ContentsDEFINITION AND CLASSIFICATION OF BANKS3What are the Classifications of Banks?3What are the authorities of the BSP?4What are the requirements for Organization?4What type of stocks may a bank issue?5May a bank purchase or acquire shares of its own stocks?5May Foreigners be bank stockholders?5When may a certificate of authority to register be issued?5Who may be part of the board of directors?6May a non-citizen be a member of the Board of Directors of a bank?6What is the Fit and Proper Rule?6How many directors may a consolidated bank have?6What benefits and compensations are the directors and officers of banks entitled to?6What prohibition is imposed upon Government officials?6Where can branches be established?7CASES A71. Simex International Inc. vs. CA72. Solid Bank Corp. vs. Arrieta83. Consolidated Bank and Trust Corp. vs. CA104. Fua Cun vs. Ricardo Summers125. RP vs. Security and Credit Acceptance Corp.13Section 95 of R.A. 765314CASES B151. Central Bank of the Philippines vs. City Trust Banking Corporation152. Filipinas Mills vs. Dayrit16CLASSIFICATION OF BANKS18DEPOSITS LOANS AND OTHER OPERATIONS19What is an investment house?19What are equity investments?19How much may a universal bank invest in equities?19What are considered as financial allied undertakings?19What are considered as Non-financial allied undertakings?20How much may a commercial bank invest in equities?20What are Demand Deposits?21What is the BS/Monetary boards remedy in case a bank fails to comply with the prescribed minimum ratio?21Cases C211. REGISTER of DEEDS OF MANILA,vs. CHINA BANKING CORPORATION,212. CENTRAL BANK OF THE PHILIPPINES vs. THE HONORABLE COURT OF APPEALS223. CRUZ vs. Bancom Finance Corporation234. RURAL BANK OF COMPOSTELA vs. CA25Do Banks provide for limits on loans, credit accommodations and Guarantees?26Can such limit be increased?26What other things are included in the ceiling on credits, accommodations and guaranties?26May the MB prescribe the combination of the liabilities of subsidiary corp., partnership, association, entity or (an individualwho owns or control majority interest in such entities even when the corporation has no liabilities to the bank?27Restrictions on Bank exposure to Directors, Officers, stockholders: (loans to DOSRI)27What is the limit on loans given to DOS?27To whom does the BSP provide development assistance incentives?28What are the rights of a mortgagor in a foreclosure of Real estate mortgage?28How much is the redemption price?28What are the Rights of the Purchaser in the auction sale?28What is the power of the MB over the Major Investments of Banks?29What is the ceiling on investments on RP?29When may a bank acquire, hold or convey real property?29When may the MB summarily and without need for prior hearing close a banking institution and place it under receivership of the PDIC?29Prohibitions on Banks29Prohibitions on bank borrowers:30Prohibitions on dividends declaration-- Sec. 5730Publication requirements31What things should be published by the banks?31When and where?31May the publication requirement be deferred?31Publication of Capital stocks31Penalty for violation of this act31Cases D331. Go vs. BSP332. Soriano vs. Peo343. Sia vs. CA354. CA agro Industrial Devt Corp. vs. CA36Penalty for transactions after a bank becomes insolvent37What are the acts Punished?37Thrift Bank Act of 199537Organization of Thrift Banks37Establishment of Thrift banks38Foreign Banks38What governs the establishment of Foreign Bank branches in the Philippines?38Up to what percent of voting rights in domestic Banks may Foreign Banks be allowed?38How should Local branches of foreign banks be treated?38What is the reason behind the requirement off Head Office Guarantee?38To whom shall summons and legal processes of foreign bank branches be served?38How may a License of a foreign Bank be revoked?38MB may revoke such license to transact business in the Philippines of any foreign bank if it finds that the foreign bank:38Act 7721 Bank Liberalization38What are the modes of entry to Philippine banking system allowed to foreign banks?38Guidelines for the approval of application for entry39May non-Filipino Citizen become members of the BD of a bank?39How are foreign banks treated?39Case F39City Bank N.A. vs. Modesta R. Sabeniano39Finals Period40Capital of the Banko Central41What is Conservatorship?50What is the ground for conservatorship?50What are the procedures for putting a bank under conservatorship?50What are the powers and duties of a conservator?50Period and Termination:50Within what period is bank allowed to be under conservatorship?50Cessation of Banking Business51What are the procedures for Voluntary Liquidation?51What are the minimum requirements to be set forth in the liquidation plan?51What are the effects of voluntary Liquidation?52Receivership and involuntary liquidation52Who is a receiver?52What are the grounds for receivership?52What are the procedures for receivership?52What are the distinctions between receiver and liquidator?52What are the powers and duties of a receiver?53Currency notes unfit for circulation701.70CASES J701. Tibajia vs. CA702. Papa vs. Valencia713. FEBTC vs. Diaz Realty724. New Pacific Timber and Supply Co. vs. Seneris735. Overseas Banking of Manila vs. CA and Tapia74Cases K85RA. 642686PD No. 103488PD. 3936 as amended92Cases L951. PNB vs. Gancayco952. Marquez vs. Desierto963. Ejercito vs. Sandiganbayan964. China Bank Corp. vs. Ortega975. China bank corp. vs. CA986. BANCO FILIPINO vs. PURISIMA et al987. RP vs. First National City Bank of New York998. Republic vs. CFI of Manila1009. Republic vs. CA. Philippine Commercial and international Bank102Case N1031. Salvacion vs. CB103

Banking LawsA. Sections 1 to 22, Republic Act No. 8791 (General Banking Law of 2000) and Sec. 95 of R.A. No. 7653 (The New Central Bank Act)

Sec.2-DECLARATION OF POLICY The state recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. The state shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of the developing economy.

DEFINITION AND CLASSIFICATION OF BANKSSec.3Banks Shall refer to entities engaged in the lending of funds obtained in the form of deposits.What are the Classifications of Banks?1. Universal Banks2. Thrift Banks3. Commercial Banks4. Rural Banks 5. Cooperative Banks6. Islamic Banks7. Other Classification of banksChapter II. Authority of the Banko Central What are the authorities of the BSP?Sec.4a. Supervisory Power-operation and activities of banks shall be subject to the supervision of BSP Issuance of rules of conduct/standards of operation for uniform application to all institution covered, taking into consideration the distinctive character of the operations of institutions and the substantive similarities of specific functions to which such rules modes or standards shall apply. The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the Monetary Board; Overseeing to ascertain that laws and regulations are complied with;Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether an institution is conducting its business on a safe or sound basis: Provided, that the deficiencies/irregularities found by or discovered by an audit shall be immediately addressed; Inquiring into the solvency and liquidation of the institution; Enforcing prompt corrective action. Supervision over the operations of and exercise regulatory powers over quasi-banks, trust entities and other financial institutions.

QUASI-BANKS- shall refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of relending or purchasing of receivables and other obligations.

Sec. 5b. The Bangko Sentral shall provide policy direction in the areas of money, banking and credit.For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or other forms of regulation on the different types of accounts and practices of banks and quasi-banks.

Sec. 6c. No person or entity shall engage in banking operations or quasi-banking functions without authority from the Bangko Sentral.

Provided however that an entity authorized by the Banko Sentral to perform universal or commercial banking functions shall likewise have the authority to engage in quasi-banking functions.

Sec. 7 d. The Bangko Sentral shall, when examining a bank, have the authority to examine an enterprise which is wholly or majority-owned or controlled by the bank.

Sec. 8What are the requirements for Organization?1. That the entity is a stock-corporation Sec. 3 of the corporation code defines stock-corporations as a corporation with capital stocks, divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of surplus profit on the basis of said shares.2. That its funds are obtained from the public which shall mean 20 or more persons3. That the minimum capital requirements prescribed by the monetary board for each category of banks are satisfied.

What would be looked into by the BSP in the licensing process?1. The bank licensing process shall incorporate an assessment of the following:a. banks ownership structure;b. directors and senior management;c. operation plan;d. internal controls;e. as well as its projected financial condition and capital base.

Sec. 9What type of stocks may a bank issue?The monetary board may prescribe rules and regulations on the type of stock a bank may issue including the terms thereof and rights appurtenant thereto, to determine compliance with laws and regulations governing capital and equity structure and banks: Provided , the banks shall issue par value-stocks only. May a bank purchase or acquire shares of its own stocks? No bank shall purchase or acquire shares of its own capital stock or accept its own shares as a security for a loan, except when authorized by the Monetary Board:Provided, that in every case the stock so purchased or acquired shall, within six (6) months from the time of its purchase or acquisition, be sold or disposed of at a public or private sale.May Foreigners be bank stockholders?Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of the voting stock of a domestic bank. This rule shall apply to Filipinos and domestic non-bank corporations.

How is the percentage of foreign-owned voting stocks determined?It shall be determined by the citizenship of the individual stockholders in that bank

The citizenship of the corporation which is a stock-holder in a bank shall follow the citizenship of the controlling stock-holders of the corporation, irrespective of the place of incorporation.

When may a certificate of authority to register be issued?

Such certificate shall not be issued unless the Monetary Board is satisfied from the evidence submitted to it:1. That all requirements of existing laws and regulations to engage in the business for which the applicant is proposed to be incorporated have been complied with;

2. That the public interest and economic conditions, both general and local, justify the authorization; and3. That the amount of capital, the financing, organization, direction and administration, as well as the integrity and responsibility of the organizers and administrators reasonably assure the safety of deposits and the public interest.

The Securities and Exchange Commission shall not register the by-laws of any bank, or any amendment thereto, unless accompanied by a certificate of authority from the Bangko Sentral. Who may be part of the board of directors?The provisions of the Corporation Code to the contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen (15) members of the board of directors of bank, two (2) of whom shall be independent directors.

Independent Director- a person other than an officer or employee of the bank, its subsidiaries or affiliates or related interests.

May a non-citizen be a member of the Board of Directors of a bank?

Non-Filipino citizens may become members of the board of directors of a bank to the extent of the foreign participation in the equity of said bank.

* The meetings of the board of directors may be conducted through modern technologies such as, but not limited to, teleconferencing and video-conferencing.

What is the Fit and Proper Rule? To maintain the quality of bank management and afford better protection to depositors and the public in general, the Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit.

Process:After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank director or officer who commits or omits an act which render him unfit for the position. In determining whether an individual is fit and proper to hold the position of a director or officer ofa bank, regard shall be given to his integrity, experience, education, training, and competence. How many directors may a consolidated bank have? The number of directors may not exceed 21What benefits and compensations are the directors and officers of banks entitled to?

To protect the funds of depositors and creditors, the Monetary Board may regulate the payment by the bank to its directors and officers of compensation, allowance, fees, bonuses, stock options, profit sharing and fringe benefits only in exceptional cases and when the circumstances warrant, such as but not limited to the following:

1. When a bank is under comptrollership or conservatorship; orComptrollership-financial controllerConservatorship- guardian in financial affairs2. When a bank is found by the Monetary Board to be conducting business in an unsafe or unsound manner; or3. When a bank is found by the Monetary Board to be in an unsatisfactory financial condition. (n)

What prohibition is imposed upon Government officials?Except as otherwise provided in the Rural Banks Act, no appointive or elective public official, whether full-time or part-time shall at the same time serve as officer of any private bank, save in cases where such service is incident to financial assistance provided by the government or a government-owned or controlled corporation to the bank or unless otherwise provided under existing laws. Where can branches be established? Universal or commercial banks may open branches or other offices within or outside the Philippines upon prior approval of the Bangko Sentral. Branching by all other banks shall be governed by pertinent laws.

*A bank authorized to establish branches or other offices shall be responsible for all business conducted in such branches and offices to the same extent and in the same manner as though such business had all been conducted in the head office. A bank and its branches and offices shall be treated as one unit.

Banking days and HoursUnless otherwise authorized by the Banko Sentral in the interest of the banking public, all banks including their branches and offices shall transact business on all working says for atleast 6 hours a day.

In addition, banks or any of their branches or offices may open for business on Saturdays, Sundays or Holidays for at least three (3) hours a day; provided, That Banks which opt to open on days other than working days shall report to the BS the additional days during which it shall transact business.

What happens if there are strikes and lockouts?

Since the Banking Industry is considered as indispensable to the national interest, any strike or lockouts involving banks, if unsettled after seven calendar days shall be reported by the BS to the Sec. of Labor who may assume jurisdiction over the dispute and decide it or certify the same to the NLRC for compulsory arbitration.

The President of the Philippines may at any time intervene and assume jurisdiction over such labor dispute in order to settle or terminate the same.

CASES A1. Simex International Inc. vs. CA

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

Facts:

1. The petitioner is a private corporation engaged in the exportation of food products.2. Most of its exports are purchased by the petitioner on credit.3. The petitioner was a depositor of the respondent bank and maintained a checking account in one of its branches.4. On May 25, 1981, the petitioner deposited to its account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74.5. Subsequently, the petitioner issued several checks against its deposit but was surprised to learn later that they had been dishonored for insufficient funds.6. As a consequence, the petitioner was threatened with prosecution due to the bouncing checks issued; his credit line was also cancelled.7. The petitioner complained to the respondent bank. Investigation disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited.8. the petitioner demanded reparation from the respondent bank for its "gross and wanton negligence." This demand was not met. The petitioner then filed a complaint in the then Court of First Instance of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and costs.9. After trial, the trial court rendered judgment holding that moral and exemplary damages were not called for under the circumstances. However, observing that the plaintiff's right had been violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs.5This decision was affirmedin totoby the CAIssue: Whether or not petitioner is entitled to moral and exemplary damages.

Held: Affirmative

Moral. The initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said had not been established by the petitionerThe fact is that the petitioner's credit line was canceled and its orders were not acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner.Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s business standing or commercial credit." There is no question that the petitioner did sustain actual injury as a result of the dishonored checks and that the existence of the loss having been established "absolute certainty as to its amount is not required." Such injury should bolster all the more the demand of the petitioner for moral damages and justifies the examination by this Court of the validity and reasonableness of the said claim.Exemplary. In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.2. Solid Bank Corp. vs. Arrieta

1. Carmen Arrieta is a bank depositor of Solidbank Corporation under a Checking Account.2. Carmen issued a check amounting to P330.00 in the name of Lopues Department Store in payment of her purchases from said store.3. When the check was deposited by the store to its account, the same was dishonored due to Account Closed, despite the fact that at the time the check was presented for payment, Carmens checking account was still active and backed up by a deposit ofP1,275.20.4. As a consequence of the checks dishonor, Lopues Department Store sent a demand letter to Carmen (Exh. C) threatening her with criminal prosecution unless she redeemed the check within five (5) days.5. To avoid criminal prosecution, Carmen paidP330.00 in cash to the store, plus a surcharge ofP33.00 for the bouncing check, or a total ofP363.006. Thereupon, Carmen filed a complaint against Solidbank Corporation for damages. She prayed that she be awarded moral and exemplary damages as well as attorneys fees.Issue: Whether or not respondents are entitled to recovery of moral and exemplary damages and attorneys fees

Held: affirmative

Case lawlays out the following conditions for the award of moral damages: (1) there is an injury -- whether physical, mental or psychological -- clearly sustained by the claimant; (2) the culpable act or omission is factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code.In the instant case, all four requisites have been established. First, these were the findings of the appellate court: "Carmen Arrieta is a bank depositor of Solidbank Corporation of long standing. She works with the Central Negros Electric Cooperative, Inc. (CENECO), as an executive secretary and later as department secretary. She is a deaconess of the Christian Alliance Church in Bacolod City. These are positions which no doubt elevate her social standing in the community." Understandably -- and as sufficiently proven by her testimony -- she suffered mental anguish, serious anxiety, besmirched reputation, wounded feelings and social humiliation; and she suffered thus when the people she worked with -- her friends, her family and even her daughters classmates -- learned and talked about her bounced check.Second, it is undisputed that the subject check was adequately funded, but that petitioner wrongfully dishonored it.Third, Respondent Carmen was able to prove that petitioners wrongful dishonor of her check was the proximate cause of her embarrassment and humiliation in her workplace, in her own home, and in the church where she served as deaconess.Proximate cause has been defined as "any cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the result complained of and without which would not have occurred x x x."12It is determined from the facts of each case upon combined considerations of logic, common sense, policy and precedent.13Clearly, had the bank accepted and honored the check, Carmen would not have had to face the questions of -- and explain her predicament to -- her office mates, her daughters, and the leaders and members of her church.Furthermore, the CA was in agreement with the trial court in ruling that her injury arose from the gross negligence of petitioner in dishonoring her well-funded check.Fourth, treating Carmens account as closed, merely because the ledger could not be found was a reckless act that could not simply be brushed off as an honest mistake. We have repeatedly emphasized that the banking industry is impressed with public interest. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care and always to have in mind the fiduciary nature of its relationship with them. Petitioners negligence here was so gross as to amount to a wilful injury to Respondent Carmen. Article 21 of the Civil Code states that "any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." Further, Article 2219 provides for the recovery of moral damages for acts referred to in the aforementioned Article 21. Hence, the bank is liable for moral damages to respondent. 3. Consolidated Bank and Trust Corp. vs. CA

Facts:

1. Solidbank is a domestic banking corporation organized and existing under Philippine laws.2. Private respondent L.C. Diaz and Company, CPAs(L.C. Diaz), is a professional partnership engaged in the practice of accounting3. L.C. Diaz opened a savings account with Solidbank,4. L.C. Diaz through its cashier, filled up a savings (cash) deposit slip forP990 and a savings (checks) deposit slip forP50.The secretary instructed the messenger of L.C. Diaz, Ismael Calapre, to deposit the money with Solidbank. She also gave Calapre the Solidbank passbook.5. Calapre went to Solidbank and presented the two deposit slips and the passbook.The teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips.The Teller stamped the deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE.6. Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank.When Calapre returned to Solidbank to retrieve the passbook, the teller informed him that somebody got the passbook.Calapre went back to L.C. Diaz and reported the incident to Macaraya.7. The following day, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account.On the same day, Diaz formally wrote Solidbank to make the same request.It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, ofP300,000 from its savings account.The withdrawal slip for theP300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received theP300,000.8. In an Information, L.C. Diaz charged its messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992.9. On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money.Solidbank refused.10. L.C. Diaz filed a Complaint]for Recovery of a Sum of Money against Solidbank with the Regional Trial Court of Manila,After trial, the trial court rendered a decision absolving Solidbank and dismissing the complaint.11. On appeal, the Court of Appeals issued its Decision reversing the decision of the trial court.

Issue: WON Solidbank is liable to pay the 300k pesos withdrawn from L.C. Diaz account.

HELD: Solidbank is liable for breach of contract due to negligence, orculpa contractual.The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan.[17]Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.There is a debtor-creditor relationship between the bank and its depositor.The bank is the debtor and the depositor is the creditor.The depositor lends the bank money and the bank agrees to pay the depositor on demand.The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.The law imposes on banks high standards in view of the fiduciary nature of banking.Section 2 of Republic Act No. 8791 (RA 8791),which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of banking that requires high standards of integrity and performance.This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case ofSimex International v. Court of Appeals,[20]holding that the bank is under obligation to treat the accounts of its depositors withmeticulous care, always having in mind the fiduciary nature of their relationship.[21]This fiduciary relationship means that the banks obligation to observe high standards of integrity and performance is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family.[22]Section 2 of RA 8791 prescribes the statutory diligence required from banks that banks must observe high standards of integrity and performance in servicing their depositors.Although RA 8791 took effect almost nine years after the unauthorized withdrawal of theP300,000 from L.C. Diazs savings account, jurisprudence[23]at the time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. 8791.However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied.Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust.[24]The law simply imposes on the bank ahigher standardof integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan.The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich depositors but to earn money for themselves.

Solidbank is bound by the negligence of its employees under the principle ofrespondeat superioror command responsibility.The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense inculpa contractual, unlike inculpa aquiliana.[25]The bank must not only exercise high standards of integrity and performance, it must also insure that its employees do likewise because this is the only way to insure that the bank will comply with its fiduciary duty.Solidbank failed to present the teller who had the duty to return to Calapre the passbook, and thus failed to prove that this teller exercised the high standards of integrity and performance required of Solidbanks employees.Under Article 1172, liability (forculpa contractual) may be regulated by the courts, according to the circumstances. This means that if the defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the courts may reduce the award of damages.In this case, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor.Thus, the liability of Solidbank should be reduced.

4. Fua Cun vs. Ricardo SummersFacts:1. Chua Soco subscribed for five hundred shares of stock of the defendant Banking Corporation at a par value of P100 per share, paying the sum of P25,000, one-half of the subscription price, in cash, for which a receipt was issued.2. Chua Soco executed a promissory note in favor of the plaintiff Fua Cun for the sum of P25,000 payable in ninety days and drawing interest at the rate of 1 per cent per month, securing the note with a chattel mortgage on the shares of stock subscribed for by Chua Soco, who also endorsed the receipt given to him based on his paid subscriptions and delivered it to the mortgagee.3. In the meantime Chua Soco appears to have become indebted to the China Banking Corporation in the sum of P37,731.68 for dishonored acceptances of commercial paper and in an action brought against him to recover this amount, Chua Soco's interest in the five hundred shares subscribed for was attached and the receipt seized by the sheriff. The attachment was levied after the defendant bank had received notice of the facts that the receipt had been endorsed over Fua Cun4. Fua Cun thereupon brought an action maintaining that by virtue of the payment of the one-half of the subscription price of five hundred shares Chua Soco in effect became the owner of two hundred and fifty shares and praying that his lien on said shares, by virtue of the chattel mortgage, be declared to hold priority over the claim of the defendant Banking Corporation; that the defendants be ordered to deliver the receipt in question to him; and that he be awarded the sum of P5,000 in damages for wrongful attachment.5. The trial court rendered judgment in favor of the plaintiff declaring that Chua Soco, through the payment of the P25,000, acquired the right to two hundred and fifty shares fully paid up, upon which shares the plaintiff holds a lien superior to that of the defendant Banking Corporation and ordering that the receipt be returned to said plaintiff. From this judgment the defendants appeal.Issue: 1. WON Fun Cun is the owner of the 250 shares fully paid up.2. WON China Bank has a lien on the shares of stock of Chua Soco

Held:1. NegtiveThe court erred in holding the plaintiff as the owner of two hundred and fifty shares of stock; "the plaintiff's rights consist in an equity in five hundred shares and upon payment of the unpaid portion of the subscription price he becomes entitled to the issuance of certificate for said five hundred shares in his favor."Turning now to the rights of the plaintiff in the stock in question, it is argued that the interest held by Chua Soco was merely an equity which could not be made the subject of a chattel mortgage. Though the courts have uniformly held that chattel mortgages on shares of stock and other choses in action are valid as between the parties, there is still much to be said in favor of the defendants' contention that the chattel mortgage here in question would not prevail over liens of third parties without notice; an equity in shares of stock is of such an intangible character that it is somewhat difficult to see how it can be treated as a chattel and mortgaged in such a manner that the recording of the mortgage will furnish constructive notice to third parties.2. Negative.As against the rights of the plaintiff the defendant bank had, as we have seen, no lien unless by virtue of the attachment. But the attachment was levied after the bank had received notice of the assignment of Chua Soco's interests to the plaintiff and was therefore subject to the rights of the latter. It follows that as against these rights the defendant bank holds no lien whatever.5. RP vs. Security and Credit Acceptance Corp.

Facts

1. This is an originalquo warrantoproceeding, initiated by the Solicitor General, to dissolve the Security and Acceptance Corporation for allegedly engaging in banking operations without the authority required therefor by the General Banking Act (Republic Act No. 337).2. that, prior thereto, the corporation had applied with the Securities and Exchange Commission for the registration and licensing of its securities under the Securities Act; 3. that, before acting on this application, the Commission referred it to the Central Bank, which, in turn, gave the former a copy of the above-mentioned opinion, in line with which, the Commission advised the corporation, to comply with the requirements of the General Banking Act; 4. that, upon application of members of the Manila Police Department and an agent of the Central Bank,the Municipal Court of Manila issued Search Warrant;5. that, pursuant thereto, members of the intelligence division of the Central Bank and of the Manila Police Department searched the premises of the corporation and seized documents and records thereof relative to its business operations;6. that, upon the return of said warrant, the seized documents and records were, with the authority of the court, placed under the custody of the Central Bank of the Philippines; that, upon examination and evaluation of said documents and records, the intelligence division of the Central Bank submitted, to the Acting Deputy Governor thereof, a memorandum finding that the corporation is:1. Performing banking functions, without requisite certificate of authority from the Monetary Board of the Central Bank, in violation of Secs. 2 and 6 of Republic Act 337, in thatit is soliciting and accepting deposit from the public and lending out the funds so received;2.Soliciting and accepting savings deposits from the general publicwhen the company's articles of incorporation authorize it only to engage primarily in financing agricultural, commercial and industrial projects, and secondarily, in buying and selling stocks and bonds of any corporation, thereby exceeding the scope of its powers and authority as granted under its charter; consequently such acts areultra-vires:3.Soliciting subscriptions to the corporate shares of stock and accepting deposits on account thereof, without prior registration and/or licensing of such shares or securing exemption therefor, in violation of the Securities Act; and4. That being a private credit and financial institution,it should come under the supervision of the Monetary Board of the Central Bank, by virtue of the transfer of the authority, power, duties and functions of the Secretary of Finance, Bank Commissioner and the defunct Bureau of Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic Act 265 and Secs. 88 and 89 of Republic Act 337."

Issue: WON the transactions made by the plaintiff partake the nature of banking operations.

Held: AFFIRMATIVE

It is clear that these transactions partake of the nature of banking, as the term is used in Section 2 of the General Banking Act. Indeed, a bank has been defined as:... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348] founded to facilitate the borrowing, lending and safe-keeping of money (Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of exchange, and credits (State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46).Moreover, it has been held that:An investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank. (Western Investment Banking Co. vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215.)... any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although but one of these functions is exercised. (MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.)Accordingly, defendant corporation has violated the law by engaging in banking without securing the administrative authority required in Republic Act No. 337.

Section 95 of R.A. 7653

SEC. 95. Definition of Deposit Substitutes. _ The term "deposit substitutes" is defined as an alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and other obligations. These instruments may include, but need not be limited to, bankers acceptances, promissory notes, participations, certificates of assignment and similar instruments with recourse, and repurchase agreements. The Monetary Board shall determine what specific instruments shall be considered as deposit substitutes for the purposes of Section 94 of this Act: Provided, however, That deposit substitutes of commercial, industrial and other nonfinancial companies issued for the limited purpose of financing their own needs or the needs of their agents or dealers shall not be covered by the provisions of Section 94 of this Act.

Sec. 23 CASES B1. Central Bank of the Philippines vs. City Trust Banking CorporationFacts: 1. Citytrust Banking Corporation (Citytrust), formerly Feati Bank, maintained a demand deposit account with petitioner Central Bank of the Philippines, now Bangko Sentral ng Pilipinas.2. As required, Citytrust furnished petitioner with the names and corresponding signatures of five of its officers authorized to sign checks and serve as drawers and indorsers for its account. 3. And it provided petitioner with the list and corresponding signatures of its roving tellers authorized to withdraw, sign receipts and perform other transactions on its behalf. Petitioner later issued security identification cards to the roving tellers one of whom was "Rounceval Flores"4. Flores presented for payment to petitioners Senior Teller Iluminada dela Cruz (Iluminada) two Citytrust checks of even date, payable to Citytrust, one in the amount ofP850,000 and the other in the amount ofP900,000, both of which were signed and indorsed by Citytrusts authorized signatory-drawers.5. After the checks were certified by petitioners Accounting Department, Iluminada verified them, prepared the cash transfer slip on which she affixed her signature, stamped the checks with the notation "Received Payment" and asked Flores to, as he did, sign on the space above such notation. Instead of signing his name, however, Flores signed as "Rosauro C. Cayabyab" a fact Iluminada failed to notice.6. Iluminada thereupon sent the cash transfer slip and checks to petitioners Cash Department where an officer verified and compared the drawers signatures on the checks against their specimen signatures provided by Citytrust, and finding the same in order, approved the cash transfer slip and paid the corresponding amounts to Flores. Petitioner then debited the amount of the checks totalingP1,750,000 from Citytrusts demand deposit account.7. More than a year and nine months later, Citytrust, by letter dated April 23, 1979, alleging that the checks were already cancelled because they were stolen, demanded petitioner to restore the amounts covered thereby to its demand deposit account. Petitioner did not heed the demand, however.8. Citytrust later filed a complaint for estafa, with reservation on the filing of a separate civil action, against Flores. Flores was convicted.9. Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint for recovery of sum of money with damages against petitioner which it alleged erred in encashing the checks and in charging the proceeds thereof to its account, despite the lack of authority of "Rosauro C. Cayabyab."10. the RTC of Manila found both Citytrust and petitioner negligent and accordingly held them equally liable for the loss. Both parties appealed to the Court of Appeals which, by Decision, affirmed the trial courts decision, it holding that both parties contributed equally to the fraudulent encashment of the checks, hence, they should equally share the loss in consonance with Article 21793vis a vis Article 11724of the Civil Code.Issue: WON both BSP and Citytrust should be held equally liable.Held: AFFIRMATIVEThe law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 ("RA 8791"), which took effect on 13 June 2000, declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance." This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding that "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.Citytrusts failure to timely examine its account, cancel the checks and notify petitioner of their alleged loss/theft should mitigate petitioners liability, in accordance with Article 2179 of the Civil Code which provides that if the plaintiffs negligence was only contributory, the immediate and proximate cause of the injury being the defendants lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. Had Citytrust timely discovered the loss/theft and/or subsequent encashment, their proceeds or part thereof could have been recovered.2. Filipinas Mills vs. DayritFacts: 1. Petitioners Filipinas Mills, Inc., Buenaventura Tan and Virginia Dumlao-Tan obtained a loan from Citizens Bank and Trust Company (CBTC) in the amount of P70,000.00 with interest at the rate of 14% per annum to be paid on or before March 16, 1976, as evidenced by a promissory note. 2. However, despite repeated demands, said loan remained unpaid. Consequently, private respondent Associated Citizens Bank (ACB), which acquired all the assets and obligations of CBTC by virtue of an Agreement of Merger, filed a complaint before the Court of First Instance of Manila for collection of the indebtedness of petitioners. 3. Although notice was sent to petitioners, they failed to appear at the scheduled pre-trial and. Thus, they were considered in default and ACB was allowed to present its evidence ex parte and the trial court ruled in favour of ACB.4. A writ of execution was issued pursuant to the aforementioned decision.5. The Deputy Sheriff levied on the personal properties of petitioners.6. Petitioner Buenaventura Tan directed the Deputy Sheriff in writing to levy first on their shares of stocks at ACB before levying on their other personal properties.7. a notice of garnishment was issued on the goods, effects, interests, credits, moneys, stocks, shares, any interests in stocks and shares, and any other personal property in the possession or under the control of ACB belonging to petitioners; all debts owed by ACB to petitioners; and specially the shares of stocks, savings accounts, current accounts, time deposits and all money placements belonging to petitioners8. a notice of sale on execution of personal properties of petitioners was issued but their shares of stocks were not included in the items for sale.9. Petitioners filed an urgent motion to cancel the scheduled public auction sale alleging among others that they have the right to direct the Deputy Sheriff that their shares of stocks be levied and sold first, citing Section 21, Rule 39 of the Rules of Court.10. ACB filed an opposition to petitioners' motion contending that: 1) Section 21, Rule 39 of the Rules of Court is inapplicable because it refers to actual execution sale as distinguished from levy and the shares of stocks cannot be included in the items to be sold or first to be levied upon as it is prohibited under Section 24 of the General Banking ActIssue/s:1. WON the judgment creditor has the right to direct manner and order of sale.2. WON there has been a grave abuse of discretion by the TC for having denied the motion of the plaintiff to cancel the scheduled public auction sale

Held: 1. AFFIRMATIVESection 21, Rule 39 of the Rules of Court provides:

"SEC. 21. How property sold on execution. Who may direct manner and order of sale. All sales of property under execution must be made at public auction, to the highest bidder, between the hours of nine in the morning and five in the afternoon. After sufficient property has been sold to satisfy the execution, no more shall be sold. When the sale is of personal property, consisting of several known lots, they must be sold separately; or, when a portion of such real property is claimed by a third person, he may require it to be sold separately. When the sale is of personal property capable of manual delivery, it must be sold within view of those attending the sale and in such parcels as are likely to bring the highest price. The judgment debtor, if present at the sale, may direct the order in which property, real or personal shall be sold, when such property consists of several known lots or parcels which can be sold to advantage separately. Neither the officer holding the execution, nor his deputy, can become a purchaser, nor be interested directly or indirectly in any purchase at such sale." (Emphasis supplied)

No doubt, this section grants to a judgment debtor the right to direct the order in which real or personal property shall be sold, during the public auction sale. But, interpreting this particular provision in the case of People v. Hernandez, supra, We expanded the scope of said right of a judgment debtor to include the case of attachment/levy (or prior to the public auction sale.

2. AFFIRMATIVESection 24 of the General Banking Act (Republic Act No. 337) provides:

"SEC. 24. No commercial bank shall make any loan or discount on the security of shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase be necessary to prevent loss upon a debt previously contracted in good faith, and the stock so purchased or acquired, for any other reason in the course of its operations, shall, within six months from the time of its purchase or acquisition, be sold or disposed of at public or private sale, or in default thereof, a receiver shall be appointed to close up the business of the bank in accordance with law." (Emphasis supplied)

ACB must have misread this provision. It is plain enough that there is a "specific" exception ("unless such security or purchase be necessary to prevent loss upon a debt previously contracted in good faith") and a "general" exception ("or purchased or acquired for any other reason in the course of its operations") mentioned therein. Thus, if and when ACB decide to purchase those shares of stocks in the public auction sale definitely, this circumstance will not result in a violation of Section 24 of the General Banking Act as it is allowed under the "general" exception.

It was, therefore, a grave abuse of discretion on the part of the trial court for having denied the motion filed by petitioners. A court of law is competent to control the acts of its officers in the execution of its process and when an officer has been guilty of irregularities in connection therewith, to the injury of parties having an interest in the action, it should correct such irregularities. In this case, the trial court should have cancelled the scheduled public auction sale because the Deputy Sheriff defied the directive of petitioners to levy and sell first their shares of stocks.

CLASSIFICATION OF BANKS Class of BankFunctions and services

Universal BanksPower of investment house;Invest in non-allied enterprisesMay own up to 100% of the equity in thrift bank, Rural bank, financial allied enterprise or non-financial allied enterprise.*in case of publicly listed universal bank, it may own up to 100% of the voting stock of only one other universal bank or commercial bank.

Commercial BanksPowers include:General powers of a corporation.Accepting drafts and issuing letters of credit;Discounting and negotiating promissory notes, draft bills of exchange, and other evidence of debt;Accepting or creating demand deposits and deposit substitutes.

Thrift BanksEstablished for purpose of meeting the needs for capital, personal and investment credit or medium and long term loans for Filipino entrepreneurs and promoting agriculture and industry.Providing short term working capital, medium and long term financing, to business engaged in agriculture, services, industry and housing.

Rural banksOrganized to promote comprehensive rural development with the end view of attaining equitable distribution of opportunities, income and wealth.

Cooperative BanksPrimary purpose of providing a wide range of financial services to cooperatives and their members.

Islamic BankPromote and accelerate the socio-economic development of the Autonomous region.Aims and operations do not involve interest.

Government BanksActs as depository of funds of the government.

DEPOSITS LOANS AND OTHER OPERATIONSWhat is an investment house?It is an enterprise which engages in the underwriting off securities of other corporations.What are equity investments? These refer to investments in capital stocks of companies, firms or enterprises, made for purposes of control, affiliation or other continuing business advantage. Investment is the act of purchasing securities of a more or less permanent nature. How much may a universal bank invest in equities?Total investment (allied and non-allied) shall not exceed fifty percent of the banks net worth. Equity investment in any one enterprise, whether allied or non-allied shall not exceed 25% of the net worth of the bank.What are considered as financial allied undertakings?1. Leasing companies include leasing of stalls and spaces in a commercial establishment.2. Banks3. Investment houses4. Financing Companies5. Credit card companies6. Financial institutions catering to small and medium scale industries, including venture capital corporations;7. Stock and brokerage/securities dealership;8. Foreign exchange dealership9. Trust Corporation10. Insurance companies and 11. Holding companies-provided that the investments of such holding company are confined to equities of allied undertaking and/or non-allied undertakings of universal banks allowed under Bangko Sentral regulations.What are considered as Non-financial allied undertakings?1. Warehouse companies2. Storage companies3. Safe-deposit box companies4. Companies engaged in the management of mutual funds but not in mutual funds themselves.

What are the conditions for investment in equities?

It shall NOT be in any of the ff. situations:1. It has impaired capital2. Suspended lending operations on account of reserve or capital deficiency.3. Incurred losses from operations during the preceding year.4. Has not fully booked the valuation reserves and other capital adjustments required by BSP5. Exceeded individual aggregate ceilings as well as the ceiling for unsecured credit accommodations6. Its ratio to past due load to total loan portfolio exceeds 20%

BankEquity investmentsPercentage

UniversalFinancial Allied100% of equity 100% in publicly listed universal or commercial bank (only one)Not listed(49%)

Non-Financial Allied100% of equity

Non- alliedNot exceeding 35% of the total equity in that enterprise or not more than 35% of the voting stock in that enterprise.

Quasi-banks40%

Commercial BanksFinancial Allied Enterprises100% of the equity of a thrift or rural bank

Non-Financial allied100% of the equity

How much may a commercial bank invest in equities?Total investment (only allowed to invest in allied enterprises) shall not exceed 35% percent of the banks net worth. Equity investment in any one enterprise, (allied) shall not exceed 25% of the net worth of the bank.Acquisition of such equity is subject to the prior approval of the Monetary Board which shall promulgate guidelines to govern such investments.Provisions Applicable to All Banks, Quasi-Banks, and Trust EntitiesWhat are Demand Deposits?Demand deposits refer to all those liabilities of a bank which are denominated in Phil. Currency and are subject to payment in legal tender upon demand by presentation of checks.What is the BS/Monetary boards remedy in case a bank fails to comply with the prescribed minimum ratio?

1. The MB may limit or prohibit the distribution of net profits by such bank and2. May require that part or all the net profits be used to increase the capital accounts of the bank until the minimum requirement has been met.

3. May further restrict or prohibit the acquisition of major assets and the making of new investments by the bank.Lecture Notes: DEC. 7(insert here)Cases C

1. REGISTER of DEEDS OF MANILA,vs.CHINA BANKING CORPORATION,Facts: 1. In an information filed in the Court of First Instance of Manila Alfonso Pangilinan and one Guillermo Chua were charged with qualified theft, the money involved amounting to P275,000.00.2. Pangilinan and his wife, Belen Sta. Ana, executed a public instrument entitled DEED OF TRANSFER whereby, he ceded and transferred to the latter, in satisfaction of his civil liability, a parcel of land located in the City of Manila, registered in the name of "Belen Sta. Ana, married to Alfonso Pangilinan"3. the deed was presented for registration to the Register of Deeds of the City of Manila, but because the transferee the China Banking Corporation was alien-owned and, as such, barred from acquiring lands in the Philippines, in accordance with the provisions of Section 5, Article XIII of the Constitution of the Philippines, said officer submitted the matter of its registration to the Land Registration Commission for resolution.Issue: whether an alien-owned bank can acquire ownership of a residential lot by virtue of a deed of transfer made in satisfaction of a civil liability to it. Held: the privilege of acquiring real estate granted to commercial banks under the provisions of Section 25 of Republic Act No. 337 was not intended as an amendment, much less as a nullification of the constitutional prohibition against alien acquisition of lands in the Philippines, the same being merely an exception to the general rule, under existing banking and corporation laws, that banks and corporations can engage only in the particular business for which they were specifically created; that a mere statute, cannot amend the Constitution; that in connection with the particular constitutional prohibition involved herein, it is thecharacter andnature ofthe possession whether in strict ownership or otherwise and not thelengthof possession that is material, the result being that, if real property is to be held inownership, an alien may not legally do so even for a single day.Assuming, arguendo, that under the provisions of the aforesaid Act any commercial bank, whether alien-owned or controlled or not, may purchase and hold real estate for the specific purposes and in the particular cases enumerated in Section 25 thereof, this case does not fall in any of them. Paragraph (c), Section 25 of Republic Act 337 allows a commercial bank to purchase and hold such real estate as shall be conveyed to it in satisfaction ofdebtspreviously contractedin the course of its dealings,We deem it quite clear and free from doubt that the "debts" referred to in this provision are only those resulting from previous loans and other similar transactions made or entered into by a commercial bank in the ordinary course of its business as such. Obviously, whatever "civil liability" arising from the criminal offense of qualified theft was admitted in favor of appellant bank by its former employee, Alfonso Pangilinan, was not a debt resulting from a loan or a similar transaction had between the two parties in the ordinary course of banking business.Neither do the provisions of paragraph (d) of the Same section apply to the present case because the deed of transfer in question can in no sense be considered as asalemade by virtue of a judgment, decree, mortgage, or trust deed held by appellant bank. In the same manner it cannot be said that the real property in question was purchased by appellant "to secure debts due to it", considering that, as stated heretofore, the termdebt employed in the pertinent legal provision can logically refer only to such debts as may become payable to appellant bank as a result of a banking transaction.2. CENTRAL BANK OF THE PHILIPPINES vs.THE HONORABLE COURT OF APPEALSIsland Savings Bank, upon favorable recommendation of its legal department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan The approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interestmere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.)., after being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance.Subsequently, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity problems, issued Resolution to prohibit the bank from making new loans and investments [except investments in government securities] excluding extensions or renewals of already approved loans, provided that such extensions or renewals shall be subject to review by the Superintendent of Banks, who may impose such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible;The Monetary Board, after finding that Island Savings Bank failed to put up the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings BankIsland Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction, specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage., On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal interest and legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosurethe Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loanIssue: WON Tolentino is liable to pay the subsisting 17k and if in the affirmative, can his real estate mortgage be foreclosed to satisfy said amount?Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this case.3. CRUZ vs. Bancom Finance CorporationBrothers Rev. Fr. Edilberto Cruz and Simplicio Cruz, plaintiffs herein, were the registered owners of a 339,335 square meter or 33.9335 hectare parcel of agricultural land together with improvements located in Barangay Pulang Yantoc, Angat, Bulacan.Sometime in May 1978, defendant Norma Sulit, after being introduced by Candelaria Sanchez to Fr. Cruz, offered to purchase the land.Plaintiffs asking price for the land wasP700,000.00, but Norma only hadP25,000.00 which Fr. Cruz accepted as earnest money with the agreement that titles would be transferred to Norma upon payment of the balance ofP675,000.00.Norma failed to pay the balance and proposed [to] Fr. Cruz to transfer the property to her but the latter refused, obviously because he had no reason to trust Norma.But capitalizing on the close relationship of Candelaria Sanchez with the plaintiffs, Norma succeeded in having the plaintiffs execute a document of sale of the land in favor of Candelaria who would then obtain a bank loan in her name using the plaintiffs land as collateral.On the same day, Candelaria executed another Deed of Absolute Sale over the land in favor of Norma.In both documents, it appeared that the consideration for the sale of the land was onlyP150,000.00.Pursuant to the sale, Norma was able to effect the transfer of the title to the land in her nameIn a Special Agreement dated September 1, 1978, Norma assumed Candelarias obligation, stipulating to pay the plaintiffs the said amount within six months on pain of fine or penalty in case of non-fulfillment.Unknown to the plaintiffs, Norma managed to obtain a loan from Bancom in the amount ofP569,000.00 secured by a mortgage over the land now titled in her name.On account of Normas failure to pay the amount stipulated in the Special Agreement and her subsequent disappearance from her usual address, plaintiffs were prompted to file the herein complaint for the reconveyance of the land.Norma filed an Answer but failed to appear in court and was eventually declared in default. Bancom filed a motion for leave to intervene which was granted by the trial court.In its Answer in Intervention, Bancom claimed priority as mortgagee in good faith; and that its contract of mortgage with Norma had been executed before the annotation of plaintiffs interest in the title.Meanwhile in the middle of 1980, Norma defaulted in her payment to the Bank and her mortgage was foreclosed.At the subsequent auction sale, Bancom was declared the highest bidder and was issued the corresponding certificate of sale over the land.On January 25, 1996, the trial court rendered the herein assailed Decision in favor of the plaintiffs.It ruled among others that Bancom was not a mortgagee in good faith thus it cannot claim priority of rights over plaintiffs property.The CA reversed the trial courts decision.Issue: WON BANCOM is a mortgagee in good faith.Held: NegativeUnlike private individuals, a mortgagee-bank is expected to exercise greater care and prudence in its dealings, including those involving registered lands.A banking institution is expected to exercise due diligence before entering into a mortgage contract.The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations. The evidence before us indicates that respondent bank was not a mortgagee in good faith. First,at the time the property was mortgaged to it, it failed to conduct an ocular inspection. Judicial notice is taken of the standard practice for banks before they approve a loan: to send representatives to the premises of the land offered as collateral and to investigate the ownership thereof.Respondent was clearly wanting in the observance of the necessary precautions to ascertain the flaws in the title It should not have simply relied on the face of the Certificate of Title to the property, as its ancillary function of investing funds required a greater degree of diligence. 4. RURAL BANK OF COMPOSTELA vs. CAThe rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.Facts1. Jordan spouses bought a piece of land from the Barossas.2. They then registered the deed of sale at the local registry of deeds by virtue of which Original Certificate of Title was cancelled and in its stead was issued Certificate of Title in their name and the Barrosas as co-owners.3. No separate title could be issued to the Jordans as, based on the survey plan prepared by a Geodetic Engr., a portion of the lot consisting of 400 square meters, was covered by another Original Certificate of Title issued on September 26, 1974 in the name of one Edmundo Veloso.4. This 400 sq. m. lot had in fact been bought by the Rural Bank of Compostela after Veloso mortgaged it, and the mortgage was foreclosed but Veloso failed to redeem it.5. Hence, a complaint for quieting of title and damages was filed by the Jordan spouses against the Barrosas, Edmundo Veloso, and the Rural Bank of Compostela. 6. Defendant Rural Bank of Compostelo, while admitting that spouses Jordan bought a parcel of land from the Barrosas, denied that Velosos land, which it purchased at an extrajudicial foreclosure sale after Veloso failed to redeem the mortgage thereon, was a portion of the land of the Barrosas.

Issue: whether the real estate mortgage executed by Edmundo Veloso in favor of the petitioner over the lot is validHeld: NEGATIVE While it may be true that under the Rural Banks Act (R.A. No. 720), as amended by R.A. No. 5939,a mortgage may be validly effected as an exception, there is no evidence at all that the conditions prescribed under the latter for the validity of the mortgage were complied with.Since the latter law is an exception to the prohibitions mentioned in the Free Patent, it was incumbent upon the party who claims the exception to prove fulfillment of the requisites therefor.Secondly, the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks;

There is no proof at all that the petitioner observed due diligence in ascertaining who the occupants or owners of the property were, considering that Free Patent No. (VII-I) 939 and OCT No. 0-10288 were just recently issued.Had it done so when Edmundo Veloso applied for a loan, the petitioner could have determined whether he, a resident of Cebu City as per the said Free Patent and OCT, was indeed, the farmer cultivating it in need of the loan to meet his normal credit needsBanks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, for their business is one affected with public interest, keeping in trust money belonging to their depositors, which they should guard against loss by not committing any act of negligence which amounts to lack of good faith by which they would be denied the protective mantle of the land registration statute, Act [No.] 496, extended only to purchasers for value and in good faith, as well as to mortgagees of the same character and description.Do Banks provide for limits on loans, credit accommodations and Guarantees?

The amount of loans, credit accommodations and guarantees that may be extended by a bank to any person, partnership, association, corporation or other entity shall at no time exceed 20% of the net worth of such bank.

XPN: otherwise provided for reason of national interest.

As per BSP circular it is already 25%Can such limit be increased?

Yes. It may be increased by an additional 10% of the net worth of such bank.

XPN: otherwise provided by the MB

Provided the additional liabilities of any borrowers are adequately secured by Trust receipts, shipping documents, warehouse receipts or other similar documents transferring or securing title covering readily marketable, non-perishable goods which must be fully covered by insurance.

What other things are included in the ceiling on credits, accommodations and guaranties?

a. Direct liability of maker or acceptorof papers discounted with or sold with the bank.Also the direct liability of general endorser, drawer or guarantor-who obtains a loan or other credit accommodation from discount paper or sells papers to such bank;

b. in the case of an individual who owns or controls a majority interest in a corporation, partnership, association or any other entity-liabilities of said entities to such bank;

c. Corporationall liabilities to such bank of all subsidiaries in which such corporation owns or controls a majority interest.

d. in the case of a partnership, association, or other entity, the liabilities of the members thereof to such bank.

May the MB prescribe the combination of the liabilities of subsidiary corp., partnership, association, entity or (an individualwho owns or control majority interest in such entities even when the corporation has no liabilities to the bank?

Including but not limited to the following:

1. When the entity or the individual guarantees the repayment of the liabilities.2. Liabilities were incurred for the accommodation of the parent corporation or another subsidiary or of the partnership or association or entity or such individual.3. The subsidiaries though separate entities operate merely as departments or divisions of single entity.

For the purpose of this section, loans, accommodations and guarantees, shall exclude:

a. Those secured by obligations of the BS or the Phil. Governmentb. Those fully guaranteed by the Govt as to the payment of principal and interest.c. Those covered by assignment of deposits maintained in the lending bank and held in the Philippines.d. Those under letters of credit to the extent covered by margin deposits.e. Other loans and accommodations which the MB may from time to time specify as non-risk items.Restrictions on Bank exposure to Directors, Officers, stockholders: (loans to DOSRI)

a. No director or officer of any bank shall directly or indirectly, for himself or as the representative or agent of others, borrow from such bank;b. Nor shall he become a guarantor, endorser or surety for loans from such bank to others,c. Cannot be an obligor or incur any contractual liability to the bank.XPN: With written approval of the majority of all the directors of the bank, excluding the director concerned.

The required approval shall be entered upon the records of the bank and a copy of such entry shall be transmitted forthwith to the appropriate supervising and examining the department of the Banko Sentral.

The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans, credit accommodations and guarantees extended by a cooperative bank to its cooperative shareholders.

What is the limit on loans given to DOS?The amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank.

Loans and other Credit Accommodation against real estate- 75% of the appraised value of the respective real estate security, plus 60% of the appraised value of the insured improvements.(Can be made to owners or assignees)Loans and other credit accommodations on security of chattels and intangible properties-not exceeding 75% of the appraised value of the security. (Can be made to the title-holder of the chattels and intangible properties or his assignees.)

What are the requirements for grant of Loans or other Credit Accommodations?1. Ascertainment of the debtors capability to meet its commitments to the bank.2. May demand from its credit applicant a statement of their assets and liabilities and of their income and expenditures and such other info as may be prescribed by law or by rules and regulations of the Monetary Board

Amortization on Loans and other Credit accommodations

With Maturities of more than five years-provisions must be made for periodic amortization payments but such payment must be made at least annually: Provided however that, when the borrowed funds are to be used for purposes which do not initially produce revenue adequate for regular amortization payments therefrom, the bank may permit the initial amortization to be deferred until such time as said revenues are sufficient for such purpose but in no case shall the initial amortization date be later than 5 years from the date on which the loan or other credit accommodation is granted.

To whom does the BSP provide development assistance incentives?

To banks which without government guarantee, extend loans to finance the following:1. educational institutions;2. cooperatives3. hospitals and other medical services;4. socialized or low-cost housing, local government units and other activities with social content.What are the rights of a mortgagor in a foreclosure of Real estate mortgage?

The mortgagor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the RE, to redeem the property

How much is the redemption price? The amount due under the mortgage deed, with interest thereon at the rate specified in the mortgage and the cost and expenses incurred by the bank or institution from the sale and custody of said property less the income derived thereon.

What are the Rights of the Purchaser in the auction sale?The purchaser at the auction sale whether in a judicial or extrajudicial foreclosure shall have the right to enter upon and take possession of such property, immediately after the date of the confirmation of the auction sale and administer the same in accordance with Law.

*The Monetary board may, by regulation, prescribe the conditions and limitation under which a bank may grant extensions or renewals of its loans and other credit accommodations.

Bad debts- all debts due to any bank on which interest is past due and unpaid for such period as may be determined by the MB.*unless the same are well secured and in the process of collection.

*the Monetary Board may fix by regulation or order in a specific case, the amount of reserves for bad debts or doubtful accounts or other contingencies.

What is the power of the MB over the Major Investments of Banks?The MB shall establish criteria for reviewing major acquisitions of investments by a bank including corporate affiliation or structures that may expose the bank to undue risks or in any way hinder effective supervision. What is the ceiling on investments on RP?

It shall not exceed fifty percent of the combined capital accounts. The equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the banks total investment in real estate, unless otherwise provided by the MB.

When may a bank acquire, hold or convey real property?

1. Mortgaged to it in good faith by way of security.2. Conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or3. Such purchased by it at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to secure debts due it.

Within what period shall the bank dispose of the pieces of property acquired by ways mentioned above?

Within 5 years as may be prescribed by the MB. The bank may, after the said period, continue to hold the property for its own use, subject to the limitations on ceilings.

What other Services may banks offer?1. Receive in custody funds, documents and valuable objects;2. Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities.3. Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business;4. Managing agent, adviser, consultant or administrator of investment, management/advisory/consultancy accounts-upon approval of MB; and 5. Rent out safety deposit boxes

When may the MB summarily and without need for prior hearing close a banking institution and place it under receivership of the PDIC?

In case a bank notifies the BSP or publicly announces a bank holiday; or in any manner suspends the payment of its deposit liabilities continuously for more than (30) days.

Prohibitions on Banks1. To engage in insurance business as the insurer. Sec. 542. Shall not employ casual or non-regular personnel or too lengthy probationary personnel n the conduct of its business involving bank deposits.3. Prohibited transactions:a. Make false entries or participate in fraudulent transactions thereby affecting the financial interest of or causing damage to, the bank or any person;b. Disclose to any unauthorized person any information relative to the funds or properties in the banks custody belonging to private individuals, corporations or any other entity.c. Accept gifts, fees or commissions or any other form of remuneration in connection with the approval of a loan or other credit accommodation from said bank;d. Over value or aid in over valuing securitiese. Outsource inherent banking functions.

Prohibitions on bank borrowers:a. Overvalue property offered as securityb. Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining, renewing or increasing a loan or other credit accommodation or extending the period thereof.c. Attempt to defraud bank in the event of a court action to recover a loan or other credit accommodation;d. Offer gifts, fees, commission, or any other form of compensation in order to influence the approval of a loan or other credit accommodation.

What factors are used by the MB in determining whether a conduct of business is in an unsafe and unsound manner?

The MB shall consider any of the following circumstances in determining the safeness and soundness of conducting a business

a. Act or omission has resulted o may result in material loss or damage, or abnormal risk or danger to the safety, stability, liquidity or solvency of the institution;

b. Act or omission has resulted o may result in material loss or damage, or abnormal risk to the institutions depositors, creditors, investors, stockholders or to the BS or to the public in general

c. Act or omission has caused any undue injury, or has given any unwarranted benefits, advantages or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence.

d. Entering into any contract or transaction, manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity whether or not the director or officer profited or will profit thereby.Prohibitions on dividends declaration-- Sec. 57No bank or quasi-bank shall declare dividends if at the time of declaration:a. Its clearing account in BSP is overdrawnb. It is deficient in the required liquidity floor for government deposits for five consecutive days;c. It does not comply with the liquidity standards/ratio prescribed by the BS for purpose of determining funds available for dividend declaration.d. It has committed a major violation as may be determined by the BS.

Independent auditors MB may require a bank, QB or TE to engage the services of an independent auditorto be chosen (by the bank) from the list of CPA acceptable to the MB.

MB may also direct the B of Directors of a Bank QB or TE and/or other individual members thereof; to conduct either personally or by a committee (created by the board) an annual balance sheet audit of the Bank, QB or TE. To review the internal audit and control system of the Bank, QB or TE and to submit a report of such audit.

Publication requirements

What things should be published by the banks? 1. statement of financial conditions including those of its subsidiaries and affiliates.

When and where?At least once every quarter in a newspaper of general circulation in the city or province where the principal office, in the case of a domestic institution or the principal branch or office in the case of a foreign bank is located.

When warranted by the circumstances, the MB may allow the posting of the Financial statements of a Bank, QB or TE in public places it may determine in lieu of the publication required.

May the publication requirement be deferred?

In periods of national and/or local emergency or of imminent panic which directly threaten monetary and banking stability, the MB by a vote of at least five of its members in special cases and upon application may allow , for a stated period of time to defer publication.

Publication of Capital stocks

Banks, QBs and TE incorporated in the Philippines Shall not publish the amount of its authorized or subscribed capital stock without indicating at the same time and with equal prominence, the amount of its capital actually paid up.

No branch of any foreign bank, doing business in the Philippines shall in any way announce the amount of the capital and surplus of its head office or of the bank in its entirety without indicating at the same time and with equal prominence, the amount of the capital, if any, definitely assigned to such branch, such fact shall be stated in, and shall form part of the publication.

Penalty for violation of this act 34, 35, 36 and 37 of the New central bank act.SEC. 35. False Statement. _ The willful making of a false or misleading statement on a material fact to the Monetary Board or to the examiners of the Bangko Sentral shall be punished by a fine of not less than One hundred thousand pesos (P100,000) nor more than Two hundred thousand pesos (P200,000), or by imprisonment of not more than five (5) years, or both, at thediscretion of the court.

SEC. 36. Proceedings Upon Violation of This Act and Other Banking Laws, Rules, Regulations, Orders or Instructions. _ Whenever a bank or quasi-bank, or whenever any person or entity willfully violates this Act or other pertinent banking laws being enforced or implemented by the Bangko Sentral or any order, instruction, rule or regulation issued by the Monetary Board, the person or persons responsible for such violation shall unless otherwise provided in this Act be punished by a fine of not less than Fifty thousand pesos (P50,000) nor more than Two hundred thousand pesos (P200,000) or by imprisonment of not less than two (2) years nor more than ten (10) years, or both, at the discretion of the court. Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or unsafe manner, the Board may, without prejudice to the penalties provided in the preceding paragraph of this section and the administrative sanctions provided in Section 37 of this Act, take action under Section 30 of this Act.

SEC. 37. Administrative Sanctions on Banks and Quasibanks. _ Without prejudice to the criminal sanctions against the culpable persons provided in Sections 34, 35, and 36 of this Act, the Monetary Board may, at its discretion, impose upon any bank or quasi-bank, their directors and/or officers, for any wilful violation of its charter or bylaws, willful delay in the submission of reports or publications thereof as required by law, rules and regulations; any refusal to permit examination into the affairs of the institution; any willful making of a false or misleading statement to the Board or the appropriate supervising and examining department or its examiners; any willful failure orrefusal to comply with, or violation of, any banking law or any order, instruction or regulation issued by the Monetary Board, or any order, instruction or ruling by the Governor; or any commission of irregularities, and/or conducting business in an