CHAPTER I

I. Role of Banks (RA 8791): Provide conducive environment to sustain the development of the national economy The fiduciary nature of banking that requires high standards of integrity and performance

II. Definition of Banks:General: They are entities engaged in the lending of funds obtained in the form of deposits (RA 8791)Other:

A moneyed institute An investment company It involves any person engaged in the business carried on by the banks of deposit of discount, or of circulation A financial institution

III. Nature of Banking Business:a.) Debtor-Creditor Relationship governed by the provisions concerning loan

-Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest (Serrano vs. central Bank of the Philippines).

b.) Fiduciary duty- High standards of integrity and performance

> it requires the banks to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship

- banks are required to assume a degree of diligence higher than that of a good father of a family

c.) Not a Trust Agreement- contract is a “simple loan” - failure of the bank to pay the depositor is not considered a breach of trust- 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

d.) Indispensible Institution- banks play an indispensible institution in the modern world and plays a vital role in the economic life of every civilized nation- as to a humble wage-earner

>banks help in safekeeping if his money and will give some interest to help him earn more

- as to an ordinary person>banks assists in securing his money in order to give convenience in the settling of his monthly bills and the payment of ordinary expenses

- as to business entities>banks may serve as associates to help in the form of loans and the issuance or encashment of checks

e.) Impressed with Public Interest- trust and confidence of the public - the stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks

f.) Degree of Diligence- the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship (Simex International vs. CA)-banks are entirely bound to treat the deposit accounts of their depositors with the highest degree of care

Exception: commercial transactions that do not involve their fiduciary relationship with their depositors, ex. Issuance if foreign exchange demand draft because it does not involve handling of deposit (relationship is that of a buyer and seller)NOTE: diligence extends to financial institutions

g.) Treatment of Accounts with Meticulous Care- utmost fidelity

h.) Duty to Keep Records-banks shall have a true and accurate account, record or statement of their daily transactions particularly those referring to their deposit liabilities- false entry or the willful omission of entries relevant to any transaction is a ground of administrative sanctions and disqualification from office

i.) Banks are not Gratuitous Bailees-they run for gain

j.) Banks not expected to be Infallible- however, it must bear the blame for not discovering mistakes of there are established procedures and the same have not been followed

k.) Dealing with Registered Lands

-banks should exercise moiré care and prudence in dealing with registered lands than private individuals-absent good faith, banks would be denied the protective mantle of the land registration statute-a mortgagee-bank must exercise due diligence before entering into said contract-doctrine of mortgagee in good faith

> all persons dealing with property property covered by the torrens certificate of title, as buyers or mortgagees, are not required to go beyond what appears on the title> does not apply in a situation where the mortgagor was not the registered owner and merely represented himself to be the attorney-in-fact

- principle to follow when mortgagee is a bank: 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 indispensible part of its operations (Cruz vs. Bancom Finance Corp.)- to person applying for the loan is other than the registered owner of the real property being mortgaged should already raise a red flag and which should induce a bank to make inquiries into and confirm the authority to mortgage another’s property

l.) Banks may Exclude Persons in their Premises-banks are mandated to exercise a higher degree of diligence in the handling of its affairs than that expected of an ordinary business enterprise-banks may impose reasonable conditions or limitations to access by non-employees from the working areas for employees

m.) Charging of Interest for Loans- essential and fundamental element of banking business- the very core of such business

IV. Liability for Acts of Officers and Employees- a bank’s liability as obligor is not merely vicarious but primary -banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees- 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 (Prudential Bank vs. CA)

A.) Negligence of Manager- bank, as employer, is liable for the negligence or the misdeed of its branch

managerB.) Negligence of Officers

- a bank is liable for the negligence of its officers or agents when acting within the course and scope of their employmentC.) Negligence of Tellers

-tellers should exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representatives

-appropriation of money for personal gain by a teller is not estafa but theft. Since the relationship between the bank and the teller involves confidence, such felony would be that of qualified theftD.) Right to Recover from Employees

- banks may recover from its employees for any payments made in view of the latter’s negligent or criminal actsE.) Liability for Damages

- there must be breach before damages may be awarded and the breach of such duty should be the proximate cause of the injury

1.) Actual and Compensatory Damages- the given damages may be imposed as follows:

> when the obligation is breached, the interest due should be that which may have been stipulated in writing and the interest due shall itself earn legal interest from the time it is judicially demanded> or in the absence of such, the rate and interest shall be 12 % per annum to be computed from default. > when an obligation, not constituting a loan or forbeareance of money, is reached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum> when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest is 12% per annum from such finality until its satisfaction

2.) Exemplary Damages- by way of example for the public good

3.) Moral Damages

- General rule: corporation, being an artificial person, without feelings, emotions, and senses, and having existence only in legal contemplation-is not entitled to moral damages because it cannot experience physical suffering and mental anguish

Exception: for breach of fiduciary duty, a corporate client may claim such damages when its good reputation is besmirched by such breach, and social humiliation results therefrom

-the bank cannot be held liable for such damages in the absence of fraud, bad faith, malice, or wanton attitude- a depositor has the right to recover reasonable moral damages even if the bank’s negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation

CHAPTER 2

ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS, QUASI- BANKS AND TRUST ENTITIES

I. Organization of Banks

A. Conditions

Monetary Board ( MB) may authorize the organization of a bank or quasi- bank subject to the following conditions: (SPC)

1. That the entity is a stock corporation2. That its funds are obtained from the public, which shall mean twenty 20 or more

person s

3. That the minimum capital requirements prescribed by the Monetary Board for each category of banks are satisfied.

B. Capabilities

MB shall take into consideration in terms of financial resources and technical expertise and integrity:

1. Bank’s ownership structure2. Directors and senior management

3. Its operating plan

4. Internal control

5. Its projected financial condition and Capital base (Sec. 8 GBL)

C. Capital Requirements

1. Bank to be establish the said requirements must observed

Type of Bank

Amounts

( in Million Pesos)

1. Universal Bank

4,950.0

2. Commercial Bank

2,400.0

3. Thrift Bank

With head office in Metro Manila

With head office outside Metro Manila

325.0

52.0

4. Rural Bank

Within Metro Manila

Cities of Cebu and Davao

In 1st, 2nd, 3rd class cities and 1st class municipalities

In 5th and 6th class cities and 2nd, 3rd and 4th class municipalities

In 5th and 6th class municipality

26.0

13.0

6.5

3.9

2.6

2. At least 25% of total authorized capital stock shall be subscribed by capital bank, at least 25% of such bank should be paid- up, provided that paid-up capital be less than minimum required capital

D. Incorporators/ Subscribers an d Proposed directors

a. Must be in persons of integrity and good credit standing in the business community

b. Must not have been convicted of any crime involving moral turpitude, unless otherwise provided of existing law

c. Organization of bank:

-not less than 5 incorporators but Not more than 15.

-in case there are more than 15, excess may be listed among the original subscribers in Articles of corporation

Note: Cooperatives may organized a rural bank

Upon consultation with rural banks in the area Provided, cooperative or corporation owning or controlling the whole or majority of

the voting stock of the rural bank shall be subject to special examination and to the such rules and regulations as MB prescribes

E. Bank Branches

1. Universal and commercial banks may open branches or offices within o outside the Philippines upon prior approval of Sentral Bank.

2. Banks and its branches and offices shall be treated in one unit. (Sec 20, GBL)

II. Stockholdings

A. Treasury Stocks

1. No Bank shall:

a. Purchase or acquire shares of its own capital stock

b. Accepts its own shares as a security for a loan

Exception: when authorized by MB.

Stocks acquired should be sold or disposed 6 months from acquisition.(Section 10, GBL)

2. No bank shall make any loan or discount in security of the shares of its own capital stock, nor be the purchaser or holder on any shares, unless, purchase shall be necessary to prevent loss.

3. Corporation has no lien upon the shares of stockholders for any indebtedness to the corporation.

Reason: if banking were given a lien on their own stock for indebtedness of the stockholders, the prohibition against granting loans or discount upon the security of the stock would become largely ineffective.

B. Foreign Stockholders

1. Ownership- Foreign individual and non-bank corporation May own 40%of the voting stock of a domestic bank. (Sec . 11 GBL)

Provided:

The aggregate foreign – voting stocks owned by foreign individuals and nonbank corporation in a domestic bank shall not exceed 40% of outstanding voting stock of the bank.

A Filipino individual and a domestic non – Bank Corporation may each own up to 40% of voting stock of domestic bank. No aggregate ceiling on the ownership.

2. The percentage determination- of foreign- on voting stocks in a bank shall be determined by citizenship of the individual stock holder. Citizen shall follow the stockholders of the corporation irrespective of the place of corporation.

3. Percentage of voting stock

Commercial Bank 60% be owned by Filipino citizen

Thrift Bank 40%

Rural Bank be fully and held, directly or indirectly by Filipino or corporations, associations or cooperatives, qualified under Philippine law.

Note: the following shall not apply in determining nationality of the bank

a. War- time testb. Investment test

c. Place of incorporation test

d. Grandfather rule

e. Principal place of business test

C. Acquisition of Voting Stock in a Domestic Bank

1. Within seven years from the affectivity of the GBL subject to the guidelines of Foreign Banks Liberalization act MB may authorize: Foreign bank to acquired 100% of voting stock of only one bank organized under the law of Phil.

2. Within seven years before the affectivity of the GBL availed itself of privilege to acquired 60% of voting stock under Foreign Banks Liberalization act and Thrift bank act, further acquire voting to acquire 100% necessary for its own.

3. MB shall ensure70% of resources or assets of the entire banking system which are at least majority owned by Filipino.

D. Family Groups or Related Interests

The following are considered as family group:

1. Individual related to each other within 4th civil degree of consanguinity or affinity, legitimate or common law.

2. Two or more corporation owned or controlled by the same family group of persons.

III. Board of Directors

A. Number of Directors

There shall be at least 5 and maximum of 15 members of board of directors of bank, 2 of whom are independent directors.

INDPENDENT DIRECTOR- person other than an officer or employee of the bank , its subsidiaries or related interests

Specifically:

a. Not had been an officer or employee of he bang during 3 yrs counted from the date of his election.

b. Not a director or officer of the related company of the institutions majority stockholder

c. Not a majority stockholder of the institution

d. Not a relative within 4th civil degree of consanguinity or affinity, legitimate or common law of any director, officer o stockholder.

e. Not acting as a nominee or representation of any director or any substantial holder of the bank.

f. Free from any business or other relationship with the institution or any substantial holder of the bank.

B. Director of Merged or Consolidated Banks

Bank merger or consolidation should not be more than 21 directors.

C. Meetings

1. Meeting of the board of directors may be conducted through modern technologies, such as but not limited to teleconferencing or video conferencing

D. Compensation and Other Benefits of Directors and Officers

IV. Fit and Proper Rule

A. Power of Monetary Board

1. Review the qualifications and disqualifications of individuals elected or appointed officer unfit to the said position

2. After due notice MB may disqualify, suspend or remove individuals elected or appointed officer unfit to the said position

3. In determination of remove individuals elected or appointed officer unfit to the said position, the preference are his integrity, experience, education, training, and competence

B. Disqualifications

1. The following are permanently disqualified:

a. Convicted by final judgment of court for offenses involving dishonesty or b reach of trust

b. Convicted of final judgment with a term of more than 6 years

c. Convicted of final judgment in violation of banking laws

d. Those declared insolvent

2. The following are permanently disqualified:

a. Refuses to disclose his business interest

b. Directors who have been absent 50% of all meeting, 25% of all board meeting in a year

c. Persons who are delinquent in payment of their obligations

d. Convicted by court for offenses involving dishonesty or b reach of trust has not become final and executory

C. Disqualifications/ Prohibitions Under the Corporation Code

Directors, trustee or officers are disqualified when:

Imprison for more than 6 years, Violation of a Corporation code committed within 5 yrs prior to election or

appointment

D. Disqualifications/ Prohibitions Under the Corporation NCBA

MB disqualify from being a director, officer, employee, consultant, lawyer, agent or stockholder of bank

MB members from private sector prohibited to hold public office

MB shall not connected in multilateral banking 1yr prior to the appointment

MB shall not employ 2 yrs. After the expiration of his term, except if he serves govt. institution

E. Disqualifications/ Prohibitions Under PDIC Law

PDIC prohibit to director, officer or employee of insured bank to serve if he is convicted of any criminal offense

Bank involve may be held liable no more than100 pesos for each day of violation

F. Disqualifications/ Prohibitions Under RA 7353

Member of the board of directors of rural bank shall be a citizen of the Phil. From the time of assumption of office

G. Disqualifications/ Prohibitions Under Appendix 38, Manual of Regulations for Banks (Guidelines for the Organization of Cooperative Banks)

Cooperative bank shall disqualify to be elected or appointed to an y position of coop. bank

Elective official of govt. except barangay official shall be ineligible

H. Prohibition on Public officials

Public official are prohibited to assume office in a private bank

V. Banking Days and Hour

A. Numbers of Days and Hours

6 hours per day, 3 hours in Saturday, Sunday or holiday

B. Rules and Regulation

Bank shall conduct business 5 days a week

For purposes of withdrawals and deposits, banks may remain open beyond 6 hours (must have prior notice)

Banks at international airport or major fish port m ay open within 24 hours( must inform the BSP)

Banks may change working days and hours (must have prior notice, changes must be 7 days before intended effectivity)

Without any prior approval with BSP Bank may close to a certain days in celebration of important historical and/or religious event.

• Kinds of Deposits• Demand Deposits

• all those liabilities of the Bangko Sentral and of other banks which are denominated in Philippines currency and are subject to payment in legal tender upon demand by the presentation of the depositor’s check

• Who can accept or create demand deposits?• Without prior authority from BSP (Sec 33, GBL)

• Universal banks• Commercial Banks

• Prior Authority from BSP (Sec 58, GBL)• Thrift banks• Rural Banks• Commercial Banks

• Manner of Making Deposits• (Philippine Bank of Commerce VS CA, GR 97626)

• In the ordinary and usual course of banking business:• accepted by the bank on the basis of deposit slips• prepared and signed by depositor

• or by the representative of depositor• indicating the account number for crediting the deposit• the name of depositor or account holder• date of deposit• amount of deposit

• indicating cash or checks• upper portion of deposit slip is detached and given to depositor

• or to the representative of depositor• lower portion kept by the bank

• OR duplicates are made by depositor

• original kept by the bank• duplicate copy returned to depositor

• Temporary Over Drawings; Drawings against Uncollected Deposits (DAUDS)• General Rule: Temporary Over Drawings are NOT allowed

• Exception: caused by normal banks charges or other fees• incidental to account handling

• Violation of the Rule• fine of 1/10th of 1% of amount overdrawing or fines• amount determined by the Monetary Board• not to exceed P30,0000 • which ever is lower

• Technical overdrawings arising from force posting• debited by banks in “Other Assets”

• Returned Checks and other Cash Items no in Process of Collection• Checks lodged will be returned or honored• Honored checks are covered by:

• cash• Cashier’s, Manager’s, Certified checks• Bank Drafts• Postal Money Orders• Treasury Warrants• Duly Funded “On Us” checs• Fund transfer/credit memos in the same bank

• Peso demand deposits of foreign correspondent banks with commercial banks• not subject to the same rules as above

• Provided:• there is an reciprocal arrangement• covered within 15 days• credited through foreign exchange inward remittance

• DAUDS• PROHIBITED

• Except: drawings represented by• manager’s, cashier’s, treasurer’s checks• treasury warrant• postal money order• duly funded “on us” (discretion of the bank)

• Current Accounts of Bank officers and employees

• Not allowed in the same banking office they are assigned• all officers• employees of cash units or cash department• other employees

• directly and immediately responsible to demand deposits or current accounts’:

• Records• Transactions

• Extends to officers and employees• Spouses and relatives within the 2nd degree of consanguinity and affinity• business interests: individually own or control majority

• single proprietorships• partnerships• corporations

• What are CHECKS?• a bill of exchange drawn on a bank payable on demand• a written order to a bank by a party having money in their hands

• requesting to pay on presentment• to the bearer or order• in a sum of money

• Fixed saving and current deposits are simple loans, thus:• banker agrees to pay checks drawn by the depositor• provided there is money in the accounts• creditor is the depositor, bank is the debtor

• Duty to honor checks (Moran vs CA, GR 105836)• when the bank possess the funds of the depositor, bound to honor checks

• failure to do so:• drawer is entitled to substantial damages • no need to prove actual damages

• Bank is not liable when there is insufficient funds and refuses to honor• bank notifies and endeavors the drawer to make good on his account• not withstanding a deposit made later in the day

• Depositor must show he had sufficient funds before suing to recover a specific amount

• Responsibilities of the drawer• drawer must keep track of his accounts• cannot rely notification of the bank

• check is meant for immediate payment, as distinguished from a bill of exchange• Banks to know signatures

• forged checks cannot be drawn against account of depositor• No obligation to make partial payments

• check drawn larger than the amount in the account• partial payment does not allow surrender of the check nor voucher of payment

• If the depositor has two accounts, deficiency of one cannot be compensated by the other

• refusal of payment by the bank is valid• Checks are not legal tender

• acceptance in payment is at the discretion of creditor• Sec 60, New Central Bank Act:

• That a check which has been cleared and credited to the account of the creditor shall be be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account.

• Savings Deposits; solicit and accept• Servicing outside bank premises

• financial condition of bank is sound• operational and quality of management reasonably assuring• proposed area clearly defined• confined in a locality with no other banks in operation

• OR locality untapped of deposit potentials• Maintain safeguards

• P1000 bond on deposit solicitors, subject to increase• solicitors wearing proper identification and signature• adequate insurance coverage during transit• deposit slips in booklet form, in triplicate• all collections turned over to cashier

• with Collection Summary Report• date of report• names and addresses of depositors• slip numbers• amounts• account numbers• name and signature of solicitor

• Depositors makes a signature card• deposits and withdrawals made by bookkeeper

• End of each month, depositors are advised of the balance in their accounts• places of assignments shall have a quarterly rotation of solicitors

• Withdrawals• Need of passbooks, accomplishing of withdrawal slips

• unless authorized otherwise by BSP• NOW accounts (Negotiable Order of Withdrawals)

• NOW accounts are:• interest bearing accounts• combines:

• demandability of checks• investment feature of savings

• Universal Banks and Commercial Banks may offer without prior authrization• Rules on NOW accounts

• inform terms and conditions prior to opening• bank’s responsibility of proper identification, 2 specimen signatures, other info• deposit slips in duplicate, validated, and initialed by teller receiving deposit• kept and maintained separately from other accounts• blank forms shall be prenumbered and be controlled in case of unissued and blank

checks• statements sent at the end of each month• use prescribed forms

• Time Deposits• one the payment of which cannot legally required within such a specified number of

days• term shall be specific period• Special time deposits

• Agrarian Reform Fund commission• exemption from legal reserve requirement

• Negotiable Certificates • Universal and Commercial banks can issue without prior approval• all others upon prior approval

• Non-Negotiable Certificates• any bank may issue without prior approval• long-term, tax exempted

• Quasi Banking Functions (Deposit Substitute Operations)• Essential Elements

• Borrowing funds for the borrowers’s own account (not in representation, agent or trustee)

• borrowing refers raising funds by methods for the two purposes• real or contingent liability of borrower

• 20 or more lenders at any one time• Methods of borrowing:

• issuance, endorsement, or acceptance of debt instruments of any kind• except deposits

• Purpose • relending

• refers to extension of loans by an institution with antecedent borrowing transactions

• presumption of regularly engaged in lending• regularly engaged in lending practice of extending loans, advances,

discounts or rediscount as a matter of business• distinguish from isolated lending transactions

• purchasing receivables or other obligations• refers to acquisition of claims collectible in money

• interbank borrowing• refers to acquisition of securities

• any amount and maturity• foreign or domestic

• Foreign Currency Deposits• any person may deposit

• natural or juridical• in Philippine banks

• good standing• designated by Central bank

• upon application• foreign currencies acceptable as part of international reserve• WITH AUTHORITY TO ACCEPT

• accept deposits and currencies in trust• issue certificate of evidence• discount certificate• accept said deposits as collateral• pay interest in foreign currency

• Cover Requirements

• 100% liability coverage• 15% of which shall be with Central Bank

• exempted if on account of:• net worth• resources• past performances• other criteria by Monetary Board

• balance in the form of foreign loans and securities• short term maturities• readily marketable

• may include loans to domestic enterprises• export oriented or• registered with Board of Investments

• cover the same currency corresponding with liablity• Central bank may pay interest

• if requested, exchange into instruments draw on its depository banks• No restriction on withdrawal or transferring except stipulated by contract

• Anonymous and Fictitious accounts not allowed• numbered accounts

• the client is identified in an official or identifying documents• Administration of Deposits

• Requirements of three specimen signatures• updated every 5 years• at the banks option submit also ID

• Minors as depositors• vested with special capacity and power

• in their own right and name• savings and receive interest• without assistance of parents or guardians

• Must be:• at least 7 years of age• able to read and write• sufficient discretion• not disqualified by other incapacities

• parents may deposit for their minor children• In thrift banks

• Same

• parents or guardians can give notice to make payments of deposits, interest or dividends to them

• Corporations as depositors• Incorporation Stage

• Bank Certificate required by SEC • in case of payment of subscription is in cash• paid up capital• notarized where signed

• Post Incorporation Stage• Board of Directors issues resolution authorizing signatories

• specifying the depository bank• Time of interest payment deposits/deposit substitutes

• Paid upon• maturity• withdrawal• in advance

• advance shall not exceed one year• Interest rate

• cost of borrowing money or• amount paid for lending money

• expressed as a percentage of principal• Interest rate differential

• difference or margin between interest rates• example: between domestic and foreign interest rates

• Treatment of matured time deposits/deposit substitutes• a time deposit not withdraw or renewed

• on it due date• treated as a savings deposit• earn interest from maturity

• until date of actual withdrawal or renewal• rate applicable to savings deposit

• a deposit substitute not withdrawn or renewed• on its maturity date • payable on demand• shall earn interest or yield

• until actual withdrawal or renewel• rate applicable to deposit substitute with a maturity of 15 days

• Banks performing quasi-banking functions• consider matured and unwithdrawn• subject to reserves

• Clearing Cut off time• General rule:

• deposits and withdrawals during regular banking hours shall be credited and debited on the date of receipt

• Exception:• a bank may set up a clearing cut off time for its head office• not earlier than 2 hours before start of clearing at BSP• not earlier than 3.5 hours before start of clearing of branches, agencies, and

extension offices doing business in the Phlippines• Provided further:

• areas without BSP regional/clearing arrangements• no more than two hours of local clearing time

• Booking of cash deposits• after clearing hours until regular closing of the bank

• booked as deposits on day of receipt• Booking of non-cash deposits

• Deposits of checks• manager’s, cashier’s, “on us,” treasures checks, demand drafts

• drawn against the depository bank and all its offices• including treasury warrants and postal money orders

• at their discretion, after clearing before regular closing• book as deposits on the day of receipt

• other deposits shall be treated as contingent accounts on day of receipt• booked on the following banking day

• Booking of deposits after banking hours• as contingent accounts, booked on the following banking day

• whether cash or non-cash• AVERAGE DAILY BALANCE

• imposition and collection of service charges or maintenance fees• active or dormant accounts• falling below ADB

• Conditions:• Clearly stated of such charges and fees in the terms and conditions• rate or amount properly disclosed

• fallen below minimum ADB for dormant• for at least 2 consecutive months for active• dormancy fees shall disclose

• period of dormancy• informed by registered mail

• at least 60 days prior to imposition of fees• any changes in terms and conditions of ADB must be communicated at least

60 days prior to effectivity• regular mail, e-mail, courier or other alternative modes of communication• failure to protest of depositor within 30 days of notice constitute as

acceptance• posting of said changes

• on websites• ATMs• conspicuous spaces with bank premises

• SURVIVORSHIP AGREEMENT• 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 the either, belonged to the survivor.

• not necessarily contrary to law, but may be in the guise for: (can be annulled)• inofficioius donation• transfer property to defraud creditors• defeat legitime

• Nature of Bank Deposits• Not preferred credits, considered as simple loans• irregular deposits because they earn interest

• creditor = depositor• debtor = bank

• failure to honor time deposit• breach of contract to pay• not a breach of trust

• obligated to return the amount deposited• not the exact bills

• ownership of the money transmitted to the bank upon perfection of contract• can make use of the money for its banking operations and business• obliged to pay interest and withdrawals

• See Article 1960 of NCC - simple loans govern bank deposits

• Duties of a bank• Meticulous care

• nature of its function• high standards of integrity and performance• depositors are not estopped from questioning wrongful withdrawals

• even if they failed to question those errors sent for verification• expected to treat with utmost fidelity, no matter the amount• record every single transaction promptly• See BPI vs IAC GR 69162

• Payment to proper party• no right to pay other persons that do have the right or authority to receive• payment to wrong party does not extinguish obligation

• good faith or mistake not a defense• with out negligence or fault to the creditor

• In Case of death of Depositor• NIRC Section 97, provides

• Not allow withdrawal until certified by CIR• taxes have been paid

• administrator or any one heir may withdraw• with certification from CIR• not more than P20,000

• Secrecy of Bank Deposits• Purpose

• encouragement to deposit money in banking institutions• discourage private hoarding• proper utilization for economic development

• Absolute Confidentiality• All deposits of whatever nature

• including investments bonds• Foreign investment accounts• Islamic Banks

• exceptions:• inspection of bank’s auditor• permission of bank auditor• subject to a court order

• Exceptions under Bank Secrecy Law• written permission of depositor

• in cases of impeachment• upon order of a competent court

• cases of public officials• bribery• dereliction of duty

• money deposited or invested is subject matter of litigation• Garnishment

• See Rule 39, Sections 9(c) and 13• Section 13 are the exempted properties

• no real inquiry in garnishment• disclosure is purely incidental to the execution of garnishment

• Foreign currency law cannot be used to shield wrong doing• see case of Salvacion vs Central Bank GR 94723• not the intent of the legislature

• Graft and Corruption cases inquiries can be made• bank deposits can be inquired into for unexplained wealth• public office is a public trust• inquiry extends itself to cases of property concealed

• illegally acquired • held or recorded in the name of another person

• AMLC (Anti-Money Laundering Council) & AMLA• AMLC may inquire if:

• probable cause deposits or investment are related to unlawful activity• a money laundering offense

• no court order required if:• kidnapping for ransom• violation of Comprehensive Dangerous Drugs Act• Hijacking• destructive arson and murder

• including terrorist against non-combatant persons• Periodic or Special Examinations by BSP

• BSP may inquire in accordance with rules of examination• Monetary Board

• reasonable ground to believe there is bank fraud or serious irregularity

• specifically authorized bank by Monetary Board• Independent Auditor hired by the bank

• audit purposely only• exclusively to the bank• natural consequence of examination

• In Camera Inspection by Ombudsman• there must be a pending case before a competent court of jurisdiction• account clearly identified• limited to the subject matter of litigation• bank personnel and account holders duly notified

• to be present during inspection• cover only the account identified• investigation is not considered a pending case before a competent court

of jurisdiction• Preliminary attachment

• part of the subject matter under litigation• does not conflict with bank secrecy law

• Disclosure of dormant account• Act 3936 Section 2

• An Act Requiring Banks, Trust Companies... and Banking Institutions of Every Kind to Transfer Unclaimed Balances Held by Them to the Insular Treasurer

• name and address of last know place of residence• amount and date of outstanding deposit (money or security)• date of death depositor or date of his last deposit or withdrawal• interest due, if any

• publish info in 2 newspapers of general circulation for 3 consecutive weeks

• Authority of CIR to inquire into Deposits• Section 6 of NIRC

• determine gross estate of decedent• any tax payer who filed for compromise

• reason of financial incapacity• application will not be considered without a written waiver from

tax payer• Waivers by: DORIS

• Director• Officer• Related Interest

• Stockholder• Requirements

• obtains:• a loan; or• financial accommodation

• From:• his bank• from a bank

• subsidiary of a bankholding companya.which his bank AND the lending bank are subsidiaries

• OR in which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of the shakes of his bank,

1.in excess of 5% of the capital and surplus of the bank or2.in the maximum amount permitted by law

III. Survivorship AgreementThere is survivorship agreement when joint (and several) owners of a deposit agree

that either of them could withdraw any part or the whole of the 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. Article 1790 states that 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.

Survivorship agreement is not invalid per se but its operation or effect may be violative of law. For instance, if it be shown in a given case that such agreement is a mere cloak to hide an inofficious donation, it may be assailed and annulled upon such ground. IV. Nature of Bank Deposits

• Fixed, savings and current deposits of money in banks and similar institutions are considered simple loans and not preferred credits.

• Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. A depositor is in reality a creditor of the bank and the bank is in turn a debtor of a depositor. Failure of the bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a depositary’s failure to return the subject matter of the deposit.

• The ownership of the amount deposited was transmitted to the bank upon the perfection of the contract and it can make use of the amount deposited for its banking operations. The bank, therefore, has no obligation to return or deliver the same money that was deposited but it has the obligation to return the amount deposited. Failure of the bank to return the amount deposited will not constitute estafa through misappropriation but will only give rise to civil liability.

• The contract between the bank and its depositor is covered by the provisions of the Civil Code on simple loan. 1

• The bank ultimately acquires ownership of the deposits but such ownership is coupled with a corresponding obligation to pay the depositor the equal amount on demand. Thus, a bank does not have a unilateral right to freeze the accounts of a depositor based on its mere suspicion that the funds therein were proceeds of a scam the depositor was allegedly involved in.

• Set-off . As a general rule, 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 a part thereof 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.

V. Duties of Banks• 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.

• Where the ownership of the deposit remained undetermined, a bank, as the debtor, had no right to pay to persons other than those in whose favour the obligation was constituted or whose right or authority to receive payment is indisputable. 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

1? Article 1980, NCC

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 National Internal Revenue Code provides: (section 97, check later)2

VI. Secrecy of Bank DepositsPurposes:

• To give encouragement to the people to deposit their money in banking institutions; and

• 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.

Zones of privacy are recognized and protected in our laws. Invasion of privacy is an offense in special laws like the Secrecy of Bank Deposits Act.3

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 is provided for in RA 8637 that inquiry into and disclosure of deposits is prohibited.

All foreign currency deposits are also of an absolutely confidential nature and in no instance shall it be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or private except upon the written permission of the depositor. 4

In Islamic banks, banking transactions relating to all deposits of whatever nature are also confidential and may not be examined, inquired or looked into by any person,

2? Sec. 97, NIRC

3? RA No. 1405

4? Sec. 8, RA No. 6426

government official, bureaus or office except: inspection by the bank’s auditor, upon written permission by the depositor or in cases where the money deposited or the transaction concerned is the subject of a court order.5

VII. Exceptions to Secrecy of Deposits• Upon written permission of the depositor

• In cases of impeachment

• Upon order of a competent court in cases of bribery or dereliction of duty of public officials

• In cases where the money deposited or invested is the subject matter of the litigation

The prohibition against examination of or inquiry into a bank deposit does not preclude its being garnished to insure satisfaction of judgment. Indeed there is no real inquiry in such a case, and if the existence of the deposit is disclosed, the disclosure is purely incidental to the execution process. It was not the intention of the lawmakers to place bank deposits beyond the reach of execution to satisfy a final judgment.

Exemption from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever, is not applicable to a foreign currency deposit. It cannot be used as a device for wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent.

The Anti-Graft Law directs in mandatory terms that bank deposits shall be taken into consideration in its enforcement, notwithstanding any provision of law to contrary. Cases of unexplained wealth are similar to cases of bribery and dereliction of duty; hence, the rule making bank deposits confidential is not applicable in such case. This policy expresses the notion that a public office is a public trust and any person who enters upon its discharge does so with full knowledge that his life, so far as relevant to his duty, is open to public scrutiny.

The AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court in cases of violation, when it has been established that:

• There is probable cause that the deposits or investments are related to an unlawful activity; or

5? Sec. 17, RA No. 6848

• A money laundering offense.6

The Bangko Sentral ng Pilipinas may inquire into or examine any deposit or investment with any banking institution or non-bank financial institution when the examination is made in the course of periodic or special examination, in accordance with the rules on examination of the BSP. Disclosure is also allowed in an examination authorized by the Monetary Board after being satisfied that there is a reasonable ground to believe that a bank fraud or serious irregularity has been or is being committed. Another exception id the examination made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank.

The Ombudsman has the power to examine and have access to bank accounts and records, provided that there must be a pending case before a court of competent jurisdiction. The account must be clearly identified and the bank personnel and the account holder must be notified to be present during the inspection and such inspection may cover only the account identified in the pending case. 7

Section 10, Rule 57 of the Rules of Court provides: “Examination of party whose property is attached and persons indebted to him or controlling his property; delivery of property to sheriff. Any person owing debts to the party whose property is attached or having in his possession or under his control any credit or other personal property belonging to such party, may be required to attend before the court in which the action is pending, or before a commissioner appointed by the court, and be examined on oath respecting the same. The party whose property is attached may also be required to attend for the purpose of giving information respecting his property, and may be examined on oath. x x x” The said rule is not incompatible with the law on secrecy of bank deposits because it provides an exception “in cases where the money deposited or invested is the subject matter of the litigation.”

Disclosure of dormant accounts is also an exception in the Secrecy of Bank Deposits since it is provided for by law that “x x x all banks shall forward to the Insular Treasurer a statement, under oath of their respective managing officers, of all credits and deposits held

6? RA No. 9160

7? Sec. 15(8), RA No. 6770

by them in favour of persons known to be dead, or who have not made further deposits or withdrawals during the preceding ten years or more, x x x”. 8

The Commissioner of Internal Revenue has the authority to inquire into deposits as provided in Section 6 of the 1997 National Internal Revenue Code, specifically to inquire into the bank deposits of:

• A decedent to determine his gross estate

• Any taxpayer who has filed an application for compromise of his tax liability under Sec. 204(A)(2) of this Code by reason of financial incapacity to pay his tax liability.

However, his application shall not be considered unless and until he waives in writing his privilege under RA No. 1045 or under other general or special laws, and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer.

Section 26 of the New Central Bank Act also provides:Bank Deposits and Investments. — Any director, officer or stockholder who,

together with his related interest, contracts a loan or any form of financial accommodation from: (1) his bank; or (2) from a bank (a) which is a subsidiary of a bank holding company of which both his bank and the lending bank are subsidiaries or (b) in which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of the shares of his bank, in excess of five percent (5%) of the capital and surplus of the bank, or in the maximum amount permitted by law, whichever is lower, shall be required by the lending bank to waive the secrecy of his deposits of whatever nature in all banks in the Philippines. Any information obtained from an examination of his deposits shall be held strictly confidential and may be used by the examiners only in connection with their supervisory and examination responsibility or by the Bangko Sentral in an appropriate legal action it has initiated involving the deposit account.

8? Sec. 2, RA No. 3936