BANKING LAW

SY 2020-2021
MIDTERMS QUESTIONS
Question 1
5 / 5 pts
I
Bank of Commerce (a commercial bank) was able to raise enough money to acquire all the shares
of Bank of the Philippine Islands (a universal bank). All the stockholders of both banks are
agreeable to said acquisition. May the Bank of Commerce validly do so?
Your Answer:
No, the Bank of Commerce, a commercial bank, may not acquire all the shares of BPI, a universal
bank. According to the law, a commercial bank may not acquire a universal bank but a universal
bank may acquire a commercial or universal bank. Therefore, the acquisition is invalid.

Question 2
5 / 5 pts
II
Bank Arrote, Inc. is a universal bank. It was being enticed by EJK Memorial Services Corp. to
sell its memorial plans. To further increase its profits, said bank plans to sell to its clients
“memorial plans” of that company. Can Bank Arrote, Inc. validly do so?
Your Answer:
Yes, Bank Arrote, Inc., a universal bank, may validly sell memorial plans of EJK Memorial
Services Corp. Under the law, universal banks are allowed to engage in the business of
bancassurance. Bancassurance involves the sale of insurance policies where the banks do not
become the insurer thereof.
cross-selling, not bancassurance

Question 3
5 / 5 pts
III
The incumbent governor of the Bangko Sentral ng Pilipinas is due for retirement by the end of
this month. The Chairman of the Board of Usurero Finance Co., Inc. had invited him to be its
President. May said BSP Governor validly occupy that position after his retirement?
Your Answer:
Yes, the BSP Governor may occupy the position of chairman of the board of Userero Finance Co.
upon his retirement. Under the New Central Bank Act, the members of the Monetary Board are
prohibited from acquiring position in corporations under the supervision of the Monetary Board
within two years from their separation from the Board. A financing company is not under the
supervision of the Monetary Board and, therefore, the prohibition does not apply to the BSP
Governor in this case.

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Question 4
5 / 5 pts
IV
Banco Supertatag, Inc., the Philippines largest universal bank, wants to engage in insurance
business as an insurer and it has enough capital to do so. May it be licensed to do so?
Your Answer:
No, Banco Supertatag,, a univeral bank, may not engage in the insurance business despite
sufficient capital since the law provides that universal banks are not allowed to engage in
insurance business. The prohibition is due to its incompatible nature: while banks requires
security, insurance conducts its business with assumption of risk.

Question 5
5 / 5 pts
V
Celso maintained a peso savings account with ABC Bank. On orders of a Trial Court, the sheriff
garnished P50,000.00 of his deposit to satisfy the judgment in favor of his creditor, Ramon. Celso
complained that the garnishment violated the Law on the Secrecy of Bank Deposits because the
existence of his savings account was disclosed to the public. Is Celso’s complaint meritorious or
not?
Your Answer:
No, the deposits in Celso's peso savings account can be the subject of garnishment. Under the
law, peso savings account may be garnished by lawful court order. Thus, the Trial Court validly
issued the Order of Garnishment against the peso savings account of Celso.

Question 6
5 / 5 pts
VI
The City of Marikina wants to develop the banks of the Marikina River into a commercial area for
local tourism. Pedro and his friends organized a trading company and named it Marikina River
Bank Sales Corp. Assuming that said name is not similar or confusingly similar with the name of
another entity, can Pedro and friends validly use it?
Your Answer:
No, Pedro and friends cannot use the name Marikina River Bank Sales Corp. which aims to
develop the Marikina River banks. According to the law, only institutions engage in banking and
quasi-banking activities under the supervision of the Monetary Board may include the words
"Bank" or "Banking" in their corporate name. Marikina River Bank Sales Corp, is not engage in
banking and quasi-banking activities and may not incorporate the word "Bank" in its corporate
name.

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Question 7
5 / 5 pts
VII
Pedro owes Juan P10,000.00. On due date, Pedro cracked open his “piggy bank” and found out
that he has P97.00 worth of centavo-coins and P1,260.00 worth of peso-coins. In his wallet, he
has P9,000.00 worth of notes. As he wants to get rid of all his coins, how much exactly could
Juan insist on paying with coins?
Your Answer:
Juan can use his centavo-coins to the extent of P97.00 while he can use his peso-coins to the
extent of P1000.00. The rest of the obligation may be paid through currency notes. According to
the law, centavo coins are considered legal tender in the Philippines to the extent of P100.00 and
peso coins to the extent of P1000.00. No such limitation is provided for currency notes.

Question 8
5 / 5 pts
VIII
Republic Credit Corp. (RCC) has receivables worth P3(B) and it has a lot of qualified loan
applications. The only way to raise money so that it could accommodate those loan applications
is to have its receivables rediscounted. Can RCC have its receivables rediscounted with the
Bangko Sentral ng Pilipinas?
Your Answer:
No, RCC may not have its receivables rediscounted with the BSP. According to the law, BSP is
the bank of banks and only banks can have its receivables rediscounted with the BSP in the event
that banks ran out of cash. RCC is not a bank and, therefore, BSP may not rediscount its
receivables.

Question 9
5 / 5 pts
IX
Dan is the judgment debtor in a civil case and was ordered by the court to pay the judgment
creditor the sum of three hundred thousand pesos (P300,000.00). The Decision became final
and executory, but Dan has refused to pay. The judgment creditor cannot find any property worth
levying, but later learned that Dan has deposits with the BDO Universal Bank, Inc. amounting to
US$50,000.00. May said deposit be garnished to satisfy the judgment?
Your Answer:
No, the deposits amounting to USD50,000.00 may not be garnished to satisfy Dan's obligation.
Under the Foreign Currency Deposits Act, foreign currency deposits are not subject to
garnishment to further entice people to deposit their foreign currency with the banks. The
creditor's prayer for garnishment cannot be allowed by the courts since the account of Dan in
BDO is a foreign currency deposit.

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Question 10
5 / 5 pts
X
Inflation rate in the Philippines has gone up to as high as 20% per month. You are a member of
the Monetary Board of the Bangko Sentral ng Pilipinas. What could be an immediate practical
way of controlling the inflation rate?
Your Answer:
One of the functions of the BSP is the management of money supply. The BSP may intervene by
controlling the interest rates to stabilize the prices in the market. If they want to encourage
spending, they would lower the interest rates. If they want to decrease consumption, they would
increase the interest rates to discourage lending.

Question 11
2.5 / 5 pts
XI
Ideal Investment House, Inc. (IIHI) has P1(B) of funds representing its paid-up capital. (a) May
it use said funds for “rediscounting of receivables” of qualified merchants? (b) What government
office principally regulates the business of IIHI?
Your Answer:
(a) Yes, Ideal Investment House, Inc. (IIHI) may use its founds to rediscount receivables of
qualified merchants. Under the law, one of the main businesses of investment houses is
rediscounting receivables.
(b) The Securities and Exchange Commission regulates the business of investment houses in the
Philippines as provided by pertinent laws.
Correction: BSP

Question 12
5 / 5 pts
XII
Tecla is the Treasurer of ABC Trading Corp. Unknown to the management, she was methodically
funneling funds out of that corporation into her account with the bank where the corporation was
keeping its funds. For her act, the corporation charged her with qualified theft. To prove what
Tecla had done, the prosecution asked the court to issue a subpoena duces tecum for the bank
to bring to court records of deposit made into Tecla’s account. Tecla opposed the motion
invovking the Bank Secrecy Law. Rule on the motion.
Your Answer:
The motion should be denied. Under the Bank Secrecy Law, the records may only be disclosed
in case of written authority by the depositor, impeachment, order from the court in case of
dereliction of public duties or Anti-Graft and Corrupt Practices Act, or deposit is the subject matter
of litigation. The charges against Tecla is qualified theft which does not fall within the exceptions
provided by law.

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Question 13
5 / 5 pts
XIII
National Investment House, Inc. is a quasi-bank. (a) What are its basic functions? (b) Clearly
explain both functions.
Your Answer:
(a) The basic functions of investment houses are rediscounting of receivables and underwriting
of securities as provided under the law.
(b) Investment houses rediscount receivables of qualified merchants which are not banks or
quasi-banking institutions to keep their businesses running when most of its assets are
categorized as receivables or under promissory notes. Underwriting of securities involves the
exertion of investment houses of its best efforts to raise the money needed by its client.

Question 14
5 / 5 pts
XIV
Don is the judgment creditor of Tonio. Don cannot find any property belonging to Tonio worth
attaching. However, Don recalled that in the past Tonio told him that he has investments in
treasury bills. As Don knows that Tonio has been banking with Lalabank Corp., he decided to
inquire from that bank how much Tonio has invested in treasury bills. Can that bank legally give
information on said treasury bills?
Your Answer:
No, the bank cannot lawfully give information on treasury bills held by Don. Under the Bank
Secrecy Law, treasury bills are acquired through banks and investment to government securities
necessitates the same level of confidentiality as any investment coursed through banks.
Therefore, information on treasury bills are confidential and the bank may not give said
information.

Question 15
5 / 5 pts
XV
Erap was once the president of the Philippines, but has not earned any college degree. He
decided to buy into Grab Rural Bank, Inc, acquiring 50% of its voting capital stock. In the annual
stockholders meeting, (a) could Erap be elected as a director? (b) Assuming that he is
willing to be its Treasurer, can he be validly appointed or elected Treasurer?
Your Answer:
(a) No, Erap cannot be elected as director of Grab Rural Bank. Under the law, directors and
officers of banks must pass the fit and proper rule to be qualified for the position. The Monetary
Board issued a circular further discussing the fit and proper rule which requires the person to be
a college graduate.

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(b) No, Erap cannot be elected as treasurer of Grab Rural Bank for the same reason cited above.
A treasurer is an officer of the corporation and requires to possess the qualifications provided for
by law, which includes a college degree.

Question 16
5 / 5 pts
XVI
Palpac Builders Corp. is a government contractor. As it has not been paid for roadworks it did for
the immediately past administration of the City of Ungas, may it have its receivables rediscounted
with the Robinsons Bank (a commercial bank)?
Your Answer:
No, Robinsons Bank may not rediscount receivables of Palpac Builders Corp. Under the General
Banking Act, only universal banks and not commercial banks may engage in the business of
investment house. Robinsons Bank is a commercial bank and, therefore, may not validly
rediscount receivables.

Question 17
5 / 5 pts
XVII
Taguilid Rural Bank, Inc. (TRBI) has been unable to collect its receivables from its farmers-
borrowers due to the natural disasters that damaged their plants. Robert Brown is an American
and the stockholders of TRBI wants him to invest in it. As he wants a free hand in managing the
bank, he wants to own 60% of its voting shares. Can Brown legally own 60% of TRBI?
Your Answer:
Yes, Robert Brown, an American citizen, can legally own 60% of of TRBI. Under the Foreign
Investment Act, a foreigner may engage in any activity not included in the list provided therefor,
which includes those prohibited under law or by the Constitution. The law provides that rural banks
may be owned up to 60% by foreigners.
not FIA, but sec. 4 of RA 10574

Question 18
5 / 10 pts
XVIII & XIX
ABC Sales Co., Inc. is the registered owner of a parcel of land described in TCT No. 123456. It
mortgaged that property to Rural Bank of Sandugo. The mortgagor defaulted and the Bank
foreclosed the mortgage extra-judicially. (a) Assuming that the Bank was the highest bidder in
the auction sale, may ABC Sales Co., Inc. still redeem the property? (b) Assuming that the
President of that corporation was the highest bidder, by when could the mortgagor redeem,
assumiung that he registered the certificate of sale on February 15, 2020?
Your Answer:
(a) Yes, ABC Sales Co., Inc. may redeem the foreclosed property. Under the General Banking
Act, the property subject of the foreclosure sale may be redeemed until the registration of the

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certificate of sale before the Registry of Deeds which shall not be more than three months after
the foreclosure sale. Thus, ABC Sales Co., Inc. may redeem the property until the registration of
the certificate of sale.
(b) No, ABC Sales Co., Inc. may redeem the property before the registration of certificate of sale.
Under the General Banking Act, the property subject of the foreclosure sale may be redeemed
until the registration of the certificate of sale before the Registry of Deeds which shall not be more
than three months after the foreclosure sale. Thus, ABC Sales Co., Inc. may not redeem the
property as the sale has already been registered on February 15, 2020.
Correction: sec. 47, GBL Feb. 14, 2021

Question 19
5 / 5 pts
XX
Ali Muhammad is a Muslim trader and he needs P1(M) additional capital for his business. He
approaches you for a loan, but as he is a Muslim, he could not agree to pay you interest. For the
use of your money, he offers to pay you one-fifth (1/5) of his gross profits. If you would agree,
would a partnership be created between you?
Your Answer:
No, a partnership is not created between Ali Muhammad and I since ,under the New Civil Code,
a partnership involves the intention to contribute money, property, or industry, and share profits
and losses among and between the partners. Further, an agreement about sharing of profits is
not ipso facto indicative of the existence of a partnership. In Islam, charging of interest is immoral,
and the fact that there is an agreement to share profits does not result to a partnership consistent
with pertinent laws.

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PRE-FINALS QUESTIONS

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 BANKING – ABELLA NOTES 2.0 4F 2017 -2018|1

LETTERS OF CREDIT and TRUST RECEIPTS

What Law Governs Letters of Credits?

The Code of Commerce governs the letters of credit.
What is a Letter of Credit?
This is the definition of the Code of Commerce and this was the practice before. And
it could still be of use nowadays. Kaya lang nowadays, Letters of Credits are most common
in the banking system. Alright, kaya ano ba ‘yong Letters of Credit under the Code of
Commerce?
As defined, it is a letter addressed by a merchant to another merchant to enable the
person named in the letter to attend to a commercial transaction.
Okay, some lawyers don’t appreciate that definition. Ang labo naman. Di mo
maintindihan ano ‘yon. Kaya lang this is how it really worked during those days. First thing,
bago ko i-illustrate sa inyo, How many persons are involved in a letter of credit following
that definition? Para mas malinaw, pag sinabing letter of credit, sulat yan talaga, letter,
correspondence.
How many persons are involved in a letter of credit following that definition? – 3
persons
1. it is a letter addressed by a merchant (maker)
2. to another merchant
3. to enable the person named in the letter (beneficiary)
Ngayon, following that definitions, how many merchants are involved?
At least 2. Iyong gumawa ng sulat at iyong sinulatan. The person named in the
letter, who is known as the beneficiary, may or may not be a merchant.
Who is a merchant?
A merchant could be an individual or a juridical person who having the capacity to
engage in commerce regularly engages in it.
‘Pag sinabing commerce, that involves contracts, buying and selling. Kaya pag
narinig niyo ‘yong commercial transaction, you could say merong sale diyan.
Ano naman ang qualifications ng individuals to be a merchant?
As far as the Code of Commerce is concerned, dapat at least 21 years old. Kaya lang
luma na yan. Remember that the age of majority was reduced to 18. So if you already
reached the age of majority, at least 18 years old, then you could be a merchant. Because
then, you could give consent to any contract. Kaya lang di lang age of majority. Also, you
have capacity to give a valid consent. Kasi not everybody who has reached the age of
majority can give valid consent. Di ba merong insane o demented person, deaf mutes who
do not know how to read and write. Kahit na 50 years old na ‘yan, they cannot give valid
consent to a contract.
Kaya para masabing merchant, you have reached the age of majority and you can
give a valid consent to a contract.
 BANKING – ABELLA NOTES 2.0 4F 2017 -2018|2

And then Common requirement- pag sinabing common requirement, kasi ito for both
individuals and juridical persons.
Ano naman ang qualifications ng juridical persons to be a merchant?
Ngayon pag juridical persons, ang pinaka capacity diyan is simply having been
organized according to law. So if you are a partnership or a corporation, you are organized
according to law kahapon lang na-organize. Ah Walang problema. Kahit kahapon lang na-
organize, it already has capacity. Ang kinakailangan na lang to qualify as a merchant, it
should engage regularly in commerce.
Ngayon, as far as individuals are concerned, kinakailangan legal age with
capacity to give consent into a contract and regularly engaged in commerce. Pag
partnership or corporation, having been organized according to law and also regularly
engaged in commerce. Malinaw?
Ngayon, question, is there a minimum volume of transactions to qualify one as a
merchant?
Wala. No minimum value, no minimum number of transactions to qualify anybody as
a merchant. Basta ang importante, you are engage in commerce.
Kunyari lang, di ba sa labas paminsan minsan may nagtitinda diyan ng balut?
Merchant na ‘yon, yes, ginagawa niya ‘yon araw-araw. Iyong nagtitinda diyan ng mani,
merchant na ba ‘yon? Yes. Magkano ba benta noon sa maghapon? Baka mga Php 1,000
naman. Oh will that be enough to qualify as a merchant? Yes. Di tinitignan yung halaga o
dami ng transactions to qualify a person as a merchant. Kasi ang importante iyon ang
ginagawa mo on a regular basis. Pag sinabi mong on a regular basis, ‘yan ang tinatawag na
habituality.
Now, let us go back to the definition. Iyon ang merchants di ba? So in a letter of
credit, sabi ko kanina, at least 2 are merchants. Iyong gumawa ng sulat at iyong sinulatan.
Iyong beneficiary may or may not be a merchant.
So let me illustrate what a letter of credit is under the Code of Commerce. Alright,
ganito ha. Picture yourselves as if you are doing business way back in the 1800s. Oh, nung
mga panahong iyon, dito nalang sa City of Manila. Sa tingin ninyo, ano ang setting dito
noon? Siyempre wala pang mga high rise noon saka yung mga bahay dikit-dikit. Alright, so,
perhaps in one block, the houses are apart but there are already residents. So if you are a
merchant in those days, how can you have that commercial transaction? Sa ngayon, walang
problema. Sa ngayon, commercial transactions nandiyan sa supermart or public market,
talipapa. So during those days, people were doing trading that way. Some could not have it
this way.
So kunwari, ako ay merchant noong panahong iyon, and I was doing business along
Legarda St. from CM Recto. Yung aking goods was in a cart drawn by a horse or or an old
cow or matandang babaeng baka. Kung ang baka ay bata pa, ginagamit yan for breeding
purposes. Ngayon, ikaw ganoon din ang negosyo mo. And then we frequently crossed
paths. Kung ako eh northward ang direction, ikaw naman ay southwards. Kaya frequently,
our paths crossed and pag nagkakasalubong tayo, kadalasan ay magtatanghalian na. So
sabi ko, lunch tayo. In short, we've gotten familiar with each other. You look at what are
inside my cart and napansin mo may dala akong dried fish. Ang ganda ng dried fish mo,
silver pa at yung laman light brown pa lang. Yung sayo, ung dala mo, embalsamado na.
Kaya yung sabi mo sakin, 'Pre, saan mo nakuha yang isda mo?’ Ang sabi ko,’nakukuha ko
yan sa Malabon.’ Tapos ang followed question mo, ‘Pre, cash or utang?’ Ah utang lang kasi
ang tagal ko nang kumukuha, 10 years na. Kaya sabi mo sa’kin, ‘Pre, pwede mo ba akong
 BANKING – ABELLA NOTES 2.0 4F 2017 -2018|3

tulungan makautang din dun sa supplier?’ Sabi ko, ‘sige, sulatan ko nalang.’ Kaya gagawa
ako ng sulat:
“Dear Mr. Malabon, please extend credit to my friend, Jose Cruz in the
amount of 50 pesos. Thank you. Very Truly Yours.”
Yun ang Letter of Credit. It's a letter adressed by a merchant to another merchant
to enable the person named in the letter to attend to a commercial transaction. Yun ang ibig
sabihin noon. Kasi sabi nga nung iba, ang labo-labo naman ng definition ng letter of credit.
Hindi malabo kung alam mo yung setting noong panahong iyon. Kung pag-iisipan mo
ngayon, talagang malabo. Kaya lang kung susundin mo iyong setting noon when the law
was made, yan that’s how it worked. Kaya it's a letter addressed by a merchant, ako yung
merchant na una, ako ang tinatawag na maker--yung gumawa ng sulat, to another
merchant, yung taga-Malabon para ikaw makautang.
Kaya ang tanong, what are the requirements of the Code of Commerce for a Letter
of Credit? Dalawa yan.
1.) The person to whom the credit is extended should be named.
Yung taong papautangin ng aking sinulatan, dapat nakalagay ang
pangalan--hindi pwedeng to bearer. Kaya ang letter of credit cannot be
issued in a negotiable form because the Code of Commerce requires that
the letter of credit be issued to a named person.
2.) The amount or maximum amount of credit to be extended to the beneficiary
should also be stated.
What if both requirements are not met? How do you call that letter?
If both requirement are not met, it’s not a letter of credit. Kaya lang sulat din naman
yun, kaya anong tawag? It’s a letter of recommendation. A letter of recommendation is a
letter purporting to be a letter of credit but which does not meet the 2 requirements.
Ngayon, syempre ako maker gumawa ako sulat. Binigay ko sayo para makautang ka.
For how long is the letter valid?
A letter of credit if it is a domestic one meaning all the parties are in one country,
it is valid only for 6 months, that’s 180 days.
If foreign letter of credit meaning the parties are in different countries, it’s valid
for 12 months.
So yan ang letter of credit in the Code of Commerce. Pwede pa yan kaya lang
nowadays letters of credit are a facility or accommodation of commercial banks. Kaya kung
natatandaan ninyo when I was talking about classification of banks, I mentioned commercial
bank. And one of the functions of a commercial bank is opening letters of credit.
Ano yung bank letter of credit?
Pag sinabi mong letter of credit nowadays through the banking system, ganito ha.
Merong definition found in books for Money credited banking. Ginagamit ng students na
undergrad, those taking up commerce or commercial science. Ngayon ang definition ng
bank letter of credit is that it is a bank facility or accommodation to enable persons to
have a commercial transaction where the seller would be assured of payment and the buyer
assured of delivery.
 BANKING – ABELLA NOTES 2.0 4F 2017 -2018|4

There was a case where the ponente had the chance to write his own definition of a
letter of credit kaya meron na ring definition ang Supreme Court of a letter of credit. It
is a financial device to reconcile the seeming differences between the buyer and the seller
so that the seller would be assured of payment and the buyer assured of delivery. Pareho
lang kanina. Kaya lang ang tawag ngayon “financial device”. Kaya lang idadaan mo pa rin sa
bangko yan kaya nga financial device.
Para mas malinaw, let us say I am a merchant in Manila meron ako ditong
supermarket. And among the products I am selling in my supermarket are dried mangoes.
Ikaw mahilig ka sa dried mangoes kaya madalas ka sa supermarket ko. Kaya lang one day
pumunta ka to me nagreklamo ka na “Bakit ang mahal ng dried mangoes niyo rito?” And
my explanation is simply, “Alam mo yung supplier ko distributor sa Manila.” Alam niyo
naman pag middle trade, prices of goods go up. Kasi pag may middleman, may tubo yan.
Pag may middlemen, mas maraming percentages ang nadadagdag. Sabi mo sakin, “Sir
bakit di kayo dumiretso sa manufacturer? So sabi ko sayo, “Wala ako pangpunta sa Cebu.
Wala ako kilalang manufacturer doon.” In short ikaw naman eh techie, ako naman eh old
tech kaya di ko alam mga gagawin ko so sabi mo, “Sir tulungan ko kayo.” Kaya ang ginawa
mo using your gadget nagpipindot ka sabi mo “Sir eto merong mga manufacturers sa
Cebu.” Oh sabi ko “sige thank you susulatan ko yan bukas.” Sabi mo sir bat bukas pa
ngayon na. He composed a letter, siya yung nagpipindot dun sa gadget niya.
Alright in short lahat ng pinakita niya sa akin lahat ng manufacturers in Cebu
instantly pinadalhan ng email, me inquiring ano capacity mo ano presyo mo etc. In short,
pag hinintay mo iyon, aba, agad nagsagutan. In short, right away I got the clients from
different suppliers. Yung mga nagreply nakita ko, ito maliit ang capacity, ito mataas ang
presyo, tinanggal ko na iyan. Namili ako, ang laki ng capacity, bababa ang presyo.
Alright so nakapili na ako, ako magsusulat na: “Thank you for your immediate reply.
I am placing my order of 1 ton of dried mangoes which you quoted at 400 pesos per
kilogram. Please ship right away.” Yun namang Cebuano na iyon sinagot naman agad ako:
“Thank you for your order but since we haven’t yet met please remit payment first then I
ship.” Siyempre hindi naman niya ako kilala hindi naman niya ipapadala agad kaya sabi niya
bayad ka muna. Ako naman having received that letter, that reply at the back of my mind:
“Ikaw rin di din naman kita kilala ba’t naman kita babayaran agad? Eh kung hindi ka
magpadala?” Alright, pag sinagot ko iyon ng ganoon eh wala na stalemate na iyan. Alright,
so problema wala siya tiwala sa akin di niya ako kilala. Ako rin walang tiwala sa kanya kasi
di ko siya kilala.
So in short, how could we have a sale where he would be assured that he get paid
and I will be assured that I will receive the goods?
Kinakailangan merong third person whom both of us who trust. Eh ano ngayon iyan?
Banko. Kaya magsusulat ako sa kaniya: “Oh I received the reply and since I myself don’t
know you as we haven’t yet met, are you willing to be paid with a letter of credit with a
bank letter of credit? And if so please let me know your bank.” Sagot ngayon niya: “Thank
you for your letter, please be informed that I am willing to be paid with a letter of credit
with a bank of BPI Colon.” Colon is an area in Cebu. So knowing that he is willing to be paid
with a bank letter of credit and he banks with BPI, ako I go to a branch of BPI near a
supermarket. Sasabihin ko sa BPI: “Puwede ba akong mag-open ng letter of credit sa inyo?
Kasi meron akong binibili dun sa Cebuano 1 ton of dried mangoes kaya lang gusto niya
bayaran ko muna siya. Kung babayaran ko naman siya wala naman kasiguruhan na
ipapadala niya sa akin kaya nag-usap na lang kami we will pay by letter of credit through
you.” Ang sabi ng BPI: “Oh sige walang problema.” Oh magkano transaction? 400 thousand
pesos. Sabihin ng BPI: “Oh sige akin na ang 400 thousand pesos.” In short I delivered that
 BANKING – ABELLA NOTES 2.0 4F 2017 -2018|5

to BPI, the 400 thousand pesos so that BPI could open a letter of credit. Yung idedeposito
kong 400 thousand pesos ang tawag doon Marginal Deposit.
So what is a marginal deposit?
It is the amount required by a bank to be deposited with it for the purpose of
opening a letter of credit.
Oh malinaw? Okay ngayon, so ‘yan ideposito ko. Sa bangko ang transaction diyan
puro mabilisan so right after making that marginal deposit BPI manila right away will
contact BPI Cebu or perhaps through an email now a days. Alright so nakalagay doon: “BPI
Colon please be advised that a letter of credit was opened in favor of Mr. Cebuano for 400
thousand pesos as payment for the order of Mr. Manilenyo of 1 ton of dried mangoes.
Please advise Mr. Cebuano.” And BPI Colon naman dial kaagad iyan: “Mr. Cebuano mayroon
po kayong letter of credit dito for the order of Mr. Manilenyo for 1 ton of dried mangoes for
400 thousand pesos. Tatanggapin niyo po ba ito?” Eh natural negosyo iyan kaya sabi niya:
“Yes!”
“Oh sige iship niyo na ang 1 ton of dried mangoes that was ordered by Mr.
Manilenyo and we will pay you as soon as you submit to us the following
documents: yung original bill of lading issued by the common carrier, a copy of your sales
invoice, a copy of your packing list kung ano man whatever.”
Kaya lang ang pinaka-importanteng dokumento doon ay iyong bill of lading. Kasi I
remember in the Civil Code: Delivery of goods to a common carrier for delivery to the buyer
is already considered delivery to the buyer.
Oh kaya ikaw si Mr. Cebuano mag-empake ka kaagad ng 1 ton of dried mangoes
dalhin mo kaagad doon sa abboitiz. Oh pag tanggap ng abboitiz: “Oh ayan, orginal bill of
lading so your proof that you already shipped the order of Mr. Manilenyo.” Kaya ang BPI
right away pays you. In short if you were the seller without leaving Cebu you got paid. Oh
ngayon kahit iyong goods nandoon pa sa warehouse ng abboitiz sa Cebu at bukas pa aalis
yung barko papuntang Maynila yung order ng 1 ton of dried mangoes is already considered
delivered. Alright? So ngayon hinatayan ko na the following day pagdating diyan so punta
ako doon sa pagdating ng vessel from Cebu sa warehouse ng abboitiz sasabihin ko: “Oh,
kunin ko na.” Pagkatapos ang mangyayari diyan iyong BPI Cebu ipoforward yung orginal bill
of lading sa BPI Manila. Pagkatanggap na pagkatanggap ng BPI Manila tatawagan agad
yung kliyente. Sasabihin: “Sir andito na po iyong original bill of lading niyo pakikuha na po
para pagdating ng goods noong barko, claim niyo na agad sa bodega.” In short, no time is
lost because everybody wants to complete the transaction. That’s how things are done.
Okay?
So ngayon, in short I got my goods without leaving Manila. And the transaction was
facilitated simply through a bank letter of credit. Kaya kung titingnan niyo ulit yung
definition: It’s a financial device, kasi nga naman pera pinag-uusapan diyan, to reconcile the
seeming differences of the buyer and seller where the seller would be assured of payment
and the buyer assured of delivery.
Kaya kung yan ang ayos ninyo ngayon based on what I have narrated.
How many independent contracts are there in a letter of credit?
Alright, well this are based on a promise There are 3 independent contracts in a
letter of credit. One, between buyer and seller. Ako at si Mr. Cebuano meron kaming
contract of sale. Second, between buyer and bank. Sabi ko dun sa bangko: Oh, mag
open ako ng letter of credit, ito pambayad ko doon sa order kong 1 ton of dried mangoes.
Ire-release kay seller to 1 day after he presents proof that he already delivered the goods to
 BANKING – ABELLA NOTES 2.0 4F 2017 -2018|6

me. Sabi ng bangko: Yes, Sir, no problem. In short, the second contract is between bank
and buyer. Tinawagan naman ng BPI Manila ung BPI Colon: Oh, you have a letter of credit
you inform Mr. Seller. Inform him and find out if he’s agreeable, if he will accept. Kaya
tinawagan naman ng BPI si Seller. Oh Mr. Seller you have here a letter of credit, tatangapin
nyo ba ito? Sasabihin of course. Negosyo yan eh. Sasabihin, Sir, ah, show us proof that you
have delivered, then we pay you. Yun ang lumalabas na third contract, between seller
and bank.
Kaya lang yan ang according to the Supreme Court. Kaya lang in a foreign letter of
credit, I say, di pa naman ako Justice ng Supreme Court kaya sinasabi ko sa inyo
ito ay aking view. There is a fourth contract, and that is the contract between the
correspondent banks. The fourth contract in a foreign letters of credit is the contract
between the correspondent banks. Correspondent ah, yung salitang correspondent. Yung
dulo “d-e-n-t.” Correspondent. Kasi yung iba hindi naman nababasa yan. O di nagbabasa
talaga kaya mali ang dinig pagdating ng examination nakalagay corresponding banks. Kaya
sinasabi ko na sa inyo. “d-e-n-t.” Hindi “d-i-n-g” kundi “d-e-n-t.” Kaya ang tawag dun sa...
Ano ba yang correspondent bank na yan?
Edi ung Philippine bank tsaka ung bank abroad.
So papaano ba yon pag foreign letters of credit?
Ganito ha, gusto ko dagdagan yung aking produkto, hindi lang dried mangoes. Ang
sabi ko magdagdag kaya ako ng product? Ano kayang dried fruits ang pwede kong idagdag?
Ikaw naman nagbiro ka. Sir, bakit di kayo umorder ng dried oranges? Meron bang ganon?
Dried oranges? Meron. Alright. Nakita ko na, akala ko wala. Meron pala. A product of
Thailand. Alright. I’m not promoting this store. Kaya lang dun ko ito nabibili, sa Rustan.
Meron silang mga dried fruits doon. Merong dried pineapple, dried kiwi, tapos merong
tamarind. Nung una iniisip ko paano nagkakaroon ng dried orange? Kasi ang orange juicy
diba? E pag nawala ung juice, edi puro balat yun? Diba? Totoo naman pala, balat talaga.
Ang nangyari pagkaprocess yung buong orange, yung buo is sliced. Yung na-slice I da-dry.
Kaya yung lalagyan ng juice dun natuyo ung juice. Kaya ung pinaka sacks ung tawagin
kulay orange. Kaya para makain mo at maenjoy mo pa, kasama balat. Ok naman yon kasi
fiber yon maganda yon panglinis ng tiyan.
Alright. Kaya sabi ko idagdag ko kaya sa product ko sa supermart ko dried oranges.
In short, nag-contact ka ng supplier sa Thailand. Ganoon din. Please ship… Unang tanong
you tell you want dried orange and if so let me know your price. Sasagot yan and I found
the price reasonable nag-calculate na ako ng lahat ng cost. Mura na, mapagtutubuan ko pa.
In short, bumili na ko. I want to order 1 ton of dried oranges for the price as quotes. Please
let me know if you are willing to be paid with a bank letter of credit. And if so, let me know
your bank.
Eh Thailand yun. Walang Bank of PI dun. Kaya sasabihin nun: yes I’m willing to be
paid with a bank letter of credit and I bank with the Royal Bank of Thailand. Wala naming
branch ditong ganun ng banko. Alright. Bali pagsagot sakin please be informed that the
correspondent bank of the Bank of Thailand in Manila is the Bank of PI. Alright kaya kung
tatandaan niyo sabi ko dati yung mga commercial banks in the Philippines, lahat yan part of
their services is opening of letters of credit. Kaya yung mga commercial banks natin
including universal banks lahat yan may tie up with different banks in major cities of the
world. Lahat yan. Lahat yan may tie up. Kaya nga sabi ko sa inyo ung local bank may
foreign bank. Yung dalawang bank ang tawag dyan correspondent bank..
Ang tanong, kapag may transaction ba, nagpapadalahan sila ng pera?
 BANKING – ABELLA NOTES 2.0 4F 2017 -2018|7

Hindi. Simple lang. Ang gagawin halimbawa ng BPI, mag-oopen ng account iyan in
the name of Royal Bank of Thailand. Yun namang Royal Bank of Thailand, mag-oopen
naman ng account in the name of BPI. Kaya ang mangyayari, yung mga transactions diyan,
debit-credit lang. Walang actual remittance. Halimbawa, may babayaran dito. Babawasan
lang yung naka-credit doon sa Bank of Thailand. That’s how they do it.
Kaya sabi ko sa inyo, kapag foreign Letters of Credit, may pang-apat, that is the
contract between the correspondent bank.
Ngayon, the bank facility is known as L/C-T/R bank. Letters of Credit, Trust Receipts.
Kaya nga L/C-T/R Bank.
Before I explain, kapag nag-open ako ng Letter of Credit sa bangko, ano ang
pakinabang ng bangko for facilitating my transaction?
For facilitating a commercial transaction, the bank will charge a service fee. Kaya
lang maliit lang iyan. Kaya ang tanong, kung ikaw ang bank, paano ka kaya kikita ng mas
malaki sa akin? Siyempre sa umpisa makuntento ka lang muna sa service fees. Pero para
kumita ng mas malaki-laki, ang ginagawa ng bank, let’s say after another transaction,
sasabihin ng bank sa akin, ‘Sir, isang taon na naming kayong client. We have a good
relationship with you. Kaya yung susunod niyong letter of credit, we won’t anymore require
100% marginal deposit. Sir, 60% na lang ang kailangan niyong i-deposit sa amin.’
In short, if I were a genuine merchant, I will love that. Why? Nakapag-transact ako
na konti lang ang pera na ilalabas ko. Tandaan niyo, a blue blooded merchant loves credit.
Wala pa akong nabalitaang merchant na ayaw ng utang. Kung ayaw ng utang, di yun
merchant. Why? Because you make money out of other people’s money. Wala kang ilalabas
kung pwede nga lang. Di ko pera, ginagamit ko.
Ngayon, instead of putting up P400,000.00, ang ilalabas ko, P240,000.00 na lang.
May difference na P160,000.00 which the bank will advance for me. Kaya lang utang ko yun
so yung bank, kikita ng interest sa P160,000.00. May P160,000.00 na meron pang service
fee at meron pang interest.
Ang gagawin ng bank, kakausapin si Mr. Cebuano, ‘Sir, ito yung order. Ship, then we
pay.’ Kaya ang mangyayari, ibibigay ni Cebuano yung original bill of lading sa BPI Cebu. BPI
Cebu will forward it to BPI Manila. Kapag nandito na sa BPI Manila, sasabihin sa akin, ‘Sir,
nandito na po yung inyong Bill of Lading. We will release this to you upon payment of
P160,000.00 plus interest of so much plus service fees.’
Sasabihin mo, ‘Naku pasensya na po kayo. Ang sama po ng nangyari sa akin. Nag-
decide na po akong kumuha ng Bar exams ngayong taon kaya yung aking konting savings,
pinambayad ko na sa review fee tapos nagpa-reserve din ako ng kwarto sa hotel kaya wala
na akong cash.’
Sasabihin ng bank, ‘Sir walang problema. Kung wala kayong pera ngayon, no
problem. We will still release to you this original Bill of Lading. Kapag nakuha mo na,
pumunta na kayo sa bodega ng carrier, kukunin niyo na yung goods, yung 1 ton of dried
mangoes. Ibebenta niyo. Doon sa pinagbentahan, doon niyo kami bayaran. Kung hindi niyo
kami mabayaran by this day, walang problema. Puwede niyong isoli sa amin yung goods.’
So magtatanong ka, ‘anong gagawin ko?’. Sabi ng bank, ‘Wala sir. Pipirma lang kayo
ng resibo.’ Yung resibong yun, that is a TRUST RECEIPT.
What is a Trust Receipt Transaction?
In a trust receipt transaction, the ENTRUSTER who has security interest over goods,
documents or instruments entrusts those goods, documents or instruments to the
 BANKING – ABELLA NOTES 2.0 4F 2017 -2018|8

ENTRUSTEE so that the entrustee can sell those goods, documents or instruments and the
entrustee agrees to remit the proceeds of sale to the extent of the amount owing to the
entruster within an agreed period and if that amount cannot be remitted to the entrustor
within the agreed period, to return all goods that have not been sold.
Tanong, in a trust receipt transaction how many parties?
Edi dalawa: entruster and entrustee.
And of the two who is the theoretical owner of those goods?
The entruster. Sabi ng Supreme Court entruster because it is the entruster or the
bank that advanced full payment of those goods. Kaya yun lumabas na theoretical owner.
Ang tanong ano ang undertaking ng entrustee in a trust receipt transaction?
Sell and remit the proceeds of sale to the extent of the amount owing to the
entruster within an agreed period and if that amount cannot be remitted within the agreed
period, return all goods which have not been sold.
Ganito para mas ma appreciate niyo, ang dapat i-remit proceeds of sale. Ibig sabihin
yung pinagbentahan. Ngayon yung pinagbentahan kasama doon yung syempre yung profit
margin nung seller nung entrustee. Kaya dapat yung pinagbentahan niya lahat lahat yun
ireremit niya, kaya lang only to the extent of the amount owing to the entruster.
Halimbawa ganito, magkano yung balance ko pa sa marginal deposit - P160,000 +
kunwari interest + service fees, kaya kunwari ang total P185,000. So yun ang halagang
dapat iremit ko sa entrustor P185,000. In short, nasa akin na yang dried mangoes. Si Mary
bumili sa akin ng ilang kilos. Kunwari yung pinagbentahan namin... ang usapan namin ni
Mary doon sa binili niya sa akin ang presyo ay P60,000. Of the P60,000 ang aking dapat na
profit ay P10,000.
Ang tanong how much do I have to remit?
Yung buong P60,000 kasi ang undertaking is to remit the proceeds of sale. Kaya sabi
ko sayo kanina kasama pa yung aking tubo doon sa transaction.
So doon sa puhunan kong P185,000 minus yung P60,000 magkano nalang yung
utang ko? P135,000. O nakabenta ako kay Jose P90,000 worth, doon sa P90,000 kunwari
tubo ko ay P20,000 ang ireremit ko ay yung buond P90,000. Kaya kung ireremit ko yung
buong P90,000 doon sa bangko, P185,000 minus P60,000 minus P90,000...magkano? Bale
P35,000 nalang. Meron pa akong utang. O nakabenta ako ulit worth P40,000.
Ang tanong magkano dapat kong iremit?
Edi yung P35,000 nalang yung balanse ko kasi diba remit the proceeds of sale to
the extent of the amount owing to the entrustor. Kaya yung ire-remit ko P35,000 yung
P5,000 akin na yun. At kung ano pa yung hindi nabebentang dried mangoes, akin na yun.
Na kung gusto kong kumain ng dried mangoes pwede kong kainin lahat nung natitira dahil
iyon ay akin na. Kaya lang habang hindi akin yun,hindi ako pwede kumagat kasi hindi pa
akin yun. Kapag kumagat ako, may kaso ako, conversion.
Kaya habang hindi pa bayad ng buo yung entrustor, hindi pa sa akin yung goods.
Kasi kung hindi ko mabayaran yung buo, my obligation is to return all goods which have not
been sold. Maliwanag?
Ngayon, is there a criminal liability for violation of a trust receipt transaction?
 BANKING – ABELLA NOTES 2.0 4F 2017 -2018|9

Yes. The entrustee who violates the trust receipt transaction could be charged under
Article 315 of the Revised Penal Code which penalizes conversion.
Alright. Ngayon what if the entrustee is a partnership or a corporation? Can there
be a violation of the trust receipt? Question is who gets charged criminally? Who
will go to jail?
Ang entrustee partnership or corporation. Ang problema partnership or corporation
walang physical existence. It only exists in contemplation of law. Kaya kung mayroon
violation ng trust receipt transaction who goes to jail? The person who actually signed the
trust receipt on behalf of the partnership or corporation. O wala ka trabaho. Tapos nakita
mo sa internet job opening. Managerial pa. Maganda sweldo. Maganda naman ang
credentials mo so you were hired. Bago mo tanggapin itanong mo muna job description.
Pag basa mo functions nakita mo number 1, to sign all trust receipts. Isip isip ka kung
tatanggapin mo. Kasi kapag nagkaroon ng violation, ikaw ang kulong.
The person who signed the trust receipt in behalf of the partnership or
corporation shall be the one liable in violation of the trust receipt transaction.
O ngayon, there is a provision in the trust receipts that if a person is regularly
engaged in the selling of goods for profit, there shall be no trust receipt
transaction. Kaya sinabi yan kasi anticipated na yan.
The person selling goods on credit or instalments they require their buyer to sign a
trust receipt instead simply of a promissory note or a perhaps a charge sales invoice. Kung
promissory note di bayaran wala ka panakot. Kasi wala naman nakukulong sa utang. Kaya
lang pwede makulong pag may violation ng trust receipt kaya ang ipapapirma sa buyer
kung may hulugan ay trust receipt.
Kaya lang kahit na ipapirma mo sa buyer ang trust receipt sabi ng law that is not a
trust receipt transaction. Kasi sabi ng Civil Code on Contracts, the parties shall be
bound by their true agreement. Ano ba talaga usapan? Eh di hulugan. Pag hulugan yan,
the liability is only civil kaya kahit pa pirmahin mo yan ng trust receipt di talaga TR
transaction ang pinag-usapan, hulugan lang. Kaya at the end of the day kahit kasuahan mo
ma dismiss yung kaso. Kasi ang true agreement is sale on credit. Pag sale on credit, the
liability of buyer on credit is only civil.
One day while you were having a walk inside the mall, napadaan ka dun sa isang
appliance dealer. Tapos nakalagay dun anniversary sale. Papasok ka naman and nakita mo
dun one of the items on sale is an LED wide screen television set which you have always
wanted to own. So tinanong mo sa salesman ‘on sale ba yan? ’Sabi niya ‘oo, sir. Smart TV
na yan, wala nang remote control yan. Hi tech na yan puro sign language lang. Kakaway ka
lang change channel na’ sabi mo magkano yan? Sabi niya, ‘Sir, sale nga 200k lang
yan.’Nabigla ka, P200,000 kaya ang tanong mo pwede ba instalment? Ay sir pwede. 50%
down balance in 6 months. Na calculate mo na kaya mo yun. Dukot ka na oh downpayment,
P100,000. Tapos sabi sir pirma. Ang pinapirma sayo trust receipt eh di mo naman
naintindihan yun. Kahit ordinary na tao di maintindihan trust receipt. Ang ordinary buyer pa
pirmahin mo kahit ano pipirma yan. Wala na basahan yan. So inuwi mo yung LED TV set
nilagay mo sa living room tapos kinabitan mo pa home theater kaya ganda sound. In short,
you enjoyed watching in your new TV set. Naka 3 ka pelikula tuloy-tuloy kaya ang nangyari
nakatulog ka habang nanonood kaya lang ang masama di mo na i-lock pinto. Ang nangyari
may dumaan na magnanakaw, eh tulog ka kaya tinangay na TV set mo. Following morning
nagising ka 9am na nakita mo wala yun TV mo. Kaya lang naisip mo late na naman ako nito
kaya you rushed to the office. Unfortunately, ang nagbukas ng pinto sayo di security guard.
Yung boss mo mismo. Sabi niya ‘why are you late? ’papaliwanag ka eh di maganda
 B A N K I N G – A B E L L A N O T E S 2 . 0 4 F 2 0 1 7 - 2 0 1 8 | 10

paliwanag mo. You’re fired. Edi wala ka trabaho ngayon. Wala ka pang bayad instalment.
Edi may kaso ka ngayon. Violation ng trust receipt.
Will you go to jail?
No. Kasi pano yun napirmahan mo trust receipt kaya lang ano ba usapan talaga?
Installment sale. And the law is very clear that if a person is regularly engaged in selling
goods for profit, no trust receipt transaction.
I had a client, sabi niya, ikuha mo kami ng trust receipt (TR). In short, kinuha ko ng
TR. Sabi, hindi pwede kapag hindi nakabayad ang buyer, hindi pwedeng kasuhan ng
violation ng TR. Wala sa batas. Panakot lang namin. Kasi kung hindi nakakaintindi – eh
kinasuhan, ang complaint is for violation of Art. 315. Eh di matatakot na yun, tapos
makikipag-settle agad. Hindi mo pwede totohanin kasi, at the end of the day, madidismiss
lang. Kaya lang, maganda lang yun pag-exert ng moral pressure.
Actually, the PD on Trust Receipts was issued to protect the banking
system. Ang Trust Receipts, matagal nang meron yan. Kaya lang, ang naging problema,
kapag mayroong violation ng trust receipts, yung ibang fiscals and judges dinidismiss ang
kaso saying that the liability is only civil. Kaya kapag dun napunta ang kaso, sa fiscal or
judge whose belief is that a violation gives rise to civil liability, ang banko ang hindi
nkakasingil kasi ang mga entrustee, tinatakbo ang pera, hindi nagbabayad. Eh noon
mababa lang ang paid-up capital ng commercial banks. Kaya matakbuhan lang ng dalawa,
tatlong Trust Receipts, bagsak na ang bangko. Paid-up capital was only 10M.
Yung mga trust receipts transactions, at least a million or two yan. Kaya matakbuhan
lang ng isa o dalawang milyon, malaki na ang ng epekto sa resources ng banko.
Ang tanong: how come that some judges and fiscals were of the belief that a
violation of TR gives rise to cilvi liability? Walang criminal liability?
Sabi nila, pag binasa mo ang Trust Receipt, except for that receipt portion,
karamihan ng provisions niyan, you find it in a promissory note. And if there is a violation of
a promissory note, the liability is only civil.
To give you an idea, dun sa Trust Receipts, nakalagay dun, “received from the
entruster the following goods...” with undertakings. Ngayon, kadugtong niyan, “I agree
to pay interest at the rate of so much for any amount not paid; in case of litigation,
I agree to pay attorney’s fees, costs of suits and expenses of litigation...”
Eh sa promisorry note, nandoon din iyan pero walang criminial liability. Eh bakit ito
resibo lang pero may criminal liability? Kaya malinaw sa law ng Trust Receipts, as long
as the undertakings are there, although there may be added stipulations, it
remains a trust receipt transaction. For as long as the undertaking are there even
though there are other stipulations, it remains a trust receipts transaction.
Para protektado ang banking system, entrustees are obliged to insure
against all risks the goods covered by a trust receipt. Para halimbawa: ikaw ang
entrustee, kakakuha mo lang doon sa bodega ng carrier ng goods and you’re transporting
but along the way, na-hijack. Kaya ang excuse mo fortuitous event. Hindi mo na
mababayaran yung entrsuter. At the end of the day, ang entruster ang magsa-suffer. Kaya
para walang dahilan, magpa-insure ka. Pag di mo ginawa yun at nawala, magbabayad ka pa
rin. Pag di ka nagbayad, kulong ka pa rin! Naitransport mo na ang good pero unfortunately,
nasunog ang bodega. So saying naman. Fortuitous event din! Para walang lusot, magpa
insure ka. Kasi pag hindi ka nagpa-insure eh di bubunot ka sa sarili mong bulsa at
magbayad ka. If you won’t, you will go to jail.
 B A N K I N G – A B E L L A N O T E S 2 . 0 4 F 2 0 1 7 - 2 0 1 8 | 11

Question by Lara: Re: Banking Act, RCBC recently changed its business logo. In that
case, would they need approval of the BSP?
DA: Di kelanagan, magpapa rehistro ka ng bago – yung trademark. No need to get
approval from the BSP. Trademark naman kasi yun, walang kinalaman sa Monetary Board.

MORTGAGES

Governing Laws, we have the: (1) Civil Code; (2) Chattel Mortgage Law; there is another
law on mortgages but this law has never been part of the bar exams.. yung (3) Ship
Mortgage Decree; Ship – yung barko, vessels. *Joke Alert* SHIP. Kasi mayroon pang isang
ship yung may sungay (sheep). ‘Kay? Ship Mortgage Decree. Ito, important. If you’re going
to be a lawyer, if you’re going to business, (4) Act 3135, as amended. So, the laws of
mortgages are Civil Code, Chattel Mortgage Law, Ship Mortgage Decree, and then we have
Act 3135, as amended.

Alright. So. Question is… what are the principles in the Civil Code about mortgages? O, itong
mga principles na ito applicable din sa Pledges at saka Antichresis, ha?

So. (1) A Mortgage is just an accessory contract. So legally, there could be a mortgage
only if there is a principal obligation. Or if there is a principal contract.

(2) a mortgagor must be the owner of the thing mortgaged.

(3) a mortgagor must have capacity to mortgage.

Alright. So. Over what may a mortgage be constituted? A mortgage may be constituted over
personal property or real property. If over personal property, we call it Chattel Mortgage. If
over real property, we call it Real Estate Mortgage, or simply REM.

What are the differences between a Chattel Mortgage(CM) and a Real Estate
Mortgage(REM)?

(1) CM is over personal property, REM is over real property.

But there was a case where a CM was constituted over a house. So, Is the CM over a
house valid? Meron bang ganun, chattel mortgage over a house, where a house is
obviously real property? Alright, the contract is called a chattel mortgage because
the owner of the house was NOT the owner of the land on which the house was
erected. O, walang problema. Kung mortgage over the house, pwede, kasi siya ang
owner. Kaya lang, ano ba ito, di naman akin ang lupa? Mortgage lang over the
house, not over the land. Kaya, tinawag nila chattel mortgage. Alright, now, in that
case, two issues reached the SC. One issue was the validity of the CM over the
house. Sabi ng SC, between the parties, a CM over the house is valid, and to support
it, the SC cited Art. 1159 of the Civil Code – that the stipulations between the parties
shall be the law between themselves. Kaya pag napag-usapan ng parties na ‘yan ay
chattel lang, then so be it. Kaya lang that is valid only between them.

Now the other issue was whether or not the Register of Deeds could validly refuse to
register the chattel mortgage over the house. And the SC said NO. because the
functions of the Register of Deeds are purely ministerial. So kapag ayos ang
dokumento, all requirements of the law are complied with, walang magagawa diyan
 B A N K I N G – A B E L L A N O T E S 2 . 0 4 F 2 0 1 7 - 2 0 1 8 | 12

ang Register of Deeds except to record it. Kasi, the Register of Deeds does not
perform adjudicatory functions – ni hindi nga quasi-judicial eh, ministerial nga lang.
Alright. Now another difference is…
(2) A CM could only secure an existing obligation. An REM may secure even future
obligations.
So, habang walang obligation, you cannot have a valid CM. Now another difference
is…
(3) A CM chould only be foreclosed extrajudicially. While an REM could be foreclosed
either judicially or extrajudicially. One more…
(4) In an extrajudicial foreclosure of a CM, there is no right of redemption, but in an
extrajudicial foreclosure of an REM, there is a right of redemption.

CHATTEL MORTGAGE LAW

Alright. Now let’s talk about the Chattel Mortgage Law. This is a special law on chattel
mortgages. The chattel mortgage law defines a chattel mortgage, BUT FORGET THAT
DEFINITION. Pero babanggitin ko, para alam niyo na. ha? Ito yung definition ng CM
under the Chattel Mortgage Law, but this definition no longer applies, ha, the concept of
the CM under the Chattel Mortgage Law is now considered VOID, because of the Civil
Code. Why? Ha, if you could recall, under the Civil Code, a pactum commissorium is
void. Alam niyo na ang pactm commissorium diba? It is a stipulation between a debtor
and creditor that in case the debtor defaults, creditor right away becomes the owner of
the collateral. Yan ang pactum commissorium. ‘Kay. Ngayon, how do you do that. In the
Chattel Mortgage Law, a CM is defined as a conditional sale of personal property to
secure the fulfilment of any valid obligation. So if you’re going to look in that definition,
qualified lang yon as a pactum commissorium. Kasi mayroon nang sale, mayroon ka
nang condition that if a debtor defaults, the sale becomes final. Kaya pasok na sa
pactumcommissorium. Maliwanag?

So, if you are to define a CM, define it according to the Civil Code – that a CM is a
contract whereby personal property is recorded to secure the fulfilment of any valid
obligation. Kaya ang tanong, where is the property recorded? To the Register of Deeds
of the city or province where the mortgagor resides. ‘Kay?

Okay for your info, lahat ng cities, meron yang sariling Register of Deeds. Ngayon ang
mga municipalities, wala. ‘Kay? Kung meron mang Register of Deeds that is found in a
municipality, that register of deeds Is for the province. Yan ang setup. ‘kay? Kaya ang
mga municipalities, wala yang kaniya-kaniyang Register of Deeds. Kung mayroon ka
mang makikita na opisina ng Register of Deeds in any municipality, that is for the
province.

Alright. There was a time, ah, the Province of Rizal although na rehabilitate na yan.
Ulitin ko, yung Province of Rizal, was one time the brilliant province of the Philippines.
Pinaka malaki yan sa atin. Kaya lang, Through the years na chop-chop. Sa madaling
salita, Caloocan, Navotas, Malabon, Mandalyuong,Pasig, Las Pinas, Paranaque,
Muntinlupa. In short nagasgas(?) din yan. Paunti unti gasgas. Naging City of Caloocan
tapos yung Malabon , ah, Navotas, nagging aprt of Metro Manila. Okay? Kaya lang,
nung it was still a big province, ang pinaka capitol, kasi ang probinsya may capitol yan,
kasi may capital. Okay so. Ang capital dun sa pasig. Kaya lang wala na ngayon.
Dinemolish na and what we have now is yung bagong unimart doon na mayroong
 B A N K I N G – A B E L L A N O T E S 2 . 0 4 F 2 0 1 7 - 2 0 1 8 | 13

pagkataas taas na condominium building. Taas no. Okay. Dati, ah, andun yung Register
of Deeds for the province of Rizal. E ngayon, yung pasig, naging city, dahil naging city,
nagkaroon ng sariling Register of Deeds. So by the period, dun sa capitol, may dalawang
register of [Link] for the province of Rizal, mayroong for city fo Pasig. O
ngayon, eto ah, kung mamasyal kayo, some place in the Philippines, hindi kinakailangan
lumayo. Sa Batangas city. Sa Batangas city, meron dun yung provincial capitol. Yung
string wings(?), left and right, Register of Deedyun. Yung nasa kanan, Register of Deed
for the province of Batangas, yung nasa kaliwa Register of Deed for Batangas city and
this can also be experienced in other areas. Okay. So, merong, ine emphasize ko eto,
kasi, merong Register of Deeds for a city and then there is also Register of Deed for the
province.

Ngayon, a chattel mortgage over a personal property. And a personal property can be
moved from place to place. Alright. if there is a, a mortgagor is a resident of Manila, and
the object of chattel mortgage is a bull dozer that is being used in connection with a
project in city of Gapa, in Nueva Ecija, kaya yung bull dozer nandoon sa Gapa. Kaya
ngayon, pag ganoon, yan ang double registration. Registration in the Register of Deeds
in Manila and registration in city of Gapa. Okay. So, if the mortgagor is in one city or
province, the property mortgaged is in another city or province, then registration shall
be two: one, registration in the city where the mortgagor resides and the other is where
the property is actually located.

Alright. Now, ah, a mortgagor may not be the principal debtor. Principal debtor may be
another person. And the mortgagor may have simply agreed to encumber his property
to secure the obligation of principal debtor, walang problema yan, basta ang importante
lang, under the civil code, yung mortgagor siya ang may ari ng property. Yung
mortgagor, maaaring hindi siya ang principal debtor. Alright. A problem arises, when
principal debtor defaults. Question now is: when the principal debtor defaulted, ah, then
what are the remedies available to the creditor? One remedy, sue for specific
performance. The other remedy is foreclose the mortgage. What I would like to stress is,
these remedies are in the alternative. Meaning you can’t exercise both. Mamili ka. Kaya
yung, mortgagee, you have to weigh your options very carefully. Kasi pangalawa, yung
principal debtor walang property. Kaya lang ang nag mortgage na nga yung kapatid nya.
Ngayon, ang value of the property mortgaged iss lower than your total claims. Kaya si
principal debtor, di makabayad. Gusto mo ng makasingil, so anong pwede mong gawin?
Alright, you have to weigh your options very carefully. Kung idedemanda etong si
principal debtor, you cannot foreclose the mortgage kasi nga these remedies are in the
alternative. Kung idedemanda mo, you get the favor of judgment of the law. Papano
naman satisfaction of the judgment, kung wala ka naman makukuha property kay
principal debtor. O ngayon, kung e fo foreclose naman yung mortgage, it may not go
with the total claims. O kaya pag isipan mo. Ano gusto mo, meron o wala? Syempre,
dun na sa meron kahit konti kesa naman sa wala. Kasi kun g idedemanda mo si principal
debtor, maaring manalo ka sa kaso. Kaya lang gumastos ka na, wala ka namang
makukuha. Saying lang. Gastos ka without getting in the result. Kaya gawin mo nalang,
foreclose nalang. Atleast meron ka ng lupa kesa zero. Ah, ganyan, ang pagiging
abogado ah. You assist them with making decisions. Kasi pag kliyente, kadalasan,
impassive yan, lalo nat magaling. ipakulong mo nalang. Sakit pa sa ulo. Alright, before
talking about remedies, the chattel mortgage law is a law that requires the observance
of particular form.
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Pag wala itong form na ito doon sa deed of Chattel mortgage, the Register of Deeds
won’t record the transaction. So, ano ‘yung form na yan? It is the affidavit of good faith.
Every deed of chattel moetagage should have an affidavit of good faith.

So ang question now is: What is an AFFIDAVIT OF GOOD FAITH? It is a sworn

declaration of both the mortgagor and the mortgagee that they executed the chattel
mortgage in good faith to secure a valid obligation and not for the purpose of fraud.

By the way ha, unting-unti ulit sinasama sa bar exam ang forms. Kaya in the course of
your review, pasadahan niyo ulit and deed of mortgage. And one good form in the bar
exam is the affidavit of good faith. Unti-unti, diba last bar exams pinagawa sila ng mga
simple forms.

To give you an idea, yang paggawa ng forms, all that you have to do is to express
yourself in your wording. Walang prescribed style. Kung meron mang book on legal
forms, yun and style nung author. Kaya ang sabi ko sainyo, walang prescribed [Link]
gagawa ng contracts, diba sabi ng civil code regarding contracts: Contracts may be
entered into in any form. Remember, the document is a mere repository of the
agreement of the parties. Walang prescribed style. Kay pag nagpagawa ng jurat or
acknowledgement, hindi niyo kinakailangang gayahin yung mga nasa book on legal
forms kasi yung mga na anduon, style yun ng author. At yung style ng iba hindi naman
maganda, maulit pa. Halimbawa, estudyante kayo ng legal forms diba? Pinagawa kayo
ng acknowledgement nakalagay dun sa acknowledgment: “known to me and to me
known”. Diba iniikot ikot pa. Meron pang “further affiant sayeth naught” sabi lang “wala
na akonng sasabihin pa”. Hindi na kailangan yun, style lang yun. Express yourselves in a
simple way. At ang tamang paggawa, kung ano man ang requirement ng law, isama mo.
Halimbawa, pinagawa kayo ng deed of chattel mortgage, edi samahan mo ng affidavit of
good faith. Pag pinagawa ka ng deed of donation edi sabihin mo, ano dapat ilagay, act of
donation saka acceptance of the donee. Pag pinagawa kayo ng donation mortis causa,
one sentence, holographic will.

Dati nga sinasabi ko “Oh, kung meron kayong 1 minute na natitira, and you are asked to
make a deed of sale, kaya niyo bang gumawa ng deed of sale in one minute? Ako, kaya
ko. Gagawa ako ng sales invoice. Sold to… yun sales invoice. Wala namang requirement
ang law on sales sa paggawa ng deed. Hindi naman lupa yun, pag lupa hindi na sales
invoice. Pag bumili ka ng jaguar, magkano yun. Sabihin nating 7million, akala mo
merong deed of sale duon? Wala! Sales invoice lang. Requirement Pag sa lupa kailangan
nakalagay diyan ang despcription ng bproperty, boundaries, area. Yan ang mga hindi mo
pwedeng ilagay sa sales invoice. Subukan niyo bumili sa Ayala sa Bonifacio, may naka
showroom na Ferrari subukan mong bilhin yon. Hindi ka bibigyan ng deed of sale.
Bibigyan ka ng sales invoice. At yung sales invoice nay an, yan ang dadalhin mo sa LTO
para ma register sa pangalan mo. Subukan niyo lang. Atleast makit aniyo na totoo pala
ang sinasabi ko. Mas mahal pa sa house and lot yun.

Kailan ba kayo nagkaroon ng legal forms? Third year second semester pa noh? At yan
ang may napakaraming prerequisite. Kasi paano ka naman makakagawa ng dokumento
kung di mo pa napagaaralan ang batas. Pag gagawa ka ng dokumento, what you do is
recall what the law requires and just comply. Yun lang.

So, pag pinagawa kayo ng affidavit of good faith, ilagay niyo lang, simple: “We, under
oath, we are the parties of the chattel mortgage, we execute the deed in good faith to
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secure a valid obligation and not in pursuit of fraud. Signature mortgagor. Signature
mortgage” Wag niyo na ilagay ang “after having duly been sworn…” ang shortcut nun is
“under oath”.

Remedies are:

1. Sue for Specific Performance; or

2. Foreclose the mortgage.

Tanong, what’s required to enable the mortgagee to foreclose the mortgage? Dapat
yung mortgagee should take possession of the property being mortgaged. To enable the
mortgagee to foreclose the mortgage in a chattel mortgage, the mortgagee should take
posseeion of the thing mortgaged. Why? Kasi ipasusubasta yon. Papano ka naman
makakabenta, papano ka makakapagsubasta if you are not in the possession of the
thing mortgaged. Wlang bibili kung di pa nakikita ang ipapasubasta. At assuming, na
gusto bumili kahit hindi pa nakikita ang ipapasubasta, ang problema ano ang idedeliver
sakanya after the price has been remitted.

Kaya, pag merong foreclosure ng chattel mortgage, step 1: Mortgagee must take
possession of the thing mortgaged. Ano ang gagawin? Halimbawa, mortage yan, hindi
yan pledge. The mortgaged is still in the possession still of the mortgagor and the
mortgagee would like to foreclose. The mortgagee, he demands that the mortgagor
deliver to him the property mortgaged. O ngayon, nag-demand ka, inignore ka naman,
hindi ka pinansin, worst is itinago niya pa. kaya lang, alam mo kung san itinago. Ang
tanong ano ang remedy? Go to court, file a case for DELIVERY OF PERSONAL PROPERTY
also known as REPLEVIN.

So nakuha mo na, ang tanong, who may attend the foreclosure sale. Sino ang pwedeng
magpasubasta? Either:

1. Sheriff; or

2. Notary public.

The law provides that the sale will be attended to by the sheriff or a notary public. Eh
ang tanong sino yung notary public? Edi yung pumipirma ng jurat at saka
acknowledgment. Yun ang notary public. Yan nga, kunyari, abogado ka na. Ngayon hindi
mo pa naovercome yung stage freight mo. Yung niyerbyos mo tuwing ikaw yung
pinarerecite sa lawschool, di pa nawawala. Kaya ayaw mo magtrial ng kaso. Kaya sabi
mo, mag-specialize nalang ako sa notarial law. Kaya maghapon nagpipirma ka ng jurat
at saka ng acknowledgment. Kaya lang pag ganon ang buhay mo, boring. Maghapon ka
pirma pirma ng jurat at saka acknowledgment. Para magkaron ka ng konting
excitement, ha, magsubasta ka nalang.

The law provides that the sale could be attended to by a sherriff or notary public. Who is
a notary public? Eh di pumipirma ng jurat at acknowledgment.

Gagawa ka ng notice of auction sale, the sheriff prepares a notice of auction sale.

If it is made, post it at least in two public places. And very important – send a copy of
notice of auction sale to the mortgagor before the date of the auction. VERY
IMPORTANT. If not, the mortgage is invalidated. Kasi mandatory na notice is sent to the
mortgagor before the auction sale. Publication not required, only required in REM.
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On the day of auction, property sold to highest bidder. Kung ikaw interesado sa property
to be sold in public acution, pag attend mo doon, dala ka na ng pambayad ng bid price,
you may be the highest bidde. If you are the highest bidder, property to sold to you, be
ready to pay. If you are the mortgagee, you don’t have to bring if you are the highest
bidder, your bid shall simply be credited to the debt.

The highest bidder receives a certificate of sale. Right away, you can conclude na may
subasta. If certificate of sale, involuntary dealing. If voluntary, may DEED OF SALE.

Pag merong subasta, always 3 possibilities:

1. Highest bid may be more than the total claims – who gets excess? The excess goes
to the mortgagor, not the principal debtor.

2. Highest bid simply covers the total claim

3. Highest bid won’t cover the total claim – may the deficiency be recovered? In that
case, it is qualified. Under civil code, if the transaction is covered by Recto Law ( SINO
AUTHOR SI RALPH OR SI VILMA???? ), in case of personal property in installments,
where a mortgage was constituted over the very object, and the buyer failed to pay 2 or
more installmens, and the seller would foreclose the mortgage, and the highest bid does
not cover the total amount – under civil code, he shall have no more right to recover
deficiency. Also applicable to lease purchase agreement where lesee failed to pay 2 or
more installments, and the lessor decided to repossess the object leased – no more right
to recover the rentals.

The Recto law is applicable only if the mortgage was constituted over the very object of
the installment sale, not if it was constituted over ANOTHER object.

Ayan. Para matandaan niyo, may kwento ‘yan. Kase, merong DOM, who became very
fond of a GRO. And si DOM, ah, ano talaga, head over heels dun sa GRO, alas singko
palang, handun na sya, nag aabang na. So, one evening, late si GRO, so kinausap ni
DOM si GRO, sabi, “Darling, bakit naman ngayon ka lang dumating? Kanina pa kita
inaantay.” Sabi naman ni GRO, “Eh kasi po Sir, ang hirap kumuha ng sasakyan doon sa
tinitirhan ko, napakalayo po.” Kaya sabi ni DOM doon kay GRO, sige bigyan kita ng
kotse. So DOM punta sa car dealer. Kumuha ng isang wigo, ito yung down payment,
alright tas “sir pirma kayo ng promissory note, para sa balance.” Binigay sakanya
ngayon, Deed of Chattel Mortgage. Wow, nakakahiya bakit naman may patak ng coffee
yung rehistro. Ok, sabi naman nung dealer, Sir, di pwede, di naman naming kayo kilala.
Kailangan po naming ng collateral. Nainsulto naman si DOM, sabi niya, o, nakikita niyo
ba yan, yang aking Jaguar? Pwede na ba yan?” So in short, the chattel mortgage was
made over the Jaguar. Ok? That same day, pumunta si DOM sa establishment, sabi niya
kay GRO, o, ito susi. Para di ka na malelate. Odi GRO was very happy. She knew how to
reciprocate. So that night, she also made DOM very happy. The following afternoon,
excited na si DOM, di na siya malelate, may kotse na. DOM went to the establishment
early. Kaya lang sumalubong sakanya floor manager sabi, sir, di na pwede GRO niyo.
She eloped with her boyfriend.

He fell into a very bad state of depression. For a month, he was like that. Kaya yung
unang installment hindi nabayaran, another month passed, di parin gumaling, di parin
nabayaran yung 2nd installment. So dalawang installment na hindi nababayaran.
The mortgagee foreclosed the mortgage over the Jaguar. Kaya lang, dahil high
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end car, iyon, ang baba ng bid price. Kapag high end cars, ang baba ng resale
value. E lumabas, pagka subasta, may deficiency pa. Ang tanong, may the deficiency be
recovered?

YES. Kasi, hindi applicable ang Recto law if the mortgage was constituted over
another thing. Para mag apply yung Recto law, the mortgage must be executed over
the very object. Maliwanag?

O ito bago, nowadays, you want to buy a car, to be financed, alright so in short punta ka
sa dealer, gagawin naman nung dealer ikukuha ka financing company, in short, fill-up ka
form, right there, iinterviewhin ka ng financing company. Tas paipirmahin ka ng
promissory note, tapos deed of chattel mortgage. Tapos kunin mo na. Ngayon, di ka
nakabayad ng 2 or more intallments, yung kotse, sinubasta, may deficiency. Ang
tanong, may the deficiency be recovered?

YES. Hindi na applicable ang Recto law. Kasi ang Recto law is applicable to an
installment sale of personal property, where a mortgage was constituted to
secure the unpaid price. Kaya ang Recto Law, buyer and seller. Ito iba na,
Financing company. Kaya hindi applicable ang Recto law. Tandaan niyo yan, bago yan. O
malinaw ha.

So that’s all about the Chattel Mortgage Law. Now let’s talk about the ACT 3135 as
amended is the law that created the right to foreclose the REM extra-judicially.
Alright you know, ACT 3135 just created the right. But that law referred to the
code of civ pro on how to go about it. That code of civ pro later became revised
rules of court, and later 1997 revised rules of court, as amended. Alright so ulit ha, ACT
3135 as amended, just created the right to foreclose the REM extra-judicially. Ngayon,
kung papaano gagawin yun, it referred to the code of civ pro, Rule 39. O ngayon ang
tanong, what’s required to enable the mortgagee to foreclose an REM extra-judicially?

As the law provides, in a deed of mortagge or in a separate insturment, the

mortgagor must expressly authorize the mortgagee to sell the property
mortgaged in case of default. Ang importante diyan ha, there must be an express
authority to sell. Kapag wala, you cannot foreclose extra-judicially. Alright ganito
nangyari, well, in the past, there must be a deed of REM, meron at meron niyang nagpa
umpisa. Nung ginawa ang deed of REM, ang nakalagay doon, in case of default, the
bank CAN foreclose this mortgage extra-judicially pursuant to ACT 3135 as amended.
Ngayon, dahil yung mga bangko gumawa ng ganung klaseng REM ang nangyari, all
other banks copied, and all other lending institutions, copied. Kasi akala nila yun ang
tama.

Ngayon ang latest, is the Court issued a Circular, addressed to the Sheriff. Not to
accept a petition for foreclosure under act 3135, unless in a deed of mortgage or a
separate instrument, there is an express authority to sell. Kasi yung dati, ginagamit ng
banko or ng lending institution, nakalagay lang “in case of default, the bank will
foreclose this mortgage extrajudicially pursuant to Act. 3135. Walang express authority
to sell. E may circular ang SC na – walang nagawa ang mga bangko and other lending
institutions except to revise the deeds of REM. Example, “in case of default the bank
shall be authorized to sell.” Kaya pwede na mag foreclose. Kung wala noon, di pwede.
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If you have a mortgage and you decide to foreclose the REM extrajudicially, what do you
do? The mortgagee prepares a verified petition to foreclose the REM
extrajudicially. So hindi yan letter request lamang, sabi ng SC, dapat verified petition.

Ngayon, the proceeding is extrajudicial. The SC issued another circular providing that
when you file your petition to foreclose, you pay mortgage. Wala kang magagawa,
kasi hindi tatanggapin ng clerk of court (COC) kung hindi ka magbabayad ng mortgage.

Ngayon, in our experience, dati, pag meron kaming kinakailangan ipagawa sa sheriff,
diretso kami sa sheriff. Meron kaming sheriff na suki. Parang Mercury, may Suki Card.
Dati, kanya-kanya kaming pili ng sheriff. Yung sheriff na nakausap namin, matakaw. Pag
mabait, kahit iabot mo tinatanggap..

Kaya dati, ako, iba-iba ang aking Suki Sheriff. Pero ngayon wala na. Why? Yung ibang
sheriff na hindi kumikita, naiinggit sa mga suki sheriff na magaganda ang kotse, mas
maganda pa sa kotse ng executive judge. In short, parang negosyo siya. Eh kapag
matakaw gusto milyonaryo na isang kaso pa lang, hindi na mauulit yun. Ngayon yung
mga nainggit nagsasabi bakit daw kumikita yung iba sila hindi? Ang sabi ng mga court
personnel bakit kami walang extra? Ang nagyari, sabi ng SC, para lahat meron – may
tinatawag pa na recovery fee. Kapag sa subasta, magbabayad ka ng recovery fee. Kung
ano maiipon diyan, will form part of the JDF, JUDICIARY DEVELOPMENT FUND. Para
naman madevelop ang mga empleyado ng judiciary. Totoo yan! Kaya ang mga
personnel, pag maraming foreclosure or execution – ah OK to, marami tayong
paghahatian dito.

Now, pagka-file mo sa COC, meron silang added function. Kaya pag COC ka, ikaw rin
ang ex officio sheriff. COC ka, second function mo pa – sheriff. Ikaw ang boss ng
sheriff. Kung ako ang COC, tapos kunwari puro sheriff ko ito, para walang reklamo,
round-robin yan. Sige sayo muna, next case ikaw naman. After all, kung ano kikitain
niyan, para sa JDF.

Okay so the matter will be assigned to a sheriff tapos yung sheriff na yun, gagawa siya
ng Notice of Auction Sale. Ano gagawin niya dun, dalawa: post in at least 3 public
places in the city or province where the property is located and cause the publication of
that notice in a newspaper in general circulation once a week for two consecutive weeks.
Hindi kinakailangan araw araw ipupublish mo. At least once a week for two consecutive
weeks.

Alright eh ngayon ah, kung ikaw yung abogado, siguraduhin mo that the property is
properly described in your petition. Why? Kasi pag si sheriff kokopyahin na lang yung
description of property dun sa petition. Kaya kung nagkamali ka yung error mo magawa
din ng sheriff.

Tapos pag publication baka magawa din ng publisher. For example kung yung property
mo less than 150K pero nakamortgage eh ikaw nagkamali ka nilagay mo lot 8 disgrasya.

Si sheriff tama, yung publisher nagkamali. That causes the invalidation of the sale. Kaya
kung ikaw ang abogado ng mortgagee siguraduhin mo.

Ang purpose ng publication is to attract more bidders in order to obtain a better price for
the property.
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Maliwanag? Ngayon kung nagkamali si publisher wag ka na magalit madali naman

maremediohan. Nakita ko mali description ng property. In short sabi ng sheriff wag ka
na magalit he pointed the error to the publisher. Eto 1980’s pa.

We waited for about an hour. Binawi yung hawak ko. Dinagdag yung corrected.
Correctly described na yung property.

So madali na yun kasi computer na printing ngayon kaya dati pag sa faura 43 copies,
ngayon mas madali na.

Kaya ganito lang ang pwede mangyari ah. Oh na publish na. On the date of the auction
usually the mortgagor would redeem the property.

Magbabayad na ito. kaya lang naman nafoforeclose kasi walang bumabawi.

Alright eto na sabi ni mortgagor, pre pwede ba natin ipapostpone ang auction sale.
Siguradong mababayran kita kya lang parati lnb pa lng ang remittance. Kaya pwede pa
ganitong date natin ipareschedule yung auction.

Ikaw naman you agree. Sigurado ba yan? Sige.

Postpone to 100 days. Is the agreement to postpone the auction sale to another date
valid? Yes. Because it is not prohibited by any law.

May nagbabawal ba? Wala. Eh di valid yan.

Ngayon dumating yung araw na yun, so you are expected to be paid. Kaya lang di
nagpakita si mortgagor. So sabi sa sheriff, “sheriff tuloy mo ang subasta.

May the sheriff validly proceed with auction sale? No. Unless the posting and publication
were repeated.

Kaya kung ikaw si mortgagee makikiusap si mortgagor na ipostpone ang auction sale
sabi mo “okay pero akin na yung panggastos” yung pang-gastos publication at posting.

Di mo ibibigay? Sheriff tuloy tayo ngayon

Kahit ipopostpone mo in writing, balewala yun, kasi sabi ni Supreme Court uulitin mo
lahat yan. Kaya si sheriff gagawa uli ng notice of auction sale. Ipopost nya ulit yun. Ulit
ang gastos.

Ayan natuloy na ang subasta. Ang highest bidder bibigyan ng certificate of sale. Kaya
kapag ikaw ang naisyuhan ng certificate of sale anong dapat mong gawin sa certificate?
As early as possible iregister mo sa Register of Deeds. Annotate. Why? Because there is
a right of redemption within 1 year from registration of certificate of sale. Kaya hanggat
di mo narerehistro di timatakbo ang period of redemption. Yung 1 year of redemption di
tatakbo hanggang hindi mo nireregister kaya pagkaissue na pagkaissue kung
nagmamadali ka, iregister mo agad.

Maliwanag?

Kailan ang period of redemption? 1 year.

Di ba 12 months? Magkaiba yun!

 B A N K I N G – A B E L L A N O T E S 2 . 0 4 F 2 0 1 7 - 2 0 1 8 | 20

1 year there are 12 months. But 1 year is not the same is not the same as 12 months.
In the Civil Code a year consists of 365 days. But one month consists of 30 days times
12 it consists only of 360 days.

Alright! Dati dun sa Code of Civil Procedure, it was twelve (12) months redemption
period, kaya lang nabago na yung Code of Civil Procedure ng Revised Rules of Court. Sa
Revised Rules of Court, ang nakalagay ngayon ay one (1) year redemption period.

Actually, nagkaroon ng kaso diyan. Nung panahon ng Code of Civil Procedure, somebody
asserted that the right of redemption is only 365 days. Sabi ng nakabili, expired na
‘yang right mo. The SC said, tama! Expired na. SC already explained that a period of
one (1) month consists only of 30 days. Oh, Civil Code minus 12, is 360 days. So the
redemption should have been exercised on the 360th day. Kaya lang, ang nangyayari,
the offer was made on the 365th day. Kaya lagpas na nga naman. Kaya the present
rule, one (1) year from the registration of the Certificate of Sale. Oh malinaw?

Now how about the right of redemption? It is a right! Question. May it be waive? Under
the civil code, rights may be waived. Oh, pwede ba i-waive ang right of redemption?
Hindi! The waiver of the right of redemption shall be void from being contrary to
public policy. Maliwanag?

Oh, question. Is the right of redemption strictly personal? NO. Right of redemption is
a property right. In fact, it is a real property. Oh remember, under the Civil Code,
rights arising from real property are also real property. Dahil property right, then
the right is transferable but not waivable. Pwede ilipat by sale, pwede rin by donation at
pwede ring manahin. So the transfer of rights can be by onerous or gratuitous title.
Ang hindi lang pwede gawin, i-waive. Okay? Any waiver shall be deemed void for being
contrary to law and public policy. Maliwanag?

Who may exercise the right of redemption?

The law says, the rules of court says: (MSC)

a. The mortgagor;

b. His successor-in-interest; and

c. A judgement creditor of the mortgagor.

How does on exercise the right?

By making a valid tender of redemption price within the redemption period.

Eh and tanong ngayon, ano yung redemption price?

There are different rules on this.

I. If a mortgaee is a GOCC created by a special law, known as its charter, the

redemption price would be what is provided in the charter. Diba mayroong DBP,
may Landbank, GSIS and many other GOCCs, doon sa kanilang mga charter,
kapag may nakalagay kung ano ang redemption price? Kung mayroon, yun ang
susundin. Maliwanag?
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II. Ngayon, another rule. If the mortgaee is a Bank, oh following the General
Banking Law of 2000, the redemption price shall be what is provided in the credit
instruments. Kung ano nakalagay sa promissory notes o kung ano nakalagay sa
deed of REM.

III. Eh ngayon, hindi GOCC, hindi rin banko, so it is any other person, eh ang
tanong, ano redemption price?

In that case, the redemption price shall include: (1) Bid price; (2) Plus interest on
the bid price at the rate of 1% per month; (3) Plus taxes and assessments paid by the
highest bidder; (4) Plus interest on taxes and assessments also agreed upon. Kaya yung
total niyan, yan yung redemption price.

Ano mas malaki, 1% per month or 12% per annum? Peraho lang naman yata ano? May
desisyon, yung ponente nakalagay dun, interest of 1% per month, which is the same as
12% per annum. Mali yun! Pag sinabing 1% per month, that 1% over 30 days. Pag
sinabing 12% per annum, that is 12% over 365 days. Kaya gamitin mo calculator
mamaya, makikita mo, mas malaki ang 1% per month. Okay? Hindi lahat ng
pinagsasabi ng SC tama! Marami ring mali. Okay?

So yun nga sabi ng ponente, oh 1% per month. Okay? Yung ang bid price. Ang
importante dito, for you to exercise your right of redemption, you must make a valid
tender in full of the redemption price. Because if you tendering for a less amount, that is
not a valid exercise of the right of redemption. Kinakailangan, tender of FULL.
maliwanag?

Oh, the valid tender of the redemption price. Sabi sabi ba naman sayo nung nakabili,
hindi! Hindi ko papayagan ubusin 'tong money ko. Gusto ko ito, akin na ito. But you
want to exercise your right of redemption, ayaw mo mawala yung property mo. Oh in
that case, ano gagawin mo ngayon, you make a valid tender? Oh tinatanggihan naman,
ayaw tanggapin, but you want to exercise the right of redemption. Oh ano gagawin mo
ngayon? Then you go to court, diba? Hindi mo naman pwede iwanan yung pera. Oh
ayan! Hindi naman pwede yan. Oh so, ano pa? Consignation? Mali. Oh if you would
recall, ano ba unang requirement ng consignation? There must be a debt that is due.
Mayroon ka bang debt? Wala! Yung utang kasi binayaran mo from the proceeds of the
sale, kaya wala nang debt that is due. Kaya hindi tama ang consignation. The proper
remedy is ikaw bumili ka, alam mong may right of redemption, dapat yung right of
redemption ine-exercise, kaya kung ayaw ma-exercise, pwede kasuhan ng specific
performance. Okay?

Very practical law. Kung ikaw ang highest bidder, lagyan mo ng reminder andiyan sa
cellphone when the period of redemption will expire. Why? Kasi pag lumagpas ang
period of redemption and the right was not exercised by anybody, mayroon kang
babayaran na taxes and these taxes are counted from the expiry date of the period of
redemption. So if you will not pay on time: automatic surcharge, interest at 10% per
anum, ang dami mong babayaran. Kaya kailangan, keep track kung kailan mag-expire
ang period of redemption. Kaya ang tanong ngayon: if the period of redemption expires
without anybody exercising that right, what document needs to be executed to enable
the highest bidder to pay the taxes? Dalawa yan. Either (1) you go back to the sheriff
and ask him to issue a Final Certificate of Sale or (2) under the Property Registration
Decree, the highest bidder can simply execute an Affidavit of Non-Redemption. Now,
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after paying the taxes make sure you get a Certificate Authorizing Registration or CAR.
Baka akala niyo motor vehicle ha (hekhek). Ngayon, pagka-issue ng CAR ang ginagawa
ng BIR sa Certificate of Sale or Affidavit of Non-Redemption ay nilalagyan ng details of
payment. Ang original na iyon, you bring that to the local treasurer and then you pay
the transfer tax and then the local treasurer will also issue a Tax Clearance Certificate.
Kaya pagkakuha mo niyan, I-file mo na sa Register of Deeds and the Register will issue
a Certificate of Title in the name of the highest bidder. Kasi ang una, doon sa Deed of
Sale, annotated mo lang doon sa titulo ng mortgagor. Kaya a new Certificate of Title will
be issued in the name of the highest bidder. And ang titulo ng mortgagor, cancelled na
yan. Wala nang annotation, malinis na. Eh kung ang mortgagor ayaw umalis sa
property, anong gagawin mo? You file a court action. Forcible entry? No. Eh siya nga
unang nakatira doon. So anong kaso mo? Unlawful detainer or accion publiciana? None
of them. You go to the court and file an ex parte petition for writ of possession. Petition
ba ito? Hindi. Sa Rules of Court, it is in the nature of a motion. Sa petition na yun, mag-
aattach ka ng documents. Ang titulo ng mortgagor, real estate mortgage at kung anu-
ano pa. i-attach mo yun. So when the petition is called for hearing, sasabihin mo nalang
kay judge you are submitting the petition to the the court for resolution based on all the
documents attached. You dispense with testimonial evidence. And with respect to the
mortgagor, the issuance of a writ of possession is a ministerial duty of the court. But
with respect to another person who may have a better right of possession than the
highest bidder, the issuance is not a ministerial duty. Pero ito ang tatandaan niyo ha.
When you studied Land Titles and Deeds, perhaps your prof might have said: when
you’re dealing with title to real property, all you have to do is look at the original. Pero
sabi ni Supreme Court you have to inquire who is in actual possession. Kung sino man
ang may actual possession, aside from the owner, you have to find out kung ano talaga
ang right niya. At dahil nauna siya, you have to respect the right of one who was earlier
in possession. Sabi ni Supreme Court, if you don’t do that then you don’t qualify as a
buyer in good faith. And because you are not a buyer in good faith, you have no rights.
Maliwanag?

What is a Blanket Clause also known as Dragnet Clause? It is a stipulation in a

deed of mortgage that the property shall secure not only an existing obligation but also
all other obligations of the mortgagor.

FRIA

Concept of Insolvency

Before we had a law known as the Insolvency Act and in that law there was a concept of
insolvency. We also have the Civil Code. In the Civil Code there is another concept of
insolvency.

Ano ba yung concept of insolvency na ‘yan? Doon sa Civil Code, “a debtor is considered
insolvent the moment he is unable to pay his debts as they become due.” So even though a
debtor still has more assets than liabilities but he could not pay his debt as they become
due, in the Civil Code he is already considered insolvent. Ano naman ‘yung concept of
insolvency under the former Insolvency Act? Under the insolvency act, “a person is
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considered insolvent when his liabilities exceed his assets.” Stated differently, when the
assets become less than the liabilities.

Ngayon legislature passed the FRIA (Financial Rehabilitation and Insolvency Act). So what
happened in the FRIA was the two concept were adopted. If you’d be ask when do you say a
person is insolvent? You say “when the liabilities exceed the assets or the debtor cannot pay
his debt as they become due.” So pinagsama lang.

Purposes of FRIA

What are the purposes of the FRIA? Dalawa ang purposes niyan. Kasi dalawa din yung
concept of insolvency. So one concept is, If the assets of a debtor are more than is
liabilities, but then he foresees that he won’t be able to pay his debts as they become due,
one proceeding is called rehabilitation.

So one purpose of FRIA is “to enable a debtor with more assets than liabilities but who could
not pay his debts as they become due, to file for rehabilitation.” Mas marami pa naman ang
assets kay sa liabilities kaya lang maaaring kulang lang sa cash pang bayad. Baka ung mga
assets receivables na hindi pa nasisingil kaya gagawin niya rehabilitation.

The other purpose of the FRIA is, if liabilities are more than the assets, under the FRIA, “so
that there would be an equitable or fair distribution of the remaining assets of the debtor,
among his creditors.” Kasi kung mas marami nang liabilities kaysa assets, maraming
creditors na dapat bayaran. Ang pwede magyari, the debtor may favor one creditor and not
the others. Ok lang dun sa favored kaya lang kawawa naman yung iba. So the other
purpose ot the FRIA is: “so that there would be an equitable and fair distribution of the
remaining assets of the debtor.”

Debtor who may File for Rehabilitation

Under the FRIA, who is considered a debtor who may file for rehabilitation? There are 4. The
law says: One is “the owner of sole proprietorship that is registered with the Department of
Trade and Industry (DTI)”

Oh yung pangalawa. Partnership. A domestic partnership. Kaya lang, the law says,
registered with the SEC. So a domestic partnership that’s registered with the Securities and
Exchange Commission. Kasi hindi naman lahat ng partnership, registered with the SEC.
Okay? So, yun lamang. Registered with the SEC.

Third, when simply a domestic corporation. Kaya ko sinabing simply domestic corporation
kasi, ang nakalagay sa law, ha, a corporation organized and existing under PH laws. Kaya
simply domestic corporation. Maliwanag? Alright.

Now another is, an individual debtor. Individual debtor. Individual. Yung una binanggit ko,
owner of a sole proprietorship. So yung ibig sabihin, nagne-negosyo yun. Ngayon, meron
namang nagne-negosyo na hindi rehistrado. Hindi gumagamit ng business name. Alright.
Ngayon, that person is not registered with the DTI, kasi ang rehistrado sa DTI, if you will
recall, sabi ko dati, yung gumagamit ng pangalan not his true name. This, under the
General Bonded Warehouse Act. Okay? I’m sorry, under the Business Names Law. Under
the Business Names Law. Alright.
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Ngayon hindi lahat ng nagne-negosyo, gumagamit ng business name. They may be using
their own name. Right? Ngayon, if any person, individual, is in business, and he is going to
use a name not his true name, under the Business Names Law, which is administered by the
DTI, he should first register his name, ha? His business name. So that there will be a public
record of the ownership of that business. Ngayon, merong mga nagne-negosyo, well hindi
gumagamit ng business name. So, ayun. Ha? Debtor din yun. Kasi yung una kong
binanggit, owner of a sole proprietorship. Yung pang-apat in the law is an insolvent debtor.
Alright.

So kung titignan mo yung apat na yan, they are doing business. Kasi meron pang isang
debtor who may not file for rehabilitation. Meron pa kasing isang proceeding, there is
another individual debtor not doing business but who may file for suspension of payments.
Kaya another proceeding yun. Alright? But we’ll talk about it later on. Kaya ang pag-
uusapan natin ngayon, debtor who may file for rehabilitation.

Ngayon, not included among the debtors, although these are also corporations, are banks,
insurance companies, and pre-need companies. Also, ito, hindi ito corporation kaya ko
inunang binanggit yung tatlo – banks, insurance company, pre-need company – lahat yan
tatlo, domestic corporations. Kaya lang, they are not included in the definition of a debtor.
Okay?

Ngayon, kaya hindi sinama among the debtors for the purpose of FRIA, kasi ang mga
bangko, insurance companies, they are handled under a general law. And they are
regulated by another government regulator. Kapag bangko – BSP. Kapag insurance
company AT pre-need company, pareho yan Insurance Commissioner. Maliwanag?

Ngayon, also not included, in the word “debtor” – so una, bangko, insurance company, pre-
need company, the fourth one is national or local government agencies or units. Maliwanag?
Halimbawa: National Irrigation. Government agency yan, di ba? NFA, government agency
rin yon. Hindi kasama yan. Ngayon you may ask, what about government banks? Eh di
pasok sa banks yan. Kaya hindi rin – kasi banks are under a Central Bank. Maliwanag?

Oh ngayon. Merong tinatawag na government financial institutions. Hindi naman ito bangko,
ang financial institutions. Kaya halimbawa: you have the National Mortgage Finance Corp.
You have the Home Guaranty Corp. And many others. Alright.

So yan, ang tawag diyan – GFI. Government financial institutions. Hindi yun bangko. Kaya
ang tanong: sakop ba yan ng FRIA? Are they covered by the FRIA? YES, unless in their
respective charters, there is a provision that it is the charter that shall govern. So
government financial institutions, which are not banks, also covered by the FRIA EXCEPT if
in that charter, it is provided that they shall be governed by their own charter. Kaya lang
kung wala, applicable ang FRIA. Maliwanag? Ngayon, ang tanong, what are the proceedings
under the FRIA? Alright. Mayroong court supervised, mayroon out of court. So ang tanong,
ano yung court supervised proceedings. One is voluntary rehabilitation. And the other is
involuntary rehabilitation. Okay? Kaya ang tanong, ano ang ibig sabihin ng rehabilitation? It
refers to the restoration of the debtor to a condition of successful operation and solvency.
Pag nahuli kana, involuntary. Pag hindi ka pa nahuhuli, voluntary. Voluntary rehabilitation,
it is initiated by the debtor himself. Kaya pag involuntary, it is initiated by a creditor or
group of creditors with a total claim of at least P1,000,000.00. Alam niyo itong proceeding
na ito, mayroon na ito sa doong old law, sa Insolvency Act, kaya lang ang pinagkaiba, ang
amount. Kasasabi ko lang, claim of a creditor or a group of creditors, at least
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P1,000,000.00. Dati P1,000.00. May mapapala ka pa ba doon P1,000,000.00. Kaya dito sa

FRIA, at least P1,000,000.00 para matulungan ka ng abugado. Kapag P1,000.00 walang
papansin sayo. Alright? So yun. Voluntary inititated by the debtor himself. Ngayon, walang
amount na pinaguusapan kapag voluntary. Kaya lang kapag involuntary, at least one
creditor or a number of creditors. Kaya lang ang claim must be at least P1,000,000.00.
Maliwanag?

The question now is how do you initiate a proceeding for rehabilitation. A petition is filed
with the court. A petition for rehabilitation is filed with the court. Oh ngayon, ang tanong ay
anong itsura ng petition? Kaya ang dati sinabi ko sa inyo, kaya mahaba ang law, kasi
maraming enumerations, and one of the enumerations are the contents of the petition.
Don’t bother memorize because hindi itatanong sa bar sa haba ng contents. Kaya lang
practical, if pasado kana ng bar, una mong cliente ay corporation, na may problema, ang
daming liabilities kaya lang ang kagandahan naman ang daming assets. Kaya anong
remedyo? Edi file for rehabilitation. Kaya pag sinabi, ‘torney! Paki file naman ng
rehabilitation. Kaya lang problema wala kang sample. Kaya puntahan mo classmates mo,
tanong mo classmates mo kung may petition ka ba ng petition? Walang problema. Kopyahin
mo yung law. Lahat ng nakalagay sa contents, susundan mo lang yun. Ganun rin kung
gagawa kayo ng petition in special proceedings. If you would recall, your rules of court, diba
mayroon special proceedings, ngayon pag ma’y chempo kayo, basahin niyo bawat rule.
Nakalagay kada section “contents of petition”, kaya kung gagawa kayo ng petition in any
special proceedings, wag kana mag hanap ng sample, tingnan mo lang yung rules of court.
You cannot be mistaken.

For petition for rehabilitation there must be attached a rehabilitation plan, without which it
will be dismissed outright.

The rehabilitation plan shall be approved by the creditors, or if the creditors does not
approve and the court finds it a reasonable plan, the court approves. If there is no
rehabilitation plan attched, there is nothing to be acted upon.

Upon filling of the petition, and the court finds it sufficient in form and in substance, the
court will issue an order and that order is known as the commencement order.

In the commencement order the court will direct the publication of the petition. And as the
law provides, rehabilitation proceedings are proceedings in rem. Proceedings under the FRIA
is in rem. Jurisdiction shall be acquired over those concerned, through publication.

What if the court finds that there is a deficiency in the petition? In that case the court may
issue and order directing the petitioner to amend the petition, to conform to what the law
provides. So the court will not outright dismiss the petition if there is a deficiency. The court
will only outright dismiss the petition if there is no rehabilitation plan, because there is
nothing to be discussed.

Petition for rehabilitation, as the law provides are non-adversarial. In this case the debtor
admits his debts, in the petition the debtor does not contest his debts with his creditors. The
debtor only wants to be given the chance to get back on his feet.

In the rehabilitation plan, it must state there, how the debtor can pay back his creditors.
The debtor may interpose that he has no sufficient cash of the moment, because he has
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lots of receivables. Ang hirap nun another round of SOP. Kaya yun, yung ang dahilan why a
lot of debtors fail to pay their obligations because they are unable to collect from their own
debtors.

Oh Ngayon eto ha merong rehabilitation plan ako yung debtor ha kayo yung lahat ng aking
mga creditors. Dun sa rehabilitation plan kailangan nakalagay dun how I would be able to
pay you back. Ang nakalagay don eto yung mga receivables ko, kaya lang nalaman niyo eh,
“receivables yan, tapos bulk? government pa? nako magkakatagalan tayo”

Dun sa rehabilitation plan para maging acceptable sa inyo, dapat ilagay ko doon na “I invite
new investors” so that they could contribute more capital. So with the new capital, kasi ipit
nga yung capital ko nasa receivables. In short hindi ko matuloy yung on a bigger volume
kaya hindi ko kayo mabayaran. How can I transact more business if I don’t have capital.
Kaya dun sa rehabilitation plan dapat nakalagay dun na nag iinvite ako ng new investors.
Para pag pumasok yung new investors I would have more capital, I would have new goods
which I can sell, from which I would have profit and from these profit babayaran ko kayo.

If you would recall your securities law, diba may nakalagay dun exempt securities?
Nakalagay dun, number 3 “Securities issued by a receiver in insolvency” kayo ba nagtataka
pag binasa niyo, “insolvent na makakapag issue pa ng securities? Hindi pa dadaan sa SEC?”
Actually eto yun, ako yung insolvent debtor I applied for rehabilitation, nagsubmit ako ng
rehabilitation plan,.before the rehabilitation receiver alright so diba ang mangyayari naman
to carry out the plan diba mag eentice ang ng investors, whoever, kung sino man ang
maginvest sa akin, yun iissue ko dun sa new investors securities yun, kunyari promissory
notes eh halimbawa 25 yun or kahit na 20 man lang, eh di lumalabas di ba public na iyon,
kailangan na ng prior registration sa SEC. Eh bakit kaya ito exempt? Why? Kasi yung
rehabilitation plan approved na ng court kaya nobody would be defrauded. Ayun yung ibig
sabihin ng securities issued by a receiver in insolvency.

Kaya yung concept ng insolvency jan, mas marami pa ang assets kesa liabilities, but the
debtor is undergoing rehab. Nasusundan niyo? By the way kilala niyo naman si Donald
Trump diba? Related ba siya kay Donald Duck? (HAHAHA!) hindeee, although nakakatuwa
din siya. Actually matagal ko na siyang nababasa sa news, as early as 70’s or 80’s. Well
kayo nung kumandidato na siyang president of the US. Kaya marami na akong nabasang
articles sa kanya, especially nung madami siyang dinevelop na Casinos sa US. As far as I
remember he had filed for bankruptcy, at least twice. Kung susundin mo yung meaning ng
bankruptcy sa Philippine Law, ibig sabihin niyan lubog na yan, kaya lang hindi yan. Sa
America yung kanilang bankruptcy, rehabilitation yan. Kaya kapag sinabi na one corporation
filed for bankruptcy ano yan, rehabilitation. Okay? Halimabawa. Di ba nagkaron ng Global
financial crisis years ago, and among sa mga nagkaron ng liquidity problems is yung AIG,
American Insurance Group. Napakalaking kumpanyan niyan sa America, and it is the owner
of PHILAM Life. So dahil sa financial crisis sa USA, pati yan tinamaan. Pagkalaki laki ni
niyan. So ano ginawa niyan? It filed for bankruptcy. So inuulit ko kapag narinig niyo na this
corporation in USA has filed for bankruptcy ibig sabihin niyan rehabilitation. Another, im
sure you are familiar with CHRYSLER Corporation, ano naiisip niyo kapag narinig niyo
Chrysler Corp? Eh di Cars. Yang Chrysler at one time bagsak na bagsak yan puro lossess
kasi mahina ang benta kaya humina ang benta, maraming competitors sa America, merong
FORD, merong TOYOTA. Dati sa America yung TOYOTA minimal manufacturer yan. Kaso
dumating yung time nagging biggest manufacturer na. Tapos meron pang General Motors.
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Okay? Alright, in short, dumating yung time that the sales of Chrysler Corporation were
very low. Alam niyo naman, pag mababa benta, expenses mataas, certainly, lugi ka.
Alright? So, nangyayari, as it was suffering losses, it filed for bankruptcy. So kinakailangang
unahan mo mga creditors mo. Kasi kapag pinabayaan mong unahan ka ng mga creditors
mo, lalo na sa atin, kapag inunahan ka ng creditor mo, at hindi ka kikilos, so yung creditor
na iyon, nag-file ng complaint and applied for writ of preliminary attachment, and the court
granted it. Alright, so ang mangyayari niyan, kung ako yung debtor, attach niya na lahat ng
aking assets. Kayo, my other creditors, naunahan na kayo. Inyo na, in favour na sa inyo
ang judgment.

So ano mangyayari? Dahil na-attach na yung aking assets, eh di assets are to be sold at a
public auction. But you know very well that when assets are sold at a public auction, the
owner of the property, gets just a very small percentage of the true value of the property.
Kadalasan, pag pina-subasta ang property, maswerte ka na maka-recover ng at least 20%.
Kasi pag nagpa-subasta ka practically, give away sale iyan. Kaya ang nangyayari, nagka-
attachment na of assets, kaya itong aking creditor na ito, nauna, kaya kayo, wala nang
aabutin. Okay? Kaya para walang unahan, para yung debtor naman, still has a
chance to get back on his feet, file for rehabilitation.

So balikan ko lang yung sa Chrysler, kung may time kayo, there was a book about the
person who took over the management of Chrysler. Nung bagsak na ang Chrysler, they filed
for bankruptcy, somebody was elected to become, I think President or Chairman, si Lee
Iacocca. Iyon yung pangalan ng in-appoint. Iyon yung pangalan ng manager na iyon. He
was very successful. In a very short period, na-turn around na niya ang Chrysler. Alright, so
in short, because he was able to do it that fast, he was able to revive Chrysler in a very
short period, naging very popular siya. And at one time, he was even pushed to run for
Presidency. Tapos iyon nga, insolvent na yung Chrysler, nagawa niyang profitable in a very
short period. Kaya yung nasa isipan ng mga nagpu-push sa kanya, baka magagawa niya rin
iyon sa America at economy. Kaya lang, hindi naman siya politiko kaya ayaw. Magkakaroon
rin kayo ng chance. Tignan niyo lang sa ano, for you to have an idea kung sino iyan si Lee
Iacocca.

So voluntary, involuntary insolvency… Ayun, ito. Kapag voluntary or involuntary, may nag-
file ng petition sa court. As I said earlier, when the petition is compliant with the rules or
with the law, the court will issue a commencement order. Kasama sa commencement order
ang petition. Pag merong commencement order, anong epekto nun? Pag na-issue-han ng
commencement order, all proceedings that are still pending shall be suspended. Kasi ang
plano ng rehabilitation, allow the debtor to get back on his feet. Kaya kahit na ikaw, meron
ka nang judgment, kahit na meron ka na ring execution, hold muna iyan. Kasi dapat kung
ano man yung assets diyan, huwag namang mapunta sa isa lang. Nakuha naman yung
assets ng debtor, huwag namang mapunta sa isang creditor lang. Dapat ang priority, to
allow the debtor to get back on his feet so that the creditors will be satisfied on their
respective claims.

O kunwari, approved na yung rehabilitation plan. Ngayon, ang ganda ng pagkakagawa ng

rehabilitation plan kaya approved naman agad ng mga creditors. Ang ganda ng
pagkakagawa. Kaya lang, while you may have a very good rehabilitation plan, plano lang
iyan. It may or may not be realized. Kasi hindi lang naman yung kagustuhan ng debtor that
would give effect to a rehabilitation.

External forces. Demand. Demand by customer. Baka yung demand for my product is
diminishing. Kasi meron nang better product. Kaya gustuhin ko mang magbenta, kaya lang,
konti lang bumibili.
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Another external factor. Buo na ang aking rehabilitation plan. Kaya lang, things are not
turning out as I expected or as I wanted. In short, nalulugi ako nang tuluy-tuloy. Sabi ko,
naku, at the rate things are going, malabo na ‘kong makabawi. I may not be able to get
back on my feet.

If the debtor already foresees that he won’t be able to get back on his feet or yung mga
creditor who filed for involutary rehabilitation, makikita nila, o mukang okay naman ang
intention ng creditor--in good faith! So what may the debtor do? Apply for liquidation. Para
yung natitirang assets niya ma-distribute sa mga creditors. Ang mangyayari kasi ah, gaya
sa partnership or corporation, if they are already insolvent and has more liability than
assets, ang remedy nila dyan dissolution, upon dissolution then distribution ng mga assets
to the creditors following the order of preference in our laws. Yan ang liquidation.

Maliwanag?

Okay.

To give you an idea: One company, very progressive before, napag-iwanan sa industry
niya before—Kodak. Kasi di rin na develop yung technology, napagiwanan ng mga cellphone
manufacturers natin. Yung ibang camera manufacturers—digital na. Yung kodak—film pa
rin. Si kodak hindi nagdevelop, ayun napagiwanan. If you are looking at kodak, ayan
gumagawa na rin ng electronic, kaya nga lang napagiwanan na ng milya-milya. Kaya they
filed for bankruptcy. Kaya nag downsize ng todo todo. Although may mga cameras na may
film, Fujifilm nalang, wala ng kodak. It was a very progressive company but suddenly, nag-
collapse.

Alright ngayon, debtor ako, kayo mga creditors ko. Ngayon, dahil matagal na tayong may
mga transactions, kahit di ko kayo nababayaran mga debts ko, you have not yet brought
any actions against me. Kaya sabi ko, di ko na iintayin yun. So what I did was-- I called you
up and scheduled anything with you. So in short, sabi ko, FRIENDS! Wag niyo na ako
idemanda. Friends naman tayo e. Hirap na hirap lang talaga ako maningil ngayon. Walang
receivables ang gobyerno. Walang pondo ang gobyerno. Kaya pwede ba, give me a chance
to pay you back? So I laid down my plans to rehabilitate myself. Ngayon, pumayag naman
kayo. Ito yung tinatawag na PRE-NEGOTIATED REHABILITATION. Nobody went to
court. Di ako nagvoluntary, wala rin involutary kasi napagkasunduan natin – in civil law ano
tawag don? Compromise! Alam niyo naman pag compromise it cannot be enforced without
approval with the court. So I will file the same with the court for its approval kaya para kayo
bound din on what we agreed upon.

O ngayon meron pa isang proceeding na dadaanin sa court. Kaya lang it is one initiated by a
debtor who is not among the debtors that I mentioned earlier. May debtor pa rin kaya nga
lang not in business. Not all debtors are in business. So in FRIA, there is this proceeding,
filed by a debtor not among those that I mentioned earlier—who has more assets than
liabilities--but who foresees that he can pay his debts as they become due. Ang tawag sa
proceeding na iyon: SUSPENSION OF PAYMENTS.

…employee lang ako. Kaya lang, may utang ako sa inyo. Ngayon nakikita ko na, uubusin ko
na.
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O, best example, ganito. Meron akong family member na nagkasakit, so hospitalized. Okay
lang kung patay na iyan. Why? Hindi na lalaki yung hospital bill. Kasi kung patay na, eh di
libing na. Eh ito, buhay pa. Kaya alam mo naman, ‘pag na-ospital ka ngayon, parang taxi
iyan, may metro, pumapatak araw-araw. At alam niyo kung gaano kamahal magkasakit.
Kaya ang sabi ng DOH, bawal magkasakit. Kaya lang, wala ka magagawa. Nandun na sa
ospital. You want your family member to survive. You want him to get well. So ano gagawin
mo? Eh di babayaran mo yung ospital. Kaya lang, ang masama nun, yung metro, patak
nang patak. Kaya earlier, ang dami mong assets. Konting liabilities. Kaya dahil sa madami
kang assets, lahat ng utang mo nababayaran mo.

Kaya lang, like me, an employee. Tapos yung hospital bills, araw-araw, dagdag nang
dagdag. Baka yung income ko from my employment won’t anymore be enough to cover the
hospital bills. Kaya lang, fortunately, mas marami pa rin akong assets, kasama na bahay
ko. Kaya yung bahay ko, tsaka lupa noon, ang present market value, mataas. Kaya
lumalabas, more assets than liabilities. Kaya lang, kita mo nga, from my income as an
employee, hindi ko na mababayaran yung mga utang na iyan.

Alright, so what I do is, I file for suspension of payments. Pwede ba i-defer natin? Ito
ah, ito ang aking proposal. Ito kikitain ko. Babayaran ko kayo according to this schedule.
Iyon lang. Suspension of payments.

Kunyari, approved! Eh di nung ginawa ko yung proposal, nai-budget ko na kung magkano

ang aking tatanggapin. Kaya lang tuluy-tuloy pa rin ang hospital bills, palaki nang palaki
nang palaki, such that the time came that my liabilities are now more than my assets. O,
anong gagawin ko ngayon? Hindi na ‘ko makakabayad. What we do is, give up all these
assets and after the creditors---or after the court had ordered the distribution of these
assets, ako yung debtor na iyon, ngayon mas marami na liabilities ko kesa assets, kahit na
yung assets na kinuha sa ‘kin, pinambayad sa liabilities, marami pa ‘kong utang.

Under the law, the person who applies for suspension of payments, in that case, wala na
lahat ng mga assets niya, he wants to start all over again, kaya lang ang nasa isipan niya
palagi, bakit mo kami pinabayaan? Baka bumili naman ulit ng bagong bahay. Kapag nakita
yung bagong bahay ko, attach na naman. Bumili ako ng bagong kotse, Wigo na nga lang,
in-attach pa rin.

Alright, so in short, if you were the debtor, merong remedy in the law. The remedy under
the law is: apply for a discharge. Kaya ano ang epekto ng discharge? The effect of a
discharge is to extinguish forever all obligations which have arisen from credit transactions.
Sinimplehan ko na lang. Kasi hindi lahat ng obligations, extinguished by a discharge. Kaya
to make it simple, lahat ng obligations which have arisen from a credit transaction.

Kasi kung ipapa-enumerate sa inyo, may mga obligations na kahit ibinigay mo na lahat ng
assets mo, na hindi kaya ng obligations mo ‘pag hindi nababayaran, hindi ito extinguished
by a discharge. Ano yung mga iyon? Para madali nga tandaan sabi ko, ‘pag merong
discharge, at extinguished ang obligations, are those that have arisen from credit
transactions. Kaya ano yung hindi extinguished? One of them: taxes. So how do you
settle with the BIR for your unpaid taxes? Kahit magpa-discharge ka, you still have the
obligation to pay your taxes. Kaya para hindi ka naman pressured, hindi ka rin kasuhan
para makulong ka, just compromise with the BIR. Iyon lang naman ang solusyon sa BIR.
Huwag kang makikipag-matigasan sa BIR, talo ka palagi. Kung may tax liability,
compromise. Kapag definite ka na hindi ka covered nung law, ayan, pwede mong ilaban
iyan hanggang Supreme Court. Kaya lang, kung ang ginawa mo naman talaga ay tax
evasion, and the BIR is able to build a case against you, huwag ka na lang lumaban. Best
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would be: compromise. Okay yung mga tax liabilities mo, kahit na na-discharge ka na, still
collectible.

Also not extinguished by a discharge are civil liabilities which arose from crimes.
Alam niyo naman diba, basic in criminal law: that a person criminally liable is also civilly
liable. O, convicted ka for a crime, and there is a civil liability. Yung civil liability na iyon
won’t be extinguished by a discharge.

Your legal obligation to provide support. Ikaw, husband meron kang wife, yung wife
mo naglambing sa’yo. Sabi sa’yo ng wife mo “sweetheart, alam mo, hirap na hirap ako nag
sho-shopping kasi andami daming perang dala tapos pag namimili ako antagal tagal, kaya
pag mag che-check out ako sa supermart antagal tagal. Bibilangin ko tapos yung teller
bibilangin pa ulit, pag nagkamali bibilangin pa ulit kaya natatagalan ako. Kaya sweetheart
kung pwede bigyan mon a lang ako ng extension ng credit card mo.”

Pag pinagbigyan mo yun. That could be the second greatest mistake in your life. Yung first?
Marriage. So ngayon meron ka ng extension ng credit card, eto naman si wife pirma lang
ng pirma and pagdating ng statement of account, nasagad yung credit limit mo. Ikaw
naman, binu-budget mo yung income mo. You spend only what you can pay. E kaya lang si
wife napasarap, after all di naman siya nagbabayad but ikaw kaya nasagad yung credit
limit. Ngayon, pag credit card pwede magbayad ng buo which a credit card company may
want, kaya lang I think nowadays, credit card companies prefers that you don’t pay in full,
why? May dagdag.

Sa statement nakalagay total amount due tapos susunod minimum payment. Kunwari P30K
ang amount due. You don’t have to pay that amount in full. Meron yan sa next line,
minimum payment P500. Alright, ngayon while you have that minimum amount payable,
kaya lang ang gastos nyan kasi everytime that you don’t pay in full your billing, yung buong
amount na dapat mong bayaran na ang binayaran mo lang e yung minimum amount or any
other amount will be subject to 3 and a half percent per annum. At pag mabait-bait ang
credit Card Company, 3.55%per annum. Okay?

Kaya nagbayad ka ng minimum kaya lang ang babayaran mong interest e on the total
amount billed which you did not pay in full. Kaya akala mo yung bianayad mo ibabawas?
Hinde ibabawas yun sa susunod na billing. Kaya lang ang masakit dun, sa susunod na
billing, meron ng interest at pag sinama mo yung interest lalong lumaki ang amount
payable. Kaya maraming mga card holders sarap na sarap na mag bayad ng minimum,
kaya lang later makita nila na “Hala! Ganto na kalaki utang ko?” kasi yung interest e
charged on the total amount billed that should have been paid but you were not able to pay.

Kaya yung binayad mong minimum, parang nakabawas ng konti yun pero mas Malaki pa
yung add on charges. Kaya yung mga credit card holders lalo nababaon sa utang kapag ang
binabayaran e yung minimum amount payable. So to wipeout all of your obligations
bayaran mo ng buo.

So in short, ikaw yung husband and binigyan mo ng extension card yung wife mo and she
enjoyed using the credit card. Alright. So, in short, sa dami ng charges lumabas mas
madami na liabilities mo kesa sa assets. Alright. So, in short, ayaw mo naman ma demanda
kasi hinde lang naman yan credit card mo, may iba pa. Alright, so ano gagawin mo ngayon?
Surrender your assets, apply for a discharge. Ngayon edi lahat ng utang mo dun sa credit
card company extinguished forever. Kaya lang, you still have to support your wife. Your wife
may have caused your insolvency but your previous liabilities were extinguished by a
discharge kaya lang your obligation to support your wife is not yet extinguished. So how do
 B A N K I N G – A B E L L A N O T E S 2 . 0 4 F 2 0 1 7 - 2 0 1 8 | 31

you extinguish your obligation to support you wife? Extinguish your wife. Wag nyo
tototohanin yun ha at criminal act yun. So yun ang suspension of payments.

ELECTRONIC COMMERCE ACT 2000

The purpose of the law is to facilitate domestic and international dealings, which were
entered and perfected by consent, so they have to document. Parties in different places,
how do they document the transaction? Before meron tayong Facsimile machine, as we call
it fax machine. Now we have, electronic mail. So yung fax machine, it was able to transmit.
There was also a time, when documents were transmitted via fax machine, they were using
thermal paper. Yung thermal paper, once exposed to heat, the writings disappear. That’s
why they no longer use machines using thermal paper. Now, the point is, if parties are in
different countries or places in the Philippines, and they wan to enter a written contract,
question is, do they have to meet in one place in the Philippines or could they do it in the
places where they are? Now because of computer technology, nowadays, parties in different
places, they can do documents. Walang problema, yung telepono, nauso na kasi yung
Teleconferencing. But what about those put into writing?

The legislature passed the Electronic Commerce Act, providing legal recognition for
electronic data messages, electronic documents and electronic signature.

The e-Commerce Act recognizes:

1. Electronic data messages

2. Electronic documents
3. Electronic signature

When we talk about computer, nowadays, images can be transmitted through computers.
Mga pictures napapadala.

Now, sabi ko sa inyo, the purpose is to allow electronic documents.

In any legal proceedings, nothing in the application of the rules on evidence shall deny the
admissibility of an electronic data message, or electronic document on the ground that it is
in electronic form or that it is not in the standard written form.

Simply: Yung admissibility cannot be denied only because it is in electronic form.

What rules should you observe in the authentication of electronic documents so they may
be admissible?

The Supreme Court issued a circular: A.M. No. 01-7-01, August 1, 2009.

If there is a case involving the presentation of electronic documents, kailangan basahin mo

muna yung A.M. No. 01-7-01.

In connection with the e-Commerce Act, kapag sinabing electronic commerce, may mga
bank transactions dito. If you need to withdraw any amount, what must usually be done?
Dati, lakad ka doon sa branch. To withdraw, fill up ka ng withdrawal slip which you sign and
then you give it to the teller. And then you sign again sa “received payment.”

Withdrawal and Bank Transfers under the E-Commerce Act

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Alright, nowadays how do you do withdrawals? Eh di ATM na lang, saksak mo lang yung
card mo and then you have a withdrawal. Now, that is a commercial transaction. So the
question is when do you say there is already a consummation of your transaction with the
bank. Kapag withdrawal, sabi ng E-Commerce Act, upon the dispensation of the cash, where
the cash has been dispensed by the machine. Tandaan niyo, sa bangko kapag nagbigay sila
ng pera, papipirmahin ka pa, dito walang pirma. So ang tanong, when is the transaction
considered consummated? Upon the machine dispensing the cash.

Kaya lang ito, isa pa, the ATM can be used in bank transfers. Halimabawa meron akong
account sa RCBC Savings, ikaw, meron ka ring sariling account sa RCBC savings but we are
in different places, yung account ko sa kanila and yung account mo sa Cebu. Then sabi mo,
pwede bang padalhan mo ko ng pera? Sabi ko naku, kanino natin papadala? Malayo ang
Western Union, malayo ang Lhuillier, saka matagal pa yun. Walang problema, using the
ATM you can do bank transfer. In short, if you are going to do bank transfer, by deposit, to
your account, I can do it through the machine, yung ATM. Ang tanong, when is the
transaction said to be consummated? Upon the debit of one account and the credit to
another. So kapag na-idebit na yung account ko and na-icredit na rin yung sayo, the
transaction is consummated.

The law provides electronic transactions made through networking among banks, or
linkages thereof with other entities or networks. Ganito, dati ang mga bangko may kanya-
kanyang ATM lamang. I remember ang una niyan BPI. So ang BPI had ATMs in their
different branches. Kaya lang ang ATM noon ng BPI pang-BPI transactions only and then
later nagkasamahan ang mga Bangko and BPI. Then other banks formed Bancnet, others
formed Megalink. Sabin g Central Bank mag-isa na kayo, kaya ngayon Megalink, Bancnet, I
think even yung sa BPI, iisa na lang, kaya nagkaron ng Net World. Ngayon continuing from
the information, “Electronic transactions made through networking among banks, or
linkages thereof with other entities or networks nd vice versa, shall be deemed
consummated upon the actual dispensing of cash or the debit of one account and the
corresponding credit to another.” Ngayon ito yung very common nowadays, di ba ang mga
cards ngayon, yung iba may credit cards, yung iba naman may debit cards. Mamimili kayo
using your debit card, so in short cash din. Kaya ang tanong, when is the transaction
consummated? Upon the debit of one account and the credit of another.

Acts Penalize under the E-Commerce Act

1. Hacking (other word is crackling)- It is unauthorized access into a computer system

in order to corrupt, to alter, to steal, or to destroy. It includes introduction of computer
virus. Yung ibang tao ang gusto ay gumawa ng computer program, and yung iba naman
gustong makialam sa files ng ibang tao. Walang masama kung gagawa ka ng computer
program, ang masama kung mag-access ka sa computer files of others. It is a crime.
(insert chika about coriander/cilantro).

2. Infringement of intellectual property rights-- Piracy or the unauthorized

copying of a protected work. Ang tawag ng abogado is piracy, kaya lang ang tawag ng
iba is plagiarism. So first is hacking, second Infringement of Intellectual Property Right
and also violation of Consumer's Act. That will be all about E-Commerce Act.

PHILIPPINE COMPETITION ACT

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Walang masama about competition. What the law does not allow is unfair competition. In
the RPC, felony( malabo) is defined as unfair competition and it is penalized. Walang
masama sa competition in fact the government encourages competition because if there is
competition the economy improves. But if you are going to constrict competition some
products may not be anymore affordable to some. So the law punishes unfair competition.

PURPOSES OF THE LAW: 1. prohibit anti-competitive agreements; 2. prohibit

abuse of dominant position; 3. prohibit anti-competitive merges and acquisition.

Dominant position, I suggest that you read it, no need to memorize. Basahin so that you
will have idea. What is the difference between a merger and acquisition? Actually,
the greatest concern of the Philippine Competition Act—is the regulation of merger and
acquisition. How you understand merger under corporation code, yun yun. In the
corporation code, the union of 2 or more corporations where one survives and the other is
dissolved. Acquisition-- there could be one corporation and it may acquire another or other
corporation. But the Corporation that acquires other or another corporation—they dont
combine. The corporation that acquires the other or others allows the other or others to
keep their identity.

If you can recall, Henry Sy ang dami niyang acquisition and one that I mentioned—dati
mayroong Manila Banking Corporation owned by Puyat (?) Family. It became bankrupt but
eventually it was reopened, kaya lang when it was reopened the Puyat family decided to
sell it out, yung Manila bank ibinenta kay Henry SY. Henry Sy after acquiring it, He did not
merge it with China Bank. Ang ginawa niya yung Manila Banking Corporation upon acquiring
it, made it as China Bank Savings. Makikita niyo ngayon-- may china bank savings, thats an
acquisition kasi hindi naman pinagsama ang corporation but the China Bank Corporation
owns the China Bank Savings. Another acquisition of Henry Sy is Private development bank
of Tambunting Family-- the Planter's Development Bank. Another acquisition, is yung Rural
Bank –yung One Network Bank.

And as mentioned before, in the mid-80’s in America, there have been a lot of corporate
raiding. And one example that I have mentioned was, uh… until now, meron tayong Proctor
& Gamble. Kaya lang, acquired. Another example, NABISCO. It acquired Phillip Morris. Are
they operating separately? Yes. ‘Yan ang acquisition.

Another example, San Miguel Corporation, acquired Petron. San Miguel Corporation decided
to diverfy into the power industry. The first move of San Miguel Corporation was to acquire
all Petron shares. Kaya, Petron is controlled by San Miguel Corporation.

Alright. Marami ang mga acquisition sa atin. Sa education din, marami. Merong corporation
ang pangalan ay PIGMA/BIGMA. Yang PIGMA/BIGMA na ‘yan, dating mining company lang
‘yan. And then it diversified into power. Tapos pumasok sa housing. One other acquisition of
PIGMA/BIGMA, yung University of Pangasinan. Another one, sa Nueva Ecija, Araulo
University. Saan pa? Sa Ilo-ilo, University of Ilo-ilo. Sino pa ba? STI. Computer. STI. At one
time, it wanted to acquire Philippine Women’s University (PWU).

Alright? So, talking about the Philippine Competition Act.

Philippine Competition Commission.

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Number of members, five (5). Four (4) commissioners. Ngayon, one of the members should
be a lawyer. Another member should be an eonomist. So yung dalawang ‘yan, mandated
professionals. Kaya sa ngayon, wala pang qualified sa inyo dito. Ako, at least qualified na
ako. Lawyer. At kailangan, at least 10 years experience.

Dapat ang members ng PCC ay may lawyers at economist with at least 10 years experience.

Ang term of the members of the commission, original term ay 7 years kaya lang walang re-
appointment unlike the members of the Monetary Board na may re-appointment.

Sa PCC, straight. Kaya lang diba lima sila. Siyempre first batch, not all of them have a term
of 7 years hindi dapat sabay-sabay ang expiration ng term, otherwise kapag sabay-sabay
lahat yan, edi yung mga papalit diyan mangangapa yan.

So the law provides that some would serve for 5 years, others for 3 years.

To what office is the commission attached? PCC is attached to the Office of the
President.

Yung rulings ng commission are final unless there was fraud. But if you want to contest any
order of the commission, then Court of Appeals. Kadalasan naman kapag Office of the
President, next step is Court of Appeals, hindi na RTC.

To have a quorum, 3 members and also to pass resolutions, also at least 3

members. Unlike in a corporation, the majority quorum kaya pwede dalawa. Kaya lang ito,
parang sa monetary board 3 for a quorum and 3 to pass a resolution.

What are the prohibited acts under the law? There are multiple acts which are per se
prohibited.

Acts that are per se prohibited: (1) restricting competition as to price or components
thereof or other terms of trade and ito, it’s very true. Halimbawa, fixing prices at an auction
or in a form of bidding including bid suppression, bid rotation and market allocation.

Alright ganito yan ha, when you want to deal with government, how do you do it? By
bidding. That’s why in government offices, merong tinatawag na bids and awards
committee. This is very common, in fact it is public knowledge na kapag merong
government project, construction especially yung provided ng statute let us say at the start
of the year, what are your projects? Kelan mo ipapabid mga iyan, let us say I’m a
contractor, he is a contractor, she is a contractor, another contractor another contractor.

PROHIBITED ACTS

SECTION 1. Anti-Competitive Agreements.

(a) The following agreements, between or among competitors, are per se prohibited:

(1) Restricting competition as to price, or components thereof, or other terms of

trade;

(2) Fixing the price at an auction or in any form of bidding, including cover bidding,
bid suppression, bid rotation and market allocation, and other analogous practices of
bid manipulation.
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(b) The following agreements, between or among competitors, which have the object or
effect of substantially preventing, restricting, or lessening competition shall be prohibited:

(1) Setting, limiting, or controlling production, markets, technical development, or

investment;

(2) Dividing or sharing the market, whether by volume of sales or purchases,

territory, type of goods or services, buyers or sellers, or any other means.

(c) Agreements other than those specified in (a) and (b) of this Section, which have the
object or effect of substantially preventing, restricting, or lessening competition shall also be
prohibited.

Provided, that those which contribute to improving the production or distribution of goods
and services or to promoting technical or economic progress, while allowing consumers a
fair share of the resulting benefits, may not necessarily be deemed a violation of the Act.

(d) For purposes of this Section, entities that control, are controlled by, or are under
common control with another entity or entities, have common economic interests, and are
not otherwise able to decide or act independently of each other, shall not be considered
competitors.

SECTION 2. Abuse of Dominant Position.

(a) It shall be prohibited for one or more entities to abuse their dominant position by
engaging in conduct that would substantially prevent, restrict, or lessen competition,
including:

(1) Selling goods or services below cost with the object of driving competition out of
the relevant market. Provided, that in the Commission’s evaluation of this fact, it
shall consider whether such entity or entities had no such object and that the price
established was in good faith to meet or compete with the lower price of a
competitor in the same market selling the same or comparable product or service of
like quality.

(2) Imposing barriers to entry or committing acts that prevent competitors from
growing within the market in an anti-competitive manner, except those that develop
in the market as a result of or arising from a superior product or process, business
acumen, or legal rights or laws;

Examples as per lecture of Dean Abella (Prohibited Acts)

1. Four government contractors, agreeing to collude to fix the price, share bidding
prices. (Bigayan sa bidding) SOP or lagay sa govt official given upon award of
contract. Walang bagsakan ng presyo. Other bidders will bid higher, para may sure
winner. Simulated bidding or collusion.
2. Bawasan ang production ng produkto (Controlling the production)
3. Dividing or Sharing of markets, pag ang isang bidder nasa area na ng Nueva Ecija,
wala ng ibang papasok duon, sa Bulacan na yung iba.
4. Doctrine of Abuse of dominant position.
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Abuse of dominant position, ito yung sinabi ko kanina don’t memorize because there are
two pages to memorize and it’s not practical to do it kasi kung magtanong halimbawa yung
2% kung hindi mo masagot eh di okay lang 98 kanalang. Basta basahin niyo nalang don’t
exert effort.

Compulsory Notification

This is mentioned in the law kayalang yung rule it was issued by the commission and the
latest is that PCC Memorandum Circular No. 18-001 dated March 1, 2018 kumbaga ito last
month lang. Okay? So tandaan niyo ah PCC Memorandum Circular No. 18-001 it was issued
March 1, 2018. Alright. So ano contents ng Circular na yan?

It says parties to a merger or acquisition are required to provide notification when 1) the
aggregate annual gross revenue revenues in into properties in the Philippines or value of
the properties in the Philippines of the ultimate parent entity ay the parent entity did not
acquire okay? Without parent entity be at least ay sorry it exeeds 5 billion pesos dati kasi
kulang nung ginawa yan noon kulang kayalang with the Circular of the Commissioner itself
tinaasan into 5 Billion and may isa pa the value of the transaction exceeds 2 billion pesos
dati yan 1B lang kaya gustong pakialaman ng PCC yung acquisition by Grab of Uber kasi
nga naman malaking halaga yan kayalang ang pinagiisipan ko wala din magagawa ang PCC
since the transaction took place outside the Phillipines.

Tulad ngayon diba uber by these day it won’t involve anymore kasi nagcreate din sila gawin
niyo na yan ano magagawa ng PCC? Pwede bang sabin ng PCC hindi pwede matuloy yan
pwede ba yun eh the transaction took place abroad sasabihin hindi pwedeng matuloy yan
anong gagawin? Wala namang power outside the Philippines yun ang aking concern.

So while the Philippine law wherein there will be trasaction would take place involving
parties with principal offices abroad or the transaction consummated ano pang magagawa
ang PCC hindi naman pwede mag nullify ng transactions which take place abroad but
anyway this remains to be seen.

Ngayon ang tanong covered by the dito ang mga bangko? Mines, Trust Companies,
Insurance Companies, Educational Institutions also covered by the Competition Act? YES.

Kung ano man ang magiging merger or acquisition of Mines, Trust Companies, Building and
Associations, Public Utilities, Educational Institutions. Syempre as you learned in
Corporation Law kung meron yang merger or kung meron yang consolidation the Articles of
Merger or Consolidation should first pass the covered regulator.

Alright. Ganun din ang mangyayari, kayalanng instead of the Articles of Merger or
Consolidation from the government regulator going straight to the SEC hindi daan ka muna
sa Philippine Competition Commission. Never pang stop over muna bago SEC. Maliwanag?
Kasi dati the government regulator halimbawa Monetary Board o kaya CHED o kay
Insurance Commissioner mula doon diretso na sa SEC ngayon hindi dapat muna sa
government regulator then Philippine Competition Commission or PCC maliwanag?

That’s from the Philippine Competition Commission nagpahaba lang naman talaga yung
enumeration. Just take note of those prohibited and those that are not prohibited and the
last one is prohibited is abuse of dominant position..
2021 03 1

NEW CENTRAL BANK ACT

July 4, 1946 we got our independence. At that time, there were already banks. BPI bank was
already existing. Government also PNB was a government bank. There was already a need to
regulate the banking industry. In 1948, legislature created the Central Bank of the Philippines.
However, the Central Bank became bankrupt. It was embarrassing so the legislature abolished it.
Upon abolishing it, legislature created the Bangko Sentral ng Pilipinas which has a different
identity. It was an entirely new entity.

Anong structure ng BSP? It has a corporate structure. It affairs are managed by a board called a
monetary board. BSP and Central Bank has a different composition. Monetary board of the BSP-
BSP Governer, Cabinet Member (depends on the President kung sino ipapadala niya), 5 full time
directors from the private sector (kaya dinagdag yung private sector para never gawin dumping
something ang monetary board and to make sure they understand their responsibility and
competent; pwede yung person has worked with government corporation, basta private sector).

Regular term of governor and full-time director is 6 years. Person who is appointed as governor of
BSP or full-time director during vacancy, serves only the unexpired portion of his predecessors.
Nestor Espanila was appointed during Duterte’s term but was called by the Lord. He only served
for about 2 years and 3 months. Ben Diokno was appointed to fill his vacancy, so he will serve
for 3 years and nine months. Same rule with full-time directors. Pwede ba sila ma-reappoint? Yes,
but only once. What could be the maximum number of years that a person may serve in the
monetary board? 12 years. After having served the monetary board, there is a prohibition against
governor and full time -directors that for the next 2 years they cannot serve in any capacity in any
corporation that is under the supervision of the monetary board except when serving the interest
of the PH Government.

What are the corporations under the supervision of monetary board?

1. Banks
2. Investment houses which are called as quasi-banks (e.g. Yuchengco group of companies,
House of Investments Incorporated) ]Bataan Cigarette Factory vs. Invstement House
Incorporated]
3. Foreign exchange dealers
4. Remittance centers
5. Pawnshops in NCR.

Who are in the lending business but are not supervised by the BSP?
1. Lending investor (it is a corporation that grants loans from paid-up capital, they cannot
accept deposit from the public; you should have a minimum paid-up capital of P1M)
[Regulated by SEC];
2. Finance company (if the paid-up capital of corporation is at least 1P0M) [Regulated by
SEC];

Banking Lecture Notes 2020 – 2021 | 1

 3. Insurance Company (your paid-up capital is at least P1B); anong ginagawa ng insurance
company sa money nila? Pinapa-utang. [Regulated by IC]

If not qualified to take loan sa bank, they go to lending investor or finance company. But if
you want na makatipid, you can sa insurance company kasi mas lower ang interest.

What are the functions of the BSP?

1. Issuance of currency
2. Management of money supply
3. Supervision over the banking system
4. Represent the Philippines in its international monetary dealing
5. Purchases precious metals

What is money?
It is universally defined as any medium of exchange.

Currency as defined in law

You refer (1) notes and coins issued by the BSP and (2) are in circulation.

Notes is perang papel, yung coin is an English term na walang katumbas

What do you call the Philippine currency? Peso

What is the symbol of peso? Capital P backspace strikeover or slash [in typewriter], nahirapan
yung mga legislature so naging Capital Letter P.

PHP – PH is an abbreviation of the word Philippines, universal yan. Yung next na P is peso sign.
So Philippine Peso. Kaya kinakabit yung PH kasi other countries use peso also like Argentina and
Mexico.

How do you call a unit of a peso? A unit of a peso is a centavo.

What is a symbol a centavo? The symbol is always a small letter c, no slash. Yung may slash is
American yun, cent.

How many centavos in a peso? There are 100 centavos in a peso.

We have notes where ordinary people call it perang papel. But it is more of a cloth.

Capitalization of BSP was increased to 200 Billion.

How will you know when BSP was established without looking at any law? Yung mga coins
na ang likod is flag of the Philippines, may nakasulat sa likod na 1993. Kasi nagkaron ng flag sa
Heraldi Law. Under that law, bawal gamitin flag sa coins so ang ginawa nalang is tuloy tuloy
minting ng coins so sa mga bagong coins, wala na siya.

Banking Lecture Notes 2020 – 2021 | 2

Notes are printed, coins are minted. These are done locally. Nung panaho npa ng Central Bank,
lahat ng ginagamit natin is imported from England and pumapasok nalang dito as finish product.

San dinadala yung printed and minted? Pagkatapos in mint and print, pasok muna sa vault ng BSP.
Habang nasa loob sila ng vault, are they currency? NO SINCE THEY ARE NOT YET IN
CIRCULATION. Tandaan niyo, currency is from the word current meaning moving, nagalaw.
Hindi sila nagalaw sa vault. Sa araw-araw, sa office ng BSP, may nakapila na armored cars, yung
mga armored cars na yun is kumukuha ng pera sa BSP. Then pagkakuha ng armored cars ng money,
idsitribute nay un sa banks. Pag lumabas na sa vault ng BSP, currency na. Pwede ba bumalik sa
vault yung mga nakalabas na? YES. Syempre naluluma na and nakakadiri na yung mga money, pa
luma na ang notes, they are withdrawn from circulation. Tapos itatabi na ng bank. Then yung bank
yung magrequest sa BSP to give new notes. Demonetization – process when the notes and coins
are not fit for use, so they will be withdrawn from circulation and will be retired? When bumabalik
pera sa BSP? When banks comply with the so-called reserve requirements.

• Meron laman wallet yung wallet mo, $50 bill. Is that money? YES. Is that currency? NO.
• Bagong Lipunan Series, money pa din but they are not in currency anymore kasi hindi na
siya in circulation.

One mode of extinguishing an obligation is payment of legal tender. Legal tender is a currency
(Philippine Peso and in circulation) in such quantity prescribe by law or regulation to be acceptable
in payment of all obligations.

Bawal dapat candy yung sukli because of the law but madaya pa din yung mga establishments,
yung mga malalaki lang binibalik like 25 cents but nobody cares

Denominations of Peso Coins: P1, P5, P10, and P20 but limited
Centavo Coins: 1c, 5, 10c, 25c

Up to what values may coins be used as legal tender?

• P1000- if peso coins
• P100 – if centavo coins

Replacement Rules

1. Damage Notes
a. At least 3/5 of the notes must still be present.
b. There must still be at least 1 set of serial number (There are 2 sets of serial number
sa note, isa nasa lower left and is nasa upper right)
c. There must still be at least 1 signature [Whose signature appears on the note? BSP
Governor and Philippine President].
d. There must be no sign of intentional defacement. [Intention of damaging a note and
coin is a crime where a person can go to jail]

Banking Lecture Notes 2020 – 2021 | 3

 2. Damage Coins - coins are made from hard materials. Nasisira pa ba yan? Well, overtime.
Pag luma na ang coins, makinis na or maninipis ng konti. If bago yung coins, magaspand
and may konting edges. If luma na coins, they are also withdrawn from circulation but
banks will not accept if there is a sign of filing, clipping, or perforation. Yung nakalagay
na na amount sa coin is theoretically yun kung magkano ginawa yun. Like P5 coin is P5
yung paggawa. But the truth is the cost is higher.

Trivia: Sa lahat ng notes natin, ano ang most blessed? P20. Most people give P20 sa church so
pag napunta na sa altar yun na-bless ng priest. Ano yung di nakakapasok ng simabahan? P1000
pero andiyan sa malls, hotels.

2021 03 08

What is money supply?

All money in the Philippines; it includes currencies of other countries within the Philippines.

Why is there a need to monitor money supply?

If there would be too much money circulation, the tendency of people is to spend more. If demand
of goods will be up, the prices will be higher.

If you are a minimum wage earner and you can afford only 1 can of sardines per day, araw -araw
ka bibili ng sardines. If nagkaron ka ng bagong job, you will have more money and maiisip mo di
ka na bibili kada isang araw. Makakabili ka na ilang pieces. Ilan ba Pilipino? More than 105M
tayo. If lahat yan magsasabay sabay ng bili ng dadag, of course the manufacturer will be happy
kasi malakas negosyo. However, the time will come that the manufacturer cannot meet the demand.
If there will be more demand, the supply will be low and the price will go up. Pag tumaas presyo,
ang tendency ng tao is to consume less. Pag bumaba naman demand, yung manufacturer magcut
down ng production. Yung employment ma-affect.

The monetary board meet weekly. The reason is that the government should make necessary
intervention with the prices. Hindi masama magkaron ng inflation. Kaya lang pag sumbora
inflation, naguguluhan economy. Inflation? Pag tumataas presyo. Opposite is deflation. Ang
deflation is masama. Ang inflation up to a certain percentage na tinatarget ng government to a
certain point is good. Yung deflation pagbaba ng prices like Japan, hindi maganda.

Ano ang pinaka-ordinary ginagawa ng BSP to manage money supply?

Reserve requirements. Reserve requirements refer to a percentage of deposit liability of banks
which they have to deposit with BSP or invest in government securities.

Deposit liability of banks – ito ang mga dinedeposit natin sa banks. Kunwari may nagbigay sayo
ng P1000 and you don’t use it immediately so itago mo nalang sa bank. The bank will record it as
deposit liability. The relationship between a bank and depositor is debtor and creditor, where the
depositor is the creditor and the bank is the debtor.

Banking Lecture Notes 2020 – 2021 | 4

Interest is the compensation for the use of someone else’s money.

Different kinds of deposit

1. Time deposit
2. Deposit in saving accounts
3. Deposit in checking accounts/current account

Kunwari nag-time deposit ka na P100,000, syempre the bank will pay you interest and ikaw aasa
ka na the bank will pay interest. If ikaw banko, pano mo kikitain interest na babayaran mo sa
depositor? Syempre papautang mo.

Pwede ba ipa-utang ng banko yung whole amount na tinanggap niya as deposit?

NO because there are reserve requirements. Kunwari time deposit, sabi ng BSP the reserve
requirement is 20%. Ano 20% ng P100K? P20,000 bawal ipa-utang ng banko, dapat ideposit sa
BSP or invest in government securities. P80,000 yung pwede ipa-utang. The reserve requirement
is closely monitored by BSP.

Kailangan ideposit sa BSP, it is mandatory pero there is no interest.

Purpose of reserve requirement

1. To service withdrawals
2. To manage money supply

Ilan trillions of pesos are in circulation? Kunwari 100 trillion, tanggaling mo 1% which is
1 Trillion. Imagine mawawala sa circulation yung 1 trillion? Kaya konting pera umiikot
ngayon kaya cut-down muna sa consumption.

3. It is the source of fund for the rediscounting facility of the BSP.

Central bank is known as the bank of banks. San kukuha ang banks ng money para ipa-
utang? Umuutang sila sa Central Bank. Kaninong pera yung pinapa-utang ng banks? (1)
Payment of subscription of subscribers (paid-up/paid-in capital)
Pag magawa ka ng universal bank, kailangan yung paid-up capital mo in MNL is at least
10B. Isa yun sa mga gagamitin sa pagpapa-utang. Remember (2) Deposit by the depositors;
(3) Earnings of banks (earnings on loan). Syempre pag nagpa-utang bank kikita yun, papa-
utang din yung ng bank.

Bank, may paid-up capital, madami deposit then madaming loan application. Syempre mga
nagfile ng application need ng mga money, magfollow up mga yan. So unang question ng
applicant is kamusta na yung application, then sabihin ng agent approved na. Second
question is tatanong kalian magrerelease? Ang tinitignan ng bank is kung kalian sila
mawawalan ng pera. Ang gagawin nila is uutang ng BSP. Kailangan ng collateral? YES.
Pag ang bank umutang with the BSP, ang collateral is the receivables sa mga pina-utang.
Ang tawag sa process na yun is rediscounting with the receivables.

Banking Lecture Notes 2020 – 2021 | 5

 San kukuha Central Bank ng money? They’ll get it sa reserve requirements. Magulang pala
BSP. Ganun talaga.

If the government want to stimulate the economy, katulad ngayon madami inooffer na loan.
How does government attract loan? Yung interest sa rediscounting is binaba. May reserve
requirement sa BSP, mag papa-rediscount na tayo, sasabihin ng BSP sa banks in order to
stimulate the economy is magpapa-utang sila ng is 1% per annum lang. So [I was
disconnected]

Ang pwede lang magpa-rediscount sa Central Bank ng receivables is mga banks. Pag
magstart ka ng business, syempre you want na mapansin ka ng passerby. So ano ginagawa
nila? They use large speakers and yung balloons. So pumasok na customers and sobrang
ganda ng offer mo, so na-sold out ka. Madami ka receivables, yung mga receivables nila
ipapa-rediscount sa investment house. Yun ang ginagawa pag ordinary businessman is
rediscounting sa investment house as only banks can avail of rediscounting sa Central Bank.

Functions of BSP
1. Issuance of currency
2. Management of money supply
3. It supervises the banking industry and quasi-banks.

It is not only supervision but also control. Kaya control is every now and then, the BSP issues
circulars. Kaya yung mga banks, may mga files sa circulars and lahat ng gagawin ng bank is in
accordance with the circular and if not, may penalty. Bawat galaw sa bank, dapat in compliance
with the regulation of the BSP. Yung Manual of Regulations, yung mga veteran araw araw nila
yun gagawin. Pag may power to issue rules and regulations and to prescribe penalty for non-
compliance, that is control.

Doctrine: Closed now, investigate later

When the BSP receives numerous complaints of unsound practices being committed by the bank,
the BSP can order the immediate suspension of the bank and thereafter investigate the

The Supreme Court ruled that it is not a violation of due process clause because banking is imbued
with public interest and closed now, investigate later is a legitimate exercise of police power.

4. Represents government in its international financial dealing

Sino nakikipag-usap sa international lending institutions? It is the Central Bank kasi
function siya ng Central Bank

5. Purchase of Precious Metals

Di ba marami tayong mining companies? Pag yung small miners, sa mga jewellers
binebenta. Yung mga precious metals na kinukuha ng mining companies, san binebenta?
Mandatory na ibenta sa Bangko Central. Ano naman ginagawa ng BSP sa precious metals

Banking Lecture Notes 2020 – 2021 | 6

 na binili from the mining comapnies? Binebenta sa USA kasi ang American dollar is
backed up with gold.

Notes:

• Inflation - Inflation is the decline of purchasing power of a given currency over time. A
quantitative estimate of the rate at which the decline in purchasing power occurs can be
reflected in the increase of an average price level of a basket of selected goods and services
in an economy over some period of time. The rise in the general level of prices, often
expressed as a percentage means that a unit of currency effectively buys less than it did in
prior periods.

• Deflation – It occurs when the purchasing power of money increases and prices decline.

• Law of Supply and Demand – Generally, as price increases people are willing to supply
more and demand less and vice versa when the price falls.

General Banking Act of 2000

It’s already 20 years old.

What is a bank?
A bank is an entity that grants loans from deposit.

Banks cannot distribute its profits as dividends kaya sa corporation may retained earnings. What
are retained earnings? The other term is surplus profit. It is also known as surplus. How can
paid-up capital be impaired or diminished? It is impaired or diminished by losses. So nagstart
tayo ng business ang paid-up capital natin is 1M then nalugi tayo ng P10000. So ang paid-up
capital natin is P990,000. At the end of the second year, lugi na naman tayo but P5,000. Ang paid-
up capital natin is P985,000. Ang impairment is 15,0000. Third year ang ganda ng negosyo natin.
Net profit after income tax is P25,000. Yung kinita natin is ibalik muna sa mga nalugi natin sa
previous years (yung 15,000). Yung P10,000 na excess na di pa nadidistribute as dividends is what
you called retained earnings.

How are banks classified? (It was asked two times in the bar) – according to amount of paid-up
capital because the BSP prescribe initial paid-up capital for banks.

1. Universal Banks
2. Commercial Bank
3. Thrift Bank
a. Savings and Mortgage Bank
b. Private Development Bank
c. Stock, savings, and loan association
4. Rural Bank
5. Cooperative Banks

Banking Lecture Notes 2020 – 2021 | 7

Universal Banks
Paid-up capital is at least P10 billion. Kung ano minimum paid-up capital ng BSP, you ready it.
Sa ngayon wala nagtatayo ng universal bank. Ang nangyayari is paunti-unti.

A universal bank is a commercial bank. Kung ano ginagawa ng commercial bank, ginagawa ng
universal bank kaya lang in addition, universal banks can engage in the business of investment
house.

Example of investment house: House of Investment Incorporated of Yuchengco Group of

Companies.

Section 52 of the Negotiable Instruments is very important. When you say that an instrument is
not regular in its face, ano ginagawa niyo? Bataan Cigarette Factory v. State Investment House
Incorporated: when a check is crossed, the crossing of the makes the check not regular on its face.
If it is negotiated to somebody, the person who acquired it thereafter will no longer be a holder in
due course.

Business of Investment House

1. Rediscounting of receivables
2. Underwriting of securities - committing of a firm basis or best efforts to raise money
needed by the client.

Commercial Bank

Functions of Commercial Banks

1. Acceptance of deposit in checking accounts – (Minimum balance is P20,000)
If a lower bank can accept checking account, it asked for authority from Central Bank. If
smaller banks want to accept checking deposit, the Central Bank will increase the minimum
balance.
2. Opening of letters of credit
If you are a small bank that want to render service of a big bank, Central Bank will impose
conditions. The conditions are heavier nga lang.
3. Granting of Loan
4. Acceptance of time-deposit
5. Acceptance of savings deposit
6. Rental of safety deposit boxes
7. Acceptance of foreign currency deposit which small banks cannot do
8. Government securities

2021 03 15

Commercial Banks Function

1. Accept deposit in checking accounts (inherent)

Banking Lecture Notes 2020 – 2021 | 8

 a. If ever smaller banks can accept checking account, it is because they have approval
from the Monetary Board by special authority
2. Opening of letters of credit (inherent)
a. If ever smaller banks can accept letters of credit, it is because they have approval
from the Monetary Board by special authority
3. Dealing with securities
a) If you want to invest in treasury bills, where will you go? Go to commercial banks.
b) Difference between commercial bank and universal banks is yung universal banks,
they can engage in investment house
4. Deposit foreign currencies
5. Acceptance of deposit in saving accounts
6. Acceptance of time deposit
7. Safety deposit boxes

Investment House

One example is State Investment House owned by Yuchengco Group of Companies

***Bataan Cigarette vs State Investment House Incorporated - when a check is crossed, the
crossing of the makes the check not regular on its face. If it is negotiated to somebody, the person
who acquired it thereafter will no longer be a holder in due course.

Functions of a Universal Bank

It is a commercial bank that may engaged in the business of investment house.

Business of Investment House

1. Rediscounting of Receivable – Ang pwede lang magpa-rediscount sa BSP is bank.

Remember there are other merchants. Siyempre magstart ka ng business you need capital
(paid-up capital). If you’re going to start business, hindi pwede always na COD. If you’re
big time na, di mo maiiwasan na may uutang sayo. Pag di mo pina-utang customer mo,
iiwanan ka nun.

Appliance store example (opening a new appliance store with promos) – pag nakabenta na,
yung buyers nagsign ng promissory notes, ikaw na businessman, punta ka sa Investment
House kasi mga paninda ko is sold out na. Investment House will ask what is your collateral?
So the businessman will said na he has a lot receivables from the promissory notes signed
by the customers. Investment House will agree. This is what you call re-discounting. When
merchant needs more capital, what they will do is have their receivables rediscounted in an
investment house.

2. Underwriting of Securities
What are securities? Securities are instruments evidencing investment in a commercial
enterprise. Commercial enterprise are stock corporations. It cannot be non-stock since non-
stock corporations are organized for mutual benefit of its members.

Banking Lecture Notes 2020 – 2021 | 9

How may a person invest in a commercial enterprise?
a) Lend money to it
b) Become a part-owner of that enterprise

If I lend money in a commercial enterprise, what evidence will I have? Document

evidencing the loan? Promissory Notes. When we talk about public, it means more than 19
persons. When a corporation ask people to invest, what will they first do? Register the
securities. If utang, the document is promissory notes. Kapag ang payment ng halagang
inutang is more than 5 years, what you call the paper na pinirmahan is bonds. Bonds are
promissory notes having a maturity date of 5 years. Time it commences? 5 years and 1 day.

Debentures is a type of debt instrument that is not backed by any collateral and usually has
a term greater than 10 years. Debentures are backed only by the creditworthiness and
reputation of the issuer. Both corporations and governments frequently issue debentures to
raise capital or funds.

Other form investing is becoming part-owner of the corporation. After full payment of
your subscription, what do you expect to get from the secretary? Certificate of stock/ stock
certificate.

What kind of shares I may subscribe to? It depends on the company offerings. Usually
preferred shares. If you buy that you become a shareholder.
Pag nag-IPO, the shares offered are common shares. If corporation need ng money, they
usually offer preferred shares . Kung mag-issue ng common shares ang corporation, may
possibility na persons who buy the shares may pool their shares and elect a new director.
Mga corporations, they do not want that to happen so they issue preferred shares. Preferred
shares are those shares that have priority. One priority is dividends and the other is assets.
If a corporation needs more money and it can predict how much it could earn in a year,
what the corporation does is offer preferred shares and guarantee a return. Yung guarantee
ba na 5% per annum, is that interest? NO. Ang kinikita ng preferred shares ang tawag is
dividends kasi stockholder yun.

When does a stockholder receives dividends? When a corporation has surplus profits. Kung
walang surplus profit ang corporation, kahit guarantied in writing, hindi pwedeng ibigay
kasi it will be a violation of the trust fund doctrine. What is the tr All subscriptions bought
paid and unpaid shares constitute a trust fund for the benefit of the creditors of the
corporation

JG Summit offered bonds in the public to buy SMC shares. How does the corporation raise
money from the public? If a corporation intends to raise money from the public, it is
required to register first its securities with SEC. So the securities are registered na. Will JG
Summit directly talk with the public? The answer is NO. Example I am the Gokongwei, I
will invite selected presidents of banks and investment houses (e.g., President of BDO, BPI,
and Metrobank..) So may lunch muna then meeting na then I will say that I need somebody

Banking Lecture Notes 2020 – 2021 | 10

 to market my securities/bonds. So nadinig na ng mga presidents, pagkatapos sabihin, bdo
magkano kaya mo? Sabi ni BDO President, I can raise 10B. Same with BPI President, 10B
and so on. Iniinvite din mga investment houses. Kayo, how much naman? SIHI, kami 2B;
House of Investments, 2B. That is a underwriting of securities. Underwriting of securities
is committing on a firm basis to raise the money need by a client. So tapos na yung meeting,
papatawag ko yung aking investment manager, “Person, I have a commitment of 10, bahala
ka na.” Manager ka na so you will know how to do it. So si manager, he has tao and he will
say “oh, bahala na kayo.” Puro delegate delegate. Sa banko, madali malaman sino
icocontact lalo na now computerized. Yung mga may big time deposit, tatawagan ng mga
representatives. So sasabihin sa time deposit account holder, na if gusto kumita ng malaki,
1M nalang i-time ideposit, yung 4M is ibili ng bonds from JG Summit with 5% per annum
interest. What will you want? Syempre yung 5% per annum na bonds.

SMC will build an airport in Bulacan, Bulacan. Cost is 750B. May ganun bang money ang
SMC? None. San kukunin ng SMC? SMC has already offered preferred shares with a 5%
guaranty per annum. You may not believe it, but yung offer na yung is oversubscribed.
Oversubscribed is when you pool the all the money reserved, sobra sobra siya na need ng
SMC. Ang mangyayari dun is bibigyan ka lang ng unti, you will not get what you
subscribed to.

Thrift Bank
What is the biggest thrift bank? Savings and mortgage bank; then private development bank; ang
pinaka-maliit is stock, savings, and loan association. Difference among the three is paid-up capital.

Savings and mortgage bank – those which accepts deposit of small depositors for building of
houses. What are small depositors? Yung halaga ng dinedeposit is mas maliit.

You want to have a condo kasi pagod ka na mag-rent but you don’t have money. San ka uutang?
PAG-IBIG Fund. Why PAG-IBIG Fund? It has smaller interest than banks and you can extend the
payment up to 30 years. Nag-apply ka sa PAG-IBIG but you were not approved. San ka uutang?
You can borrow sa any banks. Yung mga banks, they will say the interest rate is good for 2 years
after 2 years, they will review. Ang bad thing about diyan is pag tumaas, tatatas din ang monthly
payment mo.

Private Development Bank

E.g. Planters Development Bank – From Tambunting to Henry Sy

Chinese Banks
Equitable Banking Corporation
China Banking Corporation
Philippine Banks of Communication (this wasn’t acquired by Henry Sy)

One Net Worth Bank – biggest rural bank in the country

Banking Lecture Notes 2020 – 2021 | 11

Stock, Savings, and Loan Association
May non-stock also but it is not considered a bank. Difference between stock, savings, and loan
association and non-stock, savings, and loan association aside from corporate structure? Savings
and Loan Association, it can accept deposit from the public. Pag public, it is more than 19 persons.
Hindi porket non-stock maliit, baka napakaraming depositors nun. Non-stock, savings, and loan
association may accept deposit only from restricted group of persons. One example is Armed
Forces SLIE (?) – but only AFP and PNP can deposit. Another example is Meralco Employees
Savings and Loan Association (MESALA), it’s big also. No example sa stock, savings and loan
association kasi nawala na but ang examples na meron before are Pioneer Savings and Loan
Association, Nation Savings and Loan Association, Ideal Savings and Loan Association,
Homeowners Savings and Loan Association. Because of the killing of Sen. Aquino, nagsara mga
savings and loan association one after another – domino effect.

Rural Bank
• Smaller paid-up capital.
• Ownership of rural banks can be up to 60% foreigners (there’s a law kasi nagsasara ang
madaming rural banks)

Cooperatives Bank
It is owned by cooperatives. Cooperatives that are properly managed, they profit. Kung ikaw
cooperative na kumita ng millions, san mo ideposit yung money na kinita ng cooperative?
Remember you are in the province. Nakakatakot din magdeposit sa Rural Bank kasi baka magsara.
So ang remedy is yung mga cooperatives, nagtatayo ng cooperatives bank. Ang cooperative bank
ang nagregulate is BSP, pag cooperatives, Cooperative Development Authority. Ang interesting
question is when ang cooperative na-bankrupt and the cooperative bank is nakita since they have
different management.

Islamic Bank
This is the pinaka-maliit before pero hindi na now. Philippine Al Amanah (example), the
transaction is usually from Mindanao. In Islam, contracting to pay interest is immoral. If uutang
Muslim sa bank mo, pano ka kikita when you cannot charge interest because it is immoral? If
someone borrows money from the other, the compensation from borrowing is that they share in
the profit. In Islamic Bank, the borrowing of money, parties to the contract agree to share in the
profit.

2021 03 22

Banks Secrecy Law

The purpose of the Bank Secrecy Law is to encourage people with money to put their money in
bank in order to promote the economy.

Inflation- decline of the purchasing power of a given currency over time.

Purchasing power – the ability to buy

Banking Lecture Notes 2020 – 2021 | 12

1% per annum – interest given by time deposit [universal banks].
If you have money, invest it. Money kept at home is unproductive in so far as the economy is
concerned.

• Withholding tax on deposits Is 20% of your gross receipts

If you deposit 1M to the bank, the bank cannot try to lend everything because all deposits are
reserve requirements. If time deposit, the reserve requirement is 20%. So ang pwede lang ipa-utang
ng bank is 800,000 since the 200,000 is the reserve requirement. Yung 800,000 will earn interest.
If kumita yung banks with the interest, they will pay gross receipts [another way of helping the
economy].

Bakit may umutang sa bank? You must have in mind something productive. For example, you
borrowed the P800K for your house renovation. Syempre you will buy construction materials. So
bibili ka sa hardware. The owner of the hardware will pay VAT after your purchase [another way
of helping the company]. You will need plumber, electrician, and construction worker for
renovation. Plumber, electrician, and construction will have money to earn; then they will have
money to spend. Plumber, electrician, and construction after receiving their wage will go to
Jollibee to buy value meal. Jollibee will pay VAT [another way of helping the economy].

If there will be no bank secrecy law, there is a possibility that the deposit of a person will be fully
disclosed without his consent.

Violation of the Bank Secrecy Law

Penalty is not more than P20,000 or not more than 5 years imprisonment, or both; at the discretion
of the authority.

• The Bank Secrecy Law obliges bank to hire employees on a permanent basis. It cannot be
contractual.

Is the Bank Secrecy absolute?

NO. The law itself mention the exceptions. Exceptions are not found only in the law but in the law,
there are only 4. Of course, there are other exceptions. However, we limit ourselves [ 4 exceptions
mentioned in the law] to the following:

1. Upon written authority from the depositor himself.

The depositor needs to mention what account that can have disclosure because there is a
possibility that he has more than 1 account and he may want to disclose only one and not
the others.
2. In case of impeachment
3. Upon order from the court in case of bribery, dereliction of duty of public officials, or
violation of the Anti-Graft and Corrupt Practices Act
The court can only order if the case involves bribery, dereliction of duty of public officials,
or violation of the Anti-Graft and Corrupt Practices Act. There can be an inquiry not only
on the account of accused, but also on the account of the spouses, relatives, and even close

Banking Lecture Notes 2020 – 2021 | 13

 friends, and associates [jurisprudence]. You cannot say order of the court because
garnishment. When court issues a notice of garnishment, the bank does not disclose
anything.
4. Where the deposit is the subject matter of the litigation.
This exception should be read literally.

May deposits in peso account be garnished?

YES. Kasi if there is a garnishment, wala naman dinidisclose ang bank. If there is a notice of
garnishment, yung lang nakalagay sa notice iremit ng bank sa court and court na bahala mag-give
sa other person so there is no violation of the secrecy law kasi wala naman dinidisclose like account
number, how much yung account.

There can be an inquiry not only on the account of accused, but also on the account of the spouses,
relatives, and even close friends, and associates.

Foreign Currency Deposit Act

This was a later law. This allows foreign currency to be deposited in the bank. Deposits in foreign
currencies can also be withdrawn in the same currency deposited.

Another benefit is that your deposit in foreign currencies cannot be subject of garnishment.

Rulings of the Supreme Court is like decision of an angry woman, no appeal. Wala ka magagawa.
Yun na huli, The SC makes the final ruling.

2011 03 29

PHILIPPINE DEPOSIT INSURANCE COMMISSION (PDIC)

This insures all deposits in savings, current, or time account up to P10,000 [originally]. However
later on, it was increased to P20,000 then to P100,000. Now, it’s up to P500,000 per person, per
bank [this is the maximum indemnity]. Lahat ng naka-insured sa PDIC is dapat made in the PH.

Only where the relationship is debtor [bank]-creditor [depositor]. The insurance is up to the
person’s money in his/her account but not to exceed P500,000 per person, per bank.

If a bank will be ordered close due to insolvency, all deposits in the name of depositor in different
accounts, even in different branches, they will be all collated. And the total of these is yung
babayaran ng PDIC. But this should not exceed P500,000 per person, per bank.

Per bank – For example, you have 2 accounts in different bank. Yung Bank 1 deposit is P500,000
yung sa other bank is Bank 2- P490,000. How much allowed na indemnity? The indemnity will be
the total amount deposited as long as it does not exceed P500,000. Bank 1 deposit - P500,000 yung
sa other bank is Bank 2- P490,000.

Banking Lecture Notes 2020 – 2021 | 14

Under the present law, joint accounts are insured separately to the same extent. Yung joint accounts,
you find this in the Code of Commerce. What law governs joint accounts? Code of Commerce.
Joint accounts are deposits within bank in the name of more than one depositor. AND Account,
if there’s a withdrawal, all depositors should sign. Survivorship Account [AND/OR Account/ Or
Account] are deposits in the name of one person and any one of them can make a withdrawal. If
joint account, how much is the insurance? It’s the same lang - P500,000 per person, per bank.
Deposit in joint accounts is presumed to be co-owned by depositors equally. So if joint account
amounts to P400,000 – the 2 co-owners will receive P200,000 each equally.

EXAMPLE: With BDO, I have P500,000. If nagsara BDO, magkano makukuha ko? P480,000.
With my wife, I have a joint account amounting to P500,000. Magkano kanya? P250,000. Akin is
P250,000. So makukuha ko P500,000 sa personal then P250,000 sa joint account. With girlfriend
# 1 P500,000 joint account kami. So tig-P250,00 0 each kami. Magkano lahat matataggap ko sa
PDIC? P500,000 sa personal ko. P250,000 each kami ng wife ko. And yung girlfriend ko, tig-
P250,000 each din kami. So if may another joint account pa with girlfriend #2, P500,000. She will
get P250,000 and I will get nothing because nasagad ko na yung P500,000.

Even if Rural bank, the amount of deposit insurance is also 500k per person. Even if Rural bank,
the amount of deposit insurance is also 500k per person.

Money Market Placement

If you have a big deposit in your account, sabihin sayo ni officer ng bank, like if you have 5M -
the P1M for time deposit, yung 4M, ilalagay sa money market placement. It’s not a creditor-debtor
relationship. The depositor becomes the creditor of the favored client of the bank and the bank act
as an intermediary. Favored clients are those who have big deposit with the bank.

Yung favored client ng bank need money for 60 days. So example, if you need 5M on April 15.
You will say kay bank officer na can you help me? Ang gagawin ng branch officer is kakausapin
yung mga taong may big time deposit. Sabihin sayo ni officer ng bank, like if you have 5M in time
deposit - just renew the P1M for time deposit, yung 4M, ilalagay sa money market placement.
We’ll pay you 2% per annum for 60 days only. Time deposit holder committed na. The branch
manager will find someone again. Yung time deposit niyo magmature na. Yung time deposit niyo
is 2M, renew niyo lang yung 1M while yung 1M is money market placement. We’ll pay you 2%
per annum for 60 days only. Both committed na. The branch manager will talk to the person na
nangungutang and will say we will loan to you with an interest of 4% per annum but only for 60
days lang.

It is a transaction with the bank. In a money market transaction, the bank is only an intermediary.
Pinagtatagpo ng bank yung taong may money and need ng money. This is not insured with the
PIDC because walang creditor-debtor relationship.

Financial Market
Money lang pinag-uusapan dito. For example, commodities supermarket, may buyer, seller, and
intermediary. Same lang. When we talk about financial market, there are money market, capital
market, bond market, and stock market.

Banking Lecture Notes 2020 – 2021 | 15

Money market
Source of funds where the repayment period is not more than 1 year.

Capital Market
Source of funds where the repayment period is more than 1 year but less than 5 years.

Bond
It is a promissory note where the repayment period is more than 5 years.

Bond Market
Source of funds where the repayment period is more than 5 years.

SMC owned 25% of Meralco. But later on, it was sold by SMC to John Gokongwei [JG Summit
Corporation] for 82 Billion. To be able to buy that, nangutang siya sa public by bonds na payable
for 5 years.

2021 04 19

TRUTH IN LENDING ACT

Purpose: So that the person borrowing money or person buying goods in credit/installment would
know the actual cost of credit.

Pano kumikita mga nagpapa-utang: Interest

Others: Service fee and other charges

In Truth in Lending Act, before the consummation of transaction, the person lending money
or person selling goods in credit or installment should deliver to the other party a written
statement showing the breakdown of his charges.

Stages of life of contract

1. Preparatory – parties are still negotiating
2. Perfection – meeting of minds
3. Consummation

Disclosure statement – It is a written statement which is required to be delivered before the

consummation of the transaction. Dito naka-breakdown kung magkano babayaran ng umutang or
nug bumili ng installment on credit.

One Case: No compliance with the Truth in Lending Act. The creditor is attempting to collect a
service fee. Ayaw ng debtor magbayad, wala daw sa promissory debtor. Sabi lang sa promissory
note, magbabayad si borrower ng interest. Wala nakalagay na payment of service fee. The
Supreme Court ruled that as there was no compliance with Truth, the creditor cannot collect

Banking Lecture Notes 2020 – 2021 | 16

service fee. A violation of the Truth in Lending Act is a crime for which the creditor can go to
jail.

2021 04 26

ANTI-MONEY LAUNDERING ACT [R.A. No. 9160, as amended by R.A.

10365]

Why did the legislature passed the Anti-Money Laundering Act?

There are money coming from illegal sources. Sa ibang countries malaki manggaling yung illegal
money. Cartels from Brazil, Mexico, and other countries. In short, itong money na ito, those are
illegal money. Sa Philippines din madami, coming from drugs. Meron din before sa kidnap for
randsom, naging cottage industry yan, yung kidnap for ransom. There are also bank roberries. A
lot money were involved in these illegal activities. Initially, they are kept privately but eventually,
they are put into the banking system, the monetary system. It was not good for the economy
because they are not really invested. Pagkakuha, itatago muna sa bank then after some time,
ilalabas ulit. Upon pressure from abroad, the legislature enacted the AMLA. In that law, there were
what we called covered entities/ institutions. Pag sinabi mog institutions, usually corporation yan
like banks, quasi-banks, insurance companies and many others. The law was later amended to
include individual persons [covered persons]. Kaya yung section, it was later called covered
persons and not anymore covered entities.

What is the policy of the law?

Protect and preserve the integrity and confidentiality of bank accounts. And to ensure that the PH
will not be used as a money laundering site for the proceeds of any unlawful activities. As you can
see, so that the PH shall not be used for money laundering activities – so meaning, pwede talaga
manggaling from other country yung money.

Central Bank of Bangladesh – CB of Bangladesh bank records were hacked, and millions of dollars
were transferred South Commercial Banking Corporation. Kaya yung bank manager sa Jupiter,
Makati was charged and convicted for violation AMLA. Money from abroad were transferred to
the PH through the banking system. Yun yung ayaw ng AMLA. If there’s money na papasok here
in the PH, kailangan malinis.

Money Laundering Offense

Committed by any person who, knowing that any monetary instrument or property represents,
involves, or relates to the proceeds of any unlawful activity.

Covered Persons
I said earlier, tawag now is covered persons. Originally, covered institutions. Kaya dati in the
original law, the ones covered were banks, quasi-banks, trust entities, insurance companies.
Nadagdagan ng pre-need companies. Sino pa mga nadagdag? Foreign Exchange Dealers,
pawnshops, money changers, remittance companies. Kasama sa original, securities dealers,
brokers, investment houses, salesman.

Banking Lecture Notes 2020 – 2021 | 17

Exchange
• [Civil Law] – it also means barter.
• Other meaning is market. Example in Bustillos, andyan yung Sampaloc Public Market.
Gusto mo siyang bigyan ng classy name. Tawagin mo siyang Sampaloc Public Exchange.

Bakit meron public market? Ano ba yung market?

Market is a convenient facility for buying and selling commodities. Kung nandun kayo sa isang
community, walang public market and you want to sell goods, ano ginagawa? Ilalagay sa bilao,
then sa head, then maglalakad sa sa community. “Isda kayo diyan.” That was in the 50s. Yung
market, it is a systematic way of selling goods.

Stock Exchange
The product here is shares of stocks. If yung market , yung binebenta is consumer goods. Dumami
na yung corporations and some people want to acquire shares of stock of a company. Kaya para
magkaron ng convenient facility for acquiring and selling shares of stock, nagkaron tayo ng stock
exchange. Ilan stock exchange natin? 2 before – Makati Stock Exchange and Manila Stock
Exchange. But it later become one - no merger and no consolidation, nagtayo nalang ng Philippine
Stock Exchange.

If you want to buy shares of any listed shares, how do you do it?
Transact through the exchange. Kung wala tayong Philippine Stock Exchange, you want to buy
SMC shares/ sell you SMC shares, ano kaya gagawin mo if we have no exchange? Dati nung
walang exchange, ang ginagawa is magpa-advertise sa newspaper – wanted to buy; wanted to sell.
If you do that, gano katagal to get results? You’re lucky if someone responded. Pero pag wala, you
will advertise again. Ngayon dahil meron tayong exchange, you just need to contact your broker
in order to buy shares for you. Kaya if you want to trade, you have to find a broker.

Broker [SRC]
It is a corporation. Mandated yan ng SEC. Para maging broker ka, kailangan corporation ka. Hindi
pwede individual. Sa ngayon, if the business involves public interest, hindi na pwede individual.
Why? Pag individual, walang kasiguraduhan na buhay ka pa next day. Kawawa naman client pag
ganun. Mag-file pa siya ng claim against estate of the deceased person. Whenever the transaction
involves public interest, it is required by the regulatory body that it be organized as stock
corporation. Ang stock corporation, it has personality of its own, separate and distinct from its
officer and directors. Kaya ngayon ang mga broker is stock corporation.

How does a corporation do business? How do a corporation transact business?

Yung board of directors, it is the policy-making body of the corporation. Corporation transact
business through its officers. Ang BOD, eto lang yung nag-plan kaya policy-making lang sila.
Hindi sila nag-implement. The BOD simply set the direction of the corporation. Yung officers
nag-iimplement, primarily the president. In connection with stock brokers, how do you call their
officers? Under the SRC, yung brokers, they are corporation who transacts through their officers
called persons associated with a broker. Persons associated with a broker - officers of a broker
corporation. Kaya lang di kasama yung people performing clerical functions.

Banking Lecture Notes 2020 – 2021 | 18

Yung stockbrokers, they have professionals working under them. Kaya lang, sa tingin ng sa tingin
ng mga lawmaker….. [wasn’t able to type, got disconnected]. Ano yung mga salesmen na yun?
Why are they covered with the AMLA? Under SRC and AMLA, people working for brokers but
are performing clerical function.

Kunwari nagpunta ka sa broker, you talked to the president and manager [persons associated with
a broker] , X went to the office of the stockbroker and talked with Y, the manager. They discussed
ano gagawin.

X: Sige ma’am, I’ll engange the broker services of your company.

Y: Pakilala kita sa iyong magiging salesman.
D was called. a
Y: I will introduce you to our new client, X. Palit kayo ng business cards. You will have a
lot of regular transaction kaya dapat alam nyo telephone numbers nila, In stock trading, all
transaction are by telephone. Nowadays, pwede email and text. Pero basic - telephone,
pwede landline or cellphone.

So nagkilala na si X which the client of the broker corporation of which Y is the

president/manager. Si D is the client. By the way, karamihan ng salesmen are CPA. Why?
Because they keep records of the transactions of their clients. Sino ba marunong magrecord
ng transactions? CPA. Hindi kahit sino-sino lamang. In stock trading, we are talking about
millions of peso.

The following day, X said I will try. For example X will buy 1000 SMC shares. Ano
gagawin nya? Tatawagan niya D to ask him to buy SMC shares at a specified price. D
received the order. Syempre, D does not know if may nagtitinda or wala. Ang gagawin pag
nagkatanggap ng order to buy sa PSE, ipopost nya – buying 1000 SMC shares at P90. Yung
sa PSE electronic board, those are prices of the stocks. Hindi mabubura dun until may
magbebenta. J called her broker, ihanap mo ako ng buyer, I plan to sell 2000 SMC shares
at P95. So D will ask if J is willing to sell 1000 SMC shares at P90. J will decide. If she
decides na she will sell, D will match her order with those of J. Gano katagal? It does not
even take 1 minute. Yan ang advantage ng PSE. Sabi ng karamihan, investment of shares
of stocks listed in PSE are very liquid investments. Meron kang vacant ng lot. The question
is, how long will you sell it? Can you sell it in one minute? Surely no. But you have stocks
in PSE, you can sell it within 1 minute. Kaya liquid investment, kasi mabilis maging money.

• Open –price involving the first transaction of the share

• Close – price involving the last transaction of the share

Yung transaction in PSE, they start at 9 am in the morning to 3:30 pm. During that period,
madami nagtransaction dyan and di sila magkakakilala. All transactions are done through the
exchange. And it accomplished through salesmen.

Banking Lecture Notes 2020 – 2021 | 19

 So yung example kanina, X want to buy SMC shares at P90. J is selling but for P95. So D will
call X to inform her na J does not want to lower the price. Since X really wants to buy SMC
shares, she will buy it at P95. If sasabihin nya na she will buy it, yung sell nya is i-erase na sa
bulletin board and yung kay J, it will be 1000 shares na in the electronic board.

Yung salesmen in AMLA are brokers. If you are going to buy shares in the stock market, you
should know the financial history of the company. You should also study the profitability of
the company.

There is a saying in the stock market: what goes up, goes down and what goes down, goes up.
If you are going to buy sa stock market, wait na bumaba and wait mo tumaas ng konti. If
tumaas ng konti, sell it na. In stock market, do not be greedy.

Orginally, the AMLA – covered institutions [banks, quasi-banks, finance companies, insurance
companies, stock brokers]. Later on, nadagdag yung salesmen, foreign exchange dealers,
pawnshops, money changers, remittance companies then pre-need companies. RA 11521 is the
latest amendment. Ang napadagdag ngayon is real estate developers and brokers, There is big
money in real estate. Another one that was added is offshore gaming operators as well as their
service providers regulated by PAGCOR or any other government agencies. That can be asked in
the bar, yung latest amendment. There is an original version – covered institutions. Kaya lang
nagkaron ng amendment, covered persons. What is included in the term? Persons dealing with
precious metals and also persons dealing with precious stones. Who deals with precious
metals/stones? Diba may seller ng jewelries? Yung ring, there is gold – precious metal; if there is
diamond – precious stone. Yung malalaking jewelry shops, they are covered. Those persons selling
precious metals/stones, they are obliged to report transactions worth more than P1Million. If you
deposit P200,000 in the bank, should it be reported to be AMLA? NO. Only deposits involving
more than P500,000 should be reported by the banks. Same with brokers, stock dealers. If you are
a jeweler, the threshold is P1Million. Syempre if the ring is nice, the price is also nice.

[Can be asked in the bar ] What are the obligations of covered persons under the AMLA?

1. To establish and record the true identity of its clients based on official documents.;
2. Maintain and safely store records of all transactions for at least 5 years;
3. Report to the Anti-Money Laundering Council over all covered transactions including
suspicious transactions within 5 working days.
All the covered transactions should be reported by the covered persons within 5 working
days.

Are lawyers and accountants covered by the AMLA?

Lawyers and accountants acting as independent professionals are not required to report covered
and suspicions transactions if the relevant information was obtained in circumstances where they
are subject to legal professional privilege and secrecy.

Covered transactions - it is a transaction in cash or other equivalent monetary instrument in an

amount exceeding P500,000 within one banking day.

Banking Lecture Notes 2020 – 2021 | 20

What is the composition of Anti-Money Laundering Council?
• 3 members – BSP Governor, SEC Commissioner, and Insurance Commissioner
o Law requires them to act unanimously; should be concurrence of all

Real Estate Dealer and Broker, what is the threshold amount with respect to them?
If their transaction exceeds P7,500,000 in cash. If you buy the house through loan, it is not covered.

Under the original law, if there is any suspected transaction, the money or deposit could be
order frozen [freeze order]. Who issues the freeze order?
The freeze order shall be issued by the Court of Appeals. There are 3 justices involved to avoid
prejudice.

If there are any suspicious transaction, they file a petition with the CA for the CA to issue a freeze
order. What is the new provision in AMLA? Upon a verified ex-parte petition filed by the AMLC
and after the determination of the probable cause that any monetary instrument or property is any
way related to an unlawful activity, the CA may issue a freeze order which should be effective
immediately for a period of 20 days. Kaya effectivity of the freeze order, immediate. No bond
required.

Obligation – within the 20 day period, the CA should conduct a summary hearing with
notice to all the parties, to determine whether or not to modify or lift the freeze or to extend
its effectivity. Kaya the CA has a discretion to extend the freeze order.

How long can the freeze order be extended?

It can be extended for a total of 6 months. So immediately, it is good for 20 days. Within the 20-
day period, the CA should conduct a summary hearing, like sometimes di natututloy hearing. Kaya
yung freeze order, it can be extended to 6 months lang or 180 days. If no complaint is filed with
the court, the freeze order is automatically lifted.

2021 05 17

Act 3135, as amended

Extrajudicial Foreclosure of Real Estate Mortgage

The law authorizing extrajudicial foreclosure of real estate mortgage is Act No. 3135, as amended.

Requirement to Enable a Mortgagee to Foreclose His Mortgage Extrajudicially:

On a deed of mortgage or separate instrument, the mortgagor must expressly authorize the
mortgagee to sell the property mortgaged in case of default. There must be an express authority to
sell.

Deed of Mortgage of Bank: “Bank may foreclose the mortgage, judicially or

extrajudicially, in case of default.”

Banking Lecture Notes 2020 – 2021 | 21

 * Act 3135, as amended gives the right to foreclose a real estate mortgage extrajudicially.

There was a circular before that was addressed to sheriff that they should not accept foreclosure if
there is no express authority to sell. Since the sheriff cannot anymore foreclose the mortgage as
there was no express authority to sell, they amended the deed of mortgage.

Deed of Mortgage of Bank: “In case of default, the mortgagor hereby authorizes the
mortgagee/ bank to foreclose the property mortgage, judicially or extrajudicially.

Act 3135 as amended simply created the right to foreclose a REM extrajudicially. But how to go
about it, it refers to Rule 39 of the Rules of Court. Act 3135 is the law that allows extrajudicially
of REM. Other law is applicable for chattel mortgage. The Chattel Mortgage Law was already
repealed by the PPSA.

Mortgagor defaulted. Mortgagor may or may not be the principal debtor. Kasi he may just
be someone who agreed to secure the account of the debtor. The principal debtor defaulted.
Creditor-mortgagee decided to foreclose the mortgage extrajudicially. How do you go about
it?

If the mortgagee-creditor decided to foreclose REM extrajudicially, he prepares a verified petition.

No certificate of forum shopping since it is out-of-court. If nagawa na yung petition for
extrajudicial foreclosure, what will you do? You file it with the clerk of court of the RTC where
the property is located. What kind of proceeding? Out-of-court. However, you pay court fees.
When you make the petition, make sure you write the correct property. You file it with the clerk
of court who is the ex-officio sheriff. You pay court fees. The clerk of court will assign it to one
of the deputies (they have an internal arrangement). After the petition has been assigned to a sheriff,
sheriff prepares a notice of auction sale. Sheriff needs to post the notice in at least 3 conspicuous
places in the city/municipality where the property is located. The sheriff also needs to publish the
notice of auction sale at least once a week in a newspaper of general circulation for 2 consecutive
weeks.

Mortgagor and mortgagee decided to postpone the auction sale. However, on the agreed
postponed, the mortgagor did not come. On the agreed date, mortgagee decided to sell. Can
the sheriff proceed on the agreed date? The agreement is not prohibited per se. However, it may
only proceed on the agreed date if the notice and publication have been complied with. Failure to
do so will render the proceedings invalid.

What is the rule with public auction?

Property should be sold to the highest bidder. Can the mortgagee bid? YES. If you are not the
mortgagee, you should bring money because you will immediately pay the sheriff and such will
be remitted to the mortgagee. However, if the mortgagee will bid and he turns out the be the
highest bidder, no need for him to bring money because the amount of his bid shall be credited to
his total claims.

Banking Lecture Notes 2020 – 2021 | 22

Whoever is the highest bidder shall receive from the sheriff a certificate of sale. If you received a
certificate of sale, you should register it immediately with the Register of Deeds so that the period
of redemption will start running. Rule 39 of ROC, how long is period of redemption?

• 12 months – 360 days

• 1 year – 365 days

1 year period is counted from the registration of the certificate of sale. Registration of the certificate
of sale is with the Registry

What kind of right? It is a real right because it is a right arising from property.

Who may exercise right of redemption?

1. Mortgagor himself;
2. His successor-interest or person who acquires the mortgagor rights as the right is
transferable;
3. Judgement creditor of the mortgagor.

This is written in Rule 39 of ROC. All of them can exercise the right of redemption within 1 year
from the registration of the certificate of sale.

Period of redemption

• 1 year from the registration of the certificate of sale (if the bidder is not a juridical person)
• If the mortgagor is a juridical person and the mortgagee is the bank, mortgagor defaulted.
Bank extrajudicially foreclosed the real estate mortgage. The bank was the highest bidder–
What is the period for redemption? Within the period of 3 months or before the bank could
register its ownership of the property, whichever comes first.
• Redemption period cannot be suspended by injunction.

In able to redeem the property, you need to make a valid tender of the entire redemption
price within the redemption period.

Redemption Price
• If the mortgagee is a GOCC – redemption price may be what is stated on the charter of the
GOCC or special law.
• If the mortgagee is a bank- redemption price is what may be provided in the loan documents
(General Banking Law)
• If private transaction – redemption price may be the amount of the bid price + legal interest
at the rate of 6% per annum + taxes and charges paid by the highest bidder + legal interest
at the rate of 6% per annum on such taxes and charges paid by the highest bidder

You made a valid tender of redemption but the highest bidder does not wat to accept it, what
should you do? You make the tender on the sheriff who conducted the auction sale. If you pay,

Banking Lecture Notes 2020 – 2021 | 23

ask for official receipt from the clerk of court. After such sheriff will issue a certificate of
redemption. Upon issuance of the clerk of court of the receipt, na-redeem mo na yung property.

If you want to sue, what kind of complaint? You may file a complaint for specific performance.
Why? Kung ako nakabili, I should know na you have a right of redemption and pag-iredeem mo,
I should allow you. So I can be sued for specific performance.

The period for redemption has lapsed without anybody attempting to redeem the property
or exercise the right of redemption, what should you do?

1. Go back to the sheriff who conducted the sale and he should issue a final
certificate of sale;
2. Execute an affidavit of non- redemption [provided under the Property
Registration Decree; you can do this if the sheriff is not around anymore or
you do not want to see him na].

Do this agad once the period for redemption has already lapsed.

(If period of redemption has lapsed without anybody attempting to redeem the property) Once you
registered the certificate of sale, record it in your phone when mag-expire. Why? Because of
payment of taxes. Anong mga taxes? Dahil sale yan, by the 5th day following the month, you need
to pay DST in the amount of and 30 days before expiration of period of redemption, you need to
pay capital gains tax at the rate of 6%. If you fail to do so, there is already surcharge and interest.
Once taxes are fully paid, BIR will issue a certificate authorizing registration (CAR). Once
you get the CAR, go to the city/municipal treasurer, you ask how much is the transfer fee and you
pay it, kasi the Register if Deeds, they ask for a tax clearance.

You paid it already. Perhaps within a month, you get a certificate title in your name. Yung
registration mo after the sale, it is only an annotation on the title of the mortgagor. Highest bidder,
when the period of redemption has already lapsed, the title can be transferred to his name.

You have the property registered in your name already. However, the mortgagor does not
want to let of go of the property. What do you do? You do not file a complaint for unlawful
detainer or accion publiciana. You file with the ex-parte petition to issue a writ of possession (it is
in the nature of motion). Since it is a motion, you need to prove allegations. When you file an ex-
parte petition to issue a writ of possession, you should attach the certified copies of documents
from the Registry of Deeds (so you can dispense with testimonial evidence).

What is the most important: Registration of certificate of sale and timeliness of paying the taxes
to the BIR.

Banking Lecture Notes 2020 – 2021 | 24

2021 05 31

SECURITIES REGULATION CODE

Securities - Instruments or documents or papers that evidences investment in a commercial

enterprise.

Commercial Enterprise – business; it is a stock corporation

Purpose of non-stock corporation: it’s for the mutual benefit of its members.

SMC – biggest electricity supplier now

How did SMC purchase Petron Shares, Meralco Shares, and build new corporation?
SMC share in Meralco – P82Billion [not long afterwards, this was sold to John Gokongwei. How
did John Gokongwei acquire it? He offered bonds] When SMC decided to venture to electricity,
they offered preferred shares.

Companies found a way how to diversified. Where does the money come from? Public. What is
public? More than 19 persons.

How did Gokongwei raised money so he can buy SMC shares’ in Meralco?

He borrowed money from the public through his holding company, JG Summit Corporation. He
borrowed P82B. If you will borrow money, what will you asked me to sign? Promissory note.

If he borrowed P82B, for how long will he pay it? Surely, he cannot pay it for a short period of
time. If ganun kalaki yung utang, the repayment period is definitely more than 5 years. If ganon
promise niya term of payment, pag pina-utang mo siya, ano pipirmahan niya sayo? Promissory
note (Bond). A promissory note may be issued as negotiable or non-negotiable. A promissory note
may be issued as non-negotiable and be valid. What do you call the instrument evidencing your
investment? Pag sinabing secured bonds, you call it as debentures. Debentures – promissory note
with repayment period of more than 5 years and is secured.

Example of Securities
- Promissory notes
- Bonds
- Debentures
- Stock certificate

Other form of investing in a corporation is becoming a part-owner. Certificate of stocks – you will
receive this when you subscribed to shares in a corporation upon full payment of your subscription.

Are watered stocks same as stock of water? NO. Stock of water, that is water. Pag watered stock,
not related sa water.

Banking Lecture Notes 2020 – 2021 | 25

How will SMC finance the airport in Bulacan? They issued preferred shares. What did they receive
when they subscribe to SMC? Stock certificate.

Two Classes of Certificate of Stock

1. Certificate of Common stock
2. Certificate of Preferred Stock

Corporation foresees that it can return your investment within a period of 5 years or longer,
corporation will issue preferred shares which are redeemable. If the corporation is not very sure
that it can return your investment within a definite period of time, corporation will issue common
share. Common share has no commitment kung magkano ibibigay na definite return.

Redeemable shares- when they are issued by the corporation, the corporation tells the investor
that we will re-acquire your shares after 5 years.

If you were an investor in preferred shares, ano tawag sa pinanagako sayo ni corporation na return
of investment like 5% per annum? Dividends [return on investment on shares].

In what form may a business solicit investment from public? They are two ways of investing –
lending money to the business or by becoming part owner of the business. If commercial enterprise
will borrow, what will be the evidence of their investment? – promissory notes, bond, or debenture.
If investor will become part-owner of the business upon full payment of subscription, he will
receive certificate of stock.

What is the rule before any business/commercial enterprise which is a stock corporation can
issue securities to the public? Those securities should first be registered to the SEC.

What is the purpose of prior registration of securities to the SEC? To protect the public from
being defrauded.

How does a corporation initiate registration of securities with SEC? The corporation files with
SEC a registration statement. That registration statement is detailed -you specify all your assets
and liabilities. SEC will evaluate this – whether applicant is bankrupt, insolvent, or not.

Do all securities require prior registration with SEC? NO. When you read the SRC, there are
as exempt securities. Exempt securities are those securities which is not required to be registered
with SEC as the public will surely not be defrauded.

Five Exempted Securities

1. Securities issued by the National Government and its political subdivision;
E.g. when government issues treasury bills [promissory note of government]. Treasury
bills are issued when the government needs to borrow fund from the public

2. Securities issued by a foreign government with diplomatic ties with the Philippines;

Banking Lecture Notes 2020 – 2021 | 26

 3. Securities issued by the receiver in insolvency;
First concept of insolvency is under the Civil Code - debtor is insolvent when he is unable
to pay when his debt is due kahit mas madami pa asset than liabilities. The Second Concept
of insolvency is under the Insolvency Act – person is insolvent the moment his liability is
greater than assets.

If you are in business, there might be a time that you cannot pay your debt when they
become due. If di mo mabayaran creditors mo, ano gagawin nila? Idedemanda ka nila.
What if they demanda one after the after? Sanggalan [idk the word]. If you are like that,
your liability is greater than your asset and you already foresee that you cannot pay your
debt when they become due, what will you do para di ka idemanda ng idemanda ng
creditors mo? You file for a rehabilitation. One of the remedies in FRIA. If you are going
to file for petition for rehabilitation, what will you attach in the petition? You attach a
rehabilitation plan. Rehabilitation plan – ilagay mo how you will pay your creditors. So
nilagay mo na you will issue security to attract new investors. Kaya di na need for
registration kasi the court already approved that.

4. Securities issued by corporation under the supervision of Insurance Commission, HLURB,

or BIR.

Pag pre-need company, diba they offer pre-need plans? Ano example ng pre-need plan na
ini-issue? Educational plan, memorial plan, and pension plan. If pre-need company offered
pension plan, nilagay mo pera, after 10 years, bibigyan ka ng pera. That’s like security.
Does pre-need plan need prior registration with SEC? NO, since it is already under the
regulation of the Insurance Commission.

5. Securities issued by a bank aside from each own shares.

If nag-time deposit ka, the bank issues to the creditor a time deposit certificate – it
represents loan to the bank. Yung iissue sayo na time deposit certificate, does it need to be
registered with the SEC? NO.

At least 10% capital stock to be subscribed by the public if you want to be a universal bank
from commercial bank.

Preemptive Right When Not Allowed

1. When so provided in the AOI

2. Shares issued in compliance with laws requiring stock offerings or minimum stock
ownership by the public
3. Shares issued in good faith with the approval of the stockholders representing two-
thirds (2/3) of the outstanding capital stock, in exchange for property needed for
corporate purposes or in payment of a previously contracted debt.

Banking Lecture Notes 2020 – 2021 | 27

 If we will issue the shares to the public in order to be a universal bank, do we need prior
registration with SEC? YES, since these are the bank own’s share.

2021 06 07

Before securities can be offered to the public, they must be first registered with the SEC. However,
there exempt securities. Exempt securities are securities that can immediately be offered to public
without prior registration [memorize the five exemptions please].

The following are exempt securities:

1. Securities issued by the National Government and its political subdivision;

Bonds can be issued by government and private entities. A bond is a promissory note. The
only difference between a bond and promissory note is term of payment. If it is a loan and
repayment period is more than 5 years, it is a bond. Pero pag binasa mo, it is a promissory
note.

2. Securities issued by a foreign government with diplomatic ties with the Philippines;
3. Securities issued by the receiver in insolvency;

In FRIA, there are two concepts of insolvency. Art. 1636(2) of Civil Code provides that a
person is already insolvent when he cannot pay his debt when it becomes due even if his
assets is still greater than liabilities. In Old Insolvency Law, a person is already considered
insolvent when he has more liabilities than assets.

FIRST KIND OF INSOLVENCY

If a person is engaged in business and he still has more assets than liabilities and he already
foresee that he cannot pay his debt when it becomes due, he can file for Petition for
Rehabilitation. If not engaged in business, like an ordinary employee, he can apply for
Suspension of Payment in FRIA.

SECOND KIND OF INSOLVENCY

More liabilities than assets, file for liquidation.

In petition for rehabilitation, the person should attach the rehabilitation plan, without
which, the petition will be dismissed. Yung rehabilitation plan yung pag-uusapan and i-
approve ng RTC. In the rehabilitation plan, I can put how I will raise the money to pay my
creditors. I can issue new shares in order to pay my creditors. [PH – Petition for
Rehabilitation; US – Petition for Bankruptcy].

4. Securities issued by corporation under the supervision of Insurance Commission, HLURB,

or BIR.

Banking Lecture Notes 2020 – 2021 | 28

 • Supervised by Insurance Commission – Insurance Companies and Pre-need
Companies [educational, memorial, and pension plan].
• Why do investments issued by a pre-need company not subject to registration?
Kasi it is already regulated by Insurance Commission.
• Variable contracts – investment plans. Who issues? Insurance Companies. Need
prior approval from SEC? NO, since it is already regulated by the Insurance
Commission.

5. Securities issued by a bank aside from each own shares.

Time deposit certificate is actually a promissory note. Pero if lumagpas na 5 years, you
called it bond na. Dahil bond na yun, does it need to register with SEC? No, since it is
exempt from registration. Also, the banks are closely monitored by the Bangko Sentral ng
Pilipinas. BSP and SEC are co-equal, they both monitor but the activities/institutions are
different.

In financial market, the product is money. In public market, there are those who sell and buy
consumer goods.

There are corporations who need money. How to raise money? Those who are willing to take a
loan, _______. Those who need money but does not want to loan, they issue stock or new shares
which can be common or preferred shares.

Financial Market

1. Money Market – source of fund where the repayment period is not more than 1 year.
2. Capital Market- source of fund where the repayment period is more than 1 year but less
than 5 years.
3. Bond Market - source of fund where the repayment period is more than 5years

• What distinguished one from another [Money, Capital, or Bond Market] is only
the term of payment. The instrument is still a promissory note.

4. Stock Market

Exchange

In Law on Sales, there is a portion called barter and exchange. One meaning is barter. The other
meaning is market.

It is a stock corporation, licensed by the Securities and Exchange Commission, to put and operate
for the convenient trading of securities. Trading means buying and selling

Why do we have public market? For convenient facility. Kasi if you want to buy and there is no
market, where will you buy? If you want to sell and there is no market, where will you sell? If

Banking Lecture Notes 2020 – 2021 | 29

there is no stock exchange and you want to buy SMC shares/ you want to sell your SMC share,
how do you find a buyer/seller? During the time that there was no stock exchange, they advertised
on the newspaper.

Before any corporation could offer its share/securities to the public, those securities should always
be registered with SEC [ this is the first step]. Once registered, apply for listing with the Philippine
Stock Exchange. If shares are already approved by the SEC and the company subsequently
applies for listing, automatic approval for listing? NO [Puerto Azul Case; briefly called as
PALI]. In Puerto Azul Case, need to have P1B in order to renovate. They plan to offer new shares
(common shares) in order to raise revenue since hindi pwede mag-utang or offer preffered shares.
PA registered its common shares with SEC which was approved. It then applied for listing with
the PSE. The PSE asked, “what is the status of your case involving your land ownership?”
[Refutedly, the predident of Puerto Azul was a crony of Marcos. Puerto Azul is not only a resot
but also a golf course. There were claims that there are land grabbing since malaki na lupa yan.
Kasi in that area, the supposedly owners, only have tax declarations for proof of ownership ] Purto
Azul answered truthfully – there are still pending in court. As such, the PSE did not approve. Kasi
what if matalo yung Puerto Azul sa case? Pano na yung 1B investment of the public? Sabi ng SEC
kay PSE, you should list since the securities have already been approved and you are under with
our supervision. PSE: No, we won’t. So takbo sa court ang PSE.

2021 06 24

DOCUMENTS OF TITLE
• Instruments/documents where a bailee acknowledges goods and which contains
his undertaking to deliver these goods.
• E.g. bills of lading and warehouse receipt

Who issues bill of lading? Common Carrier.

What is the effect by delivery of the seller to the common carrier? When goods are delivered
by seller to common carrier intended to be delivered to buyer, the goods are already considered
delivered to the buyer (provision in Civil Code).

Who issues warehouse receipts? Warehouseman.

Law which governs warehouse business: General Bonded Warehouse Act
Law which governs warehouse receipts: Warehouse Receipts Law

Quedan – Warehouse receipt but customarily you use when the goods covered are rice, sugae, or
tobacco

Documents of Title - Can be issued negotiable or non-negotiable form.

If the instrument is non-negotiable, does it mean that it is not valid? Validity is not the same
with negotiability. The instrument may be issued as negotiable and may also issued as non-
negotiable and still be valid.

Banking Lecture Notes 2020 – 2021 | 30

Instruments – represents credit
Purpose of negotiability: To facilitate commercial transactions

How can it facilitate commercial transactions? Alam mo na nagtitinda ako ng dried mango in
my supermarket. One day, need mo ng dried mango but ubos na. Pero sabi ko may padating na
and nasa ship pa. Sabi ni buyer, pwede bang sakin ng lang ito? You said pwede naman. Ano
ipapasa ko sayo para sa goods na nabili mo? Bill of Lading. Para ikaw na kukuha sa pier.

How will you know if the document of title is negotiable? You read it. If you see the words of
negotiability, that’s a negotiable o the words of negotiability? Parehong pareho sa words of
negotiability. To order or to bearer or words or phrases with equivalent meaning (possessor/holder).

How may it be negotiated? Pag instrument? If drawn to order, the holder to negotiate it, need
to endorse and deliver the same. Same with documents of title.

Modes of Indorsing an Instrument

1. In blank
2. Special

How do you indorse a bearer document? Can be indorsed by mere delivery.

If the document is payable to bearer and it is specially endorsed, to further negotiate, it needs
indorsement and then delivery. Yung indorsement naman, pwede naman in blank. The important
thing is that indorsement is necessary.

Bearer – always remains bearer

[wasn’t able to type] ……..Holder may treat it as negotiable

Bill of Lading

What governs bill of lading? Code of Commerce.

Pertinent provisions: All bills of Lading should be printed. Tapos you can also print other words
pa to limit your liability in case of loss of goods.

The Supreme Court held: Stipulations limiting the liability of the common carrier is binding on
the shipper even though only the common carrier representative signed it because it is contract of
adhesion.

Who is the shipper? Actual shipper who delivers the goods to the carrier.
Pinadalhan ng goods? Consignee.

Purpose of Bill Lading

1. Serves as a receipt.
2. Serves as a contract between consignee and common carrier
3. Stands for the goods as mentioned therein

Banking Lecture Notes 2020 – 2021 | 31

Sherawa vs PAL (not sure if I have heard the case correctly): Where the prints are so small that
they can hardly be read, it could be said that the consignee did not know about it and do not agree
with it.

What is the effect of the negotiation of warehouse receipt? Transferee acquires the direct
obligation of warehouseman to deliver the goods to him.

Before a warehouseman can be obliged to deliver the goods covered by a document of title
particularly a warehouse receipt, what should be complied with?

1. The person in possession of negotiable warehouse receipts, he must satisfy the liens of the
warehouseman.

2. He must surrender the original warehouse receipts because they stand for the goods
mentioned therein.

Whoever holds the original warehouse receipt may claim it. If he loses it and it is negotiable,
he shall go to court and pray that the bailee will give the goods even without the warehouse
receipts/ right over the goods. The Court may require the person who claims entitlement a
bond equal to the value goods.

3. The person claiming the goods must express willingness to sign the receipt upon delivery
of the goods to him.

Relationship of person who made money market placement with the bank? Bank is only an
intermediary.

Can the person who had money market placement sue the bank for non-payment? NO, since the
bank is only an intermediary. Yun pina-utang ng bangko, yun yung pwede i-sue ni person na
nagmoney market placement. Money market placement is not insured with the PDIC.

LETTERS OF CREDIT

What law governs letters of credit? Code of Commerce.

Definition of letters of credit under the Code of Commerce: It is a letter addressed by the
merchant to another merchant to enable the person named in the letter to attend into a commercial
transaction.

In a letter of credit, how many parties? 3, yung gumawa ng sulat, sinulutan, and yung tao named
in the letter

Banking Lecture Notes 2020 – 2021 | 32

Can a letter of credit be issued as negotiable? A letter of credit cannot be issued as negotiable.
It must be issued in favor in the named person and the amount of credit to be extended / maximum
credit that must be extended to such person must also be stated.

E.g. “Please extend credit to Mr. A _____ in the amount of credit not exceeding P______ (para di
ma-pressure yung other party).

In letters of credit, who are liable and to whom? The maker becomes oblige to the addressee.

Bank letters of credit – Bank service or facility or accommodation to enable persons from far
places to have a commercial transaction where the seller is assured of payment and the buyer
assured of delivery. What bank? Commercial Banks.

Three Independent Contracts

1. Contract between buyer and seller

2. Contract between buyer and bank
3. Contract between bank and seller

Supreme Court: A financial device to reconcile the seeming difference between persons in distant
places so that the seller will be assured of payment and buyer assured if delivery.

Marginal Deposit: Amount required by the bank to deposited to it in order to avail of letter of
credit.

In foreign letters of credit, how many are involved? 4, because there is another party foreign
bank.

Validity of Letters of Credit (Domestic) – 6 months or 180 days

Validity of Letters of Credit (Foreign) – 1 year or 365 days

Pag ikaw umutang, ano sasabihin sayo ng inuntangan mo? Gawa ka ng promissory note and post-
dated check. Ano gagawin dun? Ipapa-rediscount yun so he can have money.

PERSONAL PROPERTY SECURITY ACT

How may an obligation be secured?

1. Written assent of third persons like guaranty or suretyship
2. Real property
Real estate mortgage or antichresis
3. Personal Property

PPSA repealed the provision on pledge and chattel mortgage. However, both terms were not
expressly mentioned in the act. Both pledge and chattel mortgage need existing property.

Banking Lecture Notes 2020 – 2021 | 33

Personal property – those that can be moved from one place to another / movables.

Pag pledge ang pinag-usupan, dapat yung thing to be pledged need to be delivered creditor -
pledgee. A pledge is a real contract since it requires delivery of the thing pledged to the creditor in
order to perfect it.

Chattel mortgage object: personal property. Delivery? No But registered with RD that such
property is use to secure an obligation. Contract whereby personal property is recorded for the
fulfillment of an obligation.

Purpose of PPSA: To promote economic activity by providing access to least-cost credit by

establishing modern, legal, and unified framework for securing obligation with regard to personal
property.

Future goods can secure obligations. Uncertificated investments can be used as collateral.

Excluded from PPSA: Aircrafts registered Civil Aeronautic Authority and vessels covered by the
ship mortgage decree.

You have time deposit/receivables in the bank. You want to loan from the bank but do not want to
withdraw time deposit. What will you give as collateral? Time deposit certificate. The transaction
is called “back-to-back”. It is advantageous because it has lower interest.

Furniture manufacturer went to the bank and applied for loan. What will he give as a collateral?
Purchase order. Future goods can be used to secure obligations.

How do you secure an obligation with personal property?

1) Registration with notice with the registrations of deeds;
2) Possession of property;
3) Control of investment property and deposit account

Banking Lecture Notes 2020 – 2021 | 34

COMMERCIAL LAW REVIEW
SUNDAY, 1:00 PM – 6:00 PM

I. No. In property insurance, anybody having an insurable interest over the thing may be
insured. Here, Mario has no insurable interest over the house of Jose, therefore, he cannot
validly insured the same.

II. As a general rule, when there is irrevocable designation of a beneficiary, the same may not
be amended or modified without the consent of such beneficiary. Here, Jacob may added Job
and Jojo as additional beneficiary only when there is a written consent from Dina.

III. Vita cannot claim insurance against XYZ Insurer. Under the law, premium should be paid
upon the delivery of the policy or when the insurer has permitted the insured to pay premium
on a particular period, the premium should be paid on such period; otherwise, recovery on
the policy will be refused. Here, Vita still fails to pay the premium on Jan 10, therefore, she
cannot claim from XYZ Insurer when her house was burned.

IV. Yes, Fred can still recover on the policy. Under the law, if premiums would be on credit,
and loss had taken place before premium was actually paid, for as long as the premium would
be paid within the credit term, insured is entitled to indemnity. Moreover, insurer shall be
obliged to pay the indemnity if the proximate cause of damage is the risk insured against,
although the direct or immediate cause of loss is not a risk insured against even through the
negligence of the insured except when the loss was gross amounting to deliberate act.

V. Yes, both Roy and the lessor may insure the warehouse against fire. Under the law,
insurable interest on property insurance could be an existing right, an expectancy but
founded on an existing interest or an inchoate right also founded on existing interest. Here,
Roy being the lessee has an existing right over the building and the lessor has an inchoate
right founded on an existing interest over the same building.

VI. a). The maximum coverage of the condominium unit owned by JLQ is the amount
equivalent to the value of the property which is P5 (M); being the owner of the unit,
his insurable interest is the value of the thing.

b). Yes, MLQ may also insure the unit for P1.5 (M) which is the extent of his existing
interest over the mortgaged property.

VII. The owner of the shipment is incorrect. Under the law, there is constructive total loss
when loss or damage is more than ¾ or even though not more than ¾, more than ¾ of the
value shall be spent to restore it. Here, there is only partial loss and not constructive total loss
as the damage is less than ¾ of the entire shipment.
VIII. a). No, Tess cannot replace Ben as his beneficiary. Under the law, if there is a decree
of legal separation and the designated beneficiary was the one who gave cause to it,
Family Code provides that the innocent spouse who insured himself/herself, may
revoke the designation of beneficiary without he need of getting his/her consent.
Here, Tess needs to obtain a decree of legal separation first before he can validly
revoked the designation of Ben as her beneficiary.

b). Yes, Nardo can receive the proceeds of her life insurance. Under the law, if the
designated beneficiary was the one who gave cause to it, Family Code provides that
the innocent spouse who insured himself/herself, may revoke the designation of
beneficiary without he need of getting his/her consent. Here, Nardo needs to show
the insurance company is the decree of legal separation to claim the proceeds.

IX. a). In this case, under-insurance and co-insurance exist. Under the law, under
insurance exist when a person insures property for an amount lower than the value of
his insurance interest.

b). When there is a partial loss of P500,000.000, the insurer will not be obliged to pay
the P500,000.00 because Norma is a co-insurer. Therefore, the loss or damaged will
be apportioned to both of them proportionately.

X. The corporation needs to secure license to operate as insurance business or certificate of

authority to operate as insurance business from the Insurance Commissioner.

XI. Under the law, all centavo coin are legal tender up to P100.00 while P1 and P5 coins are
legal tender up to P1,000.00 and all notes issued by the BSP are legal tender. Here, Paul may
pay Ric with centavo coins up to P100 and up to P1000 for P1 or P5 and the remaining P13,900
will be payable in notes.

XII. Paul may apply for reinstatement within 2 years from the time the policy lapsed. Under
the law, if the insured fails to pay the premium within the 30-day grace period allowed by law
for life insurance, the policy lapses. Moreover, application for reinstatement can be done
within 2 years from date it lapsed.

XIII. a). Yes, Jose may validly work for ABC Finance Corporation. The prohibition under the
law pertains only to banking or quasi-banking business and a lending company is
neither of the two.

b). Yes, he may be retained legal counsel of ABC Finance Corp as there is no prohibition
as to particular position but only to particular industries.

XIV. a). Here, there is double and over-insurance. Under the law, there is double insurance
when the same thing and the same interest, is insured against the same risk with more
than one insurer; there is over insurance when the property is insured for a value over
the value of the insurable interest.
 b). Yes, there is under insurance. Under the law, under insurance is one a person
insures his property for an amount less than the value of his insurable interest. Here,
if the loss is due to earthquake, Bert will be a co-insurer.

c). If there is partial loss due to earthquake, Bert may recover P800,000 from
Indonesian Insurer and P800,000 from American Insurance Corp or a total of
P1,600,000. Since there is under insurance in case of earthquake, Bert is a co-insurer
and may recover only from the insurance companies their proportionate share.

XV. a). A pre-need contracts are those where the corporation, in consideration of the
promise of a person to pay an agreed amount of money in full or in installment, agrees
to deliver to the latter an agreed amount of money or to render a particular service
upon arrival of a period or upon the happening of an event.

b). Insurance Commissioner

XVI. Liza can apply for reinstatement until December 8, 2021. Under the law, failure to pay
the agreed amount in a pre-need plan within the 60-day grace period, the plan will lapse.
Moreover, application for reinstatement of the lapsed plan may be made within two (2) years
from the time the plan lapsed.
Can banks engage in insurance business?
May A, a universal bank engage in the business of insurance?

No, it may not. Under Section 54 of the General Banking Law, a bank shall not directly engage in insurance business
as the insurer.

However, a universal bank may engage in the selling of insurance policies, in which case it is called
“bancassurance.” In this case, the bank would only be selling the products of the insurance company, and will not
directly be the insurer.

Banks selling "memorial plans" of an insurance company 3% of its equity owned by them to customers.
May A, the Phils largest universal bank and has investments sa isang memorial plan company, augment its
profit by selling memorial plans?

Banks may validly do so. According to Sec. 375 of the Insurance Code, to engage in bancassurance arrangement, a
bank is not required to have equity ownership of the insurance company.

Universal banks are allowed to engage in the selling of insurance products of insurance companies, as long as it
will not be directly the insurer.

Members of monetary board employed in a "Finance Corp." within 2 years from the time of separation with
BSP. Is this allowed?
Ex-full time director ng monetary board, separated from the board dec 2017, kinukuha as Ceo ng financial
company, pwede ba?

It depends. Under the law, no member of the Monetary Board shall be employed in any corporation under Monetary
Board supervision within 2 years after the expiration of his term except when he serves as an official representative
of the Philippine Government to such institution.

If Finance Corp. is a financing company, which is under SEC supervision and not of the Monetary Board, the
members of the Monetary Board may be employed therein.

On the other hand, if Finance Corp. is under Monetary Board supervision, the members may only be employed if
they are going to represent the interest of the Philippine Government.

An amount garnished from the account of X by virtue of a court order. He contends that it violates Secrecy
of Deposits because it reveals the existence of his account. a) is he correct? b) Will your answer be the same
if foreign deposit is involved?
Sheriff B, garnished 50k of C's money in his peso acct with Metrobank. C argued that this violated the Bank
Secrecy Law for disclosing his acct to the public. A) is C correct? b) What if dollar account?

a) No, he is not correct.. In garnishment, there is no disclosure of any information with regard to the amount of his
deposits, and other matters related thereto. The order is only for the satisfaction of a judgment.

Furthermore, the prohibition against examination does not preclude its being garnished for satisfaction of judgment.
The disclosure is purely incidental to the execution process and it was not the intention of the legislature to place
bank deposits beyond the reach of judgment creditor (PCIB v. CA, G.R. No. 84526, Jan. 28, 1991).

Thus, there was no violation of the Bank Secrecy law.

b) The answer will be different if what is involved is a dollar account. Under the Foreign Currency Deposits Act,
all foreign currency deposits are of an absolutely confidential nature. Said foreign currency deposits shall be exempt
from attachment, garnishment, or any other order or process of any court, legislative body, government agency or
any administrative body whatsoever.
Therefore, the sheriff cannot validly garnish the amounts deposited if what is involved is a dollar account, as this is
expressly prohibited by the law.

X has centavo coins, peso coins and notes. Valid tender of payment to his debt.
Pedro may utang na 10k. He has coins and notes totaling to 3k. Pano nya pwede bayaran? (Issue on legal
tender). Hanggang magkano sa notes then sa coins?

According to BSP Circular No. 537, series of 2006, in the case of coins in denomination of 1-, 5- and 10-piso they
shall be legal tender in amounts not exceeding P1,000.00, while coins in denomination of 1-, 5- and 10- and 25-
sentimo shall be legal tender in amounts not exceeding P100.00. As for the notes, there is no limit as to their legal
tender power.

"River Bank Sales Corporation" as its corporate name, may they use it even if not engaged in banking
activities?
A and B wanted to make the river banks of Marikina, a local tourism hub. They would like to register a
company with the name ABC banks of Marikina sales corp. Assuming na hindi confusingly similar, may they
validly do so?

No. Under Sec. 64 of the General Banking Law, only corporations under Monetary Board supervision, such as
banks, quasi-banks, trust entities and savings and loan association may add the word “bank” to its name.

The local tourism hub does not fall under any of the corporations or entities under the Monetary Board supervision.
Therefore, A and B must choose another name because they cannot validly use the word “bank” for their business.

May a Commercial bank acquire all shares of a Universal bank?

X, a commercial bank, has raised enough money to buy 100% of Z, a universal bank. Officers already agreed.
May X validly do so?
No. Under the law, a commercial bank can only acquire 100% of the shares of another commercial bank. Only a
universal bank is allowed to own 100% of the shares of another universal bank.

Therefore, a commercial bank cannot acquire all the shares of a universal bank, despite sufficient capital and
agreement of the officers, because the law does not allow it to do so.

Warehouse receipt negotiated by john to pedro, pedro now claims the goods, ayaw ng warehouseman kasi
daw john already ceded the goods as payment sa obligation nya, who has the better right pedro o
warehouseman?

Pedro has a better right over the goods. The effect of negotiation is that the transferee acquires the direct obligation
of the warehouseman to deliver the goods.

Upon satisfaction of all the warehouseman’s liens, surrender of the original warehouse receipt and Pedro’s
expression of his willingness to sign a receipt upon delivery, the warehouseman cannot refuse to deliver the goods,
especially since Pedro appears to have acquired the warehouse receipt in good faith and for value.

Doc of title contains the words deliver to bearer, but also contains the printed words "Non-negotiable". A
would like to transfer it. How may he do so?

He may transfer the document of title by mere delivery, because the instrument is a bearer instrument. According
to Art. 1510 of the Civil Code, if a document of title which contains an undertaking by a carrier, warehouseman or
other bailee to deliver the goods to bearer, to a specified person or order of a specified person or which contains
words of like import, has placed upon it the words "not negotiable," "non-negotiable" or the like, such document
may nevertheless be negotiated by the holder and is a negotiable document of title.
Thus, even if there is a statement that the document of title is “non-negotiable,” the holder may still treat it as
negotiable. And since it is deliverable to bearer, it may be transferred by mere delivery.

Foreign Investments Act

A, the largest freezer maker in US would like to sell freezers sa Phil. It made B, a domestic corp its direct
distributor in the Phil. May A be entitled to FIA incentives?

No. A is not entitled to incentives under the Foreign Investments Act. Under the FIA, to be entitled to incentives,
the foreigner which owns an enterprise which engages in manufacture of goods, or in buying of locally-owned
products, must export at least 60% of its production or purchases.

Appointing a domestic corporation as a direct distributor does not fall under any of the above-mentioned cases.
Therefore, A is not entitled to incentives under the FIA.

Foreign corporation to import goods in the Phil. Covered by foreign investment act?

No. It is not covered. The Declaration of Policy of the FIA, provides, among others, foreign investments shall be
encouraged in enterprises that expand the scope, quality and volume of exports and their access to foreign
markets. FIA also defines the term "foreign investment as equity investment made by a non-Philippine national in
the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the
Central Bank which shall assess and appraise the value of such assets other than foreign exchange.

From the foregoing, it does not appear that imports are covered by the FIA.