior criminal charge, pendency of a case, or conviction for
an unlawful activity or ML offense is necessary for the
commencement or the resolution of a petition for civil forfeiture.
2. No asset shall be attached or forfeited to the prejudice of a
candidate for an electoral office during an election period.
Petition for Civil Forfeiture

Upon determination that probable cause exists that any monetary
instrument or property is in any way related to an unlawful activity or
money laundering offense, the AMLC shall file with the RTC, through the
Office of the Solicitor General, a verified petition for civil forfeiture.
Equal Value Assets

The petition for civil forfeiture shall include other monetary instrument or
property of equal value in cases where the monetary instrument or
property that should be subject of forfeiture:
1. cannot be located despite due diligence;
2. has been substantially altered, destroyed, diminished in value or
otherwise rendered worthless by any act or omission;
3. has been concealed, removed, converted, or otherwise
transferred;
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4. is located outside the Philippines or has been placed or brought

outside the jurisdiction of the court; or
5. has been commingled with other monetary instrument or
property belonging to either the offender himself or a third person
or entity, thereby rendering the same difficult to identify or be
segregated for purposes of forfeiture.
Rule of Procedure
Civil forfeiture proceedings shall be governed by A.M. No. 05-11-04-SC.
Asset Preservation Order (APO)

Upon verified petition by the AMLC, with prayer for issuance of APO, and
after determination that probable cause exists that any monetary
instrument or property is in any way related to an unlawful activity, the
RTC may issue an APO, which shall be effective immediately, forbidding
any transaction, withdrawal, deposit, transfer, removal, conversion,
concealment or other disposition of the subject monetary instrument or
property.
Motion to Discharge APO

1. A person whose monetary instrument or property has been
preserved may file a motion to discharge the APO.
2. If an APOis imposed on an account of a covered person that it
uses for payment of salary, rent, suppliers, or taxes in the
ordinary course of a legitimate business, the covered person
may apply with the court which issued the APO to discharge the
same by submitting a bond or other acceptable securities of
equal value to the amount or value subject of the APO. The bond
or security when approved by the court shall secure the payment
or enforcement of any order or judgment that the AMLC may
recover in the appropriate action relating to the APO.
Asset Forfeiture in ML Cases

Where there is conviction for ML, the court shall issue a judgment of
forfeiture in favor of the Government of the Philippines with respect to the
monetary instrument or property found to be proceeds of or related to an
unlawful activity.
Claim on Forfeited Assets

Where the court has issued an order of forfeiture of the monetary
instrument or property in a criminal prosecution for any ML offense, the
offender or any other person claiming an interest therein may apply, by
verified petition, for a declaration that the same legitimately belongs to
him and for segregation or exclusion of the monetary instrument or
corresponding property. The verified petition shall be filed with the court
which rendered the judgment of forfeiture, within 15 days from the date of
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the finality of the order of forfeiture, in default of which the said order
shall become executory.
Payment in Lieu of Forfeiture

Where the court has issued an order of forfeiture of the monetary
instrument or property subject of an ML offense, and said order cannot
be enforced because of any of the 5 situations under “Equal Value
Assets” above, the court may, instead of enforcing the order of forfeiture
of the monetary instrument or property, accordingly order the convicted
offender to pay an amount equal to the value of said monetary
instrument or property.
XVI. Prosecution of Money Laundering (ML)

—Sec 6, as amended
Sec 6, RA 9160 Sec 6, as amended by RA 10365
(a) Any person may be charged with and (a) Any person may be charged with and
convicted of both the offense of money convicted of both the offense of money
laundering and the unlawful activity. laundering and the unlawful activity as
herein defined.
(b) Any proceeding relating to the unlawful (b) The prosecution of any offense or
activity shall be given precedence over the violation under this Act shall proceed
prosecution of any offense or violation independently of any proceeding relating
under this Act without prejudice to the to the unlawful activity.
freezing and other remedies provided.
Rules in the prosecution of Money Laundering offenses:

1. Independent Proceedings — The prosecutions of ML and the
associated unlawful activity shall proceed independently. Any
person may be charged with and convicted of both ML and the
associated unlawful activity.
2. Separate and Distinct Elements — The elements of ML are
separate and distinct from the elements of the associated
unlawful activity. The elements of the unlawful activity, including
the identity of the perpetrators and the details of the commission
of the unlawful activity, need not be established by proof beyond
reasonable doubt in the case for ML.
3. Knowledge — The element of knowledge may be established
by direct or circumstantial evidence. The deliberate
non-performance of the preventive measures under the AMLA,
this IRR, AMLC issuances, and SA’s guidelines by a covered
person’s responsible directors, officers and employees shall be
considered in determining knowledge of the commission of ML
offenses.
4. Rules of Procedure — The Rules of Court shall govern all
proceedings concerning the prosecution of ML. The prosecution
of ML and other violations of the AMLA shall be handled by the
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Department of Justice, through its public prosecutors, the Office

of the Ombudsman, through the Office of the Special Prosecutor,
pursuant to the Rules on Criminal Procedure.
5. No ML Case During Election Period — No case for ML may be
filed against a candidate for an electoral office during an election
period. —Section 4, Rule 9, 2018 IRR of AMLA
Case — Republic vs. Glasgow Credit and Collection Services, lnc.,

GR no. 170281
Facts: The AMLC filed a complaint in RTC Manila for civil forfeiture with
urgent TRO against Glasgow’s bank deposits in City State Savings Bank,
Inc. A 72-hour TRO was granted, but the RTC ultimately ruled in favor of
Glasgow.
Issue: Is a criminal conviction for an unlawful activity or crime a

prerequisite for the institution of a civil forfeiture proceedings?
Ruling: No. A finding of guilt for an unlawful activity is not an essential

element of civil forfeiture. The Rule on Civil Forfeiture provides that a
prior criminal charge, pendency of, or conviction for an unlawful activity is
not necessary to commence civil forfeiture. It may be separately and
independently prosecuted and resolved regardless of the absence,
pendency, or outcome of a criminal prosecution for the unlawful activity
or for money laundering.
————————————————————————————————
SECURITIES REGULATIONS CODE
l. State Policy
—Sec 2, SRC (RA 8799)
Purposes
The SRC was enacted for the following purposes:

1. To establish a socially conscious, free market that regulates
itself;
2. To encourage the widest participation of ownership in
enterprises;
3. To enhance the democratization of wealth;
4. To promote the development of the capital market;
5. To protect investors;
6. To ensure full and fair disclosure about securities;
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7. To minimize if not totally eliminate insider trading and other

fraudulent or manipulative devices and practices which create
distortions in the free market.
ll. Jurisdiction Transferred to the RTC
Under Sec 5, PD 902-A (a law reorganizing the SEC passed in 1976),

the SEC, in addition to its regulatory and adjudicative functions over
corporations, partnerships and other forms of associations registered
with it, had original and exclusive jurisdiction to hear and decide cases
involving intra-corporate disputes, namely:
1. Devices or schemes employed by or any acts, of the board of
directors, business associates, its officers or partnership,
amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the stockholder,
partners, members of associations or organizations registered
with the SEC;
2. Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members, or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders,
members or associates, respectively; and between such
corporation, partnership or association and the state insofar as it
concerns their individual franchise or right to exist as such entity;
3. Controversies in the election or appointments of directors,
trustees, officers or managers of such corporations, partnerships
or associations.
Under Sec 5.2, SRC (approved in 2000), the SEC’s jurisdiction over the
intra-corporate cases enumerated above is transferred to the Courts of
general jurisdiction or the appropriate RTC. The SC, in the exercise of its
authority, may designate the RTC branches—special commercial
courts—that shall exercise jurisdiction over the cases.
lll. SEC Jurisdiction
Under Sec 5.1, SRC, the SEC shall act with transparency and shall have
the powers and functions provided by the SEC, PD 902-A, the
Corporation Code, the Investment Houses Law, the Financing Company
Act and other existing laws.
The SEC has the following powers and functions:

(a) Have jurisdiction and supervision over all corporations,
partnership or associations who are the grantees of primary
franchises or a license or a permit issued by the Government;
(b) Formulate policies and recommendations on issues concerning
the securities market, advise Congress and other government
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agencies on all aspect of the securities market and propose

legislation and amendments;
(c) Approve, reject, suspend, revoke, or require amendments to
registration statements, and registration and licensing
applications;
(d) Regulate, investigate or supervise the activities of persons to
ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of
exchanges, clearing agencies and other SROs;
(f) Impose sanctions for the violation of laws and pertinent rules,
regulations and orders;
(g) Prepare, approve, amend, or repeal rules, regulations, and
orders, and issue opinions and provide guidance on and
supervise compliance with such rules, regulation and orders;
(h) Enlist the aid and support of, or deputize, any and all
enforcement agencies of the Government, civil or military as well
as any private institution, corporation, firm, association or person
in the implementation of its powers and function;
(i) Issue cease and desist orders (CDOs) to prevent fraud or injury
to the investing public;
(j) Punish for the contempt of the SEC, both direct and indirect, in
accordance with the pertinent provisions of and penalties
prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or association
to call meetings of stockholders or members under its
supervision;
(l) Issue subpoena duces tecum and summon witnesses to appear
in any proceedings of the SEC and in appropriate cases, order
the examination, search and seizure of all documents, papers,
files and records, tax returns, and books of accounts of any
entity or person under investigation as may be necessary for the
proper disposition of the cases before it, subject to the provisions
of existing laws;
(m) Suspend, or revoke, after proper notice and hearing, the
franchise or certificate of registration of corporations, partnership
or associations, upon any of the grounds provided by law; and
(n) Exercise such other powers as may be provided by law as well
as those which may be implied from, or which are necessary or
incidental to the carrying out of, the express powers granted to
the SEC to achieve the objectives and purposes of these laws.
Case — Roman, Jr. v SEC, GR 196329, June 1, 2016
Facts: In 2007, Atty. Narciso Atienza and 7 others filed a letter-complaint

against Pablo Roman and Atty. Matias Defensor, officers of Capitol Hills
Golf and Country Club, Inc.
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They alleged irregularities and anomalies amounting to fraud and

misrepresentation in relation to Resolutions which granted Roman the
authority to enter into a joint venture agreement with Ayala Land Inc
(ALI), obtain loans from it, and execute other related agreements, on
behalf of the Capitol. Roman asked the Board to issue a Resolution to
authorize Pacific Asia Corporation to receive the proceeds of the loan.
They alleged that these were erroneously made and that Roman, in
evident bad faith, never informed the Board that, at the time he made the
proposals and before the resolutions were issued, ALI had already made
substantial initial cash advance in favor of Capitol but directly payable to
Pacific Asia; that ALI had no legal basis to make such cash advances
because Roman had no authority yet when they were made.
These actions prompted them to ask the SEC to investigate the BOD of
Capital, and to order the constitution of a Management Committee
(ManCom) to temporarily oversee Capitol’s affairs.
Roman and Defensor, in their Answer, invoked the SEC’s lack of

jurisdiction, arguing that the case involved an intra-corporate
controversy, and the proper court to hear it is the RTC acting as a special
commercial court. But the SEC issued an order creating the ManCom,
empowered to temporarily oversee and supervise Capitol’s activities.
Roman and Defensor questioned this SEC Order via a petition for
prohibition with the CA.
The CA dismissed it, reasoning that while the complaint raised

intra-corporate matters, the case did not necessarily involve an
intra-corporate controversy so as to deprive the SEC of its jurisdiction.
The CA held that the SEC had the authority to create the ManCom,
under SEC Memorandum Circular No. 11, Series of 2003. It stated that
the SEC had the power "to do any and all acts to carry out the effective
implementation of the laws it is mandated to enforce, that is, constitute a
management committee; appoint receivers, issue cease and desist
orders to prevent fraud or injury to the public; and such other measures
to carry out its role as a regulator."
The SEC also asserted that under Section 5.1 of the SRC, it has
jurisdiction over the subject matter of the complaint, to determine
whether the petitioners, who were officers of Capitol, violated the SRC
and its implementing rules and regulation.
Issues: (1) May the SEC validly take cognizance of the letter-complaint?
(2) Was the SEC Order issued in excess of its jurisdiction?
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Ruling: (1) Yes, the SEC may take cognizance of the complaint here,
provided that their authority is confined only to the extent of ensuring
compliance with the law and imposing penalties for violations.
Jurisdiction over intra-corporate controversies has been transferred to

the RTC. However, the SEC retains sufficient powers to justify its
assumption of jurisdiction over matters concerning its supervisory,
administrative and regulatory functions.
In previous cases, the SC held that even if the complaint raised

intra-corporate issues, the SEC may assume jurisdiction to determine if
the officers of a corporation committed administrative violations and were
liable under the SRC.
Section 53 of the SRC empowers the SEC to make such investigations

as it deems necessary to determine whether any person has violated or
is about to violate any provision of the SRC.
Therefore, the SEC has authority to hear cases regardless of whether an

action involves issues cognizable by the RTC, provided that the SEC
could only act upon those which are merely administrative and regulatory
in character.
(2) No, the SEC did not act in excess of its jurisdiction when it ordered for
the creation of the ManCom.
Aside from the quoted Circular expressly authorizing the SEC to

contribute ManComs, Section 5.1 (n) of the SRC, permits the SEC to
exercise implied powers, or those which are necessary or incidental to
the carrying out of its express powers.
The SEC, as a regulator, has broad discretion to act on matters that

relate to its express power of supervision over all registered corporations,
partnerships, or associations.
Such grant of express power of supervision, necessarily includes the

power to create a management committee following the doctrine of
necessary implication.
The creation of a management committee is one that is premised on the

immediate and speedy protection of the interest, not only of minority
stockholders, but also of the general public from immediate danger of
loss, wastage or destruction of assets or the paralyzation of business of
a concerned corporation or entity.
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Case — Florencio Orendain v BF Homes, GR 146313, Oct 31, 2006
Facts: BF Homes is a domestic corporation organized primarily to

develop and sell residential lots and houses.
In 1984, it incurred liabilities amounting to over Php 1.54 billion. It had

assets over Php 2.48 billion which, if liquidated, could pay its creditors.
Despite being solvent, it filed a petition in the SEC for rehabilitation,

receivership, and declaration in a state of suspension of payments,
alleging that: (1) Central Bank’s predatory acts, involving the now
suspended Banco Filipino, caused cessation of BF’s sales transactions
necessary to generate cash and liquidate obligations; (2) the CB’s
libelous Circulars pushed creditors to demand full liquidation of their
debts; and (3) BF’s assets cannot be liquidated in such a short time.
The SEC granted this, issuing an Order for the creation of a ManCom, in
order to prevent the paralyzation of its business operations. Accordingly,
with the ManCom’s creation, it was also ordered that all pending actions
for claims against BF be suspenses.
Next, the SEC appointed FBO Management Networks as receiver with

Orendain as Chairman.
In 1993, a deed of absolute sale over a land in Las Pinas was executed
between BF Homes, represented by Orendain “as absolute and
registered owner”, in favor of the Local Superior of the Franciscan Sisters
of the Immaculate Phils Inc (LSF-SIPI).
In 1994, the SEC appointed a new Committee of Receivers composed of

11 of the directors of BF, and relieved Orendain of his duties as receiver.
In 1996, BF filed a complaint against LSF-SIPI and Orendain, for the

reconveyance of the Las Pinas property, alleging that LSF-SIPI
transacted with Orendain in his individual capacity, and that the selling
price (Php19.5 million for 7,800 sqm) was grossly insufficient, amounting
to fraud and conspiracy with LSF-SIPI.
Orendain moved to dismiss, stating that: (a) the RTC had no jurisdiction
over the suit and that SEC has, because it was instituted against him as
BF’s former receiver appointed by the SEC; (b) that the cause of action
was barred by the 1994 Order which relieved him of his duties; and (c)
BF and its Committee of Receivers had no personality to institute the
action, in the absence of authorization from the SEC.
BF answered that: (a) the action was an ordinary reconveyance suit,

thus, it is well within the RTC’s jurisdiction; (b) the cause of action was
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not barred by the 1994 Order; and (c) it is within the general powers of a
receiver to institute actions to recover property.
The RTC ruled against Orendain. The CA also dismissed his appeal.
Orendain adds that the resolution of the reconveyance case involves the
issue of whether he acted within his powers as receiver it he questioned
transaction, and that its resolution depends on the ratification of the SEC
of his acts as receiver.
Issue: Which court—RTC or SEC—has jurisdiction over a reconveyance

suit involving a corporation which is currently under receivers appointed
by SEC?
Ruling: It is the RTC who has jurisdiction here, not the SEC. This
controversy involves matters purely civil in character and is beyond the
limited jurisdiction of the SEC.
The LSF-SIPI is neither an officer nor a stockholder of BF Homes, and

this case does not involve intra-corporate proceedings. In addition, the
seller, Orendain, is being sued in his individual capacity for the
unauthorized sale of the property in controversy. Thus, the resolution of
the instant controversy does not depend on the ratification by the SEC of
the acts of its agent or the receiver, because the act of Orendain was
allegedly not within the scope of his authority as receiver. Furthermore,
the determination of the validity of the sale to LSF-SIPI will necessitate
the application of the provisions of the Civil Code on obligations and
contracts, agency, and other pertinent provisions.
The SEC retained its administrative, regulatory, and oversight powers

over all corporations, partnerships, and associations who are grantees of
primary franchises, and/or a license or permit issued by the Government.
However, the SRC is clear that when there is a controversy arising out of
intra-corporate relations, between and among stockholders, members or
associates, and between, any, or all of them and the corporation, it is the
RTC, not SEC, which has jurisdiction over the case. Thus, when the
complaint involves "an active antagonistic assertion of a legal right on
one side and a denial thereof on the other concerning a real, and not a
mere theoretical question or issue," a cause of action involving a delict or
wrongful act or omission committed by a party in violation of the primary
right of another, or an actual controversy involving rights which are
legally demandable or enforceable, the jurisdiction over this complaint is
lodged with the RTC but not the SEC.
IV. lntra-Corporate Dispute
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Case — Philip Go, et al. vs. Distinction Properties Development and

Construction, lnc., GR No. 194024, April 25, 2012
Facts: The petitioners, as condominium unit owners, filed a complaint

before the Housing and Land Use Regulatory Board (HLURB) against
Distinction Properties, a corporation engaged in the development of
condominium projects, including Phoenix Heights, where petitioners own
units.
Petitioners alleged unsound business practices on the part of Distinction,

particularly with regard to the alteration or conversion of some units into
common areas and misrepresentation in flyers concerning facilities and
amenities. They alleged that they are suing in their individual capacities
as unit owners and their cause of action arises from Destination’s breach
of contract with the Phoenix Heights Condominium Corporation (PHCC).
The HLURB ruled in favor of petitioners.
However, on appeal, the CA ruled that the HLURB had no jurisdiction

over the controversy because it does not fall under the agency’s
administrative authority. Hence this appeal to the SC.
Distinction posits that the HLURB has no jurisdiction because the

controversies raised in the case were in the nature of intra-corporate
disputes.
Issue: Does the case involve intra-corporate disputes so as to deprive

HLURB of jurisdiction?
Ruling: Yes. The case should’ve been filed with the RTC which has
jurisdiction to hear intra-corporate controversies.
Under PD 957, the HLURB has exclusive jurisdiction to hear and decide
cases involving unsound real estate business practices, as well as
breach of contractual obligations in the real estate trade. However, this
does not mean that all cases involving subdivision lots or condominium
units automatically fall under its jurisdiction.
In this case, the complaint alleged causes of action that are not
cognizable by the HLURB considering the nature of the action and the
reliefs sought. Petitioners are actually seeking to nullify and invalidate the
Agreement entered into by PHCC with DPDCI and its Board Resolution
which authorized the approval of the conversion of certain units from
saleable to common areas. The acts being assailed are actually those of
PHHC, an indispensable party that wasn’t impleaded in the case.
Petitioners are ultimately challenging the PHCC’s acts as a body

corporate. This partakes the nature of an "intra-corporate controversy,"
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the jurisdiction over which used to belong to the SEC, but has been
transferred to RTC, pursuant to PD 902-A.
(The relationship test:) An intra-corporate controversy is one which

pertains to any of the following relationships:
1. between the corporation, partnership or association and the
public;
2. between the corporation, partnership or association and the
State in so far as its franchise, permit or license to operate is
concerned;
3. between the corporation, partnership or association and its
stockholders, partners, members or officers; and
4. among the stockholders, partners or associates themselves.
The controversy raised in this case pertained to the corporation (PHCC)

and its members (condominium unit owners).
Case — Aguirre ll vs. FQB+7, lnc., GR No. 170770, January 9, 2013
Facts: FQB+7 was established in 1985 with Vitaliano Aguirre II as one of

the subscribers, and Francisco Bacobo as one of the directors.
In 2004, Aguirre filed a complaint in the RTC for intra-corporate dispute,

injunction, inspection of corporate books, and damages against:
Nathaniel Bacobo, Priscila Bacobo, and Antonio de Villa (respondents).
This stemmed from Vitaliano’s discovery of a GIS dated September 6,

2003 in the SEC records. It was filed by Francisco’s heirs, Nathaniel and
Priscila, who were then included in the list as FQB+7’s new president
and secretary/treasurer. Later, Nathaniel appointed Antonio as the
corporation’s attorney-in-fact with power of administration over its farm in
Quezon.
Vitaliano questioned the validity and truthfulness of the alleged

September 2003 stockholder’s meeting, and characterized the
respondents' actions as a usurpation of the powers of the “real” Board of
Directors. The RTC granted the injunction.
The respondents filed a petition for certiorari and prohibition in the CA,
citing lack of jurisdiction of the RTC over the subject matter. They argued
that Vitaliano’s real goal was to maintain custody of the farm in Quezon,
and because the farm is agricultural land, they contended this was an
agrarian dispute which should’ve been brought to the Department of
Agrarian Reform instead. Moreover, they also asserted that the SEC had
already revoked FQB+7’s registration on September 29, 2003 for failure
to comply with reportorial requirements, thus, the corporation had already
been dissolved and is now just continuing for the limited purpose of
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liquidation and distribution. The CA ruled in favor of the respondents,

dismissing the complaint of Vitaliano, since his claims were geared
towards a continuance of the corporation’s business, which can no
longer be, on account of its dissolution.
Sub-issue: Was Vitaliano’s complaint geared towards the continuance of

business?
Ruling: No. His Complaint did not seek to enter into contracts, issue new
stocks, acquire properties, execute business transactions, etc. Its aim
was not to continue the corporate business, but to determine and
vindicate an stockholder's right to the return of his stockholdings and to
participate in the election of directors, and a corporation's right to remove
usurpers and strangers from its affairs. The real issue raised in the
complaint was the determination of which group is the bona fide or
rightful board of the dissolved corporation.
Main issue: Does the RTC have jurisdiction over an intra-corporate

dispute involving a dissolved corporation?
Ruling: Yes. Intra-corporate disputes remain even when the corporation

is dissolved.
In order to determine if the subject matter is an intra-corporate dispute

under the RTC’s jurisdiction, there are 2 tests: (1) the relationship test,
mentioned in the Go v. Destination case above; and (2) the controversy
test mentioned in this case.
It is not the mere existence of an intra-corporate relationship that gives

rise to an intra-corporate controversy.
Under the nature of the controversy test, the incidents of that relationship
must also be considered for the purpose of ascertaining whether the
controversy itself is intra-corporate.
The controversy must not only be rooted in the existence of an

intra-corporate relationship, but must as well pertain to the enforcement
of the parties' correlative rights and obligations under the Corporation
Code and the internal and intra-corporate regulatory rules of the
corporation.
If the relationship and its incidents are merely incidental to the

controversy or if there will still be conflict even if the relationship does not
exist, then no intra-corporate controversy exists.
In other words:
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1. The relationship test deals with the status of the parties, and
requires that the controversy must arise out of a intra-corporate
relations; and
2. The controversy test deals with the nature of the question that is
the subject matter of the controversy, and requires that the
dispute among the parties must be intrinsically connected with
the regulation of the corporation, or the enforcement of rights
and obligations under the Corporation Code and the
corporation’s internal rules.
If these two criteria are satisfied, then there is an intra-corporate dispute.
Intra-corporate disputes may still be raised even when the corporation is

already dissolved. The dissolution of the corporation simply prohibits it
from continuing its business. It does not automatically convert the parties
into total strangers or change their intra-corporate relationships. Neither
does it change or terminate existing causes of action, which arose
because of the corporate ties between the parties. Thus, a cause of
action involving an intra-corporate controversy remains and must be filed
as an intra-corporate dispute despite the subsequent dissolution of the
corporation.
Case — Chateau de Baie Condominium Corp. vs. Spouses Moreno,

GR No. 186271, February 23, 2011
Facts: Spouses Moreno filed a complaint for intra-corporate dispute

against Chateau to question how it calculated the association dues
assessed against the, and to ask for an accounting of such dues.
(Backstory: Under the Condominium Act, RA 4726, when a unit owner

fails to pay the association dues the corporation can enforce a lien on the
unit by selling it in an extrajudicial foreclosure sale. Later, Chateau did
that to settle the unpaid association dues of Spouses Moreno, and the
properties were eventually sold to Chateau in the foreclosure sale. In a
separate case initiated by Oscar Salvacion, a third party who also had
lien over the units, being Mrs. Moreno’s creditor in a loan where the units
were given as mortgage, the court confirmed the validity of the sale.)
Chateau moved to dismiss on the ground of lack of jurisdiction, alleging

that since the complaint was against the owner/developer of a
condominium whose condominium project was registered with the
HLURB, the HLURB has the exclusive jurisdiction.
The RTC denied the motion. The CA also held that the RTC had
jurisdiction, because the complaint involved an intra-corporate dispute.
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Issue: Was there an intra-corporate dispute? (Despite the full completion

of the extrajudicial sale?)
Ruling: Yes, despite the completion of the extrajudicial sale. Just

because the property has already been transferred does not mean that
the questioned assessments have now become legal and valid or that
they have become immaterial.
The case involved an intra-corporate dispute - the Moreno spouses were

asking for an accounting and calculation of the association dues.
Although the extrajudicial sale of the units has been fully effected and the
Salvacion case has been dismissed with finality, the completion of the
sale does not bar the Moreno spouses from questioning the amount of
the unpaid dues that gave rise to the foreclosure and to the subsequent
sale of their properties in the first place.
Case — lntestate Estate of Alexander T. Ty vs. CA, GR No. 112872,

April 19 2001
Facts: When her husband Alexander died in 1988, Sylvia Ty was

appointed administratrix of his estate. In 1992, she filed a motion for
leave to sell or mortgage estate properties in order to pay estate taxes.
The properties include shares of stock in several corporations.
Alejandro Ty, Alexander’s father, filed two complaints for the recovery of
the properties that were placed in the name of his deceased son, but
were actually acquired using Alejandro’s money, without cause or
consideration from his son.
Sylvia, as administratrix of the estate, filed a motion to dismiss, citing

lack of jurisdiction of the RTC and claiming that the case involved
intra-corporate dispute cognizable by the SEC (note: jurisdiction over
intra-corporate cases at the time have not yet been transferred to the
RTC). She argues that the case involves a suit between two stockholders
of the same corporation.
Issue: Was there an intra-corporate dispute?
Ruling: No, there was none. When both parties of a dispute are
stockholders of a corporation, it does not necessarily follow that the
dispute is automatically considered intra-corporate in nature. The better
policy in determining which body has jurisdiction over this case would be
to consider, not merely the status of the parties involved, but likewise the
nature of the question that is the subject of the controversy. When the
nature of the controversy involves matters that are purely civil in
character, it is beyond the ambit of the limited jurisdiction of the SEC
(now the RTC acting as special commercial court).
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In this case, the relationship of Alejandro when he sold his shares of

stock to his son was one of vendor and vendee, nothing else. More
importantly, the question raised is whether or not there was indeed a sale
in the absence of cause or consideration. The proper forum for such a
dispute involving the application of the Civil Code is a regular trial court.
No special corporate skill is necessary in resolving the issue of the
validity of the transfer of shares from one stockholder to another of the
same corporation.
V. SEC v RTC Jurisdiction on proxy validation
Case — GSIS v CA, GR 183905, April 16, 2009
Facts: The annual stockholder’s meeting of Meralco was scheduled on

May 27, 2008. It held its proxy validation proceeding on May 22. The
GSIS, majority stockholder of Meralco, was distressed over the result of
the proxy validation proceeding. It filed a complaint with the RTC, asking
that certain proxies be declared invalid. Three days later, it had the
complaint dismissed and instead went to the SEC to file a petition to
annul the proxies.
The SEC dismissed the case for lack of jurisdiction. GSIS contends that
under the SRC and the Interim Rules on Intra-Corporate Controversies
(2001), the SEC has jurisdiction to investigate alleged violations of the
rules on proxy solicitations.
The acting corporate secretary, et al. contend that the SEC’s jurisdiction
over election protests, including issues on proxy validations, has been
transferred to the RTC, under the SRC’s express provisions.
GSIS counters that there was no election yet when it filed its petition with
the SEC, thus, there could be no election contest yet over which the RTC
may acquire jurisdiction. What it was pointing out was the violation of the
rules on proxy solicitation (a process that happens before proxy
validation), which remains under the SEC’s jurisdiction pursuant to
Section 20 of the SRC and the AIRR-SRC Rule 4, and by virtue of
Section 53.1, the SEC has the discretion "to make such investigations as
it deems necessary to determine whether any person has violated" any
rule issued by it,
Issue: Which tribunal has jurisdiction over the issue of proxy solicitation
in this case?
Ruling: The RTC has jurisdiction, even though the GSIS is questioning
“proxy solicitation” specifically. This still falls within an election
controversy properly cognizable by the RTC.
Page 117 of 147

An election contest includes all plausible incidents arising from the

election of corporate directors, including:
1. Any controversy or dispute involving title or claim to any elective
office in a stock or non-stock corporation;
2. Validation of proxies;
3. Manner and validity of elections; or
4. Qualifications of candidates, including proclamation of winners.
The controversy on proxy solicitation rules and proxy validation were

caused by the looming annual election of directors. The action to
invalidate proxies is intimately tied to an election controversy. Hence, a
proxy challenge is an election contest cognizable by the regular courts.
(The conferment of original and exclusive jurisdiction on the regular

courts over controversies in the election of corporate directors includes
all related claims and controversy arising from such election.)
Case — SEC v CA, GR 187702 & 189014, October 22, 2014
Facts: Astra Securities Corporation is one of the stockholders of Omico

Corporation, owning 18% of its outstanding capital stock (OCS).
In connection with an upcoming stockholder’s meeting, Astra objected to

the validation of the proxies issued in favor of Tommy Kin Hing Tia. Astra
alleged that the proxy issuers, who were brokers, did not obtain the
required express written authorization of their clients when they issued
the proxies in favor of Tia, thereby violating the SRC Rules. Further, the
proxies issued in favor of Tia were in excess, thereby giving rise to the
presumption of solicitation.
Thus, Astra filed a complaint in the SEC praying for the invalidation of the
proxies in favor of Tia and for the issuance of a CDO to enjoin the
holding of the meeting until the SEC has resolved the issue on the
proxies.
Astra posits that its case does not fall squarely with GSIS v CA where the
SC held that the matter of proxy solicitation is related to the election, so
as to make it an election controversy cognizable by the RTC. It argues
that: (1) the validation of proxies in this case relates to the determination
of the existence of a quorum; and (2) no actual voting for the members of
the board of directors was conducted, as the directors were merely
elected by motion.
Issue: Does the SEC have jurisdiction over controversies arising from
the validation of proxies for the election of the directors?
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Ruling: No. When proxies are solicited in relation to the election of

corporate directors, the resulting controversy, even if it ostensibly raised
the violation of the SEC rules, should be properly seen as an election
controversy within the jurisdiction of RTCs as special commercial courts.
In order to determine whether a controversy is cognizable by the SEC or

RTC, the test is whether the controversy relates to the election of
directors. Thus:
(a) The power to regulate proxies remains in the SEC in instances
when stockholders vote on matters other than the election of
directors.
(b) All matters affecting the manner and conduct of the election of
directors are properly cognizable by the regular courts.
Otherwise, these matters may be brought before the SEC for
resolution based on the regulatory powers it exercises over
corporations.
The validation of proxies serves a number of purposes, including

determining the existence of a quorum and ascertaining the authenticity
of proxies to be used for the election of directors at the stockholders'
meeting. Section 2, Rule 6, of the Interim Rules of Procedure Governing
Intra-Corporate Disputes provides that an election contest covers any
controversy or dispute involving the validation of proxies, in general.
Thus, there is no point in making distinctions between who has

jurisdiction before and who has jurisdiction after the election of directors,
as all controversies related to such election - whether before, during or
after - shall be passed upon by regular courts.
Vl. SEC’s Power to lssue Cease and Desist Order (CDO)
Case — Primanila Plans, lnc. vs. SEC, GR No. 193791, Aug 6, 2014
Facts: Primanila is a corporation that sells pre-need plans, specifically

pension plans. In 2008, it failed to renew its dealer’s license. The SEC
issued a letter to it in January of that year, enjoining it from selling or
offering to sell pre-need plans to the public. Its physical office in Makati
was closed, but in February, it continued to offer plans on its website. Its
bank account also stayed active in March and continued to accept
deposits for premiums.
Thus, the SEC declared that it violated Section 16 of the SRC which
states: “No person shall sell or offer for sale to the public any pre-need
plan except in accordance with rules and regulations xxx. Such rules
shall regulate the sale of pre-need plans by xxx requiring the registration
of pre-need plans, licensing persons involved in the sale of pre-need
plans xxx”. Because of this violation, the SEC issued a CDO in April of
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the same year, “to prevent further violations and to protect the interest of
the plan holders and the public”.
Primanila filed a motion for reconsideration/motion to lift CDO, arguing

that it was denied due process because there was no notice or formal
charge that allowed it to defend itself. It averred that it was not selling
plans nor collecting premiums, and that its website was not updated.
Issue: Did the issuance of the CDO violate petitioner’s right to due
process?
Ruling: No. The petitioner was in fact accorded due process

notwithstanding the immediate issuance of the CDO.
Under Section 64 of the SRC, the SEC may issue a CDO after proper
investigation or verification, motu proprio or upon verified complaint by
any aggrieved party, without the necessity of a prior hearing, if in its
judgment, the act or practice will operate as a fraud on investors or is
likely to cause grave or irreparable injury or prejudice to the investing
public. Until the SEC issues a COD, the fact that an investigation has
been initiated or that a complaint has been filed shall be confidential.
There is good reason for this provision, because any delay in the
restraint of acts can only generate further injury to the public who the
SEC is obliged to protect.
To equally protect individuals and corporations from baseless and

improvident issuances, the authority of the SEC has defined limits:
1. A COD may only be issued by the SEC after proper investigation
or verification;
2. It may only be issued if the acts sought to be restrained could
result in injury or fraud to the investing public.
In this case, these requisites were duly satisfied by the SEC. Primanila
failed to renew its license as per the records in the Non-Traditional
Securities and Instruments Department. A proper investigation was held
by the Compliance and Enforcement Department of the SEC. They
personally conducted an ocular inspection of Primanila’s declared office,
the company website of Primanila, and Primanila’s Metrobank account.
SEC records also confirmed Primanila’s failure to file a registration
statement for its product, to fully remit premium collections, and to
truthfully declare collections in 2007.
The SEC was not mandated to allow Primanila to participate in the

investigation. To satisfy due process, it was sufficient that the company
was amply apprised of the results of the investigation, and then given the
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reasonable opportunity to present its defense. Primanila was able to do

this via its motion to reconsider and lift the cease and desist order.
Due process does not always require a trial-type proceeding. Due

process is satisfied when a person is notified of the charge against him
and given an opportunity to explain or defend himself. In administrative
proceedings, the filing of charges and giving reasonable opportunity for
the person so charged to answer the accusations against him constitute
the minimum requirements of due process. The essence of due process
is simply to be heard, or as applied to administrative proceedings, an
opportunity to explain one’s side, or an opportunity to seek a
reconsideration of the action or ruling.
Case — GSIS vs. CA, GR Nos. 183905 & 184275, April 16, 2006
Facts: In the petition the GSIS filed with the SEC, seeking annulment of
certain proxies, the GSIS also prayed for the issuance of CDO to restrain
the use of the proxies during the annual stockholder’s meeting. (See
antecedent facts on page 117)
Issue: Since the SC has ruled that jurisdiction over the subject matter of
the petition (proxy validation) lies with the RTC, and not the SEC, what
happens to the CDO issued by the SEC in relation to the petition?
Ruling: The lack of jurisdiction of the SEC over the subject matter of
GSIS’s petition necessarily invalidates the CDO. However, the SC still
decided to rule on the validity of the CDO issued in this case, for
jurisprudential value and for the guidance of the SEC.
It would appear that the SEC committed two fatal errors: (1) it neglected
to expressly state the specific legal basis for the issuance of the CDO;
and (2) only one Commissioner signed it.
First fatal error: Under the SRC, there are 3 distinct legal bases for the
issuance of a CDO.
First— “SEC. 5. Powers and Functions of the Commission.- 5.1. The

Commission shall act with transparency and shall have xxx the following
powers and functions: xxx
(i) Issue cease and desist orders to prevent fraud or injury to the
investing public; xxx”
Second— “SEC. 53.3. Whenever it shall appear to the Commission that

any person has engaged or is about to engage in any act or practice
constituting a violation of any provision of this Code, any rule, regulation
or order thereunder, or any rule of an Exchange, registered securities
association, clearing agency or other self-regulatory organization, it may
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issue an order to such person to desist from committing such act or

practice: xxx After finding that such person has engaged in any such act
or practice and that there is a reasonable likelihood of continuing, further
or future violations by such person, the Commission may issue ex-parte
a cease and desist order for a maximum period of ten (10) days,
enjoining the violation and compelling compliance with such provision.
xxx”
Third— “SEC. 64.1. The Commission, after proper investigation or

verification, motu proprio, or upon verified complaint by any aggrieved
party, may issue a cease and desist order without the necessity of a prior
hearing if in its judgment the act or practice, unless restrained, will
operate as a fraud on investors or is otherwise likely to cause grave or
irreparable injury or prejudice to the investing public.”
Section 64 plainly provides three separate instances upon which the

SEC may issue the CDO:
1. after proper investigation or verification;
2. motu proprio; or
3. upon verified complaint by any aggrieved party.
In the case of Section 53.3, the SEC must make two findings:
1. that such person has engaged in any such act or practice;
2. that there is a reasonable likelihood of continuing (or engaging
in) further or future violations by such person.
In the case of Section 64, the SEC must adjudge that the act, unless
restrained, will operate as a fraud on investors or is otherwise likely to
cause grave or irreparable injury or prejudice to the investing public.
As to the term of the CDO, Section 53.3 states that the CDO shall have a
life of 10 days. Section 64.1 does not provide for a specific period, but
64.2 allows the accused company to file a request to lift within 5 days
from its issuance, and this should be heard within 15 days by the SEC.
The CDO in this case was not precisely clear whether it was issued on
the basis of Section 5.1, Section 53.3 or Section 64 of the SRC. The
CDO actually cites all three provisions.
A singular CDO could not be founded on all three provisions collectively.

This is because they have their respective requisites and terms.
The error of the SEC in granting the CDO without stating which kind of
CDO it was issuing is unpardonable, because it contravenes due process
of law.
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In administrative proceedings, the body or tribunal must, in all

controversial questions, render its decision in such a manner that the
parties to the proceeding can know the various issues involved, and the
reason for the decision rendered. This requirement is vital, because it
would afford the adverse party the opportunity to interpose a reasoned
and intelligent appeal that is responsive to the grounds cited against it.
Second fatal error: To make matters worse for the SEC, the CDO was
signed by only one commissioner.
The SEC is a collegial body composed of a Chairperson and 4

Commissioners. In order to constitute a quorum to conduct business, the
presence of at least 3 Commissioners is required. The act of one
member, even if it’s the head, could not be considered as the act of the
entire body.
In this case, Commissioner Martinez (the one who signed) is not the
entire SEC. He alone does not speak for and in behalf of the SEC. The
SEC acts through a five-person body, and the five members of the
commission each has one vote to cast in every deliberation concerning a
case or any incident therein that is subject to the jurisdiction of the SEC.
lV. Securities
—Sec 3.1, SRC
Securities are shares, participation, or interests in a corporation, a

commercial enterprise, or a profit-making venture, that are evidenced by
a certificate, contract, or instrument, whether written or electronic in
character. It includes:
(a) Shares of stocks, bonds, debentures, notes evidences of
indebtedness, asset-backed securities;
(b) Investment contracts, certificates of interest or participation in a
profit sharing agreement, certificates of deposit for a future
subscription;
(c) Fractional undivided interests in oil, gas or other mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of participation, trust
certificates, voting trust certificates or similar instruments;
(f) Proprietary or nonproprietary membership certificates in
corporations; and
(g) Other instruments as may be determined by the SEC in the
future.
A. Definition of Terms
—Sec 3.2 - 3.4, 3.8 - 3.10, SRC
3.2) Issuer is the originator, maker, obligor, or creator of the security.
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3.3) Broker is a person engaged in the business of buying and selling

securities for the account of others.
3.4) Dealer means any person who buys and sells securities for his/her
own account in the ordinary course of business.
3.8) Insider means:

(a) the issuer;
(b) a director or officer (or any person performing similar functions)
of, or a person controlling, the issuer who gives or gave him
access to material information about the issuer or the security
that is not generally available to the public;
(c) a government employee, director, or officer of an exchange,
clearing agency, or self-regulatory organization who has access
to material information about an issuer or a security that is not
generally available to the public; or
(d) a person who learns such information by a communication from
any forgoing insiders.
3.9) Pre-need plans are contracts which provide for the performance of
future services of or the payment of future monetary considerations at
the time actual need, for which plan holders pay in cash or installment at
stated prices, with or without interest or insurance coverage and includes
life, pension, education, interment, and other plans which the SEC may
from time to time approve.
3.10) Promoter is a person who, acting alone or with others, takes

initiative in founding and organizing the business or enterprise of the
issuer and receives consideration therefor.
B. Registration of Securities
—Sec 8.1- 8.3, SRC
8.1) Requirement of Registration of Securities — Securities may only

be sold or offered for sale or distribution within the Philippines, if there is
a registration statement duly filed with and approved by the SEC. Prior to
such sale, information on the securities, in such form and with such
substance as the SEC may prescribe, shall be made available to each
prospective purchaser.
8.2) Conditional Approval — The SEC may conditionally approve the

registration statement under such terms as it may deem necessary.
8.3) Written Offer for Sale — The SEC may specify the terms and
conditions under which any written communication, including any
summary prospectus, shall be deemed not to constitute an offer for sale.
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C. Exempt Securities
—Sec 9.1, SRC
The requirement of registration does not, as a general rule, apply to any

of the following classes of securities:
1. Any security issued or guaranteed by the Government of the
Philippines, or by any political subdivision or agency, or by any
person controlled or supervised by, and acting as an
instrumentality of said Government.
2. Any security issued or guaranteed by the government of any
country with which the Philippines maintains diplomatic relations,
or by any state, province or political subdivision on the basis of
reciprocity;
○ But the SEC may require compliance with the form and
content for disclosures it may prescribe.
3. Certificates issued by a receiver or by a trustee in bankruptcy
duly approved by the proper adjudicatory body.
4. Any security or its derivatives the sale or transfer of which, by
law, is under the supervision and regulation of the Office of the
Insurance Commission, Housing and Land Use Rule Regulatory
Board, or the Bureau of Internal Revenue.
5. Any security issued by a bank except its own shares of stock.
D. Exempt Transactions
—Sec 10.1 & 10.2, SRC
10.1) The requirement of registration does not apply to the sale of any
security in any of the following transactions:
1. At any judicial sale, or sale by an executor, administrator,
guardian or receiver or trustee in insolvency or bankruptcy.
2. By or for the account of a pledge holder, or mortgagee or any of
a pledge lien holder selling of offering for sale or delivery in the
ordinary course of business and not for the purpose of avoiding
the provision of the SRC, to liquidate a bonafide debt, a security
pledged in good faith as security for such debt.
3. An isolated transaction in which any security is sold, offered for
sale, subscription or delivery by the owner therefore, or by his
representative for the owner’s account, such sale or offer for sale
or offer for sale, subscription or delivery not being made in the
course of repeated and successive transaction of a like character
by such owner, or on his account by such representative and
such owner or representative not being the underwriter of such
security.
4. The distribution by a corporation actively engaged in the
business authorized by its articles of incorporation, of securities
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to its stockholders or other security holders as a stock dividend

or other distribution out of surplus.
5. The sale of capital stock of a corporation to its own stockholders
exclusively, where no commission or other remuneration is paid
or given directly or indirectly in connection with the sale of such
capital stock.
6. The issuance of bonds or notes secured by mortgage upon real
estate or tangible personal property, when the entire mortgage
together with all the bonds or notes secured thereby are sold to a
single purchaser at a single sale.
7. The issue and delivery of any security in exchange for any other
security of the same issuer pursuant to a right of conversion
entitling the holder of the security surrendered in exchange to
make such conversion;
○ But the security so surrendered has been registered
under the SRC or was, when sold, exempt from
registration, and that the security issued and delivered in
exchange, if sold at the conversion price, would at the
time of such conversion fall within the class of securities
entitled to registration under.
○ Upon such conversion the par value of the security
surrendered in such exchange shall be deemed the price
at which the securities issued and delivered in such
exchange are sold.
8. Broker’s transaction, executed upon customer’s orders, on any
registered Exchange or other trading market.
9. Subscriptions for shares of the capitals stocks of a corporation
prior to the incorporation thereof or in pursuance of an increase
in its authorized capital stocks under the Corporation Code,
when no expense is incurred, or no commission, compensation
or remuneration is paid or given in connection with the sale or
disposition of such securities, and only when the purpose for
soliciting, giving or taking of such subscription is to comply with
the requirements of such law as to the percentage of the capital
stock of a corporation which should be subscribed before it can
be registered and duly incorporated, or its authorized, capital
increase.
10. The exchange of securities by the issuer with the existing
security holders exclusively, where no commission or other
remuneration is paid or given directly or indirectly for soliciting
such exchange.
11. The sale of securities by an issuer to fewer than 20 persons in
the Philippines during any 12-month period.
12. The sale of securities to any number of the following qualified
buyers:
(i) Bank;
(ii) Registered investment house;
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(iii) Insurance company;

(iv) Pension fund or retirement plan maintained by the
Government of the Philippines or any political
subdivision or managed by a bank or other persons
authorized by the BSP to engage in trust functions;
(v) Investment company or;
(vi) Such other person as the Commission may rule by
determine as qualified buyers, on the basis of such
factors as financial sophistication, net worth, knowledge,
and experience in financial and business matters, or
amount of assets under management.
10.2) The Commission may exempt other transactions, if it finds that the
requirements of registration under the SRC is not necessary in the public
interest or for the protection of the investors such as by the reason of the
small amount involved or the limited character of the public offering.
V. Investment Contract
Case — SEC vs. Prosperity.Com, GR No. 164197, January 25, 2012
Facts: Prosperity.Com, Inc. (PCI) sold computer software and hosted

websites without providing internet service. To make a profit, PCI
devised a scheme in which a buyer could acquire from it an internet
website of a 15-Mega Byte capacity. At the same time, by referring to
PCI his own down-line buyers, a first-time buyer could earn
commissions, interest in real estate, and insurance coverage.
Apparently, PCI patterned its scheme from that of Golconda Ventures,

Inc. (GVI), which stopped operations after the SEC issued a CDO
against it. It turned out that the same persons who ran the affairs of GVI
directed PCI’s actual operations. Thus, GVI filed a complaint against PCI
in the SEC. The SEC issued CDO against PCI, ruling that PCI’s scheme
constitutes an Investment contract and it should have first registered
such contract or securities with the SEC.
The CA, however, set aside the CDO and ruled that following the “Howey
test” the scheme does not constitute an investment contract.
Howey test: In a US case (SEC v. Howey), it was held that for an

investment contract to exist, the following elements must concur:
1. a contract, transaction, or scheme;
2. an investment of money;
3. investment is made in a common enterprise;
4. expectation of profits; and
5. profits arising primarily from the efforts of others.
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Issue: Was the scheme an “investment contract” required to be

registered under the SRC?
Ruling: No. The elements under the Howey test were not satisfied.
PCI’s clients do not make such investments. They buy a product: an

Internet website of a 15-MB capacity. The buyers of the website do not
invest money in PCI that it could use for running some business that
would generate profits for the investors. The price is what the buyer pays
for the use of the website, a tangible asset that PCI creates, using its
computer facilities and technical skills.
Actually, PCI appears to be engaged in network marketing, a scheme

adopted by companies for getting people to buy their products outside
the usual retail system where products are bought from the store’s shelf.
Under this scheme, adopted by most health product distributors, the
buyer can become a down-line seller. The latter earns commissions from
purchases made by new buyers whom he refers to the person who sold
the product to him. The network goes down the line where the orders to
buy come. The commissions, interest in real estate, and insurance
coverage are incentives to down-line sellers to bring in other customers.
These can hardly be regarded as profits from investment of money under
the Howey test.
Case — Power Homes Unlimited Corporation vs. SEC and Noel

Manero, G.R. No. 164182, Feb 26, 2008
Facts: Power Homes is a marketing company that promotes and

facilitates sales of real properties and other related products of real
estate developers through effective leverage marketing.
Its scheme requires an investor to become a Business Center Owner

(BCO) or an independent representative of Power Homes, who is
enrolled in the company’s referral program and who will ultimately
purchase real property from any accredited real estate developers and
as such he is entitled to a referral bonus/commission. The agreement
states that there exists no employer-employee relationship between the
BCO and the Power Homes.
The BCO is required to pay US$234 as his enrollment fee. His

enrollment entitles him to recruit two investors who should pay US$234
each and out of which, he shall receive US$92. In case the two
referrals/enrollees would recruit a minimum of four persons each
recruiting two persons who become his/her own down lines, the BCO will
receive a total amount of US$147.20 after deducting the amount of
US$36.80 as property fund from the gross amount of US$184. After
recruiting a total of 256 enrollees in 8 months, the BCO now has an
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accumulated amount of US$2,700 constituting as his Property Fund. This

is used as partial/full down payment for the real property chosen by the
BCO from any of Power House’s accredited real estate developers.
Issue: Did the business involve an investment contract considered as a

security and thus required to be registered under the SRC?
Ruling: Yes. An investment contract is defined in the IRR of the SRC as
a "contract, transaction or scheme (collectively ‘contract’) whereby a
person invests his money in a common enterprise and is led to expect
profits primarily from the efforts of others."
The Howey Test requires a transaction, contract, or scheme whereby a

person (1) makes an investment of money, (2) in a common enterprise,
(3) with the expectation of profits, (4) to be derived solely from the efforts
of others. Although the proponents must establish all four elements, the
US Supreme Court stressed that the Howey Test "embodies a flexible
rather than a static principle, one that is capable of adaptation to meet
the countless and variable schemes devised by those who seek the use
of the money of others on the promise of profits."
In SEC v. Glenn W. Turner Enterprises, the US court ruled that the

element that profits must come "solely" from the efforts of others should
not be given a strict interpretation but rather a flexible reading, to afford
broad protection to the public. Thus, the 4th element was changed to
“primarily from efforts of others”.
The petitioner was engaged in the sale or distribution of an investment

contract. An investor enrolls by paying a fee, entitling him to receive
commissions from the investments of those directly recruited by him.
Under the scheme, the accumulated amount received by the investor
comes primarily from the efforts of his recruits.
What is sold is not of the usual "business motivation" type of courses.

Rather, the purchaser is really buying the possibility of deriving money
from the referrals.
V. Grounds for Revocation and Rejection of Registration

—Sec 13.1, SRC
The Commission may reject a registration statement and refuse

registration of the security, or revoke the affectivity of a registration
statement and the registration of the security, after the due notice and
hearing by issuing an order, if it finds that:
1. The issuer:
a. Has been judicially declared insolvent;
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b. Has violated any of the provision of the SRC, the rules

promulgated pursuant to the SRC, or any order of the
SEC of which the issuer has notice in connection with
the offering for which a registration statement has been
filed;
c. Has been or is engaged or is about to engage in
fraudulent transactions;
d. Has made any false or misleading representation of
material facts in any prospectus concerning the issuer or
its securities;
e. Has failed to comply with any requirements that the
Commission may impose as a condition for registration
of the security for which the registration statement has
been filed; or
2. The registration statement is on its face incomplete or inaccurate
in any material respect or includes any untrue statements of a
material fact required to be stated therein or necessary to make
the statement therein not misleading; or
3. The issuer, any officer, director or controlling person performing
similar functions, or any underwriter has been convicted, by a
competent judicial or administrative body (including a foreign
court), upon plea of guilty, or otherwise, of an offense involving
moral turpitude or fraud or is enjoined or restrained by the SEC
or other competent or administrative body for violations of
securities, commodities, and other related laws.
Vl. Manipulation of Security Prices

—Sec 24.1- 24.3, SRC
24.1) It shall be unlawful for any person acting for himself or through a
dealer or broker, directly or indirectly:
1. To create a false or misleading appearance of active trading in
any listed security traded in an Exchange of any other trading
market:
a. By effecting any transaction in such security which
involves no change in the beneficial ownership;
b. By entering an order or orders for the purchase or sale
of such security with the knowledge that a simultaneous
order or orders of substantially the same size, time, and
price, for the sale or purchase of any such security, has
or will be entered by or for the same or different parties;
or
c. By performing a similar act where there is no change in
beneficial ownership.
2. To affect, alone or with others, a securities or transactions in
securities that:
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a. Raises their price to induce the purchase of a security,

whether of the same or a different class of the same
issuer or of controlling, controlled, or commonly
controlled company by others; or
b. Creates active trading to induce such a purchase or sale
through manipulative devices such as marking the close,
painting the tape, squeezing the float, hype and dump,
boiler room operations and such other similar devices.
3. To circulate or disseminate information that the price of any
security listed in an Exchange will or is likely to rise or fall
because of manipulative market operations of any one or more
persons conducted for the purpose of raising or depressing the
price of the security for the purpose of inducing the purpose of
sale of such security.
4. To make a false or misleading statement with respect to any
material fact, which he knew or had reasonable ground to
believe was so false or misleading, for the purpose of inducing
the purchase or sale of any security listed or traded in an
Exchange.
5. To effect, either alone or others, any series of transactions for
the purchase or sale of any security traded in an Exchange for
the purpose of pegging, fixing or stabilizing the price of such
security; unless otherwise allowed by the SRC or by SEC rules.
24.2) No person shall use or employ, in connection with the purchase or

sale of any security any manipulative or deceptive device or contrivance.
Neither shall any short sale be effected nor any stop-loss order be
executed in connection with the purchase or sale of any security except
in accordance with such rules and regulations as the SEC may prescribe
as necessary or appropriate in the public interest for the protection of
investors.
24.3) The SEC, having due regard to the public interest and the
protection of investors, may, by rules and regulations, allow certain acts
or transactions that may otherwise be prohibited under this Section.
Vll. Fraudulent Transactions

—Sec 26, SRC
It shall be unlawful for any person, directly or indirectly, in connection

with the purchase or sale of any securities to:
1. Employ any device, scheme, or artifice to defraud;
2. Obtain money or property by means of any untrue statement of a
material fact of any omission to state a material fact necessary in
order to make the statements made, in the light of the
circumstances under which they were made, not misleading; or
Page 131 of 147

3. Engage in any act, transaction, practice or course of business

which operates or would operate as a fraud or deceit upon any
person.
Vlll. lnsider Trading

—Sec 3.8 in relation to Sec 27.1 – 27.3, SRC
Insider means:
1. the issuer;
2. a director or officer (or any person performing similar functions)
of, or a person controlling, the issuer who gives or gave him
access to material information about the issuer or the security
that is not generally available to the public;
3. a government employee, director, or officer of an exchange,
clearing agency, or self-regulatory organization who has access
to material information about an issuer or a security that is not
generally available to the public; or
4. a person who learns such information by a communication from
any forgoing insiders.
27.1) Insider’s Duty to Disclose When Trading

General rule: I t shall be unlawful for an insider to sell or buy a security of
the issuer, while in possession of material information with respect to the
issuer or the security that is not generally available to the public.
Exceptions:
a. The insider proves that the information was not gained from such
relationship;
b. If the other party selling to or buying from the insider (or his
agent) is identified, the insider proves: (i) that he disclosed the
information to the other party, or (ii) that he had reason to believe
that the other party otherwise is also in possession of the
information.
Presumption of possession of material no public information:

- A purchase or sale of a security of the issuer made by an insider,
or such insider’s spouse or relatives by affinity or consanguinity
within the second degree, legitimate or common-law, shall be
presumed to have been effected while in possession of material
nonpublic information, if transacted after such information came
into existence but prior to dissemination of such information to
the public and the lapse of a reasonable time for market to
absorb such information.
- This presumption shall be rebutted upon a showing by the
purchaser or seller that he was aware of the material nonpublic
information at the time of the purchase or sale.
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27.2) When is information "material nonpublic"?

a. It has not been generally disclosed to the public and would likely
affect the market price of the security after being disseminated to
the public and the lapse of a reasonable time for the market to
absorb the information; or
b. It would be considered by a reasonable person important under
the circumstances in determining his course of action whether to
buy, sell or hold a security.
27.3) Punishable Act

It shall be unlawful for any insider to communicate material nonpublic
information about the issuer or the security to any person who, by virtue
of the communication, becomes an insider as defined in Subsection 3.8,
where the insider communicating the information knows or has reason to
believe that such person will likely buy or sell a security of the issuer
whole in possession of such information.
Case — SEC vs. lnterport Resources, GR No. 135808, Oct. 6, 2008
Facts: On August 6, 1994, Interport approved a Memorandum of

Agreement (MOA) with Ganda Holdings Berhad (GHB), wherein Interport
would acquire the entire capital stock of Ganda Energy Holdings Inc
(GEHI). In exchange, Interport will issue GHB 55% of its expanded
capital stock. On the side, Interport would also acquire 67% of the
Philippine Racing Club, and GHB would extend a loan for this
acquisition.
Interport alleged that on August 8, a press release announcing the

approval of the MOA was sent through facsimile to the PSE and SEC,
but the facsimile machine of the SEC could not receive it. Interport then
sent the press release on August 9.
The SEC averred that it received reports that Interport failed to make
timely public disclosures of its negotiations with GHB and that some of its
directors heavily traded Interport shares utilizing this material insider
information.
On August 16, the SEC Chairman issued a directive requiring Interport to

submit a copy of its MOA and for all principal officers to appear at a
hearing before the Brokers and Exchanges Department (BED) of the
SEC to explain their failure to immediately disclose the information as
required by the Rules on Disclosure of Material Facts. Interport complied.
In September, the SEC Chairman issued an Order finding that Interport

violated the Rules on Disclosure of Material Facts, in connection with the
Old Securities Act of 1936, when it failed to make timely disclosure of its
negotiations with GHB. In addition, the SEC pronounced that some of the
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officers and directors entered into transactions in violation of Section 30,

in relation to Section 36, of the Revised Securities Act.
Interport and its Officers contend in their omnibus motions that SEC had
no authority to investigate the subject matter, since under Section 8 of
Presidential Decree No. 902-A, as amended, jurisdiction was conferred
upon the Prosecution and Enforcement Department (PED) of the SEC.
No formal hearings were conducted in connection with the Interport’s

motions, but on 25 January 1995, the SEC issued an Omnibus Order to
create a special investigating panel to hear and decide the instant case
in accordance with the Rules of Practice and Procedure Before the
Prosecution and Enforcement Department (PED).
The respondents filed a petition before the Court of Appeals which

granted their prayer for a writ of preliminary injunction, effectively
enjoining the SEC from filing any criminal, civil, or administrative case
against them.
SEC filed a Motion for Leave to Quash SEC Omnibus Orders so that the
case may be investigated by the PED in accordance with the SEC Rules
and Presidential Decree No. 902-A, and not by the special body whose
creation the SEC had earlier ordered.
The CA ruled that there were no implementing rules and regulations

regarding disclosure, insider trading, or any of the provisions of the
Revised Securities Acts which the respondents allegedly violated, and
that it found no statutory authority for the SEC to initiate and file any suit
for civil liability under Sections 8, 30 and 36 of the Revised Securities
Act. Thus, it ruled that no civil, criminal or administrative proceedings
may possibly be held against the respondents without violating their
rights to due process and equal protection. It further resolved that absent
any implementing rules, the SEC cannot be allowed to quash the
assailed Omnibus Orders for the sole purpose of re-filing the same case
against the respondents.
First issue: Do the pertinent sections of the Revised Securities Act

(basis for the SEC’s orders against respondents) require the enactment
of implementing rules to make them binding and effective?
Ruling: No. There is a presumption of validity of laws. Rules and

regulations cannot assert for themselves a more extensive prerogative or
deviate from the mandate of the statute. Moreover, where the statute
contains sufficient standards and an unmistakable intent, as in the case
of Sections 30 and 36 of the Revised Securities Act, there should be no
impediment to its implementation.
Page 134 of 147

In the absence of any constitutional or statutory infirmity, which may

concern Sections 30 and 36 of the Revised Securities Act, the provisions
are legal and binding. Unless and until a specific provision of the law is
declared invalid and unconstitutional, the same is valid and binding for all
intents and purposes. The mere absence of implementing rules cannot
effectively invalidate provisions of law, where a reasonable construction
that will support the law may be given.
Discussion on duty to disclose: Section 30 explains in simple terms

that the insider's misuse of nonpublic and undisclosed information is the
gravamen of illegal conduct. The intent of the law is the protection of
investors against fraud, committed when an insider, using secret
information, takes advantage of an uninformed investor.
Insiders are obligated to disclose material information to the other party

or abstain from trading the shares of his corporation. This duty to
disclose or abstain is based on two factor:
1. first, the existence of a relationship giving access, directly or
indirectly, to information intended to be available only for a
corporate purpose and not for the personal benefit of anyone;
and
2. second, the inherent unfairness involved when a party takes
advantage of such information knowing it is unavailable to those
with whom he is dealing.
Meaning of “insiders”: The obligation to disclose or abstain has been

traditionally imposed on corporate "insiders," particularly officers,
directors, or controlling stockholders, but that definition has since been
expanded. The term "insiders" now includes persons whose relationship
or former relationship to the issuer gives or gave them access to a fact of
special significance about the issuer or the security that is not generally
available, and one who learns such a fact from an insider knowing that
the person from whom he learns the fact is such an insider.
Insiders have the duty to disclose material facts which are known to them
by virtue of their position but which are not known to persons with whom
they deal and which, if known, would affect their investment judgment. In
some cases, however, there may be valid corporate reasons for the
nondisclosure of material information. Where such reasons exist, an
issuer's decision not to make any public disclosures is not ordinarily
considered as a violation of insider trading. At the same time, the
undisclosed information should not be improperly used for non-corporate
purposes, particularly to disadvantage other persons with whom an
insider might transact, and therefore the insider must abstain from
entering into transactions involving such securities.
Page 135 of 147

Fact of “special significance”: Under the law, what is required to be

disclosed is a fact of "special significance" which may be:
1. a material fact which would be likely, on being made generally
available, to affect the market price of a security to a significant
extent; or
2. one which a reasonable person would consider especially
important in determining his course of action with regard to the
shares of stock.
(a) Material Fact - A fact is material if it induces or tends to induce or

otherwise affect the sale or purchase of its securities. Thus, Section 30
provides that if a fact affects the sale or purchase of securities, as well as
its price, then the insider would be required to disclose such information
to the other party to the transaction involving the securities.
(b.1) Reasonable Person - A reasonable and prudent man is different

from "a person with training in the law such as a prosecutor or a judge”.
He is "the average man on the street," who weighs facts and
circumstances without resorting to the calibrations of technical rules of
evidence he is not knowledgeable on. Rather, he relies on the calculus of
common sense of which all reasonable men have in abundance.
(b.2) Nature and Reliability (test of materiality) - Among the factors to

be considered in determining whether information is material are:
1. the degree of its specificity;
2. the extent to which it differs from information previously publicly
disseminated; and
3. its reliability in light of its nature and source and the
circumstances under which it was received.
It can be deduced that the "nature and reliability" of a significant fact in

determining the course of action a reasonable person takes regarding
securities must be clearly viewed in connection with the particular
circumstances of a case. To enumerate all circumstances that would
render the "nature and reliability" of a fact to be of special significance is
close to impossible. Nevertheless, the proper adjudicative body would
undoubtedly be able to determine if facts of a certain "nature and
reliability" can influence a reasonable person's decision to retain, sell or
buy securities, and thereafter explain and justify its factual findings in its
decision.
(c) Materiality Concept - Materiality "will depend at any given time upon
a balancing of both the indicated probability that the event will occur and
the anticipated magnitude of the event in light of the totality of the
company activity." Ideally, it would be desirable to have absolute
certainty in the application of the materiality concept, but such a goal is
illusory and unrealistic. The materiality concept is judgmental in nature
Page 136 of 147

and it is not possible to translate this into a numerical formula. Thus, it is

to be considered on a case-by-case basis as disclosure problems are
identified.
(d) Generally Available - Section 30 of the Revised Securities Act

allows the insider the defense that in a transaction of securities, where
the insider is in possession of facts of special significance, such
information is "generally available" to the public. Whether information
found in a newspaper, a specialized magazine, or any cyberspace media
be sufficient for the term "generally available" is a matter which may be
adjudged given the particular circumstances of the case. The standards
cannot remain at a standstill. A medium, which is widely used today was,
at some previous point in time, inaccessible to most. Furthermore, it
would be difficult to approximate how the rules may be applied to the
instant case, where investigation has not even been started.
Section 36(a) refers to the "beneficial owner." Beneficial owner has

been defined in the following manner: First, to indicate the interest of a
beneficiary in trust property (also called "equitable ownership"); and
Second, to refer to the power of a corporate shareholder to buy or sell
the shares, though the shareholder is not registered in the corporation's
books as the owner. Usually, beneficial ownership is distinguished from
naked ownership, which is the enjoyment of all the benefits and
privileges of ownership, as against possession of the bare title to
property.
Even assuming that the term "beneficial ownership" was vague, it would
not affect respondents' case, where the respondents are directors and/or
officers of the corporation, who are specifically required to comply with
the reportorial requirements under Section 36(a) of the Revised
Securities Act. The validity of a statute may be contested only by one
who will sustain a direct injury as a result of its enforcement.
Sections 30 and 36 of the Revised Securities Act were enacted to

promote full disclosure in the securities market and prevent unscrupulous
individuals, who by their positions obtain non-public information, from
taking advantage of an uninformed public. No individual would invest in a
market which can be manipulated by a limited number of corporate
insiders. Such reaction would stifle, if not stunt, the growth of the
securities market. To avert the occurrence of such an event, Section 30
of the Revised Securities Act prevented the unfair use of non-public
information in securities transactions, while Section 36 allowed the SEC
to monitor the transactions entered into by corporate officers and
directors as regards the securities of their companies.
Second issue: While the case was pending, the SRC took effect on
August 8, 2000. It repealed Section 8 of PD 902-A which created the
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PED. Thus, under the new law, the PED is abolished. Does this affect
the case?
Ruling: No. The Securities Regulations Code absolutely repealed the

Revised Securities Act. While the absolute repeal of a law generally
deprives a court of its authority to penalize the person charged with the
violation of the old law prior to its appeal, an exception to this rule comes
about when the repealing law punishes the act previously penalized
under the old law.
Here, a criminal case may still be filed against the respondents despite
the repeal, since Sections 8, 12, 26, 27 and 23 of the Securities
Regulations Code impose duties that are substantially similar to Sections
8, 30, and 36 of the repealed Revised Securities Act.
The same acts are penalized and some provisions are even lifted from
the old law.
The SEC retained the jurisdiction to investigate violations of the Revised

Securities Act, reenacted in the SRC, despite the abolition of the PED.
Section 53 of the Securities Regulations Code clearly provides that

criminal complaints for violations of rules and regulations enforced or
administered by the SEC shall be referred to the Department of Justice
(DOJ) for preliminary investigation, while the SEC nevertheless retains
limited investigatory powers. Additionally, the SEC may still impose the
appropriate administrative sanctions under Section 54 of the new law.
lX. Tender Offer
Tender offer is a publicly announced intention by a person acting alone

or in concert with other persons to acquire equity securities of a public
company.
Case — Cemco Holdings, lnc. vs. National Life lnsurance lnsurance

Company of the Phils., GR No. 171815
Facts: Union Cement Corporation (UCC), a publicly-listed company, has

2 principal stockholders: UCHC (60.51%), a non-listed company, and
Cemco (17.03%).
Majority of UCHC’s stocks were owned by BCI (21.31%) and ACC

(29.69%), while Cemco owned 9%.
In a disclosure letter, BCI informed the PSE that it is selling all of BCI’s
and ACC’s stocks in UCHC to Cemco.
Page 138 of 147

As a result of Cemco’s acquisition of BCI and ACC’s shareholdings in

UCHC, Cemco’s total beneficial ownership in UCC increased by at least
36%. Thus, the PSE wrote to the SEC, inquiring if the Tender Offer Rule
is applicable to the case. The SEC resolved that the transaction was not
covered by the rule.
Aggrieved by this, National Life, a minority stockholder of UCC, filed a

complaint asking to declare the transaction of Cemco void and to apply
the mandatory tender offer rule.
Cemco contends that such rule only applies to direct acquisition of

shares in a public company.
Issue: Does the rule on mandatory tender offer apply to the indirect
acquisition of shares in a listed company, in this case, the indirect
acquisition by Cemco of 36% of UCC, a publicly-listed company, through
its purchase of the shares in UCHC, a non-listed company?
Ruling: Yes. The indirect acquisition of UCC shares through the

acquisition of the non-listed UCHC shares is covered by the mandatory
tender offer rule.
The coverage of the mandatory tender offer rule covers not only direct
acquisition but also indirect acquisition or "any type of acquisition."
The legislative intent of Section 19 of the SRC is to regulate activities

relating to acquisition of control of the listed company and for the
purpose of protecting the minority stockholders of a listed corporation.
Whatever may be the method by which control of a public company is
obtained, either through the direct purchase of its stocks or through an
indirect means, mandatory tender offer applies.
Tender offer is a publicly announced intention by a person acting alone

or in concert with other persons to acquire equity securities of a public
company.
A public company is defined as a corporation which is listed on an

exchange, or a corporation with assets exceeding P50,000,000.00 and
with 200 or more stockholders, at least 200 of them holding not less than
100 shares of such company.
Stated differently, a tender offer is an offer by the acquiring person to

stockholders of a public company for them to tender their shares therein
on the terms specified in the offer.
Tender offer is in place to protect minority shareholders against any

scheme that dilutes the share value of their investments.
Page 139 of 147

It gives the minority shareholders the chance to exit the company under
reasonable terms, giving them the opportunity to sell their shares at the
same price as those of the majority shareholders.
Case — Osmena lll vs. SSS, GR No. 165272, September 13, 2007
Facts: Senator Sergio Osmena III, et al., assail the validity of

Resolutions issued by the Social Security Commission (SSC), approving
the proposed sale of the entire equity stake of SSS in Equitable PCI
Bank through the Swiss Bidding procedure, and authorizing the SSS
President to constitute a committee to formulate the terms in the bidding.
Petitioners assert that a public bidding with a Swiss Challenge

component is contrary to COA Circular No. 89-296 (which stated that the
negotiated sale would partake of a stock exchange transaction and,
therefore, would be adhering to the general policy of public auction) and
public policy which requires adherence to competitive public bidding in a
government-contract award to assure the best price possible for
government assets. They urge that the planned disposition of the Shares
through a Swiss Challenge method be scrapped. The Swiss Challenge
feature tends to discourage would-be-bidders from undertaking the
expense and effort of bidding if the chance of winning is diminished by
the preferential "right to match" clause. Pushing the point, petitioners
aver that the Shares are in the nature of long-term or non-current assets
not regularly traded or held for sale in the regular course of business. As
such, their disposition must be governed by the COA circular which,
subject to several exceptions, prescribes "public auction" as a primary
mode of disposal of the assets.
Issue: Is the transaction covered by the tender offer rule?
Ruling: Yes. A "tender offer" is a publicly announced intention by a

person acting alone or in concert with other persons to acquire equity
securities of a public company, i.e., one listed on an exchange, among
others.
The term is also defined as "an offer by the acquiring person to

stockholders of a public company for them to tender their shares therein
on the terms specified in the offer".
BDO-EPCI, stands now as the issuer of what were once the subject
Shares. Consequently, should SSS opt to exit from BDO and BDO
Capital, or BDO Capital, in turn, opt to pursue SSS’s shareholdings in
EPCIB, as thus converted into BDO shares, the sale-purchase ought to
be via an Issuer Tender Offer -- a phrase which means a publicly
announced intention by an issuer to acquire any of its own class of equity
Page 140 of 147

securities or by an affiliate of such issuer to acquire such securities. In

that eventuality, BDO or BDO Capital cannot possibly exercise the "right
to match" under the Swiss Challenge procedure, a tender offer being
wholly inconsistent with public bidding. The offeror or buyer in an issue
tender offer transaction proposes to buy or acquire, at the stated price
and given terms, its own shares of stocks held by its own stockholder
who in turn simply have to accept the tender to effect the sale. No
bidding is involved in the process.
A. When Mandatory —Rule 19, SRC Rules
19.1) Definitions
1. Beneficial owner means any person who, directly or indirectly,

through any contract, arrangement, understanding, relationship
or otherwise has or shares: voting power, which includes the
power to vote, or to direct the voting of, such security; and/or
investment returns or power, which includes the power to
dispose of, or to direct, the disposition of such security; provided,
however, that a person shall be deemed to have an indirect
beneficial ownership interest in any security which is:
a. held by members of his immediate family sharing the
same household;
b. held by a partnership in which he is a general partner;
c. held by a corporation of which he is a controlling
shareholder; or
d. subject to any contract, arrangement or understanding
which gives him voting power or investment power with
respect to such securities.
2. Bidder means any person who makes a tender offer or on
whose behalf a tender offer is made.
3. Commencement means the date a tender offer is first
published, sent or given to security holders.
4. Security holders means holders of record and beneficial
owners of securities that are the subject of a tender offer.
5. Target company means any issuer of securities that are sought
by a bidder pursuant to tender offer.
6. Tender offer means a publicly announced intention by a person
acting alone or in concert with other persons (hereinafter referred
to as “person”) to acquire equity securities of a public company
as defined in SRC Rule 3
7. Tender offer materials means:
a. the bidder’s formal offer, including all the material terms
and conditions of the tender offer and all amendments;
b. the related transmittal letter (whereby securities of the
target company which are sought in the tender offer may
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be transmitted to the bidder or its depository) and all

amendments; and
c. press releases, advertisements, letters and other
documents published by the bidder or sent or given by
the bidder to security holders which, directly or indirectly,
solicit, invite or request tenders of the securities being
sought in the tender offer.
8. Termination means the date after which securities may not be
tendered pursuant to the tender offer.
19.2) Mandatory tender offers
1. Except as provided in 19.3 below, a person is required to make a

tender offer for equity shares of a public company in an amount
equal to the number of shares that the person intends to acquire
in the following circumstances:
a. The person intends to acquire 15% or more of the equity
shares of a public company pursuant to an agreement
made between or among the person and one or more
sellers;
b. The person intends to acquire 30% or more of the equity
shares of a public company within a period of 12
months; or
c. The person intends to acquire shares that would result in
ownership of more than 50% of the equity shares of a
public company.
2. A person shall be presumed to have the intent that would

mandate the making of a tender offer when the person,
respectively:
a. acquires 15% or more of the equity shares of a public
company pursuant to an agreement made between or
among the person and the seller or sellers;
b. acquires 30% or more of the shares of a public company
within a period of 12 months; or
c. acquires shares that result in ownership of more than
50% of the equity shares of a public company.
B. Exemptions —Rule 19.3, SRC Rules
Relief from Mandatory Tender Offer Requirement

The SEC, upon written application, and consistent with the declared
policies, may exempt from the requirement to make a mandatory tender
offer the following proposed purchases of equity shares of a public
company:
1. the purchase of newly issued shares from unissued capital stock;
Page 142 of 147

2. in connection with foreclosure proceeding involving a duly

constituted pledge or security arrangement where the acquisition
is made by the debtor or creditor;
3. purchases in connection with privatization undertaken by the
government of the Philippines; or
4. purchases in connection with corporate rehabilitation under court
supervision.
Purchasers who are granted an exemption are required to comply with

disclosure and other obligations under the SRC Rules (particularly Rule
18 and 23, and Section 23 of the SRC).
The exemption shall not become effective until publicly disclosed by the
purchaser in a newspaper of general circulation. Such disclosure shall
describe the proposed transaction and indicate the provision (under Rule
19 paragraph 3) under which exemption was claimed.
Any person seeking an exemption under this paragraph may not rely
upon the grant of a previous exemption and shall separately apply for
such relief.
Equity shares of a public company acquired through open market

purchases at the prevailing market price shall be automatically exempted
from mandatory tender offer requirements, provided that such purchaser
complies with disclosure requirements under Sections 18 and 23 of the
SRC and its rules.
X. Proxy Solicitation
—Sec 20, SRC
Solicitation means any request for a proxy or authorization, or any

request to execute or not execute, or to revoke, a proxy or authorization.
20.1) Proxies must be issued and proxy solicitation must be made in

accordance with the SEC rules and regulations.
20.2) Proxies must be in writing, signed by the stockholder or his duly

authorized representative and filed with the corporate secretary before
the scheduled meeting.
20.3) Unless otherwise provided in the proxy, it shall be valid only for the
meeting for which it is intended. No proxy shall be valid and effective for
a period longer than 5 years at one time.
20.4) No broker or dealer shall give any proxy, consent or any

authorization, in respect of any security carried for the account of the
Page 143 of 147

customer, to a person other than the customer, without written

authorization of such customer.
20.5) A broker or dealer who holds or acquire the proxy for at least 10%,
or such percentage as the SEC may prescribe, of the outstanding share
of such issuer, shall submit a report identifying the beneficial owner of 10
days after such acquisition, for its own account or customer, to the issuer
of security, to the exchange where the security is traded, and to the SEC.
Xl. Civil Liabilities

—Secs 56 - 61, SRC
56.1) Civil Liabilities on Account of False Registration Statement
Any person acquiring a security, the registration statement of which or

any part thereof contains on its effectivity an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make such statements not misleading, and who suffers
damage, may sue and recover damages from the following enumerated
persons, unless it is proved that at the time of such acquisition he knew
of such untrue statement or omission:
(a) The issuer and every person who signed the registration statement:
(b) Every person who was a director of, or any other person performing
similar functions, or a partner in, the issuer at the time of the filing of the
registration statement or any part, supplement or amendment thereof
with respect to which his liability is asserted;
(c) Every person who is named in the registration statement as being or

about to become a director of, or a person performing similar functions,
or a partner in, the issuer and whose written consent thereto is filed with
the registration statement;
(d) Every auditor or auditing firm named as having certified any financial
statements used in connection with the registration statement or
prospectus.
(e) Every person who, with his written consent, which shall be filed with
the registration statement, has been named as having prepared or
certified any part of the registration statement, or as having prepared or
certified any report or valuation which is used in connection with the
registration statement, with respect to the statement, report, or valuation,
which purports to have been prepared or certified by him.
(f) Every selling shareholder who contributed to and certified as to the

accuracy of a portion of the registration statement, with respect to that
portion of the registration statement which purports to have been
contributed by him.
(g) Every underwriter with respect to such security.
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56.2) If the person who acquired the security did so after the issuer has
made generally available to its security holders an income statement
covering a period of at least 12 months beginning from the effective date
of the registration statement, then the right of recovery under this
subsection shall be conditioned on proof that such person acquired the
security relying upon such untrue statement in the registration statement
or relying upon the registration statement and not knowing of such
income statement, but such reliance may be established without proof of
the reading of the registration statement by such person.
57) Civil Liabilities Arising in Connection With Prospectus,

Communications, and Reports
ffering or selling in violation of the law

57.1) O
ny person who:
Who is liable? A
(a) Offers to sell or sells a security in violation of the SRC’s provisions on

registration of securities; or
(b) Offers to sell or sells a security, whether or not exempted by the SRC,
by the use of any means or instruments of transportation or
communication, by means of a prospectus or other written or oral
communication, which includes an untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements,
in light of the circumstances under which they were made, not misleading
(the purchaser not knowing of such untruth or omission), and who shall
fail in the burden of proof that he did not know, and in the exercise of
reasonable care could not have known, of such untruth or omission.
he person under (a) or (b) is liable to the person

What is the liability? T
purchasing such security from him, who may sue to recover the
consideration paid for such security with interest, less the amount of any
income received, upon the tender of such security, or for damages if he
no longer owns the security.
57.2) False or misleading statements
Who is liable? Any person who shall make or cause to be made any
statement in any report or document filed pursuant to SRC or any SEC
rule or regulation, that is false or misleading with respect to any material
fact, at the time and in light of the circumstances under which it was
made.
e is liable to any person who, not knowing that

What is the liability? H
such statement was false or misleading, and relying upon such
statement, shall have purchased or sold a security at a price which was
affected by such statement, for damages caused by such reliance.
Defense: The person will not be liable if he proves that he acted in good
faith and had no knowledge that the statement he made was false or
misleading.
58) Civil Liability of Fraud in Connection with Securities

Transactions
Page 145 of 147

Who is liable? Any person who engages in any act or transaction in

violation of:
(a) Section 19.2 — making an untrue statement of a material fact or

omitting such material fact, or engaging in fraudulent, deceptive,
or manipulative acts in connection with any tender offer or any
solicitation for any security holders;
(b) Section 20 — rules on proxy solicitation;
(c) Section 26 — fraudulent transactions in connection with the
purchase or sale of any securities;
(d) Any rule or regulation of the SEC in relation to those sections.
What is the liability? He is liable to any other person who purchases or

sells any security, grants or refuses to grant any proxy, consent or
authorization, or accepts or declines an invitation for tender of a security,
as the case may be, for the damages sustained by such other person as
a result of such act or transaction.
59) Civil Liability for Manipulation of Security Prices
Who is liable? Any person who willfully participates in any act or

transaction in violation of Section 24 — manipulating security prices,
devices, and practices.
e is liable to any person who shall purchase or sell

What is the liability? H
any security at a price which was affected by such act or transaction, and
the person so injured may sue to recover the damages sustained as a
result of such act or transaction.
60) Civil Liability with Respect to Commodity Futures Contracts and

Pre-need Plans
Who is liable? Any person who engages in any act or transactions in

willful violation of any SEC rule or regulation on Commodity Futures
Contracts (Section 11) or Pre-need Plans (Section 16), which the SEC
denominates at the time of issuance as intended to prohibit fraud in the
offer and sale of pre-need plans or to prohibit fraud, manipulation,
fictitious transactions, undue speculation, or other unfair or abusive
practices with respect to commodity future contracts.
What is the liability? He is liable to any other person sustaining damages

as a result of such act or transaction.
61) Civil Liability on Account of Insider Trading
61.1) Who are liable?
a. Any insider who violates the duty to disclose when trading

(Subsection 27.1); and
b. Any person in the case of a tender offer who knew that the
information was nonpublic (Subsection 27.4.a.i);
c. Any person who violates any pertinent rule or regulation, by
purchasing or selling a security while in possession of material
information not generally available to the public.
Page 146 of 147

What is the liability? He is liable in a suit brought by any investor who,

contemporaneously with the purchase or sale of securities that is the
subject of the violation, purchased or sold securities of the same class,
unless such insider, or such person in the case of a tender offer, proves
that such investor knew the information or would have purchased or sold
at the same price regardless of disclosure of the information to him.
61.2) Who is liable?
a. An insider who communicates material nonpublic information

about the issuer or security to any person who also becomes an
insider because of that information (Subsection 27.3);
b. Any person in the case of a tender offer who knew that the
information was nonpublic (Subsection 27.4.a); or
c. Any person who violates any pertinent rule or regulation, by
communicating material nonpublic information.
What is the liability? He is jointly and severally liable with, and to the
same extent as, the insider, or person in the case of a tender offer, to
whom the communication was directed and who is liable under
Subsection 61.1 by reason of his purchase or sale of a security.
——Nothing follows——
Page 147 of 147

Notes On Special Commercial Laws (Philippines)

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Notes On Special Commercial Laws (Philippines)

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Special Commercial Laws UC Law 2020

Outline by Garduce, Diane M.

Banking and Allied Laws

I. Nature and Concept 2

II. Classification of banks 3

III. Deposit Function 16

IV. Secrecy of Bank Deposits 25

V. Exceptions to Secrecy of Bank Deposits 26

VI. Foreign Currency Deposits 38

VIII. Loan Function 44

IX. Ownership of Banks 62

XI. Bank Directors and Officers 64

XI. Bangko Sentral ng Pilipinas 72

Truth in Lending Act 77

Anti-Money Laundering Act 82

Securities and Regulations Code 105

Submitted by Diane M. Garduce

Submitted to Atty. Nick Gumabun

BANKING AND ALLIED LAWS

I. NATURE AND CONCEPT OF BANKING LAWS

1. Bank ​—Sec 3.1, GBL

2. Quasi-Bank​ — ​ Sec 95, NCBA in relation to Sec. 4 GBL

Deposit substitutes are alternative forms of obtaining funds from the

3. One-unit rule ​—Sec 20, GBL

A bank authorized to establish branches or other offices shall be

Case — PDIC v Citibank (GR no. 170290; April 11, 2012)

Ruling​: No. A branch has no separate legal personality.

A foreign corporation wanting to do business here has two choices:

The SC adopted the ruling in ​Sokoloff v. The National City Bank of

“Where a bank maintains branches, each branch becomes a separate

The SC also mentioned ​United States v. BCCI Holdings Luxembourg​,

C. Declaration of Policy ​– Sec 2, GBL

The State recognizes:

D. Requirements to Operate​ – Secs 8, 14, 9, GBL

The Monetary Board may authorize the organization of a bank or

The Monetary Board shall take into consideration their:

The bank licensing process shall incorporate an assessment of the

Such certificate shall not be issued unless the Monetary Board is

1. Treasury shares​ —Sec 10, GBL

When authorized by the MB, the treasury stock so purchased or acquired

2. Degree of Care of banks in view of the fiduciary nature of banking

Case — Alano vs. Planters Development Bank, GR 171628

Facts: Armando Alano and his brother Agapito bought a house in BF

Lydia, however, filed an affidavit to cancel the adverse claim. She

Issue:​ Is the bank a mortgagee in good faith? Is the REM valid?

Banks should conduct ocular inspections and verify the genuineness of

Case — China Banking Corporation (CBC) vs. Lagon, GR 160843

Case — Spouses Jalbay vs PNB, GR 177803

Facts: ​Emiliano and Mamerta Jalbay owned a lot in Novaliches. The

Issue: ​Was PNB a mortgagee in good faith?

Case — Citibank vs. Cabamongan, GR 146918

Facts​: Luis and Carmela Cabamongan opened a joint foreign currency

Before it could mature, a person who claimed to be Carmelita went to tha

Issue​: Was Citibank negligent?

Facts: FMIC opened a current account with BPI-FB. On August 25,

FMIC counters that if BPI-FB’s contentions were to be allowed, sun

Issue​: How much should BPI-FB pay?

Ruling​: BPI-FB should pay the outstanding balance of the principal

BPI-FB’s act of transferring the P80 million constituted breach of

Case — Go vs. Metropolitan Bank and Trust and Co., GR 168842

Facts​: Vicente Go was doing business under “Hope Pharmacy” in Cebu.

Issue​: Is Metrobank liable to pay Go?

Case — PCIBank vs. CA, GR 121413

1. Bank —Sec 3.1, GBL

2. Quasi-Bank — Sec 95, NCBA in relation to Sec. 4 GBL

3. One-unit rule —Sec 20, GBL

Ruling: No. A branch has no separate legal personality.

The SC adopted the ruling in Sokoloff v. The National City Bank of

The SC also mentioned United States v. BCCI Holdings Luxembourg,

C. Declaration of Policy – Sec 2, GBL

D. Requirements to Operate – Secs 8, 14, 9, GBL

1. Treasury shares —Sec 10, GBL

Issue: Is the bank a mortgagee in good faith? Is the REM valid?

Facts: Emiliano and Mamerta Jalbay owned a lot in Novaliches. The

Issue: Was PNB a mortgagee in good faith?

Facts: Luis and Carmela Cabamongan opened a joint foreign currency

Issue: Was Citibank negligent?

Issue: How much should BPI-FB pay?

Ruling: BPI-FB should pay the outstanding balance of the principal

Facts: Vicente Go was doing business under “Hope Pharmacy” in Cebu.

Issue: Is Metrobank liable to pay Go?

Facts: Ford Philippines drew a check in Citibank to pay its

Ruling: Yes. They are liable equally/jointly, or in a 50-50 ratio.

Facts: Fojas-Arca maintained a special savings account with Luzon

Facts: Tarcila and Manuel Fernandez opened several “and/or” deposit

Issue: Is BPI liable?

Ruling: Yes. It breached its obligation under the certificates of deposit. A

3. Strikes and Lockouts – Sec. 22, GBL

A. Types of Bank —Sec 23, GBL

1. A universal bank has the following powers: (a) the powers of a

2. A commercial bank has the following powers: (a) general powers

4. A rural bank is more specific in scope, since it is created to make

5. A cooperative bank is more specific in purpose, as it is primarily

Cooperative Code — “Art 23 (i): Cooperative Bank is one organized for

6. An Islamic bank is a bank whose services and operations are based

Charter of Al-Amanah Islamic Investment Bank —“Section 2. Name,

7. Other classification of banks as determined by the Monetary

A. Nature - Article 1980, NCC

Facts: Paulino Gullas signed as indorse of a $361 check issued by the

Issue: Was there breach of trust?

Ruling: No. In the case of banks, there is no breach of trust when a

Issue: Does failure of a bank to return the amount deposited constitute

Ruling: No. Failure of a bank to return the amount deposited to the

Issue: Is the bank liable for quasi-delict or for breach of contract?

Ruling: The bank is liable for breach of contract due to negligence.

However, the fiduciary nature of a bank-depositor relationship does not

Facts: Petitioner corporation (CAIDC) purchased 2 lots from Sps. Pugao.

D. Rules on Minors — Sec.1, PD 734