BANKING

Commercial Law
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VI. BANKING
TOPIC OUTLINE UNDER THE SYLLABUS:
VI. BANKING
A. THE NEW CENTRAL BANK ACT
1. State Policies
2. Creation of the Bangko Sentral ng
Pilipinas
3. Responsibility and primary objective
4. Corporate powers
5. Operations of the Bangko Sentral ng
Pilipinas
a. Authority to obtain data and
information
b. Supervision and examination
c. Bank deposits and investments
d. Prohibitions
e. Examination and fees
6. Monetary Board; powers and
functions
7. How the Bangko Sentral ng Pilipinas
handles banks in distress
a. Conservatorship
b. Closure
c. Receivership
d. Liquidation
8. Administrative sanctions on
supervised entities
9. Rules on bank deposits and
investments by directors, officers,
stockholders and their related
interests
10. Supervision and regulation of bank
operations
a. Loans and other credit
accommodations
b. Selective regulation
i. Margin requirements
against letters of credit
ii. Required security against
bank loans
iii. Portfolio ceilings
iv. Minimum capital ratios
11. Rate of exchange
B. LAW ON SECRECY OF BANK
DEPOSITS
1. Purpose
2. Prohibited acts
3. Deposits covered
4. Exceptions
5. Garnishment of deposits, including
foreign deposits
6. Penalties for violation
C. GENERAL BANKING ACT
1. Definition and classification of banks
COMMERCIAL LAW
2. Distinction of banks from quasi-banks
and trust entities
3. Bank powers and liabilities
a. Corporate powers
b. Banking and incidental powers
4. Diligence required of banks in view of
fiduciary nature of banking
5. Nature of bank funds and bank
deposits
6. Grant of loans and security
requirements
a. Ratio of new worth to total risk
assets
b. Single borrower’s limit
c. Restrictions on bank exposure
to directors, officers,
stockholders, and their related
interests
d. Prohibited acts of borrowers
e. Floating interest rates and
escalation clauses
7. Penalties for violations
a. Fine, imprisonment
b. Suspension or removal of
director or officer
c. Dissolution of bank
D. PHILIPPINE DEPOSIT INSURANCE
CORPORATION ACT
1. Basic Policy
2. Powers and functions of the Philippine
Deposit Insurance Corporation;
prohibitions
3. Concept of insured deposits
4. Liability to depositors
a. Deposit liabilities required to be
insured with Philippine Deposit
Insurance Corporation
b. Commencement of liability
c. Deposit accounts not entitled to
payment
d. Extent of liability
e. Determination of insured
deposits
f. Calculation of liability
i. Per depositor, per capacity
rule
ii. Joint accounts
iii. Mode of payment
iv. Effect of payment of
insured deposits
v. Payment of insured
deposits as preferred credit
vi. Failure to settle claim of
insured depositor
vii. Failure of depositor to claim
insured deposits
(a) Examination of banks
and deposit accounts
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(b) Prohibition against A. THE NEW CENTRAL BANK ACT

splitting of deposits
(c) Prohibition against 1. STATE POLICIES
issuances of
temporary restraining The State shall maintain a central monetary
orders authority that shall function and operate as an
5. Concept of bank resolution
independent and accountable body corporate in
6. Role of the Philippine Deposit
the discharge of its mandated responsibilities
Insurance Corporation in relation to
banks in distress concerning money, banking, and credit. In line
a. Closure and takeover with this policy, and considering its unique
b. Conservatorship functions and responsibilities, the central
c. Receivership monetary authority established under this Act,
d. Liquidation while being a government-owned corporation,
shall enjoy fiscal and administrative autonomy.
(New Central Bank Act [hereinafter “NCBA”], Sec
1)

2. CREATION OF THE BANGKO SENTRAL

NG PILIPINAS (BSP)

There is hereby established an independent

central monetary authority, which shall be a body
corporate known as the BSP. (NCBA, Sec. 2)

The BSP is a Constitutionally mandated (not

created) authority. (1987 Constitution, Article XII,
Sec. 20)

The State’s central monetary authority is charged

with the responsibility of administering the
monetary, banking, and credit system of the
country and is granted the power of supervision
and examination over bank and non-bank
financial institutions performing quasi-banking
functions, including savings and loan
associations. (Busuego v. Court of Appeals [CA],
G.R. No. 95326, 1999)

3. RESPONSIBILITY AND PRIMARY

OBJECTIVE

Responsibilities of the BSP

a. Banker of Government. The
government’s political subdivisions and
instrumentalities (Sec. 110), and their
cash balances should be deposited with
the BSP, with only minimum working
balances to be held by government-
owned banks, and such other banks
incorporated in the Philippines as the
Monetary Board may designate. (Sec.
113)
b. Representation with the International
Monetary Board. The BSP shall
represent the government in all dealings,

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negotiations, and transactions with the
IMF, and shall carry such accounts as
may result from the Philippine
membership in, or operations with IMF.
(Sec. 111)
c. Representation with other financial
institutions. The BSP may represent the
government in dealings, negotiations, or
transactions with the World Bank and
with other foreign or international
financial institutions or agencies. (Sec.
112)
d. Fiscal operations. The BSP shall open
a general cash account for the Treasurer
of the Philippines, in which the liquid
funds of the Government shall be
deposited, and the transfer of funds from
this account to be made only upon the
order of the Philippine Treasurer. (Sec.
114)
Primary Objectives of the BSP
a. To provide policy directions in areas of
money, banking, and credit, with
supervision over operations of banks,
and with regulatory and examination
powers over money service businesses,
credit granting businesses, and payment
system operators. (Sec. 3)
b. To maintain price stability conducive to a
balanced and sustainable growth of the
economy and employment (Id.)
c. To promote and maintain the monetary
stability and convertibility of the peso.
(Id.)
Monetary stability pertains to
preservation of the international value of
the Philippine currency. (Commissioner
of Customs v. Eastern Sea Trading, GR
No. L-14279, 1961)
Note: Promotion of financial stability is a
shared mandate with the National
Government i.e., DOF, SEC, IC, and
PDIC.
d. To promote broad and convenient access
to high quality financial services. (Sec. 3)
e. To oversee the payments and settlement
systems. (R.A. No. 11127 - National
Payment Systems Act, Sec. 3)
COMMERCIAL LAW
4. CORPORATE POWERS
Corporate powers of the BSP
a. To adopt, alter, and use a corporate seal
which shall be judicially noticed;
b. To enter into contracts;
c. To own, lease, sell or dispose real and
personal property;
d. To sue and be sued;
e. To acquire and hold assets and incur
liabilities essential to the proper conduct
of its operations;
f. To compromise, condone, or release any
claim or settled liability to the BSP
regardless of the amount, and
g. To do and perform such other necessary
or proper powers to carry out the
purposes of the Act. (Sec. 5)
5. OPERATIONS OF THE BANGKO
SENTRAL NG PILIPINAS
A. Authority to obtain data and information
BSP’s has power to require any data:
a. Collective or aggregate data may be
released to any interested person
b. Disaggregated data (i.e. data of individuals
and firms).
1. Subject to confidentiality laws;
2. Cannot be made available to the
public except upon court order or
directive of the Monetary Board;
3. Data on banks are secured
pursuant to BSP’s banking
supervision powers and are
confidential. Its release is subject
to conditions imposed by the
Monetary Board, government
agencies authorized by law, orders
of the court, or Congress. (Sec. 27)
4. Can be secured from any person
or entity, including government
entities.
5. Limited for statistical and policy
development purposes.
BSP has the power to issue subpoena for the
production of books and records, and refusal
shall be subject to punishment for contempt
under the Rules of Court. (Sec. 23)
B. Supervision and examination
Supervision is a broad term, which includes
examination and investigation. Supervision also
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includes issuance of rules of conduct and
standards, overseeing that laws and regulations
are complied with and enforcing prompt
corrective actions. (General Banking Law
[hereinafter “GBL”], Sec. 4)
Supervision includes audit. The Commission on
Audit (COA) and the BSP have concurrent
jurisdiction to audit government banks. (DBP v.
COA, GR. No. 88435, 2002)
Coverage of BSP’s supervision and
examination powers
a. Banks
b. Quasi-banks
c. Subsidiaries (ownership of more than
50% of the voting stock) and affiliates
(ownership of 50% or less) of banks and
quasi-banks engaged in allied activities.
Note: BSP is also granted the authority to
conduct examination of a wholly or
majority owned or controlled enterprise
by a bank, not necessarily engaged in
allied activities. (GBL, Sec. 7)
d. Other institutions performing similar
functions as provided for by special laws
i.e., non-stock savings and loan
association (R.A. No. 8367), pawnshops
(P.D. No. 114), stand-alone trust entities
(GBL, Sec. 79).
e. Money service businesses i.e., foreign
exchange dealers, money changers and
remittance agents
f. Credit granting businesses
g. Payment system operators (Sec. 25)
h. Trust entities (GBL, Sec.4, 79)
i. Pawnshops (PD 114, Sec. 17)
j. Non-stock savings and loan associations
(R.A. No. 8367, Sec. 22)
Resolution of examination issues
BSP is required to establish a mechanism for
resolving issues pertaining to bank examination.
The resolution “body” shall be independent and
report directly to the Monetary Board. (Sec. 25)
Authority of bank examiners
BSP bank examiners are authorized to administer
oaths and compel the presentation of documents
of institutions under examination. This authority is
subject to the confidentiality of bank deposits and
government debt securities. (Id.)
COMMERCIAL LAW
Prohibition on issuance of injunction
No restraining order or injunction shall be issued
by the court enjoining the BSP from examining
any institution subject to its supervision or
examination powers except when the action of
the BSP is plainly arbitrary and made in bad faith.
(Id.)
C. Authority to approve transfer of shares
Transfers or acquisitions, or a series thereof, of at
least ten percent (10%) of the voting shares in
banks or quasi-banks shall require the prior
approval of the BSP. The BSP shall consider the
fitness of the incoming stockholders as may be
indicated in their integrity, reputation, and
financial capacity. (Sec. 25-A)
Effect of lack of BSP approval
The transfer or acquisition shall have no legal
effect and cannot be recognized in the books of
the institution or by any government agency. The
transferor-stockholders shall remain accountable
and responsible. (Sec. 25-A)
Transfer of actual control or management shall
make the transferor, the transferee, and any
person responsible liable. (Id.)
D. Prohibitions
Personnel of the BSP are hereby prohibited from:
a. Being an officer, director, lawyer or
agent, employee, consultant, or
stockholder, directly or indirectly, of any
institution subject to supervision or
examination by the BSP; (Sec. 27[a])
b. Directly or indirectly requesting or
receiving any gift, present or pecuniary or
material benefit for himself or another,
from any institution subject to supervision
or examination by the BSP; (Sec. 27 [b])
c. Revealing, in any manner, information
relating to the condition or business of
any such institution unless:
1. Under orders of the court, the
Congress or any government
office or agency authorized by
law, or under such conditions as
may be prescribed by the
Monetary Board; and
2. The information is to be given to
the Monetary Board or the
Governor of the BSP, or to any
person authorized by either of
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them, in writing, to receive such
information. (Sec. 27 [c])
d. Borrowing from any institution subject to
supervision or examination by
the BSP unless:
1. It is transacted on an arm's
length basis;
2. It is fully disclosed to the
Monetary Board; and
3. It shall be subject to such rules
and regulations as the Monetary
Board may prescribe. (Sec.
27[d])
E. Examination and Fees
Banks, quasi-banks, and other BSP-supervised
entities shall be examined by BSP examiners in
accordance with guidelines, taking into
consideration sound and prudent practices.
a. There shall be an interval of at least
twelve (12) months between regular bank
examinations. It is no longer annual.
b. Special examinations need at least five
(5) votes of the members of the Monetary
Board.
c. The supervised institution shall afford
BSP examiners full opportunity to
examine its books and records, assets,
and general condition, and review its
systems and procedures.
d. Reports and papers are confidential and
not open to the public, except when
incidental to examination proceedings
and when necessary for the prosecution
of violations.
e. There is an annual supervision fee based
on cost of supervision. (Sec. 28)
6. MONETARY BOARD, POWERS AND
FUNCTIONS
The Monetary Board is a seven (7) man body
appointed by the President through which the
powers and functions of the BSP are exercised.
Its members shall serve a term of six (6) years,
and no member shall be reappointed more than
once. (Sec. 6)
Composition
a. Chairman who is the BSP Governor;
b. A cabinet member to be designated by
the President of the Philippines;
c. 5 Members who shall come from the
private sector, all of whom shall serve full
time (Id.)
COMMERCIAL LAW
While Sec. 6(a) of the NCBA requires that the
Governor be subject to confirmation by the
Commission on Appointments, he is not among
government officials expressly mentioned in Sec.
16, Article VII of the Constitution who should be
confirmed. (Tarrosa vs. Singson, G.R. No.
111243, 1994)
Vacancies
Any vacancy in the Monetary Board 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. (Sec. 7)
Qualifications
a. Natural-born citizens of the Philippines;
b. At least 35 years of age; (except the
Governor, who should be at least 40
years of age)
c. Of good moral character;
d. Of unquestionable integrity;
e. Of known probity and patriotism; and
f. With recognized competence in social
and economic disciplines (Sec. 8)
Disqualifications
a. Disqualifications imposed by R.A. No.
6713 – Code of Conduct and Ethical
Standards for Public Officials;
b. 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 BSP;
c. Members coming from the private sector
shall not hold any other public office or
public employment during their tenure.
d. Person who 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;
e. No member shall be employed in any
such 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; and
f. Person who has substantial interest in
any private bank in the Philippines, within
1 year prior to his appointment. (Sec. 9)
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Degree of Diligence
The degree of diligence required of Monetary
Board Members, BSP Officials, and Employees,
is now aligned with that required of public officers
under Sec. 38 and 39 of Chapter 9, Book I of the
Revised Administrative Code of 1987. They
cannot be liable for acts done in the performance
of their official duties “unless there is a clear
showing of bad faith, malice or gross negligence.”
(Sec. 16) The former requirement of
extraordinary diligence was already amended.
General Rule:
Free and Harmless
BSP, members of the Monetary Board, and its
other personnel, are held free and harmless to the
fullest extent permitted by law from any liability.
(Sec. 16)
Indemnification
They shall be indemnified for any and all
liabilities, losses, claims, demands, damages,
deficiencies, costs and expenses of whatsoever
kind and nature that may arise in connection with
the exercise of their powers and performance of
their duties and functions. (Id.)
Exception: Their actions or omissions are finally
adjudged to be in willful violation of this Act,
performed in evident bad faith, or with gross
negligence. (Id.)
The legal obligations of diligence and good faith
that BSP officials owe to the public start with the
official acts of the Monetary Board which, rightly
or wrongly, are the cause of loss or injury to third
parties, not any preparatory report or
recommendation. (Borlongan v. Reyes, G.R. No.
161726, 2005)
Removal of Members of the Monetary Board
The President may remove any member of the
Monetary Board for any of the following reasons:
a. The member no longer possesses the
qualifications under NCBA, Sec. 8;
b. The member is guilty of acts or
operations which are fraudulent or illegal;
c. The member is physically, or mentally
incapacitated and such incapacity lasted
for more than 6 months;
d. The member is subsequently disqualified
under NCBA, Sec. 9. (Sec. 10)
Powers and Functions of the Monetary Board
a. Issue rules and regulations;
COMMERCIAL LAW
b. Direct the management, operations, and
administration of the BSP;
c. Establish a human resource
management system;
d. Adopt its annual budget and authorize
expenditures;
e. Indemnify its members and other officials
of the BSP against all costs and
expenses reasonably incurred by such
persons by reason of the performance of
their functions or duties in accordance
with the free and harmless, and
indemnification clause. (Secs. 15 and 16)
Myriad of functions
BSP is an administrative agency which exercises
"powers and/or functions which may be
characterized as administrative, investigatory,
regulatory, quasi-legislative, or quasi-judicial.”
(Bank of Commerce v. Planter’s Development
Bank, G.R. Nos. 154470-71 and 154589-90,
2012)
The BSP Monetary Board is a quasi-judicial
agency exercising quasi-judicial powers or
functions. It has the power to issue subpoena, to
sue for contempt those refusing to obey the
subpoena without justifiable reason, or administer
oaths and compel presentation of books, records,
and others, needed in its examination, to impose
fines and other sanctions and to issue cease and
desist order. The BSP Monetary Board can
exercise discretion in determining whether
administrative sanctions should be imposed on
banks and quasi-banks. (UCPB v. Ganzon, G.R.
No. 168859, 2009; NCBA, Sec. 37)
Decisions appealable to the Court of Appeals
Any petition for certiorari against an act or
omission of BSP, when it acts through the
Monetary Board, must be filed with the Court of
Appeals. (Vivas vs. Monetary Board, G.R. No.
191424, 2013).
Note: This is a petition for review on certiorari
over decisions of quasi-judicial bodies (Monetary
Board) under Rule 45 of the Rules of Court. This
is different from a special petition for certiorari for
bank closures under Sec. 30 of the NCBA.
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7. HOW THE BANGKO SENTRAL NG
PILIPINAS HANDLES BANKS IN DISTRESS
Methods
Conservatorship, Receivership, and Liquidation
A bank placed under conservatorship remains
open but under the management and control of
the conservator. On the other hand, when a bank
is ordered closed by the Monetary Board, it is
taken over by the PDIC as statutory “receiver”,
and the PDIC is directed to proceed with the
liquidation. (Sec. 30(d); New PDIC Charter, Sec.
12)
Before the amendments to the PDIC Charter and
NCBA by Sec. 12 of R.A. No. 10846 (2016), there
was a 90-day period of receivership after closure
and before a final order of liquidation by the
Monetary Board to determine whether the bank
can still be rehabilitated. This period was
removed by the amendment. PDIC now takes
over the assets of the closed bank for purposes
of liquidation and thereafter files a petition for
court assisted liquidation. (A.M. No. 19-12-02-SC
Rules on Liquidation of Closed Banks, February
18, 2020)
Liquidity
Ability to pay off obligations when they fall due.
An institution which fails to pay its matured
obligations or meet the normal demands of
withdrawals for deposits due to insufficient cash,
or resorts to intermittent/staggered payments or
withdrawals may be considered as suffering from
liquidity problems.
Insolvency
There are two tests for insolvency:
a. Balance sheet test. It is where the
realizable assets of the bank is
insufficient to meet its liabilities
(Sec.30[b])
b. Equity test. The bank’s inability to pay its
liabilities as they become due in the
ordinary course of business (Sec. 30[a])
Either is sufficient ground to close a bank.
A. Conservatorship
A tool in restoring the viability of a bank or quasi-
bank through measures to address its state of
illiquidity. For this purpose, the Monetary Board
may appoint a conservator. (Sec. 29)
COMMERCIAL LAW
Appointment of Conservator
A conservator is appointed based on a report
submitted to the Monetary Board by the
appropriate supervising or examining department
showing that the bank or quasi-bank is in a state
of illiquidity which is not adequate to protect the
interest of depositors and creditors. (Id.)
Qualifications of a Conservator
The conservator should be competent and
knowledgeable in bank operations and
management. (Id.)
The Monetary Board has exclusive power to
designate the conservator. (Koruga v. Arcenas,
G.R. Nos. 168332, 2009)
Duration of Conservatorship
Shall not exceed 1 year. (Sec. 29)
Powers of a Conservator:
a. To take charge of the assets, liabilities,
and the management thereof;
b. Reorganize the management;
c. Collect all monies and debts due said
institution;
d. Exercise all powers necessary to restore
its viability;
e. Report and be responsible to the
Monetary Board; and
f. Where necessary, overrule or revoke the
actions of the previous management and
board of directors of the bank or quasi-
bank. (Id.)
A bank conservator appointed by the BSP has no
power to unilaterally rescind contracts entered
into by the previous management. The power to
revoke cannot extend to post-facto repudiation of
perfected transactions otherwise they would
infringe against the non-impairment clause of the
Constitution. The law merely gives the
conservator the power to file court actions to
revoke contracts that are defective – void,
voidable, unenforceable, or rescissible.
(Producers Bank v. NLRC, G.R. No. 118069,
1998; First Philippine International Bank v. CA,
G.R. No. 115849, 1996)
Remuneration of a Conservator
General Rule: The conservator shall receive
remuneration in an amount not to exceed 2/3 of
the salary of the president of the institution (i.e.
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the bank under conservatorship) in 1 year,
payable in 12 equal monthly payments.
Exception: A conservator connected with the
BSP, in which case said conservator shall not be
entitled to receive any remuneration or
emolument. (Sec. 29)
Note: If at any time within one-year period, the
conservatorship is terminated on the ground that
the institution can operate on its own, the
conservator shall receive the balance of the
remuneration which he would have received up to
the end of the year; but if the conservatorship is
terminated on other grounds, the conservator
shall not be entitled to such remaining balance.
(Id.)
Expenses
The expenses attendant to the conservatorship
shall be borne by the bank or quasi-bank
concerned. (Id.)
Termination of Conservatorship
a. When the Monetary Board is satisfied
that the institution can continue to
operate on its own and the
conservatorship is no longer necessary;
b. When the Monetary Board determines
that the continuance in business of the
institution would involve probable loss to
its depositors or creditors, in which case,
proceedings for receivership and
liquidation shall be pursued. (Id.)
B. Closure
For banks, the Monetary Board may summarily
and without need for prior hearing forbid the
institution from doing business in the Philippines
and designate the PDIC as receiver. The PDIC is
directed to proceed with the liquidation of the
closed bank.
The Monetary Board shall notify in writing,
through the PDIC, the board of directors of the
closed bank of its decision. (Sec. 30)
Note: Formerly, there was a 90-day period to
determine whether the bank can still be
rehabilitated.
COMMERCIAL LAW
C. Receivership
The PDIC manages the affairs of the closed bank
and preserves its assets for the benefit of
creditors. (New PDIC Charter, Sec. 10[a][b])
Note: The receiver also has the duty to continue
with the liquidation; thus, PDIC as receiver is also
the liquidator. (Id., Sec. 4[c])
The appointment of a receiver operates to
suspend the authority of the bank and of its
directors and officers over its property and
effects. (Villanueva v. CA, G.R. No. 114870,
1995)
Requisites for Placement of a Bank under
Receivership
1. Report of the head of the supervising
department involving the bank;
2. Finding of the Monetary Board of the
existence of any of the grounds for
receivership;
3. Decision of the Monetary Board to forbid
the institution from doing business which
decision may be done summarily and
without need of prior hearing; and
4. Notice in writing to the Board of Directors
informing the institution of the Order of
the Monetary Board.
Grounds for Receivership
When the Monetary Board finds that a bank or
quasi-bank:
a. Notified the BSP or publicly announced
a unilateral closure; (Sec. 30[a])
b. Has been dormant for at least sixty (60)
days; (Id.)
c. Suspended the payment of its deposit or
deposit substitute liabilities continuously
for more than 30 days; (GBL, Sec 53)
d. Is unable to pay its liabilities as they
become due in the ordinary course of
business (“Equity test”)
Exception: Inability to pay caused by
extraordinary demands induced by
financial panic in the banking community
(bank run). (Sec. 30[a])
e. Has insufficient realizable assets to
meet its liabilities (“Balance Sheet
Test”); (Sec. 30[b])
f. Cannot continue business without
involving probable losses to its
depositors and creditors; (Sec. 30[c])
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g. Has willfully violated a cease-and-desist
order under NCBA, Sec. 37
(Administrative Sanctions) that has
become final and involves acts or
transactions which amount to fraud or a
dissipation of assets; (Sec. 30[d])
h. If a bank persists in conducting its
business in an unsafe or unsound
manner. (GBL, Sec. 56)
Close Now-Hear Later Doctrine
Due process does not necessarily require prior
hearing; a hearing or an opportunity to be heard
may be subsequent to closure. One can just
imagine the dire consequences of a prior hearing;
bank runs would be the order of the day, resulting
in panic and hysteria. In the process, fortunes
may be wiped out and disillusionment will run the
gamut of the entire banking community. (Rural
Bank of Buhi, Inc. vs. CA, G.R. No. L-61689,
1988)
The purpose is to prevent unwarranted
dissipation of the bank’s assets and as a valid
exercise of the police power to protect the
depositors, creditors, stockholders, and the
general public. (Central Bank of the Philippines v.
CA, G.R. No. 72200, 1993)
D. Liquidation
The recovery and conversion of assets into cash
for distribution to all creditors in accordance with
the rules on concurrence and preference of
credits. PDIC is the receiver and liquidator (AM
No. 19-12-02-SC, Sec. 1 (m), Rule 2).
Note: With the removal of the 90-day
receivership to determine if the bank can still be
rehabilitated, a bank placed under receivership is
considered also as under liquidation.
Types of Liquidation
a. Voluntary liquidation
In case of the voluntary liquidation of any
bank organized under the laws of the
Philippines, or of any branch or office in
the Philippines of a foreign bank, written
notice of such liquidation shall be sent to
the Monetary Board before such
liquidation is undertaken, and the
Monetary Board shall have the right to
intervene and take such steps as may be
necessary to protect the interests of
creditors. (GBL, Sec. 68)
COMMERCIAL LAW
b. Involuntary Liquidation (Sec. 30)
Modes of Liquidation
a. Conventional liquidation.
b. Purchase of Assets and/or Assumption of
Liabilities
Note: This shall be further discussed under the
topic on PDIC.
Judicial Remedy from the decision of the
Monetary Board of BSP placing a bank under
conservatorship, receivership, or liquidation
Final and Executory. The action of the Monetary
Board in placing a bank under conservatorship or
placing it under receivership or liquidation shall
be final and executory and, as a general rule, may
not be restrained or set aside by the court.
Nature of Action
A 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.
Petitioner
Petition is filed by the stockholders of record
representing the majority of the capital stock
within ten (10) days from receipt by the board of
directors of the institution of the order directing
receivership, liquidation, or conservatorship.
(Sec. 30)
Court of Appeals
The petition for certiorari must be filed with the
CA, not the SC, in accordance with Rule 65, since
the Monetary Board is a quasi-judicial agency.
(Vivas, et al. v. Monetary Board, G.R. No.
191424, 2013)
Note: Other decisions of the Monetary Board
acting as a quasi-judicial body can be elevated to
the Court of Appeals by way of a petition for
review under Rule 45.
Involuntary dissolution and liquidation
CORPORATION NCBA (MONETARY
CODE (SEC) BOARD, PDIC)
Filing of Complaint
Requires filing of a Monetary Board may
verified complaint and summarily and without
proper notice and need for prior hearing,
hearing forbid the bank from
doing business
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Prior to dissolution
Requires a BIR Tax PDIC shall
Clearance; SEC shall immediately gather
issue final order of and take charge of all
dissolution after its assets and
submission of tax liabilities
clearance
Authority of the corporation in the dissolution
Corporation is allowed Bank is not given the
to undertake its own option to undertake its
liquidation or at any own liquidation
time during 3 years
after its dissolution
(In re: Petition for Assistance in the Liquidation of
the Rural Bank of Bokod Benguet, Inc., PDIC v.
BIR, G.R. No. 158261, 2006)
Exclusive jurisdiction of the Liquidation Court
Liquidation court is a court where the PDIC as
receiver files a petition for assistance in the
liquidation (judicial liquidation).
General Rule: In a judicial liquidation of an
insolvent bank, all claims against the bank should
be filed in the liquidation proceeding. (In re:
Petition for Assistance in the Liquidation of the
Rural Bank of Bokod Benguet, Inc., PDIC v. BIR,
G.R. No. 158261, 2006)
Exceptions:
a. When re-filing and re-litigating the case
before the liquidation court would be an
exercise in futility in view of the number
of years the case has been on trial and
additional expenses to the party who is
living in poverty. (Valenzuela v. CA, G.R.
No. L-56168, 1988)
b. When more inconveniences would be
caused to the parties, entailing waste of
more money and precious time
(Carandang v. CA, G.R. No. L-44932,
1988); and
c. When the issue is the validity of contracts
upon which a claim is based.
Note: Even if the case falls within the exceptions,
the claimant should still file the adjudicated claim
with the liquidator or liquidation court for
processing of claims to determine the proper
concurrence and preference of credit among the
different creditors of the bank. (Cudiamat v.
Batangas Savings Bank, G.R. No. 182403, 2010)
COMMERCIAL LAW
8. ADMINISTRATIVE SANCTIONS ON
SUPERVISED ENTITIES
The imposition of administrative sanctions shall
be fair, consistent, and reasonable. (Sec. 37)
Supervised entities
The Monetary Board may impose administrative
sanctions upon: (1) its supervised entities i.e.,
those covered by BSPs supervision and
examination powers, and (2) their directors,
officers, or employees. (Sec. 37)
Acts subject to administrative sanction
a. Willful violation of its charter or by-laws;
b. Willful delay in the submission of reports
or publications thereof as required by
law, rules and regulations;
c. Refusal to permit examination into the
affairs of the institution;
d. Willful making of a false or misleading
statement to the Board or the appropriate
supervising and examining department or
its examiners;
e. Willful failure or refusal to comply with, or
violation of, any banking law or any order,
instruction or regulation issued by the
Monetary Board, or any order, instruction
or ruling by the Governor; or
f. Commission of irregularities, and/or
conducting business in an unsafe or
unsound manner as may be determined
by the Monetary Board. (Sec. 37)
Administrative sanctions
Both the Monetary Board and the Governor
have administrative disciplinary jurisdiction and
authority to impose sanctions.
Monetary Board
a. Fines
1. Not to exceed P1,000,000 for each
transactional violation, or
2. P100,000 per calendar day for
violations of a continuing nature
3. Disgorgement. In case profit is
gained or loss is avoided as a
result of the violation, a fine no
more than three (3) times the profit
gained, or loss avoided. (Sec.
37(a))
b. Suspension of:
1. Rediscounting privileges or access
to BSP credit facilities; (Sec. 37(b))
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2. Lending or foreign exchange
operations or authority to
accept new deposits or make new
investments; (Sec. 37(c))
3. Interbank clearing privileges;
and/or (Sec. 37(d))
4. Quasi-banking or other special
licenses, including its
revocation. (Sec. 37(e))
Governor
Authorized to impose fines not in excess of
P100,000 for each transactional violation or
P30,000 per calendar day for violations of a
continuing nature. The imposition is final and
executory until reversed, modified, or lifted by the
Monetary Board on appeal. (Sec. 37)
Resignation or termination from office shall not
exempt such director, officer, or employee from
administrative or criminal sanctions. (Id.)
Administrative Due Process
The Monetary Board, as an administrative
agency, is legally bound to observe due process,
although they are free from the rigidity of
procedural requirements. The essence of due
process is to be afforded a reasonable
opportunity to be heard and to submit any
evidence. Petitioners having availed of their
opportunity to present their position by letters-
explanation were not denied due process.
(Busuego, et al vs. CA, G.R. No. 95326, 1999)
Preventive suspension
The Monetary Board has authority to issue
preventive suspension orders for up to 120 days
for bank officers, directors, and employees. After
the lapse of the said period, they can be
reinstated unless delay is due to their fault.
When suspension is only preventive in nature, no
notice or hearing is necessary. Until such time
that suspended directors have proved their
innocence, they may be preventively suspended
from holding office so as not to influence the
conduct of investigation, and to prevent the
commission of further irregularities. (Busuego, et
al v. CA, G.R. No. 95326, 1999)
Cease and desist order (CDO)
A CDO, which is immediately executory, can be
issued by the Monetary Board if the institution
and/or the directors, officers or employees
concerned continue with or otherwise persist in
COMMERCIAL LAW
the commission of the prohibited practices or
violations. (Sec. 37)
Procedure on CDO
This is in the nature of a reconsideration of the
order. The respondents shall be afforded an
opportunity to defend their action in a hearing
before the Monetary Board or any committee
chaired by any Monetary Board member created
for the purpose, upon request made by the
respondents within five (5) days from their receipt
of the order. Otherwise, the CDO shall become
final. (Id.)
Injunctions and/or restraining orders
No court, other than the Court of Appeals and the
Supreme Court, shall issue any temporary
restraining order, preliminary injunction, or
preliminary mandatory injunction against the BSP
for any action under the NCBA.
Any restraining order or injunction issued in
violation of this section is void and of no force and
effect. (Sec. 38-a)
9. SUPERVISION AND REGULATION OF
BANK OPERATIONS
A. Loans and other credit accommodations
As the “lender of last resort” (LOL), the BSP is
authorized to extend rediscounts, discounts,
loans and advances to banking institutions
only. The purpose is limited to influencing the
volume of credit consistent with the objective of
price stability and maintenance of financial
stability. (Sec. 81)
Types of Credit Operations
Normal credit operations
a. Commercial Credits. With maturities of
not more than 180 days related to:
1. Importation, exportation, purchase
or sale of readily saleable goods
and products, or their
transportation within the
Philippines; or
2. Storing of non-perishable goods
and products which are duly
insured and deposited in
authorized bonded warehouses or
in other places approved by the
Monetary Board. (Sec. 82[a])
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b. Production Credits. With maturities of
not more than 360 days related to the
production or processing of agricultural,
animal, mineral, or industrial products.
(Sec. 82(b))
c. Other Credit. Special credit instruments
not otherwise re-discountable for
commercial and production credits. (Sec.
82(c))
d. Advances. The BSP may grant
advances, not to exceed 80% of the
current market value, against the
following collaterals for fixed periods:
1. Gold coins or bullion
2. Securities issued by BSP and
other recognized solvent domestic
institutions;
3. Commercial and production credit
instruments (maximum 180 days);
4. Utilized portions of advances in
overdraft commercial and
production credit instruments;
5. Government securities and
Negotiable bonds with maturity of
3 and 10 years, respectively. (Sec.
82(d))
Special Credit Operations
Non collateralized but with maturity not to exceed
7 days and limited to the purpose of providing
liquidity to the banking system in times of need.
(Sec. 83)
Emergency Credit Operations
This is granted only to banks under the following
circumstances:
a. In periods of national and/or local
emergency or of imminent financial panic
– when these directly threaten monetary
and financial stability; and
b. During normal periods - 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. (Sec.
84)
Subject to compliance with the following
conditions:
a. Bank is not insolvent
b. Secured by first class or acceptable
collaterals
c. Limited to equivalent of 50% of deposits
d. Upon an affirmative vote of at least five
(5) Monetary Board members, and
COMMERCIAL LAW
e. Disbursed in 2 tranches:
1. 1st tranche (25% of total deposits
secured by first class collaterals
(government securities, secured
government guarantees and other
acceptable collaterals)
2. Subsequent tranches (vote of at
least 5 members, the Monetary
Board with indemnity undertaking
and adequate security (Id.)
B. Selective regulation
Guiding principles of the Monetary Board
a. The supply, availability, and cost of
money are in accord with the needs of the
Philippine economy
b. Bank credit is not granted for speculative
purposes prejudicial to the national
interests, and,
c. Regulations shall be applied to all banks
of the same category uniformly and
without discrimination. (Sec. 104)
i. Margin requirement against letters of credit
Margin is a deposit of money made by the
purchaser or seller of goods. A lower margin
means the importer will only deposit a small
amount to enable him to access bank credit.
Higher margin means the importer will carry a
higher financing burden of the importation.
The Monetary Board may at any time prescribe
minimum cash margins (as a percentage) for the
opening of letters of credit and may relate the size
of the required margin to the nature of the
transaction to be financed. (Sec. 105)
ii. Required security against bank loans
To promote liquidity and solvency of the banking
system, BSP may issue regulations on the
following:
a. Maximum permissible maturities of loans
and investments (short, medium, or long
term, but BSP issuances are guidelines,
not fixed limits).
b. Kind and amount of security (real estate,
chattels, intangibles) to be required
against the various credit operations of
banks. (Sec. 106)
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iii. Portfolio ceilings
To prevent or check an expansion of bank credit
(to prevent excessive credit risks concentration
and diversify risks), an upper limit may be placed
on the following:
a. Amount of loans and investments which
the banks may hold; or
b. Rate of increase of such assets within
specified periods of time. (Sec. 107)
Note: Uniform application to all banks or specific
categories without discrimination (NCBA, Sec.
85, 84,96, 104 and 107). There is no retroactivity
– it can only be applied on the date of notification.
(Id.)
iv. Minimum capital ratios
Monetary Board may (1) prescribe minimum risk-
based capital adequacy ratios based on
internationally accepted standards and may alter
said ratios whenever it deems necessary, and (2)
may require banks to hold capital beyond the
minimum requirements commensurate to their
risk profile. (Sec. 108)
10. RATE OF EXCHANGE
Exchange rate. It is the price of a unit of foreign
exchange in terms of domestic currency (e.g., 1
US$ = Php 53).
The Monetary Board shall determine the
exchange rate policy of the country. (Sec. 74).
The present policy is a floating rate system, which
is market driven.
COMMERCIAL LAW
B. LAWS ON SECRECY OF BANK
DEPOSITS
1. PURPOSE
R.A. No. 1405 (Bank Secrecy Law) covers
deposits in Peso while R.A. No. 6426 (Foreign
Currency Deposits Act) covers deposits in foreign
currency. Its purpose is as follows:
a. To give encouragement to the people to
deposit their money in banking
institutions; and
b. To discourage private hoarding so that
the same may be properly utilized by
banks in authorized loans to assist the
economic development of the country.
(RA 1405, Sec. 1)
State Policy
It is hereby declared the policy of the state to
protect and preserve the integrity and
confidentiality of bank accounts. (AMLA, Sec. 2)
Construction of confidentiality
If there are doubts in upholding the absolutely
confidential nature of bank deposits against
affirming the authority to inquire into such
accounts, such doubt must be resolved in favor of
confidentiality. (Republic v. Eugenio, G.R. No.
174629, 2008)
2. PROHIBITED ACTS
Peso Deposits
All deposits of whatever nature with the banks in
the Philippines, including investments in the
government bonds are considered absolutely
confidential and may not be examined, inquired,
or looked into by any person except as allowed
by law. (RA 1405, Sec. 2)
The following are liable under RA No. 1405:
a. Any person or government official who
examines, inquires, or looks into bank
deposits or government bond
investments in any instance not allowed
by law.
b. Any official or employee of the banking
institution who makes a disclosure
concerning bank deposits to another in
any instance not allowed by law (Id., Sec.
3); and
c. Any person who commits a violation of
any provision of this law. (Id., Sec. 5)
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Foreign Currency Deposits
All foreign currency deposits are absolutely
confidential and cannot be examined, inquired, or
looked into by any person, government official,
bureau, or office, whether judicial or
administrative or legislative, or any other private
or public entity. (RA No. 6426, Sec. 8)
The following are liable under RA No. 6426:
a. Any person or government official who
examines, inquires, or looks into foreign
currency deposits without written
permission of the depositor. (Id., Sec. 8)
b. Anyone who shall attach, garnish, or
subject the foreign currency deposit to
any other order or process of any court,
legislative body, or other administrative
body. (Id.)
c. Any official or employee of the banking
institution who makes a disclosure
concerning bank deposits to another in
any instance not allowed by law. (Id.,
Sec. 10)
d. Any person who commits a violation of
any provision of this law as well as
regulation of the Monetary Board
pursuant to this law. (Id.)
3. DEPOSITS COVERED
Peso Deposits. All (peso) deposits of whatever
nature with banks or banking institutions in the
Philippines including trust accounts. (Ejercito v.
Sandiganbayan, G.R. No. 157294-95, 2006)
Deposits refer to money or funds placed in a
bank which can be withdrawn on depositor’s
order or demand. It is characterized as being in
the nature of a simple loan and creates a creditor-
debtor relationship between the depositor and the
bank. (NCC, Art. 1980) While trust funds are
different, by jurisprudence, this is included in the
broad category of deposits under RA 1405.
Investment in bonds issued by the Government
of the Philippines, its political subdivisions, and its
instrumentalities. (RA 1405, Sec. 2)
Foreign currency deposits (RA No. 6426) and
deposits in offshore banking units (PD No. 1246,
Sec. 8) are considered as absolutely confidential.
RA No. 6426 only provided for written permission
of the depositor as an exception. However, other
exceptions evolved by jurisprudence and
statutes.
COMMERCIAL LAW
Note: Other funds or properties in the bank which
are not in the nature of deposits are still
confidential. No director, officer, employee, or
agent of any bank shall, without order of a court
of competent jurisdiction, disclose to any
unauthorized person any information relative to
the funds or properties in the custody of the bank
belonging to private individuals, corporations, or
any other entities. (GBL, Sec. 55(1)(b))
4. EXCEPTIONS
Grounds to allow examination of a bank
account under Section 2 of RA No. 1405:
a. Where the depositor consents in
writing.
Note: A waiver of rights (RA 1405) must
be voluntary, knowingly, intelligently, and
with sufficient awareness of the relevant
circumstances and likely consequences.
There must be evidence to show an
actual intention to relinquish the right.
Mere silence on the part of the holder of
the right should not be construed as a
surrender thereof. (Doña Adela Export
International, Inc. v. TIDCORP, G.R. No.
201931, 2015)
Examples of waiver: Waiver in case of
DOSRI loans (NCBA, Sec. 26) and
waiver of a taxpayer in case of
compromise of tax liability. (Tax Code,
Sec. 6[f])
b. Impeachment Cases. It is necessary
that there be an order issued by the
impeachment court or by its authorized
officer to allow examination.
It is limited to Peso deposits, as it is not
an exemption to the absolute
confidentiality of foreign currency
deposits under RA 6426. (Philippine
Savings Bank v. Senate, G.R. No.
200238, 2012)
c. By Court Order in cases of;
1. Bribery
2. Dereliction of duty of public
officials
d. Money invested or deposited is
subject of litigation (RA 1405 – An Act
Prohibiting Disclosure of or Inquiry into
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Deposits with any Banking Institution,
Sec. 2).
Fishing for information as to the amount of
damages it can recover does not fall within the
exception. Since the subject matter of the dispute
is not the money deposited in the drawer's
account, it does not, by itself, warrant the
examination of the bank deposits. (Union Bank
vs. CA, GR No. 134699, 1999)
The subject matter of the action is to be
determined from the indictment that charges
respondent with the offense, and not from the
evidence sought. The information charges
qualified theft. There was no mention of the
supposed bank account in which the funds
represented by the checks have allegedly been
kept to allow testimony on the bank account.
(BSB Group vs. Go, GR No. 168644, 2010)
Inquiry into the whereabouts of the amount
converted necessarily extends to whatever is
concealed (being in the name of persons other
than the one responsible for the illegal
acquisition) inasmuch as the case is aimed at
recovering the amount converted. (Mellon Bank
v. Magsino, G.R. No. 71479, 1990)
Additional exceptions to the Secrecy of Bank
Deposits Act
a. Violations of Anti-Graft and Corrupt
Practices Act. Section 8 of RA 3019
directs that bank deposits shall be taken
into consideration in its enforcement,
notwithstanding any provision of the law
to the contrary. (PNB v. Gancayco, GR.
No. L-18343, 1965)
The Courts are authorized to examine
bank deposits of spouses and unmarried
children of government officials found to
have unexplained wealth under RA 3019
– Anti-Graft and Corrupt Practices Act.
(RA 3019, Sec. 8)
b. Commissioner of Internal Revenue
(CIR). The CIR can inquire into the bank
accounts of the following taxpayers:
1. A decedent to determine his gross
estate;
2. Any taxpayer who has filed an
application for compromise of his
tax liability on the ground of
financial incapacity; and
COMMERCIAL LAW
3. A taxpayer, information on whose
account is requested by a foreign
tax authority. (NIRC, Sec. 6(f))
c. Unclaimed balances. Disclosure to the
Treasurer of the Philippines for dormant
deposits for at least 10 years. (Act 3936,
Sec. 2)
d. BSP periodic or special examination.
To ensure compliance of the covered
institution with the Anti Money
Laundering Act. (NCBA, Sec. 25; RA
9160 – Anti-Money Laundering Act
(AMLA), Sec. 11)
Annual testing solely limited to the
determination of the existence and true
identity of the owners of the accounts.
(AMLA, Sec. 9[a])
e. Human Security Act (RA 9372). After
determining existence of probable cause,
the Court of Appeals may authorize
examination of and gathering of
information on deposits, placements,
trust accounts, assets, and records in a
bank or financial institution; (RA 9372,
Sec. 27) of the following:
1. A person charged with or
suspected of the crime of terrorism
or conspiracy to commit terrorism;
2. Any judicially declared and
outlawed terrorist organizations,
associations, or group of persons;
or
3. Any member of such organization,
association, or group of persons in
a bank or financial institution and
the gathering of any relevant
information about the same from
said bank or financial institution.
(RA 9372, Sec. 28)
f. Anti-Money Laundering Act (AMLA).
Upon order of a competent court in cases
of violation of the AMLA where there is
probable cause of money laundering,
except that no court order is required in
cases of:
1. Kidnapping for ransom
2. Drug trafficking
3. Hijacking, destructive arson, and
murder including those
perpetrated by terrorists against
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non-combatants and similar
targets. (AMLA, Sec. 11)
g. Plunder. Sec. 1(d) and 4 of the Plunder
Law (RA 7080).
Plunder (RA 7080, Sec. 2), which is
amassing or accumulating ill-gotten
wealth by series of overt or criminal acts,
is also analogous to bribery. Therefore,
the exception to R.A. 1405 applicable in
cases of bribery must also apply to cases
of plunder. (Ejercito v. Sandiganbayan,
G.R. Nos. 157294-95, 2006)
h. Unsafe and unsound banking
practices. BSP and PDIC may inquire
into bank deposits (both Peso and
Foreign Currency Deposits) and all
information related thereto if there is a
finding of unsafe or unsound banking
practice. (New PDIC Charter, Sec. 9)
i. In-Camera Inspection. The
Ombudsman is granted the express
powers to examine and have access to
bank accounts and records. (RA 6770 –
Ombudsman Act, Sec. 15)
Requisites:
1. Pending case before a court of
competent jurisdiction;
2. Account must be clearly identified;
3. The inspection is limited to the
subject matter of the pending case;
4. The bank personnel and the
account holder must be notified to
be present during the inspection,
and such inspection may cover
only the account identified in the
pending case. (Marquez v.
Desierto, G.R. 135882, 2001)
Note: An investigation by the Office of the
Ombudsman is not a pending litigation to
allow examination of a bank account.
(Marquez v. Desierto, G.R. No. 135882,
2001)
j. Terrorism Financing Prevention and
Suppression Act (RA 10168). The Anti-
Money Laundering Council (AMLC),
without a court order, is authorized to
inquire into or examine bank deposits
and investments with any banking
institution or non-bank financial institution
COMMERCIAL LAW
and their subsidiaries and affiliates
concerning:
1. Any property or funds that are in
any way related to financing of
terrorism or acts of terrorism; or
2. Any 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. (RA 10168, Sec. 10)
k. Bank Resolution. When there is a failure
of Prompt Corrective Action as declared
by the Monetary Board due to capital
deficiency, the PDIC or its duly
authorized officers or employers may
examine, inquire, or look at the deposit
records of the bank. (New PDIC Charter,
Sec. 11[c])
The information cannot be shared by
PDIC to other persons, including the
BSP.
l. Presidential Commission on Good
Governance (PCGG). Investigation by
the PCGG to recover ill-gotten wealth
(EO 1, Sec. 3[e])
m. Commission on Audit (COA). Audit on
government deposits by the COA. (1987
Constitution, Art. IX (D), Sec. 2[1])
Grounds for Disclosure of Foreign Currency
Deposits.
a. Upon written permission of depositor
b. Under Other Laws (as discussed)
1. CIR. (NIRC, Sec. 6[f])
2. AMLC – with our without a court
order under the AMLA and
Terrorism Financing Prevention
and Suppression Act. (AMLA,
Sec. 11; RA 10168, Sec. 10)
3. BSP in limited examination to
ensure compliance of supervised
institutions to AMLA. (AMLA,
Sec. 11)
4. PDIC in banking resolution when
there is failure of PCA. (New
PDIC Charter, Sec. 11[c])
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5. BSP and PDIC when there is a 6. PENALTIES FOR VIOLATION

finding of unsafe or unsound
banking practice. (Id., Sec. 8) Bank Secrecy Law
6. COA and PCGG. (1987 Imprisonment of not more than five (5) years, or
Constitution, Art. IX (D), Sec. a fine of not more than twenty thousand pesos
2(1); EO 1, Sec. 3[e]) (Php 20,000), or both, at the discretion of the
court. (RA 1405, Sec. 5)
c. Jurisprudence (equity). The following
exceptions are provided on grounds of Foreign Currency Deposits Act
equity. Imprisonment of not less than one (1) year but not
1. Account of non-resident alien more than five (5) years, or fine not less than five
found guilty of raping a minor thousand pesos (Php 5000) but not more than
was allowed on the basis of twenty five thousand pesos (Php 20,000.) or both.
equity. (Salvacion v. Central (RA 6426, Sec. 10)
Bank of the Philippines, G.R.
94723, 1997)
2. A co-payee of a check who filed
a suit for recovery of a sum of
money was considered as a
depositor because of the
distinctive circumstances of the
case. (China Banking
Corporation v. Court of Appeals,
G.R. 14068, 2006)

5. GARNISHMENT OF DEPOSITS,
INCLUDING FOREIGN DEPOSITS

Peso deposits
RA 1405 does not preclude deposits from being
garnished to ensure satisfaction of a judgment.
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. (China Bank v. Ortega, G.R. L-34964,
1973)

Foreign currency deposits

Anyone who shall attach, garnish, or subject this
to order or process of any court, legislative body,
government agency or other administrative body
shall be held liable. (RA 6426, Sec. 8)

Note: Jurisprudence created 2 exceptions on

ground of equity as discussed earlier.

Note: Deposits maintained by banks with the

BSP as part of their reserve requirements shall be
exempt from attachment, garnishments, or any
other order or process of any court, government
agency, or any other administrative body issued
to satisfy the claim of a party other than the
Government, or its political subdivisions, or
instrumentalities. (NCBA, Sec. 103)

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C. GENERAL BANKING ACT
1. DEFINITION AND CLASSIFICATION OF
BANKS
Banks
Entities engaged in the lending of funds obtained
in the form of deposits. (GBL, Sec. 3.1)
Note: Banks have a primary franchise from the
Securities and Exchange Commission (SEC) and
a secondary banking franchise from the BSP. Its
corporate powers are exercised within its banking
license.
Elements
a. Engaged in lending of funds
b. Obtained in the form of deposits
c. From the public, which shall mean 20 or
more persons
How Banks are Structured
General Rule: Banks are corporations. (Sec.
8[a]) However, cooperative banks may also be
formed under the Cooperative Code, but it has to
secure a secondary franchise from the BSP to
engage in banking. (RA 9520, Sec. 23[i])
Classification of Banks
Universal Banks
In addition to the powers authorized for a
commercial bank in Section 29, they shall have
the authority to exercise the powers of an
investment house as provided in existing laws
and the power to invest in non-allied enterprises
as provided in this Act. (Sec. 23)
Investment House
It is an intermediary between security issuers and
investors. It engages in underwriting of securities,
among other things. (PD 129, Sec. 2)
Non-allied enterprises
They are non-bank related activities (e.g.,
agriculture, mining, manufacturing, public utilities,
etc.). (MORB – Manual of Regulations for Banks,
Appendix 19)
Commercial Banks
They shall have, in addition to the general powers
incident to corporations:
a. All such powers as may be necessary to
carry on the business of commercial
banking such as accepting drafts and
issuing letters of credit;
COMMERCIAL LAW
b. Discounting and negotiating promissory
notes, drafts, bills of exchange, and other
evidence of debt;
c. Accepting or creating demand deposits;
d. Receiving other types of deposits and
deposit substitutes;
e. Buying and selling foreign exchange and
gold or silver bullion;
f. Acquiring marketable bonds and other
debt securities; and
g. Extending credit, subject to such rules as
the Monetary Board may promulgate.
(Sec. 29)
Unlike Universal Banks, Commercial Banks can
invest only in allied enterprises (bank-related
activities), which may be financial or non-
financial. (Secs. 30, 31, and 32)
Thrift Banks
They are organized for the purpose of, among
other things, accumulating savings of depositors
and investing them with capital loans, financing
homebuilding, providing short term capital,
medium and long term financing for small and
medium enterprises and individuals engaged in
agriculture, services, industry and housing. (RA
7906 - Thrift Banks Act, Sec. 3[a][1])
They include savings and mortgage banks,
private development banks, and stock savings
and loans associations organized under existing
laws. (Id.)
Rural Banks
Banks which are designed to make needed credit
available and readily accessible in the rural areas
on reasonable terms. (RA No. 7353 - Rural Act,
Sec. 2)
Cooperative Banks
Once organized, the majority shares of which is
owned and controlled by cooperatives, primarily
to provide financial and credit services to
cooperatives and their members. (RA 9520 –
Philippine Cooperative Code, Art. 2)
Islamic Banks
Created by Congress to promote and accelerate
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. (RA 6848 – Charter of the Al-Amanah
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Islamic Investment Bank of the Philippines, Sec.
3)
Islamic banking is based on the Islamic concept
of banking: risk sharing rather than speculation.
Essentially, this is based on basic principles and
rulings of Sharia, or Islamic law. interest (riba) is
prohibited. (RA 11439 – An Act Providing for the
Regulation and Organization of Islamic Banks,
Sec. 2[a][4])
Note: There are two existing laws on Islamic
Banks, (1) RA No. 6848, and (2) R.A. No. 11439.
The latter law is a legal framework which allows
the creation of Islamic banks in the Philippines.
Foreign Banks
A foreign bank is a banking corporation formed,
organized or existing under any law other than
those of the Republic of the Philippines. (RA
11232 – Revised Corporation Code, Sec. 140)
Foreign banks are allowed to enter the Philippine
banking system under any of the following
modes:
a. Acquiring, purchasing, or owning up to
100% of the voting stock of an existing
bank;
b. Investing in up to 100% of the voting
stock of a new banking subsidiary
incorporated under the laws of the
Philippines; or
c. Establishing branches with full banking
authority. (RA 10641 – An Act Allowing
the Full Entry of Foreign Banks in the
Philippines, Sec. 2)
Other Classification of Banks as determined
by the Monetary Board (Sec. 3)
2. DISTINCTION OF BANKS FROM QUASI-
BANKS AND TRUST ENTITIES
Quasi-Banks
Refer to entities engaged in the borrowing of
funds through the issuance, endorsement, or
assignment with recourse or acceptance of
deposit substitutes as defined in NCBA, Sec. 95
for purposes of relending or purchasing of
receivables and other receivables. (Sec. 4[3])
Deposit Substitutes
An alternative form of obtaining funds from the
public, other than deposits, through the issuance,
endorsement, or acceptance of debt instruments
COMMERCIAL LAW
for the borrower's own account, for the purpose
of relending or purchasing of receivables and
other obligations. (NCBA, Sec. 95)
The phrase “obtaining funds from the public”
shall mean borrowing from twenty (20) or more
lenders at any one time. (Id.)
For this purpose, “lenders” shall refer to
individuals and corporate entities that are not
acting as financial intermediaries, subject to
the safeguards and regulations issued by the
Monetary Board. (Id.)
Note: The definition of deposit substitutes in the
banking laws was brought about by an
observation that banks and non-bank financial
intermediaries have increasingly resorted to
issuing a variety of debt instruments, other than
bank deposits, to obtain funds from the public.
(BDO v. RCBC, G.R. No. 198756, 2016)
Under the NIRC, deposit substitutes include not
only the issuances and sales of banks and quasi-
banks for relending or purchasing receivables
and other similar obligations, but also debt
instruments issued by commercial, industrial, and
other non-financial companies to finance their
own needs or the needs of their agents or
dealers. (Id.)
To determine whether the financial assets are
deposit substitutes, the “20 or more individual or
corporate lenders” rule must apply. (Id.)
When the Government Securities Eligible Dealer
(GSED) sells the government securities to 20 or
more investors, the government securities are
deemed to be in the nature of a deposit substitute.
(BDO v. Republic, G.R. No. 198756, 2016)
Trust Entities
A stock corporation, or a person duly authorized
by the Monetary Board to engage in trust
business, and act as a trustee, administer any
trust or hold property in trust or on deposit, for
use, benefit or behoof of another (GBL. Sec. 79)
Bank, Quasi-Bank, and Trust Entity
BANK QUASI-BANK TRUST
ENTITY
Entities Entities Entities
engaged in engaged in the engaged in
the lending of borrowing of trust,
funds funds through investment
obtained in the issuance or management,
acceptance of and fiduciary
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the form of deposit business in aid of any political party or candidate or

deposits. substitutes for methodology. for purposes of partisan political activity;
the purpose of j. To establish pension, retirement, and
relending or other plans for the benefit of its directors,
purchasing trustees, officers, and employees; and
receivables or k. To exercise such other powers as may be
other essential or necessary to carry out its
obligations. purpose or purposes as stated in the
articles of incorporation. (RA 11232, Sec.
3. BANK POWERS AND LIABILITIES 35)

B. Banking and incidental powers

A. Corporate powers
Operations and activities of banks shall be
As banks are required to organize as stock
subject to BSP supervision, which shall include:
corporations, they shall have the powers
a. Issuance of rules of conduct or the
enumerated under Sec. 35 of the Revised
establishment of standards of operation
Corporation Code:
for uniform application to all institutions or
a. To sue and be sued in its corporate
functions covered;
name;
b. Conduct of examination to determine
b. To have perpetual existence unless the
compliance with laws and regulations;
certificate of incorporation provides
c. Oversee compliance with laws and
otherwise;
regulations;
c. To adopt and use a corporate seal;
d. Regular investigation (not oftener than
d. To amend its articles of incorporation in
once a year) to determine whether it is
accordance with the provisions of this
conducting its business on safe or sound
Code;
basis;
e. To adopt by-laws, not contrary to law,
e. Inquire into solvency and liquidity of the
morals, or public policy, and to amend or
institution; or
repeal the same in accordance with this
f. Enforce prompt corrective action. (Sec.
Code;
4)
f. In case of stock corporations, to issue or
sell sticks to subscribers and to sell
Examination by BSP
treasury stocks in accordance with the
When examining a bank, BSP shall have the
provisions of this Code; and to admit
authority to examine an enterprise that is wholly
members to the corporation if it be a non-
or majority-owned or controlled by the bank. (Sec.
stock corporation;
7)
g. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage
BSP Authority Over Quasi-Banks and Trust
and otherwise deal with such real and
Entities
personal property, including securities
The BSP shall also have supervision over the
and bonds of other corporations, as the
operations of and exercise regulatory powers
transaction of the lawful business of the
over quasi-banks, trust entities and other financial
corporation may reasonably and
institutions which under special laws are subject
necessarily require, subject to the
to BSP supervision. (Sec. 4)
limitations prescribed by law and the
Constitution;
BSP Powers Policy Direction; Ratios,
h. To enter into partnership, joint venture,
Ceilings, and Limitations
merger, consolidation, or any other
The BSP shall provide policy direction in the
commercial agreement with natural and
areas of money, banking, and credit. Thus, the
juridical persons;
Monetary Board may do the following:
i. To make reasonable donations, including
a. Prescribe ratios, ceilings, limitations, or
those for the public welfare or for hospital,
other forms of regulation on the different
charitable, cultural, scientific, civic, or
types of accounts and practices of banks
similar purposes: Provided, That no
and quasi-banks which shall, to the
foreign corporation shall give donations
extent feasible, conform to internationally

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accepted standards, including those of
the BIS; and
b. Exempt particular categories of
transactions from such ratios, ceilings
and limitations, but not limited to
exceptional cases or to enable a bank or
quasi-bank under rehabilitation or during
a merger or consolidation to continue in
business with safety to its creditors,
depositors and the general public. (Sec.
5)
4. DILIGENCE REQUIRED OF BANKS IN
VIEW OF FIDUCIARY NATURE OF
BANKING
Highest Degree of Diligence
The fiduciary nature of banking requires high
standards of integrity and performance. (Sec. 2)
Fiduciary relationship
The bank’s obligation to observe high standards
of integrity and performance is deemed written
into every deposit agreement between a bank
and its depositor. (Philippine Banking Corp. v.
CA, G.R. No. 127469, 2004)
Banking is vested with public interest
As a business affected with public interest and
because of the nature of its functions, the bank is
under obligation to treat the accounts of its
depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.
(Simex International (Manila) Inc. v CA, G.R. No.
88013, 1990)
Banks are expected to exercise the highest
degree of diligence in the selection and
supervision of their employees. By the very
nature of their work, the degree of responsibility,
care and trustworthiness expected of their
employees and officials is far greater than those
of ordinary clerks and employees. (Philippine
Commercial and International Bank v. CA, G.R.
No. 121413, 2001)
Banking business is impressed with public
interest, of paramount importance thereto is the
trust and confidence of the public in general, the
highest degree of diligence is expected, and high
standards of integrity and performance are even
required of it. (Bank of the Philippine Islands v.
Casa Montessori Internationale, G.R. No.
149454, 2004)
COMMERCIAL LAW
5. NATURE OF BANK FUNDS AND BANK
DEPOSITS
By the nature of its business, banks derive its
funds principally from its deposit taking or quasi-
banking operations. It also gets funds from the
public when it acts as a trust entity under Chapter
IX of the GBL.
Nature of Bank Funds
The bank can make use as its own, the money
deposited. (Tan Tiong Tick v. American
Apothecaries, G.R. No. L-43682, 1938)
Nature of Bank Deposits
Bank deposits are in the nature of irregular
deposits. Fixed, savings, and current deposits of
money in banks and similar institutions shall be
governed by the provisions concerning simple
loans. (NCC, Art. 1980)
The fiduciary relationship does not "convert the
contract between the bank and its depositors
from a simple loan to a trust agreement, whether
express or implied." It simply means that the bank
is obliged to observe "high standards of integrity
and performance" in complying with its
obligations under the contract of simple loan.
(Goyanko, Jr. v. UCPB, G.R. No. 179096, 2013)
Bank Deposit as a simple loan
Bank acquires ownership of money deposited;
obligation to pay the amount, but no obligation to
return the same money. (Guingona, Jr. v. City
Fiscal of Manila, G.R. No. L-60033, 1984)
Payment to proper party-depositor (Fultron Iron
Works Co. v. China Banking Corp., G.R. No.
32576, 1930)
Deposits are not preferred credits. (Central Bank
v. Morfe, G.R. No. L-38427, 1975)
Bank has the right to set-off or compensation.
(Gullas v. Philippine National Bank, G.R. No.
4391, 1935)
Kinds of Deposits
a. Savings Deposits. They are interest
bearing deposits without a stated
maturity.
b. Negotiable Order of Withdrawal
(NOW). They are interest bearing deposit
accounts that combine the payable on
demand feature and investment feature
of savings accounts.
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c. Time Deposits. They are issued for a
specific period of time (Sec. 216, MORB),
and generally cannot legally be
withdrawn before maturity or within a
specified number of days. (BPI Family
Savings v. First Metro Investment, G.R.
132390, 2004)
d. Demand Deposits. They are those
liabilities of the BSP and of other banks,
which are denominated in Philippine
currency and are subject to payment in
legal tender upon demand by the
presentation of checks. Only banks duly
authorized by the BSP may issue
demand deposits. (NCBA, Sec. 59)
Checks representing demand deposits do not
have legal tender power and their acceptance in
the payment of debts, both public and private, is
at the option of the creditor. However, a check
which has been cleared and credited to the
account of the creditor shall be equivalent to a
delivery to the creditor of cash in an amount equal
to the amount credited to his account. (NCBA,
Sec. 60)
6. GRANT OF LOANS AND SECURITY
REQUIREMENTS
A. Ratio of net worth to total risk assets
The Monetary Board shall prescribe the minimum
ratio which the net worth of a bank and its
subsidiaries must bear to its total risk assets
which may include contingent accounts. (Sec. 34)
Risk-based Capital
It is expressed as the percentage of qualifying
capital to risk-weighted assets.
Risk-weighted Assets
These are assets of the bank weighted according
to risks (e.g., cash is zero risk, while non-
performing loan is given a risk of 120%).
Capital
----------- = Ratio (CAR)
Assets
Note: The existing Capital Adequacy Ratio (CAR)
requirement is 10%. It is an indicator of a bank’s
ability to absorb a reasonable amount of loss. The
minimum CAR requirement is a means to protect
bank’s depositors and promote stability in the
banking system at the same time.
COMMERCIAL LAW
In the exercise of this authority, the Monetary
Board shall, to the extent feasible, conform to
internationally accepted standards, including
those of the Bank for International Settlements
(BIS). (Sec. 34)
B. Single borrower’s limit (SBL)
General Rule: 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 not
exceed 20% of the net worth of such bank. The
basis for determining compliance with single
borrower limit is the total credit commitment of
the bank to the borrower. (Sec. 35.1)
Exception: The SBL may be increased by an
additional 10% of Net Worth of such bank
provided 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.
It shall include:
a. 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;
b. 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;
c. 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
d. In the case of a partnership, association,
or other entity, the liabilities of the
members thereof to such bank. (Sec.
35.2)
Note: The Monetary Board has set the SBL at
25% (Sec. 303, MORB, but temporarily increased
to 30% for 6 months effective March 2020) of the
net worth.
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Exclusion from computation – non risk assets
For purposes of SBL coverage, loans, and other
credit accommodations and guarantees shall
exclude those which are:
a. Secured by obligations of the BSP or
Philippine Government;
b. Fully guaranteed by the Government as
to the payment of principal and interest;
c. Covered by assignment of deposits
maintained in the lending bank and held
in the Philippines;
d. Under letters of credit, to the extent
covered by margin deposits;
e. Those which the Monetary Board may,
from time to time, specify as non-risk
items. (Sec. 35.5.)
Inclusion of Parent Corporation
Even if a parent corporation, partnership,
association, entity, or an individual who owns or
controls a majority interest in such entities has no
liability to the bank, the Monetary Board may
prescribe the combination of the liabilities of
subsidiary corporations or members of the
partnership, association, entity or such individual
under certain circumstances, including but not
limited to any of the following situations:
a. Parent corporation, partnership,
association, entity, or individual
guarantees the repayment of the
liabilities;
b. Liabilities were incurred for the
accommodation of the parent corporation
or another subsidiary or of the
partnership, association, or entity or such
individual; or
c. Subsidiaries though separate entities
operate merely as departments or
divisions of a single entity. (Sec. 35.4)
C. Restrictions on bank exposure to
directors, officers, stockholders, and their
related interests
Principles
The Monetary Board is granted the authority to
regulate the amount of loans and credit
accommodations extended to DOSRI. (Sec. 36)
The prohibition on DOSRI loans is intended as a
protection against over-borrowing of bank funds
by bank’s DOSRI, as such over-borrowings may
lead to bank failures. (Soriano v. BSP, G.R. No.
162336, 2010) Banks are not created for the
benefit of their directors and officers, they cannot
COMMERCIAL LAW
use the assets of the bank for their benefit. (Go v.
BSP, G.R. No. 178429, 2009)
General Prohibition: No director or officer of
any bank shall, directly or indirectly, for himself
or as the representative or agent of others:
a. Borrow from such bank;
b. Become a guarantor, endorser, or surety
for loans from such bank to others; or
c. Be an obligor or incur any contractual
liability to the bank. (Sec. 36)
A stockholder to fall under this provision should
own at least 1% of the subscribed capital of the
bank. (MORB, Sec. 341[c])
An indirect borrowing includes one that is made
by a third party, but the DOSRI has a stake in the
transaction; a case where the DOSRI acted for
his own benefit, using the name of an
unsuspecting person and using dummies to
circumvent the requirements of the law. (Soriano
v. BSP, G.R. No. 162336, 2010)
Related Interest is considered as indirect
borrowing or the Directors, Officers and
Stockholders.
a. Spouse or relative within the first degree
(including adoption)
b. Partnership where the spouse or relative
is a general partner
c. Co-ownership of the property mortgaged
to secure the loan or other credit
accommodations
d. Interlocking directorship or officership
between the bank and the borrower
e. Corporation at least 20% of the capital
stock or equity is owned by DOS of the
lending bank. (MORB, Sec. 341[e])
Exception: The director or officer may do so,
provided the following requirements are complied
with:
a. Written approval of the majority of all the
directors of the bank, excluding the
director borrowing and recorded in the
books of the bank. (Sec. 36)
b. The reportorial requirement where
such approval should be entered upon
the records of the corporation, and a copy
of the entry be transmitted to the
appropriate supervising department of
the BSP. (Id.; Go v. BSP, GR No.
178429, 2009)
c. Ceiling requirement. The limit on the
amount of loans and credit
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accommodations that can be extended to
the bank’s DOSRI is equivalent to their
respective unencumbered deposits and
book value of their paid-in capital
contribution in the bank, excluding the
following:
1. Secured by assets considered as
non-risk by the Monetary Board;
2. In the form of fringe benefits; or
3. Extended by a cooperative bank to
its cooperative shareholders. (Id.)
d. Terms. Not less favorable to the bank
than those offered to others. (Id.)
e. Waiver of Secrecy. DOSRI loans are
also subject to the waiver of secrecy of
bank deposits. (NCBA, Sec. 26)
Requisites of a DOSRI loan:
a. Borrower is a director, officer or
stockholder of a bank;
b. He contracts any loan or financial
accommodation;
c. 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; and
d. 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 (Sec. 36),
whichever is lower.
Waiver of Secrecy of Bank Deposits
If the loan is a DOSRI loan, the lending bank shall
require the director, officer, or stockholder to
waive the secrecy or confidentiality of his
deposits of whatever nature in all banks in the
Philippines (NCBA, Sec. 26)
Offenses
Criminal. Failure to comply with each
requirement is already a violation of DOSRI Rules
(prosecution of 3 offenses), and violation of each
requirement is an offense in itself. (Go v. BSP,
GR No. 178429, 2009)
COMMERCIAL LAW
The violation consists in the failure to observe and
comply with procedural, reportorial, or ceiling
requirements prescribed by law in the grant of a
loan to a director, officer, stockholder and other
related interests in the bank. The elements of
abuse of confidence, deceit, fraud or false
pretenses, and damage, which are essential to
the prosecution for estafa, are not elements of a
DOSRI violation. (Soriano vs BSP, G.R. Nos.
159517-18, 2009)
Thus, a person be held liable both for estafa
through falsification of commercial documents
and violation of Sec. 83 of the GBL (DOSRI) for a
single transaction.
Administrative: removal. After due notice to the
board of directors of the bank, the office of any
bank director or officer who violates the
provisions of this Section may be declared
vacant.
D. Prohibited acts of borrowers
No borrower of a bank shall engage in these
prohibited transactions:
a. Fraudulently overvalue property offered
as security for a loan or other credit
accommodation from the bank;
b. Furnish false, make misrepresentation,
or suppress material facts in the loan
application for the purpose of obtaining,
renewing, or increasing a loan or other
credit accommodation or extending its
period;
c. Attempt to defraud the bank in the event
of a court action to recover a loan or other
credit accommodation; or
d. Offer any director, officer, employee, or
agent of a bank any gift, fee, commission,
or any other form of compensation in
order to influence them in approving a
loan or other credit accommodation.
(Sec. 55.2
E. Floating interest rates and escalation
clauses
Floating Rate of Interest
While it may be acceptable, for practical reasons
given the fluctuating economic conditions, for
banks to stipulate that interest rates on a loan not
be fixed and instead be made dependent upon
prevailing market conditions, there should always
be a reference rate upon which to peg such
variable interest rates. (Consolidated Bank and
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Trust Corporation (Solid Bank) v. CA, G.R. No.
114286, 2001)
Note: Benchmark interest rates are the reference
rate to peg the rate (e.g. Interbank Call Loan
Rate, BSP rates, Government securities rates,
treasury rate benchmark, PHP BVAL rates).
Escalation Clause
It refers to stipulations allowing an increase in the
interest rate agreed upon by the contracting
parties. They are valid stipulations in commercial
contracts to maintain fiscal stability and to retain
the value of money in long term contracts.
It has to comply with the principles on mutuality of
contracts. The contract must bind both
contracting parties; its validity or compliance
cannot be left to the will of one of them. (NCC,
Art. 1308)
The bank cannot be given an unbridled right to
adjust the interest independently and upwardly.
Such would negate the mutuality of contracts.
(Floirendo v. Metropolitan Bank, G.R. No.
148325, 2007)
If a provision neither states an increase nor a
decrease in interest rate, but said clause simply
states that the interest rate should be based on
the prevailing market rate, it violates the mutuality
of contracts. (Polotan Sr. v. Court of Appeals,
G.R. No. 119379, 1998)
7. PENALTIES FOR VIOLATIONS
A. Fine, imprisonment
Refusal to make reports or permit
examination
The willful refusal to file the required report or
permit any lawful examination into the affairs of
such institution, as required in writing by the
Monetary Board or the head of the supervising
and examining department, shall subject its
officer, owner, agent, manager, director, or
officer-in-charge to a fine not less than P50,000
nor more than P2,000,000 or by imprisonment of
not less than one (1) year nor more than five (5)
years, or both, at the court’s discretion. (NCBA,
Sec. 34)
Note: This applies to affiliate companies whose
transactions are subject to examination under this
Act.
COMMERCIAL LAW
False statement
The willful making of a false or misleading
statement on a material fact to the Monetary
Board or to the examiners of the BSP shall be
punished by a fine of not less than P100,000 nor
more than P2,000,000 or by imprisonment of not
more than five (5) years, or both, at the discretion
of the court. (NCBA, Sec. 35)
Violation of the NCBA and other banking laws,
rules, regulations, orders, or instructions
The persons responsible for the following
violations shall be punished by a fine of not less
than P50,000 nor more than P200,000 or by
imprisonment of not less than two (2) years nor
more than ten (10) years, or both, at the discretion
of the court:
a. When a bank or quasi-bank, including
their subsidiaries and affiliates, engages
in allied activities or other entity which
under this Act or special laws is subject
to BSP supervision; or
b. When any person or entity willfully
violates this Act or other pertinent
banking laws being enforced or
implemented by the BSP or any order,
instruction, rule, or regulation issued by
the Monetary Board. (NCBA, Sec. 36)
B. Suspension or removal of director or
officer
If the offender is a director or officer of a bank,
quasi-bank, or trust entity, the Monetary Board
may also suspend or remove such director or
officer who violated the provisions of the GBL.
(Sec. 66)
C. Dissolution of bank
If the violation is committed by a corporation, such
corporation may be dissolved by quo warranto
proceedings instituted by the Solicitor General
(Id.)
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D. PHILIPPINE DEPOSIT INSURANCE
CORPORATION ACT
1. BASIC POLICY
The Philippine Deposit Insurance Corporation
(PDIC) shall 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.
(New PDIC Charter, Sec. 1)
2. POWERS AND FUNCTIONS OF THE
PHILIPPINE DEPOSIT INSURANCE
CORPORATION; PROHIBITIONS
PDIC Board of Directors
The powers and functions of the PDIC shall be
vested in and exercised by a Board of Directors
which shall be composed of 7 members. (Sec. 3)
Composition
7 members, appointed by the President of the
Philippines, for a term of 6 years with 1
reappointment:
a. Ex officio Chairman: Secretary of
Finance
b. Ex officio Member: BSP Governor
c. President and Vice Chairman: Appointed
by the President of the Philippines, to
serve a full-time basis.
d. 4 Members from the private sector to be
appointed by the President of the
Philippines. (Id.)
Powers of PDIC
The PDIC as a corporate body shall have the
following powers:
a. To adopt and use a corporate seal;
b. To have succession until dissolved by an
Act of Congress;
c. To make contracts;
d. To sue and be sued, complain, and
defend, in any court of law in the
Philippines;
e. To appoint such officers and employees
as are not otherwise provided for in this
Act, to define their duties, fix their
compensation, require bonds, and fix
penalty thereof, and to dismiss them for
cause;
f. To prescribe by-laws consistent with law,
regulating the manner in which its
general business may be conducted, and
COMMERCIAL LAW
the privileges granted to it by law may be
exercised and enjoyed;
g. To exercise all powers specifically
granted by the provisions of this Act, and
such incidental powers as shall be
necessary to carry on the powers so
granted;
h. To conduct examination of banks with
prior approval of the Monetary Board;
i. To act as receiver;
j. To prescribe such rules and regulations
as it may deem necessary to carry out the
provisions of this Act;
k. The PDIC may establish its own
provident fund which shall consist of
contributions made by both by PDIC and
by its officers and employees to a
common fund for the payment of benefits
to such officers or employees or their
heirs;
l. To compromise, condone, or release, in
whole or in part, any claim or settled
liability to the PDIC, regardless of the
amount involved, under such terms and
conditions as may be imposed by the
Board of Directors to protect the interest
of PDIC, and to write off PDIC’s
receivables and assets which are no
longer recoverable or receivable;
m. To determine qualified interested
acquirers or investors for any of the
modes of resolution or liquidation of
banks;
n. To determine the appropriate resolution
method and to implement the same for a
bank subject of resolution; and
o. To determine the appropriate mode of
liquidation of a closed bank and to
implement the same. (Sec. 9)
Prohibitions
Personnel of the PDIC are prohibited from:
a. Being an officer, director, consultant,
employee or stockholder, directly or
indirectly, of any bank or banking
institution except as otherwise provided
in this Act;
b. Receiving any gift or thing of value from
any officer, director or employee thereof:
c. Revealing in any manner, except under
order of the court or authorized herein in
such condition or business of any such
institution. The prohibition shall not be
held to apply to the giving of information
to the Board of Directors or to any person
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authorized by either of them in writing to
receive such information. (Sec. 10[e])
Borrowing from any bank or banking institution by
examiners and other personnel of the
examination departments of PDIC shall be
prohibited only with respect to the particular
institution in which they are assigned or are
conducting an examination. (Sec. 9)
Borrowing from any bank or banking institution by
personnel of other departments, offices, or units
of the PDIC shall be prohibited during the period
that a transaction of such institution with the PDIC
is being evaluated, processed, or acted upon by
such personnel. (Sec. 9)
3. CONCEPT OF INSURED DEPOSITS
Insured deposit
It is the amount due to any bona fide depositor for
legitimate deposits in an insured bank as of the
date of closure but not to exceed P500,000. (Sec.
5[j])
Note: This amount may be increased if there are
conditions which threaten the monetary and
financial stability of the banking system that may
have systemic consequences. There has to be a
unanimous approval by the Board of Directors,
chaired by the Secretary of Finance, and
approved by the President of the Philippines. (Id.)
4. LIABILITY TO DEPOSITORS
A. Deposit liabilities required to be insured
with Philippine Deposit Insurance
Corporation
The deposit liabilities of any bank, which is
engaged in the business of receiving deposits or
which thereafter may engage in the business of
receiving deposits, shall be insured with the
PDIC. (Sec. 6)
B. Commencement of liability
The PDIC shall commence the determination of
insured deposits due the depositors of a closed
bank upon its actual takeover of the closed bank.
It shall give notice to the depositors of the closed
bank of the insured deposits due them by
whatever means deemed appropriate by the
Board of Directors. (Sec. 21[a])
COMMERCIAL LAW
C. Deposit accounts not entitled to
payment
PDIC shall not pay deposit insurance for the
following accounts or transactions, whether
denominated, documented, recorded, or booked
as deposit by the bank:
a. Investment products such as bonds and
securities, trust accounts, and other
similar instruments;
b. Deposit accounts or transactions which
are unfunded, fictitious or fraudulent;
c. Deposit accounts or transactions
constituting, and/or emanating from,
unsafe and unsound banking practice/s,
as determined by PDIC, in consultation
with the BSP, after due notice and
hearing, and publication of a cease and
desist order issued by PDIC against such
deposit accounts or transactions; and
d. Deposits that are determined to be the
proceeds of an unlawful activity as
defined under AMLA. (Sec.5[g])
if such recognition would increase the aggregate
amount of the insured deposits in such closed
bank, neither PDIC nor such other insured bank
shall be required to recognize any person as the
owner of any portion of a deposit whose name or
interest is not disclosed on the records of the
closed bank. (Sec. 21[c])
Pending the determination and payment of the
depositor’s liability as a stockholder of the closed
bank, or of any liability to said bank or its receiver
which is not offset against a claim due from the
bank, PDIC may withhold payment of a portion of
the insured deposit due to it as payment of such
liability. (Sec. 16[e])
D. Extent of liability
The maximum deposit insurance coverage is
P500,000.00 per depositor, per bank. (Sec. 3)
E. Determination of insured deposits
In determining such amount due to any depositor,
there shall be added together 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. (Sec. 5[j])
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F. Calculation of liability
i. Per depositor, per capacity rule
All deposit accounts by a depositor in a closed
bank maintained in the same right and capacity
shall be added together. (Id.)
ii. Joint accounts
A joint account, regardless of whether the
conjunction ‘and’, ‘or’, ‘and/or’ is used, shall be
insured separately from any individually-owned
deposit account. (Id.)
If the account is held jointly by two or more natural
persons, or by two or more juridical persons or
entities, the maximum insured deposit shall be
divided into as many equal shares as there are
individuals, juridical persons or entities, unless a
different sharing is stipulated in the document of
deposit.
If the account is held by a juridical person or entity
jointly with one or more natural persons, the
maximum insured shall be presumed to belong
entirely to such juridical person or entity. (Id.)
Note: 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. (Id.)
iii. Mode of payment
It shall be paid either (1) by cash or (2) by making
available to each depositor a transferred deposit
in another insured bank. (Sec. 19)
iv. Effect of payment of insured deposits
The PDIC, upon payment of any depositor, shall
be subrogated to all the rights of the depositor
against the closed bank to the extent of such
payment. (Sec. 20)
v. Payment of insured deposits as preferred
credit
All payments by the PDIC of insured deposits in
closed banks partake of the nature of public
funds, and as such, must be considered a
preferred credit similar to taxes due to the
COMMERCIAL LAW
National Government in the order of preference
under Article 2244 of the NCC. (Id.)
vi. Failure to settle claim of insured depositor
If there is failure to settle the claim for insured
deposit within six (6) months from the date of filing
and such failure was due to grave abuse of
discretion, gross negligence, bad faith, or malice,
the responsible PDIC directors, officers, or
employees shall, upon conviction, be subject to
imprisonment from six (6) months to one (1) year.
(Sec. 19)
Note: The 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, or
by the PDIC together with such office, body, or
agency. (Id.)
vii. Failure of depositor to claim insured
deposits
Unless otherwise waived by PDIC, if the
depositor of the closed bank shall fail to claim his
insured deposits within two (2) years from actual
takeover of the closed bank by the receiver or
does not enforce his claim within two (2) years, all
rights with respect to the insured deposit shall be
barred.
(Sec. 21[e])
(a) Examination of banks and deposit
accounts
The PDIC as a body corporate shall have the
power to conduct examination of banks with prior
approval of the Monetary Board. (Sec. 9.8)
Note: No examination can be conducted within
twelve (12) months from the last examination
date.
The PDIC may, in coordination with the BSP,
conduct a special examination as the Board of
Directors, by an affirmative vote of a majority of
all of its members, if there is a threatened or
impending closure of a bank. (Id.)
Notwithstanding the provisions of RA 1405, as
amended, RA 6426, as amended, RA 8791, and
other laws, the PDIC and/or the BSP, may inquire
into or examine deposit accounts and all
information related thereto in case there is a
finding of unsafe or unsound banking practice.
(Id.)
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To avoid overlapping of efforts, the examination
shall maximize the efficient use of the relevant
reports, information, and findings of the BSP,
which it shall make available to the Corporation.
(Id.)
(b) Prohibition against splitting of deposits
Splitting of deposits occurs whenever a deposit
account with an outstanding balance of more than
the statutory maximum amount of insured deposit
maintained under the name of natural or juridical
persons is broken down and transferred into 2 or
more accounts in the name/s of natural or juridical
persons or entities who have no beneficial
ownership on transferred deposits in their names
within 120 days immediately preceding or during
a bank-declared bank holiday, or immediately
preceding a closure order issued by the Monetary
Board. It is for the purpose of availing the
maximum deposit insurance coverage. (Sec.
26[e])
(c) Prohibition against issuances of
temporary restraining orders
No court, except the Court of Appeals, shall issue
any temporary restraining order, preliminary
injunction, or preliminary mandatory injunction
against the PDIC for any action under the PDIC
Charter. (Sec. 27)
This prohibition shall apply in all cases, disputes
or controversies instituted by a private party, the
insured bank, or any shareholder of the insured
bank. (Id.)
Supreme Court
The Supreme Court may issue a restraining order
or injunction when the matter is of extreme
urgency involving a constitutional issue, such that
unless a temporary restraining order is issued,
grave injustice and irreparable injury will arise.
The applicant shall file a bond in an amount to be
fixed by the Supreme Court and such bond shall
accrue in favor of the PDIC if the court should
finally decide that the applicant was not entitled to
the relief sought. (Id.)
Any restraining order or injunction issued in
violation of this Section is void and of no force and
effect and any judge who has issued the same
shall suffer the penalty of suspension of at least
60 days without pay. (Id.)
COMMERCIAL LAW
5. CONCEPT OF BANK RESOLUTION
Resolution
Resolution refers to the actions undertaken by the
PDIC to:
a. Protect depositors, creditors, and the
Deposit Insurance Fund;
b. Safeguard the continuity of essential
banking services or maintain financial
stability; and
c. Prevent deterioration or dissipation of
bank assets. (Sec. 5[s])
Grounds for Resolution
The PDIC, in coordination with the BSP, may
commence the resolution of a bank upon:
a. Failure of Prompt Corrective Action
(PCA) as declared by the Monetary
Board; or
b. Request by a bank to be placed under
resolution. (Sec. 11[a][1][2])
The PDIC shall inform the bank of its eligibility for
entry into resolution. (Sec. 11)
Obligations of stockholders, directors,
officers, or employees of the bank
a. Ensure bank compliance with the terms
and conditions prescribed by the PDIC
for resolution of the bank;
b. With PDIC’s consent, engage an
independent appraiser or auditor to
determine the valuation of the bank
consistent with generally accepted
valuation standards;
c. Ensure prudent management and
administration of the bank’s assets,
liabilities, and records; and
d. Cooperate with the PDIC in the conduct
or exercise of any or all its authorities
under this Act and honor in good faith its
commitment or undertaking with the
PDIC on the resolution of the bank. (Sec.
11[d])
Within a period of 180 days from a bank’s entry
into resolution, the PDIC, through the affirmative
vote of at least 5 members of the board, shall
determine whether the bank may be resolved
through (1) purchase of all its assets and
assumption of all its liabilities, (2) merger or
consolidation with, or (3) acquisition, by a
qualified investor. (Sec. 11[e])
Upon a determination by the PDIC that the bank
may not be resolved, the Monetary Board may act
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in accordance with the receivership and
liquidation proceedings under NCBA, Sec. 30.
6. ROLE OF THE PHILIPPINE DEPOSIT
INSURANCE CORPORATION IN RELATION
TO BANKS IN DISTRESS
A. Closure and takeover
Whenever a bank is ordered closed by the
Monetary Board, the PDIC shall be designated as
receiver and it shall proceed with the takeover
and liquidation of the closed bank in accordance
with the PDIC Charter. (Sec. 12[a])
Notice of Closure and Takeover Activities
a. Upon the designation of the PDIC as
receiver, it shall serve a notice of closure
to the highest-ranking officer of the bank
present in the bank premise, or in the
absence of such officer, post the notice
of closure in the bank premises of on its
main entrance. (New PDIC Charter, Sec.
14[a])
Note: The closure of the bank shall be
deemed effective upon the service of the
notice of closure. Thereafter, the receiver
shall take over the bank and exercise the
powers of the receiver. (Sec. 14[a])
b. The receiver shall have authority to use
reasonable force, including the authority
to force open the premises of the bank,
and exercise such acts necessary to take
actual physical possession and custody
of the bank and all its assets, records,
documents, and take charge of its affairs
upon the service of the notice of closure.
(Sec. 14[b])
c. Directors, officers, employees, or agents
of a bank hold money and other assets of
the bank in trust or under administration
or management by them for the bank in
their fiduciary capacity. (Sec. 14[c])
Upon service of notice of closure to the
bank, all directors, officers, employees,
or agents of the closed bank shall have
the duty to immediately account for,
surrender, and turn over to the receiver,
and provide information relative to the
assets, records, and affairs of the closed
COMMERCIAL LAW
bank in their possession, custody,
administration, or management. (Id.)
d. When the circumstances so warrant, the
local government unit and law
enforcement agencies concerned shall,
upon request, immediately provide
assistance to the receiver during the
service of notice of closure and actual
takeover operations to ensure the orderly
conduct thereof. (Sec. 14[d])
B. Conservatorship
A conservator is appointed by the Monetary
Board based on competence and knowledge in
bank operations and management. (NCBA, Sec.
29) There is no express provision providing for
the appointment of PDIC as conservator.
Banks closed by the Monetary Board shall no
longer be rehabilitated. The PDIC, as receiver,
shall immediately proceed with the takeover and
liquidation. (NCBA, Sec. 39; New PDIC Charter,
Sec. 12[a])
C. Receivership
Authorities of a Receiver
In addition to its powers as receiver under existing
laws, the PDIC is also empowered to do the
following:
a. Represent and act for and on behalf of
the closed bank;
A closed bank under receivership can
only sue or be sued through its receiver,
the Philippine Deposit Insurance
Corporation (PDIC). Thus, a bank under
receivership cannot file a case without
PDIC’s authority. (Banco Filipino Savings
and Mortgage Bank v. BSP, G.R. No.
200678, 2018)
b. Gather and take charge of all the assets,
records, and affairs of the closed bank,
and administer the same for the benefit
of the creditors;
c. Convert the assets of the closed bank to
cash or other forms of liquid assets, as
far as practicable;
d. Bring suits to enforce liabilities of the
directors, officers, employees, agents of
the closed bank and other entities related
or connected to the closed bank or to
collect, recover, and preserve all assets,
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including assets over which the bank has
equitable interest;
e. Appoint or hire persons or entities of
recognized competence in banking,
finance, asset management, or remedial
management, as its deputies, assistant,
or agents;
f. Appoint or hire persons or entities of
recognized competence in forensic and
fraud investigations;
g. Pay accrued utilities, rentals, and
salaries of personnel of the closed bank
for a period not exceeding three (3)
months, from available funds of the
closed bank;
h. Collect loans and other claims of the
closed bank and modify, compromise, or
restructure the terms and conditions of
such loans or claims as may be deemed
advantageous to the interests of the
creditors of the closed bank;
i. Hire or retain private counsel;
j. Borrow or obtain a loan, or mortgage,
pledge, or encumber any asset of the
closed bank, when necessary to (1)
preserve or prevent dissipation of its
assets, (2) redeem its foreclosed assets,
or (3) minimize losses to its depositors
and creditors;
k. If the stipulated interest rate on deposits
is unusually high compared with
prevailing applicable interest rates, the
receiver may reduce the rate to a
reasonable rate;
Note: Any modifications or reductions
shall apply only to earned or unpaid
interest.
l. Utilize available funds of the bank,
including funds generated by the receiver
from the conversion of assets to pay for
reasonable costs and expenses incurred
for the preservation of the assets and
liquidation of the closed bank, without
need for approval of the liquidation court;
Note: For banks with insufficient funds,
the PDIC is authorized to advance the
foregoing costs and expenses, and
collect payments, as and when funds
become available.
m. Charge reasonable fees for the
liquidation of the bank from the assets of
the bank;
COMMERCIAL LAW
Note: Payment of these fees, including
any unpaid advances under the
immediately preceding paragraph, shall
be subject to approval by the liquidation
court.
n. Distribute the available assets of the
closed bank, in cash or in kind, to its
creditors in accordance with the Rules on
Concurrence and Preference of Credits
under the NCC or other laws;
o. Dispose records of the closed bank that
are no longer needed in the liquidation in
accordance with the guidelines set by the
PDIC, notwithstanding the laws on
archival period and disposal of records;
and
p. Exercise inherent and necessary powers
for the effective discharge of its duties as
receiver. (Sec. 13[b])
Surplus Dividends
After the payment of all liabilities and claims
against the closed bank, the receiver shall pay
surplus, if any, dividends at the legal rate of
interest from date of takeover to date of
distribution to creditors and claimants of the
closed bank in accordance with the Rules on
Concurrence and Preference of Credits under the
Civil Code or other laws before distribution to the
shareholders of the closed bank. (Sec. 13[c])
D. Liquidation
The PDIC, as receiver is also liquidator. PDIC is
authorized to adopt and implement without need
of consent of the stockholders, BOD, creditors,
and depositors of the closed bank, any or a
combination of the following modes of liquidation:
a. Conventional liquidation; and
b. Purchase of assets and/or liabilities (Sec.
13[a])
Modes of liquidation under the New PDIC
Charter
a. Conventional Liquidation. The assets
gathered by the receiver shall be
evaluated and verified as to their
existence, ownership, condition, and
other factors to determine their realizable
value. (Sec. 16)
b. Purchase of Assets and/or
Assumption of Liabilities. The receiver
shall have the authority to facilitate and
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implement the purchase of the assets of
the closed bank and the assumption of its
liabilities by another insured bank,
without need for approval of the
liquidation court. It shall be exercised in
accordance with the Rules on
Concurrence and Preference of Credits
under the NCC or other laws, subject to
such terms and conditions as the PDIC
may prescribe. (Sec. 15)
The disposition of the branch licenses
and other bank licenses of the closed
bank shall be subject to the approval of
the BSP. (Id.)
Note: Such action of the receiver to
determine whether a bank may be
subject of a purchase of assets and
assumption of liabilities transactions shall
be final and executory and may not be set
aside by any court.
Effects of Bank Liquidation
The placement of a bank under liquidation shall
have the following effects:
a. On the corporate franchise or
existence. Upon placement by the
Monetary Board of a bank under
liquidation, it shall continue as a body
corporate until the termination of the
winding up period. (Sec. 13[e][1])
Note: Winding up period is 6 months from
the date of publication of notice of the
approval by the court of the final asset
distribution plan of the closed bank. (Sec.
1[c])
Such continuation as a body corporate
shall only be for the purpose of
liquidating, settling, and closing its
assets.
The receiver shall represent the closed
bank in all cases by or against the closed
bank and prosecute and defend suits by
or against it. (Sec. 13[e][1])
Note: In no case shall the bank be
reopened and permitted to resume
baking business after being placed under
liquidation. (Sec. 13[e][1])
b. On the Powers and Functions of its
directors, officers, and stockholders.
COMMERCIAL LAW
The powers, voting rights, functions, and
duties, as well as the allowances,
remuneration and perquisites of the
directors, officers, or stockholders (DOS)
of such bank are terminated upon its
closure.
DOS shall be barred from interfering in
any way with the assets, records, and
affairs of the bank. (Sec. 13[e][2])
Note: The receiver shall exercise all
authorities as may be required to
facilitate the liquidation of the closed
bank for the benefit of all its creditors.
(Id.)
c. On the assets. Upon service of closure,
all the assets of the closed bank shall be
deemed in custodia legis in the hands of
the receiver, and as such, these assets
may not be subject to attachment,
garnishment, execution, levy or any other
court processes.
A judge, officer of the court or any person
who shall issue, order, process or cause
the issuance or implementation of the
garnishment order, levy, attachment, or
execution, shall be liable
Provided: collaterals securing the loans
and advances granted by the BSP shall
not be included in the assets of the closed
bank for distribution to other creditors
Provided, further: the proceeds in excess
of the amount secured shall be returned
by the BSP to the receiver. (Sec. 13[e][3])
Note: Any preliminary attachment or
garnishment on any of the assets of the
closed bank existing at the time of closure
shall not give any preference to the
attaching or garnishing party. Upon
motion of the receiver, the preliminary
attachment or garnishment shall be lifted
and/or discharged.
d. On labor relations. The employer-
employee relationship between the
closed bank and its employees shall be
deemed terminated upon service of the
notice of closure of the bank.
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Payment of separation pay, or benefits
provided for by law shall be made from
available assets of the bank in
accordance with the Rules on
Concurrence and Preference of Credits
under the Civil Code or other laws. (Sec.
13[e][4])
e. On contractual obligations. Receiver
may cancel, terminate, rescind, or
repudiate any contract of the closed bank
that is not necessary for the orderly
liquidation of the bank, or is grossly
disadvantageous to the closed bank, or
for any ground provided by law. (Sec.
13[e][5])
f. On interest payments. The liability of a
bank to pay interest on deposits and all
other obligations as of closure shall
cease upon its closure without prejudice
to NCBA, Sec. 85.
Provided: The receiver shall have the
authority, without need for approval of
the liquidation court, to assign, as
payment to secured creditors, the bank
assets serving as collaterals to their
respective loans up to the extent of the
outstanding obligations including
interests as of date of closure (valuation
based on the prevailing market value of
the collaterals). (Sec. 13([e][6])
Note: The BSP shall collect interest and
other appropriate charges on all loans
and advances it extends, the closure,
receivership, or liquidation of the debtor-
institution notwithstanding. (NCBA, Sec.
85)
g. On liability for penalties and
surcharges for later payment and non-
payment of taxes. From the time of
closure, the closed bank shall not be
liable for the payment of penalties and
surcharges arising from the late payment
or non-payment of real property tax,
capital gains tax, transfer tax and similar
charges. (Sec. 13[e][7])
h. On bank charges and fees on
services. Receiver may impose charges
and fees for services rendered after bank
closure such as the execution of pertinent
deeds and certifications. (Sec. 13[e][8])
COMMERCIAL LAW
i. On actions pending for or against the
closed bank
General Rule: Actions pending for or
against the closed bank in any court or
quasi-judicial body shall, upon motion of
the receiver, be suspended for a period
not exceeding 180 days and referred to
mandatory mediation.
Exception: Actions pending before the
Supreme Court. (Sec. 13[e][9])
j. On final decisions against the closed
bank. Execution and enforcement of a
final decision of a court other than the
liquidation court against the assets of a
closed bank shall be stayed.
Prevailing party shall file the final
decision as a claim with the liquidation
court and settle in accordance with the
Rules on Concurrence and Preference of
Credits under the Civil Code or other
laws. (Sec. 13[e][10])
k. On docket and other court fees.
Payment of docket and other court fees
relating to all cases or actions filed by the
receiver with any judicial or quasi- judicial
bodies shall be deferred until the action is
terminated with finality
Any such fees shall constitute as a first
lien on any judgment in favor of the
closed bank or in case of unfavorable
judgment, such fees shall be paid in
liquidation costs and expenses during the
distribution of the assets. (Sec. 13[e][11])
l. On assets, records, and documents of
the bank. All assets, records, and
documents in the possession of the
closed bank at the time of its closure are
presumed held by the bank in the concept
of an owner. (Sec. 13[e][12])
Assets and documents of the closed
bank shall retain their private nature even
if administered by the receiver. (Sec.
13[e][14])
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