BANKING LAWS
2
EGSC 2023 | JD 3A 2023-2024
USA COLLEGE OF LAW
CONCEPT OF BANKS
Concept of a bank
Generic sense: An officially chartered institution empowered to receive deposits, make loans, and
provide check and savings account services, all at a profit.
Under the General Banking Law 1 of 2000: Banks are entities engaged in the lending of funds
obtained in the form of deposits.
Elements of a bank
[DIVINA]
1. It is engaged in the lending of funds;
2. The funds are obtained from the public, which means, 20 or more lenders; and
3. The funds are obtained from the public in the form of deposits.
Declared Policy of the State as to banks
Section 2 of the GBL:
The State recognizes the vital role of banks in providing an environment conducive to the sustained
development of the national economy and the fiduciary nature of banking that requires high standards
of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable
and efficient banking and financial system that is globally competitive, dynamic and responsive to the
demands of a developing economy.
Note: The business of banking is imbued with public interest. The stability of banks largely depends on
the confidence of the people in the honesty and efficiency of banks.
Classification of banks
Section 3 of the GBL: [CUT-RICO]
1. Universal banks;
2. Commercial banks;
3. Thrift banks, composed of:
i.
Savings and mortgage banks
ii.
Stock savings and loan associations, and
iii.
Private development banks, as defined in Republic Act No. 7906 (hereafter the "Thrift
Banks Act");
4. Rural banks, as defined in Republic Act No. 7353 (hereafter the "Rural Banks Act");
5. Cooperative banks, as defined in Republic Act No. 6938 (hereafter the "Cooperative Code");
6. Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al
Amanah Islamic Investment Bank of the Philippines"; and
7. Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng
Pilipinas. (6- Aa)
Bank v. Quasi-bank
BANK
Banks are entities engaged in the lending of
funds obtained in the form of deposits.
QUASI-BANK
Entities engaged in the borrowing of funds
through the issuance, endorsement or
assignment with recourse or acceptance of
deposit substitutes as defined in Section 95 of the
New Central Bank Act for purposes of relending
or purchasing of receivables and other
obligations.
Section 95 states:
Section 95. Definition of Deposit Substitutes. - The term "deposit
substitutes" is defined as an alternative form of obtaining funds
from the public, other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the
1
Hereinafter referred to as “GBL”.
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borrower's own account, for the purpose of relending or
purchasing of receivables and other obligations. These
instruments may include, but need not be limited to, bankers
acceptances, promissory notes, participations, certificates of
assignment and similar instruments with recourse, and
repurchase agreements. The Monetary Board shall determine
what specific instruments shall be considered as deposit
substitutes for the purposes of Section 94 of this Act: Provided,
however, That deposit substitutes of commercial, industrial and
other non-financial companies for the limited purpose of financing
their own needs or the needs of their agents or dealers shall not
be covered by the provisions of Section 94 of this Act.
[AQUINO]
Quasi-Banks which are entities that do not accept
deposits. Quasi-Banking refers to borrowing of
funds through the issuance endorsement or
assignment with recourse or acceptance of
deposit substitutes for purposes of relending or
purchasing of receivables and other obligations."
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NATURE OF BANKING BUSINESS
Debtor-creditor relationship
The relation existing between a depositor and a bank is that of creditor and debtor and not that of a
depositor and a depositary under the Civil Code.
Relevant Civil Code Provisions
ARTICLE 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
(1753a)
ARTICLE 1962. A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the
thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.
(1758a)
ARTICLE 1978. When the depositary has permission to use the thing deposited, the contract loses
the concept of a deposit and becomes a loan or commodatum, except where safekeeping is still the
principal purpose of the contract.
The permission shall not be presumed, and its existence must be proved. (1768a)
ARTICLE 1979. The depositary is liable for the loss of the thing through a fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor’s permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have been authorized to use the same.
(n)
ARTICLE 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning loan. (n)
ARTICLE 1981. When the thing deposited is delivered closed and sealed, the depositary must return
it in the same condition, and he shall be liable for damages should the seal or lock be broken through
his fault.
Fault on the part of the depositary is presumed, unless there is proof to the contrary.
As regards the value of the thing deposited, the statement of the depositor shall be accepted, when
the forcible opening is imputable to the depositary, should there be no proof to the contrary. However,
the courts may pass upon the credibility of the depositor with respect to the value claimed by him.
When the seal or lock is broken, with or without the depositary’s fault, he shall keep the secret of the
deposit. (1769a)
Debtor-creditor relationship
Consolidated Bank and Trust Corp. v. Court of Appeals, G.R. No. 138569, [September 11,
2003], 457 PHIL 688-713
The contract between the bank and its depositor is governed by the provisions of the Civil Code on
simple loan. Article 1980 of the Civil Code expressly provides that ". . . savings . . . deposits of money
in banks and similar institutions shall be governed by the provisions concerning simple loan." There
is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the
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depositor on demand. The savings deposit agreement between the bank and the depositor is the
contract that determines the rights and obligations of the parties.
Bank deposits are in the nature of irregular deposits
Serrano v. Central Bank of the Philippines, G.R. No. L-30511, [February 14, 1980], 185 PHIL
54-62
Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest.
All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be
covered by the law on loans. Current and savings deposits are loans to a bank because it can use
the same. The petitioner here in making time deposits that earn interests with respondent Overseas
Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent
Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is
failure to pay its obligation as a debtor and not a breach of trust arising from a depositary's failure to
return the subject matter of the deposit.
Synthesis:
To relate both cases, Serrano speaks of the nature of bank deposits while Consolidated Bank speaks
of the fiduciary relationship of banks. Putting them together would mean that banks should comply
with its contractual obligation. Meaning, it must honor its contractual obligations to avoid liabilities
from the depositor.
Fiduciary Duty
A fiduciary is a person or organization that acts on behalf of another person or persons, putting their
client’s interests ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus
requires being bound both legally and ethically to act in the other’s best interests.
Section 2 of the GBL expressly imposes fiduciary duty on banks when it declares that the State
recognizes the “fiduciary nature of banking that requires high standards of integrity and
performance.”
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a
good father of a family. Thus, the bank’s fiduciary duty imposes upon it a higher level of accountability
than that expected of depositor.
Banks are required to “treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship.”
Simex International, Inc. v. Court of Appeals, G.R. No. 88013, [March 19, 1990], 262 PHIL 387397
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. The banking system is an indispensable institution in the
modern world and plays a vital role in the economic life of every civilized nation. Whether as mere
passive entities for the safekeeping and saving of money or as active instruments of business and
commerce, banks have become an ubiquitous presence among the people, who have come to regard
them with respect and even gratitude, and most of all, confidence.
Serrano v. Central Bank of the Philippines, G.R. No. L-30511, [February 14, 1980], 185 PHIL
54-62
The fiduciary nature of a bank-depositor relationship does not convert the contract between the bank
and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by
the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust.
Not a trust agreement
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The fiduciary nature of a bank-depositor relationship does not convert the contract between the bank
and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the
bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. The law simply
imposes on the bank a higher standard of integrity and performance in complying with its obligations
under the contract of simple loan, beyond those required of non-bank debtors under a similar contract
of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks
do not accept deposits to enrich depositors but to earn money for themselves. The law allows banks to
offer the lowest possible interest rate to depositors while charging the highest possible interest rate on
their own borrowers. The interest spread or differential belongs to the bank and not to the depositors
who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread
or income belongs to the depositors, a situation that Congress certainly did not intend in enacting
Section 2 of R.A. 8791.
Degree of Diligence required in the business of banking
The law imposes on banks high standards in view of the fiduciary nature of banking.
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.
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a
good father of a family. Section 2 of the GBL prescribes the statutory diligence required from banks —
that banks must observe “high standards of integrity and performance” in servicing their
depositors.
Banks are required to “treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship.”
Simex International, Inc. v. Court of Appeals, G.R. No. 88013, [March 19, 1990], 262 PHIL 387397
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. The banking system is an indispensable institution in the
modern world and plays a vital role in the economic life of every civilized nation. Whether as mere
passive entities for the safekeeping and saving of money or as active instruments of business and
commerce, banks have become an ubiquitous presence among the people, who have come to regard
them with respect and even gratitude, and most of all, confidence.
The degree of diligence required of banks, is more than that of a good father of a family where the
fiduciary nature of their relationship with their depositors is concerned. In other words banks are duty
bound to treat the deposit accounts of their depositors with the highest degree of care. But the said
ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the
deposits of their depositors.
A bank is not expected to be infallible. However, it must bear the blame for not discovering mistakes if
there are established procedures and the same have not been followed.
Expectation from the banks
Philippine Bank of Commerce v. Court of Appeals, G.R. No. 97626, [March 14, 1997], 336 PHIL
667-687
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if
the account is to reflect at any given time the amount of money the depositor can dispose as he sees
fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the
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bank, such as the failure to duly credit him his deposits as soon as they are made, can cause the
depositor not a little embarrassment if not financial loss and perhaps even civil and criminal litigation.
The same higher degree of diligence is not expected to be exerted by banks in commercial transactions
that do not involve their fiduciary relationship with their depositors. A bank is not required to exert more
than the diligence of a good father of a family in regard to the sale and issuance of foreign exchange
demand draft. It does not involve the handling of deposit, if any, with the bank. Instead, the relationship
involved was that of a buyer and seller, that is, between the bank as the seller of the foreign exchange
demand draft, and the buyer of the same.
A government financial institution, like banks, is expected to exercise greater care and prudence in the
dealings, including those involving registered lands.
Diligence extends to financial institutions:
- A government financial institution, like banks, is expected to exercise greater care and
prudence in the dealings, including those involving registered lands.
- Due diligence required of banks extend even to persons, or institutions, regularly engaged in
the business of lending money secured by real estate mortgages.
Dealing with Registered Lands
Banks should exercise more care and prudence in dealing even with registered lands, than private
individuals, for their business is one affected with public interest.
The rule that persons dealing with registered lands can rely solely on the certificate of title does not
apply to banks. Unlike private individuals, it is expected to exercise greater care and prudence in its
dealings, including those involving registered lands. A banking institution is expected to exercise due
diligence before entering into a mortgage contract. The ascertainment of the status or condition of a
property offered to it as security for a loan must be a standard and indispensable part of its operations.
Judicial notice is taken of the standard practice for banks, before approving a loan, to send
representatives to the premises of the land offered as collateral and to investigate who the real owners
thereof are. A mortgagee-bank must exercise due diligence before entering into said contracts.
Banks, in the exercise of their duty, are not precluded to address new issues
Spouses Omengan v. Philippine National Bank, G.R. No. 161319, [January 23, 2007], 541 PHIL
293-300
Any investigation previously conducted on the property offered as collateral does not preclude a bank
from considering new information on the same property as security for a subsequent
BANKING LAWS
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LIABILITY FOR ACTS OF OFFICERS AND
EMPLOYEES
Liability as obligor
A bank’s liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due
diligence in the selection and supervision of its employees is of no moment.
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. Banks are expected
to exercise the highest degree of diligence in the selection and supervision of their employees.
Expectation from a bank in relation to its liability
The bank must not only exercise “high standards of integrity and performance,” it must also insure that
its employees do likewise because this is the only way to insure that the bank will comply with its
fiduciary duty.
A bank is liable for the wrongful acts of its officers done in the interest of the bank or in their dealings
as bank representatives but not for acts outside the scope of their authority.
Negligence of Manager
The bank, as employer, is liable for the negligence or the misdeed of its branch manager. Confidence
in the banking system, which necessarily includes reliance on bank managers, is vital in the economic
life of our society.
Negligence of Officers
A banking corporation is liable for the wrongful or tortious acts and declarations of its officers or agents
within the course and scope of their employment. A bank will be held liable for the negligence of its
officers or agents when acting within the course and scope of their employment. It may be liable for the
tortious acts of its officers even as regards that species of tort of which malice is an essential element.
A bank is liable for the fraudulent acts or representations of an officer or agent acting within the course
and apparent scope of his employment or authority.
If a corporation knowingly permits its officers, or any other agent, to perform acts within the scope of an
apparent authority, holding him out to the public as possessing power to do those acts, the corporation
will, as against any person who has dealt in good faith with the corporation through such agent, be
stopped from denying such authority.
Negligence of Tellers
A bank’s tellers must exercise a high degree of diligence in insuring that they return the passbook
only to the depositor or his authorized representative.
If the tellers give the passbook to the wrong person, they would be clothing that person presumptive
ownership of the passbook, facilitating unauthorized withdrawals by that person.
Consolidated Bank and Trust Corp. v. Court of Appeals, G.R. No. 138569, [September 11,
2003], 457 PHIL 688-713
When Macaraya asked for the passbook if Calapre got the same, Teller No. 6 told him that someone
shorter than Calapre got the passbook. Solidbank was in possession of the passbook while it was
processing the deposit. After completion of the transaction, Solidbank had the contractual obligation
to return the passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed
to fulfill its contractual obligation because it gave the passbook to another person.
Solidbank's failure to return the passbook to Calapre made possible the withdrawal of the P300,000
by the impostor who took possession of the passbook. Under Solidbank's rules on savings account,
mere possession of the passbook raises the presumption of ownership. It was the negligent act of
Solidbank's Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the
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passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened.
Thus, the proximate cause of the unauthorized withdrawal was Solidbank's negligence in not
returning the passbook to Calapre.
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Appropriation of money by a teller is not estafa. If the teller appropriates the money for personal gain
then the felony committed is theft and not estafa. Further, since the teller occupies a position of
confidence, and the bank places money in the teller’s possession due to the confidence reposed on the
teller, the felony of qualified theft would be committed. Thus, banks may recover from its employees for
any payments made in view of the latter’s negligent or criminal acts.
Respondeat Superior, Diligence in the Selection and Supervision of Employees
A bank is bound by the negligence of its employees under the principle of respondeat superior or
command responsibility. The defense of exercising the required diligence in the selection and
supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana.
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AUTHORITY TO ENGAGE IN BANKING AND QUASIBANKING FUNCTION
Authority from the Bangko Sentral ng Pilipinas
Section 6 of the GBL
No person or entity shall engage in banking operations or quasi-banking functions without authority
from the Bangko Sentral.
An entity authorized by the Bangko Sentral to perform universal or commercial banking functions shall
likewise have the authority to engage in quasi-banking functions.
Note: This has been consistent with the Corporation Code.
Revised Corporation Code of the Philippines, Republic Act No. 11232, [February 20,
2019]
1. No articles of incorporation or amendment to articles of incorporation of banks, banking and
quasi-banking institutions, preneed, insurance and trust companies, NSSLAs, pawnshops,
and other financial intermediaries shall be approved by the Commission unless accompanied
by a favorable recommendation of the appropriate government agency to the effect that such
articles or amendment is in accordance with law. [Formerly under Section 17 now Section 16].
2. The [Securities and Exchange Commission] shall not accept for filing the bylaws or any
amendment thereto of any bank, banking institution, building and loan association, trust
company, insurance company, public utility, educational institution, or other special
corporations governed by special laws, unless accompanied by a certificate of the appropriate
government agency to the effect that such bylaws or amendments are in accordance with
law. [Formerly under Section 46 now Section 45].
Determination by the Monetary Board
Section 6 of the GBL
The determination of whether a person or entity is performing banking or quasi-banking functions
without Bangko Sentral authority shall be decided by the Monetary Board.
i.
To resolve such issue, the Monetary Board may, through the appropriate supervising and
examining department of the Bangko Sentral, examine, inspect or investigate the books and
records of such person or entity.
ii.
Upon issuance of this authority, such person or entity may commence to engage in banking
operations or quasi- banking functions and shall continue to do so unless such authority is
sooner surrendered, revoked, suspended or annulled by the Bangko Sentral in accordance with
the GBL or other special laws.
iii.
Existence of a victim actually injured is not necessary in determining whether an entity is
engaged in illegal banking.
Authority of Supervising and Examining Department
Section 6 of the GBL
The department head and the examiners of the appropriate supervising and examining department are
authorized:
i. to administer oaths to any such person, employee, officer, or director of any such entity; and
ii. to compel the presentation or production of such books, documents, papers or records that are
reasonably necessary to ascertain the facts relative to the true functions and operations of such
person or entity.
Failure or refusal to comply with the required presentation or production of such books, documents,
papers or records within a reasonable time shall subject the persons responsible therefor to penal
sanctions provided under the New Central Bank Act. Persons or entities found to be performing banking
or quasi-banking functions without authority from the Bangko Sentral shall be subject to appropriate
sanctions under the New Central Bank Act and other applicable laws.
Certificate of Authority to Register
Section 14 of the GBL
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1. The Securities and Exchange Commission shall not register the articles of incorporation of any
bank, or any amendment thereto, unless accompanied by a certificate of authority issued by
the Monetary Board, under its seal. Such certificate shall not be issued unless the Monetary
Board is satisfied from the evidence submitted to it: (RPC)
1. That all requirements of existing laws and regulations to engage in the business for
which the applicant is proposed to be incorporated have been complied with; (R)
2. That the public interest and economic conditions, both general and local, justify the
authorization; and (P)
3. That the amount of capital, the financing, organization, direction and administration, as
well as the integrity and responsibility of the organizers and administrators reasonably
assure the safety of deposits and the public interest. (C)
2. The Securities and Exchange Commission shall not register the by-laws of any bank, or any
amendment thereto, unless accompanied by a certificate of authority from the Bangko Sentral.
Service of Summons upon banks
2019 Revised Rules of Civil Procedure
1997 Rules of Civil Procedure
RULE 14 – SUMMONS
SECTION 12. Service upon Domestic Private SECTION 14. Service upon domestic private
Juridical Entity. — When the defendant is a juridical entity. — When the defendant is a
corporation, partnership or association organized corporation,
partnership
or
association
under the laws of the Philippines with a juridical organized under the laws of the Philippines with
personality, service may be made on the a juridical personality, service may be made on
president, managing partner, general manager, the president, managing partner, general
corporate secretary, treasurer, or in-house manager, corporate secretary, treasurer, or incounsel of the corporation wherever they may be house counsel.
found, or in their absence or unavailability, on their
secretaries.
If such service cannot be made upon any of the
foregoing persons, it shall be made upon the
person
who
customarily
receives
the
correspondence for the defendant at its principal
office.
In case the domestic juridical entity is under
receivership or liquidation, service of summons
shall be made on the receiver or liquidator, as the
case may be.
Should there be a refusal on the part of the
persons above-mentioned to receive summons
despite at least three (3) attempts on two (2)
different dates, service may be made
electronically, if allowed by the court, as provided
under Section 6 of this Rule. (11a)
SECTION 14. Service upon Foreign Private
Juridical Entities. — When the defendant is a
foreign private juridical entity which has
transacted or
is
doing business
in
the
Philippines, as defined by law, service may be
made on its resident agent designated in
accordance with law for that purpose, or, if there
be no such agent, on the government official
designated by law to that effect, or on any of its
officers, agents, directors or trustees within the
Philippines.
If the foreign private juridical entity is not
registered in the Philippines, or has no resident
agent but has transacted or is doing business in
it, as defined by law, such service may, with leave
SECTION 12. Service upon foreign private
juridical entity. — When the defendant is a
foreign private juridical entity which has
transacted business in the Philippines, service
may be made on its resident agent designated
in accordance with law for that purpose, or, if
there be no such agent, on the government
official designated by law to that effect, or on any
of its officers or agents within the Philippines.
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of court, be effected outside of the Philippines
through any of the following means:
(a) By personal service coursed through the
appropriate court in the foreign country
with the assistance of the department of
foreign affairs;
(b) By publication once in a newspaper of
general circulation in the country where
the defendant may be found and by
serving a copy of the summons and the
court order by registered mail at the last
known address of the defendant;
(c) By facsimile;
(d) By electronic means with the prescribed
proof of service; or
(e) By such other means as the court, in its
discretion, may direct.
Service upon domestic private juridical entity
Service upon foreign private juridical
entities
To whom it is served
Generally
In their
absence or
unavailability
If service
cannot be
made upon
them
If domestic
juridical
entity is
under
receivership
or liquidation
When
service
electronically
may be
allowed
1. President
2. Managing partner
3. General manager
4. Corporate secretary
5. Treasurer
6. In-house counsel
Their secretaries
Upon the person who customarily
receives the correspondence for
the defendant at its principal
office.
Receiver or liquidator
1. Resident agent designated in
accordance with law for that
purpose
2. Government official
designated by law
3. Any of the officers or agents
of said foreign entity within
the Philippines
When a foreign corporation has designated a
person to receive summons on its behalf
pursuant to the Corporation Code, that
designate is exclusive and service of
summons on any other person is
inefficacious. H.B. Zachry Company
International v Court of Appeals
When can extraterritorial service be
effected
It is allowed if there is a refusal on
the part of the person abovementioned to receive summons
despite at least 3 attempts on 2
different dates.
The foreign private juridical entity must be:
1. Not registered or has no resident
agent
2. Transacted or is doing business in
the Philippines
3. With leave of court
Means of service outside of the
Philippines:
1. By personal service coursed through
the appropriate court in the foreign
country with the assistance of the
[D]epartment of [F]oreign [A]ffairs;
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2. By publication once in a newspaper
of general circulation in the country
where the defendant may be found
and by serving a copy of the
summons and the court order by
registered mail at the last known
address of the defendant;
3. By facsimile;
4. By electronic means with the
prescribed proof of service; or
5. By such other means as the court, in
its discretion, may direct.
Exclusive enumeration [DOMESTIC]
The enumeration is described as restricted, limited, and exclusive. E.B. Villarosa & Partner, Ltd. v
Benito; Guy v Gacott; 7107 Islands Publishing, Inc. v The House Printers Corporation
Strict Compliance is Necessary
1. Basic is the rule that a strict compliance with the mode of service is necessary to confer
jurisdiction of the court over a corporation.
2. The officer upon whom service is made must be one who is named in the statute; otherwise,
the service is insufficient.
3. The purpose is to render it reasonably certain that the corporation will receive prompt and
proper notice in an action against it or to insure that the summons be served on a representative
so integrated with the corporation that such person will know what to do with the legal papers
served on him.
Service of summons on a branch manager is invalid
Bank of the Philippine Islands vs. Sps. Santiago, G.R. No. 169116, [March 28, 2007]
Applying the aforestated principle in the case at bar, we rule that the service of summons on BPI’s
Branch Manager did not bind the corporation for the branch manager is not included in the enumeration
of the statute of the persons upon whom service of summons can be validly made in behalf of the
corporation. Such service is therefore void and ineffectual.
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ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND
TRUST ENTITIES
Organization of Banks
Section 8 of the GBL
The Monetary Board may authorize the organization of a bank or quasi-bank subject to the following
conditions: (SPC)
1. That the entity is a stock corporation; (S)
o The Monetary Board may prescribe rules and regulations on the types of stock a bank
may issue, including the terms thereof and rights appurtenant thereto to determine
compliance with laws and regulations governing capital and equity structure of banks.
o Banks shall issue par value stocks only.
2. That its funds are obtained from the public, which shall mean twenty (20) or more persons; and
(P)
3. That the minimum capital requirements prescribed by the Monetary Board for each category of
banks are satisfied. (C)
Capabilities
Section 8 of the GBL
The Monetary Board shall take into consideration their capability in terms of their:
1. financial resources
2. technical expertise
3. integrity.
The bank licensing process shall incorporate an assessment of:
1. the bank’s ownership structure (Notes from Mariano: 60/40 Filipino to Foreign Ownership)
2. directors and senior management
3. its operating plan, and (Notes from Mariano: Standard Period of 10 years)
4. internal controls, as well as
5. its projected financial condition and capital base.
Incorporators/Subscribers
1. The incorporators/subscribers and proposed directors and officers must be persons of integrity
and of good credit standing in the business community. The subscribers must have adequate
financial strength to pay for their proposed subscriptions in the bank.
2. The incorporators/subscribers and proposed directors and officers must not have been
convicted of any crime involving moral turpitude, and unless otherwise allowed under the
provisions of existing laws are not officers and employees of a government agency,
instrumentality, department or office charged with the supervision of, or the granting of loans to
banks.
3. A bank may be organized with not less than five (5) nor more than fifteen (15) incorporators. In
case there are more than fifteen (15) persons initially interested in organizing and investing in
the proposed bank, the excess may be listed among the original subscribers in the Articles of
Incorporation.
Capabilities
Section 18 of the GBL
To protect the funds of depositors and creditors, the Monetary Board may regulate the payment by the
bank to its directors and officers of compensation, allowance, fees, bonuses, stock options, profit
sharing and fringe benefits only in exceptional cases and when the circumstances warrant, such as but
not limited to the following: (CUU)
1. When a bank is under comptrollership or conservatorship; or (C)
2. When a bank is found by the Monetary Board to be conducting business in an unsafe or
unsound manner; or (U)
3. When a bank is found by the Monetary Board to be in an unsatisfactory financial condition. (U)
Powers of the Monetary Board
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Section 16 of the GBL
The GBL provides the following rules:
1. To maintain the quality of bank management and afford better protection to depositors and the
public in general, the Monetary Board shall prescribe, pass upon and review the qualifications
and disqualifications of individuals elected or appointed bank directors or officers and disqualify
those found unfit.
2. After due notice to the board of directors of the bank, the Monetary Board may disqualify,
suspend or remove any bank director or officer who commits or omits an act which render him
unfit for the position.
3. In determining whether an individual is fit and proper to hold the position of a director or officer
of a bank, regard shall be given to his integrity, experience, education, training, and
competence. (CITEE)
Permanent Disqualification from being Directors
Circular No. 513, Series of 2006
1. Persons who have been convicted by final judgment of a court for offenses involving dishonesty
or breach of trust such as, but not limited to, estafa, embezzlement, extortion, forgery,
malversation, swindling, theft, robbery, falsification, bribery, violation of B.P. Blg. 22 (Bouncing
Checks Law), violation of anti-graft and corrupt practices act (R.A. 3019) and prohibited acts
and transactions under Section 7 of R.A. 6713 (Code of Conduct and Ethical Standards for
Public Officials and Employees);
2. Persons who have been convicted by final judgment of a court sentencing them to serve a
maximum term of imprisonment of more than six years;
3. Persons who have been convicted by final judgment of the court for violation of banking laws,
rules and regulations;
4. Persons who have been judicially declared insolvent, spendthrift or incapacitated to contract;
or
5. Directors, officers or employees of closed banks/ quasi-banks/trust entities who were found to
be culpable for such institution’s closure as determined by the monetary board;
6. Directors and officers of banks, quasi-banks and trust entities found by the monetary board as
administratively liable for violation of banking laws, rules and regulations where a penalty of
removal from office is imposed, and which finding of the monetary board has become final and
executory; and
7. Directors and officers of banks, quasi-banks and trust entities or any person found by the
monetary board to be unfit for the position of directors or officers because they were found
administratively liable by another government agency for violation of banking laws, rules and
regulations or any offense/violation involving dishonesty or breach of trust, and which finding
of said government agency has become final and executory.
Independent Auditor
Section 58 of the GBL
The following are the rules with respect to financial audit of banks:
1. The Monetary Board may require a bank, quasi-bank or trust entity to engage the services of
an independent auditor to be chosen by the bank, quasi-bank or trust entity concerned from a
list of certified public accountants acceptable to the Monetary Board.
2. The term of the engagement shall be as prescribed by the Monetary Board which may either
be on a continuing basis where the auditor shall act as resident examiner, or on the basis of
special engagements, but in any case, the independent auditor shall be responsible to the
bank’s, quasi-bank’s or trust entity’s board of directors. A copy of the report shall be furnished
to the Monetary Board.
3. The Monetary Board may also direct the board of directors of a bank, quasi-bank, trust entity
and/or the individual members thereof, to conduct, either personally or by a committee created
by the board, an annual balance sheet audit of the bank, quasi-bank or trust entity to review
the internal audit and control system of the bank, quasi-bank or trust entity and to submit a
report of such audit.
Unsettled Labor Disputes
Section 22 of the GBL
The banking industry is hereby declared as indispensable to the national interest and, notwithstanding
the provisions of any law to the contrary, any strike or lockout involving banks, if unsettled after seven
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(7) calendar days shall be reported by the Bangko Sentral to the Secretary of Labor who may assume
jurisdiction over the dispute or decide it or certify the same to the National Labor Relations Commission
for compulsory arbitration. However, the President of the Philippines may at any time intervene and
assume jurisdiction over such labor dispute in order to settle or terminate the same.
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DEPOSIT FUNCTIONS OF BANKS
Demand Deposits
Section 58 of the New Central Bank Act 2
Demand deposits are “all those liabilities of the Bangko Sentral and of other banks which are
denominated in Philippine currency and are subject to payment in legal tender upon demand by the
presentation of (depositor’s) checks.’’
A Universal Bank and Commercial Bank may accept or create demand deposits subject to withdrawal
by check, without prior authority from the BSP.
Manner of Making the Deposit
Philippine Bank of Commerce vs. Court of Appeals, G.R. No. 97626, March 14, 1997
In the ordinary and usual course of banking operations, current account deposits are accepted by
the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's agent or
representative, who indicates therein the current account number to which the deposit is to be
credited, the name of the depositor or current account holder, the date of the deposit, and the amount
of the deposit either in cash or checks. The deposit slip has an upper portion or stub, which is
detached and given to the depositor or his agent; the lower portion is retained by the bank. In some
instances, however, the deposit slips are prepared in duplicate by the depositor. The original of the
deposit slip is retained by the bank, while the, duplicate copy is returned or given to the depositor.
Drawings against uncollected deposits
DAUDs shall be prohibited except when the drawings are made against uncollected deposits
representing manager’s/cashier’s/ treasurer’s checks, treasury warrants, postal money orders and duly
funded “on us” checks which may be permitted at the discretion of each bank.
Cashier’s Check
New Pacific Timber & Supply Co Inc. v. Señeris, G.R. No. L-41764. December 19, 1980
It is a well-known and accepted practice in the business sector that a Cashier's Check is deemed as
cash. Moreover, since the said check had been certified by the drawee bank, by the certification, the
funds represented by the check are transferred from the credit of the maker to that of the payee or
holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with
rights and duties of one in such situation. Where a check is certified by the bank on which it is drawn,
the certification is equivalent to acceptance. Said certification "implies that the check is drawn upon
sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that
they shall be so applied whenever the check is presented for payment. It is an understanding that
the check is good then, and shall continue to be good, and this agreement is as binding on the bank
as its notes in circulation, a certificate of deposit payable to the order of the depositor, or any other
obligation it can assume.
Prohibition from maintaining demand or current accounts with the banking office in they are
assigned
The following officers and employees of banks are prohibited from maintaining demand deposits or
current accounts with the banking office in which they are assigned:
1. All officers;
2. Employees of the bank’s cash department/cash units; and
3. Other employees who have direct and immediate responsibility in the handling of transactions
and/or records pertaining to demand deposits or current accounts.
2
Hereinafter referred to as “NCBA”.
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The above-mentioned prohibition shall include the spouses and relatives within the second degree of
consanguinity and affinity of the officers and employees covered by the prohibition, and the business
interests of such officers and employees, their spouses and relatives within the second degree of
consanguinity and affinity, in single proprietorships, or partnerships or corporations in which such
officers and employees, individually or as a group, own or control at least a majority of the capital of the
partnership or the outstanding subscribed capital stock (voting and non-voting) of the corporation.
Duty of Banks to Honor Checks
1. Where the bank possesses funds of a depositor, it is bound to honor his checks to the extent
of the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader,
when the deposit is sufficient, entitles the drawer to substantial damages without any proof of
actual damages. Conversely, a bank is not liable for its refusal to pay a check on account of
insufficient funds, notwithstanding the fact that a deposit may be made later in the day. Before
a bank depositor may maintain a suit to recover a specific amount from his bank, he must first
show that he had on deposit sufficient funds to meet his demand.
2. A bank performs its full duty where, upon the receipt of a check drawn against an account in
which there are insufficient funds to pay it in full, it endeavors to induce the drawer to make
good his account so that the check can be paid, and failing in this, it protests the check on the
following morning and notifies its correspondent bank by the telegraph of the protest. It cannot,
therefore, be held liable to the payee and holder of the check for not protesting it upon the day
when it was received.
3. Banks must ensure that the amount of the checks should be paid only to its designated payee.
The fact that the drawee bank did not discover the irregularity seasonably constitutes
negligence in carrying out the bank’s duty to its depositors.
Duty of Banks to Know Signatures
1. A bank is bound to know the signatures of its customers;
2. If it pays a forged check, it must be considered as making the payment out of its own funds,
and cannot ordinarily charge the amount so paid to the account of the depositor whose name
was forged.
No Obligations to Make Partial Payment
A bank is under no obligation to make part payment on a check, up to only the amount of the drawer’s
funds, where the check is drawn for an amount larger than what the drawer has on deposit.
Legal Character of Checks Representing Demand Deposits
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.
Cross-check
Effects of crossing a check
State Investment House vs. Intermediate Appellate Court, G.R. No. 72764, July 13, 1989, 175
SCRA 310
1. that the check may not be encashed but only deposited in the bank;
2. that the check may be negotiated only once — to one who has an account with a bank; and
3. that the act of crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose so that such holder must inquire if the check has been received
pursuant to that purpose.
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Cashier’s Check
A cashier’s check is really the bank’s own check and may be treated as a promissory note with the bank
as the maker. The check becomes the primary obligation of the bank which issues it and constitutes a
written promise to pay upon demand.
Cashier’s Check
New Pacific Timber & Supply Co Inc. v. Señeris, G.R. No. L-41764. December 19, 1980
It is a well-known and accepted practice in the business sector that a Cashier's Check is deemed as
cash. Moreover, since the said check had been certified by the drawee bank, by the certification, the
funds represented by the check are transferred from the credit of the maker to that of the payee or
holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with
rights and duties of one in such situation. Where a check is certified by the bank on which it is drawn,
the certification is equivalent to acceptance. Said certification "implies that the check is drawn upon
sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that
they shall be so applied whenever the check is presented for payment. It is an understanding that
the check is good then, and shall continue to be good, and this agreement is as binding on the bank
as its notes in circulation, a certificate of deposit payable to the order of the depositor, or any other
obligation it can assume.
Set-Off
1. A bank may debit the personal account of a depositor for an amount erroneously credited to
the depositor’s sole proprietorship account because the latter being a sole proprietorship has
no separate and distinct personality from the depositor.
2. A bank generally has a right of set-off over the deposits therein for the payment of any
withdrawals on the part of a depositor. The right of a collecting bank to debit a client’s account
for the value of a dishonored check that has previously been credited has fairly been
established by jurisprudence. Hence, the relationship between banks and depositors has been
held to be that of creditor and debtor. Thus, legal compensation under Article 1278 of the Civil
Code may take place “when all the requisites mentioned in Article 1279 are present xxx.’’
3. It must be emphasized that the law imposes a duty of diligence on the collecting bank to
scrutinize checks deposited with it, for the purpose of determining their genuineness and
regularity.
4. Crossing of the check with the phrase “Payee’s Account Only,” is a warning that the check
should be deposited only in the account of the payee. Thus, it is the duty of the collecting bank
to ascertain that the check be deposited in payee’s account only. Therefore, it is the collecting
bank which is bound to scrutinize the check and to know its depositors before it could make the
clearing indorsement “all prior indorsements and/or lack of indorsement guaranteed.”
Savings Deposits
Banks may be authorized by the BSP to solicit and accept deposits outside their bank premises, subject
to the following conditions:
1. The financial condition of the bank applying for authority to solicit and collect savings deposits
outside its bank premises is sound and the operations and the quality of the management
thereof could reasonably assure the safety of the funds which may be entrusted to its deposit
collectors and/or solicitors;
2. The proposed area where applicant bank intends to solicit shall be clearly defined;
3. Solicitation of deposits shall only be confined within a locality where there are no other banks
in operation, or where it can be clearly established that the deposit potentials of the said locality
are still untapped; and
4. Applicant bank shall institute and maintain the following minimum safeguards:
1. All deposit solicitors shall be initially bonded for at least P1,000 subject to the increase
thereof to approximate their daily collections;
2. Deposit solicitors shall be provided with proper identification cards with photograph and
signature of each respective solicitor, certified to by the appropriate officer of the bank.
Said identification cards shall be worn by each solicitor at all times at the upper breast
of his outer garment when soliciting deposits;
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3. Adequate insurance coverage for funds in transit (representing deposits collected
outside banking premises) shall be secured by applicant bank from insurance
companies not included in the list of companies blacklisted by the Insurance
Commissioner;
4. Deposit slips shall be in booklet form, prenumbered, in triplicate copies and in three (3)
colors — the original to be issued to the depositor, the second copy to be used for
posting reference, and the third copy to be retained in the booklet;
5. All collections shall be turned over to the cashier at the end of each day accompanied
by a Collection Summary Report to be accomplished in duplicate which shall contain
the following minimum information:
1. Date of the report,
2. Names and addresses of the depositors,
3. Deposit slip numbers,
4. Amounts of deposit,
5. Savings account and passbook numbers, and
6. Name and signature of solicitor rendering the report.
6. Depositors shall always be required to accomplish a Signature Card when opening an
account, which card shall be used always as reference in checking the
genuineness/authenticity of signatures affixed on withdrawal slips or authorizations for
withdrawal;
7. Deposits/withdrawals shall be recorded by the bookkeeper or any ledger clerk, except
any bank solicitor, in the depositor’s ledger cards and passbooks on the same day that
such deposits/withdrawals are accepted. Passbooks shall be returned to the depositors
not later than the following business day;
8. At the end of each month, depositors shall be advised in writing of the balances of their
deposits with the bank, the advise slips of which shall never be handcarried by the
solicitors themselves; and
9. Places of assignments of bank solicitors shall be rotated at least quarterly.
Joint Accounts
A deposit may be either individual or joint account. A joint account may be an “and” account or an
“and/or” account. In an “and’’ account, the signature of both co-depositors are required for withdrawals.
On the other hand, in case of an “and/or” either one of the co-depositors may deposit and withdraw
from the account without the knowledge, consent and signature of the other.
Negotiable Order of Withdrawal (NOW) Accounts
1. Authority to accept Negotiable Order of Withdrawal Accounts
a. Negotiable Order of Withdrawal (NOW) accounts are interest-bearing deposit accounts
that combine the payable on demand feature of checks and investment feature of
savings accounts.
b. Universal Bank/Commercial Bank may offer NOW accounts without prior authority of
the Monetary Board.
c. A Thrift Bank/Rural Bank Cooperative Bank may accept NOW accounts upon prior
approval of the Monetary Board.
2. Rules on Servicing NOW Accounts
1. Prior to or simultaneous with the opening of a NOW account, the bank shall inform the
depositor of its terms and conditions.
2. Bank shall be responsible for the proper identification of its depositors; it shall require,
among other things, two (2) specimen signatures and such other pertinent information.
3. Deposits shall be covered by deposit slips in duplicate duly validated and initialed by
the teller receiving the deposit. A copy of the deposit slip shall be furnished the
depositor.
4. NOW accounts shall be kept and maintained separately from the regular savings
deposits.
5. Blank NOW forms shall be prenumbered and shall be controlled as in the case of
unissued blank checks.
6. A bank statement shall be sent to each depositor at the end of each month for
confirmation of balances.
7. Banks must use the form prescribed by present rules for NOW accounts.
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Time Deposit
Time deposit is defined as “one the payment of which cannot legally be required within such a specified
number of days.” Time deposits shall be issued for a specific period of term. Authority shall be
automatically granted to any accredited banking institution which may participate in the supervised
credit program to accept special time deposits from the Agrarian Reform Fund Commission with interest
lower than the rate allowed on time deposits accepted from the general public.
Deposit Substitute Operations (Quasi-Banking Functions)
The essential elements of quasi-banking are:
1. Borrowing funds for the borrower’s own account;
2. Twenty (20) or more lenders at any one time;
3. Methods of borrowing are issuance, endorsement, or acceptance of debt instruments of any
kind, other than de- posits, such as acceptances, promissory notes, participations, certificates
of assignments or similar instruments with recourse, trust certificates, repurchase agreements,
and such other instruments as the Monetary Board may determine; and
4. The purpose of which is (1) relending, or (2) purchasing receivables or other obligations.
Notes:
1. Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and
for any of the purposes provided in (d) above whether the borrower’s liability thereby is treated
as real or contingent.
2. For the borrower’s own account shall refer to the assumption of liability in one’s own capacity
and not in representation, or as an agent or trustee, of another.
3. Purchasing of receivables or other obligations shall refer to the acquisition of claims collectible
in money, including interbank borrowings or borrowings between financial institutions, or of
acquisition of securities, of any amount and maturity, from domestic or foreign sources.
4. Relending shall refer to the extension of loans by an institution with antecedent borrowing
transactions. Relending shall be presumed, in the absence of express stipulations, when the
institution is regularly engaged in lending.
5. Regularly engaged in lending shall refer to the practice of extending loans, advances, discounts
or rediscounts as a matter of business, as distinguished from isolated lending transactions.
Foreign Currency Deposits
1. Authority to deposit foreign currencies
Any person, natural or juridical, may deposit with such Philippine banks in good standing, as
may, upon application, be designated by the Central Bank for the purpose, foreign currencies
which are acceptable as part of the international reserve, except those which are required by
the Central Bank to be surrendered.
2. Authority of banks to accept foreign currency deposits
The banks designated by the Central Bank shall have the authority:
1. To accept deposits and to accept foreign currencies in trust;
Numbered accounts for recording and servicing of said deposits are allowed.
2. To issue certificates to evidence such deposits;
3. To discount said certificates;
4. To accept said deposits as collateral for loans subject to such rules and regulations as
may be promulgated by the Central Bank from time to time; and
5. To pay interest in foreign currency on such deposits.
Foreign Currency Cover Duties of Depositary Banks
1. Maintain at all times a one hundred percent foreign currency cover for their liabilities,
2. Of which cover at least fifteen percent shall be in the form of foreign currency deposit with the
Central Bank,
3. and the balance in the form of foreign currency loans or securities, which loan or securities shall
be of short-term maturities and readily marketable,
4. Such foreign currency loans may include loans to domestic enterprises which are exportoriented or registered with the Board of Investments, subject to the limitations to be prescribed
by the Monetary Board on such loans,
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5. Except as the Monetary Board may otherwise prescribe or allow, the foreign currency cover
shall be in the same currency as that of the corresponding foreign currency deposit liability,
6. The Central Bank may pay interest on the foreign currency deposit, and if requested shall
exchange the foreign currency notes and coins into foreign currency instruments drawn on its
depository banks.
Administration of Deposits
- All banking institutions are required to set a minimum of three (3) specimen signatures to be
simultaneously required from each of their depositors and to update the specimen signatures
of their depositors every five (5) years or sooner, at the discretion of the bank. Banks may, at
their option, require their depositors to submit ID photos together with the specimen
signatures.
- BSP Circular No. 564, Series of 2007 provides for the list of valid identification cards.
- Students who are beneficiaries of an OFW and who are not yet of voting age shall also be
required to present two IDs.
- The requirement on presenting 2 valid IDs shall on 1 time basis only or at the commencement
of business relationship.
- Financial transactions may include remittances, among others, as falling under the definition of
transaction. Under the Anti-Money Laundering Act of 2001, as amended, a financial transaction
is “any act establishing any right or obligation or giving rise to any contractual or legal
relationship between the parties thereto. It also includes any movement of funds by any means
with a covered institution.”
Minors and Corporations as Depositors
Requirements:
1. At least seven years of age
2. Able to read and write
3. Sufficient discretion
4. Not otherwise disqualified by any other incapacity
If a guardian shall give notice in writing to any thrift bank not to make payments of deposits dividends
or interest to the minor of whom he is the guardian, then such payment shall be made only to the
guardian.
Survivorship Agreement
There is survivorship agreement when joint (and several) owners of a deposit agree that either of them
could withdraw any part or the whole of said account during the lifetime of both, and the balance, if
any, upon the death of either, belonged to the survivor.
It is an aleatory contract supported by law a lawful consideration — the mutual agreement of the joint
depositors permitting either of them to withdraw the whole deposit during their lifetime and transferring
the balance to the survivor upon the death of one of them.
ARTICLE 1790. By an aleatory contract one of the parties binds himself, or both reciprocally
bind themselves, to give or to do something as an equivalent for that which the other party is
to give or do in case of the occurrence of an event which is uncertain or will happen at an
indeterminate time.
-
It reserves certain property of the deceased to form part of the estate to which would be transfer
to the survivor.
A specific transaction with specific provision, which provides for the ownership of fund shall
belong to the survivor.
Survivorship Agreement not Invalid Per Se but may be Violative of Law
Although the survivorship agreement is per se not contrary to law, its operation or effect may be violative
of the law. For instance, if it be shown in a given case that such agreement is a mere cloak to hide an
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inofficious donation, to transfer property in fraud of creditors, or to defeat the legitime of a forced heir,
it may be assailed and annulled upon such grounds.
Set-off
It may be stated as a general rule that when a depositor is indebted to a bank, and the debts are mutual,
that is, between the same parties and in the same right-the bank may apply the deposit, or such portion
thereof as may be necessary, to the payment of the debt due it by the depositor, provided there is no
express agreement to the contrary and the deposit is not specifically applicable to some other particular
purpose.
Meticulous Care
By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients,
who have the right to expect high standards of integrity and performance from it. Among its obligations
in furtherance thereof is knowing the signatures of its clients. Depositors are not estopped from
questioning wrongful withdrawals, even if they have failed to question those errors in the statements
sent by the bank to them for verification.
Payment to Proper Party
Where the ownership of the deposit remained undetermined, a bank, as the debtor with respect thereto,
had no right to pay to persons other than those in whose favor the obligation was constituted or whose
right or authority to receive payment is indisputable. The payment of the money deposited with the bank
that will extinguish its obligation to the creditor-depositor is payment to the person of the creditor or to
one authorized by him or by the law to receive it. Payment made by the debtor to the wrong party does
not extinguish the obligation as to the creditor who is without fault or negligence, even if the debtor
acted in utmost good faith and by mistake as to the person of the creditor, or through error induced by
fraud of a third person. The payment, even if done in good faith, will not extinguish the obligation to the
true depositor.
In Case of Death of Depositor
The National Internal Revenue Code provides:
“If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or
jointly with another, it shall not allow any withdrawal from the that the taxes imposed thereon by this
Title have been paid: Provided, however, That the administrator of the estate or any one (1) of the heirs
of the decedent may, upon authorization by the Commissioner, withdraw an amount not exceeding
Twenty thousand pesos (P20,000) without the said certification. For this purpose, all withdrawal slips
shall contain a statement to the effect that all of the joint depositors are still living at the time of
withdrawal by any one of the joint depositors and such statement shall be under oath by the said
depositors.’’
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SECRECY OF BANK DEPOSITS
Purpose
The Secrecy of Bank Deposits Act has the following purposes:
1. To give encouragement to the people to deposit their money in banking institutions; and
2. To discourage private hoarding so that the same may be properly utilized by banks in
authorized loans to assist in the economic development of the country.
Privacy
Zones of privacy are recognized and protected in our laws. The Civil Code provides that “[e]very person
shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons”
and punishes as actionable torts several acts for meddling and prying into the privacy of another. It also
holds public officer or employee or any private individual liable for damages for any violation of the
rights and liberties of another person, and recognizes the privacy of letters and other private
communications. The Revised Penal Code makes a crime of the violation of secrets by an officer,
revelation of trade and industrial secrets, and trespass to dwelling. Invasion of privacy is an offense in
special laws like the Anti-Wiretapping Law, the Secrecy of Bank Deposits Act, and the Intellectual
Property Code.
Atty. Panes: While it is allowed for you to file a motion to inquire on the bank transaction of a client, the
same must be justified. In case of estafa with allegations there are online transfers with one person to
another and that there was allegation that the same was made in fraud. The bank may be issued
subpoena to publish or provide the documents needed.
Absolute Confidentiality on Deposits
All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are considered as of an absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office.
It shall be unlawful for any official or employee of a banking institution to disclose to any person any
information concerning said deposits.
Prohibition against inquiry into or disclosure of deposits under Republic Act No. 8367
“All deposits of whatever nature with an Association (Savings and Loan) in the Philippines are hereby
considered as of an absolutely confidential nature and may not be examined, inquired or looked into by
any person, government official, bureau or office, except upon written permission of the depositor, or in
cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of
public officials, or in cases where the money deposited or invested is the subject matter of litigation.52
It shall be unlawful for any official or employee of an Association to disclose to any person any
information concerning said deposits, except in the cases mentioned in the preceding paragraph of this
section. Any official or employee of an Association who violates this section shall be punished under
Republic Act No. 1405, as amended.’’
Coverage on Foreign Currency Deposits
All foreign currency deposits are of an absolutely confidential nature and, except upon the written
permission of the depositors, in no instance shall such foreign currency deposits be examined, inquired
or looked into by any person, government official, bureau or office whether judicial or administrative or
private. Said foreign currency deposits shall be exempt from attachment, garnishment, or any other
order or process of any court, legislative body, government agency or any administrative body
whatsoever.
Confidentiality of Deposits in Islamic Banks
“Banking transactions relating to all deposits of whatever nature are confidential and may not be
examined, inquired or looked into by any person, government official, bureau or office except:
1. inspection by the bank’s auditor, or
2. upon written permission by the depositor, or
3. in cases where the money deposited or the transaction concerned is the subject of a court
order.
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It shall be unlawful for any official or employee of the Islamic Bank or any person as may be designated
by the Board of Directors to examine or audit the books of the Bank to disclose or reveal to any person
any confidential information except under the circumstances mentioned in the preceding paragraph.’’
Exceptions
Exceptions under the Bank Secrecy Law:
1. Upon written permission of the depositor, or
2. In cases of impeachment, or
3. Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or
4. In cases where the money deposited or invested is the subject matter of the litigation.
Company X issued a Bank A Check No. 12345 in the amount of P500,000.00 payable to the
Bureau of Internal Revenue (BIR) for the company's taxes for the third quarter of 1997. The
check was deposited with Bank B, the collecting bank with which the BIR has an account. The
check was subsequently cleared and the amount of P500,000.00 was deducted from the
company's balance. Thereafter, Company X was notified by the BIR of its non-payment of its
unpaid taxes despite the P500,000.00 debit from its account. This prompted the company to
seek assistance from the proper authorities to investigate on the matter.
The results of the investigation disclosed that unknown then to Company X, its chief
accountant Bonifacio Santos is part of a syndicate that devised a scheme to syphon its funds.
It was discovered that though deposited, the check was never paid to the BIR but was passed
on by Santos to Winston Reyes, Bank B's branch manager and Santos' co-conspirator.
Instead of bringing the check to the clearing house, Reyes replaced Check No. 12345 with a
worthless check bearing the same amount, and tampered documents to cover his tracks. No
amount was then credited to the BIR. Meanwhile, Check No. 12345 was subsequently cleared
and the amount therein credited into the accounts of fictitious persons, to be later withdrawn
by Santos and Reyes.
Company X then sued Bank B for the amount of P500, 000.00 representing the amount
deducted from its account. Bank B interposed the defense that Company X was guilty of
contributory negligence since its confidential employee Santos was an integral part of the
scheme to divert the proceeds of Check No. 12345. Is Company X entitled to reimbursement
from Bank B, the collecting bank? Explain. (2016 Bar)
Suggested Answer:
Yes. Company X is entitled to reimbursement from the collecting bank. In a similar case, the Supreme
Court ruled that the drawer could recover the amount deducted from its account because it failed to
ensure that the check be paid to the designated payee, while the collecting bank share 1⁄2 of the loss
because its branch manager conspired in the fraud (Philippine Commercial International Bank v.
Court of Appeals, G.R. No. 121413, January 29, 2001)
GP is a suspected jueteng lord who is rumored to be enjoying police and military protection.
The envy of many drug lords who had not escaped the dragnet of the law, GP was summoned
to a hearing of the Committee on Racketeering and Other Syndicated Crimes of the House of
Representatives, which was conducting a congressional investigation “in aid of legislation”
on the involvement of police and military personnel, and possibly even of local government
officials, in the illegal activities of suspected gambling and drug lords. Subpoenaed to attend
the investigation were officers of certain identified banks with a directive to them to bring the
records and documents of bank deposits of individuals mentioned in the subpoenas, among
them GP. GP and the banks opposed the production of the banks records of deposits on the
ground that no such inquiry is allowed under the Law on Secrecy of Bank Deposits. (RA 1405).
Is the opposition of GP and the bank valid? Explain.
Suggested Answer:
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Yes. The opposition is valid. GP is not a public official. The investigation does not involve one of the
exceptions to the prohibition against disclosure of any information concerning bank deposits under
the Law on Secrecy of Bank Deposits. The Committee conducting the investigation is not a
competent court authorized under the law to issue a subpoena for the production of the bank record
involving such disclosure. (BAR 2000)
TRUE OR FALSE. If the Ombudsman is convinced that there is a violation of law after
investigating a complaint alleging illicit bank deposits of public officer, the Ombudsman may
order the bank concerned to allow in camera inspection of bank records and documents.
Suggested Answer:
False. The Bank Secrecy Law prohibits the inspection of a bank account unless the permission of
the account holder is obtained, or upon lawful order of the court or when the deposit is the subject
matter of litigation. Investigation by the Ombudsman is not considered as a pending litigation to allow
the examination of the bank records and documents. (BAR 2009)
X, a government official, has a number of bank accounts in T Bank containing millions of
pesos. He also opened several trust accounts in the same bank which specifically covered
the placement and/or investment of funds. X was later charged with graft and corruption
before the Sandiganbayan (SB) by the Ombudsman. The Special Prosecutor filed a motion
praying for a court order authorizing it to look into the savings and trust accounts of X in T
Bank. X opposed the motion arguing that the trust accounts are not "deposits" under the Law
on Secrecy of Bank Deposits (Rep. Act No. 1405). Is the contention of X correct? Explain.
(2016 Bar)
Suggested Answer:
No, X is not correct.
Deposits in the context of the Secrecy of Philippine currency deposits include deposits of whatever
nature and kind. They include funds deposited in the bank giving rise to creditor-debtor relationship,
as well as funds invested in the bank like trust accounts (Ejercito v. Sandiganbayan, G.R. Nos.
157294-95, November 30, 2006)
X is being charged for violation of Anti-Graft and Corrupt Practices because he is suspected
of having accumulated unexplained wealth. X maintains deposit accounts with ABC Bank.
The Ombudsman filed criminal cases against X before the Sandiganbayan. Can the court
issue subpoena against ABC Bank to produce all documents pertaining to all the deposit
accounts of X?
Suggested Answer:
Yes, because there is already a pending case and provided the subpoena must be specific as to
which account. (BAR 2012)
X, a private individual, maintains a dollar deposit with ABC Bank. X is suspected to be the
leader of a Kidnap for Ransom Gang and he is suspected of depositing all ransom money in
said deposit account which are all in US Dollars. The police want to open said account to
know if there are really deposits in big amounts. Which statement is most accurate?
1. The same rules under the Secrecy of Bank Deposit Act will apply;
2. An approval from the Monetary Board is necessary to open the account;
3. Because the deposit is in US Dollars, it is covered by the Foreign Currency Deposit
Act which allows disclosure only upon the written permission of the depositor;
4. Approval from the court is necessary to order disclosure of the account.
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Suggested Answer:
a. The same rules under the Secrecy of Bank Deposit Act will apply. (BAR 2012)
Maria Sakata opened a Savings and Current account with PS Bank in 2002. A year after, she
left for Japan to work and came home in 2006. When she updated her accounts, she found
that instead of P1,000,000, she only had a remaining balance of P391 in her Savings account
and that there were deposit and withdrawal entries in her passbook from 2003 to 2005. Sakata
talked to the manager of PS Bank who instructed her to write a letter of request for her current
account statements. Afterwards, she found out that there were 25 checks debited from her
account which she claimed she did not issue nor signed. Also, she stated that the serial
numbers of the checks were never in her possession. Thus, she asked for the re-credit of the
amount withdrawn to her account which was not complied with by PS Bank.
PS Bank claimed that the checks were validly encashed since Sakata authorized her mother
to request and receive two additional checkbooks bearing the serial numbers appearing on
the checks. Also, even assuming that there was forgery, the doctrine of shared responsibility
should apply since Sakata was also negligent in handling her accounts since she fails to
inquire about its status. Is PS Bank correct?
Suggested Answer:
NO. Banking institutions are imbued with public interest, and the trust and confidence of the public
to them are of paramount importance. As such, they are expected to exercise the highest degree of
diligence, and high standards of integrity and performance. By the nature of its functions, a bank is
under obligation to treat the accounts of its depositors with meticulous care, always having in mind
the fiduciary nature of their relationship. Thus, the prime duty of a bank is to ascertain the
genuineness of the signature of the drawer or the depositor on the check being encashed, with
reasonable business prudence. A bank is bound to know the signatures of its customers; and if it
pays a forged check, it must be considered as making the payment out of its own funds, and cannot
ordinarily charge the amount so paid to the account of the depositor whose name was forged. Being
negligent in failing to detect the forgery, the bank bears the loss.
Even assuming that her mother indeed presented the questioned checks while respondent was in
Japan, she cannot be held negligent in entrusting the same to her mother. (Philippine Savings Bank
v. Maria Cecilia Sakata, G.R. No. 229450, 17 June 2020)
Poole-Blunden came across an advertisement placed by Union Bank in the Manila Bulletin.
The ad was for the public auction of certain properties. One of these properties was a
condominium unit. The Unit was advertised to have an area of 95 square meters. Thinking
that it was sufficient and spacious enough for his residential needs, Poole-Blunden decided
to register for the sale and bid on the unit. Poole-Blunden placed his bid and won the unit for
₱2,650,000.00. In late 2003, Poole-Blunden decided to construct two (2) additional
bedrooms in the Unit. Upon examining it, he noticed apparent problems in its dimensions. He
took rough measurements of the Unit, which indicated that its floor area was just about 70
square meters, not 95 square meters, as advertised by UnionBank. Did respondent
UnionBank of the Philippines committ such a degree of fraud as would entitle petitioner
Joseph Harry Walter Poole-Blunden to the voiding of the Contract to Sell the condominium
unit?
Suggested Answer:
YES. Banks are required to observe a high degree of diligence in their affairs. This encompasses
their dealings concerning properties offered as security for loans. A bank that wrongly advertises the
area of a property acquired through foreclosure because it failed to dutifully ascertain the property's
specifications is grossly negligent as to practically be in bad faith in offering that property to
prospective buyers. Any sale made on this account is voidable for causal fraud. In actions to void
such sales, banks cannot hide under the defense that a sale was made on an as-is-where-is basis.
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As-is-where-is stipulations can only encompass physical features that are readily perceptible by an
ordinary person possessing no specialized skills.
The high degree of diligence required of banks equally holds true in their dealing with mortgaged real
properties, and subsequently acquired through foreclosure, such as the Unit purchased by petitioner.
In the same way that banks are presumed to be familiar with the rules on land registration, given that
they are in the business of extending loans secured by real estate mortgage, banks are also expected
to exercise the highest degree of diligence. This is especially true when investigating real properties
offered as security, since they are aware that such property may be passed on to an innocent
purchaser in the event of foreclosure.
Indeed, the ascertainment of the status or condition of a property offered to it as security for a loan
must be a standard and indispensable part of a bank's operations. Whether it was unaware of the
unit'sactual interior area; or, knew of it, but wrongly thought that its area should include common
spaces, respondent's predicament demonstrates how it failed to exercise utmost diligence in
investigating the Unit offered as security before accepting it. This negligence is so inexcusable; it is
tantamount to bad faith. (Poole-Blunden v. Union Bank, G.R. No. 205838, 29 Nov, 2017)
Michael withdrew without authority funds of the partnership in the amounts of P500,000 and
US$50,000 for services he claims rendered for the benefit of the partnership. He deposited
the P500,000 in his personal peso current account with Prosperity Bank and the US$50,000 in
his personal foreign currency savings account with Eastern Bank. The partnership instituted
an action in court against Michael, Prosperity, and Eastern to compel Michael to return the
subject funds to the partnership and pending litigation to order both banks to disallow any
withdrawal from his accounts. At the initial hearing of the case, the court ordered Prosperity
to produce the records of Michael’s peso current account and Eastern to produce the records
of his foreign currency savings account. Can the court compel Prosperity and Eastern to
disclose the bank deposits of Michael? Discuss fully. (1995 BAR)
Suggested Answer:
YES, with respect to Michael’s peso current account. Section 2 of RA 1405 allows the disclosure of
bank deposits in case where the money deposited is the subject matter of litigation. With respect to
his foreign currency savings account, the court compel the bank to disclose deposits of Michael,
except upon written permission of the depositor.