Outline in Banking and Spcl

NTD PAGE 26

OUTLINE IN BANKING AND SPECIAL COMMERCIAL LAWSDean Nilo T. Divina

I. LETTERS OF CREDIT

Definition/concept

1. A letter of credit is any arrangement, however named or described, whereby a bank, acting upon the request of its client or on its own behalf, agrees to pay another against stipulated documents, provided that the terms of the credit are complied with.2. While a letter of credit is a security arrangement, the liability of the bank that issued the letter of credit is neither that of a surety nor a guarantor. The liability of the issuing bank is primary and solidary.3. The stay order issued by the rehabilitation court enjoining the enforcement of claims against the principal debtor, its guarantor and surety not liable solidarily with the principal debtor does not preclude the beneficiary from collecting on the letter of credit. 4. Issuing bank is not entitled to the benefit of excussion. 5. The issuing bank should pay the beneficiary upon the latters submission of the stipulated documents and compliance with the terms of the credit even though there is a pending issue on whether or not the main contract underlying the l/c has been paid/fulfilled or not.

Governing law

1. Letter of credit is a commercial transaction. As such, it is governed by the Code of Commerce. 2. The Code of Commerce, nevertheless, provides that in the absence of applicable laws governing commercial transactions, customs and usages shall be made to apply.3. Letter of credit is thus now primarily governed by the Uniform Customs and Practices (UCP ) for Documentary Credit, a codification of customs and usages governing letter of credit prepared by the International Chamber of Commerce.4. The Supreme Court has recognized the validity and applicability of UCP in resolving issues and disputes relating to letter of credit.5. Letter of credit is not governed by the Negotiable Instruments Law nor the Corporation Code. However, the draft which the beneficiary may issue under a letter of credit as a mode of payment may be governed by the Negotiable Instruments law if the draft conforms to all the elements of negotiability under the NIL.6. The law on contracts and damages shall also apply to provide remedies to the party aggrieved by the breach of the main contract although such breach will not affect the obligation of the bank to pay the beneficiary or its right to obtain reimbursement from the applicant of the letter of credit if the terms of the l/c have been complied with.

Parties to a letter of credit/rights and obligations

- Account Party/Applicant

1. The account party or applicant of the letter of credit who is either the importer or buyer in a commercial letter of credit or the obligor/debtor in a standby letter of credit. He agrees to pay the bank that issued the l/c the commission/charges and to reimburse the issuing bank amounts duly paid under the lc.2. Applicant has no obligation to reimburse the issuing bank if the latter pays without the stipulated documents or in case of discrepant documents.3. He has the right to have the marginal deposit deducted from the principal obligation under the l/c and to have the interest computed only on the balance and not on the face value thereof.

The issuing bank

1. It undertakes to pay the beneficiary upon the latters submission of stipulated documents/compliance with the credit despite any breach in the main contract underlying the l/c.2. After due payment, issuing bank is entitled to reimbursement as a matter of right. Reimbursement includes debiting the bank account of the applicant, if any. 3. The failure of the beneficiary to present the draft to the applicant does not affect the right of the issuing bank to reimbursement.4. An issuing bank which paid the beneficiary of an expired letter of credit can recover payment from the applicant which obtained the goods from the beneficiary to prevent unjust enrichment.

The beneficiary

1. The beneficiary is the one entitled to payment from the issuing bank after submission of stipulated documents and compliance with the terms of the credit.2. He has a prestation to do under the main contract but his failure to fulfill his obligation under the main contract does not negate his right to payment from the issuing bank as long as he is able to submit the required documents and comply with the terms of the credit, without prejudice to his liability against the account party under the law on contract and damages.

-The advising/notifying bank

1. The advising bank determines the apparent authenticity of the letter of credit and notifies the beneficiary of the l/c issuance.2. It does not guarantee the genuineness or due execution of the l/c. It is not liable for damages even if the l/c turns out to be spurious provided the spurious character is not apparent on the face of the instrument.3. It has no obligation to pay the beneficiary unless it is also the paying or confirming bank.

The paying bank

1. The paying bank is the agent of the issuing bank to facilitate payment to the beneficiary. 2. The paying bank can also be the advising bank.

The confirming bank

1. The confirming bank lends credence to the lc issued by a lesser known bank as if it were the one that issued the letter of credit.2. Its obligation is similar to the issuing bank. Thus, beneficiary may tender documents to the confirming bank and collect payment.3. The confirming bank collects fees for such engagement and obtains reimbursement from the issuing bank.

The negotiating bank

1. The negotiating bank becomes a party to the l/c transaction after it buys the draft drawn by the beneficiary and becomes the holder thereof.2. As holder, it has the right to payment from the bank primarily liable on the draft ( either the issuing bank or the confirming bank ).3. If the party primarily liable on the l/c( issuing bank or confirming bank ) refuses to honor the draft, the negotiating bank has the right to proceed against the drawer thereof.

Basic principles of letter of credit

Doctrine of independence

1. By this doctrine, the relationships among : a) the issuing bank and the beneficiary; b ) the issuing bank and the applicant; and, c ) the beneficiary and the applicant while interrelated are separate, distinct and independent of one another.2. Thus, in determining the obligation of the issuing bank to pay the beneficiary, the issuing bank has no obligation to verify whether or not the main contract has been fulfilled or not.3. The issuing bank is liable to pay the beneficiary upon the latters submission of the stipulated documents and compliance with the terms of the credit regardless of any breach of contract by the beneficiary to the applicant of the l/c. 4. Conversely, the right of the issuing bank to obtain reimbursement from the applicant of the l/c is not adversely affected by the non-fulfillment by the beneficiary of its obligation to the applicant.5. In letters of credit, banks deal with documents, they dont deal with goods.6. In standby letter of credit securing a loan obligation, any payment of the debtor to the creditor should not be deducted from the total obligation of the issuing bank to the beneficiary. The issuing bank, after payment of the full amount, is entitled to full reimbursement from the debtor. But the debtor may recover excess payment from the creditor to prevent unjust enrichment.

Fraud exception principle

1. The fraud exception principle is an exception to the doctrine of independence.2. Under the fraud exception principle, the beneficiary may be enjoined from collecting on the letter of credit if the following elements are present : a ) there is fraud on the part of the beneficiary, b ) fraud must be in relation to the independent purpose or character of the credit, c ) unless the beneficiary is restrained, the applicant shall suffer grave and irreparable injury.3. For the fraud exception principle to serve as an exception to the doctrine of independence, the fraud must not be in relation to the performance of the main contract but in relation to the independent purpose or character of the credit.

Doctrine of strict compliance

1. Under this doctrine, the documents that the beneficiary should submit to the issuing bank or confirming bank must strictly conform to the documents stipulated. If there is discrepancy, the issuing bank is not liable to pay. If it pays despite discrepant documents, it pays at its own risk and can not obtain reimbursement from the applicant.2. It is not a question of whether or not it is fair or equitable to require submission of documents but whether or not the documents were agreed upon. In which case, all such documents must be submitted.

II. WAREHOUSE RECEIPTS LAW

Nature and functions of warehouse receipt

1. A warehouse receipt is a written acknowledgement by a warehouseman that he has received and holds certain goods described therein in store for the person to whom it is issued.2. Receipts not issued by a warehouseman are not warehouse receipts although in the form of warehouse receipts. This transaction will not be governed by the warehouse receipts law but by the law on deposit.3. A warehouse receipt is not a negotiable instrument within the meaning of the NIL even though the warehouse receipt, as a document of title, may be negotiable.

To whom delivered

In general-1. To the person lawfully entitled to possession of the goods or his agent, or2. The person entitled to delivery under a non-negotiable receipt, or,3. Person in possession of a duly negotiated warehouse receipt

Specific situations-

4. Between a judgment creditor and the holder of a duly negotiated negotiable warehouse receipt, the latter has the better right5. Between the unpaid seller of the goods deposited to the warehouseman and the holder a duly negotiated warehouse receipt, the latter has a better right6. The rights of the assignee of a non-negotiable warehouse receipt may be defeated by the judgment creditor of the depositor or the unpaid seller of the goods deposited pending notice to the warehouseman of the assignment or transfer.7. If the goods were stolen from the owner and deposited to the warehouseman who subsequently issued a warehouse receipt which in turn was duly negotiated to an innocent purchaser for value, the owner has the better right than the holder of the negotiable warehouse receipt. This is because a thief transfers no title.8. If the goods were deposited by the owner for which the warehouseman issued a negotiable warehouse receipt but the receipt was negotiated in bad faith, the holder of such negotiable warehouse receipt has a better right against the owner because the validity of the negotiation is not impaired by the fact that such negotiation was a breach of duty on the part of the person making the negotiation provided that the holder has no notice of the breach of duty or fraud, mistake or duress.9. The negotiation of the warehouse receipt by the buyer of goods purchased from and deposited to the warehouse is valid even if the warehouseman who issued a negotiable receipt was not paid by the buyer.

Kinds

1. Negotiable warehouse receipt- is a receipt in which it is stated that the goods received will be delivered to the bearer or to the order of any person named in such receipt2. Non-negotiable- a receipt in which it is stated that the goods received will be delivered to the depositor or to any other specified person.

Distinctions between negotiable instrument and negotiable warehouse receipt

In negotiable instrument, the obligation is to pay money while in a warehouse receipt, the obligation is to deliver goods.

In a negotiable instrument, the general endorsers warrant that the instrument, after due presentment, shall be paid and in that case of dishonor and notice of dishonor is duly given, the endorser shall pay the holder. In a warehouse receipt, the endorsers or intermediate parties are not liable for any failure on the part of the warehouseman or previous endorsers of the receipt to fulfill their obligations. The endorsers of a negotiable warehouse receipt may however be held liable for breach of warranties, such as : the receipt is genuine and in respects what it purports to be; they have legal title to the instrument; the goods are fit for consumption and merchantable; they are not aware of any information that would render the instrument valueless or worthless.

Rights of a holder of a negotiable warehouse receipt

1. The holder of a negotiable receipt acquires : a ) such title to the goods as the depositor or the person negotiating had or had ability to convey to a purchaser in good faith for value; and b ) the direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt as if the warehouseman had contracted directly with him.2. The goods covered by the receipt can not be garnished or levied upon under execution unless the receipt is surrendered, or impounded or its negotiation enjoined.3. The goods that the receipt covers are not subject to sellers lien or stoppage in transit

Rights of a transferee of a non-negotiable warehouse receipt

1. The title to the goods as against the transferor2. The right to notify the warehouseman of the transfer thereof; and3. The right, thereafter, to acquire the obligation of the warehouseman to hold the goods for him4. The right of the transferee is not absolute as it is subject to the terms of any agreement with the transferor. He merely steps into the shoes of the transferor

Duties of warehouseman

1. To take care of the goods entrusted to his safekeeping with the same care as a reasonably careful owner of similar goods would exercise2. To deliver the goods to the holder of the receipt or the depositor provided the following conditions are fulfilled :

a. offer to satisfy the warehousemans lienb. offer to surrender the receipt, if negotiable with such indorsements as would be necessary for the negotiation of the receipt; andc. readiness and willingness to sign when the goods are delivered acknowledgment that they have been received

The refusal of the warehouseman who previously owned goods stored with it to deliver the goods to the endorsee of the receipt on the ground that the goods had not been paid by the buyer is unlawful.

The warehouseman has no cause of action for repossession and damages against a person to whom it delivered deposited articles on the basis of an alleged falsified delivery permit where the real parties interested in the questioned articles have not yet sued the warehouseman for damages on account of wrongful delivery.

Warehousemans lien

1. The warehousemans lien over the goods deposited with him is his security, just like a pledge or mortgage for the payment of the charges for the storage and preservation of the goods, money advanced and other expenses in relation to such goods.2. The remedies available to the warehouseman to enforce the lien are : 1 ) refuse to deliver the goods until his lien is satisfied; 2 ) to sell the goods and apply the proceeds to the value of the lien; 3 ) by other means allowed by law to a creditor against his debtor for the collection from the depositor of all charges and advances which the debtor contracted with the warehouseman; or such remedies allowed by law for the enforcement of a lien against personal property3. A warehousemans lien should in no event go beyond the value of the credit in favor of the pledgee.4. The warehouseman fees and charges cease to accrue from the date of rejection by the warehouseman to heed the lawful demand by the endorsee of the quedan for the release of the goods.

TRUST RECEIPTS LAW

Definition/concept of a trust receipt transaction

1. Trust receipt is a transaction between the entruster and the entrustee whereby the entruster who owns or holds absolute title or security interest over certain goods, documents and instruments, releases the same to the possession of the entrustee upon the latters execution and delivery of a trust receipt wherein the entrustee binds himself to hold the designated goods, documents and instruments in trust for the entruster and to sell or otherwise dispose of the goods or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or to return them to the entruster in case of non- sale.2. The failure of the entrustee to deliver the proceeds of the sale of the goods or instruments subject of the trust receipt or to return the goods constitutes estafa.3. Not all obligations of the entrustee are criminal in nature but only the obligations specified above.4. Under recent jurisprudence, the penal sanction under the trust receipts law does not apply in case the goods are not intended for sale or resale such as when they are for actual use.5. To be in the nature of the trust receipt, the entruster should have financed the acquisition or importation of the goods. The funds should have been delivered before or simultaneously with delivery of the goods. If the entrustee is already the owner or in possession of the goods before delivery of the loan and execution of the trust receipt agreement, the transaction shall be considered a simple loan even though the parties may have denominated the agreement as one of trust receipt.

Loan/security feature

1. A trust receipt has loan and security features. The entruster (bank ) extends the loan to the entrustee ( importer and retail dealers ) to finance the importation or acquisition of goods or instruments in favor of the entrustee who may not be able to obtain credit except thru utilization of the merchandise imported or purchased. The security feature is in the covering trust receipt which secures the indebtedness.2. For as long as the loan is not paid, the civil obligation remains.

Thus :

a ) the loss of the goods subject of the trust receipt regardless of the cause does not extinguish the civil liability of the entrustee;b ) the return of the goods may extinguish the criminal liability but not the civil liability of the entrustee unless the goods are sold and proceeds thereof applied in full payment of the loanc ) repossession of the goods by the entruster in case of default by the entrustee does not extinguish the civil liability of the entrustee unless the goods are sold and proceeds applied in payment of the obligation.d. repossession of the goods in case of default of the entrustee does not prevent the entruster from foreclosing any mortgage on the property which the entrustee or surety offered as additional security for the loan

3. A civil action for the collection of the loan may be instituted independently of the criminal action for violation of the trust receipts law.

Ownership of the goods, documents and instruments under trust receipt

1. If under the trust receipt, the bank is made to appear as owner, it was but a legal fiction than fact for if it were really so, it could dispose of the goods in any manner that it wants which it can not do so. To consider the bank the owner would be to disregard the loan feature thereof2. The entrustee, however, can not mortgage the goods because one of the requisites of a valid mortgage is that the mortgagor must be the absolute owner of the property mortgaged or must have free disposal thereof. Entrustee is not the absolute owner of the goods under trust receipt nor has free disposal thereof.3. The entruster is not responsible as principal or vendor under any sale or contract to sell made by the entrustee

Rights of the entruster

1. To be entitled to the proceeds of the sale of the goods under trust receipt to the extent of the amount owing to him or to the return of the goods in case of non-sale2. To cancel the trust and take possession of the goods or of the proceeds realized therefrom at any time upon default by the entrustee3. To sell the goods with at least five day notice to the entrustee and apply the proceeds in payment of the obligation. Entrustee liable to pay deficiency, if any

Validity of the security interest as against creditors of the entrustee/innocent purchasers for value

1. The entrusters security interest in the goods under trust receipt shall be valid as against all creditors of the entrustee for the duration of the trust receipt agreement.2. Thus, the security interest of the entruster over the goods under trust receipt is superior than the monetary claims of the laborers of the entrustee.3. The innocent purchaser for value of the goods sold by the entrustee has a better right than the entruster. He acquires title to the goods free from the security interest of the entruster.

Obligations/liability of the entrustee

1. To hold the goods, documents or instruments in trust for the entruster and to dispose of them strictly in accordance with the terms of the trust receipt;2. To receive the proceeds in trust for the entruster and turn over the same to the entruster to the extent of the obligation to the entruster3. To insure the goods for their total value against loss from fire, theft, pilferage or other casualties;4. To keep said goods or proceeds thereof separate and capable of identification as property of the entruster;5. To return the goods, documents or instruments in the event of non-sale or upon demand of the entruster; and6. To observe all other terms and conditions of the trust receipt not contrary to law

However, the gravamen of the criminal offense under the trust receipts law is the failure of the entrustee to deliver the proceeds of the sale to the entruster up to the extent of the entrustees obligations or to return the same in case of non-sale

Other legal points to consider :

1. The officer of the corporation who signed a trust receipt can not hide behind the cloak of the separate legal personality of the corporation and can not avoid criminal prosecution even though he had no physical possession of the goods. The law makes him liable for such corporate act without prejudice to the civil liability of the corporation and/or directors/officers responsible for the violation.

2. Deposit by the entrustee of sum of money with the entruster bank without reference to the trust receipt obligation does not give rise to legal compensation because such compensation is not proper for a debt consisting of a civil liability arising from a crime

3. Cases where there is no criminal liability despite execution of a trust receipt agreement :

a. The transaction is not a trust receipt within the contemplation of the trust receipts lawb. Surrender of the goods to the entrusterc. Non-delivery of the goods to the entrusteed. Compromise agreement before the filing of the criminal information for violation of the trust receipts lawe. Cancellation of the trust and taking of possession by the entrusterf. Loss of the goods due to force majuere

Payment/delivery of the proceeds of the sale or disposition of goods, documents or instruments

1. Full payment of the loan or delivery of the sale proceeds equivalent to the full amount of the obligation extinguishes both criminal and civil liabilities of the entrustee

Return of goods, documents or instruments in case of non-sale

1. The return of the goods, documents or instruments in case of non-sale extinguishes only the criminal liability of the entrustee unless he pays in full his loan obligation2. The return of the goods and the consequent acquittal of the entrustee in the criminal case does not bar the filing of a separate civil action to enforce the civil liability of the entrustee

Liability for loss of goods, documents or instruments

1. The risk of loss shall be borne by the entrustee. Loss of the goods under trust receipt , pending their disposition, irrespective of whether or not it was due to the fault or negligence of the entrustee, shall not extinguish his obligation to the entruster for the value thereof. 2. The principle of res perit domino will not apply against the entruster

Penal sanction if the offender is a corporation

1. If the violation or offense is committed by a corporation, the criminal liability shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense without prejudice to civil liabilities arising from the criminal offense.2. What is sought to be penalized under the trust receipts law is not the payment of debt but the dishonesty and abuse of confidence in handling of money or goods to the prejudice of another.3. The director or officer of the corporation or an agent who signed the trust receipt in behalf of the corporation shall be criminally liable but not civilly liable unless he assumes personal liability.4. The director or officer of the corporation responsible for the violation can not hide behind the cloak of the corporations separate legal personality. Neither is lack of possession or the non-delivery of the goods to him relieves him from criminal liability

Remedies available

The remedies available to the entruster are :

1. File a criminal action for estafa in case of failure of the entrustee to deliver the proceeds of the sale of the goods under trust receipt up to the extent of his obligation to the entruster. The civil action may be instituted in the criminal action or separately filed independently of the criminal action. The criminal action is based on ex-delictu for violation of the law while the civil action is based on ex-contractu for violation of the trust receipt agreement.2. Cancel the trust and take possession of the goods at any time upon default of the entrustee.3. After repossession, the entruster may sell the goods upon at least five day notice to the entrustee and apply the proceeds in payment of the obligation. The entrustee is liable for deficiency or entitled to excess, if any.4. If a surety secures the obligation of the entrustee in addition to the trust receipt, the law does not obligate the entruster to cancel the trust or take possession of the goods. He can proceed against the surety. The options belong to the entruster

BANKING LAWS

THE NEW CENTRAL BANK ACT

State policiesCreation of the BangkoSentralngPilipinas( BSP )

1. The BSP is the central monetary authority. While it is a government owned corporation, it enjoys fiscal and administrative autonomy.

Responsibility and primary objective of the Monetary Board

1. It shall provide policy directions in the areas of money, banking and credit.2. It shall have supervision over banks and exercise regulatory powers over finance companies and non-bank financial institutions performing quasi-banking functions3. It is mandated to maintain price stability conducive to a balance and sustainable growth of the economy.4. It shall promote and maintain monetary stability and the convertibility of the peso

However, if the issue is whether or not the act of a bank or a non-bank financial intermediary is ultra vires, the same falls within the jurisdiction of the SEC and not the BSP.

Powers and functions

1. It shall have the sole power and authority to issue currency within the territory of the Philippines.2. It shall function as the banker and financial advisor of the government.3. It has the power to sue and be sued. This power should be construed in the context of civil cases only. Mandamus will not lie to compel BSP to actually prosecute for violation of banking laws, rules and regulations. It can only refer the matter to the Department of Justice.

How the BSP handles banks in distress

a. Conservatorship

1. Whenever on the basis of the report of the appropriate supervising and examining department, the MB finds that a bank or quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect its depositors and creditors, the MB may appoint a conservator to take charge of the assets, liabilities and management thereof.

b. Receivership

The MB may appoint a receiver if the MB finds that a bank or quasi bank :

1. is unable to pay its liabilities as they become due in the ordinary course of business provided that this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community;2. has insufficient realizable assets, as determined by the BSP, to meet its liabilities; or3. can not continue in business without involving probable losses to its depositors and creditors; or4. has willfully violated a cease and desist order that has become final involving transactions which amount to fraud or dissipation of bank assets, the MB may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the PDIC as the receiver of the bank.

Both conservator and receiver can only perform acts of administration and not acts of dominion. While they have the power to revoke the actions of the previous management and the Board of directors, they can not revoke a valid contract. Neither can they approve an option to purchase real property.

Once the bank is placed under receivership, its officers are no longer authorized to transact business in connection with the banks assets and property.

Court has no authority to appoint a receiver for a bank if the latter will function as such under the BSP law. The power to appoint belongs to BSP.

c. Closure

1. Close now hear later is the rule regarding order of closure. BSP may order the closure of the bank even without prior hearing. BSP may rely on the report of either the conservator, receiver or the head of the supervising and examining department. It is not required to conduct a thorough audit of the bank before ordering its closure.2. The authority of BSP to place a bank under conservatorship, receivership or order its closure is a valid exercise of police power. It is final and executory and not subject to injunction. However, such orders are subject to judicial scrutiny. They may be set aside if they were arbitrary and appear to have been issued with grave abuse of discretion 3. The order of conservatorship ( receivership or closure ) may be assailed : a ) by the stockholders representing at least majority of the outstanding capital stock; b ) within ten days from receipt by the board of directors of the order; c ) thru a petition for certiorari on the ground that the action taken by BSP was in excess of jurisdiction or with grave abuse of discretion as to amount to lack of jurisdiction4. As a general rule, the bank is not liable to pay interest on deposit once it closed and ceased operations

d. Liquidation

1. If the Bank can not be restored to its financial health upon recommendation of the conservator or receiver or head of the supervising and examining department, BSP shall file the petition with the RTC for assistance in liquidation. 2. Once liquidation proceedings have been initiated, the majority stockholders of the bank can no longer file a separate action/petition to assail the order of closure. Instead, issues on validity of closure should be raised as affirmative defenses in the liquidation proceeding. This is necessary to prevent multiplicity of suits or conflicting resolutions.3. The liquidation of a bank may be carried out despite lack of tax clearance unlike in a voluntary dissolution of a corporation under the Corporation Code.4. All claims against the insolvent bank should be filed in the liquidation proceeding. This rule, however, does not apply to petition for issuance of a writ of possession for foreclosed property filed by the bank because such petition is not in the nature of a disputed claim against the bank.5. Bank deposits are not preferred credits except when the deposits are covered by a cashiers check purchased from the bank when the bank officers knew or ought to have known that the bank is insolvent6. Any final judgment against the bank which has been ordered closed should be stayed as to execute the judgment would unduly deplete the assets of the bank to the prejudice of other creditors.

How the BSP handles exchange crisis

a. legal tender power

1. All notes and coins issued by BSP shall be fully guaranteed by the government and shall be legal tender for all debts, both public and private. However, with respect to coins, they have legal tender power only for the following amounts :

A. one peso coins and coins of higher peso value are legal tender for obligations not exceeding P 1,000.B. Twenty five cents and coins of lower value are legal tender for obligations not exceeding P 1007. Notes, regardless of denomination, are legal tender for any amount.8. Coins which show signs of filing, clipping or perforation and notes which have lost more than 2/5s of their surface or all of the signatures inscribed therein shall be withdrawn from circulation and demonetized without compensation to the bearer.9. Notes and coins called in for replacement shall remain legal tender for a period of one year from date of call. After this period, they shall cease to be legal tender but during the following year or such longer period as the MB may determine, they may be exchanged at par. After expiration of this latter period, the notes and coins which have not been exchanged shall cease to be the liability of the BSP

LAW ON SECRECY OF BANK DEPOSITS

Purpose

To give encouragement to the people to deposit their money in banks and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the economic development of the country

Prohibited acts

1. It shall be unlawful for any official or employee of a bank to disclose to any person other than those excepted by law any information concerning deposit.2. Non-bank official or employee is not covered by the prohibition.3. Disclosure by a bank official or employee of information about bank deposit in favor of a co-employee in the course of the performance of his duties is not covered by the prohibition

Deposits covered

1. All Philippine currency bank deposits of whatever nature with banks, including investment in bonds issued by the government of the Philippines, its political subdivisions and instrumentalities.2. Trust funds and any sum of money invested in the bank which the bank may use for loans and similar transaction are now included in the term deposits .3. Deposits are thus no longer limited to those governed by the law on loans giving rise to creditor-debtor relationship

Exceptions

Deposits may be disclosed, examined or looked into in the following cases :

1. written permission of the depositor2. in case of impeachment3. in case of order of a competent court in any of the following cases :

i. in case of bribery or dereliction of duty of public officialsii. where the subject matter of litigation is the money depositediii. prosecution for unexplained wealth ( plunder is akin to unexplained wealth )iv. prosecution for violation of the anti-graft and corrupt practices actv. in case of prima facie violation of the anti-money laundering law NOTE : Disclosure can only be made to the anti-money laundering council. Bank inquiry order is not necessary if the predicate crime is kidnapping, hijacking, arson, murder and violation of the dangerous drugs law or terrorismvi. garnishment of bank deposits4. The BIR may inquire into bank deposits for the purpose of computing the tax due on the estate of the deceased depositor.NOTE : The bank can not disclose to the heirs of the deceased depositor but only to the BIR5. The BIR may also inquire into bank deposits if there is an offer of compromise of tax liability on account of financial incapacity to verify such representation of the taxpayer6. Under the Unclaimed Balances law, the bank may disclose to the National Treasurer information concerning dormant deposits for the purpose of initiating escheat proceedings.7. In case the law is repealed, superseded or modified by any law to the contrary.

Garnishment of deposits, including foreign currency deposits

1. The Bank may disclose information about Philippine currency bank deposits pursuant to a writ of garnishment. The disclosure in this case is only incidental to the execution process.2. Foreign currency deposits, however, are exempt from garnishment or any court or administrative process. However, the exemption of foreign currency deposits from court order and administrative processes can not be invoked in case of violation of the anti-money laundering law, or if property or funds are related to financing of terrorism or acts of terrorism or by a person who is not the owner of the FCDU account or against a co-owner of the account or by a transient for any purpose contrary to that intended by law, which is to encourage foreign currency deposits to beef up our international reserves.

Penalties for violation

Imprisonment of not more than five years or a fine not more than 20,000 or both at the discretion of the court.

GENERAL BANKING ACT

Definition and classification of banks

A bank is an entity engaged in the lending of funds obtained from the public in the form of deposits.

A transaction involving not a loan but purchase of receivables at a discount within the purview of investing, reinvesting, or trading in securities which an investment company may perform is not banking. What is prohibited is for investment company to lend funds obtained from the public through receipts of deposit which is a banking function.

Banks may be classified into :

a. universal bank or expanded commercial bank ( capital of 4.950 billion )b. commercial bank ( capital of 2.4 billion )c. thrift banks which is composed of savings and mortgage bank, stock savings and loan association and private development bankd. rural banke. cooperative bankf. Islamic bankg. Other banks as may be classified by the BSP

Distinction of banks from quasi-banks and trust entities

A bank obtains funds from the public in the form of deposit while 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 purposes of relending or purchasing of receivables. Only deposits are insured with PDIC. Funds obtained by quasi-bank and trust entities are not insured with PDIC. Unlike deposits or funds obtained thru quasi-banking, there is no creditor and debtor relationship in trust.

Bank power and liabilities

1. A commercial bank shall have, in addition to the general powers incident to a corporation , all such powers as may be necessary to carry on the business of commercial banking such as accepting drafts and issuing letters of credit; discounting and negotiating promissory notes, drafts, bills of exchange and other evidence of indebtedness; accepting or creating demand deposits; receiving other types of deposit and deposit substitute; buying and selling foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities and extending credit.2. A universal bank shall have the authority to exercise in addition to the powers of a commercial bank the power of an investment house and the power to invest in the equities of allied and non-allied enterprises3. A commercial bank can not perform the function of an investment house and can only invest in the equity of allied enterprises

Corporate powers

1. Being a stock corporation, a bank shall have the general powers of a corporation2. It can only acquire real property when it is needed for business, in settlement of debt incurred in the course of its business, property as may be mortgaged to it to secure a debt in good faith and property it may acquire during execution sale to satisfy a judgment. Bank can not acquire real property in settlement of a civil liability arising from a crime.3. A universal and commercial bank can both invest in equity but only universal bank allowed to invest in equity of non-allied enterprises

Banking and incidental powers

Banks may also perform the following services :

Receive in custody funds, documents and other valuable objects; act as financial agent and buy and sell for the account securities; make collections and payments for the account of others and perform such other services not incompatible with banking business ad upon prior approval of BSP, acts as manager.adviser of investment management accounts and rent out safety deposit box.

Diligence required of banks

The diligence required of banks is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. The highest degree of diligence is based on the General Banking Law which requires of banks the highest standards of integrity and performance.

But the same degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with depositors, such as sale and issuance of demand draft.

Nature of bank funds and bank deposits

Bank deposits are governed by the law on loans. Creditor and debtor relationship is created between the Bank and its depositors. The fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a loan to trust agreement. Failure by the bank to pay the depositor is failure to pay a simple loan and not a breach of trust.

Stipulation on interest

CB Circular 905 ( 1982 ) lifted the ceiling on interest rate. The Bank and its depositors are therefore free to stipulate on the rate of interest for loans. Nevertheless, if the interest rate is unconscionable, it may be nullified on grounds of equity.

Grant of loan and security requirements

1. Except as the Monetary Board may otherwise prescribe, loans and credit accommodations against real estate shall not exceed 75% of the appraised value of the respective real estate security plus 60% of the appraised value of the insured improvements while loans on the security of chattels and intangible properties shall not exceed 75% of the appraised value of the security.

2. Unless otherwise prescribed by the MB, the total amount of loans, credit accommodations and guarantees that may be extended by a bank to a single borrower shall not exceed 25% of the net worth of such bank. The amount may be increased by an additional 10% of the banks net worth provided that the additional liabilities are adequately secured by documents of title covering readily marketable and non-perishable goods.

3. 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 nor shall become a guarantor, indorser or surety for loans from such bank to others, or in any be an obligor or incur any contractual liability to the bank except with the written approval of at least 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 department of BSP.

The outstanding loans, credit accommodations and guarantees which a bank may extend to the DOSRI shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution to the Bank.

Loans which are considered non-risk, as well as loans in the form of fringe benefits under a fringe benefit program duly approved by BSP are excluded from the limits.

4. The amortization schedule of bank loans shall be adopted to the nature of the operations financed. In case of loans with maturities of more than five years, there should be periodic amortization payments but such payments must be made at least annually. However, if the borrowed funds are to be used for purposes which do not initially produce revenues adequate for regular amortization payments, the bank may permit deferred amortization payment but in no case shall the initial amortization payment be later than five years from loan approval.

Penalties for violations

Whenever applicable, the MB may impose the following sanctions

1 fines in amounts as the MB may determine but not to exceed P 30,000 a day for each violation;2. suspension of rediscounting privileges, lending or foreign exchange operations or authority to accept new deposits or make new investment, interbank clearing privileges and/or revocation of quasi-banking license3. dissolution of the bank through a quo warranto proceeding4. If the offender is a director or officer, the MB may also remove or suspend such director or officer. 5. Penal sanction

PHILIPPINE DEPOSIT INSURANCE CORPORATION

Basic policy

Promote and safeguard the interest of the depositing public by way of providing permanent and continuing insurance coverage on all insure deposits.

Concept of insured deposits

The term Insured deposits means the amount due to any bona fide depositor for legitimate deposits in an insured bank net of any obligation of the depositor to the insured bank as of the date of the closure but not to exceed P 500,000.

Liability to depositors

PDIC can only be liable if the insured bank actually receives deposit and the bank is ordered closed by BSP.

Deposit liabilities required to be insured with PDIC

The term deposit means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings time or thrift account.

The deposit must give rise to creditor-debtor relationship between the bank and the depositor.

Deposits in a branch of domestic bank outside the Philippines shall not be covered unless the insured bank elects to include the same for insurance subject to approval of the PDIC.

Commencement of liability

PDIC shall commence the determination of insured deposits due to the depositors of the closed bank upon its actual take-over of the closed bank.

Deposit accounts not entitled to payment

PDIC shall not pay deposit insurance for the following accounts or transactions whether denominated, documented, recorded or booked as deposit by the bank;

1. investment products such as bonds and securities, trust accounts, and other similar instruments;2. deposit accounts or transactions which are unfunded, or that are fictitious or fraudulent3. deposit accounts or transactions constituting unsafe and unsound banking practices as determined by PDIC, in consultation with BSP, after due notice and hearing, and publication of a cease and desist order issued by the PDIC against such deposit accounts or transactions; and4. deposits that are determined to be the proceeds of an unlawful activity as defined under the Anti-Money Laundering law

Extent of liabilityDetermination of insured depositsCalculation of liability

b. per depositor, per capacity rulec. joint accounts

1. Deduct any loan of the depositor from the deposit with the insured bank to determine net insured deposit2. Individually owned deposit account is insured separately from joint accounts regardless of whether the conjunction and , or , and/or is issued. In determining such amount due to the depositor, there shall be added together all deposits in the bank maintained in the same right and capacity for his benefit either in his own name or in the name of others.3. if the account is held jointly by two or more natural persons or two or more juridical entities, the maximum insured deposit shall be divided into as many equal shares as there are many individuals or juridical entities, unless a different sharing is stipulated in the deposit document.4. If the account is held by a juridical person jointly with a natural person, the maximum insured deposit shall be presumed to belong entirely to the juridical person.5. The aggregate of the interests of each co-owner over several joint accounts, whether owned by the same or different combination of individuals, juridical persons or entities shall likewise be subject to the maximum insured deposit of P 500,000d. mode of payment

Whenever an insured bank shall have been closed by the MB, payment of the insured deposits shall be made by PDIC as soon as possible either by 1 ) cash or 2 ) making available to each depositor a transferred deposit in another insured bank in an amount equal to insured deposit of such depositor, subject to submission of proof of claims.

e. effect of payment of insured deposits

PDIC, upon the payment of any depositor, shall be subrogated to all the rights of the depositor against the closed bank to the extent of such payment. Subrogation shall include the right on the part of PDIC to receive the same dividends from the proceeds of the assets of such closed bank and recoveries on account of stockholders equity as would have been payable to the depositor on a claim for the insured deposit but such depositor shall retain his claim for any uninsured portion of his deposit.

Failure to settle claim of insured depositor

The failure to settle the claim within six months from date of filing of the claim for insured deposit whether such failure was due to grave abuse of discretion , gross negligence, bad faith or malice shall, upon conviction, subject the directors, officers or employees of PDIC responsible for the delay, to imprisonment from six months to one year; provided that the period shall not apply if the validity of the claim requires the resolution of issues of facts and/or law by PDIC or another office, subject further to the remedy of PDIC to require final determination of a court of competent jurisdiction if PDIC is no satisfied as to the viability of the claim for insured deposit.

Failure of depositor to claim insured deposits

Unless otherwise waived by PDIC, if the depositor in the closed bank shall fail to claim his insured deposit with PDIC within two years from actual take over of the closed bank by the receiver or does not enforce his claim filed with PDIC within two years after the two year period to file a claim, all rights of the depositor against the PDIC with respect to the insured deposit shall be barred; however, all rights of the depositor against the closed bank and its shareholders or the receivership estate to which the PDIC may have become subrogated shall thereupon revert to the depositor.

Examination of banks and deposit accounts

PDIC may conduct examination of banks with prior approval of the MB provided that no examination can be conducted within 12 months from the last examination date; provided however that PDIC may, in coordination with BSP conduct a special examination if there is a threatened or impending closure of a bank.

Notwithstanding RA 1405, RA 8791, RA 6426 and other laws, PDIC and/or BSP may inquire into or examine deposit accounts and all information related thereto in case there is a finding of unsafe and unsound banking practice

Prohibition against splitting of deposits

Splitting of deposits occurs whenever a deposit account with an outstanding balance of more than the statutory maximum amount of insured deposit maintained under the name of natural or juridical persons is broken down and transferred into two or more accounts in the name/s of natural or juridical persons or entities who have no beneficial ownership on transferred deposits in their names within 120 days immediately preceding or during a bank declared holiday or immediately preceding a closure order by the BSP for the purpose of availing of the maximum deposit insurance coverage. Such splitting of deposit is punishable by imprisonment and/or fine.

Prohibition against issuance of TRO

No court, except the Court of Appeals, shall issue any temporary restraining order, preliminary injunction or preliminary mandatory injunction against PDIC for any action on its part under the PDIC charter. The Supreme Court may issue a temporary restraining order or injunction when the matter is of extreme urgency involving a constitutional issues such that unless a TRO is issued, grave injustice or irreparable injury will arise.

The actions of PDIC with respect to determination of insured deposit accounts shall be final and executory and may not be set aside or restrained by the court except on petition for certiorari on the ground that the action was taken in excess of jurisdiction or with grave abuse of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may only be filed within 30 days from notice of denial of claim for deposit insurance.

CHATTEL MORTGAGE LAW

Essential requisites

A chattel mortgage is an accessory contract by virtue of which personal property is recorded with the Chattel Mortgage Register to secure the performance of a principal obligation.

Registration of the CHM is not a requisite for its validity. A non-registered mortgage is valid between the contracting parties. Registration is only for the purpose of binding third persons.

The CHM should also include an affidavit of good faith which the mortgagee and mortgagor shall jointly execute in which they shall state that the CHM secures a valid, just and existing debt and not for the purpose of fraud. The absence of good faith does not invalidate the CHM between the parties but renders the same unenforceable as to third persons.

Registration, when and where

The chattel mortgage should be registered with the Registry of Deeds of the City where the property is situated and where the mortgagor resides unless they are the same or if the amount of the loan secured by the chattel mortgage exceeds P 500,000, one registration is enough, that is, the Registry of Deeds where the property is situated.

Chattel mortgage over private motor vehicles and public motor vehicles should be registered with the Land Transportation Office and the Land Transportation and Franchise Regulatory Board, respectively and the Registry of Deeds of the city where mortgagor resides otherwise the CHM does not bind third persons.

Chattel mortgage over vessels should be registered with the Maritime Industry Authority ( MARINA ) while CHM over aircraft with the Civil Aeuronautics Authority.

After acquired property

Property acquired after the execution of the CHM does not form part of the mortgage because under the Chattel Mortgage Law CHM shall be deemed to cover only the property described therein and not the like or substituted property unless the CHM is subsequently amended to include such after acquired property.

Where the object of the CHM refers to stocks in trade, their substitution or replenishment as the stocks are disposed of, form part of the chattel mortgage if so stipulated.

After incurred obligation

While a pledge, real estate mortgage or antichresis may secure after incurred obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Although the promise expressed in chattel mortgage to include debts that are yet to be contracted can be binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh mortgage or by amending the old contract. In either case, there must be affidavit of good faith in order to bind third persons.

Right of junior mortgagee

A registered chattel mortgage lien attaches to the property wherever it may be. A subsequent attaching creditor acquired the properties in question subject to the creditors mortgage lien as it existed thereon at the time of the attachment. What may be attached in this case is only the equity of redemption.

Foreclosure procedure

1. The foreclosure is done thru a public sale of the mortgaged property.

2. Private sale is allowed if stipulated by the parties.

3. The two bidder rule does not apply. Such rule applies only to foreclosure of pledge. The winning bidder is the one who offers the highest amount for the mortgaged property.

4.There is no publication requirement in foreclosure of CHM but the mortgagor should be given ten day notice before the sale.

5. Extra-judicial foreclosure of CHM presupposes that the mortgagee is in possession of the CHM. If the mortgagor refuses to give up possession , the mortgagee may file an action for replevin preparatory to the foreclosure or institute judicial foreclosure,

Redemption

There is no right of redemption after foreclosure of the CHM. The mortgagor instead has equity of redemption, that is, the right to prevent the foreclosure sale by paying the mortgage debt within 30 days from default.

Claim for deficiency

General rule- A CHM is only a security and not a mode of payment. The mortgagor should therefore be made to pay the deficiency between the proceeds realized from the sale of the security and the obligation that the CHM secures. Besides, if the intention of the law is to prevent the creditor from recovery of deficiency in CHM, the law would have so stated, like in pledge and the Recto law.

Exceptions

1. Contrary stipulation2. Accommodation mortgage3. Extra- judicial foreclosure of the chattel mortgage due to the death of the mortgagor.4. Foreclosure of the chattel mortgage of the property sold on installments under the Recto law.

Article 1484( Recto Law )

1. If the following requisites are present, the mortgagee is not liable for any unpaid claim notwithstanding stipulation to the contrary.

1. Personal property sold on installments2. Chattel mortgage was constituted on the same personal property sold on installments3. Default by the buyer/mortgagor of at least two installment payments4. Of all the remedies available to the unpaid seller/mortgagee, he opted to foreclose the CHM

2. It is only when the unpaid seller opted to foreclose the chattel mortgage that he is not liable to pay deficiency. If he files an action for specific performance and obtains judgment, the proceeds from the execution sale of the personal property sold on installments or other property does not preclude him from levying other properties of the debtor until the judgment is fully satisfied. The action for specific performance however is tantamount to a waiver of the right to foreclose the CHM.

3. The foreclosure of the chattel mortgage on the property sold on installments completely extinguishes the obligation of the mortgagor. Thus, the mortgagee can not enforce any additional security that the mortgagor may have put up to secure the principal obligation, like a mortgage or surety. The prohibition against recovery of unpaid claim extends to the assignee of the unpaid seller/mortgagee.4. In the event that the seller-mortgagee first seeks, instead, the enforcement of additional mortgage, guarantee or other security arrangements, he shall be considered to have waived his mortgage lien on the property sold by and mortgaged back to him, although similar to an action for specific performance, he may still levy it.5. Replevin is akin to foreclosure. Thus, the mortgagee can no longer file an action for specific performance if he seized the property by way of writ of replevin.6. The prohibition against recovery of deficiency only applies if the seller of the personal property is also the mortgagee.

REAL ESTATE MORTGAGE LAW

Remedies available to mortgagee upon default of the mortgagor

1. He may file an action for collection to enforce payment of the loan secured by the REM. The filing of an action for collection, regardless of venue, precludes the remedy of foreclosure. 2. As an alternative remedy, the mortgagee may foreclose the mortgage. The foreclosure may be done judicially or extra-judicially. Foreclosure bars action for collection unless it is done to recover deficiency after the foreclosure sale. The only exception is when the complaint for judicial foreclosure is filed but the court dismissed because the REM did not have the written conformity of the spouse but the court ordered the mortgagee to file an action for collection. The action for collection may be sustained to prevent unjust enrichment.3. If the loan is secured by the real estate and chattel mortgages and the mortgagee elects to foreclose the chattel mortgage, he can not file an action to recover any deficiency unless he has foreclosed too the REM and the proceeds thereof are still insufficient to satisfy the debt.4. The filing of criminal case for violation of BP 22 by the mortgagee-creditor against the mortgagor will bar the former from exercising remedy of foreclosure because under the Rules of Criminal Procedure, he is deemed to have already availed himself of the remedy of collection suit.

Need for special power of attorney

The loan or mortgage agreement should contain a special power of attorney authorizing the mortgagee to foreclose extra-judicially ( to take possession of the property and sell it in case of default ). This SPA is the basis of the right of the mortgagee to foreclose the mortgage extra-judicially.

Procedure

Where

The petition for sale is not an ordinary action and is therefore not governed by the rules on venue. The petition/s for sale must be filed with the Office of the Clerk of Court of the city where the real property/ies is/are situated

Posting requirement

The notice of sale must be posted in a conspicuous place where the sale shall be conducted. The posting requirement is jurisdictional and as such, can not be waived. The certificate of posting may be waived but not the actual posting itself.

Publication requirement

In addition to posting, the notice of sale should also be published in a newspaper of general circulation once a week for three consecutive weeks. To determine sufficiency of newspaper of general circulation, the newspaper should cater to the general community and not to specific group or interest only.

Need for republication in case of postponement

In case of postponement, the notice of sale must be republished once a week for three consecutive weeks unless the notice of sale contains an alternative date and the sale is subsequently conducted on such date.

Personal notice to the mortgagor when and when not needed

Personal notice to the mortgagor of the date, time and place of the sale is not necessary because publication amounts to notice to the whole world unless personal notice is required by stipulation, in which case, it must be complied with in addition to publication, otherwise, the foreclosure is void

Possession by purchaser of foreclosed property

During the period of redemption, the mortgagee is not entitled to possession as a matter of right. It is discretionary to the court and subject to bond requirement. But if the petition for writ of possession is prayed for after expiration of the redemption period and consolidation of title in favor of the mortgagee, the issuance of such writ is the ministerial duty on the part of the court and bond is not required

Redemption

1. The redemption period is one year from registration of the sale and not from actual sale. 2. However, if the following requisites are present, the redemption period is three months from date of the sale or registration, whichever comes earlier.

a. the mortgagor is a juridical personb. the mortgagee is a bank, quasi-bank or trust entityc. the mode of foreclosure is extrajudicial

3. The one year redemption period rule still applies if the mortgagor is a natural person and/or the mortgagee is not a bank, quasi-bank or trust entity and/or the mode of foreclosure is judicial ( but in the latter case, only if the mortgagee is a bank or a credit institution because if the mortgagee is different, there is no right of redemption in judicial foreclosure but only equity of redemption.

4. The redemption period is not interrupted by the filing of an action to nullify the sale. What will toll the running of the redemption period is the action to compute the redemption price.

Who may redeem

The mortgagor, his successors and assign, as well as junior encumbrancer

Amount of Redemption price

1. If the mortgagee is a bank, quasi-bank or trust entity, the bid price is the outstanding obligation plus the interest stipulated in the mortgage agreement plus cost and expenses incurred during the foreclosure less any income derived from the property. However, if the mortgagor is an accommodation mortgagor, the redemption price is the amount of the bid price plus 12% interest per annum.2. If the mortgagee is not a bank, quasi-bank or trust entity, the redemption price is the amount of the bid price plus 12% per annum

Effect of pendency of action for annulment of sale

If the foreclosure is irregular, the mortgagor may file an action to nullify the sale. Such action however does not suspend the running of the redemption period or the issuance of the writ of possession if such writ is prayed for after expiration of the redemption period.

Writ of possession

The issuance of the writ of possession after expiration of redemption period and consolidation of title is the ministerial duty of the court. It can be granted ex parte and not subject to a bond requirement.

The writ of possession, however, can only be enforced against the mortgagor, his successors in interest and assigns but not against third persons whose title is adverse to the mortgagor, in which case, an action to recover possession is the appropriate remedy.

Truth in Lending Act (RA 3765)

Purpose

To complement the then Usury law and to protect the public from lack of awareness of the true cost of credit by assuring a full disclosure of such cost with a view of preventing the uninformed use of the credit to the detriment of the national economy.

Obligation of creditors to person to whom credit is extended

To disclose to the borrower in writing prior to the consummation of the transaction the following information; a ) the cash price or delivered price of the property or service to be acquired; b ) the amounts, if any, to be credited as down payment and/or trade in, c ) the difference between the two items, d ) the charges, individually itemized, which are to be paid in connection with the transaction but which are not incident to the extension of credit; e ) the total amount to be financed; f ) the finance charges expressed in terms of pesos and centavos; g ) the percentage that the finance charges bear to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.

Covered and excluded transactions

The law does not apply to transaction on cash basis but only where there is a credit component. It is also applicable only to a creditor as defined by law, that is, a person engaged in the business of extending credit.

Consequences of non-compliance with obligation

1. The transaction is not rendered void or unenforceable. Charges not properly disclosed need not paid and if paid, can be recovered.2. The offender is liable to pay a penalty for an amount equal to twice the finance charge required by such creditor but not to exceed P 2,000 on any credit transaction. The action to recover the penalty should be brought within one years from the date of the occurrence of the violation.3. In case of wilfull violation of the law, the offender shall be liable to pay a fine or imprisonment or both at the option of the court.

Anti-Money Laundering Law (RA 9160, as amended

Policy of the law

To protect and preserve the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money laundering site for the proceeds of any unlawful activity.

Covered institutions

1. Institutions supervised or regulated by BSP;2. Institutions supervised and regulated by the Insurance Commission; and,3. Entities dealing in currency, commodities or financial derivatives based thereon valuable objects, cash substitutes and other similar monetary instruments or property supervised and regulated by the Securities and Exchange Commission

Obligations of covered institutions

1. Customer identification2. Record keeping ( records should be kept and safely stored for five years from date of the transaction )3. Reporting of covered and suspicious transactions

Covered transaction

Transaction in cash or other equivalent monetary instrument involving the total amount in excess of P 500,000 within one banking day.

Suspicious transactions

Transactions with covered institution, regardless of the amounts involved, where any of the following circumstances exist :

1. there is no underlying legal or trade obligation, purpose or economic justification2. the client is not properly identified3. the amount involved is not commensurate with the business or financial capacity of the client;4. the clients transaction is so structured in order to avoid being the subject of reporting requirements;5. any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or his past transaction with the covered institution;6. transaction is in any way related to an unlawful activity or offense that is about to be, being, or has been committed;7. any transaction analogous to the foregoing

When is money laundering committed

Money laundering is a crime whereby the proceeds of an unlawful activity are transacted thereby making them appear to have originated from legitimate sources. It is committed by the following :

1. Any person knowing that any monetary instrument or property represents, involves or relates to the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property, or performs or fails to perform an act as a result of which he facilitates the offense of money laundering2. Any person knowing that any monetary instrument or property is required under under the law to be disclosed and filed with the Anti-Money Laundering Council fails to do so.

Anti-Money Laundering Council

The government body tasked to carry out the implementation of the Anti-Money Laundering law is the Anti-Money Laundering Council. It is authorized to impose administrative sanctions for the violation of the law, rules and regulations issued pursuant to the Anti-money laundering law.

It may freeze monetary instrument or property alleged to be the proceeds of unlawful activity. The AMLC shall apply for a freeze order with the Court of Appeals. Such order may be issued ex parte.

It is also authorized to inquire into bank funds, deposits or investments, regardless of currency but it needs a bank inquiry order. The AMLC shall apply for a bank inquiry order with any competent court. Such competent court is the RTC.The bank inquiry order can not be issued ex parte. ( NB. Under a recent law dated June 2012, bank inquiry order can now be issued ex-parte )

Amendments under RA 10365

2013 Dean Nilo T. Divina, All Rights Reserved2013 Dean Nilo T. Divina, All Rights Reserved