SUGGESTED ANSWER:

Prosperous Bank’s refusal is not justified. Notwithstanding the provisions

of RA 1405, RA 6426 and RA 8791, the AMLC may inquire into or
examine any particular deposit or investment with any bank or nonbank
financial institution if there is a probable cause that the deposits
are related to unlawful activity under the Anti-Money Laundering Law,
as in this case. Bank inquiry order from the court is not necessary
since the the predicate crime if violation of the Dangerous Drugs Law
(Section 11 of RA 9160 as amended).
A. Why is the Bangko Sentral ng Pilipinas considered a lender of
last resort? (2%) (2015)
It is considered the lender of last resort because it lends to
banks and similar institutions under financial distress when they have
no other means to raise funds.
B. Distinguish a conservator from a receiver of a bank. (2%)
A conservator is appointed if a bank or quasi-bank is in a
state of continuing inability or unwillingness to maintain a condition of
liquidity deemed adequate to protect the interest of creditors and depositors.
The conservator shall take charge of the assets and liabilities
of the bank and exercise management and exercise other powers to
restore the bank’s viability. The conservatorship shall not exceed one
year. A receiver is appointed
generally if the realizable value of the bank’s assets as determined
by BSP is less than its liabilities. The receiver shall take charge
of the assets and liabilities of the institution and administer the same
for the benefit of its creditors. The receiver shall determine within 90
days whether the bank can be rehabilitated, otherwise, he shall recommend
the closure of the institution.
C. What is insider trading? (2%)
Insider trading is the buying or selling of securities by an
insider while in the possession of a material non-public information.
A. Raymond invested his money in securities issued by the
Philippine government, through his bank. Subsequently, the Bureau
of Internal Revenue asked his bank to disclose his investments.
His bank refused the request for disclosure on the ground
that the investments are confidential under the Secrecy of Bank
Deposits Law (Republic Act No. 1405, as amended). Is the bank's
refusal justified? Defend your answer. (2%) (2015)
It is justified. Under RA 1405, investment in bonds issued by
the Philippine government are also absolutely confidential and may not
be examined, inquired or looked into by any person, government official,
bureau or office save for the exceptions provided by law. None of
the exceptions apply in the present case.
B. First Bank received an order of garnishment over a client's
peso and dollar deposits in First Bank. Should First Bank comply
with that order? Explain. (3%)
BANKING AND FINANCE ..................................................1
LETTERS OF CREDIT .........................................................9
TRUST RECEIPTS LAW ....................................................11
WAREHOUSE RECEIPTS LAW .........................................12
NEGOTIABLE INSTRUMENTS LAW .................................13
INSURANCE ...................................................................23
TRANSPORTATION AND PUBLIC UTILITIES .....................36
CORPORATION LAW ......................................................44
SECURITIES LAW ............................................................61
INTELLECTUAL PROPERTY LAW .....................................67
CORPORATE REHABILITATION .......................................74
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First Bank should comply with the order of garnishment over
a client’s peso deposits because there is nothing in RA 1405 that
places bank deposits beyond the reach of judgment creditor. And the
disclosure of information on bank deposits pursuant to the writ of garnishment
is only incidental to the execution process (PCIB v. Court of
Appeals 193 SCRA 452 [1991]).
The dollar deposits, however, are exempt from garnishment or court
order under the Foreign Currency Act (RA 6426). Thus, the bank
should not comply with this part of the garnishment.
A. A commercial bank wants to acquire shares in a cement manufacturing
company. Do you think it can do that? Why or why not?
(2%) (2015)
A commercial bank cannot acquire shares in a cement manufacturing
company because a commercial bank can only invest in the
equity of allied undertakings, meaning undertakings related to banking
(Section 30 of RA 8791).
B. A court found the interest charged by a bank as excessive and
unconscionable and struck down the contractual stipulation on
interest. If you were the judge, what would you impose as the
applicable interest rate? State your legal basis. (2%)
I will impose legal rate of interest which is currently set at 6%
per annum.
C. What is the single borrower's limit? (2%)
Under the single borrower’s limit, the total amount of loans,
credit accommodations and guarantee that the bank may extend to
any person shall not exceed 25% of the bank’s net worth. While the
law sets the ceiling at 20% of the bank’s net worth, it also empowers
the BSP to modify the ceiling. The current SBL as set by BSP is 25% of
the Bank’s net worth.
A. On the anti-money laundering laws:
1. What is the distinction between a "covered transaction report"
and a "suspicious transaction report"? (2%) (2015)
A covered transaction report involves transaction/s in cash or
other equivalent monetary instrument involving a total amount in excess
of P500,000 within one banking day while suspicious transaction
report involves transactions with covered institutions regardless of the
amounts involved made under any of the suspicious circumstances
enumerated by law.
2. Does the Anti-Money Laundering Council have the authority to
freeze deposits? Explain. (2%)
No. The authority to freeze deposits is lodged with an based
upon the order of the Court of Appeals (Section 10 of RA 9160 as
amended).
B. On foreign investments:
1. A foreign company has a distributor in the Philippines. The
latter acts in his own name and account. Will this distributorship
be considered as doing business by the foreign company in the
Philippines? (3%)
The appointment of a distributor in the Philippines is not
sufficient to constitute doing business unless it is under the full control
of the foreign corporation. If the distributor is an independent entity
doing business for its own name and account, the latter cannot be
considered as doing business (Steel Case v. Design International Selection,
670 SCRA 64 [2012]).
2. ABC Corporation was organized in Malaysia but has a branch in
the Philippines. It is entirely owned by Filipino citizens. Can you
consider ABC Corporation a Philippine national? (2%)
Yes it is considered a Philippine national as long as it is registered as
doing business in the Philippines under the Corporation Code (Section
1 of RA 7042, as amended by Section 1 of RA 8179).
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 non-governmental organization whose supporting papers,
after audit, were found by the Commission on Audit 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 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 Anti-Money Laundering Council 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? (8%) (2013)
I shall advise Banco de Plata not to comply with the order of
the Anti-Money Laundering Council. It cannot inquire into the deposits
of Congressman Abner, regardless of currency, without a bank inquiry
order from a competent court, because crimes involved are not kidnapping
for ransom, violations of the Comprehensive Dangerous
Drugs Act, hijacking and other violations of Rep. Act. No. 6235, destructive
arson, murder and terrorism (Section 11 of Anti-Money Laundering
Act). The Ant i -Money
Laundering Council cannot order Banco de Plata 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 the accounts upon petition of the Anti-Money Laundering
Council (Anti-Money Laundering Act; Republic v. Cabrini Green Ross,
G.R. No. 154522, May 5, 2006, 489 SCRA 6446).
Describe the following types of bank. (a) Universal Bank; (b)
Commercial Bank; (c) Thrift Bank; (d) Rural Bank and (e) Cooperative
Bank. ’10 – Q1
A universal bank is a commercial bank with two additional powers,
namely: (1) the power of an investment house; and (2) the power to
invest in non-allied enterprises [Sec. 23, Republic Act No. 8791 (The
General Banking Law of 2000).]
A commercial bank is a bank that can: (1) accept drafts; (2) issue
letters of credit; (3) discount and negotiate promissory notes, drafts,
bills of exchange, and other evidence of debt; (4) accept or create
demand deposits; (5) receive other types of deposits, as well as deposit
substitutes; (6) buy and sell foreign exchange, as well as good or
silver bullion; (7) acquire marketable bonds and other debts securities;
and (8) extend credit, subject to such rules promulgated by the Monetary
Board [Sec. 29, Republic Act No. 8791 (The General Banking Law
of 2000).]
A thrift bank is one established as a savings and mortgage bank,
a stock savings and loan association, or a private development bank,
for the purpose of: (1) accumulating the savings of depositors and
investing them in outlets determined by the Monetary Board as necessary
in the furtherance of national economic objectives; (2) providing
short-term working capital, medium and long-term financing, to businesses
engaged in agriculture, services, industry and housing; and (3)
providing diversified financial and allied services for its chosen market
and constituencies specially for small and medium enterprises and
individuals [Section 3(a), Republic Act No. 7906 (Thrift Banks Acts of
1995).]
A rural bank is one established to provide credit facilities to farmers
and merchants or their cooperatives and, in general, to the people
of the rural communities [Section 3, Republic Act No. 7353 (The Rural
Banks Act of 1992).]
A cooperative bank is organized under the Cooperative Code to
provide financial and credit services to cooperatives. It may perform
any or all the services offered by a rural bank, including the operation
of Foreign Currency Deposit Unit subject to certain conditions [Section
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100, Republic Act No. 6938 (The Cooperative Code of the
Philippines).]
Legal relationship between a commercial bank and its safety deposit
bank client; Validity of stipulation in the contract for the use
of a safety deposit box relieving the bank of liability in connection
with the use thereof. ’10 – Q2a & Q2b
The relationship between a commercial bank and its safety deposit
box client is that of a bailee and a bailor, the bailment being for
hire and mutual benefit (Sia v. Court of Appeals, 222 SCRA 24 [1993];
CA Agro-Industrial Development Corp. v. Court of Appeals, 219 SCRA
426 [1993].)
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 (CA Agro-Industrial Development Corp. v. Court of Appeals, 219
SCRA 426 [1993].)
Differentiate “bank deposits” from “deposit substitutes. ’10 – Q2c
Bank deposits are funds obtained by a bank from the public which
are relent by such bank to its own borrowers.
Deposit substitutes are alternative forms of obtaining funds from
the public, other than deposits, through the issuance, endorsement, or
acceptance of debt instruments for the own account of the borrower,
for the purpose of relending or purchasing of receivables and other
obligations. These instruments may include, but need not be limited to,
bankers acceptances, promissory notes, participations, certificates of
assignment and similar instruments with recourse, and repurchase
agreements [Section 95, Republic Act No. 7653 (The New Central
Bank Act).]
Purpose as to why banks are required to maintain reserves
against their deposits and deposit substitutes. ’10 – Q2d
Any one of the following four (4) purposes for requiring banks to
maintain reserves against their deposit and deposit substitutes will
suffice:
1) One of the purpose of the requirement to maintain bank
reserves is to control the volume of money created by the
credit operations of the banking system [Section 94, Republic
Act No. 7653 (The New Central Bank Act).];
2) It is to enable the banks to answer any withdrawal;
3) To help the Government to finance its operation; and
4) To help the Government control money supply.
The statement “If the Ombudsman is convinced that there is a
violation of law after investigating a complaint alleging illicit bank
deposits of a public officer, the Ombudsman may order the bank
concerned to allow in camera inspection of bank records and
documents is FALSE. ’09 – Q1b
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 when the deposit is the subject of litigation. Investigation
by the Ombudsman is not considered as a pending litigation to
allow the examination of the bank records and documents (Marquez v.
Desierto, 359 SCRA 772 [2001].)
The statement “A bank under receivership can still grant new
loans and accept new deposits” is FALSE. ’09 – Q1e
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
proceedings.
Maharlika Pilipino Banking Corp. (MPBC) operates several
branches of Maharlika 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 (MB)
prepared a detailed report (SED Report) specifying the facts and
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.
1. May the MB order the closure of the MPBC rural banks
relying only on the SED Report, without need of an examination?
YES. Upon receipt of the report of the SED, the Monetary Board
is authorized to take any of the actions enumerated under Section 30,
R.A. 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 (Rural Bank of Buhi v.
Court of Appeals, 162 SCRA 288 [1988].)
2. If MPBC hires you as lawyer because the MB has forbidden
it from carrying on its business due to imminent
insolvency, what action will you institute to question the
MB’s order? ’09 – Q8
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
ten (10) days from receipt by the board of directors of MPBC of the
order directing the receivership, liquidation or conservatorship (Section
30, par. 2, R.A. No. 7653.)
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. ’09 – Q11a
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 (United Coconut Planters Bank
v. Sps. Beluso, 530 SCRA 567 [2007].)
Due to growing financial difficulties, Z Bank was unable to finish
construction of its 21-story building on prime lot located in
Makati. Inevitably, the BSP 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.
1. Is the act of the President valid?
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
place 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 (Abacus Real Estate
Development Center, Inc. v. Manila Banking Corp., 455 SCRA 97
[2005].)
2. Will a suit to enforce the exclusive right of the investors
to purchase the property prosper? ’07 – Q8
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 R.A. No. 7653, New Central Bank Act, the properties of Z
Bank should be administered for the benefit of its creditors. The prop-
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erty in question can be disposed of only for the purpose of paying the
debts of Z Bank (Section 30, R.A. No. 7653, New Central Bank Act.)
Name at least five (5) predicate crimes to money laundering. ’07 –
Q10
Any five (5) of the following are predicate crimes to money laundering:
1. Kidnapping for ransom under Article 267 of Act No. 3815,
otherwise known as the Revised Penal Code, as amended;
2. Section 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of Republic
Act No. 9165, otherwise known as the Comprehensive
Dangerous Drugs Act of 2002;
3. Section 3, paragraphs B, C, C, G, H and I of Republic Act
No. 3019, as amended, otherwise known as the Anti-Graft
and Corrupt Practices Act;
4. Plunder under Republic Act No. 7080, as amended;
5. Robbery and extortion under Articles 294, 295, 296, 299,
300, 301 and 302 of the Revised Penal Code, as amended;
6. Jueteng and Masiao punished as illegal gambling under
Presidential Decree No. 1602;
7. Piracy on the high seas under the Revised Penal Code, as
amended and Presidential Decree No. 532;
8. Qualified theft under Article 310 of the Revised Penal Code,
as amended;
9. Swindling under Article 315 of the Revised Penal Code and
Other Forms of Swindling under Article 316 of the Revised
Penal Code, as amended;
10. Smuggling under Republic Act Nos. 455 and 1937;
11. Violations of Republic Act No. 8792, otherwise known as the
Electronic Commerce Act of 2000;
12. Hijacking and other violations under Republic Act No. 6235;
destructive arson and murder as defined under the Revised
Penal Code, as amended;
13. Terrorism and conspiracy to commit terrorism as defined and
penalized under Sections 3 and 4 of the Republic Act No.
9372;
14. Financing of terrorism under Section 4 and offenses punishable
under Sections 5, 6, 7 and 8 of Republic Act No. 10168,
otherwise known as the Terrorism Financing Terrorism Prevention
and Suppression Act of 2012;
15. Bribery under Articles 210, 211, 211-A of the Revised Penal
Code, as amended, and Corruption of Public Officers under
Article 212 of the Revised Penal Code, as amended;
16. Frauds and Illegal Exactions and Transactions under Articles
213, 214, 215 and 216 of the Revised Penal Code, as
amended;
17. Malversation of Public Funds and Property under Articles
217 and 222 of the Revised Penal Code, as amended;
18. Forgeries and Counterfeiting under Articles 163, 166, 167,
168, 169 and 176 of the Revised Penal Code, as amended;
19. Violations of Sections 4 to 6 of Republic Act No. 9208, otherwise
known as the Anti-Trafficking in Persons Act of 2003;
20. Violations of Sections 78 to 79 of Chapter IV, of Presidential
Decree No. 705, otherwise known as the Revised Forestry
Code of the Philippines, as amended;
21. Violations of Sections 86 to 106 of Chapter VI, of Republic
Act No. 8550, otherwise known as the Philippine Fisheries
Code of 1998;
22. Violations of Sections 101 to 107, and 110 of Republic Act
No. 7942, otherwise known as the Philippine Mining Act of
1995;
23. Violations of Section 27(c), (e), (f), (g) and (i), of Republic Act
No, 9147, otherwise known as the Wildlife Resources Conservation
and Protection Act;
24. Violations of Section 7(b) of Republic Act No. 9072, otherwise
known as the National Caves and Cave Resources
Management Protection Act;
25. Violation of Republic Act No. 6539, otherwise known as the
Anti-Carnapping Act of 2002, as amended;
26. Violations of Sections 1, 3 and 5 of Presidential Decree No.
1866, as amended, otherwise known as the Decree Codifying
the Laws on Illegal/Unlawful Possession, Manufacture,
Dealing In, Acquisition or Disposition of Firearms, Ammunition
or Explosives;
27. Violation of Presidential Decree No. 1612, otherwise known
as the Anti-Fencing Law;
28. Violation of Section 6 of Republic Act No. 8042, otherwise
known as the Migrant Workers and Overseas Filipinos Act of
1995, as amended by Republic Act No. 10022;
29. Violation of Republic Act No. 8293, otherwise known as the
Intellectual Property Code of the Philippines;
30. Violation of Section 4 of Republic Act No. 9995, otherwise
known as the Anti-Photo and Video Voyeurism Act of 2009;
31. Violation of Section 4 of Republic Act No. 9775, otherwise
known as the Anti-Child Pornography Act of 2009;
32. Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12 and
14 of Republic Act No. 7610, otherwise known as the Special
Protection of Children Against Abuse, Exploitation and Discrimination;
33. Fraudulent practices and other violations under Republic Act
No. 8799, otherwise known as the Securities Regulation
Code of 2000; and
34. Felonies or offenses of a similar nature that are punishable
under the penal laws of other countries (Section 3(i), R.A.
No. 9160, Anti-Money Laundering Act of 2001, as amended
by R.A. No. 10365.)
Rudy is jobless but is reputed to be a jueteng operator. He has
never been charged or convicted of any crime. He maintains several
bank accounts and has purchased 5 houses and lots for his
children from the Luansing Realty, Inc. Since he does not have
any visible job, the company reported his purchases to the Anti-
Money Laundering Council (AMLC). Thereafter, AMLC charged
him with violation of the Anti-Money Laundering Law. Upon request
of the AMLC, the bank disclosed to it Rudy's bank deposits
amounting to P100 Million. Subsequently, he was charged in court
for violation of the Anti-Money Laundering Law.
1. Can Rudy move to dismiss the case on the ground that
he has no criminal record?
NO. As with any crime, the absence of a criminal record is not a
defense against a charge for violation of the Anti-Money Laundering
Law. Moreover, having a criminal record is not an element of Money
Laundering Offense defined under Section 4 of the Anti-Money Laundering
Law.
2. To raise funds for his defense, Rudy sold the houses
and lots to a friend. Can Luansing Realty, Inc. be compelled
to transfer to the buyer ownership of the houses
and lots?
YES. In the absence of a freeze order on the subject houses and
lots pending criminal proceedings against Rudy, the ownership thereof
may be validly transferred to another, and Luansing Realty, Inc. can be
compelled to recognize the rights of the buyer as the new owner. Section
7(6) in relation to Section 10 of the Anti-Money Laundering Law
requires an Order from the Court of Appeals for the freezing of any
money