SPECIAL COMMERCIAL LAW

SOME (hehe) BAR QUESTIONS AND ANSWERS

1. Which among the following is not a function of the Bangko Sentral ng Pilipinas?

a. As official depositary of the Philippine government.

b. As financial adviser of the Philippine government.
c. As fiscal agent of the Philippine government.
d. As the watchdog of government funds.

2. Statement 1 – A bank may be may lend to a single borrower more than fifteen
(15%) of the bank’s unimpaired capital.

Statement 2 – A deposit in a bank in foreign currency may be inquired into provided

the depositor gives his consent, orally or in writing.

a. Both are false.

b. Both are true.
c. No. 1 is true; no. 2 is false.
d. No. 1 is true; no. 2 is false.

3. It is a bank which creates or accepts demand deposits subject to withdrawal by

checks and primarily organized to carry on the business of accepting drafts and
issuing letters of credit, discounting and negotiating promissory notes, receiving
deposits, buying and selling foreign exchange and gold and silver bullion and
lending money against the borrower’s security in property.

a. Rural bank;
b. Thrift bank;
c. Universal bank;
d. Commercial bank.

4. Statement 1 – The Ombudsman may inquire into the bank deposit of a public officer
whose case is pending criminal investigation in the Ombudsman even if there is no
actual case filed in court.

Statement 2 - A writ of garnishment directed to a bank deposit is prohibited by law.

a. Both are false.

b. Both are true.
c. No. 1 is false; No. 2 is true.
d. No. 1 is true; No. 2 is false.

5. X imports goods from Japan through a letter of credit issued by National Bank.
When the goods arrived in Manila, X had no money to pay for the balance of the
importation. He therefore, executed a trust receipt agreement with the bank. X got
hold of the gods and sold the same but failed to remit to the bank the proceeds of
the sale corresponding to his balance.
 a. X is only civilly liable to the bank.
b. X may be sued for theft by the bank;
c. X may be sued for estafa.
d. X may be deprived of his import license.

6. Jose and his wife, Perla, opened and maintained the following accounts with Allied
Bank Recto. (a) Savings deposit – P300,000; (b) Demand deposit – P400,000; (c)
Time deposit - P350,000. They also have the same deposits with the same amount
in Allied Bank Makati. If Allied bank becomes insolvent the Philippine Deposit.
Insurance Corporation will be bound to be liable to the spouses for its insurance
liability equivalent to-

a. Two deposits.
b. One deposit.
c. Six deposits.
d. Three deposits.

7. ABC Investment Corp is engaged in the purchase of accounts receivables or

specifically, installment papers of purchasers of cars and truck. As a source of its
funding, ABC investment Corp sells its bonds from time to time to the public. The
proceeds of the sale of its bonds are utilized by the ABC Investment Corp in its
financing operations. On the basis of these facts, the Legal Counsel of the Central
Bank rendered an opinion to the effect that ABC Investment Corp is a banking
institution within the purview of Sec 2 of the General Banking Act. Is this correct?
Give reasons for your answer.

Answer:

No. the opinion of the Legal Counsel of the Central bank to the effect that
ABC Investment Corporation is a banking institution within the purview of
the General Banking Act, is not correct.

Reason: Said Corporation does not fall within the definition of a bank. A bank, as
defined in the General Banking Act, is one which is engaged in the receipt of
deposits of any kind. Another reason which may be sufficient— ABC Corporation,
being a financing corporation, has not been considered expressly by our law as
banking institution. (BAR 1978).

8. The Mahal Building and Loan Association was organized for the main purpose of
encouraging savings and construction of homes among its members. As a matter of
policy, it extends financial assistance to its members in the form of loans with funds
deposited by them. The depositors are called participating members and funds
deposited are referred to as savings. Anybody can be a depositor or become a
participating member. To qualify for loan, a member must, among others, have
sufficient collateral and deposit equal to ½ of the loan granted. The power to grant
building loans is placed under the exclusive authority of the Board controlled by
Andreas Family. Participating members are denied the right to vote or be voted for.
 The association is open to the public for ordinary demand deposit accounts so as to
augment the funds to be granted as building Loans. Further, the Association, as
another source for its funding for its financial operations, sells its own bonds to the
public. Does the Mahal Building and Loan Association violate the law on building and
loan associations? Is it in fact operating as banking institution? Explain.

Answer:

Yes, the Mahal Building and Loan Association violated the law on building
and loan associations.

Said association is not considered as a banking institution, duly authorized by the

Monetary Board of the Central Bank, yet it engages in the lending of funds obtained
from the public through the receipt of deposits of any kind, which only banks may
do so. (BAR 1982).

9. Fatima Investment Corporation is engaged in the purchase of accounts receivables

or specifically, installment papers of purchasers of cars and trucks. As a source of its
funding, it sells its bonds from time to time to the public. The proceeds of the sale
of its bonds are utilized by Fatima Investment Corporation in its financing
operations.

a) Is Fatima Investment Corporation a banking institution within the purview of the

General Banking Act?

b) What is the effect if a corporation engages in illegal banking?

Answer:

a) Fatima in a strict sense is not a banking institution, but a financial

intermediary. Under the General Banking Act, banking institutions, and
financial intermediaries are considered financial institutions subject to and
governed by that law.

b) The General Banking Act, as well as the Central Bank Act, provides for
civil and criminal liabilities, not only on the corporation, but likewise on the
officers and directors thereof in proper cases, when a corporation engages
in illegal banking. (BAR 1988)

10. May a publicly listed universal bank own 100% of the voting stocks in another
universal bank and in a commercial bank?

a. Yes, if with the permission of the Bangko Sentral ng Pilipinas.

b. No, since it has no power to invest in equities.
c. Yes, as there is no prohibition on it.
d. No, since under the law, the 100% ownership on voting stocks must
be in either bank only.
11. XYZ Corporation is engaged in lending funds to small vendors in various public
markets. To fund the lending, XYZ Corporation raised funds through borrowings
from friends and investors. Which statement is most accurate?

a) XYZ Corporation is a bank;

b) XYZ Corporation is a quasi-bank;
c) XYZ Corporation is an Investment Company;
d) XYZ is none of the above.

12. MN and OP rented a safety deposit box at SIBANK. The parties signed a contract of
lease with the conditions that: the bank is not a depository of the contents of the
safe and has neither the possession nor control of the same; the bank assumed no
interest in said contents and assumes no liability in connection therewith. The safety
deposit box had two keyholes: one for the guard key which remained with the bank;
and the other for the renter’s key. The box can be opened only with the use of both
keys. The renters deposited certificates of title in the box. But later, they discovered
that the certificates were gone. MN and OP now claim for damages from SIBANK. Is
the bank liable? Explain briefly.

ANSWER:

The bank is liable, based on the decision of the Supreme Court in CA Agro-
Industrial Development Corp. v. Court of Appeals. 219 SCRA 426 (1993) and Sia v.
Court of Appeals, 222 SCRA 24 (1993).

In those cases, the Supreme Court ruled that the renting out of safety
deposit boxes is a “special kind of deposit” wherein the bank is the
depositary. In the absence of any stipulation prescribing the degree of
diligence required, that of a good father of a family is to be observed by the
depositary.

Any stipulation exempting the depositary from any liability arising from the
loss of the thing deposited would be void for being contrary to law and public policy.
The deposit box is located in the bank premises and is under the absolute control of
the bank. (BAR 2004)

13. How do you characterize the legal relationship between a commercial bank and its
safety deposit box client?

ANSWER: The relationship between a commercial bank and its safety deposit box
client is that of a bailee and bailor, the bailment being for hire and mutual benefit.

ALTERNATIVE ANSWER: The legal relationship of the bank and its safety deposit
box client is that of a lessor and lessee. (BAR 2010)
14. Is a stipulation in the contract for the use of a safety deposit box relieving the bank
of liability in connection with the use thereof valid?

ANSWER: The stipulation relieving the bank of liability in connection with the use of
the safety deposit box is void as it is against law and public policy. (BAR 2010)

15. XXX Bank Corporation and ZZZ Corporation were merged into XX ZZ Bank
Corporation. So as not to create any unnecessary conflict, all the former directors of
both banks wanted to be appointed/elected as members of the Board of Directors of
the merged bank. Each bank used to have 11 members of the board. The maximum
number of directors of the merged bank is—

a. 15;
b. 22;
c. 21;
d. 11.

16. Why are banks required to maintain reserves against their deposits and deposit
substitutes? State one of three purposes for these reserves.

ANSWER: Any one of the following 4 purposes for requiring banks to maintain
reserves against their deposits and deposit substitutes will suffice:

a. One of the purposes of the requirement to maintain bank reserves is to control

the volume of money created by the credit operations of the banking system;
b. It is to enable the banks to answer any withdrawal;
c. To help Government to finance its operation;
d. To help Government control money supply. (BAR 2010)

17. B borrowed in a written instrument from C, a friend, the sum of P1,000 with a
diamond ring given in pledge as security for the debt. How much is the maximum
interest per annum that C can charge B for the loan of money? Reason.

ANSWER: The maximum interest per annum that C can charge B for the loan of
money with a pledge is 14%, since C is merely a friend and not a pawnbroker. (BAR
1975)

NOTE: The Usury Law has been legally non-existent pursuant to CB Circular 905;
hence, interest can now be as lender and borrower may agree upon.

18. X applied for a letter of credit with the Bank of America in favor of an export
company located in Paris, France. The application provides that the draft must be
drawn and presented not later than May 31, 1978, and X agreed to pay at maturity
any amount that might be drawn or paid upon the faith of the applicant’s credit and
to reimburse the bank in said manner. On May 30, 1978, a draft was negotiated by
the Bank of America’s correspondent bank in Paris against X’s credit; this was then
 paid by the Bank of America at the rate prevailing. The date of maturity of the draft
was August 26, 1978. Before the date of maturity but after the correspondent bank
had paid the draft, the French franc devaluated. At what rate should X pay the Bank
of America in Philippine pesos, at the rate of the franc prevailing on May 30, 1978,
or at its devalued rate on August 26, 1978? Reason.

ANSWER: X should pay the Bank of America at the rate of the franc prevailing on
May 30, 1978, the date when the Bank of America’s correspondent bank in Paris,
France, paid the letter of credit to the export company in French Franc, the letter of
credit having been consummated at that time. (Belman Cia., Incorprada v. Central
Bank of the Philippines, L-10195, Nov. 29, 1958) (BAR 1979)

19. Borrower obtained a loan from a money lending enterprise for which he issued a
promissory note undertaking to pay at the end of a period of 30 days the principle
plus interest at the rate 5.5% per month plus 2% per annum as service charge. On
maturity of the loan, borrower failed to pay the principal debt as well as the
stipulated interest and service charge. Hence, he was sued.

a. How would you dispose of the issues raised by the borrower?

b. That the stipulated interest rate is excessive and unconscionable?

ANSWER:
a. The rate of interest of 5.5% per month is excessive and unconscionable.
b. The interest cannot be considered usurious. The Usury Law has been suspended
in its application, and the interest rates are made “floating”. (BAR 1999)

20. Why are banks required to maintain reserves against their deposits and deposit
substitutes? State one of three purposes for these reserves.

ANSWER: Any one of the following 4 purposes for requiring banks to maintain
reserves against their deposits and deposit substitutes will suffice:

a. One of the purposes of the requirement to maintain bank reserves is to control

the volume of money created by the credit operations of the banking system;
b. It is to enable the banks to answer any withdrawal;
c. To help Government to finance its operation;
d. To help Government control money supply. (BAR 2010)

21. May rural banks grant loans on the security of lands without Torrens Titles and
which are neither homesteads or free patents lands? Explain. May they open
checking accounts? Explain.

ANSWER:
Under the Rural Bank Act as amended, a rural bank may grant loans on the
security of lands without Torrens Title provided the owner can show 5 years or more
of continuous, peaceful, and uninterrupted possession in the concept of an owner.
Although under the Rural Bank Act, a rural bank may open checking accounts when
 authorized by the Monetary Board, this provision has been amended by Presidential
Decree no. 71 which amends Section 20 of the General Banking Act.

Under this amendment, only commercial banks may open checking accounts.
However, any other bank (including a rural bank) which had been theretofore
authorized by the Central Bank to accept checking account deposits may continue
accepting check deposits at the discretion of the Monetary Board. (BAR 1975)

22. “X” Corporation owns 55% of “Y” Corporation, which has an outstanding loan
accommodation of P30 Million with ABC Banking Corporation. “X” Corporation, which
has no outstanding loan, applies for a loan of P10 Million with ABC Banking
Corporation to finance its expansion program. The officers of “X” and “Y”
Corporation are not the same; neither are the stockholders of each corporation
identical. The unimpaired capital and surplus of ABC Banking Corporation is P200
Million. Could the bank grant the loan under existing banking laws?

ANSWER:
No. ABC Banking Corporation may not grant the loan of P10 Million to X
Corporation.
Although X Corporation owns 55% of Y Corporation which has an outstanding
loan accommodation of P30 Million with ABC Banking Corporation, yet such loan
accommodation belong exclusively to Y Corporation, and not to X Corporation, each
one of them having separate and distinct juridical personality from other. Under the
banking law, there must be sufficient security for any loan to be made. (BAR 1980)

23. ABC Commercial Bank extends a loan to A, one of its stockholders. As security for
the repayment of the loan, A pledges his ABC Commercial Bank shares of stocks. Is
the loan valid? Why?

ANSWER: The loan is invalid, contrary to Sec. 24 of the General Banking Act, which
provides that no commercial bank shall make any loan on the security of shares of
its own capital stock, unless such security is necessary to prevent loss upon a debt
previously contracted in good faith. (BAR 1984)

24. Andrew is engaged in the business of the building low-cost housing units under
contracts with real estate developers. He applied for a loan of P3 M from Ready
Credit Bank (the Bank), which required Andrew to provide collateral security for it.
Andrew offered to assign to the Bank his receivables amounting to P4 M from Home
Builders Development Corporation (the Obligor). The Bank accepted the offer.
Accordingly, Andrew obtained the loan and he executed a promissory note
undertaking to pay the loan in full in one lump sum on September 1, 2002, together
with interest thereon at the rate of 20% per annum. At the same time, Andrew
executed a Deed of Assignment in favor of the Bank, assigning to the Bank his
receivables from the Obligor. The Deed of Assignment read: “I, Andrew Lee, hereby
assign, transfer and convey, absolutely and unconditionally, to Ready Credit Bank
(hereinafter called the Bank) all my right, title and interest in and to my accounts
receivable from Home Builders Development Corporation (hereinafter called the
Obligor) arising from delivery of housing units with a total contract price of P4 M,
the description and contract value of which are attached hereto as Annex A
 (hereinafter called the Receivables). In the event that I shall be unable to pay my
outstanding indebtedness owed to the Bank, the Bank shall have the right, without
any further formality or act on its part, to collect the Receivables from the Obligor
and to apply the proceeds thereof toward payment of my said indebtedness. Andrew
failed to pay the loan on its due date on September 1, 2002.

When the Bank attempted to collect from the Obligor, the Bank discovered that the
latter had already closed operations and liquidated its assets. The Bank sued
Andrew for collection, but Andrew moved to dismiss the complaint on the ground
that the debt had already been paid by reason of his execution of the aforesaid
Deed of Assignment which, being absolute and unconditional, was in essence a
dacion en pago. The Bank opposed the motion, contending that the Deed of
Assignment was only a security for the loan. If you were the judge, how would you
resolve the motion to dismiss filed by Andrew? Explain.

ANSWER: The motion to dismiss should be granted. The simple absolute and
unconditional conveyance embodied in the deed of assignment would be operative,
and the assignment would constitute essentially a mode of payment or dacion en
pago (BAR 2002)

25. X maintains a savings deposit in the amount of P1 M with ABC Bank Corporation. X
also has obtained a loan from ABC Bank Corporation in the amount of P1 M. in case
of default:

a. ABC Bank can set-off the loan from the savings account being
maintained by X with ABC Bank;
b. Set-off is not possible because legal compensation is not allowed in banking
transaction;
c.Deposit accounts are usually earmarked for specific purpose hence off-setting is
not legally possible;
d. Off-setting is not possible because the obligation of X is a “simple loan”.

26. A bank may acquire real property _______.

a) By purchase at a public sale of properties levied to satisfy tax delinquencies;

b) By purchase from a real estate corporation in the ordinary course of the
bank’s business;
c) Through dacion en pago in satisfaction of a debt in favor of a bank;
d) In exchange for the purchase of shares of stocks of the bank;
e) All of the above;
f) None of the above.

ANSWER:
b) By purchase from a real estate corporation in the ordinary course of the bank’s
business;
c) Through dacion en pago in satisfaction of a debt in favor of a bank;
d) In exchange for the purchase of shares of stocks of the bank; (BAR 2013)
27. The President of Matibay Bank obtained a P100, 000 clean loan from the Tagumpay
Banking Corporation. In turn and at about the same time, the President of the
Tagumpay Banking Corporation secured a P50,000 loan from the Matibay Bank, with
the latter’s President expediting the loan for his friend and colleague. Are there any
legal consequences as far as the borrowers are concerned? If there are any, what
are the bases and the reasons for these consequences?

ANSWER: The prohibition on bank officers and directors against the borrowing or
securing of loans is confined to financial accommodations given by a bank in which
they are directors or officers.

It may thus be said under the problem that neither of the two bank presidents
committed an infraction of that prohibition. The mere fact that the President of
Matibay Bank helped his friend and colleague in expediting the loan should not be
considered as having produces an adverse legal consequence. (BAR 1986)

28. The Monetary Board of the Bangko Sentral closed Urban Bank after it encountered
crippling financial difficulties that resulted in a bank run. X, one of the members of
the Board of Directors of the bank, attended and stayed throughout the entire
meeting of the Board that was held well in advance of the bank run and before news
had begun to trickle to the business community about the dire financial pit the bank
had fallen into. Immediately after the meeting, X caused the preparation and
issuance of a manager’s check payable to himself in the sum of P5 M equivalent to
the amount placed or invested in the bank by a business acquaintance. He now
claims that he is keeping the funds in trust for the owner and that he had
committed no violation of the General Banking Act for which he should be punished.
Do you agree that there has been no violation of the statute?

ANSWER:
No. I do not agree that there is no violation of the statute. X violated Section
85 when he caused the preparation and issuance of a manager’s check payable to
himself in the sum of P5 M.
This is paying out or permitting to be paid out funds of the bank after the
latter became insolvent. This act is penalize by fine of not less than P1,000 nor
more than P10,000 and by imprisonment for not less than 2 nor more than 10
years. (BAR 2000)

29. Pio is the president of Western Bank. His wife applied for a loan with the said bank
to finance an internet café. The loan officer told her that her application will not be
approved because the grant of loans to related interests of bank directors, officers,
and stockholders is prohibited by the General Banking Law. Explain whether the
loan officer is correct.

ANSWER:
No. the loan officer should have advised the wife to ask her husband to
secure the approval of the bank’s Board of Directors for the intended loan and to
 limit the same in an amount not to exceed its unencumbered deposits and book
value of its paid-up capital contribution in the bank; if the intended loan should
exceed the foregoing limit, the borrower should have the same secured by a non-
risk assets as determined by the Monetary Board, unless the loan shall be in the
form of a fringe benefit. (BAR 2006)

30. All senior officers of ABC Bank are entitled to obtain a housing loan. X is an
Executive VP for Operations of ABC Bank. She obtained a housing loan with the ABC
Bank. Which statement is most accurate?

a) The housing loan of X required a guarantor from somebody who is not connected
with the bank;
b) The housing loan of X requires the approval of the Board of Directors of the
bank; c) The housing loan of X, being a benefit for employees does not require (a)
but will require (b);
d) The housing loan of X, being a benefit for employees, will not require (a)
and (b).

31. The government agency granted with the power of supervision and examination
over banks and non-bank financial institutions performing quasi-banking functions,
to ensure that the conduct of its business is on a sound financial basis that will
provide continued solvency and liquidity is—

a) The Philippine Deposit Insurance Corporation;

b) The Bangko Sentral ng Pilipinas;
c) The Anti-Money Laundering Council;
d) The Securities and Exchange Commission.

32. A 10-year old commercial bank during the past year committed the following acts:
(1) it opened letters of credit banned items of importation; (2) for the second
consecutive year, there was a deficiency in their reserve requirements; (3) the total
amount of clean loans granted (loans without collateral) exceeded substantially that
which they normally grant in one year; (4) the total liabilities of one private
company to the bank exceed 15% of the unimpaired capital and surplus of the
bank; and (5) the bank officers delayed submission of reports required by law to the
Central Bank.

(a) Assuming that the above facts did not result in any liquidity problem or did not
affect the financial condition of the bank, what administrative sanctions may be
imposed by the Monetary Board?
(b) Assuming that the above acts were done in good faith but they nevertheless
resulted in financial difficulties to the bank and in fact affected the country’s
monetary stability due to a run on the bank, what administrative sanctions or
remedies may be taken by the Monetary Board?

ANSWER:
 (a) Based on the above stated facts, the Monetary Board may appoint a conservator
to take charge of the assets, liabilities and the management of that banking
institution.
(b) If the Monetary Board would have determined that the condition of that bank is
one of insolvency, or that its continuance in business would involve probable loss to
its depositors or creditors, then the Monetary Board shall designate a receiver to
immediately take charge of the assets and liabilities, exercising all the powers
necessary for these purposes. (BAR 1982)

33. Maharlikang Pilipino Banking Corporation (MPBC) operates several branches of

Maharlikang Pilipino Rural Bank in Eastern Visayas. Almost all the branch managers
are close relatives of the members of the Board of Directors of the corporation.
Many undeserving relatives of the branch managers were granted loans. In time,
the branches could not settle their obligations to depositors and creditors. Receiving
reports of these irregularities, the Supervising and Examining Department (SED) of
the Monetary Board prepared a detailed report (SED Report) specifying the facts
and the chronology of events relative to the problems that beset MPBC rural bank
branches. The report concluded that the bank branches were unable to pay their
liabilities as they fell due, and could not possibly continue in business without
incurring substantial losses to its depositors and creditors. May the Monetary Board
order the closure of the MPBC rural banks relying only on the SED Repost, without
need of an examination? Explain.

ANSWER:
Yes. Upon receipt of the report of the SED, the Monetary Board is authorized
to take any of the actions enumerated under Sec. 30, RA No. 7653, otherwise
known as the New Central Bank Act, leading to the receivership and liquidation of a
bank or quasi-bank. There is no requirement that an examination be first conducted
before a banking institution may be placed under receivership. (BAR 2009)

34. Due to growing financial difficulties, Z Bank was unable to finish construction of its
21-storey building on a prime lot located in Makati City. Inevitably, the Bangko
Sentral ordered the closure of Z Bank and consequently placed it under
receivership. In a bid to save the bank’s property investment, the President of Z
Bank entered into a financing agreement with a group of investors for the
completion of the construction of the 21-storey building in exchange for a 10-year
lease and the exclusive option to purchase the building.

a) Is the act of the President valid? Why or why not?

b) Will a suit to enforce the exclusive right of the investors to purchase the property
prosper? Reason briefly.

ANSWER:
a) No, the bank president’s act is not valid. He had no authority to enter into the
financing agreement. Z Bank was ordered closed and placed under receivership.
Control over the properties of Z Bank passed to the receiver. The appointment of a
 receiver operates to suspend the authority of the bank and its officers over the
bank’s assets and properties, such authority being reposed in the receiver.

b) No, the exclusive option granted to the investors, having been entered into by
one without authority to do so, is unenforceable. The bank, therefore, cannot be
compelled to sell the property. Under Section 30 of the R.A. No. 7653, New Central
Bank Act, the properties of Z Bank should be administered for the benefit of its
creditors. The property in question can be disposed of only for the purpose of
paying the debts of Z Bank. (BAR 2007)

35.TRUE OR FALSE.

A bank under a receivership can still grant new loans and accept new deposits.

ANSWER:

False. During the receivership, the assets and properties of the corporation
are being gathered for conversion into cash in preparation for distribution to
creditors. Granting new loans and accepting new deposits would constitute doing
business for the bank in the ordinary course of business which is contrary to the
purpose and nature of a receivership proceeding. (BAR 2009)

36. A bank can be placed under receivership when, if allowed to continue in business,
its depositors or creditors would incur:

a. Probable losses
b. Inevitable losses
c. Possible losses
d. A slight chance of losses

37. Maharlikang Pilipino Banking Corporation (MPBC) operates several branches of

Maharlikang Pilipino Rural Bank in Eastern Visayas. Almost all the branch managers
are close relatives of the members of the Board of Directors of the corporation.
Many undeserving relatives of the branch managers were granted loans. In time,
the branches could not settle their obligations to depositors and creditors. Receiving
reports of these irregularities, the Supervising and Examining Department (SED) of
the Monetary Board prepared a detailed report (SED Report) specifying the facts
and the chronology of events relative to the problems that beset MPBC rural bank
branches. The report concluded that the bank branches were unable to pay their
liabilities as they fell due, and could not possibly continue in business without
incurring substantial losses to its depositors and creditors. If the MPBC hires you as
a lawyer because the Monetary Board has forbidden it from carrying on its business
due to its imminent insolvency, what action will you institute to question the
Monetary Board’s order? Explain.

ANSWER:
 The order of the Monetary Board may be questioned on a petition for
certiorari on the ground that the action taken was in excess of jurisdiction or with
grave abuse of discretion amounting to lack or excess of jurisdiction. The petition of
certiorari may only be filed by the stockholders of record representing the majority
of the capital stock within 10 days from receipt by the board of directors of the
MPBC of the order directing receivership, liquidation or conservatorship. (BAR 2009)

38. Can a creditor be compelled to accept payment all in 25-centavo Central Bank coins
of a forty (P40.00) peso debt? Explain briefly.

ANSWER:
Under the Central Bank Act, the creditor in this case can be compelled to
accept payment because it is made in legal tender. For denominations from 10
centavos to one peso, coins shall be legal tender up to P50.00.

NOTE: Coins are legal tender only up to certain amount. For denominations from
P1.00 and above, coins shall be legal tender up to P1,000. For denominations from
25 centavos and below, coins shall be legal tender up to P100. (BAR 1975)

39. Interlink Trading Company extends a loan to “G” for his medical expenses abroad in
the sum of US$10,000.00, with interest at the rate of 14% per annum, payable 120
days from date thereof, subject to the condition that “G” pays Interlink Trading
Company upon maturity in the same currency, that is, US dollars. “G” would like to
pay his indebtedness in Philippine currency because he has no US dollars to pay off
the obligation. The company insists, however, that “G” pays them in US dollars as
stipulated. Whose position would you uphold?

ANSWER:
I would uphold the position of G. If there would be a stipulation in any
domestic obligation to pay in a currency other than the Philippine currency, said
stipulation is null and void as contrary to public policy, and therefore to be paid in
Philippine currency. The problem does not fall within any of the exceptions provided
for by the law. (BAR 1980)

40. After many years of shopping in the Metro Manila area, housewife HW has
developed the sound habit of making cash purchases only, none on credit. In one
shopping trip to Mega Mall, she got the shock of her shopping life for the first time,
a store’s smart salesgirl refused to accept her coins in payment for a purchase
worth not more than P100. HW was paying P70 in 25-centavo coins and P25 in 10-
centavo coins. Strange as it may seem, the salesgirl told HW that her coins were
not “legal tender”. Do you agree with the salesgirl in respect of her understanding of
“legal tender”? Explain.

ANSWER:
No. The salesgirl’s understanding that coins are not legal tender is not
correct.
 Coins are legal tender in amounts not exceeding P50 for denominations from
25-centavos and above, and in amounts not exceeding P20 for denominations 10-
centavos and less. (BAR 2000

41. The City Fiscal of Manila required the Manila Banking Corporation to produce at a
hearing the records of bank deposits of Alfredo Santos. The Manila Banking
Corporation refused, alleging that disclosure of bank deposits is prohibited by R.A.
No. 1405. Threatened with prosecution, the Corporation filed an action for
declaratory judgment. May the court compel the Manila Banking Corporation to
disclose the bank deposits of Alfredo Santos?

ANSWER:

Under the law, all deposits with banks are absolutely confidential and may not
be inquired into by any government official except upon written permission of the
depositor, or in cases of impeachment, or upon order of a competent court in cases
of bribery, dereliction of duty of public officials, or in cases where the money
deposited is the subject matter of litigation. Unless the case of Alfredo Santos
comes under one of these exceptions, the court cannot compel the Manila Banking
Corp., to disclose his bank deposits. (Section 2, R.A. 1405) (BAR 1976)

42. A bought some goods from a Department Store and paid with his personal check.
When the Department Store deposited the check of A, the bank dishonored it. On
the assumption that the Department Store did not know who A was, the store
manager inquired from the check’s drawee bank the name of the dishonored check.
The drawee bank refused to disclose the name of such drawer in view of R.A. No.
1405 which governs the Secrecy of Bank Deposits. Is the bank justified in not
divulging the name of the drawer to the store manager? Why?

ANSWER:

The bank is not justified in not divulging the name of the drawer to the store
manager. The store manager is merely inquiring as to the name of the drawer of
the dishonored check. To divulge the same would not in any way amount to
disclosure of any information concerning his deposits, if any, in said bank.
Moreover, the inquiry is not an investigation of any balance in favor of the
depositor. To include such disclosure within the ambit of the prohibition embodied in
R.A. No. 1405 would be unduly straining and stretching the meaning of the said Act.
The prohibition under Sec. 2 of R.A. No. 1405 concerns merely with the
examination, inquiry or looking into all deposits of whatever nature with banks or
banking institutions. (BAR 1977)

43. “K” borrows P200,000.00 from Eternity Banking Corporation which, in accordance
with its credit criteria, grants the loan against the security of a plush condominium
unit with an appraised value of P1.5 Million. ABC Credit Services Inc., a corporation
engaged in the gathering of credit information, sends a letter to the bank inquiring
about any property of “K” which the bank holds and, if any, to furnish the
 description of the property. Jose Santos, Vice-president of the bank, in his reply
thereto, discloses the details of the property mortgaged. Did the bank officer violate
any existing legal provision?

ANSWER:
The bank officer, Jose Santos, did not violate any existing legal provision. The
Republic Act prohibiting disclosure of, or inquiry into, deposits with any banking
institution, and the General Banking Act do not prohibit such disclosure on the
details of the property mortgaged with a bank. (BAR 1980)
44. A owns 100 out of 10,000 shares in the Manufacturer’s Bank. He filed a suit against
B for damages due to an alleged breach of contract. A secures a favorable judgment
against B but fails to obtain full satisfaction thereof. A receives a tip that B has a big
time deposit with Manufacturer’s Bank. B is not aware that A is a stockholder in the
said bank. A goes to the bank and demands the right to inspect the records of the
bank to find out whether B has indeed such a time deposit and how much. The bank
manager refuses to accede to his demand. A threatens to sue him on the ground
that as a stockholder of the corporation, he is given by the Corporation Code the
right to inspect all the books of the corporation. Is A entitled to look at such
records? Explain.

ANSWER:
No. under the Secrecy of Bank Deposits Law, all bank deposits of whatever
nature are considered as absolutely confidential in nature and may not be inquired
into by any person except under specified circumstances. This case does not come
under any of these exceptions.

The deposit is not the subject matter of the action against B. Although it is
true that under the Corporation Code a stockholder has the right to inspect all the
business records of his corporation, such right must give way to the limitations set
forth under the special law mentioned, which was intended to encourage deposits in
banking institutions.
Furthermore, the right of inspection should be exercised in connection with
the interest of the stockholder in the corporation and not in relation to such an
extraneous matter as the case in question. (BAR 1983).

45. Don Mariano was able to secure a favorable judgment against Nestor Pe for
recovery of sum of money and the said judgment had become final and executory.
Don Mariano was informed by someone that Nestor Pe might have a sizeable
savings deposit with Xena Commercial Bank, of which Don Mariano was a
stockholder, with 1 share registered in his name. Immediately, he rushed to the
Bank and demanded from the Bank Manager that he be shown the bank records to
see if Nestor Pe really had such savings deposit. When the Bank Manager refused
and invoked R.A. No. 1405, Don Mariano cited his right as a stockholder to inspect
corporate records.

a) Is the stand of the Bank Manager legally tenable? Explain.

b) What remedy is available to Don Mariano? Explain.

ANSWER:
 a) Yes, the stand of the Bank Manager of Xena Commercial Bank, of which Don
Mariano is a stockholder, with 1 share, is legally tenable. Although as a general rule
in the Corporation Code, a stockholder may inspect the books of a corporation, yet
it is subject to a special law, like R.A. No. 1405, which operates as exception to the
general rule, and shall be strictly construed. The case of Don Mariano does not fall
under any of the exceptions.

b) The only remedy of Don Mariano, his judgment for a sum of money against
Nestor Pe being already final and executor, is to ask the court to require the cashier
of the said bank to inform the court whether or not Nestor Pe has a deposit in the
bank for purposes of garnishment, to insure satisfaction of the judgment. (BAR
1985)

46. Manosa, a newspaper columnist, while making a deposit in a bank, overheard a

pretty bank teller informing a co-employee that Gigi, a well-known public official,
has just a few hundred pesos in her bank account and that her next check will in all
probability bounce. Manosa wrote this information in his newspaper column. Thus,
Gigi filed a complaint with the Office of the City Fiscal of Manila for unlawfully
disclosing information about her bank account. Will the said suit prosper? Explain
your answer.

Answer:

a) The Secrecy of Bank Deposits Act prohibits, subject to its exclusionary clauses,
any person from examining, inquiring or looking into all deposits of whatever nature
with banks or banking institutions in the Philippines which by law are declared
“absolutely confidential” in nature. Manosa, who merely overheard what appeared
to be vague remark of a Bank employee to a co-employee and writing the same in
his newspaper column is neither the inquiry nor disclosure contemplated by the law.
(BAR 1990).

47. An insurance company is deluded into releasing a check to A for P35 M to pay for T-
bills which A claims to be en route on board an armored truck from a government
bank. The check is delivered to A who deposits it to his account with XYZ Bank
before the insurance company realized it is a scam. Upon such realization, the
insurance company files an action against A for recovery of the amount defrauded
and obtains a writ of preliminary attachment. In addition to the writ, the bank is
also served a subpoena to examine the account records of A. the bank declines to
provide any information in response to the writ and moves to quash the subpoenas
invoking secrecy of bank deposits under RA 1405, as amended. Can the Bank
justifiably invoke RA 1405 and (a) not respond to the writ and (b) quash for
examination?

ANSWER:

Yes. Whether the transaction is considered a sale or money placement does

not make the money subject matter of litigation within the meaning of Sec. 2 of RA
1405 which prohibits the disclosure or inquiry into bank deposits except “in cases
 where the money deposited or invested is the subject matter of litigation” nor will it
matter whether the money was “swindled”. (BAR 1998)

48. GP is a suspected jueteng lord who is rumored to be enjoying police and military
protection. The envy of many drug lords who had not escaped the dragnet of the
law, GP was summoned to a hearing of the Committee on Racketeering and Other
Syndicated Crimes of the House of Representatives, which was conducting a
congressional investigation “in aid of legislation” on the involvement of police and
military personnel, and possibly even of local government officials, in the illegal
activities of suspected gambling and drug lords. Subpoenaed to attend the
investigation were officers of certain identified banks with a directive to them to
bring the records and documents of bank deposits of individuals mentioned in the
subpoenas, among them GP. GP and the banks opposed the production of the banks
records of deposits on the ground that no such inquiry is allowed under the Law on
Secrecy of Bank Deposits. (RA 1405). Is the opposition of GP and the bank valid?
Explain.

ANSWER:

Yes. The opposition is valid.

GP is not a public official. The investigation does not involve one of the
exceptions to the prohibition against disclosure of any information concerning bank
deposits under the Law on Secrecy of Bank Deposits.

The Committee conducting the investigation is not a competent court or the

Ombudsman authorized under the law to issue a subpoena for the production of the
bank record involving such disclosure. (BAR 2000)

49. TRUE OR FALSE

If the Ombudsman is convinces that there is a violation of law after investigating a

complaint alleging illicit bank deposits of public officer, the Ombudsman may order
the bank concerned allow in camera inspection of bank records and documents.

ANSWER:
False.

The Bank Secrecy Law prohibits the inspection of a bank account unless the
permission of the account holder is obtained, or upon lawful order of the court or
when the deposit is the subject matter of litigation. Investigation by the
Ombudsman is not considered as a pending litigation to allow the examination of
the bank records and documents. (BAR 2009)

50. From his first term in 2007, Congressman Abner has been endorsing his pork barrel
allocations to Twin Rivers in exchange for a commission of 40% of the face value of
the allocation. Twin Rivers is a nongovernmental organization whose supporting
papers, after audit, were found by the COA to be fictitious. Other than to prepare
and submit falsified papers to support the encashment of the pork barrel checks,
 Twin Rivers does not appear to have done anything on the endorsed projects and
Congressman Abner likewise does not appear to have bothered to monitor the
progress of the progress of the projects he endorsed. The congressman converted
most of the commissions he generated into US dollars, and deposited these in a
foreign currency account with Banco de Plata (BDP) Based on amply-supported tips
given by a congressman from another political party, the AMLC sent BDP an order:
(1) to confirm Cong. Abner’s deposits with the bank and to provide details of these
deposits; and (2) to hold all withdrawals and other transactions involving the
congressman’s bank accounts. As counsel for BDP, would you advise the bank to
comply with the order?

ANSWER:
I shall advise BDP not to comply with the order of the AMLC. It cannot inquire
into the deposits of Congressman Abner, regardless of currency, without a bank
inquiry order from a competent court, because crimes involved Page | 304 are not
kidnapping for ransom, violations of the Dangerous Drugs act, hijacking and other
violations of R.A. No. 6235, destructive arson, murder, and terrorism and
conspiracy to commit terrorism. The AMLC cannot order BDP to hold all withdrawals
and other transactions involving the accounts of Congressman Abner. It is the Court
of Appeals which has the power to issue a freeze order over that accounts upon
petition of the AMLC. (BAR 2013)

51. An employee of a large manufacturing firm earns a salary which is just a bit more
than what he need for a comfortable living. He is thus able to still maintain a
P10,000 savings account, a P20,000 checking account, a P30,000 money market
placement and a P40,000 trust fund in a medium-size commercial bank. State which
of the above accounts are covered by the Law on Secrecy of Bank Deposits.

ANSWER:

The P10,000 savings account and the P20,000 checking account are covered by the
Law on Secrecy of Bank Deposits. (BAR 1997)

52. Hi Yielding Corporation filed a complaint against 5 of its officers for violation of
Section 31 of the Corporation Code. The corporation claimed that the said officers
were guilty of advancing their personal interests to the prejudice of the corporation,
and that they were grossly negligent in handling its affairs. Aside from documents
and contracts, the corporation also submitted in evidence records of the officers’
U.S. Dollar deposits in several bank overseas—Boston Bank, Bank of Switzerland,
and Bank of New York. For their part, the officers filed a criminal complaint against
the directors of Hi Yielding Corporation for violation of RA No. 6426, otherwise
known as Foreign Currency Deposit Act of the Philippines. The officers alleged that
their bank deposits were illegally disclosed for want of a court order, and that such
deposits were not even the subject of the case against them.
 a) Will the complaint filed against the directors of Hi Yielding Corporation prosper?
Explain.
b) Was there a violation of the Secrecy of Bank Deposits Law (RA 1405)? Explain.

ANSWER:

a) No. Section 2 of RA No. 6426, as amended, speaks of deposit with such

Philippine banks in good standing, as may be designated by the Central Bank for the
purpose, and is inapplicable to the foreign currency account in question.

b) No. Section 2of RA No. 1405 or the Bank Secrecy Law covers only “deposits of
whatever nature with banks or banking institutions in the Philippines xxx”, hence,
cannot be made to apply to foreign banks. (BAR 2005)

53. “I”, a branch manager of a bank, in response to a notice of garnishment, discloses

to the Sheriff of Pasig the outstanding deposit balance of judgment debtor Roy
Sevilla with the bank as of the date of receipt of the aforementioned garnishment
notice. Roy Sevilla files a criminal complaint with damages against the bank for
disclosing his depository balance without his consent in violation of R.A. 1405, which
absolutely prohibits the disclosure of any information concerning bank deposits.
Would the complaint prosper?

ANSWER:

No, the criminal complaint against the bank by Roy Sevilla would not prosper.
The prohibition against examination of, or inquiry into, a bank deposit, does not
preclude its being garnished to insure satisfaction of a judgment. Indeed, there is
no real inquiry in such a case, and if the existence of the deposit is disclosed, the
disclosure is purely incidental to the execution process. (BAR 1980)

54. “A” obtained a money judgment against “B”. To satisfy the judgment, “A” sought
the garnishment of “B’s” bank deposit. Accordingly, a notice of garnishment was
issued and served on his bank through its cashier. In reply, the cashier called the
attention of the sheriff to the provisions of R.A. 1405, which prohibits the disclosure
of any information relative to bank deposits. Can the cashier be compelled to
disclose the existence of “B’s” deposit? Why?

Answer:

Yes, the cashier of the bank may be compelled to disclose the existence of “B’s”
deposit. The prohibition against examination of, or inquiry into, a bank deposit, does
not preclude its being garnished to insure satisfaction of a judgment. Indeed, there
is no real inquiry in such a case, and if the existence of the deposit is disclosed, the
disclosure is purely incidental to the execution process. (China Banking Corporation
v. Ortega, Jan. 31, 1973; 49 SCRA 355) (BAR 1981)

55. A secured a judgment by default against B for a sum of money. To satisfy the
judgment, A sought the garnishment of the bank deposit of B with China Bank. The
 Bank refused. a) What are the exceptions to the prohibition against disclosure of
bank deposits?

Answer:
a) The exceptions to the prohibitions against disclosure of bank deposits include—
1. Upon written permission of the depositor;
2. In cases of impeachment;
3. Upon order of a competent court in cases of bribery or dereliction of duty or
where the money deposited or invested is the subject matter of litigation;
4. In anti-graft cases;
5. When authorized by the Monetary Board if it has reasonable ground to believe
that such account is being used or was used to commit bank fraud. (BAR
1988)

56. X, a public official, is charged with violation of the Anti-Graft Law for unexplained
wealth. The prosecuting official learned that X maintains safety deposit boxes at
Union Bank. May the officials of the bank be subpoenaed and examined about the
safety deposit boxes?

Answer:

Yes, the officials of the bank may be subpoenaed and examined about the safety
deposit boxes.

The prohibition against the inquiry or disclosure of bank accounts under the Secrecy
of Bank Deposits Law does not apply to the case.

Even if the safety deposit box is not considered a bank deposit, the answer is still in
the affirmative because the law provides that one of the exception to the secrecy of
bank deposits is upon order of the court in cases of bribery or dereliction of duty of
public officials.

Also, in the case of Banco Filipino v. Purisima, 161 SCRA 576, the Supreme Court
said that the Anti-Graft and Corruption Practices Act intends to provide an additional
ground for the examination of bank deposits without violating the Secrecy of Bank
Deposits Law by allowing inquiry into “illegally” or “not legitimately” acquired
property. (BAR 1989)

57. Manosa, a newspaper columnist, while making a deposit in a bank, overheard a

pretty bank teller informing a co-employee that Gigi, a well-known public official,
has just a few hundred pesos in her bank account and that her next check will in all
probability bounce. Manosa wrote this information in his newspaper column. Thus,
Gigi filed a complaint with the Office of the City Fiscal of Manila for unlawfully
disclosing information about her bank account. Supposing that Gigi is charged with
unlawfully acquiring wealth under RA No. 1379 and that the fiscal issued a
subpoena duces tecum for the records of the issuance on the ground that the same
violates the law on secrecy of bank deposits? Explain your answer.

ANSWER:
 Among the instances excepted from the coverage of the Secrecy of Bank
Deposits Act are anti-graft cases. Hence, Gigi may not validly oppose the issuance
of a subpoena duces tecum for the bank records on her. (BAR 1990)

58. The law (RA No. 6832) creating a Commission to Conduct a Thorough Fact-Finding
Investigation of the Failed Coup D’Etat of December 1989, Recommended Measures
to Prevent The Occurrence of Similar Attempts at a Violent Seizure of Power and for
Other Purposes, provides that the Commission may ask the Monetary Board to
disclose information on and/or grant authority to examine any bank deposits, trust
or investment funds, or banking transactions in the name of and/or to grant
authority to examine any bank deposits, trust or investment funds, or banking
transactions in the name of and/or utilized by a person, natural or juridical, under
investigation by the Commission, in any bank or banking institution in the
Philippines, when the Commission has reasonable ground to believe that said
deposits, trust or investment funds, or banking transactions have been used in
support or in furtherance of the objectives of the said coup d’etat. Does not the
above provision violate the Law on Secrecy of Bank Deposits (RA No. 1405)?

ANSWER:
The law on Secrecy of Bank Deposits is itself merely a statutory enactment,
and it may, therefore, be modified, or amended (such as by providing further
exceptions therefrom), or even repealed, expressly or impliedly, by a subsequent
law.

The Secrecy of Bank Deposits Act did not amount to a contract between the
depositors and depositary banks within the meaning of the non-impairment clause
of the Constitution. Even if it did, the police power of the State is superior to the
non-impairment clause. RA No, 6832, creating a commission to conduct an
investigation of the failed 1989 coup d’etat and to recommend measures to prevent
similar attempts to seize power is a valid exercise of police power. (BAR 1991)

59. Socorro received $10,000 from a foreign bank although she was entitled only to
$1,000. In an apparent plan to conceal the erroneously sent amount, she opened a
dollar account with her local bank, deposited the $10,000 and issued 4 checks in the
amount of $2,000 and 1 check for $1,000 each payable to different individuals who
deposited the same in their respective dollar accounts with different local banks.
The sender bank then brought a civil suit before the RTC for the recovery of the
erroneously sent amount. In the course of the trial, the sender presented
testimonies of the bank officials to show that the funds were, in fact, deposited in a
bank by Socorro and paid out to several persons, who participated in the
concealment and dissipation of the amount that Socorro had erroneously received.
Socorro moved to strike out said testimonies from the record invoking the law on
secrecy of bank deposits. If you were the Judge, would you issue an order to strike
them out? Why?

ANSWER:
 No. I will not strike out the testimonies from the record. The testimonies of bank
officials indicating where the questioned dollar accounts were opened in depositing
misappropriated sums must be considered as likewise involved in litigation—one
which is among the excepted cases under the Secrecy of Bank Deposits Act. (BAR
1992)

60. Miguel, a special customs agent is charged before the Ombudman with having
acquired property out of proportion to his salary, in violation of the Anti-Graft and
Corrupt Practices Act. The Ombudsman issued a subpoena duces tecum to the
Banco de Cinco commanding its representative to furnish the Ombudsman records
of transactions by or in the name of Miguel, his wife and children. A second
subpoena was issued expanding the first by including the production of records of
friends of Miguel in said bank and in all its branches and extension offices,
specifically naming them. Miguel moved to quash the subpoenas arguing that they
violate the Law on Secrecy of Bank Deposits. In addition, he contends that the
subpoenas are in the nature of “fishing expedition” or “general warrants” and are
constitutionally impermissible with respect to private individuals who are not under
investigation. Is Miguel’s contention tenable?

ANSWER:

No. Miguel’s contention is not tenable. The inquiry into illegally acquired
property extends to cases where such property is concealed by being held by or
recorded in the name of other persons. To sustain Miguel’s theory and restrict the
inquiry only to property held by or in the name of the government who illegally
acquire property an easy means of evading prosecution. All they have to do would
be to simply place the property in the name of persons other than their spouses and
children. (BAR 1994)

61. Michael withdrew authority funds of the partnership in the amounts of P500,000 and
used US$50,000 for services he claims he rendered for the benefit of the
partnership. He deposited the P500,000 in his personal peso current account with
Prosperity Bank and the US$50,000 in his personal foreign currency savings account
with Eastern Bank. The partnership instituted an action in court against Michael,
Prosperity Bank and Eastern Bank to compel Michael to return the subject funds to
the partnership and pending litigation to order both banks to disallow any
withdrawal from his accounts. At the initial hearing of the case the court ordered
Prosperity Bank to produce the records of Michaels’s peso current account, and
Eastern Bank to produce the records of his foreign currency savings account. Can
the court compel Prosperity Bank and Eastern Bank to disclose the bank deposits of
Michael? Discuss fully.

ANSWER:

Yes, as far as the peso account is concerned. Section 2 of RA No. 1405 allows the
disclosure of bank deposits in case where the money deposited is the subject matter
of the litigation. Since the case filed against Michael is aimed at recovering the
amount he withdrew from the funds of the partnership, which amount he allegedly
deposited in his account, a disclosure of his bank deposits would be proper.
 No, with respect to the foreign currency account. Under the Foreign Currency Law,
the exemption to the prohibition against disclosure of information concerning bank
deposits is the written consent of the depositor. (BAR 1995)

62. The Bank Secrecy Law (RA 1405) prohibits disclosing any information about deposit
records of an individual without court order except—

a) In an examination to determine gross estate of a decedent;

b) In an investigation for violation of Anti-Graft and Corrupt Practices;
c) In an investigation by the Ombudsman;
d) In an impeachment proceeding.

63. X is being charged for violation of Anti-Graft and Corrupt Practices because he is
suspected of having accumulated unexplained wealth. X maintains deposit accounts
with ABC Bank. The Ombudsman filed criminal cases against X before the
Sandiganbayan. Can the court issue subpoena against ABC Bank to produce all
documents pertaining to all the deposit accounts of X?
a) Yes, because there is already a pending case and provided the subpoena
must be specific as to which account;
b) Yes, it is enough that the specific bank is identified;
c) No, because the issuance of the subpoena has no real legal basis;
d) Even without a subpoena, information about the deposit accounts of X can be
submitted to the Sandiganbayan because it will be used in a pending case. (BAR
2012)

64. A secured a judgment by default against B for a sum of money. To satisfy the
judgment, A sought the garnishment of the bank deposit of B with China Bank. The
Bank refused. b) May a writ of garnishment be issued against the bank deposit of B?
Reasons.

ANSWER:
b) Yes, a writ of garnishment may be issued against the bank deposit of B
with China Bank. The Law on Secrecy of Bank Deposits is merely against inquiry or
disclosure of information relative to the funds or property in the custody of the
bank. (BAR 1988)

65. The Law on Secrecy of Bank Deposits, otherwise known as RA 1405, is intended to
encourage people to deposit their money in banking institutions and also to
discourage private hoarding so that the same may be properly utilized by banks to
assist in the economic development of the country. Is a notice of garnishment
served on a bank at the instance of a creditor of a depositor covered by the said
law? State the reason/s for your answer.

ANSWER:
 No. The notice of garnishment served on a bank at the instance of a creditor
of a depositor is not covered by the Law on Secrecy of Bank Deposits. Garnishment
is just a part of the process of execution. The moment a notice of garnishment is
served on a bank and there exists a deposit by the judgment debtor, the bank is
directly accountable to the sheriff, for the benefit of the judgment creditor, for the
whole amount of the deposit. In such event, the amount of the deposit becomes, in
effect, a subject of the litigation. (BAR 2001)

66. CDC maintained a savings account with CBank. On orders of the MM RTC, the
Sheriff garnished P50, 000 of his account, to satisfy the judgment in favor of his
creditor, MO. CDC complained that the garnishment violated the Law on the Secrecy
of Bank Deposits because the existence of his saving account was disclosed to the
public. Is CDC’s complaint meritorious or not? Reason briefly

Answer:

No. CDC’s complaint is not meritorious. It was held in China Banking Corporation v.
Ortega, 49 SCRA 355 (1973) that peso deposits may be garnished and the
depositary bank can comply with the order of garnishment without violating the Law
on the Secrecy of Bank Deposits.

Execution is the goal of litigation as it is its fruit.

Garnishment is part of the execution process. Upon service of the notice of

garnishment on the bank where the defendant deposited funds, such funds become
part of the subject matter of litigation. (BAR 2004).

67. Which of the following is an exception to the secrecy of bank deposits which are in
the Philippine Pesos, but NOT an exception to the secrecy of foreign currency
deposits?

a) Upon BSP inquiry into or examination of deposits or investments with any bank,
when the inquiry or examination is made in the course of the BSP’s periodic special
examination of said bank to ensure compliance with the AMLA;
b) Upon PDIC and BSP inquiry into examination of deposit accounts in case there is
a finding of unsafe or unsound banking practice;
c) Upon inquiry in cases of impeachment;
d) Upon inquiry by the Commissioner of Internal Revenue in the event a taxpayer
files an application to compromise his tax liabilities on the ground of financial
incapacity.

68. X, a private individual, maintains a dollar deposit with ABC Bank. X is suspected to
be the leader of a Kidnap for Ransom Gang and he is suspected of depositing all
ransom money in said deposit account which are all in US Dollars. The police want
to open said account to know if there are really deposits in big amounts. Which
statement is most accurate?

a) The same rules under the Secrecy of Bank Deposit Act will apply;
 b) An approval from the Monetary Board is necessary to open the account;
c) Because the deposit is in US Dollars, it is covered by the Foreign Currency
Deposit Act which allows disclosure only upon the written permission of the
depositor;
d) Approval from the court is necessary to order disclosure of the account.

69. Under the Anti-Money Laundering Law, a covered institution is required to maintain
a system of verifying the true identity of their clients as well as persons purporting
to act on behalf of

a. Those doing business with such clients.

b. Unknown principals.
c. The covered institution.
d. Such clients.

70. The Anti-Money Laundering Law is a law that seeks to prevent money laundering
activities by providing for more transparency in the Philippine Financial System,
hence the following institutions are covered by the law, except:

a) Bank and any financial institutions;

b) Pawnshops;
c) Casino operators;
d) All of the above.
71. For purposes of determining violation of the provisions of the Anti-Money
Laundering Law, a transaction is considered as a “Suspicious Transaction” with
“Covered Institutions” regardless of the amount involved, where which the following
circumstances exists?

a) The amount involved is not commensurate with the client’s business or financial
capacity;
b) There is no underlying legal or trade obligation, purpose or economic
justification; c) Client is not properly identified;
d) All of the above.

72. Under AMLA, a depositor’s bank account may be frozen.

a) By the bank when the account is the subject of a suspicious or covered

transaction report;
b) By the AMLC when the account belongs to a person already convicted of money
laundering;
c) By the RTC, upon ex parte motion by the AMLC, in a criminal prosecution for
money laundering pending before it;
d) By the Court of Appeals motu proprio in an appeal from a judgment of conviction
of a criminal charge for money laundering;
e) None of the above.
73. Embassy Appliance sells home theater components that are designed and
customized as entertainment centers for consumers within the medium-to-high
price bracket. Most, if not all, of these packages are sold on installment basis,
usually by means of credit cards allowing a maximum of 36 equal monthly
payments. Preferred credit cards of this type are those issued by banks, which
regularly hold mall-wide sales blitzes participated in by appliance retailers like
Embassy Appliances. The salesclerk who is attending to you simply swipes your
credit card on the electronic approval machine (which momentarily prints out your
charge slip since you have unlimited credit), tears the slip from the machine, hands
the same over to you for your signature, and without more, proceeds to arrange the
delivery and installation of your new home theatre system. You know you will
receive a statement on your credit card purchases from the bank containing an
option to pay only a minimum amount, which is usually 1/36 of the total price you
were charges for your purchase. Did Embassy Appliance comply with the provisions
of the Truth in Lending Act?

ANSWER:

There is no need for Embassy Appliances to comply with the Truth in Lending Act.
The transaction is not a sale on installment basis. Embassy Appliances is a seller on
cash basis. It is the credit card company which allows the buyer to enjoy the
privilege of paying the price on installment basis. (BAR 2000)

74. Without going into unnecessary details, discuss the legal consequences of a
creditor’s failure to comply with the Truth in Lending Act, including the effect on the
validity or enforceability of the contract or transaction involved.

ANSWER:

The failure of a creditor to comply with the Truth in Lending Act would result
in the debtor being allowed to recover the interest payment from the creditor but
the validity of the contract or transaction itself is not adversely affected. (BAR 1986)

75. Dana Gianina purchase on a 36-month installment basis the latest model of the
NISSAN Sentra Sedan car from the Jobel Cars, Inc. In addition to the advertised
selling price, the latter imposed finance charges consisting of interests, fees and
service charges. It did not, however, submit to Dana a written statement setting
forth therein the information required by the Truth in Lending Act (RA No. 3765).
Nevertheless, the conditional deed of sale which the parties executed mentioned
that the total amount indicated therein included such finance charges. a) Has there
been substantial compliance of the aforesaid Act?

ANSWER:

No. there was no substantial compliance with the Truth in Lending Act. The
law provides that the creditor must make a full disclosure of the credit cost. The
statement that the total amount due includes the principal and the financial
charges, without specifying the amounts due on each portion thereof would be
insufficient and unacceptable.
 b) If your answer to the foregoing question is in the negative, what is the effect of
the violation on the contract?

ANSWER:
A violation of the Truth in Lending Act will not adversely affect the validity of
the contract itself.

c) In the event of a violation of the Act, what remedies may be availed of by Dana?

ANSWER:
The violation of the Truth in Lending Act would allow Dana to refuse payment
of financial charges or, if already paid, to recover the same. Dana may also initiate
criminal charges against the creditor. (BAR 1991)

76. TRUE or FALSE.

A loan agreement which provides that the debtor shall pay interest at the rate
determined by the bank’s branch manager violates the disclosure requirement of
the Truth in Lending Act.

ANSWER:

TRUE.

This is contrary to the duty of the creditor to disclose in detail the interests, charges
and other figures indicating in detail the cost of the credit granted to the debtor.
(BAR 2009)

77. XYZ Corporation bought 10 units of Honda Civic from CCC Corporation. ABC Bank
granted a loan to XYC Corporation which executed a financing agreement which
provided for the principal amount, the installment payments, the interest rates and
the due dates. On due dates of the installment payments, XYZ Corporation was
asked to pay for some handling charges and other fees which were not mentioned in
the financing Agreement. Can XYC Corporation refuse to pay the same?

a) No, because handling charges and other fees are usual in certain banking
transactions;
b) Yes, because ABC Bank is required to provide XYZ Corporation not only
the amount of the monthly installments but also the details of the finance
charges as required by the Truth in Lending Act;
c) No, because the Financing Agreement is a valid document to establish the
existence of the obligation;
d) Yes, because legally, finance charges are never allowed in any banking
transaction. Answer:

b) Yes, because ABC Bank is required to provide XYZ Corporation not only the
amount of the monthly installments but also the details of the finance charges as
required by the Truth in Lending Act. (BAR 2012)
78. X, a bank depositor has a P15, 000 savings deposit and a P20, 000 time deposit
with a bank. If the bank becomes insolvent, and is closed by the Government, how
much if any, is the guaranteed amount he can obtain as a matter of right for the
two accounts? Explain.

ANSWER:
He can only obtain P10, 000 as a matter of right, by way of guarantee. Under
the Philippine Deposit Insurance Act, the maximum amount covered by insurance is
P10, 000. And by express provision of law, this includes all kinds of deposits—
savings current as well as time deposits—in the name of or for the benefit of one
person. (BAR 1975)

Note: The term “insured deposits” means the amount due to any bona fide
depositor for legitimate deposits in an insured bank net of any obligation of the
depositor to the insured bank as of the date of the closure but not to exceed P500,
000. (Sec.4 (g), RA 9302)

79. The Deposit Insurance Law insures deposits up to P10, 000.00 per depositor. X has
three separate deposits in a single bank, namely, P15, 000.00—Savings Deposit;
P15, 000.00—Current Deposit (checking account). Later on, the bank ran into
financial trouble and was ordered by the Central Bank to close and liquidate. How
much may X recover? Answer with reasons.

ANSWER:
X may recover only up to P10, 000.00. According to Sec. 3(f) of the Deposit
Insurance Corporation Act the term “deposit” means the unpaid balance of money
or its equivalent received by a bank in the usual course of business and for which it
has given or is obliged to give credit to a commercial, checking, savings, time or
thrift account or which is evidenced by its certificate of deposit, and trust funds held
by such bank x x x. “The fact therefore that X has savings, time, and current
deposits in the same bank is immaterial. They all came under the same heading of
deposit” In Sec. 3(g) of the same Act, the term “insured deposit” is defined as the
net amount due to any depositor for deposits in an insured bank (after deducting
offset) less any part thereof of which is in excess of P10,000.00 x x x.” Likewise,
Sec. 10(a) thereof, insofar as pertinent provides: “That the maximum amount of the
insured deposit of any depositor shall be P10,000.00”. Evidently, irrespective of
kinds of deposits of a particular depositor and the total amount corresponding to the
same, he is entitled to recover only up to P10,000.00 in case of closure and
liquidation of the bank. (BAR 1977)

80. When Oriental Bank was ordered close by Central Bank on May 15, 1985, Elizabeth
Diaz had 3 separate deposit accounts in her name with the same bank, namely:
P200,000 in time deposit; P100,000 in current deposit; and P50,000 in savings
deposit. Under the PDIC law, how much, if any, could she recover from each of the
3 separate accounts? Explain.

ANSWER:
 Under the PDIC law, Elizabeth Diaz, although having 3 separate deposit
accounts in her name, totaling P350,000, in the Oriental Bank which was ordered
close by the Central Bank, can recover only the aggregate amount of P40,000
because the maximum amount of the insured deposit of any depositor, not for every
account of a depositor in the bank, is only P40,000.

Note: Section 4 (g) of RA No. 9302 provides that the term “insured deposits”
means the amount due to any bona fide depositor for legitimate deposits in an
insured bank net of any obligation of the depositor to the insured bank as of the
date of the closure but not to exceed P500,000.00. (BAR 1985)

81. An employee of a large manufacturing firm earns a salary which is just a bit more
than what he need for a comfortable living. He is thus able to still maintain a
P10,000 savings account, a P20,000 checking account, a P30,000 money market
placement and a P40,000 trust fund in a medium-size commercial bank. State which
of the four accounts are deemed insured by the PDIC?

ANSWER:

The P10,000 savings account and the P20,000 checking account are deemed
insured by the PDIC. (BAR 1997)

82. When OCCIDENTAL Bank folded up to insolvency, Manuel had the following separate
deposits in his name; P200,000 in savings deposit; P250,000 in time deposit;
P50,000 in a current account; P1 M in a trust account; and P3 M in money market
placement. Under the PDIC Act, how much could Manuel recover?

ANSWER: Manuel can recover P500,000 because this is the total of his savings
deposit, time deposit and current account. The trust account and the money market
placements are not included in the insured deposits. (BAR 2010)

83. X is a depositor of AAA Bank. She has 3 deposit accounts all under her name. One,
in checking account, one in saving account and another one in time deposit account.
Each account has a balance of P250,000. AAA Bank became insolvent. PDIC closed
the Bank. X therefore is unable to withdraw from all of the accounts. She then filed
her claims with the PDIC. Which statement is most accurate?

a) X can claim a total of P500,000 for all 3 accounts;

b) X can only claim from 1 account of P250,000;
c) X can claim a total of P750,000 from all 3 accounts;
d) X cannot claim anything from any of the deposit accounts.