Chapter 5

Prohibited Transactions and Cessation of Banking Business

A. Prohibition to Act as Insurer; examples:

a. Making, or proposing to make, as insurer any insurance
contract;
b. Making or proposing to make, as surety any contract of
suretyship as a vocation and not as merely incidental;
c. Doing any kind of business within the meaning of the
Insurance Code;
d. Doing any business similar to aforementioned in a
manner designed to evade the provisions of Insurance
Code
 Profit is immaterial to constitute the doing
or transacting of an insurance business.
B. Prohibited Acts
a. No Director, officer, employee, or agent of any bank
shall- FOORD
 Make false entries in any bank report or
statement or participate in any fraudulent
transaction causing damage to the bank or
any person
 Disclose to any unauthorized person any
information relative to funds in the custody
of the bank without order of a court of
competent jurisdiction
 Accept any for of remuneration or
commission in connection with approval of
loan or other credit accommodation
 Overvalue or aid in overvaluing any security
for the purpose of influencing the actions of
the bank
 Outsource inherent baking functions – to
ensure secrecy of bank deposits
b. No borrower shall – FOFA
 Fraudulently overvalue property offered as
security for a loan or other credit
accommodation
 Furnish false or misrepresent or suppress
material facts to botain, renew, increase or
extend the period of a loan or other credit
accommodation
  Attempt to defraud a bank in the event of a
court action to recover a loan or other credit
accommodations
 Offer any gift or any form of compensation
to any director, officer, employee or agent of
a bank in order to influence such persons to
approve a loan or other credit
accommodation
c. No examiner, officer or employee of the Bangko Sentral
or of any department, bureau, office, branch or agency
of the government that is assigned to supervise,
examine, assist or render technical assistance t any bank
shall-
 Commit any of the aforementioned acts or
aid in the commission of the same
 Furnishing false or misrepresent or suppress
material facts by personnel of BSP shall
constitute fraud and shall be subject to
administrative and crimina sanctions
provided under the New Central Bank Act
d. Consistent with the Banks Secrecy Law, no bank shall
employ casual or nonregular personnel or lengthy
probationary personnel in the conduct of it business
involving bank deposits
C. Prohibition Against Outsourcing Certain Banking Functions –
a. Outsourcing inherent banking functions – any contract
between the bank and a service provider for the latter to
supply manpower to service deposit transactions of the
bank.
b. Banks cannot outsource management functions unless
authorized by the Monetary board when circumstances
justify

III. Prohibition on Dividend Declaration

*No bank or quasi-bank shall declare dividends greater than its
accumulated net profits then on hand, deducting therefrom its losses and
bad debts
*Neither shall bank nor quasi-bank declare dividends, if at the time of
declaration:
1. Its clearing account with the Bangko Sentral is overdrawn; or
2. It is deficient in the required liquidity floor for government
deposits for 5 or more consecutive days; or
 3. It does not comply with the liquidity standards/ratios prescribed
by the Bangko Sentral for purposes of determining funds
available for dividend declaration; or
4. It has committed a major violation as may be determined by the
Bangko Sentral.
IV. Unauthorized Advertisement or Business Representation
No person, association, or corporation unless duly authorized to
engaged in the business of a bank, quasi-bank, trust entity, or association,
or use in connection with its business title, the word or words “bank”,
“banking”, “banker”, “quasi-bank”, “quasi-banking”, “quasi-banker”,
“savings and loan association”, “trust corporation”, “trust company”, or
words of similar import or transact any manner the business of any such
bank, corporation or association.

V. Placement Under Conservatorship

A. Governing Law
“The grounds and procedures for placing a bank under
conservatorship, as well as, the powers and duties of the
conservator appointed for the bank shall be governed by the
provisions Section 29 and the last two paragraphs of Section 30
of the New Central Bank Act: Provided, That this Section shall
also apply to conservatorship proceeding of quasi-banks.”
(Section 67 of the GBL)
B. Grounds for appointment of conservator
 The Monetary Board may appoint a conservator whenever it finds
that a bank or a quasi-bank is in a state of (1) continuing inability
or (2) unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of depositors and creditors.
[Section 29, RA 7653]

*POWERS OF THE CONSERVATOR

1. Take charge of the assets, liabilities and management of the bank
or quasi-bank
2. Reorganize the management
3. Collect all monies and debts due said institution
4. Exercise all powers necessary to restore its viability

 The conservator has the power to overrule or revoke the actions

of the previous management and board of directors of the bank or
quasi-bank.
 Section 28-A of RA No. 265 merely gives the conservator the
power to revoke contracts that are deemed to be defective under
existing law (i.e., void, voidable, unenforceable, or rescissible);
hence, the conservator merely takes the place of a bank’s board of
 directors. What the board of directors cannot do, such as
repudiating a contract validly entered into under the doctrine of
implied authority, the conservator cannot do either. [First
Philippine International Bank v. CA, 252 SCRA 255 (1986)]

*LIQUIDITY- the ability of an asset to be converted into cash quickly and

without any price discount. A corporation is liquid if it has ready access to
cash.

*SOLVENCY- the condition that exists when liabilities amount to less

than total assets, thus providing the ability to pay debts. The test of
insolvency is measured by determining whether the realizable assets of a
bank are less than its liabilities.

C. Qualifications of Conservator
The conservator should be competent and knowledgeable in bank
operations and management.
D. Period of Conservatorship
The conservatorship shall not exceed one (1) year.

E. Remuneration
 The conservator shall receive remuneration to be fixed by the
Monetary Board in an amount not to exceed two-thirds of the
salary of the president of the institution in 1 year, payable in 12
equal monthly payments.
 If any time within one-year period, the conservatorship is
terminated on the ground that the institution can operate on its
own, the conservator shall receive the balance of the
remuneration which he would have received up to the end of the
year; but if the conservatorship is terminated on other grounds,
the conservator shall not be entitled to such remaining balance.
 The Monetary Board may appoint a conservator connected with
the Bangko Sentral, in which case he shall not be entitled to
receive any remuneration or emolument from the Bangko Sentral
during the conservatorship.

F. Expenses of Conservatorship
Shall be borne by the bank or quasi-bank concerned.

G. Termination of conservatorship
 The Monetary Board shall terminate the conservatorship when it
is satisfied that the institution can continue to operate on its own
and the conservatorship is no longer necessary.
 The conservatorship shall likewise be terminated should the
Monetary Board determine that the continuance in business of the
institution would involve probable loss to its depositors or
creditors, in which case proceedings for receivership and
liquidation shall be pursued. [Section 29, RA 7653]

H. Final and Executory

 Actions of Monetary Board shall be final and executory, and may
not be restrained or set aside by the court except on petition for
certiorari on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction.
 Petition for certiorari may only be filed by the stockholders of
record presenting the majority of the capital stock within 10 days
from receipt by the board of directors of the institution of the
order directing receivership, liquidation or conservatorship.

I. Exclusive Power to Appoint

Designation of conservator is vested exclusively with the
Monetary Board.

J. Not a Precondition
Designation of conservator is not a precondition to the
designation of a receiver.

K. Powers of Conservator Cannot Impair the Obligations of Contracts.

 Powers must be related to the “(preservation of) the assets of the
bank, (the reorganization of) the management thereof and (the
restoration of) its viability. Such power cannot extend to the post-
facto repudiation of perfected transactions, otherwise they would
infringe against the non-impairment clause of the Constitution.
 Law merely gives the conservator power to revoke contracts that
are, under existing law, deemed to be defective.

VI. Cessation of Banking Business

A. Voluntary Liquidation
B. Receivership and Involutary Liquidation
C. Close Now Hear Later Scheme
D. Effect of Filing a Petition for Review
E. Reasons Behind Receivership and Involuntary Liquidation
F. Effects of Receivership and Liquidation

A. Voluntary Liquidation
1. request for approval of voluntary dissolution, attaching a liquidation plan
therein. (written notice of liquidation shall be sent to the Monetary Board
prior to such liquidation.)
2. dissolution in accordance with the Corporation Code
3. liquidation undertaken by the bank itself through its Board of Directors
either (a) by a trustee or (b) by a receiver appointed to the bank.

Grounds for Receivership and Liquidation

The MB may, summarily & w/o prior hearing, FORBID institution from
doing business if the institution:
a. is unable to pay liabilities
b. has insufficient assets, as determined by BSP
c. will involve probable loss to depositors or creditors
d. has willfully violated a cease & desist order involving acts or
transactions which amount to fraud or a dissipation of assets (50T-200T
fine or 2-10Y imprisonment) For quasi-banks, any person of recognized
competence in banking or finance may be designated as receiver.

The receiver shall immediately

1. gather all assets and liabilities
2. administer assets and liabilities for the creditors
3. exercise general powers under the Rules of Court
4. determine W/N bank may be rehabilitated or resume business w/in 90
days
* But he shall NOT (except for administrative expenses) pay or transfer
any asset of the institution.

If the receiver determines that the bank cannot be rehabilitated, the MB

shall notify the board of directors of its findings in writing and direct the
receiver to proceed with the liquidation. The receiver shall file with the
RTC a petition for assistance in the liquidation.

Current and Complete Examination Not Necessary before the closure of a

bank R.A. 7653 (1993) provides that only a REPORT of the head of
supervising or examining department is necessary. The word "report" is
clearly different from "examination." A report is "something that gives
information" or "a detailed account". An examination is "a search,
investigation or scrutiny."

Rural Bank of San Miguel Inc. v. Monetary Board - The closure of a bank
may be considered as an exercise of police power.
Sec. 174 of the Code of CivPro: A receiver may be appointed if the
corporation is dissolved * insolvent * in imminent danger of insolvency *
has forfeited corporate rights

Sec. 175: General Powers of a Receiver.

1. bring and defend actions in own name
2. take possession of property in controversy
3. receive rent, collect debts, and compound for such
4. make transfers

A receiver is
- an indifferent person between the parties to a cause
- not the agent or representative of either
- but an officer of the court

Prohibited Acts
Any director or officer of a bank declared insolvent or placed
under
receivership by the MB shall not
1. refuse to turn over the bank records
2. tamper with bank records
3. destroy or cause misappropriation of the bank's assets
4. receive any deposti, collection of loans, or receivables
5. pay out any funds of the bank
6. transfer securities or property

In the case of conservatorship,

1. the actions of the MB shall be final and executory
2. may be set aside by a petition for certiorari filed by the
stockholders of record within 10 days

Close Now Hear Later Scheme (p. 213, MemAid)

1. Sec 29 of the Central Bank Act does NOT contemplate prior
notice and hearing. The assailed actions should precede the filing
of the case.
2. Purpose is to PREVENT unwarranted dissipation of the bank's
assets and as a valid exercise of police power to protect the
depositors.
3. The bank is given full opportunity to prove arbitrariness and
bad faith in placing the bank under receivership.
* The absence of an examination does not mean that there is no
basis for the closure order. The purpose of RA 7653 is to make
the closure of a bank summary and expeditious in order to protect
public interest.
Effects of Receivership and Liquidation (p. 214, MemAid)
1. Retention of Juridical Personality
2. Suspension of Operations /Stoppage of Business
3. Assets deemed in custodia legis and shall be exempt from garnishment,
levy, attachment or execution
4. Execution of judgment is warranted
5. Bank is NOT liable to pay interest on deposits that accrue during the
period of suspension
6. But BSP shall collect interest on all loans and advances
7. Bank cannot do new business
8. Deposits do not become preferred credits

VII. Disposition and Distribution of Assets

A. Distribution of Assets
In case of liquidation of a bank or quasi-bank, after payment of
the cost of proceedings, including reasonable expenses and fees of the
receiver to be allowed by the court, the receiver shall pay the debts of such
institution, under order of the court, in accordance with the rules on
concurrence and preference of credit as provided in the Civil Code.
*Current account and savings account are not preferred credits in
cases involving the insolvency and liquidation of a bank, where there are
various creditors and it becomes necessary to ascertain the preference of
various credits. These deposits are essentially mercantile contracts and
should, therefore, be governed by the provisions of the Code of Commerce.
B. Disposition of Revenues and Earnings
All revenues and earnings realized by the receiver in winding up
the affairs and administering the assets of any bank or quasi-bank shall be
used to pay the costs, fees and expenses mentioned in Item A above
salaries of such personnel whose employment is rendered necessary in the
discharge of the liquidation together with other additional expenses caused
thereby. The balance of revenues and earnings, after the payment of all said
expenses, shall form part of the assets available for payment to creditors.

C. Disposition of Banking Franchise

The Bangko Sentral may, if public interest so requires, award to
an institution, upon such terms and conditions as the Monetary Board may
approve, the banking franchise of a bank under liquidation to operate in the
area where said bank or its branches were previously operating; Provided,
That whatever proceeds may be realized from such award shall be subject
to the appropriate exclusive disposition of the Monetary Board.

D. Liabilities
 The bank is bound by the acts, or failure to act, of the receiver. At
the same time, the receiver is liable to the bank for culpable or negligent
failure to collect the assets of such bank and to safeguard said assets.

CHAPTER 6
Foreign Banks & Trust Operations

Offshore banking – refers to the conduct of banking transactions in foreign

currencies involving the receipt of funds from external sources and
utilization of such funds.

Offshore banking unit – means a branch, subsidiary or affiliate of a foreign

banking corporation which is a duly authorized by the BSP to transact
offshore banking business in the Philippines.

 Entry of foreign banks in the Philippines are governed by Foreign

Banks Liberalization Act (RA 7721)
 The conduct of offshore banking shall be governed by Offshore
Banking System Decree (PD 1034)

NOTE: Foreign Corp. doing business in the Philippines are required to

obtain a license. Sec. 133 of Corporation Code

 Foreign Corp. doing business in the Philippines without license

are barred from accessing our courts. It is ipso facto incapacitated
to bring an action.
 A license is necessary if its transacting or doing business in the
Philippines
 By securing a license, the foreign entity would give an assurance
that it will abide by the decisions of our courts, even adverse to it.
 Purpose of the statute is to compel a foreign corporation desiring
to do business within the state to submit itself to the jurisdiction
of the courts of the state.

Foreign Banks are allowed to entry in the Philippines subject to the ff:
rules:
1. Within 7 years from the effectivity of GBL and subject to
guidelines issued pursuant to the RA 7721, the Monetary Board
may authorize a foreign bank to acquire up to a 100% of the
voting stock of only 1 bank organized under Phil. Laws.

2. Within the same period, the Monetary Board may authorize any
foreign bank, which prior to the effectivity of GBL availed itself
 of the privilege to acquire up to 60% of the voting stock of a bank
under RA 7721 and the Thrift Banks Act, to further acquire
voting shares of such bank to the extent necessary for it to own
100% of voting stock thereof.

3. In the exercise of this authority, the Monetary Board shall adopt

measures as may be necessary to ensure that at all times the
control of 70% of the resources and assets of the entire banking
system is held by banks which are at least majority-owned by
Filipinos.

4. Any of the foregoing right, privilege or incentive granted to a

foreign bank shall be equally enjoyed by and extended under the
same conditions to banks organized under the Phil. laws.

In case of a foreign bank which has more than 1 branch in the Phil, all
such branches shall be treated as on unit for the purpose of GBL and all
references to the Philippine branches of foreign banks shall be held to refer
to such units.(Sec 74 GBL)

The head office of the foreign bank shall fully guarantee the prompt
payment of all the liabilities of its Phil. Banks. (Sec 75 GBL)

Residents and citizens of the Phil. who are creditors of a branch in the
Phil. of a foreign bank shall have preferential rights to the assets of such
branch in accordance with existing laws.

 Sec 20 of GBL applies to a universal or commercial bank duly

established and organized as a Phil. corporation in accordance
with Sec 8 of GBL and authorized to establish branches within or
outside the Phil.
 Home Office Guarantee is clearly for protection of the interests of
the depositors and other creditors of local branches of a foreign
bank.
 The foreign bank cannot use the principle for a reserve purpose,
to extend the liability of a client to the foreign bank’s Phil. branch
to its head office.
 Off-setting or compensation of loans with Phil. branch using
dollar accounts with a foreign bank cannot be effected unless
otherwise stated in the contract.

III. Trust Operations

A. Authority to Engage in Trust Business
- Trust Business refers to any activity resulting from a
trustor-trustee relationship involving the appointment of
a trustee for the administration, holding, management of
funds and/or properties of the trustor for the use or
advantage of the beneficiaries.
- Only stock corporation or a person duly authorized by
the Monetary Board to engage in trust business shall act
as a trustee or administer any trust or hold property in
trust or on deposit for the use or benefit of others.
- The cardinal principle common to all trust and other
fiduciary relationships is fidelity.
- A bank authorized to engage in trust and fiduciary
business is under no obligation, either legal or moral, to
accept such business being offered.

B. Conduct of Trust Business

- A trust entity shall administer the funds or property
under its custody with the diligence that prudent man
would exercise in the conduct of an enterprise of a like
character and similar aims.
- No trust entity shall, for the account of the trustor or the
beneficiary of the trust, unless the transaction is
specifically authorized by the trustor and the
relationship of the trustee and the other party involved
in the transaction is fully disclosed to the trustor or
beneficiary.

C. Registration of Articles of Incorporation and By-Laws of

a Trust Entity
- The SEC shall not register the articles of incorporation
and by-laws or any amendment of any trust entity,
unless accompanied by a certificate of authority issued
by BSP.

D. Minimum Capitalization
- A trust entity, before it can change in trust or other
fiduciary business, shall comply with the minimum
paid-in capital requirement determined by the Monetary
Board.

E. Powers of Trust Entity

 1. Act as trustee on any mortgage or bond issued by any
municipality, corporation or any bodily politic and to
accept and execute any trust consistent with law;
2. Act under the order or appointment of any court as
guardian, receiver or trustee or depositary of the estate
of any minor and as receiver and depositary of any
moneys paid into court by parties and legal proceedings
and of property.
3. Act as the executor of any will when it is named the
executor.
4. Act as administrator of the estate of any deceased
person with the will annexed or as administrator of the
estate of any deceased person when there is no will.
5. Accept and execute any trust for the holding,
management and administration of any estate, real or
personal and the rents, issues and profits.
6. Establish and manage common trust funds, subject to
such rules and regulations as may be prescribed by the
Monetary Board.

F. Transactions Requiring Prior Authority

- A trustee or fiduciary shall not undertake any of the
following transactions for the account of a client, unless
prior to its execution.
o Lend, sell, transfer or assign money or
property to any of the departments, directors,
officers, stockholders, or employees of the
trustee or fiduciary or to any corporation
where the trustee owns at least 50% of the
subscribed or voting stock.
o Purchase or acquire property or debt
instruments from any the DOSRI or to any
corporation where the trustee or fiduciary
owns at least 50% of the subscribed capital or
voting stock.
o Invest in equities or in securities underwritten
by the trustee or fiduciary or a corporation in
which the trustee or fiduciary owns at least
50% of the subscribed capital or voting stock.
o Sell, transfer, assign or lend money or property
from one trust or fiduciary account to another
trust or fiduciary account except where the
investment is allowed by Monetary Board.
 G. Deposit for the Faithful Performance of Trust Duties
- Before transacting trust business, every trust entity shall
deposit with the BSP as security for the faithful
performance of its trust duties approved by the
Monetary Board in an amount equal to not less than
Php500, 000.00.
- Monetary Board shall require every trust entity to
increase the amount of its cash or securities on deposit
with BSP.
- The paid-in capital and surplus of such entity must be at
least equal to the amount required to be deposited with
the BSP in accordance with the above provisions.
- A trust entity so long as it shall continue to be solvent
and comply with laws or regulations shall have the
rights to collect the interest earned on such securities
deposited with BSP and to exchange the securities for
others.
- All claims arising out of the trust business of a trust
entity shall have priority over all other claims as regards
the cash or securities deposited as above provided.

IV. Bond of Certain Persons for the Faithful Performance of Duties

A. Bond Requirements
- Before an executor, administrator etc. appointed by the
court enters upon the execution of his duties, upon order
of the court, file a bond in such sum, as the court may
direct.
- Upon the application of any executor, administrator etc.
the court may, after notice and hearing, order that
subject matter of the trust.
- Upon presentation of the proof to the court that the
subject matters of the trust has been deposited with a
trust entity.
- The reduced bond shall be sufficient to secure
adequately the proper administration and care of any
property remaining under the control of such property.

B. Exemption of Trust Entity from Bond Requirement

- No bond or other security shall be required by the court
from a trust entity for the faithful performance of its
duties as court appointed trustee, executor etc.

V. Operations of Trust Entity

A. Separation of Trust Business from General Business
- The trust business and all funds received by any trust
entity as executor, administrator etc. shall be kept
separate and distinct from the general business including
all other funds, properties and assets of such trust entity.
- All moneys, properties or securities received by a bank
in its capacity as trustee, fiduciary or investment
manager shall be kept physically separate and distinct
from the assets of its other business and shall be under
the joint custody of at least 2 persons.

B. Investment Limitations of a Trust Entity

- Unless otherwise directed by the instrument creating the
trust, the lending and investment of funds and other
assets acquired by a trust entity shall be limited to loans
or investments as may be prescribed by laws, the
Monetary Board or any court of competent jurisdiction.
- Assets received in trust or in other fiduciary capacity
shall be administered in accordance with the terms of
the instrument creating the trust or other fiduciary
relationship.

Limitations:
- Evidence of indebtedness of the RP and of the BSO and
any other evidence of indebtedness or obligations the
servicing and repayment of which are fully guaranteed
by the RP.
- Loans fully guaranteed by the RP as to the payment of
principal and interest.
- Loans fully secured by a holdout on, assignment or
pledge of deposits maintained either with the bank
proper or other banks.
- Loans fully secured by real estate or chattels in
accordance with pertinent laws.

Required Specific Derivatives:

- Transaction to be entered in to
- Borrower’s name
- Amount Involved
- Collateral security/ies

C. Real Estate Acquired by a Trust Entity

 - Unless otherwise specifically directed by the trustor or
the nature of the trust, real estate acquired by a trust
entity in whatever manner and for whatever purpose
shall likewise be governed by the relevant provisions of
the GBL.
- The following circumstances may acquire, hold or
convey real property:
o Mortgaged to in good faith by way of security
for debts
o Conveyed to it in satisfaction of debts
previously contracted on the course of its
dealings.
o Shall purchase under judgments, decrees,
mortgages or trust deeds held by it and such as
it shall purchase to secure debts due it.
 Any real property acquired or held under the
circumstances enumerated above shall be disposed
of by the bank within a period of 5 years provided,
that the bank continue to hold the property for its
own use, subject to the following limitations:
o The total investment in such real estate
and improvements including equipment
shall not exceed 50% of combined capital
accounts
o The equity investment of a bank in
another corporation engaged primarily in
real estate shall be considered as part of
the total investment in real estate, unless
otherwise provided by the Monetary
Board.

D. Investments of Non-Trust Funds

- Investments of funds other than trust funds of a trust
entity which is a bank, financing company or an
investment house shall be governed by the relevant
provisions of the GBL and other applicable laws.

E. Sanctions and Penalties

- A trust entity or any of its officers and directors found to
have willfully violated any pertinent provisions of the
GBL shall be subject to sanctions and penalties.

F. Exemption of Trust Assets from Claims

 - No assets held by a trust entity in its capacity as trustee
shall be subject to any claims other than those of the
parties interested in the specific trusts
- Property held by the insolvent debtor as a trustee of an
express or implied trust shall be excluded from the
insolvency proceedings.

G. Establishment of Branches of a Trust Entity

- Ordinary business of a trust entity shall be transacted at
the place of business specified in its articles of
incorporation.

H. Advertisement of Services
- Trust entities shall advertise their services in a dignified
manner and enter such business only when demand for
such service is evident, when specially equipped to
render such service and upon full appreciation to the
responsibilities involved.

I. Money Government
- Banks may receive or hold as trustee, agent,
administrator, financial manager or other similar
capacity, any fund or money from the government and
government entities, provided, that government-owned
banks may received or hold as trustee the following:
o Funds of local government units which are
expected to be available for investment
purposes for a relatively long period of time,
provided, that the amounts held in trust or
otherwise managed/advised for and in behalf
of LGU shall be invested only in government.
o Funds of government and government entities
which are authorized by special laws to be
placed in trust.

Chapter 7
BSP

I. Creation, Responsibilities and Corporate Powers of the

BSP
a. Declared Policy of the State
 The central bank while being a government owned
corporation, shall enjoy fiscal and administrative
autonomy.
b. Responsibility and primary objective of the BSP
 The responsibility of BSP is to provide policy
directions in the area of banking, money and credit.
 It shall have supervision over the operation of
banks.
 It has regulatory powers over the operations of
banks, finance companies, quasi-banks.
 To maintain price stability conducive to a balanced
and sustainable growth of the economy.
 To promote and maintain monetary stability and
convertibility of peso.
c. Corporate powers of the BSP (SCP-SPAL)
1. Adopt, alter and use a corporate seal which shall be
judicially noticed;
2. Enter into contracts;
3. Lease or own personal and real property;
4. Sue and be sued;
5. Do and perform all things that may be necessary or
proper to carry out the purposes of the NCBA;
6. Acquire and hold assets and liabilities;
7. Compromise, condone, or release, in whole or in
part, any claim of or settled liability to the BSP.
II. Authority of the BSP; Supervisory Powers
1. The operation so banks shall be subject to the supervision of
the BSP, which includes:
a. The issuance of rules and conduct or the
establishment of standards of operation for uniform
application to all institutions or functions covered;
b. The conduct of examination to determine
compliance with laws and regulations if the
circumstances so warrant;
c. Overseeing to ascertain that laws and regulations
are complied with;
d. Regular investigation which shall not be oftener
than once a year from the date of last examination;
e. Inquiring into the solvency and liquidity of the
institution;
f. Enforcing prompt corrective action.
2. It shall also exercise regulatory powers and supervision over:
quasi banks, trust entities and financial institutions.
III. Monetary Board
A. Composition
The monetary board is composed of 7 members
appointed by the President for a term of 6 years.
B. Qualifications of the members of the Monetary Board:
a. Natural born citizens of the Philippines;
b. At least 35 years of age, with the exception of
governor who shall be 40;
c. Good moral character;
d. Unquestionable integrity;
e. Known probity and patriotism;
f. Recognized competence in social and
economic discipline.
C. Disqualifications of the members:
a. Disqualifications imposed by “A code of
conduct and ethical standards for public
officials or employees”
b. Being a director, officer, employee, consultant,
lawyer, agent or stockholder of any bank,
quasi bank, or any other institution which is
subject to supervision or examination by the
BSP;
c. Members coming from the private sector shall
not hold any other public office or
employment;
d. Person is connected directly with any
multilateral banking or financial institution;
e. Has a substantial interest in any private bank,
within 1 year prior to his appointment;
f. No member of the MB shall be employed in
any such institution within 2 years after the
expiration of his term except when he serves as
an official representative of the government.
D. Grounds for removal of monetary board:
a. If he is physically or mentally incapacitated
that he cannot properly discharge his duties
and responsibilities and such incapacity has
lasted for more than 6 months;
b. Member is guilty of acts of fraudulent or
illegal character;
c. If member no longer possess the qualifications
enumerated in B.
E. Meetings, quorums, decisions and proceedings of the
MB:
a. MB shall meet at least once a week.
 b. Presence of 4 members shall constitute a
quorum. In all cases governor or his designated
alternate shall constitute the 4.
c. Unless otherwise provided, all decisions of the
MB shall require the concurrence of at least 4
members.
Note: Exception to E, par. C.
1. Sec. 61 GBL, Publication of financial
statements. In periods of national
and/or local emergency or of
imminent panic which directly
threaten monetary and banking
stability, MB may by a vote of 5 of its
members, may allow such bank xxx,
to defer for a stated period of time
the publication xxx.
2. Sec. 28, NCBA, Examinations and
fees. Examination shall be conducted
every year, and at such other times
as the MB by an affirmative vote of 5
of its members, may deem expedient
and to make a report on the same to
the MB.
3. Sec. 72 NCBA, Emergency
Restrictions on Exchange operations.
Xxx The MB with the concurrence of
at least 5 of its members and with the
approval of the president, may
temporarily suspend or restrict sales
of exchange by the BSP, and may
subject all transactions in gold and
foreign exchange to be delivered to
the BSP.
4. Sec. 84 NCBA, Emergency loans and
advances. In periods of national
and/or local imminent financial
panic, MB may by a vote of 5 of its
members authorize the BSP to grant
extraordinary loans or advances to
banks secure by assets xxx.
d. BSP shall maintain and preserve a complete
record of the proceedings and deliberations of
the MB.
F. Scope of authority of the Monetary Board: (IDEA-I)
 a. Issue rules and regulations it considers
necessary for the effective discharge of the
responsibilities and exercise of the powers
vested upon the MB;
b. Direct the management, operations, and
administration of the BS, reorganize its
personnel, and issue such rules and regulations
as it may deem necessary and convenient for
such purpose;
c. Establish a human resource management
system which shall govern the selection,
hiring, appointment, transfer, promotion or
dismissal of all personnel.
d. Adopt an annual budget for and authorize such
expenditures by the BS;
e. Indemnify its members and other official of
the BS against all costs and expenses
reasonably incurred by them in connection
with any criminal or civil action, made by the
reason if his official duties.
G. Responsibility of the members of the MB and BSP:
a. If anyone of them wilfully violates NCBA or is
guilty of negligence, abuse or acts malfeasance
and misfeasance or fails to exercise
extraordinary diligence in the performance of
his duties shall be held liable for any loss or
injury suffered by the BSP
b. Similar responsibility shall also apply to
members, officers, and employees of the BSP
for:
i. Disclosure of any information of a
confidential nature, unless such
disclosure is in connection with the
performance of the official functions
of the BSP
ii. The use of such information for
personal gain or to the detriment of
the government.
IV. The governor and deputy governor
A. The governor shall be the Chief executive officer of the
BS with the following powers and duties:
1. Prepare the agenda for the meetings and to submit for
the consideration of the board policies and measures which is
necessary to carry out the purpose of NCBA;
 2. Execute and administer policies approved by the board;
3. Direct and supervise the operations and internal
administration of the BS.
4. Appoint and fix the remunerations and other
emoluments of personnel below the rank of dept. Head.
5. Render opinions, decisions, or rulings, which shall be
final and executory until reversed or modified by the MB.
6. Exercise such other powers as may be vested in him
B. Emergencies
a. In case of emergencies, the governor, with the
concurrence of 2 members of MB, may decide
any matter or take any action within the
authority of the MB.
b. The governor shall submit a report to the
president and the congress within 72 hours
after the action has been taken.
c. Governor shall submit his action to the Mb for
ratification.
C. Limitations on outside interests of the governor and the
full time members of the board
a. Limit their professional activities to those
pertaining directly to their position with the
bangko sentral.
b. Not accept any other employment, whether
public or private, remunerated or ad honorem,
with the exceptions of the positions in
eleemosynary, civic, cultural and religious
organizations or whenever by designation of
the president, the governor or the full time
member is tasked to represent the interest of
the government.
V. Director, Officer or stockholder and Related Interest
A. Contracting loans
a. Any director, officer, or stockholder who
together with his related interest, contracts a
loan or any other form of financial
accommodation from his bank or a bank, shall
be required by the lending bank to waive the
secrecy of his deposits
b. Any information obtained from an
examination of his deposits shall be held
strictly confidential and may be used by the
examiners in connection with their supervisory
and examination responsibility.
 Chapter 8
Currency, Monetary stabilization and Functions of the BSP

I. The unit of monetary value

A. The peso. All monetary obligations shall be settled in the
Philippine currency which is the legal tender in the
Philippines. However, the parties may agree otherwise.
B. Currency as all Philippine notes and coins issued or
circulating in accordance with the provisions of the NCBA.
C. A currency has value because people are willing to accept it
in exchange for goods and services and in payment for debts.
II. Issue of means of payment
A. Exclusive Issue Power
a. BS shall have the sole power and authority to issue
currency within the territory of the Philippines.
b. MB may issue regulations as it may deem advisable
in order to prevent the circulation of foreign
currency or of currency substitutes.
c. The BS shall have the authority to investigate,
make arrests, conduct searches and seizures for the
purpose of maintaining the integrity of the
currency.
B. Liabilities for notes and coins
a. Notes and coins issued by the BS shall be liabilities
of the BS and may be issued only against, and in
amounts not exceeding the assets of the bankgo
sentral.
b. The bangko sentral’s holding of its own notes and
coins shall not be considered as part of its currency
issue and shall not form part of the assets and
liabilities of the BS.
C. Legal tender power. All notes and coins issued by the BS
shall be fully guaranteed by the government and shall be
legal tender in the Philippines for all debts, both public and
private.
D. Replacement of currency unfit for circulation. The BS shall
withdraw from circulation and shall demonetize all notes and
coins which for any reason are unfit for circulation and shall
replace them by adequate notes and coins.
E. Retirement of old notes and coins.
a. BS shall replace notes which are more than 5 years
old and coins which are more than 10 years old.
 b. Notes and coins which are called for replacement
shall remain legal tender within one year from the
date of call.
III. Domestic Monetary Stabilization
A. Action when abnormal movements occur in the monetary
aggregates, credit or price level
a. MB shall take such remedial measures and submit
to the president and the congress and make public a
detailed report of the xxx.
b. Whenever:
i. The monetary aggregates, or the level of
the credit, increases or decreases by more
than 15 percent.
ii. The cost of living index increases by more
than 10 percent, in relation to the level
existing at the end of the corresponding
month of the preceding year.
iii. Even though the circumstances have not
been reached when in its judgment the
circumstances so warrant.
IV. International Monetary Stabilization
A. To preserve the international value of the peso and to
maintain its convertibility into other freely convertible
currencies. BS shall maintain international reserves adequate
to meet any foreseeable demands on the BS for foreign
currencies.
B. The board shall give special attention to the volume and
maturity of the BS owns liabilities in foreign currencies, to
the volume and maturity of the foreign exchange assets and
liabilities of other banks operating in the country.
C. Action when the international stability of the peso is
threatened:
a. Whenever:
i. The international reserves of the BS falls
to a level which the MB considers
inadequate to meet prospective net
demands on the BS for foreign currencies.
ii. The international reserve appears to be in
danger of falling to such a level
iii. The international reserve is falling as a
result of payment or remittances abroad,
which in the opinion of the MB is
contrary to national welfare.
The monetary board shall:
  Take such remedial measures as
are appropriate
 Submit to the president and
congress reports regarding the
nature and cause of the decline,
remedial measure already taken,
remedies proposed and the
character and cooperation required
from other government agencies
V. Operations in gold and foreign exchange
A. Purchases and sales of gold
a. BS may buy and sell gold in any form
b. Purchases and sale of gold shall be made in the
national currency
B. Purchases and sales of foreign exchange
a. BS may buy and sell foreign notes and coins,
customarily employed for the international transfer
of funds.
b. BS may buy and sell foreign exchange transactions
with the following entities only:
i. Banks operating in the Philippines
ii. Government
iii. Foreign or international financial
institutions
iv. Foreign government
v. Other entities or persons which the MB
authorized as foreign exchange dealers
C. BS shall at all times maintain a net positive foreign asset
position so that its gross foreign exchange assets always
exceed its gross foreign liabilities.
VI. Regulation of foreign exchange operations of the banks
A. Information on exchange operations
a. Banks shall report to the BS the volume and
composition of their purchases of gold and foreign
exchange each day.
VII. Loans to bank and other financial institutions
A. Authorized type of credit operations
a. Commercial credits – BS may buy, sell, rediscount,
discount xxx with maturities of not more than 180
days from the date of their purchase, discount,
rediscount by the BS.
b. Production credits – same; having maturities of not
more than 360 days from the date of the same.
c. Other credits
 d. Advances - BS may grant advances against the
following kinds of collateral:
i. Gold coins or bullion;
ii. Securities representing obligations of the
BS or of other domestic institutions;
iii. Credit instruments
iv. Utilized portions of advances in current
amount covered by regular over draft
agreements related to operations xxx.
v. Negotiable treasury bills, certificates of
indebtedness, notes and other negotiable
obligations of the government
vi. Negotiable bonds
VIII. Emergency loans and advances
A. When granted
a. In periods of national and/or local emergency or of
imminent financial panic which directly threaten
monetary and banking stability.
b. Even during normal periods, for the purpose of
assisting a bank in a precarious financial condition
or under serious financial pressures brought by
unforeseen events, provided the bank is not
insolvent.
B. Limits
a. It shall not exceed the sum of 50 % of total deposits
and deposit substitutes of the banking institution
and shall be disbursed in 2 or more tranches.
C. First Tranche. The amount of the 1 st tranche shall be limited
to twenty-five percent of the total deposit and deposit
substitutes of the institution and shall be secured by
government securities to the extent of their applicable loan
values and other unencumbered first class collaterals. This
may be increased if the circumstances warrant such increase
as to be determined by the MB.
D. Second Tranche. The MB may release a subsequent tranche
by a vote of 5 of its members, with the condition that the
principal stockholders of the institution:
a. Furnish an acceptable undertaking to indemnify and
hold harmless from suit a conservator whose
appointment may be necessary at any time;
b. To provide additional security, which the MB
would warrant as adequate to supplement the assets
tendered by the banking institution.
 E. Shares as collateral. The prohibition with respect to the BS
with respect to them not allowed to acquire shares of any
kind and accept them as collateral, and shall not participate
in the management of any enterprise, either directly or
indirectly, does not apply when they receive such shares as a
result of a foreclosure proceeding. Provided they disposed of
the same within one year from its acquisition.
IX. Credit Terms
A. Interest and rediscount. BSP has the power to charge
interests and rediscounts on all loans and advances it
extends.
B. MB may prescribe, within the general powers granted to it
under the NCBA, additional conditions which the institution
must satisfy.
C. Provisional advances to the National Government. The BS
may make provisional interests to the government with or
without interest, provided that:
a. It must be repaid before the end of 3 months and
extendible by another 3 months as the MB may
allow.
b. Shall not in their aggregate, exceed the 20 % of the
average annual income of the borrower for the last
three preceding fiscal years.
X. Open Market Operations for the Account of the BS
A. Purchases and sales of government securities. The BS may
buy and sell in the open market for its own account:
a. Evidence of indebtedness issued by the government
b. Same; issued by government instrumentalities fully
guaranteed by the government
c. The evidence of indebtedness must be freely
negotiable and regularly serviced and must be
available to the general public.
XI. Composition of BS’s portfolio
A. At least once every month the MB shall review the portfolio
of the BS in relation to its future credit policy. In reviewing
the portfolio, MB shall take into consideration whether a
sufficiently large part of the portfolio consists of assets with
early maturities, in order that a contraction in BS credit may
be effected promptly whenever the national monetary policy
so requires.
XII. Bank reserves
A. Reserve requirements
a. In order to control the volume of money created by
the credit operations of the banking system, banks
 are required to maintain reserves against their
deposit liabilities. The required reserves of each
bank shall be proportional to the volume of its
deposit liabilities and shall ordinarily take the form
of a deposit in the BS. Reserve requirements shall
be applied to all banks of the same category
uniformly and w/o discrimination.
b. The MB may exempt from reserve requirements
deposit and deposit substitutes with remaining
maturities of two years or more, as well as
interbank borrowings.
c. BS shall not pay interest on the reserves maintained
with it, unless the MB decides otherwise as
warranted by the circumstances.
B. Deposit substitutes are alternative form of obtaining funds
from the public, other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the
borrower’s own account, for the purpose of relending or
purchasing of receivables and other obligations. Provided
that, commercial, industrial and non-financial companies for
the limited purpose of financing their own needs shall not be
covered by this provision.
C. Required reserves against peso deposits. The MB may fix
and alter the minimum reserve ratios to peso deposits, as
well as to deposit substitutes, which each bank and quasi
bank may maintain.
D. Increase in Reserve requirements. Whenever in the opinion
of the MB it becomes necessary to increase the reserve
requirements, the increase shall be made in a gradual manner
and shall not exceed 4 % points in any thirty day period.
Banks shall be notified of such increase.
E. Computation of reserves. The reserve position of each bank
shall be calculated daily on the basis of the amount of its
liability accounts against which reserves are required to be
maintained.
F. Reserve Deficiencies. Whenever the reserve position of any
bank is below the required minimum, the bank shall pay to
the BS 1/10 of one percent per day on the amount of
deficiency or the prevailing 91 day Treasury bill whichever
is higher. The banks may, however, offset any reserve
deficiency with any excess reserves which they may hold on
other days.
a. If the reserve deficiency is chronic, the MB may
limit or prohibit the making of new loans or
 investments by the institution and may require that
part or all of the net profits be assigned to surplus.
b. The MB may set aside the reserve deficiency in
case of a strike or lockout affecting a bank, or of a
national emergency affecting operations of banks or
quasi banks.
G. Interbank Settlements
a. The BS shall establish facilities for interbank
clearing.
b. The deposit reserves maintained by the banks shall
be the basis for the clearing of checks and the
settlement of interbank balances.
c. Any bank which incurs on overdrawing in its
deposit account with the BS shall fully cover said
overdraft, including the interest thereon, at a rate of
letter F.
H. Exemption from attachment and other purposes
a. Deposits maintained by the banks with the BS as
part of their reserve requirements shall be exempt
from attachment, garnishment, or any other order or
process of any court issued to satisfy the claim of a
party other than the government.
XIII. Functions as banker of the government
A. The BS shall act as a banker of the government.
B. The BS shall represent the government in all dealings,
negotiations and transactions with the IMF.
C. Bs shall also represent the government in other financial
institutions.
D. The BS shall be the official depository of the government,
and as a general policy, their cash balances should be
deposited with the BS, with only minimum working balances
to be held by the government owned banks, and other banks,
subject to such rules and regulations as the MB may
prescribe.
E. The BS shall open a general cash account for the Treasurer
of the Philippines, in which the liquid funds of the
government shall be deposited.
XIV. The marketing and Stabilization of securities for the account
of the gov’t.
A. The securities stabilization fund shall be administered by the
BS for the account of the government. The operations shall
consist of purchases and sales, in the open market, of bonds
and other evidence of indebtedness issued or fully
guaranteed by the government. The purpose of these
 operations shall be to increase the liquidity and stabilize the
value of the said securities in order thereby to promote
investment in government obligations.
XV. Functions as financial advisor of the government
A. Before undertaking any credit operation abroad, the
government must secure the advice of the MB on the
monetary implications of the contemplated action.
B. The opinion of the MB shall be based on the gold and
foreign exchange resources and obligations of the nation and
on the effects of the proposed operation on the balance of
payments and on monetary aggregates.
XVI. Privileges
A. The BS shall be exempt for a period of 5 years from the
approval of the NCBA from all taxes.
B. The exemption shall apply to all property of the BS, to the
resources, receipts, expenditures, profits and income of the
BS, as well as to all contracts, deed, documents and
transactions related to the conduct of the business of the BS.
C. The BS shall also be exempted from custom duties, a) the
importation and exportation by the BS of notes and coins,
and of gold and other metals to be used for purposes
authorized under the NCBA, b) importation of equipment
needed for bank note production, minting of coins, metal
refining and other security printing operations.
D. The civil service law shall also apply to the appointments in
the BS except those which are policy-determining, primarily
confidential, and highly technical. Provided that no
qualification requirements for positions in the BS shall be
imposed other than those set by the MB. Officers and
employees shall not engage directly or indirectly in partisan
activities or take part in any election except to vote.

CHAPTER 9
UNCLAIMED BALANCES AND TRUST RECEIPTS

Unclaimed Balance

Credits or deposits or other evidence of indebtedness of

any kind with banks, loan associations and trust corporations
(BLT) in favor of any person known to be dead or who has not
made further deposits or withdrawals during the preceding ten
years or more.
 Unclaimed balance and increase in proceeds shall be
deposited with the Treasurer of the Philippines to be used as
National Assembly may direct.

Escheat
Reversion of land held under feudal tenure to the manor
in the absence of legal heirs or claimants

Procedure
1. Every January of every odd year, all BLT shall
forward to Treasurer a statement under oath of
managing officers af all credits and deposits held
by them in favor of persons known to be dead, or
who have not made further deposits or withdrawals
during the preceding ten years or more. It shall
include:
a. Names and addresses of persons with
unclaimed balance
b. Amount and date
c. Date of Death
d. Interest due

2. Copy of sworn statement shall be posted in a

conspicuous place in said establishments
3. BLT shall immediately before filing statement,
communicate with person with unclaimed balance.
4. Sol-Gen shall commence action in behalf of People
of the Philippines in the RTC where BLT is
located.
5. Summons shall be made to president, cashier or
managing officer of defendant BLT
6. Clerk of Court shall also issue a notice
7. Notice shall be published
8. Any interested person may become a party
9. Hearing
a. Unclaimed – court shall render judgment
in favor of government declaring
unclaimed balances escheated to
Government, to be deposited to Treasure
to the credit of the Government

Penalties
Refusal to make and file a sworn statement, 500 pesos a
month for each month or fraction upon continuance of default.
Immunity from suit
1. BLT which shall make any deposit of unclaimed balances
with the Treasurer of the Philippines.
2. Defended by the Sol-Gen without cost

Service and Maintenance Fees on Dormant Accounts

Banks may impose service or maintenance fees on

dormant or inactive accounts provided that period of dormancy
must first be properly disclosed among the terms and conditions
of the deposit.

Reclassification

All unclaimed balances reported to the Treasurer of the

Philippines must first be reclassified or transferred from the
deposit/liability to the liability account due to the Treasurer of the
Philippines before being turned over. Unclaimed deposit
liabilities shall no longer be covered by reserves required of
deposit liabilities.

Escheats Under the Rules of Court

1. When a person dies intestate with no heir, Sol-Gen

in behalf of Philippines may file with RTC of
province of residence praying that estate of
deceased by declared escheated.
2. Order for hearing shall not be more than 6 months
after entry of order, copy of order be published in
news paper of General circulation for 6 successive
weeks.
3. Hearing – the person died intestate, seized real or
personal property in the Philippines leaving no heir
and no cause to show contrary, court shall adjudge
the estate of deceased after paying debts and
charges shall escheat.
4. Claim to estate – People entitled to such estate
claims within 5 years from the date of the judgment

The State as an Heir of a Decedent

The State shall inherit the decedent’s estate in default of

persons entitled to succeed:
Article 1011
 In default of persons entitled to succeed the State shall
inherit the whole estate
Article 1012
In order that the state may take possession of the
property mentioned, the pertinent provisions of the
Rules of Court must be observed.

Art. 1013.
After the payment of debts and charges, the personal
property shall be assigned to the municipality or city
where the deceased last resided in the Philippines, and
the real estate to the municipalities or cities,
respectively, in which the same is situated.
If the deceased never resided in the Philippines, the
whole estate shall be assigned to the respective
municipalities or cities where the same is located.
Such estate shall be for the benefit of public schools,
and public charitable institutions and centers, in such
municipalities or cities. The court shall distribute the
estate as the respective needs of each beneficiary may
warrant.
The court, at the instance of an interested party, or on its
own motion, may order the establishment of a
permanent trust, so that only the income from the
property shall be used. (956a)
Art. 1014.
If a person legally entitled to the estate of the deceased
appears and files a claim thereto with the court within
five years from the date the property was delivered to
the State, such person shall be entitled to the possession
of the same, or if sold the municipality or city shall be
accountable to him for such part of the proceeds as may
not have been lawfully spent.
Trust Receipts

Policy

1. To encourage and promote the use of trust receipts

as an additional and convenient aid to commerce
and trade
2. Provide for regulation of trust receipts transactions
in order to assure the protection of the rights and
enforcement of obligations of the parties involved
therein
 3. Declare the misuse of goods or proceeds realized
from the sale as a criminal offence ESTAFA

Definition

Entrustee – any person having or taking possession of

goods, documents or instruments under a trust receipt transaction.
Or any of his successors in interest.

Entruster – any person holding title over the goods,

documents or instruments subject of a trust receipt transaction. Or
any of his successors in interest.

Security Instrument – property interest in goods,

documents or instruments to secure performance of some
obligations or entrustee

Trust Receipt – written or printed document signed by

the entrustee in favor of entruster containing terms and conditions
substantially complying with provisions of Trust Receipts Law

Trust Receipt Transaction

Any transaction by and between an entruster and an

entrustee whereby the entruster who owns or holds absolute title
or security interests over certain specified goods, documents or
instruments releases the same to the possession of the entrustee
upon the latter’s execution and delivery to the entruster of a
signed document called a trust receipt.

A trust receipt binds the entrustee to hold the designated

goods, documents or instruments in trust for the entruster and to
sell or otherwise dispose of them with the obligation to turn over
the proceeds to the entruster to the extent of the amount owing to
the entruster.

Other purposes:
1.) Goods or documents
a. Sell the goods or procure their sale
b. Manufacture or process goods for sale
c. Load, unload, ship, transship

2.) Instruments
a. Sell or procure their sale or exchange
 b. Deliver them to a principal
c. Effect consummation
d. Effect presentation and collection

There are two situations in a trust receipt transaction:

1. Money received under
obligation to deliver it
(entregarla)
2. Merchandise received under
the obligation to return it
(devolvera)

Trust receipt is a separate and independent security

transaction intended to aid in financing importers whereby the
imported goods are held as security by the lending institution for
the loan obligation.

Spouses Vintola vs. Insular Bank of Asia and America

explained the nature and usage.

Transaction involves a loan feature

represented by the Letter of Credit and security feature
which is in the covering trust receipt.

* Trust Receipt – document in which is expressed a

security transaction where the lender having no prior title to the
goods and not having possession lends his money to the borrower
who has possession on security of the goods which the borrower
is privileged to sell with an agreement to pay all or part of the
proceeds to the lender.

Form of Trust Receipts

Need not be in a particular form. But must contain:

1. Description of the goods, document or
instrument subject to trust receipt
2. Total invoice value of the goods and
amount of the draft
3. Undertaking of the entrustee to:
a. Hold in trust for the entruster
b. Dispose of them in manner
provided by trust receipt
 c. Turn over proceeds of sale of
goods

Currency

Trust receipt may be denominated in any foreign

currency acceptable provided that in the case denominated in
foreign currency, payment shall be made in Philippine currency
equivalent to it.

Rights of Entruster

1. Entitled to proceeds from the sale released under a

trust receipt to the entrustee to the extent of the
amount owing to the entruster or as appears in the
trust receipt or return of the goods incase of a non-
sale
2. May cancel the trust and take possession of the
goods subject of the trust receipt upon default or
failure of entrustee to comply with any of the terms
and conditions of the trust receipt.
3. Proceeds shall be applied
a. To the payment of the expenses
b. To the payment of expenses of re-taking,
keeping and storing of goods
c. Satisfaction of entrustee’s indebtedness
4. Entrustee shall receive any surplus but shall be
liable to entruster for any deficiency

 Trust receipts partake of the

nature of a conditional sale
since the importer becomes
absolute owner of the
imported merchandise as soon
as he has paid its price.
Ownership shall be vested
only upon payment of the full
amount.

 Entruster shall not be

responsible as principal or as
vendor under any sale or
contract to sell made by the
entrustee.
Obligations of the Entrustee

1. Hold the goods in trust for the entruster and dispose

of them strictly in accordance with the terms of the
rust receipt
2. Receive the proceeds in trust for the entruster and
turn over the same to the entruster
3. Insure the goods for their total value against loss
and other casualties
4. Keep goods separate and capable of identification
as property of entruster
5. Return the goods in the event of a non-sale or
demand of the entruster
6. Observe all other terms and conditions of the trust
receipt

Liability for Loss

The risk of Loss shall be borne by the entrustee,

irrespective of whether or not it was due to the fault of the
entrustee.

Rights of Purchaser for Value and Good Faith

Innocent purchaser for value acquires goods free from

entruster’s security interest.

Violation of Trust Receipts Law

Although is it malum prohibitum, the intent to misuse or

misappropriate the goods should be proved. Because the Law
punishes the dishonesty and abuse of confidence.

Application

Applies to items:
1. Destined for sale
2. Processed as a component of a product
ultimately sold
3. Used to repair and maintain equipment in
business

Penalty
 Failure of Entrustee to turn over proceeds of the sale of
goods covered by the trust receipt shall constitute the crime of
ESTAFA.

CHAPTER 10
DEPOSIT INSURANCE

Roles of PDIC

1) It shall ensure the deposits of all banks which are entitled to

the benefits of insurance and which shall have to powers granted
by law
2) It shall promote and safeguard the interests of the depositing
public by way of providing permanent and continuing insurance
coverage on all insured deposits
3) PDIC shall be entitled to the free use of Philippine mail in the
same manner as the other offices of the national government

Powers of PDIC as a corporate Body

1) to adopt and use a corporate seal

2) to have succession until dissolved by an Act of Congress
3) to make contracts
4) to sue and be sued, complain and defend, in any court of law in
the Phil.
a) all suits of civil nature to which the corporation shall
be part shall deemed to arise under the laws of the Philippines.
b)no attachment or execution shall be issued against
PDIC or its property before final judgment in any suit, action or
proceeding in any court
c) The Board of Directors shall designate an agent upon
whom service of process may be made in any province or city
jurisdiction in which any insured bank is located
5) to appoint its board of directors such officers and employees as
are not otherwise provided by the law to define their duties, fix
their compensation, require bonds of them and fix penalty thereof
and to dismiss such officers and employees for cause
6) to prescribe by laws not inconsistent with law
7) to exercise all powers specifically granted by law
8) to conduct examination of banks
9) act as a receiver
 10) to prescribe such rules and regulations as it may deem
necessary to carry out the provisions of the PDIC law.
11) PDIC may establish its own provident fund which shall
consist of contributions made both by it and by its officers and
employees to a common fund for the payment of benefits to such
officers
12) to compromise, condone or release in whole or in part, any
claim or settled liability to PDIC regardless of the amount
involved.

Composition

1) Secretary of finance – ex officio chairman w/o compensation

2) governor of BSP – ex officio member of the Board w/o
compensation
3) President of PDIC – appointed by the president of the
Philippines – for a term of 6years – shall also serve as Vice
Chairman of the Board
4) 2 members from the private sector – for 6 years w/o
reappointment by the President
Disqualification of Appointive members – disqualified from
holding any office, position, or employment in any insured bank
Quorum
i) presence of three (3) members shall constitute a quorum
ii) secretary of finance and governor of the banking sentral may
each designate a representative
iii) Chairman of the board – unable to attend – president shall act
as chairman

Per Diem – Secretary of Finance shall fix the rate of per diem for every
board meeting

Authority of the Board

1) to issue rules and regulations as it considers necessary for the

effective discharge of its responsibilities
2) to direct the management, operation and administration of
PDIC
3) to establish human resources management
4) to appoint, establish the rank, fix the remuneration, approve
local and foreign training of, and remove any officer or employee
for a cause, subject to pertinent civil service laws.
5) to adopt an annual budget
 6) to approval the methodology for determining the level and
amount of provisioning for insurance and financial assistance
losses which shall establish reasonable levels of deposit insurance
reserves

Officers

1) President
2) VP
3) Bank Examiners
4) Claim agents
5) Investigators

Deposit insurance coverage

A) Deposit Liabilities
i) deposit liabilities of any bank or banking institution
which is engaged in the business of receiving shall be
insured with the PDIC .
ii) factors considered
- Financial history and condition of the
bank
- Adequacy of its capital structure
- Future earning prospects
- General character of its management
- Convenience and needs of the community
to be served by the bank and whether or
not its corporate powers are within the
purposes of the PDIC
- The term deposit, unpaid balance of
money or its equivalent received by a
bank in its usual course of business and
for which it has given or its obliged to
give credit

B) Statutory Liability of PDIC

PDIC governed primarily by the provisions of the special law creating it.
The liability of the PDIC for insured deposits therefore is statutory and
such liability rests upon the existence of deposits with the insured bank.

Borrowing from Banks

Borrowing from any bank or banking institution by examiners and other
personnel of the examination departments of PDIC shall be prohibited only
with respect to the particular institution in which they are assigned.
XIII. Receivership
A. Appointment
a. Appoint PDIC as receiver
b. “receiver” includes a receiver, commission, person or
other agency charged by law with the duty to take
charge of the assets and liabilities of a bank which has
been forbidden from doing business
B. Powers
a. Control, manage and administer the affairs of the closed
bank
i. Powers, functions and duties, as well as all
allowances, remunerations and perquisites of
the directors, officers, and stockholders of such
bank are suspended
ii. Provisions of the Articles of Incorporation are
deemed suspended
iii. Assets deemed in custodial egis in the hands
of the receiver
iv. From the time the closed bank is placed under
such receivership, assets shall not be subject to
attachment, garnishment, execution, levy or
any court processes.
b. In addition to the powers of a receiver, PDIC is
empowered to:
i. Bring suit to enforce liabilities to or recoveries
of the closed bank
ii. Appoint or hire persons to perform such
powers and functions of PDIC as receiver or
liquidator of the closed bank
iii. Suspend or terminate the employment of
officers and employees of the closed bank
C. Suits Filed by the PDIC
a. In cases or actions filed by the PDIC, payment of all
docket and other court fees shall be deferred until the
action is terminated with finality.
D. Distribution of Assets

XIV. Payment of Insure Deposits

A. Manner of Payment
a. Payment of the insured deposits made by PDIC
i. By cash
ii. By making available to each depositor a
transferred deposit in another insured bank in
 an amount equal to insured deposit of such
depositor
b. “transfer deposit” means a deposit in an insured bank
made available to a depositor by PDIC as payment of
insured deposit of such depositor in a closed bank and
assumed by another insured bank
c. Joint account insured separately from any individually-
owned deposit account
d. Account held jointly by 2 or more natural persons, or by
2 or more juridical persons or entities, the maximum
insured deposit shall be divided into as many equal
shares as there are individuals, unless a diff. sharing is
stipulated in the document of deposit
e. Account held by a juridical person or entity jointly – the
maximum insured deposit shall be presumed to belong
entirely to such juridical person or entity
f. Aggregate of the interests – maximum insured deposit
of PhP 250,000
B. Proof of Claims
a. PDIC, in its discretion, may require proof of claims to
be filed before paying the insured deposits.
b. It may require the final determination of a court of
competent jurisdiction before paying such claim
C. Settlement Period and Penalties in Case of Failure to Settle
a. Failure to settle the claim due to grave abuse of
discretion, gross negligence, bad faith or malice –
imprisonment from 6 months to 1 year
b. Upon payment of any depositor, PDIC shall be
subrogated to the rights of the depositor against the
closed bank to the extent of such payment
c. Subrogation shall include the right to receive the same
dividends from the proceeds of the assets of such closed
bank and recoveries on account of stockholders’ liability
as would have been payable to the depositor on a claim
for the insured deposits
D. Notice
a. PDIC shall commence the determination of insured
deposits due the depositors of a closed bank upon its
actual takeover of the closed bank and give notice
b. Publish the notice once a week for at least 3 consecutive
weeks
E. Discharge
a. Payment of an insured deposit to any person shall
discharge PDIC
 F. Recognition of Owner
G. Withholding of Payment
a. PDIC may withhold payment of such portion of the
insured deposit of any depositor in a closed bank as may
be required to provide for the payment of any liability of
such depositor as a stockholder of the closed bank, or of
any liability of such depositor to the closed bank or its
receiver
H. Prescription
a. If the depositor in the closed bank shall fail to claim his
insured deposits within 2 years from actual takeover of
the closed bank by the receiver, or does not enforce his
claim within 2 years after the 2-year period to file a
claim, all rights of the depositor with respect to the
insured deposit shall be barred
XV. Investment By PDIC
A. Money of PDIC not otherwise employed shall be invested in
obligations of the Philippines
a. It shall not sell or purchase any such obligations for its
own account and in its own right and interest, at any one
time aggregating in excess of P100,000 without the
approval of the Insurance Commissioner
B. The banking or checking accounts of PDIC shall be kept with the
Central Bank of the Philippines, with the Philippine National
Bank, or with any other bank designated as depository or fiscal
agent of the Philippine Government
XVI. Extension Of Loans
A. If an insured bank is in danger of closing, PDIC is authorized to
make loans to, or purchase the assets of, or assume liabilities of,
or make deposits in, such insured bank, upon such terms and
condition as the Board of Directors may prescribe when it is
essential to provide the adequate banking service in the
community or maintain financial stability in the economy
a. Extend financial assistance to, assume liabilities of,
purchase the assets of an insured bank if PDIC finds that
the resumption of operations of such bank is vital to the
interests of the community OR severe financial climate
exists which threatens the stability of a number of banks
possessing significant resources
b. Reopening and resumption of operations of the closed
bank shall be subject to the prior approval of the
Monetary Board
B. PDIC may provide acquiring control of, merging or consolidating
with or acquiring the assets of an insured bank in danger of
 closing in order to prevent such closing or of a closed insured
bank in order to restore to normal operations
C. Prior to the exercise of these powers, PDIC shall determine that
actual payoff and liquidation thereof will be more expensive than
the exercise of its power
D. When the MB has determined that there are systematic
consequences of a probable failure or closure of an insured bank,
PDIC may grant financial assistance to such insured bank in such
amount as may be necessary to prevent its failure or closure
and/or restore the insured bank to viable operations
a. Systemic risk – possibility that failure of one bank to
settle net transactions with other banks will trigger a
chain reaction, depriving other banks of funds leading to
a general shutdown of normal clearing and settlement
activity
E. PDIC may not use these authorities to purchase the voting or
common stock of an insured bank
F. Financial assistance may take the form of equity or quasi-equity
of the insured bank as may be deemed necessary by the Board of
Directors
XVII. Borrowings
A. PDIC is authorized to borrow from the BSP
B. When the funds of the PDIC are not sufficient to provide for an
emergency or urgent need to attain the purposes of the PDIC law,
it is likewise authorized to borrow money, obtain loans or arrange
credit lines or other credit accommodations from any bank
designated as depository or fiscal agent of the Phil. Govt.
XVIII. Issuance of Banks
With the approval of the President, PDIC is authorized to issue bonds,
debentures, and other obligations for the settlement of insured deposits
in closed banks as well as for financial assistance
a. Board of Directors to determine the interests rates and
maturity
b. PDIC to provide appropriate reserves for the redemption
or retirement of obligation
XIX. Reports and Audit
XX. Miscellaneous
A. Signs
a. Every insured bank shall display at each place of
business maintained by it a sign that its deposits are
insured by PDIC
b. Board may exempt from this requirement
advertisements which do not relate to deposits
B. Merger or Consolidation of Insured Banks
 a. No insured bank shall
i. merge or consolidate with any noninsured
bank or institution, or convert into a
noninsured bank
ii. assume liability to pay any deposits made in,
or similar liabilities of, any noninsured bank or
institution
iii. transfer assets to any noninsured bank in
consideration of the assumption of liabilities
for any portion of the deposits made in such
insured bank
TRO and Injunction
A. No court, except the CA, shall issue any TRO, preliminary
injunction or preliminary mandatory injunction against PDIC
B. SC may issue a restraining order or injunction when the matter is
of extreme urgency involving a constitutional issue
C. Any restraining order or injunction issued in violation of the
foregoing is void and of no force and effect and any judge who
has issued the same shall suffer the penalty of suspension of at
least 60 days without pay
Chapter 11
Anti-Money Laundering

Money Laundering - a crime whereby the proceeds of an unlawful

activity are transacted thereby making them appear to have originated from
legitimate sources.

3 Steps of accomplishing:

1. Placement – inserts money into a legitimate financial

institutions
2. Layering – sending money through various financial
transactions to change its form
3. Integration – money re-enters the mainstream economy in
legitimate-looking form

Policies of AMLA

1. Protect and preserve integrity and confidentiality of bank

accounts
2. Ensure that Philippines shall no be used as money laundering
site
 3. Extend cooperation in transnational investigations and
prosecutions

Institutions Covered

1. Banks and other institutions supervised and regulated by

BSP
2. Insurance Committees
3. Securities, dealers, etc.
4. Mutual funds, common-trust funds and other similar entities
5. Foreign Exchange corporations and other similar entities
6. Entities administering or dealing with currencies regulated
by SEC

Covered Suspicious Transactions

1. Cash or equivalent monetary instrument exceeding P500,000

within 1 banking day
2. Regardless of amount:
a. No underlying legal or trade obligation
b. Client is not properly identified
c. Amount is not commensurate with business or
financial capacity of client
d. Client’s transaction is structured in order to avoid
being subject of reporting requirements
e. Deviation from the profile of the client and/or
client’s past transactions with institution
f. Transaction is related to an unlawful activity
g. Any analogous transactions

Unlawful Activities

1. Kidnapping for Ransom

2. DDA
3. Anti-Graft and Corrupt Practices Act
4. Plunder
5. Robbery and extortion
6. Jueteng
7. Piracy
8. Qualified Theft
9. Swindling
10. Smuggling
11. Violations of Electronic Commerce Act
12. Hi-jacking
 13. Violations of Securities Regulation Code
14. Other felonies of similar nature

Money Laundering Offense

1. Person transacting or attempts to transact any monetary

instrument purporting to the proceeds of any unlawful
activity
2. Performs or failure to perform any act as a result of which he
facilitates the offense mentioned in (1)
3. Failure to disclose as required by AMLC

Jurisdiction

RTC – private persons

Sandiganbayan – Public Officers
Public Officers and private persons in
conspiracy

AMLC Composition

1. Governor of BSP – Chairman

2. Commissioner of Insurance Commission – member
3. Chairman of SEC - member

Functions of AMLC

1. Require and receive covered or suspicious transaction from

covered institutions
2. Issue orders addressed to appropriate Supervising Authority
or covered institution to determine true identity of the owner
of questioned property
3. Institute civil forfeiture through Sol-Gen
4. File complaints with DOJ or Ombudsman
5. Investigation
6. Apply before CA for freezing any property alleged to be
proceeds of unlawful activity
7. Implement measures necessary to counteract money
laundering
8. receive and take action in respect of any request for foreign
assistance
9. develop educational programs
10. Enlist assistance of any branch of governemtn
11. Impose administrative sanctions for violation of rules
 12. Establish by a secretariat headed by Executive director
appointed by Council

Prevention of Money Laundering; Customer Identification

Requirements and Record keeping

Customer Identification

1. Institutions shall establish and record true identity of its

clients based on official documents
2. Maintain a system of verifying true identity of their clients
3. Anonymous accounts, accounts under fictitious names are
prohibited
4. Peso and foreign currency non-checking numbered accounts
shall be allowed

Freezing of Monetary Instrument or Property

The CA upon application ex parte by AMLC after determination

of probable cause

Freeze period shall be for 20 days unless extended by the court

Authority to Inquire Bank Deposits

To complete legal measures to prevent money laundering, the

AMLC may inquire into or examine any particular deposit or investment
with any banking institution or non-bank financial institution upon order of
any competent court incases of violation, it must be established that:
1. There is probable cause that deposits are related to unlawful
activity or Money laundering offense

No court order:
1. Kidnapping for Ransom
2. DDA
3. Hi-Jacking
4. Destructive Arson and murder

BSP may inquire into or examine any deposit when examination

is made in the course of a periodic or special examination.
 Republic vs. Eugenio

Sec. 11 of RA 9194 allows AMLC to inquire into bank

accounts without having to obtain a judicial order in cases
where there is probable cause that deposits or investments are
related to:

1. Kidnapping for Ransom

2. DDA
3. Hi-Jacking
4. Destructive Arson and murder

When court order is required, there is no provision which

provides that specifically authorizes such court may be issues ex
parte, this silence does not preclude the ex parte issuance of the
bank inquiry order as it is not prohibited.

A Bank inquiry is not a search warrant or warrant of arrest as it

contemplates a direct object but not the seizure of persons or
property.

Because of Bank Secrecy Act, the confidentiality of bank deposits

remains a basic state policy in the Philippines. Subsequent laws
such as AMLA may have added exceptions to the Bank Secrecy
Act yet the secrecy of Bank deposits still lies as the general rule.

FORFEITURE

Civil Forfeiture

When there is a covered transaction report made, and the court

has ordered the seizure of any property related to said report, the Revised
Rules of Court on civil forfeiture applies.

Payment in Lieu of Forfeiture

Court may, instead of enforcing the order of forfeiture, order the

convicted offender to pay an amount equal to the value when order cannot
be enforced because:
1. Property cannot, with due diligence be located
2. Substantially altered, destroyed, diminished in value or
otherwise rendered worthless through an act attributable to
the offender
 3. Concealed, removed, converted or transferred to prevent
from being found
4. Located outside the Philippines or has been placed or
brought outside the jurisdiction of the court
5. Commingled with other monetary instruments or property
belonging to offender or third persons rendering the same
difficult to identifyor segregated for purposes of forfeiture

Mutual Assistance Among States

Request for Assistance from Foreign State

Principle of mutuality and reciprocity shall be at all times

recognized.

Powers of AMLC to act on request for assistance from a foreign State

1. AMLC may execute a request for assistance from a foreign

State by:
a. Tracking down, freezing, restraining and seizing
assets to be proceeds of any unlawful activity
b. Giving information needed by the foreign state
c. Applying for an order of forfeiture of such property

Obtaining assistance from Foreign States

1. AMLC may make a request to any foreign State for

assistance in:
a. Tracking down, freezing, restraining and seizing
assets alleged to be proceeds of any unlawful
activity
b. Obtaining information that it needs relating to
covered transactions
c. Enter any premises belonging to persons named in
said request
d. Applying for order of forfeiture
Limitations

May refuse to comply with any request for assistance where the
action sought by the request contravenes any provision of the Constitution
or the execution of a request is likely to prejudice the national interest of
Philippines unless a treaty so provides.

Requirements for Requests for Mutual Assistance from foreign States

 1. Confirm that investigation or prosecution is being conducted
in respect of a money launderer named therein or that he has
been convicted of any money laundering offense
2. State the grounds on which any person is being investigated
or prosecuted for money laundering or details of his
conviction
3. Give sufficient particulars as to identity of said person
4. Give particulars sufficient to identify any covered institution
believed to have information
5. Ask from covered institution any information of assistance
6. Specify manner in which material is to be produced
7. Give particulars n issuance of writs, or orders needed by the
requesting State
8. Contain information as may assist in execution of request

Authentication of Documents

Authenticated if:
1. Signed or certified by a judge, magistrate or
equivalent officer in or of the requesting State
2. Authenticated by the oath or affirmation of a
witness or sealed with official or public seal

Extradition

Philippines shall negotiate for the inclusion of money laundering

offenses among extraditable offenses in all future treaties.

Prohibitions Against Political Harassment

1. AMLA shall not be used for political persecution or

harassment or as an instrument to hamper competition in
trade and commerce
2. May not be filed to the prejudice of a candidate for an
electoral office during an election period.

Powers of Congressional Oversight Committee

The Power to promulgate its own rules, to oversee the

implementation of Anti-money Laundering act and to review or revise the
implementing rules issued by AMLC within 30 days from promulgation of
said rules.

Rules and Regulations to Combat Money Laundering

1. Should take reasonable measures to establish and record the

true identity of their clients.
2. In case of doubt as to whether their purported clients or
customers are acting for themselves or for another,
reasonable measures should be taken to obtain the true
identity of the persons on whose behalf an account is opened
3. Anonymous accounts or accounts under fictitious names
should not be kept or allowed, unless provided by law
4. Identity of clients should be reviewed at least every other
year
5. All records to be maintained for at least 5 years
6. Special attention to all complex, unusual large transactions
and all unusual patterns of transactions which have no
apparent or visible lawful purpose
7. Other suspicious transactions
8. Should avoid transactions with criminals
9. Programs against money laundering should be developed
a. Internal policies and procedures and controls
b. Ongoing employee training program
c. Audit function to test the system

CHAPTER 12
SPECIAL PURPOSE VEHICLE

. The declared policies of the State are:

i. To develop and maintain a sound financial sector for the
country;
ii. To address the non-performing asset problems of the
financial sector;
iii. To encourage private sector investments in non-performing
assets;
iv. To eliminate existing barriers in the acquisition of non-
performing assets;
v. To help in the rehabilitation of distressed business with the
end in view of contributing to the economic value added; and
vi. To improve the liquidity of the financial system which can
be harnessed to propel economic growth.
B. Definitions
1. ACT- Special Purpose Vehicle Act 2002
2. APPRORIATE REGULATORY AUTHORITY- agency/ authority
having jurisdiction over the FI’s operations which shall be the following:
i. the DOF- in the case of the PDIC and GOCCs, in consultation
with other agencies that have primary jurisdiction over the said FIs
whenever deemed appropriate by the DOF;
ii. the BSP- in the case of banks which include LBP and DBP,
and trust and quasi-banking functions of financing companies and
investment houses licensed by the BSP; and
iii. the Commission- in the case of financing companies and
investment houses, except their trust and quasi-banking functions
3. AUDITED FINANCIAL STATEMENTS- a set of financial reports
consisting of balance sheet, income statement, statement of changes in
equity and cash flow statement, audited by a Commission-accredited
independent CPA.
4. CERTIFICATE OF ELIGIBILITY (COE)- certificate issued by the
Appropriate Regulatory Authority as to the eligibility of the NPL or
ROPOA for purposes of availing of the tax exemptions and privileges.
5. CODE- Batas Pambansa Bilang 68 otherwise known as The Corporation
Code of the Philippines
6. COMMISSION- Securities and Exchange Commission
7. DATION IN PAYMENT (DACION EN PAGO)- payment whereby
property, whether real or personal, tangible or intangible, is alienated in
favor of the creditor, which could either be an FI or an SPV, in satisfaction
of an NPL.
8. FIA- Foreign Investment Act, RA 7042, as amended.
9. FINANCIAL INSTITUTIONS (FIs)- credit-granting institutions which
shall be limited to the following:
i. the BSP;
ii. a bank as defined under Republic Act No.8791, also known as
"The General Banking Law";
iii. a financing company as defined under Republic Act No. 8556,
also known as "The Financing Company Act of 1998";
iv. an investment house as defined in Presidential Decree No.
129, also known as "The Investment Houses Law";
v. government financial institutions (GFIs), which for purposes of
this Act, shall be limited to the Philippine Deposit Insurance Corporation
(PDIC), Land Bank of the Philippines (LBP), and Development Bank of
the Philippines (DBP);
vi. government-owned-or-controlled-corporations
(GOCCs),which for purposes of this Act, shall be limited to the National
Home Mortgage Finance Corporation (NHMFC), Home Guarantee
Corporation (HGC), Home Development Mutual Fund (HDMF), Social
Security System (SSS), Government Service Insurance System (GSIS),
Trade and Investment Development Corporation (TIDCORP), Small
Business Guarantee and Finance Corporation (SBGFC), Technology and
Livelihood Resource Center (TLRC), Livelihood Corporation (LIVECOR),
National Development Corporation (NDC), Quedan and Rural Credit
Guarantee Corporation (QUEDANCOR), National Housing Authority
(NHA), and Armed Forces of the Philippines- Retirement and Separation
Benefits System (AFP-(RSBS); and
vii. other institutions licensed by the BSP to perform quasi-
banking functions.
10. INVESTMENT UNITS (IUIs)- participation certificates, debt
instruments or similar instruments issued by the SPV and subscribed by
Permitted Investors as provided in Section 11 hereof, pursuant to an
Approved Plan: Provided, That these shall not include the instruments to
be issued by the SPV to the selling FIs as full or partial settlement of the
non-performing assets transferred to the said SPV: Provided, further, That
such issuances of the SPV shall not be considered as deposit substitutes:
Provided, finally, That these shall not form part of the capital stock of the
SPV.
11. NIRC- the National Internal Revenue Code of 1997, as amended.
12. NON-BANKING FINANCIAL INSTITUTIONS PERFORMING
QUASI-BANKING FUNCTIONS (NBQBs)- financing companies,
investment houses and other institutions licensed by the BSP to perform
quasi-banking functions.
13. NON-PERFORMING ASSETS (NPAs)- consist of the Non-
Performing Loans (NPLs) and Real and Other Properties Owned or
Acquired (ROPOAs) by the FIs
14. NON-PERFORMING LOANS (NPLs)- loans and receivables such as
mortgage loans, unsecured loans, consumption loans, trade receivables,
lease receivables, credit card receivables and all registered and unregistered
security and collateral instruments, including but not limited to, real state
mortgages, chattel mortgages, pledges and antichresis, whose principal
and/or interest have remained unpaid for at least one hundred and eighty
(180) days after they have become past due or any of the events of default
under the loan agreement has occurred.
15. ROPOA- real and other properties owned or acquired by an FI in
settlement of loans and receivables, including real properties, shares of
stocks, and chattels formerly constituting collateral's for secured loans
which have been acquired by way of dation in payment (dacion en pago) or
judicial or extra-judicial foreclosure or execution of judgement.
16. TRUE SALE- a sale wherein the selling FI transfers or sells its NPAs
without recourse for cash or property to an SPV with the following results:
i. The transferor relinquishes effective control over the transferred
NPAs; and
 ii. The transferred NPAs are legally isolated and put beyond the
reach of the transferor and its creditors.
C. Organization
An SPV shall be organized as stock corporation in accordance with Batas
Pambansa Blg. 68, otherwise known as "The Corporation Code of the
Philippines" and the rules promulgated by the Commission for purposes of
registering the SPV: Provided, That if the SPV will acquire land, at least
sixty percent (60%) of its outstanding capital stock shall be owned by
Philippines nationals pursuant to Republic Act No7042, as amended,
otherwise known as "The Foreign Investment Act".
D. Powers of an SPV
-incorporated primarily to invest in, or acquire NPAs of FIs.
-secondary powers shall be limited to the following:
i. To engage third parties to manage, operate, collect and dispose
of NPAs acquired from an FI;
ii. To rent, lease, hire, pledge, mortgage, transfer, sell, exchange,
usufruct, secure, securitize, collect rents and profits, and other similar acts
concerning its NPAs acquired from an FI;
iii. In case of NPLs, to restructure debt, condone debt and
undertake other structuring debt, the SPV may reduce the principal,
interest, interest rates, and the period for calculating the interest, extend the
time for debt repayment or relax the conditions for debt repayment, agree
to the conversion of the borrowers debt to equity in the borrower's
business, agree to a transfer of assets or claims from the borrower t repay
the debtor dispose of some of the borrower's property or claims to third
persons;
iv. To take, transfer shares or buy shares issued by the borrower
for the purpose of business reorganization or rehabilitation of the borrower,
subject to the provisions of the Corporation Code in respect of the rights of
the shareholders of the borrower company, and apply any other measures
or restructuring techniques with the approval of the Commission;
v. To enter into dation in payment (dation en pago) arrangements,
foreclose judicially or extra-judicially and other forms of debt settlement
involving NPLs;
vi. To spend funds to renovate, improve, complete or alter its
NPAs acquired from an FI;
vii. To issue equity or participation certificates or other forms of
IUIs for the purpose of acquiring, managing, improving and disposing of
its NPAs acquired from an FI;
viii. To borrow money and issue other instruments of
indebtedness for the purpose of paying operational administrative costs;
ix. To guarantee credit, accept or intervene for honor the bills of
borrowers;
 x. To advance funds to borrowers where required by an acquired
asset or any debt restructuring agreement pursuant thereto, or under any
court order or rehabilitation plan; and
xi. To entrust to third parties asset servicing company, the
collection and receipt of the debt payments for debts under debt
restructuring business reorganization, management and disposition of
assets of the SPV in accordance with the rules, procedures and conditions
prescribed by the Commission or by the courts. Except in the case of
ROPOAs whose redemption periods have already expired, the SPV shall
notify the borrower and all persons holding prior encumbrances upon the
properties or a part thereof or are actually holding the same adversely to the
borrower within fifteen (15) days from the date of the appointment of the
said collection agent.
E. Period for Filing of Applications
 The Articles of Incorporation of the SPV, its by-laws and other
documentary requirements shall be filed with the Commission not
beyond eighteen (18) months from the date of approval of the
Implementing Rules and Regulations (IRR) by the Congressional
Oversight Committee (COC) created in Section 23 of the Act.
 only SPVs whose applications are filed not later than the 18-
month period and are subsequently approved by the
Commission shall qualify for the tax exemptions and
privileges granted under the Act.
 Registration Requirements- shall submit to the Commission the
ff. documents for incorporation:
(1) Name Verification Slip, showing its proposed name which
shall always include the acronym “SPV-AMC (Asset
Management Company)” appended thereto;
(2) Articles of Incorporation and By-Laws;
(3) Treasurer’s Affidavit/Authority to verify bank account;
(4) Bank Certificates of Deposits (notarized in the place where
the bank is located)
(5) Written undertaking to change corporate name by incorporator
or director;
(6) Registration Data Sheet.
F. Authorized, Subscribed And Paid-Up Capital Of the SPV
 An SPV shall have a minimum authorized capital stock of
Five hundred million pesos (P500, 000,000.00), with a
minimum subscribed capital stock of One hundred twenty
five million pesos (P125, 000.000.00), and a minimum paid-
up capital of Thirty-one million two hundred fifty thousand
pesos (P31, 250.00). Paid-up capital must be in the form of
cash.
G. Submission of SPV Plan
After the establishment of an SPV pursuant to Section 4 hereof, an SPV
Plan shall be submitted to the Commission for approval, which shall
include the following:
(a) Investment policies of the SPV;
(b) Contribution plan including the amounts and draft of
subscription documents;
(c) Features of the IUIs including the specific amounts issued
and/or to be issued;
(d) timetable of issuance;
(e) Rights of the holders of the IUIs;
(f) Draft agreements for the appointment of trustees and agents
with respect to the IUIs and the NPLs acquired from an FI;
(g) appointment or engagement of an external auditor accredited
by the Commission;
(h) Roles and responsibilities of the trustees, advisors, loan
servicers and property managers;
(i) Draft form of financial reports of the SPV;
(j) Details of distribution policies;
(k) Methods for the increase and decrease of future fund
contribution;
(l) Methods for the alteration or modification of the approved
SPV Plan;
(m) Methods for the liquidation and distribution of assets to the
holders of IUIs;
(n) Details of credit enhancements like guarantees or standby
letters of credit or advances that may be extended to the SPV by
an entity which shall not be the selling FI, its parent, subsidiaries
or affiliates; and
(o) Such other documents or information as may be required by
the Commission.
H. Approval
- Upon approval of the SPV Plan, the Commission shall issue an Approval
certificate stating that the application has been approved and that the IUIs
may be issued.
I. Issuance of IUIs
(a) Registration Requirements
(1) Any existing SRC rule or provision to the contrary
notwithstanding, all IUIs proposed to be sold or distributed within the
Philippines shall be duly registered with the Commission.
(2) Submission of Registration Statement shall include exhibits
and full disclosure of the ff. in the prospectus:
i. Business of the issuer
ii. Use of Proceeds
iii. Risk Factors
 iv. Legal Proceedings
v. Market of Securities
vi. Management’s Discussion of Financial Condition and Results
of Operation
vii. Directors and Officers
viii. Securities Ownership
ix. Certain Related Party Transactions
x. Audited and Interim Financial Statements in accordance with
SRC Rule 68, as amended.
(3) The ff. information shall be disclosed in the registration
statements of an SPV:
i. Details of SPV Plan
ii. Details of credit enhancements like guarantees or standby
letters of credit
iii. Detailed description of the assets or loan constituting the pool
of assets; or the assets or loan intended to form part of the pool of
assets
iv. Rights and obligations of the selling financial institution/s
assumed by the SPV
v. Description of any relationship or interest of the selling
financial institution’s Parent, Subsidiaries, Affiliates or
stockholders, directors or officers, with the SPV.
vi. Incentives and exception privileges
(4) SPV shall likewise submit a certification from the FI that the
affected borrowers of the NPLs and all persons holding prior
encumbrances upon the assets mortgaged or pledged have been notified by
registered mail of the intended transfer of NPLs to an SPV
- borrower shall be given a period of atleast 90 days from receipt
of notice to renegotiate or restructure the loan with the FI
(5) SPV shall pay registration fee of 1/10 of 1% of the aggregate
offering price of the IUIs subject to a diminishing fee set by the
Commission.
(6) SPV shall cause the publication of a notice of filing of
registration statement at its expense
- 2 newspapers of gen. circulation in the Philippines, once a week
for two consecutive weeks
(7) Commission may audit the financial statements, assets and
other information of an SPV applying for registration of an IUIs
(8) Upon registration statement being declared effective by the
Commission, the sale of securities subject thereto shall be commenced
within two business days and be continued until the end of the offering
period or until the sale has been terminated by action of the issuer.
(9) SPV shall ensure wide dissemination of the preliminary and
final prospectuses
 (10) Written notification shall be given to the Commission within
3 business days from completion or termination of the offering by the
issuer, including therein the number of securities sold.
(b) Amendments or Rejection
(1) Within 45 days after the date of filing of the registration
statement, or at such later date to which the issuer has consented, the
Commission shall declare the registration statement effective or rejected
unless the applicant is allowed to amend the registration statement.
(2) Commission may reject a registration statement and refuse
registration of the security therunder, or revoke the effectivity of a
registration statement and the registration of the security after due notice
and hearing by issuing an order to such effect, setting forth its findings in
respect thereto, if it finds that:
i. The issuer:
a. has been judicially declared insolvent
[Link] any of the provisions of the Corporation Code
or any order of the Commission
c. has been or is engaged or is about to engaged in
fraudulent transactions
d. has made any false or misleading representation of
material facts in any prospectus concerning the issuer or its
securities
e. failed to comply with any requirement that the
Commission may impose
ii. The registration statement is on its face incomplete or
inaccurate in any material respect or includes any untrue
statement of a material fact or omits to state a material fact
required to be stated therein
iii. The issuer, any officer, director or controlling person of the
issuer, or person performing similar functions, or any underwriter
has been convicted, by a competent judicial or administrative
body, upon plea of guilty, or otherwise, of an offense involving
moral turpitude and/or fraud or is enjoined or restrained by the
Commission or other competent judicial or administrative body
for violations of securities, commodities, and other related laws.
(3) If the Commission deems it necessary, it may issue an order
suspending the offer and sale of the securities pending any investigation.
(c ) Issuance of Securities to the Public Without Prior Registration
(1) An SPV that offers to sell or distribute its IUIs to the public
within the Philippines without prior registration shall be subject to the
penalties provided under the SRC.
(2) Imposition of the foregoing administrative sanctions shall be
without prejudice to the filing of criminal charges against the individual
responsible for the violation.
(d) Tax treatments of IUIs
- Since IUIs are not considered as deposit substitutes under the Act,
interests or other monetary benefit derived from IUIs is not subject to the
20% final withholding tax under the NIRC
-The IUI and any income arising from the IUIs shall be subject to normal
income tax and/or such other applicable taxes imposed under the NIRC.
J. Permitted Investors
Any person may acquire or hold IUIs in an SPV in the minimum amount of
Ten million pesos (P10, 000.000.00); Provided, That an SPV shall not be
authorized to acquire the IUIs of another SPV: Provided, further, That the
parent, subsidiaries, affiliates or stock-holders, directors, officers or any
related interest of the selling FI or the parent's subsidiaries, affiliates or
stock-holders, directors, officers or any related interest shall not acquire or
hold, directly or indirectly, the IUIs of the SPV that acquired the NPAs of
the FI.
K. Notice and Manner Of Transfer of Assets
(a) Prior Notice
- No transfer of NPLs to an SPV shall take effect unless the FI concerned
shall give prior notice, pursuant to the Rules of Court, thereof to the
borrowers of the NPLs and all persons holding prior encumbrances upon
the assets mortgaged or pledged. Such notice shall be in writing to the
borrower by registered mail at their last known address on file with the FI.
The borrower and the FI shall be given a period of at most ninety (90) days
upon receipt of notice, pursuant to the Rules of Court, to restructure or
renegotiate the loan under such terms and conditions as may be agreed
upon by the borrower and the FIs concerned.
(b) Procedures on the Transfer of Assets to the SPV
An FI that intends to transfer its NPAs to an SPV shall file an application
for eligibility of said NPAs, in the prescribed format, with the Appropriate
Regulatory Authority having jurisdiction over its operation. Said
application shall be filed for each transfer of asset/s.
(c ) Issuance of the COE
- The transfer of NPAs from an FI to an SPV shall be subject to prior
certification of eligibility as NPA by the appropriate regulatory authority
having jurisdiction over its operations, which shall issue its ruling within
forty-five (45) days from the date of application by the FI for eligibility.
(d) Subsequent Notice
- After the sale or transfer of the NPLs, the transferring FI shall inform the
borrower in writing at the last known address of the fact of the sale or
transfer of the NPLs.
(e) Subsequent Transfers
- Each COE shall be valid for only 1 transfer. All subsequent transfers shall
require a separate COE from the Appropriate Regulatory Authority.
L. Nature of Transfer – True Sale
 * Any transfer of NPAs not in the nature of True Sale as provided
for in the Act shall not qualify for tax exemptions and fee privileges
granted under the Act. Provided, That GFIs and GOCCs shall be subject to
existing law on the disposition of assets: Provided further, That in the
transfer of the NPLs, the provisions on subrogation and assignment of
credits under the New Civil Code shall apply.
M. Assumption of Rights and Obligations
The SPV shall assume all rights and obligations of the FI over the
transferred NPA
N. Tax Exemptions and Fee Privileges
The following transactions are exempt from the payment of taxes:
1. The transfer of NPL by the FI to an SPV;
2. The transfer of ROPOA by the FI to an SPV;
3. The dacion en page of the NPL by the borrower to the FI;
4. The dacion en pago of the NPL by a third party, on behalf of
the borrower, to the FI;
5. The transfer of NPL by the FI to an individual;
6. The transfer of the ROPOA by the FI to an individual;
7. The transfer of the NPL by the SPV to a third party;
8. The transfer of the ROPOA by the SPV to a third party;
9. The dacion en pago of the NPL by a third party, on behalf of
the borrower, to the SPV;
10. The dacion en pago of the NPL by the borrower to the SPV;
11. The transfer of the NPL by the individual to a third party; and,
finally,
12. The transfer of the ROPOA by the individual to a third party.

The tax exemptions provided above shall be exempt from the payment of
the following taxes:
1. Documentary stamp tax as may be imposed under Title VII
of the NIRC;
2. Capital gains tax imposed on the transfer of lands and/or
other assets treated as capital assets as defined under Section
39(A)(1) of the NIRC;
3. Creditable withholding income taxes imposed on the transfer
of land and or buildings treated as ordinary assets pursuant to
Revenue Regulation No. 2-98, as amended;
4. The value-added tax as may be imposed under Title IV of the
NIRC, or gross receipts tax under Title V of the same NIRC.
Penalties
1. Any person who violates any of the provisions of this Act, or any
person who, in a registration statement, notice, certification or plan
filed under this Act, makes any untruthful statement of a material fact
or omits to state any material fact required to be stated therein, shall,
 upon conviction, suffer a fine of not less than Fifty thousand pesos
(P50,000.00) nor more than One million pesos (P1,000,000.00) or
imprisonment of not less than six (6) years and one (1) day nor
more than twelve (12) years, or both, in the discretion of the court,
without prejudice to the penalties provided under Sec. 18 hereof and
other applicable laws.
2. If the offender is a corporation, association, partnership or any juridical
person, the penalty shall be imposed upon the responsible officers,
as the case may be, who participated in the commission of the crime or
who shall have knowingly permitted or failed to prevent its
commission.
3. If the offender is a juridical person, the court may order the suspension
or revocation of license.
4. If the offender is an alien, he shall, in addition to the penalties herein
prescribed, be deported without further proceedings after serving the
penalties herein prescribed.
5. If the offender is a public official or employee, he shall, in addition to
the penalties prescribed herein, suffer absolute or temporary
disqualification from government or public office, as the case may be.