Commercial Law Review (Abella)

FOREIGN INVESTMENTS ACT 2. Domestic partnership of Filipinos

3. Corporations at least 60% owned by Filipinos
Purpose of the law 4. Foreign corporations 100% owned by Filipinos
5. Pension fund managed by Filipinos and 60% of its
To attract foreign investments to develop industries and members are Filipinos
generate employment
SECRECY OF BANK DEPOSITS (RA 1405)
Salient features of the law
Purpose of the law
1. A foreigner may own 100% of any enterprise engaged in
the manufacture of products or buying locally made To encourage people to deposit their money in the banks to
products, provided it will export at least 60% of its promote national economy
production or purchase products
Importance of depositing money in banks
2. A foreigner may engage in any activity not listed under
the Negative List A and Negative list B (exclusive to - Money kept on vaults are unproductive both to the
Filipino nationals) individual and to the economy
- Savings and Mortgage banks have higher rates of interest
- Negative List A consist of activities which the in time deposit
Constitution or Special Laws reserve only to Filipinos, - Banks can only lend a portion of your deposit
such as advertising, public service, retail trade)
NB: Under the present law, in case of rural banks, Benefits to the economy of depositing money in banks
foreigners may now own up to 60%
- Withholding tax
- Negative List B reserves to Filipino nationals the - Gross receipts tax
following: - Value Added tax
- engagement in the manufacture and trade of
armaments, ammunitions, ordnances, Reserve requirements
explosives, and pyro techniques, unless it is with
consent of Secretary of National Defense, in Reserve requirements is the deposit percentage of liabilities of
which case, foreigners may be allowed banks reserved for government depending on the liabilities
- night clubs, massage parlors, beer houses, steam
and sauna baths, and other activities which may - Checking deposit – high (25%)
increase risk to public health and safety - Savings deposit – medium
NB: Restaurants are not included in the list - Time deposit – low (20%)

3. For inward remittances, Foreign investors should bring Purpose of reserve requirements
into the PH at least 200,000USD
1. To service withdrawals
XPN: 2. To manage money supply (the higher amount of money in
- At least 100,000USD required when foreign investor circulation, the higher the prices will go)
will bring in advanced technology as determined by 3. To serve as source of funds for the BSP’s rediscounting
the DOST and will directly hire at least 50 Filipino facility or window
employees
Deposit Liabilities
4. Former natural born Filipinos may acquire land in the PH
Deposit liabilities are accounts deposited as savings to the bank
Limitations:
- He may only choose to acquire rural land or urban Bank Secrecy Law
land; he cannot buy from both rural and urban
- If he chooses urban land, he can only acquire lands GR: It is illegal for any bank officer or employee to disclose any
up to a total of 5,000sqm, but he cannot buy two information relating to any deposit (checking, savings, and time)
lands in one city including investments in government securities
- If he chooses rural land, he can only acquire lands up
to a total of 3Ha XPNS:
- In case both spouses are formerly natural born 1. Written authority from the depositor himself
Filipinos, their total lands must not exceed the 2. In case of impeachment
above-stated land areas, and the lands acquired must - XPN to XPN: if the account is part of the Foreign
be in different locations Currency Deposit Unit, it cannot be inspected
because FCDU provides absolute confidentiality
Who are Filipino Nationals? 3. Upon order of the court, in cases involving
- Bribery
1. Filipino citizens - Dereliction of duties of public officers
 Commercial Law Review (Abella)

- Violation if the Anti-Graft and Corrupt Practices Act,

in which case inquiry may extend to the account of If the Governor cannot attend, he should send a Deputy
spouse, relatives, close friends, and associates Governor. If the Secretary cannot attend, he should send an
4. Where the deposit is the subject matter of litigation Undersecretary.
- The deposit must be the subject matter of the
litigation (i.e., settlement of estate) Term of Service of the members of the MB
5. Upon order of the Anti-Money Laundering Council
- The AMLC can apply freeze order with the CA upon a The regular term of the members of the MB is 6 years, subject
unanimous vote to reappointment (only once; max term is 12 years)
- The freeze order shall be good for 6 months, unless a
complaint is filed in court, in which case the freeze Regular term means he is not appointed to simply fill in the
order will last until the judgment of the case vacancy due to death, sickness, etc., in which case the appointee
NB: shall serve only the unexpired term of his predecessor
- The AMLC is a body created by the AMLA
- The AMLC is composed of the BSP Governor, SEC Prohibition to Join Private Banks
Commissioner, and the Insurance Commissioner
- Latest amendment in the AMLA included Within a period of two (2) years from separation from the MB,
“individuals” in the “covered persons” neither the governor nor the full time directors may serve in any
- dealers of precious metals and precious stones if capacity in corporations under the supervision of MB such as banks,
the value of the transaction is more than 1MP quasi-banks and investment houses, unless he will be representing
pesos the interest of the Philippine Government
- other individuals covered if the value of the
transaction is at least 500,000P Functions of the BSP
- Lawyers and accountants are not obliged to make
disclosure under the AMLA 1. Licensing and supervision over the entire banking system
- The supervision of BSP is more of “control” rather
NEW CENTRAL BANK ACT than merely supervision because the law authorizes
BSP to issue rules and regulations relating to the
Purpose of the law banking system
NB:
Any country needs a central monetary bank. Upon the - Not all lending companies are banks (i.e., financing
bankruptcy and dissolution of the Central Bank, a New Central Bank companies engaged in lending, lending investors,
Act was passed creating the Bangko Sentral, which has a corporate which are governed by the SEC)
existence different from the CB and is governed and controlled by - For financing companies, the minimum paid up
the MB capital requirement is 10MP; for lending investors,
the minimum paid up capital requirement is 1MP
Composition/members of the MB 2. Issuance of currency
3. Purchase and/or sale of precious metals (from large
1. BSP Governor (1) companies)
- The BSP Governor must be a natural born Filipino and 4. Represents the country in international financial dealings
at least 40 years old
2. Cabinet Member (1) Additional functions of the BSP
- Cabinet Member shall be appointed by the President
3. BSP Directors (5) 1. Management of money supply
- The BSP Director must be a natural born Filipino and - These includes all money in circulation (including
at least 35 years old other currencies) to control the prices (more money,
- The BSP Directors must serve full-time high price)
- The BSP Director must be from the private sector, - The BSP manages money supply through the reserve
which includes both privately owned corporations requirements
and GOCCs such as DBP, SSS, GSIS) 2. Close monitoring of prices
- The BSP Directors must be from private sectors so - Through the MB
that the BSP will not be a dumping ground for 3. May examine the books of the banks
political influx 4. May order immediate suspension or closure of a bank with
numerous complaints about wrongful or unsound bank
Conducting the business practice under the “Close Now Investigate Later” rule
- The Close Now Investigate Later rule is not a violation
The MB is obliges to meet every other week because it has to of the due process clause under the Constitution
closely monitor the prices and take action in case of inflation or because banking business is imbued with public
deflation. interest and therefore closing of banks due to
unsound bank practices is a valid exercise of police
There is a quorum if there are at least four members in power
attendance. To pass a resolution, at least four members must
concur.
 Commercial Law Review (Abella)

Receiver, Liquidator, Conservator Requirements for replacement of PH Coins

A receiver is one authorized to recover receivables or other In order for PH Coins to be replaced, there must be no sign of
properties to be turned over to the liquidator filing, clipping, or perforation because the total cost of minting the
coin is more than the value of the coin.
A liquidator distributes whatever assets he may have received
upon order of an authority (follow rules on order of preference) In case of possession of damaged coins, the possessor is
presumed to have caused the damage.
A conservator comes in if a corporation is not yet insolvent but
it has iquidity problems. It handles the properties of a corporation Legal Tender
and regulates its shares in order to avoid shareholders from
withdrawing their shares and to avoid dissipation of assets. - Legal tender is currency in such quantity prescribed by law
or regulation to be acceptable as payment for all
Money vs Currency obligations
- PH notes are acceptable as legal tender for all obligations
Money is anything used as a medium of exchange (thus, - PH coins are acceptable as legal tender only up to a certain
anything can be money). Money is not defined under the law. amount
- Centavo coins are accepted up to 100P
Currency means “in circulation”. Currency as defined under the - Peso Coins are accepted up to 1000P
law is the notes and coins issued by the BSP and are in circulation.
MORTGAGES
Philippine Money
- Philippine money is called PESO Laws that govern mortgages
- The symbol of Peso under the Central bank is capital letter
P overlapped by two horizontal lines one above the other 1. Civil Code of the Philippines
- Under the BSP, the symbol of Peso is capital letter P or PhP 2. Chattel Mortgage Law
- The unit of peso is called a centavo, with the symbol small 3. Ship Mortgage Decree
letter c 4. Act No. 3135 as amended (REM)
- Philippine money are printed by the BSP in the PH (before
it was imported from England – Thomas La Rue); also, Mortgage
coins are minted in the PH
- The paper used in Philippine money is more of a cloth than A mortgage is a contract whereby real or personal property is
a paper, the raw material is imported recorded to secure the fulfillment of any valid obligation

Philippine Currency If the mortgage is constituted over a personal property, it is

- Not all Philippine money are PH currency called a chattel mortgage (CM). If the property is constituted over a
- Requirements for classification as PH currency real property, it is called real estate mortgage (REM)
1. It must be issued by the BSP; and
2. It must be in circulation Basic Principles

Philippine Notes 1. A mortgage is an accessory contract, thus it may exist only

- A PH Note has two (2) sets of serial numbers if there is a principal contract. Ergo, if the principal
- lower left obligation is extinguished, the mortgage is also
- upper right extinguished
- A PH Note has two (2) signatures 2. The mortgagor (debtor) must be the owner of the
- BSP Governor property being mortgaged
- Philippine President 3. Mortgagor must have the capacity to mortgage / capacity
- Purpose of the serial numbers and the signatures to enter into a mortgage contract
- Notes may be damaged, but they are replaceable
subject to certain requirements under the law Difference between CM and REM

Requirements for replacement of damaged PH Notes CM REM

Object of Personal property Real property
1. At least 3/5 of the Note is still intact mortgage
2. There must still be at least one (1) complete set of serial what may Only existing obligations Existing and future
numbers
be secured obligations
3. There must still be at least one signature
Manner of Only extra-judicial Judicial and extra-judicial
4. There must be no sign of intentional damage or
Foreclosure foreclosure foreclosure
defacement (it is a crime)
Right of No right of redemption Right of redemption in
redemption judicial foreclosure
Registration RD of mortgagor’s RD where the real
residence, location of property is located
property
 Commercial Law Review (Abella)

CHATTEL MORTGAGE LAW (Act No. 1508) - If the creditor is the highest bidder, he need not remit
anything to the sheriff
Pactum Commisorium - If the highest bidder is a third party, the latter
delivers the amount of the bid to the sheriff or NP
The CM is governed by the CM Law. However the NCC in effect
repealed the definition of a chattel mortgage under the CM law. 4. Payment
- If the payment is equivalent to the value of the
Under the NCC, a pactum commisorium is a contract whereby judgment debt, no need to recover
personal property is recorded to secure the fulfillment of any valid - If the payment is in excess, the excess shall be
obligation. returned to the mortgagor
- If the payment is deficient, creditor may recover if the
Where is it recorded? mortgage is covered by the Recto Law
- The Recto law applies only when the mortgage is
- The property under pactum commisorium shall be over the property that the debtor is buying in
recorded at the RD of the city or province where the installment
mortgagor resides. - The Recto law also applies to lease purchase
- If the property mortgaged is in another city or province, agreement
the same shall also be registered in the RD where the
property may be found. 5. Certificate of Sale
- If the property mortgaged are shares of stock, it shall be - Awarded by the sheriff or NP to the highest bidder
registered with the RD where the mortgagor resides (not - This is equivalent to a Deed of Sale
with SEC, there is no such thing as registration with SEC)
- There are no RDs in municipalities because properties can REAL ESTATE MORTGAGE (Act No. 3135, as amended)
be easily moved from place to place.
- The requirement of recording the property in the RD is not
for the validity of the mortgage but for constructive notice Governing Law
to the world
The REM is governed by Act 3135. It is a special law creating the
Requirement of registration right of the mortgagee to foreclose the REM extra-judicially
Also refer to RRC and 1997 Rules of Civil Procedure
Affidavit of good faith
- It is a sworn declaration of both the mortgagor and Express authorization as requirement (Rule 39, RRC)
mortgagee that they executed the mortgage in good faith
to secure a valid obligation and not for the purpose of To enable a mortgagee to foreclose a REM, the mortgagor must
fraud expressly authorize the mortgagee to sell the mortgaged property
- If the requirement of affidavit of good faith is not in case of default, either in the deed of mortgage or in a separate
complied, the mortgage is still valid as between the instrument
parties, but not as to third persons because the mortgage
cannot be registered without the affidavit of good faith Banks use printed deeds of REM with the following provision:
“In case of default, the Bank can extra-judicially foreclose pursuant
Remedies of the creditor in case of default of the principal debtor to Act No. 3135.” However, according to a SC Circular, mere
reference to Act No. 3135 is not enough. In case of default, the bank
1. Foreclosure of CM; OR must be expressly authorized to sell the property in order to effect
2. File ann action for specific performance EJ foreclosure, otherwise, it can only be foreclosed judicially.

NB: The remedies are in the alternative Extra-judicial foreclosure of REM

Foreclosure of CM 1. The mortgagee must execute a verified petition

- Prepare a verified petition to foreclose the REM. The
1. Creditor demands from the mortgagor the delivery of the sheriff or a notary public may handle this. The
thing mortgaged. mortgagee himself may do it, but it is often the sheriff
- File an action for Replevin if there is refusal or notary public.
- Be sure that property is correctly described,
2. The sheriff or the NP shall prepare a notice of auction sale otherwise it will invalidate the entire proceeding
- Post a notice in at least two public places
NB: no law requiring the sheriff or NP to make sure 2. Filing of the petition
that the notice stays where it was posted - File with the Office of Clerk of Court of the RTC
- Send a copy of notice to the mortgagor (at least 10 where the property is located
days) before the auction sale - Clerk of Court is ex-officio sheriff, will assign it to one
of its deputies
3. Sale to the highest bidder
3. Pay required court fees (forms part of the JDF)
 Commercial Law Review (Abella)

4. Sheriff prepares the notice of auction sale and the latter is the highest bidder is 3 months (90 days) or before
- Posting in at least 3 public places in city or the bank could register its title to the property, whichever comes
municipality where the property is located first. If the bank is not the highest bidder, right of redemption is still
NB: ask sheriff to issue certificate of posting as proof one year.
of posting
- Publication in a newspaper of general circulation Who are entitled to the right of redemption?
once a week for two consecutive weeks
NB: 1. Mortgagor
- Ask publisher certificate of publication and copy - Property right; right is transferrable
of all the issues of the newspaper as proof of - Right of redemption may not be waived; any waiver is
publication void for being contrary to public policy
- If there is an error in publication, immediately 2. Mortgagor’s successor in interest
ask the publisher to correct the error 3. Judgment creditor of the mortgagor

5. Postponement How is right of redemption exercised?

- Valid if there is written agreement signed by the
mortgagor and the mortgagee Right of redemption may be exercised upon valid tender of the
- If there is postponement, mortgagee cannot redemption price in full and within the redemption period
proceed with the auction sale on the agreed
date unless notice and publication requirements - Redemption price depends on the governing laws
have been complied with again - GOCCs and GFIs – depends on its charter
- Mortgagee is bank and it is the highest bidder – price
6. Sale to the highest bidder stated in the contract of loan or deed of mortgage
- Mortgagee is highest bidder - Mortgagee is any other person – formula:
- No need to pay the sheriff and payment shall be
credited to his total claims Redemption price = (bid price) + (1% per month
- Third party is highest bidder interest on bid price) + (taxes and charges paid
- Must remit to sheriff and then sheriff must remit by the highest bidder) + (1% per month interest
to mortgagee on the taxes and charges paid by the highest
bidder)
7. Payment
- If the payment is equivalent to the value of the NB:
judgment debt, no need to recover - according to SC Ruling, 1% per month is the
- If the payment is in excess, the excess shall be same as 12% per year – which is wrong
returned to the mortgagor according to Abella
- If the payment is deficient, deficiency is recoverable - Keep track of redemption period because after
in expired, payment of taxes begin
8. Certificate of Sale
- Highest bidder shall afterwards receive certificate of Remedy if debtor cannot exercise right of redemption because
sale from the sheriff highest bidder does not accept payment
- Needs to be signed by the Executive Judge
NB: register with RD ASAP for right of redemption to The debtor or the person who has a right to redeem may file a
run complaint for specific performance

9. Payment of Recovery Fee Lapse of redemption period

- Mortgagee shall pay the Court a Recovery fee (forms
part of the JDF) If the period of redemption has already lapsed, go to the BIR
and ask for issuance of Certificate Authorizing Registration (CAR)
10. Redemption after payment of taxes
- Redemption is a right and not a duty; it is a property
right arising from real property and real rights 11. Acquisition of title
- The highest bidder acquires title to the property after
Right of Redemption the lapse of the redemption period

The right of the mortgagor to redeem the property subject of - It may be done in two ways:
foreclosure within one year from date of registration of the 1. Ask sheriff to issue final certificate of sale
certificate of sale with the RD 2. Execute an affidavit of non-redemption, which
is less expensive than the first
The one-year redemption period is 365 days. This is not the
same with 12 months, which is only 360 days - Pay to the BIR the following:
1. DST – within five days from expiration of RP
Under the General Banking Law, the period of redemption 2. CGT / Withholding Taxes – within 30 days from
when the mortgagor is juridical person and mortgagee is the bank expiration RP
 Commercial Law Review (Abella)

3. VAT GENERAL BANKING ACT OF 2000

4. Transfer Taxes of LGUs
Definition
- Pay the amount of taxes to the LGU
- Update all realty taxes A bank is a corporation authorized by the MB to accept
- Obtain a Clearance from the local treasurer deposits from the public and to grant loans.
- Go to the RD for the issuance of a TCT
Kinds of Banks
NB: What is the tax base?
By reason of a BIR Circular dated July 2012, the tax 1. Universal Banks
base is now the Bid Price or Market Value in the Tax 2. Commercial Banks
Declaration or BIR Valuation, whichever is highest 3. Thrift Banks
a. Savings and Mortgage Bank
12. Possession of Property - retail banks catering small deposits; accepts
- Ex parte petition for the Issuance of a Writ of deposits of small depositors for homebuilding
Possession (in the nature of a motion) purposes (Amount is smaller than those of the
universal banks, i.e., P500 in BPI Family Bank)
GR: Ministerial duty of the court BUT if filed before the b. Private Development Bank
end of the redemption period, a bond is required. - accepts deposits and grants loans; once the bank
XPN: Not ministerial if there is another person with a runs out of capital, it can invite the DBP to invest
better right. (i.e., lessee) in it and DBP would require membership in its
BOD; “Development” is in its corporate name
- New buyer in good faith doctrine: Looking at c. Stock Savings and Loan Associations
certificate of title is no longer enough; you must look - it can also be non-stock, where it cannot accept
at the right of the person in actual possession of the deposits from the public but only from the
property. Failure to do so does not qualify one as a restricted groups of persons.
buyer in good faith. 4. Cooperative Bank
5. Rural Bank
Example: 6. Islamic Bank
Person borrowed from bank. Parents executed a Real
Estate Mortgage. Borrower issued post-dated checks. The Universal Banks
checks were dishonored. The bank sued the borrower for
BP22. Commercial banks licensed to engage in the business of an
Remedies for bank are as follows: (1) Civil Collection; investment house
(2) BP22; (3) Foreclosure
Filing of BP22 is an abandonment of the mortgage. If Functions and Powers
buyer of mortgaged land already owns the land and the
prior owner does not want to leave, file an ex parte 1. To accept deposits subject to withdrawal by check
Petition for Issuance of Writ of Possession. 2. To open letters of credit
3. To engage in business of investment house
NB: 4. To engage in allied or non-allied enterprises
- Attach all certified true copies of documents in the NB: Non-allied enterprises have nothing to do with
petition, title, deed of mortgage, final certificate of sale, banking
BIR clearance (tax clearance, certificate authorizing 5. To sell life or non-life insurance policies
registration - cross-selling with insurance companies where bank
- When Register of Deeds issues Certificate of Title, he owns 5% of outstanding shares
issues at least 2, the original and the owner’s copy. There
are at least 2 because co-owners may each want a copy of Investment House
the certificate of title. In which case, the co-owners
duplicate should be prepared with the original. If you are It is a quasi-bank with two major functions:
buying from co-owners, you must get all other copies so
that they may be annotated. 1. Rediscounting of receivables – one entity goes to an
- Remedy or the issuance of the writ of possession is the Investment House and as collateral pledges its receivables.
same in extrajudicial foreclosure, judicial foreclosure and (Ex. Business sells on credit and needs capital again, so it
execution sale. There is no remedy if a third party has a borrows from an Investment House)
better right.
- PDCs may be legally used as chattel mortgaged property. 2. Underwriting for securities where a corporation offers to
the market securities for sale with certain commitments
(ex. In corporation that needs more capital that can’t be
raised from stockholders – securities only if 20 or more
persons) Get SEC approval first, then have them sold by
securities underwriters (Example: House of Investment,
Inc. and State Investment House, Inc.)
 Commercial Law Review (Abella)

Cooperative Bank
Ownership of Other Banks
It is one set up and owned by cooperatives. There are no
- UB can own 100% of just one other UB or KB. There is no individual stockholders, all are cooperatives. Under cooperative
limit on the number of smaller banks it can own. office, but bank under the BSP.
- if Universal Bank invests allied or non-allied, the limit is
equivalent to 50% of net worth but only up to 25% in a Rural Bank
single enterprise
It is organized to provide banking services in rural communities,
Commercial Banks to farmers/tenants or simply stated, in rural areas. It is recognizable
by “Rural” in its corporate name.
It is not defined in law. The law only identifies its powers and
functions: Islamic Banks

1. To accept deposits in checking or current accounts subject Note: There is only one, owned by the government of the DBP
to withdrawal as a controlling SH.
- However, the BSP may license other banks to accept There are no interests earned on deposits because it is
similar deposits; Rural banks/Thrift banks do not considered immoral, but there may be profit sharing.
accept checking accounts except when expressly
authorized by MB Regulation of banks
2. To open letters of credit
- MB licensed savings bank to do the same, e.g Ph - Under the law, only corporations under supervision of the
Business Bank MB may use “Bank” or “Banking” in corporate name.
3. To engage in allied enterprises - Banks are prohibited from directly engaging in the
4. To exercise the powers of a corporation business of insurance as an insurer BUT UB can sell
5. As a matter of right, only commercial banks should accept insurance policies of insurance companies which it may
deposits in checking own.
6. accounts/current accounts/commercial accounts/demand - All banks should be organized as a stock corporation and
deposit comply with the requirements of the MB for licensing.
- May issue letters of credit - For banks to open branches and ATMs, it must first obtain
- Lend money a permit from the MB
- Trading of government securities - Single borrowers limit is the maximum amount a person
- Foreign transactions can borrow from the bank
- Safety deposit box
Employment and business
Ownership of Other Banks
- Banks should have employees on permanent basis to
KB can own 100% of just one other KB. There is no limit on the strengthen the secrecy law
number of smaller banks it can own to encourage merger or - Directors and officers must pass the fit and proper rule,
consolidation. wherein MB passed a circular for the requirements, one of
which is college degree
Commercial bank limit is 35% of equity, but still with a
maximum of 25% per industry. Requirements for organizing a bank

Thrift Bank 1. Before a corporation can be organized as bank, it must go

through MB for checklist
1. Savings and mortgage - To lend money to those that want 2. After requirements submitted to the MB and completed,
to construct houses. For small depositors (small amounts endorsement by MB to SEC, which then has a ministerial
of money). Banks prefer big depositors as maintenance duty to register it
costs are the same 3. There is paid-up capital required by the MB. There is a
period increase in paid-up capital in order for banks to be
2. Private development bank – organized for development of more stable.
community. If it needs additional capital, it may invite DBP 4. BSP will give incorporation papers to be filled up by the
to invest with it. To recognize it, check corporate name, it bank
always has development in its name. 5. Submit to BSP for review
3. Stock savings and loan associations – There’s also a non- 6. BSP prepares formal endorsement to be submitted to SEC
stock but not bank. If non-stock no ACS. If stock, may together with incorporation papers
accept deposits from general public, if non-stock only from
limited clientele (ex. AFPLSAI - restricted only to AFP, PNP
and family members; MESALA, Meralco employees
including the Lopez group) Many corporations have
savings and loan associations and a credit union.