1
Chapter 1
Banks and the Business of Banking
I. Declared Policy Of The StateSection 2 of Republic Act 8791 (General Banking Law of 2000 or GBL) provides:
The State recognizes the vital role of banks in providing an environment conducive to the sus-tained development of the national economy and the fi duciary nature of banking that requires high stan-dards of integrity and performance. In furtherance thereof, the State shall promote and maintain a sta-ble and effi cient banking and fi nancial system that is globally competitive, dynamic and responsive to the demands of a developing economy.
II. Defi nition Of Banks
Banks are defi ned under the GBL as entities engaged in the lending of funds obtained in the form of deposits.1 Note however that banks may engage in other activities allowed by law which will be discussed in the succeeding chapters of this book.
Other Defi nitions:
A bank is —
(i) A moneyed institute2 founded to facilitate the borrowing, lending and safe-keeping of money3 and to deal, in notes, bills of exchange, and credits.4
1Section 3.2, Republic Act No. 8791.
2Talmage vs. Pell 7 N.Y. (3 Seld.) 328, 347, 348.
3Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180, 210, 65
L. Ed. 577.
4State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338; Banks & Banking,
(ii) An investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank.5
(iii) Any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although but one of these functions is exercised.6
(iv) A fi nancial institution with power to issue its promissory notes intended to circulate as money (known as bank notes); or to receive the money of others on general deposit, to form a joint fund that shall be used by the institution for its own benefi t, for one or more of the purposes of making temporary loans and discounts, of dealing in notes, foreign and domestic bills of exchange, coin bullion, credits, and the remission of money; or with both these powers, and with the privileges, in addition to these basic powers, of receiving special deposits, and making collection for the holders of negotiable paper, if the institution sees fi t to engage in such business.7 In funding these businesses,
the bank invests the money that it holds in trust of its depositors.
III. Nature Of Banking Business A. Debtor-Creditor Relationship
The relation existing between a depositor and a bank is that of creditor and debtor8 and not that of a depositor and a depositary under the Civil Code.
Article 1980 of the Civil Code of the Philippines provides: “Art. 1980. Fixed, savings, and current deposits
of money in banks and similar institutions shall be governed by the provisions concerning loan.’’
5Western Investment Banking Co. vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215. 6MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann.
Cas. 826; 9 C.J.S. 30.
7United Coconut Planters Bank vs. Ramos, G.R. No. 147800, November 11,
2003.
8Gullas vs. The Philippine National Bank, G.R. No. L-43191, November 13,
In Consolidated Bank and Trust Corporation vs. Court of Appeals, the Supreme Court held:
“The contract between the bank and its
depositor is governed by the provisions of the Civil Code on simple loan, x x x. There is a
debtor-creditor relationship between the bank and its depositor.
The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the
bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.”
Similarly, in Serrano vs. Central Bank of the Philippines, the Supreme Court held that “bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. x x x. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a depositary’s failure to return the subject matter of the deposit.”
B. Fiduciary Duty
i. Section 2 of the GBL expressly imposes fi duciary duty on banks when it declares that the State recognizes the “fi duciary nature of banking that requires high standards of integrity and performance.” This statutory declaration merely echoes the earlier pronouncement of the Supreme Court9 requiring banks to “treat the accounts of its
depositors with meticulous care, always having in mind the fi duciary nature of their relationship.”10
ii. Jurisprudence had already imposed on banks the same high standard of diligence long before the enactment of the GBL. This fi duciary relationship means that the bank’s obligation to observe “high standards of integrity
9Simex International (Manila) Inc. vs. Court of Appeals, G.R. No. 88013, March
19, 1990, 183 SCRA 360.
and performance” is deemed written into every deposit agreement between a bank and its depositor.
iii. The fi duciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Thus, the bank’s fi duciary duty imposes upon it a higher level of accountability than that expected of depositor.11
C. Not a Trust Agreement
i. However, the fi duciary nature of a bank-depositor rela-tionship does not convert the contract between the bank and its depositors from a simple loan to a trust agree-ment, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust.12 The law simply imposes on the bank a
higher standard of integrity and performance in comply-ing with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a simi-lar contract of simple loan.
ii. The fi duciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors while charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and not to the depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income belongs to the depositors, a situation that Congress certainly did not intend in enacting Section 2 of R.A. 8791.
D. Indispensable Institution
The Supreme Court never fails to stress the remarkable signifi cance of a banking institution to commercial transactions, in
11Philippine Banking Corporation vs. Court of Appeals, G.R. No. 127469,
Janu-ary 15, 2004.
12Serrano vs. Central Bank, G.R. No. L-30511, February 14, 1980, 96 SCRA
particular, and to the country’s economy in general.13 The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude, and most of all, confi dence.
i. Thus, even the humble wage-earner has not hesitated to entrust his life’s savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him.
ii. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses.
iii. As for business entities, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.14
E. Impressed with Public Interest
i. The business of banking is imbued with public interest. The stability of banks largely depends on the confi dence of the people in the honesty and effi ciency of banks. The depositor’s reasonable expectations from a bank and the bank’s corresponding duty to its depositor, were pointed out by the Supreme Court as follows:
In every case, the depositor expects the bank to treat his account with the utmost fi delity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to refl ect at any given time the amount of money the depositor can dispose of as he
13Metropolitan Bank and Trust Company vs. Cabilzo, G.R. No. 154469,
December 6, 2006.
14Simex International (Manila) Inc. vs. Court of Appeals, 183 SCRA 360, March
sees fi t, confi dent that the bank will deliver it as and to whomever he directs.15
ii. Since the banking business is impressed with public interest, of paramount importance thereto is the trust and confi dence of the public in general. Consequently, the highest degree of diligence16 is expected,17 and high
standards of integrity and performance are even required, of it. By the nature of its functions, a bank is “under obligation to treat the accounts of its depositors with meticulous care,18 always having in mind the fi duciary
nature of their relationship.”19
F. Degree of Diligence
i. The law imposes on banks high standards in view of the fi duciary nature of banking.20 As stated earlier, the
new provision in the general banking law is a statutory affi rmation of Supreme Court decisions, starting with the 1990 case of Simex International vs. Court of Appeals,21 holding that “the bank is under obligation
to treat the accounts of its depositors with meticulous care, always having in mind the fi duciary nature of their relationship.”22
15Ibid.
16The diligence required of banks is more than that of a pater familias or good
father of a family. Bank of the Philippine Islands vs. Court of Appeals, 383 Phil. 538, 554, February 29, 2000. See Philippine Bank of Commerce vs. Court of Appeals, 336 Phil. 667, 681, March 14, 1997.
17Philippine Commercial International Bank vs. Court of Appeals, 350 SCRA
446, 472, January 29, 2001.
18Westmont Bank vs. Ong, 375 SCRA 212, 221, January 30, 2002; Citing
Cit-ytrust Banking Corp. vs. IAC, 232 SCRA 559, 564, May 27, 1994.
19Simex International (Manila) Inc. vs. Court of Appeals, 183 SCRA 360, 367,
March 19, 1990, Per Cruz, J.
20In the United States, the prevailing rule, as enunciated by the U.S. Supreme
Court in Bank of Marin vs. England, 385 U.S. 99 (1966), is that the bank-depositor relationship is governed by contract, and the bankruptcy of the depositor does not alter the relationship unless the bank receives notice of the bankruptcy. However, the Supreme Court of some states, like Arizona, have held that banks have more than a contractual duty to depositors, and that a special relationship may create a fi duciary obligation on banks outside of their contract with depositors. See Stewart vs. Phoenix National Bank, 49 Ariz. 34, 64 P. 2d 101 (1937); Klein vs. First Edina National Bank, 293 Minn. 418, 196 N.W. 2d 619 (1972).
21G.R. No. 88013, March 19, 1990, 183 SCRA 360.
22The ruling in Simex International was followed in the following cases: Bank
ii. The fi duciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1173 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family.23 Section 2 of the GBL
prescribes the statutory diligence required from banks — that banks must observe “high standards of integrity and performance”24 in servicing their depositors.
iii. In Philippine Bank of Commerce vs. Court of Appeals25
upholding a long standing doctrine, the Supreme Court ruled that the degree of diligence required of banks, is more than that of a good father of a family where the fi duciary nature of their relationship with their depositors is concerned. In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care. But the said ruling applies only to cases where banks act under their fi duciary capacity, that is, as depositary of the deposits of their depositors. But the
same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fi duciary relationship with their depositors.
iv. Considering the foregoing, a bank is not required to exert more than the diligence of a good father of a family in regard to the sale and issuance of foreign exchange demand draft. It does not involve the handling of deposit, if any, with the bank. Instead, the relationship involved was that of a buyer and seller, that is, between the bank as the seller of the foreign exchange demand draft, and the buyer of the same.26
21, 1992, 206 SCRA 408; Citytrust Banking Corporation vs. Intermediate Appellate Court, G.R. No. 84281, May 27, 1994, 232 SCRA 559; Tan vs. Court of Appeals, G.R. No. 108555, December 20, 1994, 239 SCRA 310; Metropolitan Bank & Trust Co. vs. Court of Appeals, G.R. No. 112576, October 26, 1994, 237 SCRA 761; Philippine Bank of Commerce vs. Court of Appeals, 336 Phil. 667 (1997); Firestone vs. Court of Ap-peals, G.R. No. 113236, March 5, 2001, 353 SCRA 601.
23The second paragraph of Article 1173 of the Civil Code provides: “If the law or
contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.”
24Bank of Commerce vs. Spouses San Pablo, G.R. No. 167848, April 27, 2007. 25Reyes vs. Court of Appeals, G.R. No. 118492, August 15, 2001.
* Note: Diligence Extends to Financial Institutions:
1. A government fi nancial institution (e.g., GSIS), like banks, is expected to exercise greater care and prudence in its dealings, including those involving registered lands.27
2. Due diligence required of banks extend even to persons, or institutions, regularly engaged in the business of lending money secured by real estate mortgages.28
G. Treatment of Accounts with Meticulous Care
i. A bank is under obligation to treat the accounts of its depositors with meticulous care.29
ii. In every case, the depositor expects the bank to treat his account with the utmost fi delity, whether such account consists only of a few hundred pesos or of millions. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also fi nancial loss and perhaps even civil and criminal litigation.30
iii. But there is no law mandating banks to call up their clients whenever their representatives withdraw signifi cant amounts from their accounts.
H. Duty to Keep Records
A bank has a fi duciary duty to keep effi ciently a record of its transactions with its depositors.31 Banks shall have a true and accurate account, record or statement of their daily transactions, particularly those referring to their deposit liabilities. The making of any false entry or the willful omission of entries relevant to any transaction, is a ground for the imposition of administrative sanctions and the disqualifi cation from offi ce of any director or
27Government Service Insurance System vs. Santiago, G.R. No. 155206,
Octo-ber 28, 2003; Cruz vs. Bancom Finance Corporation, 379 SCRA 490 (2002).
28Adriano vs. Pangilinan, 373 SCRA 544 (2002).
29Firestone Tire & Rubber Company of the Philippines vs. Court of Appeals,
G.R. No. 113236, March 5, 2001, 353 SCRA 601, 609, citing Philippine Bank of Com-merce vs. Court of Appeals, 269 SCRA 695, 699 (1997).
30Simex International (Manila) Incorporated vs. Court of Appeals, G.R. No.
88013, March 19, 1990.
31Philippine Banking Corporation vs. Court of Appeals, G.R. No. 127469,
offi cer responsible therefor. This is without prejudice to their criminal liability under the New Central Bank Act (NCBA) and/or the applicable provisions of the Revised Penal Code.
I. Banks are not Gratuitous Bailees
Banks are not gratuitous bailees of the funds deposited with them by their customers. Banks are run for gain, and they solicit deposits in order that they can use the money for that very purpose.32
J. Banks not Expected to be Infallible
A bank is not expected to be infallible.33 However, it must bear
the blame for not discovering mistakes if there are established procedures and the same have not been followed.
Problem:
Spouses A and V opened a joint current account in C Bank with an initial deposit of P2,250. Prior thereto, A had an existing separate personal checking account in the same branch. When the spouses opened their joint current account, the “new accounts” teller of the bank pulled out from the bank’s fi les the old and existing signature card of A for use as ID and reference. By mistake, she placed the old personal account number of A on the deposit slip for the new joint checking account of the spouses so that the initial deposit of P2,250 for the joint checking account was miscredited to A’s personal account. The spouses subsequently deposited other amounts in their joint account. However, when V issued a check for P1,639.89 and another check for P1,160.00, one of the checks was dishonored by the bank for insuffi cient funds and a penalty of P20 was deducted from the account in both instances. In view of the overdrawings, the bank tried to call up the spouses at the telephone number which they had given in their application form, but the bank could not contact them because they actually reside in Porac, Pampanga. The city address and telephone number which they gave to the bank belonged to V’s parents. Is the bank liable for damages?
32San Carlos Milling Co., Ltd. vs. Bank of the Philippines Islands, G.R. No.
37467, December 11, 1933.
33Bank of the Philippine Islands vs. The Intermediate Appellate Court, G.R.
Yes. The bank is not expected to be infallible but, in this instance, it must bear the blame for not discovering the mistake of its teller despite the established procedure requiring the papers and bank books to pass through a battery of bank personnel whose duty it is to check and countercheck them for possible errors. Apparently, the offi cials and employees tasked to do that did not perform their duties with due care.34 While the bank’s negligence may not have
been attended with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation to the depositors for which they are entitled to recover reasonable moral damages.35
The award of reasonable attorney’s fees is proper for the depositors were compelled to litigate to protect their interest.36 However, the
absence of malice and bad faith renders an award of exemplary damages improper.37
K. Dealing with Registered Lands
i. Banks should exercise more care and prudence in dealing even with registered lands, than private individuals, for their business is one affected with public interest.38
Banks keep in trust money belonging to their depositors, which they should guard against loss by not committing any act of negligence that amounts to lack of good faith. Absent good faith, banks would be denied the protective mantle of the land registration statute, Act 496 (Land Registration Law), which extends only to purchasers for value and good faith, as well as to mortgagees of the same character and description. The rule that persons dealing with registered lands can rely solely on the certifi cate of title does not apply to banks.39
ii. A mortgagee can rely on what appears on the certifi cate of title presented by the mortgagor and an innocent mort-gagee is not expected to conduct an exhaustive investi-gation on the history of the mortgagor’s title. This rule is strictly applied to banking institutions. A mortgagee-bank must exercise due diligence before entering into said
34Ibid.
35American Express International, Inc. vs. IAC, 167 SCRA 209. 36Art. 2208, Civil Code.
37Globe Mackay Cable and Radio Corp. vs. Court of Appeals, 176 SCRA 778. 38Id. at 88.
contract. Judicial notice is taken of the standard practice for banks, before approving a loan, to send representa-tives to the premises of the land offered as collateral and to investigate who the real owners thereof are.
iii. In Cavite Development Bank vs. Spouses Lim,40 the Court
explained the doctrine of mortgagee in good faith, thus: There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of “the mortgagee in good faith” based on the rule that all persons dealing with property covered by the Torrens Certifi cates of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public interest in upholding the indefeasibility of a certifi cate of title, as evidence of lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certifi cate of title.
iv. Indeed, a mortgagee has a right to rely in good faith on the certifi cate of title of the mortgagor of the property given as security, and in the absence of any sign that might arouse suspicion, the mortgagee has no obligation to undertake further investigation. This doctrine pre-supposes, however, that the mortgagor, who is not the rightful owner of the property, has already succeeded in obtaining Torrens title over the property in his name and that, after obtaining the said title, he succeeds in mortgaging the property to another who relies on what appears on the title. This does not apply in a situation where the mortgagor was not the registered owner and merely represented himself to be the attorney-in-fact.41
v. In cases where the mortgagee does not directly deal with the registered owner of real property, the law requires that a higher degree of prudence be exercised by the mortgagee.
40381 Phil. 355, 368 (2000) as cited in Ereña vs. Querrer-Kauffman, G.R. No.
165853, June 22, 2006, 492 SCRA 298, 319.
As enunciated in the case of Abad vs. Guimba:42
x x x While one who buys from the registered owner does not need to look behind the certifi cate of title, one who buys from one who is not a registered owner is expected to examine not only the certifi cate of title but all the factual circumstances necessary for [one] to determine if there are any fl aws in the title of the transferor, or in [the] capacity to transfer the land. Although the instant case does not involve a sale but only a mortgage, the same rule applies inasmuch as the law itself includes a mortgagee in the term “purchaser.”43
vi. This principle is applied more strenuously when the mortgagee is a bank or a banking institution. In the case of Cruz vs. Bancom Finance Corporation, the Supreme Court ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individu-als, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertain-ment of the status or condition of a property offered to it as security for a loan must be a standard and indispens-able part of its operations.44
vii. That the person applying for the loan is other than the registered owner of the real property being mortgaged should already raise a red fl ag and which should induce a bank to make inquiries into and confi rm the authority to mortgage another’s property. A person who deliberately ignores a signifi cant fact that could create suspicion in an otherwise reasonable person is not an innocent purchaser for value.45
* Note: Any investigation previously conducted on the property offered as collateral does not preclude a bank from considering new information on the same property as security for a subsequent
42G.R. No. 157002, July 29, 2005, 465 SCRA 356, 369.
43Bank of Commerce vs. Sps. San Pablo, G.R. No. 167848, April 27, 2007. 44Ibid., 429 Phil. 225, 239 (2002).
loan. In Sps. Omengan vs. Philippine National Bank, G.R. No. 161319, January 23, 2007, it was held that:
“[T]he business of a bank is one affected with public interest, for which reason the bank should guard against loss due to negligence or bad faith. In approving the loan of an applicant, the bank concerns itself with proper [information] regarding its debtors.”46 Any investigation
previously conducted on the property offered by petition-ers as collateral did not preclude PNB from considering new information on the same property as security for a subsequent loan. The credit and property investigation for the original loan of P3 million did not oblige PNB to grant and release any additional loan. At the time the original P3 million credit line was approved, the title to the property appeared to pertain exclusively to peti-tioners. By the time the application for an increase was considered, however, PNB already had reason to suspect petitioners’ claim of exclusive ownership.
viii. Banks have access to more facilities in confi rming the identity of their judgment debtors. It should act more cautiously, especially if some uncertainty had been reported by the appraiser tasked to make verifi cations. The uncertainty should not be treated as a fl imsy matter. In one case, a bank was held negligent when it placed more importance on the information regarding the marketability and market value of the property, utterly disregarding the identity of the registered owner thereof. ix. Unlike private individuals, it behooves banks to exercise
greater care and prudence in their dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as a security must be standard and indispensable part of its operations. A bank that failed to observe due diligence cannot be accorded the status of a bona fi de mortgagee.
46United Coconut Planters Bank vs. Ramos, G.R. No. 147800, November 11,
Problems:
1. A owns an unregistered parcel of land. A sold a portion of said land to B. Subsequently, an Original Certifi cate of Title (OCT) was issued by the Register of Deeds. A then surrendered to X Bank the owner’s duplicate of the OCT as a consequence of a mortgage. B died without knowing that an OCT was already issued. Later, C, B’s heir, upon learning of his right over the land confronted A. Having failed to obtain possession of the OCT from A, C went to X Bank. C sought to borrow the owner’s duplicate certifi cate for the purpose of photocopying the same and thereafter showing a copy thereof to the Register of Deeds. X Bank allowed C to bring the owner’s duplicate certifi cate outside the bank premises when the latter showed the Deed of Sale between A and B. C returned the owner’s duplicate certifi cate on the same day after having copied the same. C then brought the copy of the OCT to the Register of Deeds which upon being presented with the Deed of Sale cancelled the OCT and issued a Transfer Certifi cate of Title. Is X Bank liable for damages to A?
Yes. The act of X Bank of entrusting to C the owner’s duplicate certifi cate entrusted to it by A without even notifying A and absent any prior investigation on the veracity of C’s claim and character is a patent failure to foresee the risk created by the act. This act runs afoul of every bank’s mandate to observe the highest degree of diligence in dealing with its clients. Moreover, A has also the right to be afforded due process before deprivation or diminution of his property is effected as the OCT was still in the name of A. Notice and hearing are indispensable elements of this right which the bank miserably ignored.47
2. A bank accepted a property as mortgage despite existence of structures and occupants other than the mortgagor. Is the bank negligent?
Yes. Banks, being in the business of extending loans secured by real estate mortgage, are familiar with rules on land registration. As such, they are expected to exercise more care and prudence than private individuals in their dealing with registered lands. Thus, the suspicion provoking presence of occupants other than the owner on a land to be mortgaged, it behooved banks to conduct a more exhaustive investigation on the history of the mortgagor’s title. The
banks acceptance in mortgage of the property notwithstanding the existence of structures on the property and which were in actual, visible and public possession of a person other than the mortgagor, constitutes gross negligence amounting to bad faith.48
Mercado vs. Allied Banking Corporation G.R. No. 171460, July 24, 2007
On 28 May 1992, Perla executed a Special Power of Attor-ney (SPA) in favor of her husband, Julian D. Mercado (Julian) over several pieces of real property registered under her name, authorizing the latter to perform several acts.
On the strength of the aforesaid SPA, Julian, on 12 De-cember 1996, obtained a loan from Allied Banking Corporation (ABC) in the amount of P3,000,000.00, secured by real estate mortgage constituted on TCT No. RT-18206 (106338) which covers a parcel of land with an area of 805 square meters, reg-istered with the Registry of Deeds of Quezon City (“Subject Property’’).
Still using the Subject Property as security, Julian obtained an additional loan from ABC in the sum of P5,000,000.00, evidenced by a Promissory Note he executed on 5 February 1997 as another real estate mortgage (REM).
It appears, however, that there was no property identifi ed in the SPA as TCT No. RT-18206 (106338) and registered with the Registry of Deeds of Quezon City. What was identifi ed in the SPA instead was the property covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations. Thus, ABC initiated extra-judicial foreclosure proceedings over the Subject Property which was subsequently sold at public auction wherein the it was declared as the highest bidder as shown in the Sheriff’s Certifi cate of Sale dated 15 January 1998.
ABC explained that the discrepancy in the designation of the Registry of Deeds in the SPA was merely an error that must not prevail over the clear intention of Perla to include the subject property in the said SPA. In sum, the property referred
to in the SPA Perla executed in favor of Julian as covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and the subject property in the case at bar, covered by RT-18206 (106338) of the Registry of Deeds of Quezon City, are one and the same.
Elaborating, ABC claims to have carefully verifi ed Ju-lian’s authority over the subject property which was validly contained in the SPA. It stresses that the SPA was annotated at the back of the TCT of the subject property. Finally, after conducting an investigation, it found that the property covered by TCT No. 106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in the SPA, and the subject property, covered by TCT No. 18206 (106338) registered with the Registry of Deeds of Quezon City, are one and the same property. From the foregoing, ABC concluded that Julian was indeed authorized to constitute a mortgage over the subject property. Is ABC a mortgagee in good faith?
No. The property listed in the real estate mortgages Julian executed in favor of ABC is the one covered by “TCT#RT-18206(106338).” On the other hand, the Special Power of Attorney referred to TCT No. “RT-106338-805 Square Meters of the Registry of Deeds of Pasig now Makati.” The palpable difference between the TCT numbers referred to in the real estate mortgages and Julian’s SPA, coupled with the fact that the said TCTs are registered in the Registries of Deeds of different cities, should have put ABC on guard. ABC’s claim of prudence is debunked by the fact that it had conveniently or otherwise overlooked the inconsistent details appearing on the face of the documents, which it was relying on for its rights as mortgagee, and which signifi cantly affected the identifi cation of the property being mortgaged. In Arrofo vs. Quiño,49 it was elucidated that:
[Settled is the rule that] a person dealing with registered lands [is not required] to inquire further than what the Torrens title on its face indicates. This rule, however, is not absolute but admits of exceptions. Thus, while its is true, x x x that a
person dealing with registered lands need
not go beyond the certifi cate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to
face up the fact that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendor’s or mortgagor’s title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a like situation.
By putting blinders on its eyes, and by refusing to see the patent defect in the scope of Julian’s authority, easily discernable from the plain terms of the SPA, ABC cannot now claim to be an innocent mortgagee.
Further, in the case of Abad vs. Guimba,50 the Supreme Court laid down the principle that where the mortgagee does not directly deal with the registered owner of real property, the law requires that a higher degree of prudence be exercised by the mortgagee, thus:
While [the] one who buys from the registered owner does not need to look behind the certifi cate of title, one who buys from [the] one who is not [the] registered owner is expected to examine not only the certifi cate of title but all factual circumstances necessary for [one] to determine if there are any fl aws in the title of the transferor, or in [the] capacity to transfer the land. Although the instant case does not involve a sale but only a mortgage, the same rule applies inasmuch as the law itself includes a mortgagee in the term “purchaser.”51
50G.R. No. 157002, July 29, 2005, 465 SCRA 356. 51Id. at 368-369.
This principle is applied more strenuously when the mortgagee is a bank or a banking institution. Thus, in the case of Cruz vs. Bancom Finance Corporation,52 the Supreme Court
ruled:
Respondent, however, is not an ordinary mort-gagee; it is a mortgagee-bank. As such, unlike pri-vate individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as secu-rity for a loan must be a standard and indispensable part of its operations.53
Hence, considering that the property being mortgaged by Julian was not his, and there are additional doubts or suspicions as to the real identity of the same, ABC should have proceeded with its transactions with Julian only with utmost caution. As a bank, ABC must subject all its transactions to the most rigid scrutiny, since its business is impressed with public interest and its fi duciary character requires high standards of integrity and performance.54 Where ABC acted in undue
haste in granting the mortgage loans in favor of Julian and disregarding the apparent defects in the latter’s authority as agent, it failed to discharge the degree of diligence required of it as a banking corporation.
Thus, even granting for the sake of argument that the subject property and the one identifi ed in the SPA are one and the same, it would not elevate ABC’s status to that of an innocent mortgagee. As a banking institution, jurisprudence stringently requires that ABC should take more precautions than an ordinary prudent man should, to ascertain the status and condition of the properties offered as collateral and to verify the scope of the authority of the agents dealing with these. The failure of ABC to investigate into the circumstances surrounding the mortgage of the subject property belies its contention of good faith.
52429 Phil. 225 (2002). 53Id. at 239.
L. Banks may Exclude Persons in their Premises
Banks are mandated to exercise a higher degree of diligence in the handling of its affairs than that expected of an ordinary business enterprise. Banks handle transactions involving millions of pesos and properties worth considerable sums of money. The banking business will thrive only as long as it maintains the trust and confi dence of its customers/clients. Indeed, the very nature of their work, the degree of responsibility, care and trustworthiness expected of offi cials and employees of the bank is far greater than those of ordinary offi cers and employees in the other business fi rms. Hence, no effort must be spared by banks and their offi cers and employees to ensure and preserve the trust and confi dence of the general public and its customers/clients, as well as the integrity of its records and the safety and well-being of its customers/clients while in its premises. For the said purpose, banks may impose reasonable conditions or limitations to access by non-employees to its premises and records, such as the exclusion of non-employees from the working areas for employees, even absent any imminent or actual unlawful aggression on or an invasion of its properties or usurpation thereof, provided that such limitations are not contrary to the law.55
M. Charging of Interest for Loans
The charging of interest for loans forms a very essential and fundamental element of the banking business. In fact, it may be considered to be the very core of the banking’s existence or being.56
IV. Liability For Acts Of Offi cers And Employees
A bank’s liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment.
Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and offi cials is far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.
55UCPB vs. Basco, G.R. No. 142668, August 31, 2004.
i. The bank must not only exercise “high standards of integrity and performance,” it must also insure that its employees do likewise because this is the only way to insure that the bank will comply with its fi duciary duty. ii. A bank is liable for the wrongful acts of its offi cers done
in the interest of the bank or in their dealings as bank representatives but not for acts outside the scope of their authority.57 A bank holding out its offi cers and agents
as worthy of confi dence will not be permitted to profi t by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefi t may accrue to the bank therefrom.58
Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefi t.59
A. Negligence of Manager
The bank, as employer, is liable for the negligence or the misdeed of its branch manager.60 Obviously, confi dence in the banking system,
which necessarily includes reliance on bank managers, is vital in the economic life of our society.61
B. Negligence of Offi cers
(i) As a general rule, a banking corporation is liable for the wrongful or tortious acts and declarations of its offi cers or agents within the course and scope of their employment.
57Prudential Bank vs. Court of Appeals, G.R. No. 108957, June 14, 1993, 223
SCRA 350.
5810 Am Jur 2d, p. 114. 59Ibid.
60The Consolidated Bank and Trust Corporation vs. Court of Appeals, G.R. No.
138569, September 11, 2003; Prudential Bank vs. Court of Appeals, G.R. No. 125536, March 16, 2000, 328 SCRA 264.
61BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation, G.R.
A bank will be held liable for the negligence of its offi cers or agents when acting within the course and scope of their employment. It may be liable for the tortious acts of its offi cers even as regards that species of tort of which malice is an essential element. A bank is liable for the fraudulent acts or representations of an offi cer or agent acting within the course and apparent scope of his employment or authority. And if an offi cer or employee of a bank, in his offi cial capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for collection, the bank is liable for his misappropriation of such sum.
(ii) If a corporation knowingly permits its offi cer, or any other agent, to perform acts within the scope of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corpora-tion through such agent, be estopped from denying such authority.62
C. Negligence of Tellers
Likewise, bank’s tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. The tellers know, or should know, that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person.
* Note: Appropriation of money by a teller is not estafa. What is in-volved is the possession of money in the capacity of a bank teller. The Supreme Court considered deposits received by a teller in behalf of a bank as being only in the material pos-session of the teller. This interpretation applies with equal force to money received by a bank teller at the beginning of a business day for the purpose of servicing withdrawals. Such is only material possession. Juridical possession remains with the bank. If the teller appropriates the money for per-sonal gain then the felony committed is theft and not estafa. Further, since the teller occupies a position of confi dence,
and the bank places money in the teller’s possession due to the confi dence reposed on the teller, the felony of qualifi ed theft would be committed.63
D. Right to Recover from Employees
However, banks may recover from its employees for any payments made in view of the latter’s negligent or criminal acts.64
The Supreme Court in one case applied the Civil Code provision that “[W]hoever pays for the damages caused by his dependents or employees may recover from the latter what he has paid or delivered in satisfaction of the claim.”
E. Liability for Damages
It is settled that in order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff – a concurrence of injury to the plaintiff and legal responsibility by the person causing it. The underlying basis for the award of tort damages is the premise that an individual was injured in contemplation of law; thus there must fi rst be a breach before damages may be awarded and the breach of such duty should be the proximate cause of the injury.65
1. Actual and Compensatory Damages
A deposit being a contract of loan or an obligation consisting in the payment of money, the damages to be awarded should be similar to those stated in Rizal Commercial Banking Corporation vs. Alfa RTW Manufacturing Corporation, citing Eastern Shipping Lines, Inc. vs. Court of Appeals, to wit:
“II. With regard particularly to an award of interest, in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
63Roque vs. People, G.R. No. 138954, November 25, 2004.
64Pacifi c Banking Corporation vs. Court of Appeals, G.R. No. L-45656, May 5,
1989, citing Art. 2181, Civil Code.
65Aznar vs. Citibank, N.A., (Philippines), G.R. No. 164273, March 28, 2007;
money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is reached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantifi cation of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount fi nally adjudged.
3. When the judgment of the court awarding a sum of money becomes fi nal and executory, the rate of legal interest whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such fi nality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.”
2. Exemplary Damages
The law allows the grant of exemplary damages by way of ex-ample for the public good.66 The public relies on the banks’ fi duciary
duty to observe the highest degree of diligence. The banking sector is expected to maintain at all times this high level of meticulous-ness.67
66Prudential Bank vs. Court of Appeals, supra, Note 59. 67Ibid.
3. Moral Damages
The fi nancial credit of a businessman is a prized and valuable asset, it being a signifi cant part of the foundation of his business. Any adverse refl ection thereon constitutes some material loss to him.68
As a general rule, a corporation — being an artifi cial person without feelings, emotions and senses, and having existence only in legal contemplation — is not entitled to moral damages,69 because it
cannot experience physical suffering and mental anguish.70 However,
for breach of the fi duciary duty required of a bank, a corporate client may claim such damages when its good reputation is besmirched by such breach, and social humiliation results therefrom.71
It is not enough that one merely suffered sleepless nights, mental anguish or serious anxiety as a result of the actuations of the other party. It is also required that a culpable act or omission was factually established, that proof that the wrongful act or omission of the defendant is shown as the proximate cause of the damage sustained by the claimant and that the case is predicated on any of the instances expressed or envisioned by Arts. 221972 and
68Araneta vs. Bank of America, G.R. No. L-25414, July 30, 1971.
69LBC Express, Inc. vs. Court of Appeals, 236 SCRA 602, 607, September 21,
1994; See Layda vs. Court of Appeals, 90 Phil. 724, 730, January 29, 1952.
70Article 2217 of the Civil Code.
71Bank of the Philippine Islands vs. Casa Montessori Internationale, G.R. No.
149454, May 28, 2004; Morales, THE PHILIPPINE GENERAL BANKING LAW (Annotated 2002), pp. 3-4; Citing Simex International (Manila) Inc. vs. Court of Appeals, supra, and Mambulao Lumber Co. vs. Philippine National Bank, 130 Phil. 366, 391, Janu-ary 30, 1968; Simex International (Manila) Incorporated vs. Court of Appeals, G.R. No. 88013, March 19, 1990.
72Art. 2219. Moral damages may be recovered in the following and analogous
cases:
(1) A criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts; (4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest; (6) Illegal search;
(7) Libel, slander or any other form of defamation; (8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
222073 of the Civil Code.74
In culpa contractual or breach of contract, moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations. The breach must be wanton, reckless, malicious or in bad faith, oppressive or abusive.75
* Notes: (i) Although there is a fi duciary relationship between a bank and its depositors and the extent of diligence expected of it in handling the accounts entrusted to its care is more than ordinary, the bank may not be held responsible for such damages in the absence of fraud, bad faith, malice, or wanton attitude.76 The Supreme
Court pronounced in BPI Express Card Corporation vs. Court of Appeals:77
We do not dispute the fi ndings of the lower court that private respondent suffered damages as a result of the cancellation of his credit card. However, there is a material distinction between damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm which results from the inju-ry; and damages are the recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury to those instances in which the loss or harm was not the result of a violation of a legal duty. In such cases, the consequences must be borne by the injured person alone, the law affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong. These situations are often called damnum absque injuria.78
(ii) A depositor has the right to recover reasonable moral damages even if the bank’s negligence may not have
73Art. 2220. Willful injury to property may be a legal ground for awarding
mor-al damages if the court should fi nd that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.
74Equitable Banking Corp. vs. Calderon, G.R. No. 156168, December 14, 2004,
446 SCRA 271, 276.
75Id. at 277.
76Moran vs. Court of Appeals, G.R. No. 105836, March 7, 1994. 77Supra note 57.
been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrass-ment and humiliation.79 Moral damages are not meant
to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justifi ed, on the other hand, when the acts of the bank are attended by malice, bad faith or gross negligence. The award of reasonable attorney’s fees is proper where exemplary damages are awarded. It is proper where de-positors are compelled to litigate to protect their inter-est.80
F. Respondeat Superior, Diligence in the Selection and Supervision of Employees
A bank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana.81
V. Classifi cation Of Banks
Banks are classifi ed into: (CUT-RICO) (a) Universal banks;
(b) Commercial banks; (c) Thrift banks, composed of:
(i) Savings and mortgage banks,
(ii) Stock savings and loan associations, and
(iii) Private development banks, as defi ned in the “Thrift Banks Act” (Republic Act No. 7906).
(d) Rural banks, as defi ned in the “Rural Banks Act” (Republic Act No. 7353);
79Civil Code, Article 2217.
80Bank of The Philippine Islands vs. Court of Appeals, G.R. No. 136202,
Janu-ary 25, 2007; Prudential Bank vs. Court of Appeals, supra note 26.
81Cangco vs. Manila Railroad Co., 38 Phil. 769 (1918); De Guia vs. Meralco, 40
(e) Cooperative banks, as defi ned in the “Cooperative Code” (Republic Act No. 6938);
(f) Islamic banks as defi ned in the “Charter of Al Amanah Islamic Investment Bank of the Philippines’’ (Republic Act No. 6848); and
(g) Other classifi cations of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas. (Section 3, GBL)
A. Business Name
(i) Only a bank that is granted universal/commercial banking authority may represent itself to the public as such in connection with its business name.
(ii) Thrift Banks may be allowed to adopt and use any name: Provided, That the words A Thrift Bank, Savings Bank, A Private Development Bank or A Stock Savings and Loan Association, as the case may be, are affi xed after its business name.
(iii) Rural Banks/Cooperative Banks may adopt a corporate name or use a business name/style with the word Rural or Coop, as the case may be. Said banks may also adopt a name without such words: Provided, That the identifying phrase, A Cooperative Bank or A Rural Bank, as the case may be, is affi xed after its business name: Provided, further, That where the name of the bank is shown on letterheads, billboards and other advertising materials, the size of the letters of such phrase shall be at least one-half (1/2) the size of the business name.
➢ Any bank not organized under the Rural Banks Act and any person, association, or corporation doing the business of banking, not authorized under the Rural Banks Act which shall use the words “Rural Bank” as part of the name or title of such bank or of such person, association, or corporations, shall be punished by a fi ne of not less than Fifty pesos (P50) for each day during which said words are so used.82
82Section 28, Republic Act No. 7353 (An Act Providing for the Creation,
B. Universal Banks
Universal banks are large commercial banks licensed by the Bangko Sentral ng Pilipinas (BSP) “to do both commercial and investment banking.’’83
A universal bank shall have the authority to exercise: a. the powers authorized for a commercial bank,
b. the powers of an investment house as provided in existing laws, and
c. the power to invest in non-allied enterprises. (Section 23, GBL)
The operations of universal banks are discussed in Chapter 4.
C. Commercial Banks
A commercial bank shall have:
a. the general powers incident to corporations,
b. all such powers as may be necessary to carry on the business of commercial banking, such as:
(i) accepting drafts and issuing letters of credit;
(ii) discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; (iii) accepting or creating demand deposits;
(iv) receiving other types of deposits and deposit substi-tutes;
(v) buying and selling foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities; and
(vi) extending credit, subject to such rules as the Mon-etary Board may promulgate.
➢ These rules may include the determination of bonds and other debt securities eligible for investment, the maturities and aggregate amount of such investment. (Section 29, GBL)
The operations of commercial banks are discussed in Chapter 4.
D. Rural Banks
The State recognizes the need to promote comprehensive rural development with the end in view of attaining acquitable distribution of opportunities, income and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefi t of the people; and in expanding productivity as a key raising the quality of life for all, especially the underprivileged.84
Towards these ends, the State encourages and assists in the establishment of rural banking system designed to make needed credit available and readily accessible in the rural areas on reasonable terms.85
Loans or advances extended by rural banks shall be primar-ily for the purpose of meeting the normal credit needs of farmers, fi shermen or farm families owning or cultivating land dedicated to agricultural production as well as the normal credit needs of coop-eratives and merchants. In granting of loans, the rural bank shall give preference to the application of farmers and merchant whose cash requirements are small.86
In areas where there are no government banks, rural banks may deposit in private banks more than the amount prescribed by the Single Borrower’s Limit subject to Monetary Board regulations.87
* Note: Single Borrower’s limit is discussed in Chapter 4. E. Thrift Banks
i. It is the policy of the State to:
(a) Recognize the indispensable role of the private sec-tor, to encourage private enterprise, and to provide incentives to needed investments;
84Section 1, Republic Act No. 7353 (An Act Providing for the Creation,
Organi-zation and Operation of Rural Banks, and for Other Purposes).
85Ibid.
86Section 6, Republic Act No. 7353 (An Act Providing for the Creation,
Organi-zation and Operation of Rural Banks, and for Other Purposes).
87Section 17, Republic Act No. 7353 (An Act Providing for the Creation,
(b) Promote economic development pursuant to the socio-economic program of the government, to expand industrial and agricultural growth, to encourage the establishment of more private thrift banks in order to meet the needs for capital, personal and investment credit or medium- and long-term loans for Filipino entrepreneurs;
(c) Encourage and assist the establishment of thrift bank system which will promote agriculture and industry and at the same time place within easy reach of the people the medium- and long-term credit facilities at reasonable cost;
(d) Encourage industry, frugality and the accumulation of savings among the public, and the members and stockholders of thrift banks; and
(e) Regulate and supervise the activities of thrift banks in order to place their operations on a sound, stable and effi cient basis and to curtail or prevent acts or practices which are prejudicial to the public interest.88
ii. “Thrift banks” include savings and mortgage banks, pri-vate development banks, and stock savings and loans as-sociations organized under existing laws, and any bank-ing corporation that may be organized for the followbank-ing purposes:
(1) Accumulating the savings of depositors and invest-ing them, together with capital loans secured by bonds, mortgages in real estate and insured im-provements thereon, chattel mortgage, bonds and other forms of security or in loans for personal or household fi nance, whether secured or unsecured, or in fi nancing for home building and home develop-ment; in readily marketable and debt securities; in commercial papers and accounts receivables, drafts, bills of exchange, acceptances or notes arising out of commercial transactions; and in such other invest-ments and loans which the Monetary Board may
de-88Section 2, Republic Act No. 7906 (An Act Providing for the Regulation of the
termine as necessary in the furtherance of national economic objectives;
(2) Providing short-term working capital, medium-and long-term fi nancing, to businesses engaged in agriculture, services, industry and housing; and (3) Providing diversifi ed fi nancial and allied services for
its chosen market and constituencies specially for small and medium enterprises and individuals.89
iii. The following are the powers of thrift banks: (a) Accept savings and time deposits;
(b) Open current or checking accounts: Provided, That the thrift bank has net assets of at least Twenty mil-lion pesos (P20,000,000) subject to such guidelines as may be established by the Monetary Board; and shall be allowed to directly clear its demand deposit operations with the Bangko Sentral and the Philip-pine Clearing House Corporation;
(c) Act as correspondent for other fi nancial institu-tions;
(d) Act as collection agent for government entities, including but not limited to, the Bureau of Internal Revenue, Social Security System, and the Bureau of Customs;
(e) Act as offi cial depository of national agencies and of municipal, city or provincial funds in the municipal-ity, city or province where the thrift bank is located, subject to such guidelines as may be established by the Monetary Board;
(f) Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines, the Development Bank of the Philippines, and other government-owned or -controlled corporations. Said institutions shall specify the nature of paper deemed acceptable for rediscount, as well as rediscounting rate to be charged by any of these institutions; and
(g) Issue mortgage and chattel mortgage certifi cates, buy and sell them for its own account or for the account of others, or accept and receive them in payment or as amortization of its loan.
➢ Such mortgage and chattel mortgage certifi -cates shall be issued exclusively in national currency and exclusively for the fi nancing of equipment loans, mortgage loans for the ac-quisition of machinery and other fi xed instal-lations, conservation, enlargement or improve-ment of productive properties and real estate mortgage loans for:
(1) the construction, acquisition, expansion or improvement of rural and urban prop-erties;
(2) the refi nancing of similar loans and mort-gages; and
(3) such other purposes as may be authorized by the Monetary Board.
➢ A thrift bank shall coordinate the amounts and maturities of its certifi cates with those of its loans, so as to ensure adequate cash receipts for the payment of principal and interest at the time they become due. The bank shall accept its own certifi cates at least at the actual price of issue, in any prepayment of loans which mortgage or chattel mortgage debtors may wish to make: Provided, That the date of maturity of the certifi cates is not later than the date on which the payment would otherwise become due, in the absence of the aforesaid prepayment.
(h) Purchase, hold and convey real estate under the same conditions as those governing commercial banks;
(i) Engage in quasi-banking and money market opera-tions;
(k) Extend credit facilities to private and government employees: Provided, That in the case of a borrower who is a permanent employee or wage earner, the treasurer, cashier or paymaster of the offi ce employ-ing him is authorized, notwithstandemploy-ing the provi-sions of any existing law, rules and regulations to the contrary, to make deductions from his salary, wage or income pursuant to the terms of his loan, to remit deductions to the thrift bank concerned, and collect such reasonable fee for his services;
(l) Extend credit against the security of jewelry, precious stones and articles of similar nature, subject to such rules and regulations as the Monetary Board may prescribe; and
(m) Offer other banking services.
Thrift banks may perform the services under (b), (d), (e), (g) and (i) only upon prior approval of the Monetary Board. It may also perform commercial banking services, operate under an expanded banking authority, or exercise such other powers incident to a corporation with prior approval of the Monetary Board.90
F. Cooperative Banks
i. A cooperative bank is one organized by, the majority shares of which is owned and controlled by, cooperatives primarily to provide fi nancial and credit services to cooperatives. The term “cooperative bank” shall include cooperative rural banks.91
ii. A cooperative bank may perform the following functions: (1) To carry on banking and credit services for the
cooperatives;
(2) To receive fi nancial aid or loans from the Government and the Central Bank of the Philippines for and in behalf of the cooperative banks and primary cooperatives and their federations engaged in
90Section 10, supra.
91Section 100, Republic Act No. 6938 (An Act to Ordain a Cooperative Code of
business and to supervise the lending and collection of loans;
(3) To mobilize savings of its members for the benefi t of the cooperative movement;
(4) To act as a balancing medium for the surplus funds of cooperatives and their federations;
(5) To discount bills and promissory notes issued and drawn by cooperatives;
(6) To issue negotiable instruments to facilitate the activities of cooperatives;
(7) To issue debentures subject to the approval of and under conditions and guarantees to be prescribed by the Government;
(8) To borrow money from banks and other fi nancial institutions within the limit to be prescribed by the Central Bank; and
(9) To carry out all other functions as may be prescribed by the Cooperative Development Authority: Provided, That the performance of any banking function shall be subject to prior approval by the Central Bank of the Philippines.
iii. Membership of a cooperative bank shall include only cooperatives and federations of cooperatives.92
G. Islamic Banks
i. R.A. 6848 created the Al-Amanah Islamic Investment Bank of the Philippines, or the Islamic Bank. Its principal domicile and place of business is in Zamboanga City. It may establish branches, agencies or other offi ces at such places in the Philippines or abroad subject to the laws, rules and regulations of the Bangko Sentral ng Pilipinas.93
92Section 102, supra.
93Section 2, Republic Act No. 6848 (An Act Providing for the 1989 Charter of
the Al-Amanah Islamic Investment Bank of the Philippines, Authorizing its Con-duct of Islamic Banking Business and Repealing for this Purpose Presidential Decree
