Banking

Law Outline

A.

The Philippine Financial System and the Players

Laws/Regulations

The Bangko Sentral ng Pilipinas:

• Philippine Constitution, Article XII, Section 20
• The New Central Bank Act; Article I
• General Banking Law, Sections 3, 4-7

Types of Banks:

• Thrift Banks (Thrift Banks Act; Sections 3 and 10)
• Rural Banks (Rural Banks Act; Sections 2 and 3)
• Cooperative Banks (Cooperative Code, Article 6, 7 and 100)
• Development Bank of the Philippines (Revised Charter of the Development Bank
of the Philippines; Sections 2 and 3)
• Land Bank of the Philippines (Republic Act 3844 as amended; Sections 74 and 75)
• Al-Amanah Islamic Bank (The Charter of the Al-Amanah Islamic Investment Bank
of the Philippines; Sections 2-6)
• Universal Banks and Commercial Banks (General Banking Law, Sections 23 and
29)

Non-Bank Financial Institutions:

• Investment Houses (Investment Houses Law; Sections 2, 3, 6, 7);
• Financing Companies (Financing Company Act; Sections 3 and 9);
• Investment Companies (Investment Company Act; Section 4).


B.

The Big Picture and The Need for Special Regulation

Laws/Regulations

A. What is Banking?

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 • General Banking Law, Sections 3.1 and 8.2

B. What is Quasi-Banking?

• General Banking Law, Section 4
• The New Central Bank Act, Section 95

C. The Licensing Requirement

• General Banking Law, Sections 6 and 8

D. Need for Special Regulation

• General Banking Law, Sections 2 and 22

E. Bangko Sentral ng Pilipinas (BSP) as Regulator

1. BSP as Licensor

o General Banking Law, Sections 6, 8, 14, 64

2. Operating without Authority

o General Banking Law, Section 66
o The New Central Bank Act, Sections 36 and 37

3. BSP as Supervisor and Regulator

o General Banking Law, Sections 4-7
o The New Central Bank Act, Sections 25, 28, 36 and 37

Jurisprudence

• Republic v. Security Credit and Acceptance Corporation (19 SCRA 58)
• Central Bank v. Morfe (20 SCRA 507)
• Bañas v. Asia Pacific Finance Corporation (343 SCRA 527)
• Simex International (Manila), Inc. v. Court of Appeals (183 SCRA 360)
• Development Bank of the Philippines v. Commission on Audit (373 SCRA 356)
• Go v. Bangko Sentral (604 SCRA 322)
• Busuego v. Court of Appeals (304 SCRA 473)
• United Coconut Planters Bank v. E. Ganzon, Inc. G.R. Nos. 168859 and 168897,
June 20, 2009
• Banco de Oro v. Republic G.R. No. 198756 (August 16, 2016)

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C.

Standards of Care

Laws/Regulations

General Banking Law, Section 2

Jurisprudence

Bank of the Philippine Islands vs. Intermediate Appellate Court, 206 SCRA 408
Bank of the Philippine Islands vs. Court of Appeals, 326 SCRA 641
Consolidated Bank and Trust Corporation vs. Court of Appeals, 410 SCRA 562
Goyanko, Jr. v. United Coconut Planters Bank, G.R. No. 179096, February 06, 2013
Philippine Banking Corporation vs. Court of Appeals, 419 SCRA 487
Heirs of Eduardo Manlapat vs. Court of Appeals, 459 SCRA 412
Cruz vs. Bancom Finance Corporation, 379 SCRA 490
Philippine National Bank vs. Pike, 470 SCRA 328
Cadiz vs. Court of Appeals, 474 SCRA 232
Far East Bank and Trust Company vs. Pacilan, Jr., 465 SCRA 372
Citibank, N.A. vs. Cabamongan, 488 SCRA 517
Tan vs. Court of Appeals, G.R. No. 108555, December 20, 1994
Metropolitan Bank & Trust Company vs. Court of Appeals, 237 SCRA 761
Philippine National Bank vs. Court of Appeals, 256 SCRA 309

D.

Corporate Structure of Banks

Laws/Regulations

A. Organization

• General Banking Law Sections 8, 9, 10, 14 and 57

B. Ownership

1. Foreign Ownership

§ General Banking Law Section 11; RA 7721 as amended by RA
10641

2. Family Groups and Related Interests

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§ General Banking Law Sections 12 and 13

C. Other Capitalization Requirements

• General Banking Law Section 34

D. Directors and Officers

• General Banking Law Sections 15, 16, 17, 18 and 19

E. Branches and Hours of Operation

• General Banking Law Sections 20 and 21

Jurisprudence

Busuego v. Court of Appeals 304 SCRA 473
Prudential Bank v. Court of Appeals 223 SCRA 350
First Philippine International Bank v. Court of Appeals 252 SCRA 259
BPI Family Savings Bank, Inc. v. First Metro Investment Corporation 429 SCRA 30;
Prudential Bank and Trust Company v. Abasolo 631 SCRA 367)

E.

Powers and Operating Units of Banks

Universal Banks vs. Commercial Banks

• General Banking Law Sections 23-32, 53

• Demosthenes P. Agan, Jr., et al. vs. PIATCO, et al., 402 SCRA 612 (2003)


Regular Unit vs. Trust Department vs. Foreign Currency Deposit Unit

• General Banking Law Sections 79-93
• Republic Act No. 6426

• Cancio vs. Court of Appeals, 154 SCRA 731 (1987)
• Salvacion vs. Central Bank, 278 SCRA 27 (1997)

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F.

Deposits, Loans and Other Operations

Legal Nature of Deposits

• Civil Code Articles 1953 and 1980

• Serrano v. Central Bank 96 SCRA 96
• Guingona, Jr. v. City Fiscal of Manila
• BPI Family Bank v. Franco 538 SCRA 184
• Fulton Iron Works Co. v. China Banking Corp. 58 Phil 206
• Bank of the Philippine Islands v. Court of Appeals 232 SCRA 302
• Central Bank v. Morfe 63 SCRA 114
• Gullas v. Philippine National Bank 62 Phil 519
• Republic v. Court of Appeals 65 SCRA 186
• Bank of the Philippine Islands v. Court of Appeals 512 SCRA 620
• Lucman v. Malawi 511 SCRA 268

Some Types of Deposit Products

• Demand deposits

o New Central Bank Act, Sections 58-60
o General Banking Law, Section 33

• Savings deposits

o International Exchange Bank v. Commissioner of Internal Revenue 520
SCRA 688
o China Banking Corporation v. Commissioner of Internal Revenue 602
SCRA 316

• Time deposits

o BPI Family Savings Bank v. First Metro Investment Corporation 429 SCRA
30

• Money Market Placements

o Allied Banking Corporation v. Lim Sio Wan 549 SCRA 504

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G.

Deposits

Administration of Deposit Accounts

Issues Relating to Deposit of Funds

• Civil Code Article 1933, 1934, 1980
• Firestone Tire & Rubber Co. of the Phil. V. Court of Appeals 353 SCRA 601
• Philippine National Bank v. Rodriguez 566 SCRA 513
• Go v. Metropolitan Bank and Trust Company 628 SCRA 107
• Equitable PCI Bank v. Ong 502 SCRA 119
• Security Bank and Trust Corporation v. Rizal Commercial Banking Corporation
577 SCRA 407

Issues Relating to Withdrawal of Funds

• Moran v. Court of Appeals 230 SCRA 799
• Villanueva v. Nite 496 SCRA 459
• Associated Bank v. Tan 446 SCRA 282
• Traders Royal Bank v. Radio Philippines Network 390 SCRA 608
• Bank of the Philippine Islands v. Court of Appeals 326 SCRA 641
• Far East Bank and Trust Company v. Querimit 373 SCRA 665
• Vitug v. Court of Appeals 183 SCRA 755

Interest on Deposits

• Civil Code, Articles 1956 and 1959
• Citibank, N.A. v. Cabamongan 488 SCRA 517


H.

Secrecy of Deposits/Garnishment of Deposits

Scope

• Secrecy of Bank Deposits Republic Act No. 1405 as amended.
• Philippine Constitution (Article III, Sections 2, 3 and 7, Article II, Section 28)
• General Banking Law, Sections 55.1(b) and 55.4

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 • Republic v. Eugenio (545 SCRA 384)
• Intengan v. Court of Appeals (377 SCRA 63)
• Ejercito v. Sandiganbayan (509 SCRA 190)

Certain Statutory Exceptions

• Bank Secrecy Law – Section 2
• BSP Group Inc. v. Go (612 SCRA 596)
• Mellon Bank, N.A.v. Magsino, 190 S.C.R.A. 633 [1990]

• Anti-Graft and Corrupt Practices Act – Section 8
§ Philippine National Bank v. Gancayco (15 SCRA 91)
§ Banco Filipino Savings and Mortgage Bank v. Purisima (161 SCRA
576)

• Ombudsman Act – Section 15(8)
§ Marquez v. Desierto (359 SCRA 772)
§ Ejercito v. Sandiganbayan (509 SCRA 190)

• Plunder Law – Sections 1(d) and 4
§ Ejercito v. Sandiganbayan (509 SCRA 190)

• Anti-Money Laundering Act – Section 11
§ Republic v. Eugenio (545 SCRA 384)

• PDIC Charter – Section 8

• Human Security Act – Sections 27-43

• National Internal Revenue Code – Section 6(f)

• Unclaimed Balances Law – Section 2

• Foreign Currency Deposit Act – Section 8 and 10
§ Van Twest vs. Court of Appeals (230 SCRA 42)
§ China Banking Corporation v. Court of Appeals (511 S.C.R.A. 110
[2006])

Garnishment of Deposits

• Procedure – 1997 Rules of Civil Procedure, Section 9(c), Rule 39

• Exemptions

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 § Foreign Currency Deposits Act, Section 8
§ Salvacion v. Central Bank (278 SCRA 27)
§ 1997 Rules of Civil Procedure, Section 13, Rule 39

• Relevant jurisprudence
§ China Bank v. Ortega (49 SCRA 356)
§ Philippine Commercial and Industrial Bank v. Court of Appeals
(193 SCRA 452)
§ Rizal Commercial Banking Corporation v. De Castro (168 SCRA 49)


I.

Lending Operations

o Grant, Purpose and Requirement of Loans

§ General Banking Law, Sections 39 and 40
§ United Coconut Planters Bank v. Ramos 415 SCRA 596
§ Banco de Oro-EPCI, Inc. v. JAPRL Development Corporation 551
SCRA 342

o Prohibited Transactions

§ General Banking Law, Sections 55.1(c), 55.1(d) and 55.2

o Monetary Board Regulatory Authority

§ General Banking Law, Sections 41, 42, 43, 48, 49
§ New Central Bank Act, Section 106.

o Development Assistance Incentives

§ General Banking Law, Section 46

o Disclosure Requirements

§ Truth in Lending Act
§ New Sampaguita Builders Construction, Inc. v. Philippine National
Bank 435 SCRA 565
§ Spouses Eduardo and Lydia Silos v. Philippine National Bank 728
SCRA 617

o Terms and Conditions

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§ Amortization -- General Banking Law, Section 44
§ Prepayment -- General Banking Law, Section 45
§ Interest – Civil Code, Article 1956

• Usury

o Advocates for Truth in Lending, Inc. v. Banko
Sentral Monetary Board [G.R. No. 192986; January
15, 2013]
o Bulos, Jr. v. Yasuma 527 SCRA 727
o Bacolor v. Banco Filipino Savings and Mortgage
Bank, Dagupan City Branch 515 SCRA 79

• When no stipulation for interest is made – Civil Code,
Article 1956

• Escalation Clause

o Civil Code, Article 1308
o Philippine National Bank v. Court of Appeals 196
SCRA 536
o New Sampaguita Builders Construction, Inc. v.
Philippine National Bank 435 SCRA 565;
o Llorin, Jr. v. Court of Appeals 218 SCRA 426

• Floating rate

o Consolidated Bank and Trust Corporation (Solid
Bank) v. Court of Appeals 356 SCRA 671

• Extraordinary Inflation/Deflation

o Civil Code, Article 1250
o Equitable PCI Bank v. Ng Sheung Ngor 541 SCRA
223

• Single Borrower’s Limit

o General Banking Law, Sections 35.1, 35.2, 35.3,
35.4, 35.5, 35.6, 35.7

• DOSRI

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o General Banking Law Section 36
o New Central Bank Act Section 26

J.

Collateral Security for Lending Operations

• Collateral/Security

o Unsecured Loans – General Banking Law, Section 41
o Joint and Solidary Signature

§ Civil Code Article 2047 and 1207-1225
§ Security Bank and Trust Company v. Cuenca 341 SCRA 781
§ Ong v. Philippine Commercial Industrial Bank 448 SCRA 705

o Loans Secured by Chattel/Intangibles

§ General Banking Law, Section 38

o Loans Secured by Real Estate Mortgages

§ Limits – General Banking Law, Section 37
§ Mortgagee in Good Faith

• Philippine National Cooperative Bank v. Carandang-Villalon
139 SCRA 570
• Development Bank of the Philippines v. Court of Appeals
331 SCRA 267
• Canlas v. Court of Appeals 326 SCRA 425

§ Dacion en Pago – General Banking Law, Section 52

§ Dragnet Clause – Union Bank of the Philippines v. Court of
Appeals 471 SCRA 751

§ Foreclosure – General Banking Law Section 47

o Right and period of redemption

§ General Banking Law, Section 47
§ Metropolitan Bank and Trust Company v. Tan 569
SCRA 814

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 § Lazo v. Republic Surety and Insurance Co. 31 SCRA
329
§ Ibaan Rural Bank, Inc. v. Court of Appeals 321 SCRA
88
§ People’s Financing Corporation v. Court of Appeals
192 SCRA 34
§ Consolidated Bank and Trust Corporation
(Solidbank) v. Intermediate Appellate Court 150
SCRA 591
§ CMS Stock Brokerage, Inc. v. Court of Appeals 275
SCRA 790

o Redemption Price

§ General Banking Law Section 47
§ Union Bank of the Philippines v. Court of Appeals
359 SCRA 480
§ Development Bank of the Philippines v. West
Negros College, Inc. 391 SCRA 330
§ Development Bank of the Philippines v. West
Negros College, Inc. 575 SCRA 286

o Possession

§ General Banking Law Section 47
§ Samson v. Rivera 428 SCRA 759

o Injunction and Bond

§ General Banking Law Section 47

K.

Other Operations

• Other Operations

a. Major Investments – General Banking Law, Section 50

b. Ceiling on Investments in Certain Assets – General Banking Law,
Section 51

c. Other Banking Services – General Banking Law, Section 53

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 d. Prohibited Transactions – General Banking Law, Sections 54 and
55

e. Conducting Business in an Unsafe or Unsound Manner – General
Banking Law, Section 56; Republic Act No. 3591 (PDIC Charter), as
amended,1 Section 8

• Conservatorship/Cessation of Banking Business

1. Bangko Sentral Assistance

a. Loans without Collateral – New Central Bank Act, Section 83

b. Emergency Loans – New Central Bank Act, Section 84

2. Conservatorship

a. General Banking Law, Section 67
b. New Central Bank Act, Sections 29 and 30 (last two paragraphs)
c. First Philippine International Bank v. Court of Appeals 252 SCRA 259

3. Voluntary Liquidation

a. General Banking Law Section 68
b. Financial Rehabilitation and Insolvency Act, Section 5 and 138

4. Corrective Measures/Resolution

a. PDIC Charter, Sections 11 and 12

5. Receivership/Involuntary Liquidation

a. General Banking Law, Section 69
b. New Central Bank Act, Section 30
c. Financial Rehabilitation and Insolvency Act, Section 5 and 138

a. Governing Law – In Re: Petition for Assistance in the Liquidation
of the Rural Bank of Bokod (Benguet), Inc.

b. Jurisdiction – Koruga v. Arcenas, Jr. 590 SCRA 49

1 The latest amendment being RA No. 10846

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 c. Grounds – New Central Bank Act Sections 30 and 36; General
Banking Law Section 53; Banco Filipino Savings and Mortgage
Bank v. Monetary Board 204 SCRA 767

d. Receiver – New Central Bank Act Section 30

e. Duties of the Receiver – PDIC Charter, Section 12 and 13; Larrobis,
Jr. v. Philippine Veterans Bank (440 SCRA 34)

f. “Close Now Hear Later Doctrine” – Central Bank of the Philippines
v. Court of Appeals 220 SCRA 536; Bangko Sentral ng Pilipinas
Monetary Board v. Antonio Valenzuela 602 SCRA 698

g. Liquidation

a. Actions to take – New Central Bank Act Section 30-32;
PDIC Charter, Sections 14-16
b. All claims filed in liquidation court – Ong v. Court of Apeals
(253 SCRA 105); Manalo v. Court of Appeals (366 SCRA
752); Cudiamat v. Batangas Savings and Loan Bank, Inc.
(614 SCRA 735)
c. Disposition of banking franchise – New Central Bank Act
Section 33

h. Effects of Receivership and Liquidation

a. Restriction on Capacity to Act

b. Penalties for transaction after Bank becomes Insolvent –
General Banking Law Section 70

c. Effect on garnishment, levy on attachment or execution –
New Central Bank Act Section 30

d. Stoppage of Business

e. Interest on Deposits

i. Judicial Review

a. Availability of Remedy – New Central Bank Act Section 30

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 b. Ground: Grave Abuse of Discretion – Central Bank v. Court
of Appeals 106 SCRA 143; Banco Filipino Savings and
Mortgage Bank v. Monetary Board 204 SCRA 767

c. Who may question – Central Bank of the Philippines v.
Court of Appeals 220 SCRA 537; Central Bank of the
Philippines v. Court of Appeals 208 SCRA 652

d. Finality; Injunction – Central Bank of the Philippines v. Dela
Cruz 191 SCRA 346

e. Liability of Monetary Board and PDIC – Miranda v.
Philippine Deposit Insurance Corporation 501 SCRA 288.

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