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 moir 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 anothers 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 banks 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 manager
B.) Negligence of Officers
- a bank is liable for the negligence of its officers or agents when acting within the course and
scope of their employment
C.) 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 theft.
D.) Right to Recover from Employees
- banks may recover from its employees for any payments made in view of the latters
negligent or criminal acts
E.) 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 banks
negligence may not have been attended with malice and bad faith, if the former
suffered mental anguish, serious anxiety, embarrassment and humiliation
F. 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
(command responsibility).

The defense of exercising the required diligence in the selection and supervision of employees is NOT a
complete defense in culpa contractual.

(b) Adopt a name without such words (Rural or Coop) PROVIDED that the identifying phrase
A Cooperative Bank or A Rural Bank, is affixed after its business name.
Classification of Banks
Universal Banks

Commercial Banks

Large commercial banks licensed by the BSP to do

both commercial and investment banking.

Those which have general powers incident to

corporations and all such powers necessary to carry on
the business of commercial banking.

Rural Banks

Thrift Banks

V. Classification of Banks
Code: C-U-T-R-I-C-O
(1) Commercial banks
(2) Universal banks
(3) Thrift banks
(a) Savings and mortgage banks
(b) Stock savings and loan associations
(c) Private development banks (Thrift Banks Act RA 7906)
(4) Rural banks (Rural Banks Act RA 7353)
(5) Cooperative banks (Cooperative Code RA 6938)
(6) Islamic banks (Charter of Al Amanah Islamic Investment Bank of the Philippines RA 6848)
(7) Other classifications of banks as determined by the Monetary Board of the BSP
Business Name
(i)

(ii)

Are those banks organized for the following purposes:

Accumulating the savings of depositors and
devoting such in investments and loans.
Providing short-term working capital, medium
and long-term financing, to businesses
engaged in agriculture, services, industry and
housing.

Only a bank that is granted universal/commercial banking authority may represent itself to the
public as such in connection with its business name.

Providing diversified financial and allied

services for its chosen market and
constituencies specially for small and
medium enterprises and individuals.

Thrift banks may be allowed to adopt and use any name PROVIDED that any of the following
words are affixed after its business name:

Services that thrift banks may perform ONLY when

approved by the Monetary Board:

-A Thrift Bank
-Savings Bank
-A Private Development Bank
-A Stock Savings and Loan Association
(iii)

Are those banks organized to make needed credit

available and readily accessible in the rural areas on
reasonable terms. Its purpose is to meet the normal
credit needs of farmers, fishermen or farm families
owning or cultivating land dedicated to agricultural
production as well as the normal credit needs of
cooperatives and merchants.

Rural/Cooperative Banks may:

(a) Adopt a corporate name or use a business name/style with the word Rural or Coop

(a) Open current and checking accounts

(b) Act as collection agent for government
entities
(c) Act as official depository of national agencies
and local government units funds
(d) Issue mortgage and chattel mortgage
certificates, buy and sell them , or accept or

receive them in payment or as amortization

of its loan
(e) Engage in quasi-banking and money market
operations
Cooperative Banks

Islamic Banks

-Organized to finance the acquisition and distribution of agricultural estates for division and resale to small
landholders as well as the purchase of the landholding by the agricultural lessee.

Development Bank of the Philippines

-Formerly known as Rehabilitation Finance Corporation.

Those organized by, the majority of shares of which is

owned and controlled by, cooperatives primarily to
provide financial and credit services to cooperatives.

Those banks which have for a purpose the promotion

and acceleration of the socio-economic development of
the Autonomous Region by performing banking,
financing, and investment operations and to establish
and participate in agricultural, commercial and
industrial ventures based on the Islamic concept of
banking.

Other Banks

Philippine Veterans Bank

-Created with the enactment of RA No. 3518
-Conceived and created as a private commercial bank that is owned by the veterans but the law provided that it
shall be a government depositary as a gesture of appreciation by a grateful nation to the veterans for the
sacrifices they offered on the altar of freedom.

Land Bank of the Philippines

-Created by RA 3844 (Agricultural Land Reform Code)

-Created by RA 85 (RFC)
-The RFC provided credit facilities for the development of agriculture, commerce, and industry and the
reconstruction of properties damaged by the war.

Non-stock savings and loan association is a non-stock, non-profit corporation engaged in the
business of accumulating the savings of its members and using such accumulations for loans to
members to service the needs of households by providing long-term financing for home building and
development and for personal finance. They confine their membership to a well-defined group of
persons and cannot transact business with the general public.
Quasi banks refer to entities engaged in the borrowing of funds through the issuance, endorsement
or assignment with recourse or acceptance of deposit substitutes for the purpose of relending or
purchasing receivables and other obligations.
Offshore banks refers to those who conduct banking transactions in foreign currencies involving the
receipt of funds from external sources and the utilization of such funds.

Offshore banking unit - means a branch, subsidiary or affiliate of a foreign banking

corporation which is duly authorized by the BSP to transact offshore banking business in the
Philippines.

Q: Who are allowed to operate offshore banking units in the Philippines?

A: Only banks which are organized under any law other than the Philippine law, their
branches, subsidiaries or affiliates.

(a) On demand, provide the necessary specified currencies to cover liquidity needs that may arise or other
shortfall that its offshore banking unit may incur.
(b) The operations of its offshore banking unit shall be managed soundly and with prudence.
(c) Train and continually educate a specific number of Filipinos in international banking and foreign
exchange trading with a view to reducing the number of expatriates.

Local branches of foreign banks already authorize to accept foreign currency deposits under
RA 6426 may opt to apply for authority to operate an offshore banking unit PROVIDED their
license to transact business under the provisions of RA 6426 shall be deemed automatically
withdrawn.

(d) Provide and maintain in its offshore banking unit net office funds in the minimum amount of US$
1,000,000.
(e) Start operations of its offshore banking unit within 180 days from receipt of its certificate of authority to
operate such unit.

Q: What must be considered by the Monetary Board before it can issue a certificate of
authority to operate an offshore banking unit?
A: The applicants:
VI. Authority to Engage in Banking and Quasi-Banking Functions
(1) liquidity and solvency position
(2)

networth and resources

No person or entity shall engage in banking operations or quasi-banking functions without the authority
from the BSP.

An entity authorized by the BSP to perform universal or commercial banking functions shall likewise
have the authority to engage in quasi-banking functions.

(6) Other relevant factors such as the participation in equity of local commercial banks and
appropriate geographic representation

The determination of whether a person or entity is performing banking or quasi-banking functions

without BSP authority shall be decided by the Monetary Board.

Q: What must be submitted by the applicant to the BSP so that its application to operate as an offshore
banking unit may be considered?

Existence of a victim actually injured is not necessary in determining whether an entity is engaged in
illegal banking.

(3) Management
(4) International banking expertise
(5) Contribution to the Philippine economy

A: The applicant must submit to the BSP a sworn undertaking of its head office or parent or holding company, duly
supported by an appropriate resolution of its board of directors, that, among other things it will:

The BSP shall, when examining a bank, have an authority to examine an enterprise which is wholly or
majority-owned or controlled by the bank.

Under the NCBA, the examining powers extend only to subsidiaries and affiliates engaged in allied
activities.

The SEC 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.

When the defendant is a CORPORATION,

PARTNERSHIP, or ASSOCIATION organized under
the laws of the Philippines service may be made on:
The president

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 the law for that purpose.

Managing partner
Q: What are the requirements so that a certificate of authority to register be granted by the
Monetary Board?

Corporate Secretary

A: Code: R-P-C
The Monetary Board must be satisfied of the following:
(a) 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.
(b) That the public interest and economic conditions, both general and local, justify the authorization.
(c) That the amount of the 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.

General Manager

The SEC shall not register the by-laws of any bank, or any amendment thereto, unless accompanied by
a certificate of authority from the BSP.

VII. Service of Summons Upon Banks

Service upon a domestic private juridical entity

Service upon a foreign private juridical entity

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.

Treasurer
In-house Counsel

Note: Strict compliance with the mode of service is necessary to confer jurisdiction of the court over a
corporation. The officer upon whom service is made must be one who is named in the statute;
otherwise, the service is insufficient.

Note: However, whatever defect that attended the service of original summons would be promptly and
accordingly cured upon the issuance and the proper service of new summons.

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 corporation
2. 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. Banks ownership structure
2. 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

1.

Amounts
( in Million Pesos)

Universal Bank
4,950.0

2.

Commercial Bank
2,400.0

3.

4.

Thrift Bank
With head office in Metro
Manila
With head office outside
Metro Manila
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

2.
3.

3.9

class

6th

class

2.6

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)

325.0

26.0
13.0
6.5

4th

2.

A.
1.

52.0

2nd, 3rd and

municipalities
In 5th and
municipality

B.
1.

II.
Stockholdings
Treasury Stocks
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)
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.
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.
Foreign Stockholders
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 test
b. 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.
A.

Board of Directors

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.

INDEPENDENT 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.
A.
1.

Fit and Proper Rule

Power of Monetary Board

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


F.

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

B.

V.
Banking Days and Hour
Numbers of Days and Hours
6 hours per day, 3 hours in Saturday, Sunday or holiday
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.

CHAPTER 3
Deposit Functions of Banks
Kinds of Deposits
Demand Deposits
o 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 depositors check
Who can accept or create demand deposits?
Without prior authority from BSP (Sec 33, GBL)
o Universal banks
o Commercial Banks
Prior Authority from BSP (Sec 58, GBL)
o Thrift banks

o
o

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:
o accepted by the bank on the basis of deposit slips
o prepared and signed by depositor
or by the representative of depositor
o indicating the account number for crediting the deposit
o the name of depositor or account holder
o date of deposit
o amount of deposit
indicating cash or checks
o upper portion of deposit slip is detached and given to depositor
or to the representative of depositor
lower portion kept by the bank
o 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
o debited by banks in Other Assets
Returned Checks and other Cash Items no in Process of Collection
o Checks lodged will be returned or honored
o Honored checks are covered by:
cash
Cashiers, Managers, Certified checks
Bank Drafts
Postal Money Orders
Treasury Warrants
Duly Funded On Us checs

Not allowed in the same banking office they are assigned

all officers
employees of cash units or cash department
other employees
o directly and immediately responsible to demand deposits or current accounts:
Records
Transactions
Extends to officers and employees
o Spouses and relatives within the 2nd degree of consanguinity and affinity
o 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:
o drawer is entitled to substantial damages
o 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

Current Accounts of Bank officers and employees

Fund transfer/credit memos in the same bank

Peso demand deposits of foreign correspondent banks with commercial banks
o 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
o PROHIBITED
Except: drawings represented by
managers, cashiers, treasurers checks
treasury warrant
postal money order
duly funded on us (discretion of the bank)

If the depositor has two accounts, deficiency of one cannot be compensated by the other
o refusal of payment by the bank is valid
Checks are not legal tender
o acceptance in payment is at the discretion of creditor
o 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
o 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
o 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
o Need of passbooks, accomplishing of withdrawal slips
unless authorized otherwise by BSP
NOW accounts (Negotiable Order of Withdrawals)
o NOW accounts are:
interest bearing accounts
combines:
demandability of checks
investment feature of savings
Universal Banks and Commercial Banks may offer without prior authrization
o Rules on NOW accounts
inform terms and conditions prior to opening
banks 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
o one the payment of which cannot legally required within such a specified number of days

o
o

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)

o Essential Elements
Borrowing funds for the borrowerss 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
o refers to extension of loans by an institution with antecedent borrowing transactions
o 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
o refers to acquisition of claims collectible in money
interbank borrowing
o refers to acquisition of securities
any amount and maturity
foreign or domestic
o

Foreign Currency Deposits

any person may deposit
natural or juridical
in Philippine banks
good standing
designated by Central bank

o 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
o exempted if on account of:
net worth
resources
past performances
other criteria by Monetary Board
balance in the form of foreign loans and securities
o short term maturities
o readily marketable
may include loans to domestic enterprises
o export oriented or
o registered with Board of Investments
cover the same currency corresponding with liablity
Central bank may pay interest
o 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
o in their own right and name
o savings and receive interest
o without assistance of parents or guardians
Must be:
o at least 7 years of age

o able to read and write

o sufficient discretion
o not disqualified by other incapacities
parents may deposit for their minor children
In thrift banks
Same
o parents or guardians can give notice to make payments of deposits, interest or dividends to
them
Corporations as depositors
Incorporation Stage
o Bank Certificate required by SEC
in case of payment of subscription is in cash
paid up capital
notarized where signed
Post Incorporation Stage
o Board of Directors issues resolution authorizing signatories
specifying the depository bank
Time of interest payment deposits/deposit substitutes
Paid upon
maturity
withdrawal
in advance
o advance shall not exceed one year
Interest rate
cost of borrowing money or
amount paid for lending money
o expressed as a percentage of principal
Interest rate differential
difference or margin between interest rates
o 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
o until date of actual withdrawal or renewal
o rate applicable to savings deposit
a deposit substitute not withdrawn or renewed
on its maturity date
payable on demand

shall earn interest or yield

o until actual withdrawal or renewel
o rate applicable to deposit substitute with a maturity of 15 days
Banks performing quasi-banking functions
o consider matured and unwithdrawn
o 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
o 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
managers, cashiers, 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
o period of dormancy
o 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
o regular mail, e-mail, courier or other alternative modes of communication
o failure to protest of depositor within 30 days of notice constitute as acceptance
o 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
o 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
o 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
o good faith or mistake not a defense
o with out negligence or fault to the creditor
In Case of death of Depositor
NIRC Section 97, provides
o Not allow withdrawal until certified by CIR
taxes have been paid
o 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
o including investments bonds
o Foreign investment accounts
o Islamic Banks
exceptions:
inspection of banks 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
o cases of public officials
bribery
dereliction of duty
o money deposited or invested is subject matter of litigation
Garnishment

See Rule 39, Sections 9(c) and 13

Section 13 are the exempted properties
o no real inquiry in garnishment
o disclosure is purely incidental to the execution of garnishment
Foreign currency law cannot be used to shield wrong doing
o see case of Salvacion vs Central Bank GR 94723
o not the intent of the legislature
Graft and Corruption cases inquiries can be made
o bank deposits can be inquired into for unexplained wealth
o public office is a public trust
o 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
o AMLC may inquire if:
probable cause deposits or investment are related to unlawful activity
a money laundering offense
o 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
o BSP may inquire in accordance with rules of examination
o Monetary Board
reasonable ground to believe there is bank fraud or serious irregularity
specifically authorized bank by Monetary Board
o Independent Auditor hired by the bank
audit purposely only
exclusively to the bank
natural consequence of examination
In Camera Inspection by Ombudsman
o there must be a pending case before a competent court of jurisdiction
o account clearly identified
o limited to the subject matter of litigation
o bank personnel and account holders duly notified
to be present during inspection
o cover only the account identified

III.

investigation is not considered a pending case before a competent court of

jurisdiction
Preliminary attachment
o part of the subject matter under litigation
o does not conflict with bank secrecy law
Disclosure of dormant account
o 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
o publish info in 2 newspapers of general circulation for 3 consecutive weeks
Authority of CIR to inquire into Deposits
o 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
o Director
o Officer
o Related Interest
o Stockholder
o Requirements
obtains:

a loan; or
financial accommodation
From:
his bank
from a bank
o subsidiary of a bankholding company
a.
which his bank AND the
lending bank are subsidiaries
o 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 or
2.
in the maximum amount permitted
by law

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 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 depositarys 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

1 Article 1980, NCC

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 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.

2 Sec. 97, NIRC

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

VI.

Purposes:

institutions; and

Secrecy of Bank Deposits

To give encouragement to the people to deposit their money in banking

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

3 RA No. 1405
4 Sec. 8, RA No. 6426

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, government official, bureaus or office except:
inspection by the banks 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

5 Sec. 17, RA No. 6848

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

6 RA No. 9160

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

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

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 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

8 Sec. 2, RA No. 3936

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.